L-16-334, Supplemental Information Regarding Pending Application for Order Consenting to Transfer of Licenses and Approving Conforming License Amendments: Difference between revisions

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| issue date = 12/15/2016
| issue date = 12/15/2016
| title = Supplemental Information Regarding Pending Application for Order Consenting to Transfer of Licenses and Approving Conforming License Amendments
| title = Supplemental Information Regarding Pending Application for Order Consenting to Transfer of Licenses and Approving Conforming License Amendments
| author name = Harden P A
| author name = Harden P
| author affiliation = FirstEnergy Nuclear Operating Co
| author affiliation = FirstEnergy Nuclear Operating Co
| addressee name =  
| addressee name =  
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=Text=
=Text=
{{#Wiki_filter:FENOC ,nffi 341 White Pond Drive Alcron. Ohio 44320 PauI A. Harden Sr. Vice President & Chief Operating Officer December 15, 2016 L-16-334 330-436-1 36010 cFR 50.8010 cFR 50.90 ATTN. Document Control Desk U. S. Nuclear Regulatory Commission Washington, DC 20555-0001
{{#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:==
==SUBJECT:==
Beaver Valley Power Station, Unit No. 2 Docket No. 50-412, License No.
 
NPF-73 Supplemental Information Resardinq Pendino Application for Order Consentinq to Transfer of Licenses and Approvinq Conforminq License Amendments (CAC No. MF 78066)
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 letter dated June 24,2016 (Accession No. ML1 6182A155) and supplemented by letter dated September 13,2016 (Accession No. ML1 6257A235), FirstEnergy Nuclear Operating Company (FENOC) acting as agent for and on behalf of FirstEnergy Nuclear Generation, LLC (FENGen), The Toledo Edison Company (TE), and the Ohio Edison Company (OE), submitted an application to the Nuclear Regulatory Commission (NRC)requesting consent to the transfer of the leased interests in Beaver Valley Power Station,Unit No. 2 (BVPS 2) and approval of an administrative amendment to conform the license to reflect the proposed transfer.On November 4,2016, FirstEnergy Corp. released a combined quarterly financial report, Form 10-Q, for the quarter ending on September 30,2016, for FirstEnergy Solutions Corp. (FES) and itself. FES provides energy-related products and services to retail and wholesale customers through its subsidiaries, FirstEnergy Generation, LLC and FENGen. The report states that FES expects to have more than sufficient cash flow from operations in 2017 and 2018 to fund anticipated capital expenditures with no equity contributions from FirstEnergy Corp. However, given exposure to market price volatility and operational risks, FES faces significant financial risks that could impact its anticipated cash flow and liquidity. With a potential lack of viable financial alternative strategies, FES could take one or more of the following actions: (i) restructuring of debt Beaver Valley Power Station, Unit No. 2 L-16-334 Page 2and other financial obligations, (ii) additional borrowings (refer to the following descriptionof a $700 million credit facility), (iii) further asset sales or plant deactivations, or (iv) seek protection under bankruptcy laws. In the event FES seeks such protection, FENOC may similar$ seek protection under bankruptcy laws. A copy of the Form 10-Q (without exhibits) is enclosed.Moody's Investor Service and Standard and Poors each downgraded their ratingof the senior unsecured debt of FES on November 4,2016. Moody's Investor Services downgraded the debt to Caa1, while Standard and Poors downgradedthe debt to B. Standard and Poors further downgraded FES from B to CCC+ on December 1, 2016.FENOC has not identified any adverse material changes to the FENGen Pro Formaf ncome Statement that was enclosed in FENOC's June 24,2016 letter.FENOC's September 13,2016 letter stated that FES and Allegheny Energy Supply Company, LLC (AES) have a $1.5 billion credit facility, with FES having a sublimit of$900 million. As stated in a FES Form 8-K filed on December 6,2016, this credit facility has been terminated and replaced with a
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.
$700 million two-year secured credit facility which includes a $500 million revolving credit facility and a
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
$200 million of surety credit support among FES as borrower, FirstEnergy Generation, LLC and FENGen as guarantors, and FirstEnergy Corp. as the lender. As stated in the most recent Form 10-Q for the quarter ending on September 30, 2016, FES had approximately  
 
$3.+ billion in revenue, with a stockholder's equity of approximately
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.
$3.0 billion. Therefore, FES continues to have the capability to meet its obligations under both the power supply agreement and the $400 million financial support agreement with FENGen.
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.
Additionally, there have been a number of Director and Executive Personnel changes that have occurred in FirstEnergy Corp., FirstEnergy Solutions Corp.,and FirstEnergy Nuclear Generation, LLC since the June24,2016 (Accession No. ML16182A155) letter. The Directors and Executive Personnel forthe aforementioned three companies are United States citizens.There are no regulatory commitments contained in this letter. lf there are any questions, or if additional information is required, please contact Mr. Thomas A. Lentz, Manager - Fleet Licensing, at 330-315-6810.
FENOChasnot identified       anyadversematerialchangesto the FENGenProForma fncomeStatement      thatwasenclosedin FENOC'sJune24,2016letter.
Beaver Valley Power Station, Unit No. 2 L-16-334 Page 3 I declare under penalty of perjury that the foregoing is true and correct. Executed on December /f,,2016.
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:==
==Enclosure:==


FirstEnergy Corp. and FirstEnergy Solutions Corp. 10-Q for Quarter Ending September 30, 2016 (Without Exhibits)cc: Director, NRR NRC Region I Administrator NRC Resident Inspector NRR Project Manager Director BRP/DEP Site BRP/DEP Representative Enclosure L-16-334 FirstEnergy Corp. and FirstEnergy Solutions Corp. 10-Q for Quarter Ending September 30, 2016 (Without Exhibits)(122 Pages Follow)
FirstEnergy Corp.andFirstEnergy Solutions Corp.10-Qfor QuarterEnding September   30, 2016(WithoutExhibits) cc:   Director,NRR NRCRegionI Administrator NRCResidentInspector NRRProjectManager DirectorBRP/DEP SiteBRP/DEPRepresentative
UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.20549 FORM 1O.Q (Mark One)g QUARTERLY REPORT PURSUANT TO SECTTON 13 OR 1s(d) OF THE SECURTTTES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2016 ORtr TRANSTTION REPORT PURSUANT TO SECTTON 13 OR 15(d) OF THE SECURTTTES EXCHANGE ACT OF 1934For the transition period from CommissionFile Number Registrant; State of Incorporation;Address; and Telephone Number l.R.S. Employer ldentification No.333-21011 ooo-53742FIRSTENERGY CORP.(An Ohio Corporation) 76 South Main Street Akron, OH 44308 Telephone (800)736-3402FI RSTENERGY SOLUTIONS CORP.(An Ohio Corporation) c/o FirstEnergy Corp.76 South Main Street Akron, OH 44308 Telephone (800)736-3402 34-1843785 31-1560186 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or '15(d) of the Securities ExchangeAct of 1 934 during the preceding 12 months (or for such shorter period that the registrant was requiled to file such reports), and (2) has been subject to such filing requiremenls for the past 90 days.Yes EI No tr FirstEnergy Corp. and FirstEnergy Solutions Corp.
 
Indicate by check mark whether the registrant has submitted eleclronically and posted on its corporate Web site, it any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405 ot Regulation S-T (5232.405 oI this chapteo during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes El No tr FirstEnergy Corp. and FirstEnergy Solutions Corp.Indicate by check mark whether the registrant is a large accelerated filer, an accelerated tiler, a non-accelerated filer, or a smallerreporting company. See the definitions of  
Enclosure L-16-334 FirstEnergy Corp.andFirstEnergy      Corp.10-Qfor Quarter Solutions EndingSeptember30,2016(Without Exhibits)
''large accelerated tiler,"'accelerated filsi'and "smaller reporting company'in Rule 12b'2 of the Exchange Act.Large Accelerated Filer EI Accelerated Filer tr Non-accelerated Filer (Do not check if a smaller reporting company) EI Smaller Reporting Company tr lndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes tr No M FirstEnergy Corp. and FirstEnergy Solutions Corp.FirstEnergy Corp.N/A FirstEnergy Solutions Corp.
(122PagesFollow)
N/A Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: CLASS OUTSTANDING AS OF SEPTEMBER 30, 2016 FirstEnergy Corp., $0.10 par value FirstEnergy Solutions Corp., no par value FirstEnergy Corp. is the sole holder of FirstEnergy Solutions Corp. common stock.
 
425,743,282 7This combined Form 10-O is separately filed by FirstEnergy Corp. and FirstEnergy Solutions Corp.
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.
Informalion contained herein relating to any individual registrant is filed by such registrant on its own behalt. No registrant makes any representation as lo information relating to the other registrant, except that information relating to FirstEnergy Solutions Corp. is also attributed lo FirstEnergy Corp.FlrctEnergy Web Slte and Olher Soclal M6dla Slte3 and AppllcatlonsEach of the registrants' Annual Reports on Form 10-K, Quarterly Reports on Form 10-O, Current Reporls on Form 8-K, and amendments to those reports filed with orfurnished to the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchangs Acl ol'1934 are also made available tree of charge on orthrough the'lnvestors'page ot FirstEnsrgys web site at wvrw.firsteneryycorp.com.
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.
These SEC filings are posted on the web site as soon as reasonably practicable after they are electronically filed with the SEC.Additionally, the registrants routinely post additional important infomation including press releases, investor presentiations and nolices of upcoming evenb, under the 'lnvestors" section of FirstEnergy's web site and recognize FirslEneqy's web site as achannelof distribution to reach public investors and as a means of disclosing material non-public information for complying with disclosuteobligations under SEC Regulation FD. Investors may b* notilied of postings to the web site by signing up tor email alerts and RSS feeds on the 'lnvestor' page of FirstEnergys web site or through push alerb lrom FirstEnergy Investor Relations apps tor AppleInc.'s iPad@ and iPhone@
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),
devices, which can be installed for free at the Appl@
and(2)hasbeensubjectto suchfilingrequiremenls          forthepast90days.
App Store. FirstEnergy also uses Twitter@ and Facebool@ as additionalchannels of distribution to reach public investors and asa supplementalmeans of disclosing materialnon-public intormation for complying with ib disclosure obligations underSEC Regulation FD. Infomation contained on FiEtEnergy's website, Twitter@ handle or Facebook@
YesEINo tr         FirstEnergy Corp.andFirstEnergy      Solutions Corp.
page, and any conesponding applications of those sites, shall not be deemed incorporated into,or to be part ot, this report.OIIIISSION OF CERTAIN INFORMATION FirstEnergy Solutions Corp. meeb the conditions set lorth in General Instruction H(1Xa) and (b) of FoIm 10'Q and is therefore tilingthis Form 10-Q with the reduced disclosure format specifi*d in General Instruction H(2) to Form 10-Q.
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).
Foru/ard-Looking Statements: This Form 1O-Q includes forward-looking statements based on information currently available to management. Such siatemenb are subject to certain risks and uncertainties.
YesEl No tr       FirstEnergy Corp.andFirstEnergy      Solutions Corp.
These stiatements include declarations regardingmanagement's intents, beliefs and current e)eectations. These statements typically contain, but ars not limited to, the lerms
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.
'anticipate," "potential," "aeect,'"forecast," "target,' 'will,' 'intend," "belie\re,'"proiecl," "estimate,'
LargeAcceleratedFilerEI                      FirstEnergy  Corp.
'plan" and similar $rords. FoMaI+
AcceleratedFilertr                          N/A Non-accelerated   Filer(Do not check         FirstEnergy  SolutionsCorp.
looking statements involve estimates, assumptions, known and unknown dsks, uncertainties and otherfactors hal may cause aclual results, performance or achievements to be materially difierent from any tuture results, performance or achievemenb expressed or implied by such forward{ookng statements, which may include the following.. The speed and nature of increased competition in the electric utility industry, in general, and the retail sales market in oarticular.. The ability to eperience growth in the Regulated Distribution and Regulated Transmission s*gments.. The accomplishment ofour regulatory and operational goals in connection with ourtransmission investnent plan, iltduding, but not limited to, the proposed transmission asset transfer to MAII and the etfeciiveness of our strategy to reflect a more regulated business prof ile.. Changes in assumptions regading economic corditions within our territories, assessmefi of the reliability of our transmission system, or the availability of capital or other resources supponing identified transmission investment opportunities.
if a smallerreportingcompany)EI SmallerReportingCompanytr                    N/A lndicateby checkmarkwhetherthe registrantis a shellcompany(as definedin Rule12b-2of the ExchangeAct).
The impact of the regulatory process and resulting outcomes on the matters at the federal level and in the various states in which we do business including, but not limited to, matters related to rates and the ESP lV.The impact of the federal regulatory process on FERC-regulated entities and transactions, in particular FERC regulation of wholesale energy and capacity markets, including PJM markets and FERC-jurisdictionalwholesale transactions; FERC regulation of cost-of-service rates, including FERC Opinion No. 531's revised ROE methodology for FERC-jurisdictional wholesale generation and transmission utility service; and FERC's compliance and enforcement activity, including compliance and enforcement activity related to NERC's mandatory reliability standards.
Yes tr No M       FirstEnergy Corp.and FirstEnergy     SolutionsCorp.
The uncertainties of various cost recovery and cost allocation issues resulting from ATSI's realignment into PJM.Economic or weather conditions affecting future sales and margins such as a polar vortex or other significant weatherevents, and all associated regulatory events or actions.
 
Changing energy, capacity and commodity market prices including, but not limited to, coal, naturalgas and oil prices, andtheir availability and impact on margins and asset valuations, including without limitation impairments thereon.The risks and uncertainties at the CES segment, including FES and its subsidiaries and FENOC, related to continued depressed wholesale energy and capacity markets, and the viability and/or success of strategic business alternatives, such as potential CES generating unit asset sales, the potential conversion of the remaining generation fleet from competitive operations to a regulated or regulated-like construct or the potential need to deactivate additional generating units.The continued ability of our regulated utilities to recover their costs.
Indicatethe numberof sharesoutstanding        of eachof the issuer'sclassesof commonstock,as of the latestpracticable    date:
Costs being higher than anticipated and the success of our policies to control costs and to mitigate low energy, capacity and market prices.Other legislative and regulatory changes, and revised environmental requirements, including, but not limited to, the effectsof the EPA's CPP, CCR, CSAPR and MATS programs, including our estimated costs of compliance, GWA waste watereffluent limitations for power plants, and CWA 316(b) water intake regulation.
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.
The uncertainty of the timing and amounts of the capital expenditures that may arise in connection with any litigation, including NSR litigation, or potential regulatory initiatives or rulemakings (including that such initiatives or rulemakings could result in our decision to deactivate or idle certain generating units).The uncertainties associated with the deactivation of older regulated and competitive units, including the impact on vendor commitments, such as long{erm fuel and transportation agreements, and as it relates to the reliability of the transmission grid, the timing thereof.
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.
The impact of other future changes to the operational status or avaihbility of our generating units and any capacity performance charges associated with unit unavailability.
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
Adverse regulatory or legal decisions and outcomes with respect to our nuclear operations (including, but not limited to, the revocation or non-renewal of necessary licenses, approvals or operating permits by the N RC or as a result of the incident at Japan's Fukushima Daiichi Nuclear Plant).
'1934 arealsomadeavailable    treeofchargeonorthrough                          otFirstEnsrgyswebsiteatwvrw.firsteneryycorp.com.
lssues arising from the indications of cracking in the shield building at Davis-Besse.The risks and uncertainties associated with litigation, arbitration, mediation and like proceedings, including, but not limitedto, any such proceedings related to vendor commitments, such as long-term fuel and transportation agreements.The impact of labor disruptions by our unionized workforce.
the'lnvestors'page TheseSECfilingsare postedon the web siteas soonas reasonablypracticableaftertheyare electronically             filed withthe SEC.
Replacement power costs being higher than anticipated or not fully hedged.
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.
The ability to comply with applicable state and federal reliability standards and energy efficiency and peak demand reduction mandates.Changes in customers'demand for power, including, but not limited to, changes resulting from the implementation of state and federal energy efficiency and peak demand reduction mandates.The ability to accomplish or realize anticipated benefits from strategic and financial goals, including, but not limited to, theability to continue to reduce costs and to successfully execute our financial plans designed to improve our credit metrics andstrengthen our balance sheet through, among other actions, our cash flow improvement plan and other proposed capitalraising initiatives.Our ability to improve electric commodity margins and the impact of, among other factors, the increased cost of fuel and fuel transportation on such margins.
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.
Changing market conditions that could affect the measurement of certain liabilities and the value of assets held in our NDTs, pension trusts and other trust funds, and cause us and/or our subsidiaries to make additional contributions sooner, or in amounts that are larger than currently anticipated.
 
The impact of changes to significant accounting policies.The ability to access the public securities and other capital and credit markets in accordance with our financial plans, the cost of such capital and overall condition of the capitat and credit markets affecting us and our subsidiaries.
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
Further actions that may be taken by credit rating agencies that could negatively affect us and/or our subsidiaries' access to financing, increase the costs thereof, increase requirements to post additionalcollateralto support, oraccelerate payments under outstanding commodity positions, LOCs and other financial guarantees, and the impact of these events on the financialcondition and liquidity of FirstEnergy and/or its subsidiaries, specifically the subsidiaries within the CES segment.The risks and uncertainties surrounding FirstEnergy's need to obtain waivers from its bank group under FirstEnergy's credit facilities caused by a debt to total capitalization ratio, as defined under each of the revolving credit facilities, in excess of65% resulting from impairment charges or other events at CES.Changes in national and regional economic conditions affecting us, our subsidiaries and/or our major industrial and commercial customers, and other counterparties with which we do business, including fuel suppliers.The impact of any changes in tax laws or regulations or adverse tax audit results or rulings.lssues concerning the stability of domestic and foreign financial institutions and counterparties with which we do business.The risks associated with cyber-attacks and other disruptions to our information technology system that may compromise our generation, transmission and/or distribution services and data security breaches of sensitive data, intellectual property and proprietary or personally identifiable information regarding our business, employees, shareholders, customers, suppliers, business partners and other individuals in our data centers and on our networks.The risks and other factors discussed from time to time in our SEC filings, and other similar factors.Dividends declared from time to time on FEs common stockduring any period may in the aggregate vary from prior periods due to circumstances considered by FE s Board of Directors at the time of the actualdeclarations.
'anticipate,"                                                                                           'plan"andsimilar "potential,""aeect,'"forecast,"   "target,''will,''intend,"                   "estimate,'
A security ]ating is not a recommendationto buy or hold securitiss and is subiecl to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating.The foregoing factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements and risks that are included in FirstEnergys and FES'filings with the SEC, including but not limited to the most recenl An nual Report on Form 1 0-K and any subsequent Quarterly Reports on Form 1 0-Q. New factors emerge from time to time, and it is not possible lormanagement to predict all such factors, nor assess the impact of any such factor on FirstEnergryrs business or the e)dent to which any factor, or combination of factoF, may  
                                                                          "belie\re,'"proiecl,"                           $rords. FoMaI+
@use results to differ materially from those contained in any forward-looking statements.
lookingstatementsinvolveestimates,assumptions,         knownandunknowndsks,uncertainties           andotherfactors  hal maycauseaclual results,performance   or achievements   to be materiallydifierentfromanytutureresults,performance         or achievemenbexpressedor impliedbysuchforward{ookng         statements,   whichmayinclude      thefollowing.
The registranb expressly disclaim any cunent intention to update, except as required by law, any foMardiooking statements contained herein as a result of new inlormation. ftJture events or otherwise.
    . The speedand natureof increasedcompetitionin the electricutilityindustry,in general,and the retailsalesmarketin oarticular.
TABLE OF CONTENTS Part l. Financial Information Glossary of TermsItem 1. Financial Statements FirstEnergy Corp.Consolidated Statements of Income (Loss)Consolidated Statements of Comprehensive Income (Loss)Consolidated Balance Sheets Consolidated Statements of Cash Flows FirstEnergy Solutions Corp.Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)Consolidated Balance Sheets Consolidated Statements of Cash FlowsCombined Notes To Consotidated Financial StatementsItem 2. Management's Discussion and Analysis of Registrant and Subsidiaries FirstEnergy Corp. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Narrative Analysis ol Results of Operations FirstEnergy Solutions Corp.Item 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart ll. Other InformationItem 1. Legal ProceedingsItem 1A. Risk Factors Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Item 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety Disclosures Item 5. Other Information Item 6. Exhibits 1 2 3 4 5 6 7 8 57 57 108 108 110 110 110 110 111 GLOSSARY OF TERMSThe tollowing abbreviations and acronyms are used in this report to identily FirstEnergy Corp. and iF current and lormersubsidiaries:
    . Theabilityto eperiencegrowthin the Regulated               DistributionandRegulated    Transmission   sgments.
Allegheny Energy, Inc., a Maryland utility holding company that merged with a subsidiary of FirstEnergy onFebruary 25,2011. As of January 1,20'14, AE merged with and into FirstEnergy Corp.
    . Theaccomplishment        ofourregulatory    andoperational    goalsinconnection  withourtransmission  investnent   plan,iltduding, butnotlimitedto,the proposedtransmission        assettransferto MAII andtheetfeciiveness        of ourstrategyto reflecta more regulated   business profile.
AESC Allegheny Energy Service Corporation, a subsidiary of FirstEnergy Corp.AE Supply Allegheny Energy Supply Company, LLC, an unregulated generation subsidiary AGC Allegheny Generating Company, a generation subsidiary of AE Supply and equity method investee of MP.ATSI American Transmission Systems, Incorporated, formerly a direct subsidiary of FE that became a subsidiary of FET in April 2012, which owns and operates transmission facilities, CEI The Cleveland Electric llluminating Company, an Ohio electric utility operating subsidiary CES Competitive Energy Services, a reportable operating segment of FirstEnergy FE FirstEnergy Corp,, a public utility holding company FENOC FirstEnergy Nuclear Operating Company, which operates NG's nuclear generating facilities FES 5ifi,$$l3lrsolutions Corp., together with its consolidated subsidiaries, which provides energy-related products FESC FirstEnergy Service Company, which provides legal, financial and other corporate support services FET FirstEnergy Transmission, LLC, formerly known as Allegheny Energy Transmission, LLC which is the parent of ATSI, TrAIL and MAIT, and has a joint venture in PATH, FEV FirstEnergy Ventures Corp., which invests in certain unregulated enterprises and business ventures FG t,lj[ili.;gt Generation, LLC, a wholly owned subsidiary of FES, which owns and operates non-nuclear generating FirstEnergy FirstEnergy Corp., together with its consolidated subsidiaries Global Holding O'"Jrfl Mining Holding Company, LLC, a joint venture between FEV WMB Marketing Ventures, LLC and Pinesdale Global Rai! A subsidiary of Global Holding that owns coaltransportation operations near Roundup, Montana JCP&L Jersey Central Power & Light Company, a New Jersey electric utility operating subsidiary MAIT Mid-Atlantic lnterstate Transmission, LLC, a subsidiary of FET, formed to own and operate transmission facilities ME Metropolitan Edison Company, a Pennsylvania electric utility operating subsidiary MP Monongahela Power Company, a West Virginia electric utility operating subsidiary NG FirstEnergy Nuclear Generation, LLC, a subsidiary of FES, which owns nuclear generating lacilities OE Ohio Edison Company, an Ohio electric utility operating subsidiaryOhio Companies CEl, OE and TE PATH Potomac-Appalachian Transmission Highline, LLC, a joint venture between FE and a subsidiary of AEP PATH-Allegheny PATH Allegheny Transmission Company, LLC PATH-WV PATH West Virginia Transmission Company, LLC PE The Potomac Edison Company, a Maryland and West Virginia electric utility operating subsidiary Penn Pennsylvania Power Company, a Pennsylvania electric utility operating subsidiary of OE Pennsylvania Companies ME, PN, Penn and WP PN Pennsylvania Electric Company, a Pennsylvania electric utility operating subsidiary PNBV PNBV Capital Trust, a special purpose entity created by OE in 1996 Signal Peak An indirect subsidiary of Global Holding that owns mining operations near Roundup, Montana TE The Toledo Edison Company, an Ohio electric utility operating subsidiary TrAIL Trans-Allegheny Interstate Line Company, a subsidiary of FET, which owns and operates transmission facilities Utilities OE, CEl, TE, Penn, JCP&L, ME, PN, MP, PE and WP WP West Penn Power Company, a Pennsylvania electric utility operating subsidiaryThe following abbreviations and acronyms are used to identify frequently used terms in this report: AAA American Arbitration Association AEP American Eleciric Power Company, Inc.AFS Availablejor-sale AFUDC Allowance for Funds Used During Construction ALJ Administrative Law Judge AOCI Accumulated Other Comprehensive lncome Apple@ Apple@, iPad@
    . Changesin assumptions           regadingeconomiccorditionswithinour territories,             assessmefiof the reliabilityof our transmission   system,or the availability     of capitalor otherresources      supponingidentifiedtransmission        investment opportunities.
and iPhone@ are registered trademarks of Apple Inc.
The impactof the regulatory   processand resultingoutcomeson the mattersat thefederalleveland in the variousstatesin whichwe do businessincluding,but not limitedto, mattersrelatedto ratesand the ESP lV.
ARO ARR ASU BGS BNSF BRA CAA ccR CDWR CERCLA CFIP CFR COz CPP CSAPR CSX CTA CWA DCR DMR DR DSIC DSP EDC EE&C EGS ELPC EmPOWER Maryland ENEC EPA ERO ESP IV ESP IV PPA Facebook@FASB FERC Fitch FMB FPA FTR GAAP GHG GWH H8554 HCI tcE IRP IRS rso KV KWH LOC LSE LTllPsAsset Retirement ObligationAuction Revenue Right Accounting Standards Update Basic Generation Service BNSF Railway Company PJM RPM Base ResidualAuctionClean Air ActGoal Combustion ResidualsCalifornia Department of Water ResourcesComprehensive Environmental Response, Compensation, and Liability Act of 1980Cash Flow lmprovement Project Code of Federal RegulationsCarbon Dioxide EPA's Clean Power PlanCross-State Air Pollution Rule CSX Transportation, Inc.Consolidated Tax AdjustmentClean WaterAct Delivery Capital RecoveryDistribution Modernization RiderDemand Response
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.


Distribution System lmprovement Charge Default Service PlanElectric Distribution Com panyEnergy Efficiency and Conservation Electric Generation SupplierEnvironmental Law  
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.
& Policy CenterEmPower Maryland Energy Efficiency Act Expanded Net Energy CostUnited States Environmental Protection Agency Electric Reliability Organization Electric Security Plan lV Unit Power Agreement entered into on April 1 , 2016 by and between the Ohio Companies and FES Facebook is a registered trademark of Facebook, Inc.Financial Accounting Standards BoardFederal Energy Regulatory CommissionFitch Ratings First Mortgage Bond Federal PowerAct Financial Transmission RightAccounting Principles Generally Accepted in the United States of AmericaGreenhouse Gases
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


Gigawatt-hourOhio House Bill No. 554Hydrochloric Acid Intercontinental Exchange, lnc.
MATS         MercuryandAir ToxicsStandards MDPSC       MarylandPublicServiceCommission MISO         MidcontinentIndependentSystemOperator,Inc.
Integrated Resource PlanInternal Revenue ServiceI ndependent System Operator Kilovolt Kilowatt-hourLetter of Credit Load Serving Entity Long-Term I nf rastructu re lmprovement Plans MATS MDPSC MISO MLP Mercury and Air Toxics StandardsMaryland Public Service CommissionMidcontinent Independent System Operator, Inc.Master Limited Partnership One Million British Thermal Units Moody's Investors Service, Inc.Minimum Offer Price RuleMulti-Value Project
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


Megawatt Megawatt-hourNational Ambient Air Quality Standards Nuclear Decommissioni ng Trust North American Electric Reliability CorporationUnited States Court of Appeals for the Ninth Circuit New Jersey Board of Public UtilitiesNon-Market Based Northwestern Ohio Aggregation Coalition Net Operating Loss Notice of Violation Nitrogen OxideNational Pollutant Discharge Elimination System Nuclear Regulatory Commission New Source ReviewNon-Util ity GenerationNew York State Public Service Commission Ohio Consumers' CounselOther Post-Employment Benef its Other Than Temporary lmpairmentsOhio Valley Electric CorporationPennsylvania Department of Environmental Protection Polychlorinated Biphenyl Pollution Control Revenue BondPJM Interconnection, L.L.C.The aggregate of the zones within PJM PJM Open Access Transmission TariffParticulate Matter
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


Provider of Last Resort Purchase of ReceivablesPurchase Power AgreementParts Per BillionPennsylvania Public Utility Commission Power Supply Agreement Prevention of Significant Deterioration Public Utilities Commission of Ohio Public Utility Regulatory Policies Act of 1978 Resource Conservation and Recovery ActRenewable Energy CreditReal Estate Investment TrustReliabil ity Frrsf CorporationRequest for Proposal Regional Greenhouse Gas Initiative Return on EquityReliability Pricing Model Retail Rate Stability mmBTU Moody's MOPR MVP MW MWH NAAQS NDT NERC Ninth Circuit NJBPU NMB NOAC NOL NOV NOx NPDES NRC NSR NUG NYPSC occ OPEB OTTI OVECPA DEP PCB PCRB PJM PJM Region PJM Tariff PM POLR POR PPA PPB PPUC PSA PSD PUCO PURPA RCRA REC REIT RFC RFP RGGI ROE RPM RRS iv RSS RTEP RTO S&P S8221SB31 O SB32O SBC SEC Rich Site Summary Regional Transmission Expansion PlanRegional Transm ission OrganizationStandard & Poor's Ratings Service Amended Substitute Ohio Senate Bill No. 221 Substitute Ohio Senate BillNo.310Ohio Senate Bill No.
PARTI. FINANCIALINFORMATION ITEMI.             FinancialStatements FIRSTENERGY         CORP.
320Societal Benef its ChargeUnited States Securities and Exchange Commission SEC Regulation FD SEC Regulation Fair DisclosureSeventh Circuit United States Court of Appeals for the Seventh Circuit SIP State lmplementation Plan(s) Under the Clean Air Act SOz Sulfur DioxideSixth Circuit United States Court of Appeals for the Sixth Circuit SOS Standard Offer Service SPE Special Purpose Entity SREC Solar Renewable Energy Credit SSO Standard Service Offer TDS Total Dissolved Solid TMI-2 Three Mile lsland Unit 2 TO Transmission Owner Twitter@ Twitter is a registered trademark of Twitter, lnc.
CoNSoLTDATED         STATEMENTS         OF INCOME(LOSS)
' ?;$H of.Appeals for United states court of Appears for the District of columbia circuir VIE Variable Interest Entity VSCC Virginia State Corporation Commission WVDEP West Virginia Department of Environmental Protection WVPSC Public Service Commission of West Virginia PART I. FINANCIAL INFORMATIONITEM I.Financial Statements (ln millions, except per share amounts)REVENUES: Regulated Distribution Regulated Transm ission Unregulated businessesTotal revenues*
(Unaudited)
OPERATING EXPENSES: Fuel Purchased powerOther operating expenses Provision for depreciation Amortization of regulatory assets, net Generaltaxes lmpairment of assets (Note 2)Total operating expensesOPERATING INCOMEOTHER TNCOME (EXPENSE):
For the Three Months Ended     For the Nine Months Ended September30                    September30 (ln millions, except per share amounts)                                      2016           2015             2016         2015 REVENUES:
Investment income (loss)Interest expenseCapitalized f inancing costs Total other expense TNGOME (LOSS) BEFORE TNCOME TAXESINCOME TAXESNET TNCOME (LOSS)EARNTNGS (LOSSES) pER SHARE OF COMMON STOCK: Basic DilutedWEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
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:
Basic DilutedDIVIDENDS DECLARED PER SHARE OF COMMON STOCK FIRSTENERGY CORP.CoNSoLTDATED STATEMENTS OF INCOME (LOSS)(Unaudited)
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):
For the Three Months Ended For the Nine Months Ended September 30 September 30 2016 2015 2016 2015 824 755 930 1,251 2,940 3,305 3,917 4,123 11,187 11,485$ 2,702 $285 450 979 953 311 98 265 7,423 $7,425482 1,269 1,378 2,624 $248 1,209 842 328 110 236 2,992 3,311 2,835 2,799 974 969 222 201 786 747_ I 1,447 24 3,056 3,215 10,525 9,429 861 908 2,056 28 (286)28 (285)26 (863)79 (14)(846)93 (28) 75 (230) Q87t (70e) v67l 621 226 631 251 380 (47\ 1,289 334 485 3s5 $(3e1) $804 0.89 0.89 425 427 0.72 $0.94 0.93 0.72 $(0.e0)
Investment  income(loss)                                                          28            (28)            75          (14)
(0,e0)1.91 1.90 422 423 1.44$
Interestexpense                                                                  (286)         (285)           (863)       (846)
$$$$$423 425 424 425 1.44 $* Includes excise tax collections of $111 million and
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:
$109 million in the three months ended September 30, 2016 and 2015, respectively, and $310 million and $320 million in the nine months ended September 30, 2016 and 2015, respectively.
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.
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 Ended September 30 2016 2015 2016 2015 For the Nine Months Ended September 30 (ln millions)NET TNCOME (LOSS)OTHER COMPREHENSTVE TNCOME (LOSS): Pension and OPEB prior service costs Amortized losses on derivative hedges Change in unrealized gains on available-for-sale securitiesOther comprehensive income (loss)Income taxes (benefits) on other comprehensive income (loss)Other comprehensive income (loss), net of tax GoMPREHENSlVE TNCOME (LOSS)380 $(381) $(18)2 4 (12)(5)
(7)(31)2 (11)(40)
(15)(25)(54)6 67 (e4)4 (21)6 (42)19 (111 )13 (6e)373 $370 $(368) $ 735 The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these financial statements.
FIRSTENERGY CORP.CONSOLIDATED BALANCE SHEETS (Unaudited)(ln millions, except share amounts)
September 30, December 31, 2015 ASSETSCURRENT ASSETS:
Cash and cash equivalents Receivables-Customers, net of allowance for uncollectible accounts of
$61 in 2016 and
$69 in 2015Other, net of allowance for uncollectible accounts of
$3 in 2016 and $5 in 2015 Materials and supplies Prepaid taxes Derivatives Collateral Other PROPERil PLANT AND EQUIPMENT In service Less - Accumulated provision for depreciationConstruction work in progress INVESTMENTS:
Nuclear plant decommissioning trusts Other DEFERRED CHARGES AND OTHER ASSETS:
Goodwill (Note 2)Regulatory assets OtherLIABILITIES AND CAPITALIZATIONCURRENT LIABILITIES:
Currently payable long-term debt Short-term borrowings Accounts payable Accrued taxes Accrued compensation and benefits Derivatives Other CAPITALIZATION:Common stockholders' eq uity-Common stock, $0.10 par value, authorized 490,000,000 shares - 425,743,282 and 423,560,397 shares outstanding as of September 30, 2016 and December 31 , 2015, respectively Other paid-in capital Accumulated other comprehensive income Retained earnings Total common stockholders' equity Noncontrolling interest Totalequity Long-term debt and other long-term obligationsNONCUR RENT LIABILITIES :
Accumulated deferred income taxes Retirement benefitsAsset retirement obligations Deferred gain on sale and leaseback transaction Adverse power contract liability Other COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 12)551 1,470 159 699 204 152 89 156 131 1 ,415 180 785 135 157 70 167 3,480 3,040 50,889 15,450 49,952 15,160 35,439 2,394 34,792 2,422 37,833 37.214-2,502 533 3,035 2,788-2,282 506 5,618 1,088 907 6,418 1,348 1,286 7.613 9.052 1 ,166 1,708 1,075 519 334 106 694 42 9,952 171 2,256 11,503 12,421 1 11,503 18,532 12,422 19,099 30.035 31.521-7,136 4,080 1,459 765 174 1,269 6,773 4,245 1 ,410 791 197 1,555 14,883$ 51,961 14,971$ s2,094$_51,gq]-
$ saqq_1,216 2,975 944 537 365 91 915 7,043 5.602-43 10,012 184 1,264 The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these financial statements.
(ln millions)FIRSTENERGY CORP.CONSOLIDATED STATEMENTS OF CASH (Unaudited)
FLOWSFor the Nine Months Ended September 30 2016 2015 CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss)Adiustments to reconcile net income (loss) to net cash from operating activities-Depreciation and amortization, including nuclear fuel, regulatory assets and customer intangible asset amortization Deferred purchased power and other costs Deferred income taxes and investment tax credits, net lmpairment of assets (Note 2)I nvestment im pairm ents Deferred costs on sale leaseback transaction. net Retirement benefits, net of payments Pension trust contributions Commodity derivative transactions, net (Note 9)Lease payments on sale and leaseback transactionChanges in current assets and liabilities-Receivables Materials and supplies Prepayments and other current assets Accounts payable Accrued taxesAccrued interest Accrued compensation and benefitsOther current liabilities Cash collateral, net Other Net cash provided from operating activitiesCASH FLOWS FROM FINANCING AGTIVITIES:New Financing-Long-term debt Short-term borrowings, net Redemptions and Repayments-Long-term debtCommon stock dividend payments Other Net cash provided from (used for) financing activitiesCASH FLOWS FROM INVESTING ACTIVITIES:
Property additionsNuclear fuel Sales of investment securities held in trusts Purchases of investment securities held in trustsAsset removalcosts Other Net cash used for investing activitiesNet change in cash and cash equivalentsCash and cash equivalents at beginning ol periodCash and cash equivalents at end of period (2,476\ (2,287)420 1 131 85--(381)1,440 (34)318 1,447 13 36 45 (2e7)(10)(s4)(34)45 (28)(17)(81)36 2 17 25 132 804 1,383 (73)428 24 70 37 (18)(143)(64)(102)7 32 (43)(285)(68)37 16 26 59 190 2.580 2,317 1,094 134 (781)(455)(11)(2s)521 1,275 (1 ,017)(458)(s)316 (2,156)(1e5)1,361 (1,437\(101 )52 (2,025)(101)1,126 (1 ,213)(111)37 The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these financial statements.
FIRSTENERGY SOLUTIONS CORP.coNsoLrDATED STATEMENTS OF TNCOME (LOSS) AND COMPREHENSTVE TNCOME (LOSS)(Unaudited)(ln millions)STATEMENTS OF INCOME (LOSS)REVENUES: Electric sales to non-affiliates Electric sales to affiliates OtherTotal revenues OPERATING EXPENSES: Fuel Purchased power from affiliates Purchased power from non-affiliatesOther operating expensesProvision for depreciation Generaltaxes lmpairment of assets (Note 2)Total operating expenses oPERATTNG TNCOME (LOSS)OTHER TNCOME (EXPENSE):
Investment income (loss)Miscellaneous income lnterest expense - affiliates lnterest expense - other Capitalized interest Total other expense rNcoME (LOSS) BEFORE TNCOME TAXES (BENEFTTS)rNcoME TAXES (BENEFTTS)
NET TNCOME (LOSS)STATEMENTS OF COMPREHENSIVE INCOME (LOSS)NET TNCOME (LOSS)OTHER COMPREHENSTVE TNCOME (LOSS): Pension and OPEB prior service costsAmortized losses (gains) on derivative hedges Change in unrealized gains on available-for-sale securitiesOther comprehensive income (loss)Income taxes (benefits) on other comprehensive income (loss)Other comprehensive income (loss), net of taxGoMPREHENSTVE TNCOME (LOSS)For the Three Months For the Nine MonthsEnded September 30 Ended September 30 ffiffi$ 952 $ 1,157 $ 2,917 $3,146 111 37 135 46 360 547 124 141 1 ,100 1,338 3,401 3,834 202 245 191 103 186 401 316 246 83 79 21 24 595 440 829 925 250 66 540 666 250 1,336 996 240 78 16 999 1,098 3,645 3,582 240 (244)252 101 24 1 (3)(36)I (s)(21)1 (2)(36)8 (50)190 56 4 (6)(10e)27 (28)(272)(5)(7)5 (6)(110)26 (e2)96 160 70 40$120 $(267) $96 40$120 $(267) $96 (3) (4)(10) (12)1-(2)5 (11) 61 (20)3 -11o 51 1 (6) 20 (13)-- s1 -- al 9__ 42 !____ 111 g_gqq !____ ?5 The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these financial statements.
FIRSTENERGY SOLUTIONS CORP.CONSOLIDATED BALANCE SHEETS (Unaudited)(ln millions, except share amounts)
September 30, December 31, 2016 2015 ASSETSCURRENT ASSETS:Cash and cash equivalents Receivables-Customers, net of allowance for uncollectible accounts of
$6 in 2016 and
$8 in 2015 Affiliated companiesOther, net of allowance for uncollectible accounts of $3 in 2016 and 2015Notes receivable from affiliated companies Materials and supplies Derivatives Collateral Prepayments and other PROPERTY, PLANT AND EQUIPMENT:
ln service Less - Accumulated provision for depreciationConstruction work in progress INVESTMENTS:
Nuclear plant decommissioning trusts Other DEFERRED CHARGES AND OTHER ASSETS:Customer intangibles Goodwill (Note 2)Property taxes Derivatives OtherLIABILITIES AND CAPITALIZATIONCURRENT LIABILITIES:
Currently payable long-term debt Short-term borrowings-Affiliated companies Other Accounts payable-Affiliated companies Other Accrued taxes Derivatives Other CAPITALIZATION:
Common stockholder's equity-Common stock, without par value, authorized 750 shares - 7 shares outstanding asof September 30, 2016 and December 31 ,2015 Accumulated other comprehensive income Retained earnings Total common stockholder's equity Long-term debt and other long-term obligations NONCURRENT LIABILITIES:
Deferred gain on sale and leaseback transaction Accumulated deferred income taxes Retirement benefitsAsset retirem ent obligations Derivatives Other COMMITMENTS, GUARANTEES AND CONTINGENCIES (NOIE 12)2$2 275 451 59 11 470 154 70 66 225 482 55 26 403 146 85 72 1,496 1,558 14,100 14,311 5,822 5,765 8,278 8,546 1,048 1j57 9,326 9,703-1,542 10 1,327 10 1.552 1,337-11 10 98 374 61 23 40 79 367 493 570$ 12,867 $ 13,168 182 $'1 393 89 72 89 182 512 8 542 139 76 104 181 1,108 1 ,562 3,653 77 3,613 46 1,679 1,946 5,409 5,605 2,815 2,510 8.224 8,115 791 600 332 831 38 899 765 734 219 887 50 880 3.535 3,491--$ 12,86r_ $ 13,168 The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these financial statements.
FIRSTENERGY SOLUTIONS CORP.CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) fln millions)CASH FLOWS FROM OPERAilNG AGTIVITIES:Net income (loss)Adjustments to reconcile net income (loss)to net cash from operating activities-Depreciation and amortization, including nuclear fuel and customer intangible asset amortization Deferred costs on sale and leaseback transaction, netDelerred income taxes and investment tax credits, net Investment impairments Pension trust contributionCommodity derivative transactions, net (Note 9)Lease payments on sale and leaseback transaction lmpairment of assets (Note 2)Changes in current assets and liabilities-Receivables Materials and supplies Accounts payable Accrued taxes Accrued compensation and benefitsOther current liabilitiesCash collateral, net OtherNet cash provided trom operating activitiesCASH FLOWS FROM FINANCING ACTIVITIES:New financing-Long-term debtShort-term borrowings, net Redemptions and repayments-Long-term debtShort-term borrowings, net Other Net cash provided from (used for)financing activitiesCASH FLOWS FROM INVESTING ACTIVITIES:
Property additionsNuclear fuelSales of investment securities held in trusts Purchases o{ investment securities held in trusts Cash investmentsLoans to affiliated companies, net OtherNet cash used for investing activities Net change in cash and cash equivalentsCash and cash equivalents at beginning of periodCash and cash equivalents at end of period For the Nine Months Ended September 30 2016 2015;6 (16)604 (267) $463 36 90 12 (138)(10)(e4)540 19 25 (6e)(6)422 37 139 63 (6s)(102)16 171 (1)(241)(28)2 24 107 (4)471 101 (503)(7)-'1 (382)
(10e)(5)(1s7)(432)
(1e5)576 (61e)10 (15)I (341)(101)503 (546)(10)16 (666) @7s)$2 The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these financial statements.
2; FIRSTENERGY CORP. AND SUBSIDIARIESCOMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note Number 1 2 3 4 5 6 7 8 I 10 11 12 13 14Organization and Basis of PresentationAsset lmpairments Earnings Per Share of Common Stock Pension and Other Postemployment Benefits Accumulated Other Comprehensive Income Income Taxes Variable Interest EntitiesFair Value MeasurementsDerivative I nstrumentsAsset Retirement Obligations Regulatory MattersCommitments, Guarantees and ContingenciesSupplemental Guarantor lnformation Segment Information Page Number 9 12 13 13 15 18 19 21 26 33 33 41 46 55 COMBINED NOTES TO CONSOLIDATED FINANCIAL STATE ENTS (Unaudlbd)
: 1. ORGANIZATION AND BASIS OF PRESENTATION Unless otheru/ise indicated, defined terms and abbreviations used herein have the meanings set brth in the accompanying Glossaryof Terms.FirstEnergy Corp. was organized under the laws of the State ot Ohio in 1996. FE's principal business is the holding, dkectly or indirectly, of all of the outstanding common stock of its principal subsidiaries: OE, CEl, TE, Penn (awholly owned subsidiary of OE), JCP&L, ME, PN, FESC, FES and its principalsubsidiaries (FG and NG), AE Supply, Me PE, We FET and its principalsub*idiaries (ATSI and TrAIL), and AESC. In addition, FE holds all of the outstanding common stock of other direct subsidiaries including:FirstEnergy Properties, Inc., FEV, FENOC, FELHC, Inc., GPU Nuclear, Inc., and Allegheny Ventures, Inc.FE and its subsidiarles are principally involved in the generation, transmission, and distribution of electricity. FirstEnergys ten utilityoperating companies compdse one of the nation's laeest investoFowned etectric systems, based on seMng six million customeF in the Midwsst and Mid-Atlantic regions. lts regulated and unregulated generation subsidiaries control nearly 17,000 l W of capacity lrom a diverse mix of non-emitting nuclear, scrubbed coal, naturat gas, hydroelectric and other renewables.
FirstEnergy's transmission operations include approximately 24,000 miles of lines and two regionaltransmission operation centers.These interim tinancial statements have been prepared pursuant to the rules and regulations of the SEC for Quarterly Reports onForm 10-Q.
Certain information and disclosures normally included in tinancial statements and notes prepared in accordance with GAAP have been condensed or omifted pursuanl to such rules and regulations. These interim linancialstatements should be read inconjunction with the financial statements and notes included in the combined Annual Report on Form 10-K for the year ended December 31, 2015. These Notes to the Consolidated Financial Stalemenis are combined lor FirstEnergy and FES.FirstEnergy follows GAAP and complies with the related regulations, orders, policies and practices prescribed by the SEC, FERC,and, as applicable, the PUCO, the PPUC, the MDPSC, the NYPSC, the WVPSC, the VSCC and the NJBPU. The accompanyinginterim tinancialstatements are unaudited, but reflect alladjustments, consisting of normalrecurring adjustments, that, in fieopinionof management, are necessary fora fairstatement of the financial statements.
The preparation of financialstatements in conformity with GAAP requires managementto make periodic estimates and assumptions that affect the reported amounts oI assets, liabilities, revenues and expenses and disclosure ot contingent assets and liabilities. Actual results could ditfer from these estimates.
Thereported results ofoperations are not necessarily indicative ol results of operations for any future period. FEand its subsidiaries haveevaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.FE and its subsidiaries consolidate allmajority-owned subsidiaries overwhich they exercise controland, when applicable, entities for which they have a controlling financial interest. Intercompany transactions and balances are eliminated in consolidation as appropriate.
FE and its subsidiaries consolidate a VIE when it is determined that it is the primary beneticiary (see Note 7, VariableInterest Entities). Investments in afiiliates overwhich FE and its subsidiaries have the abilityto exercise significant influence, butdonot have a controlling financial interest, followthe equity method ot accounting. Under the equity method, the interest in the entity is reported as an investment in the Consolidated Balance Sheets and the percentage of FE s ownership share of the entity's earnings isreported in the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss).Forthe three months ended September 30, 2016 and 2015, capitalized tinancing costs on FirstEnergy's Consolidated Statements of Income (Loss) include $11 million and $ 10 million, respectively, of allowance for equitylunds used during construction and $ 17 million and $16 million, respectively, of capitalized interest. For the nine months ended September 30, 2016 and 2015, capitalized financingcosts on FirstEnergy's Consolidated Statements ot Income (Loss) include $28 million and
$40 million, respectively, of allowance forequity funds used during conslruction and
$51 million and
$53 milljon, respectively, of capitalized interest.
During the third quarter of 2016, a reduciion io depreciation of $21 million ($19 million prior to Januayl, 2016) was recorded that related to prior periods. The out-of-period adjustment related to the utilization of an accelerated useful life for a mmponent of a certain power siation. Management has detemined this adjustment is not material to the current period or any prior periods.Sl/ategic Review of Competitive Operations FirstEnergy's strategy is to be a fully regulated utility focusing on stable and predictable earnings and cash fiow from its regulated business units. In order to execute on this strategy, FirstEnergy has begun a strategic review of its competitive operations focused onthe sale of gas and hydroelectric units as well as exploring allaltematives forthe remaining generation assets at FES and AE Supply.These include, but are not limited to, legislative efforts to convert generation from competitive operations to a regulated or regulated-like construct such as a regulatory restructudng in Ohio, offering generation into any process designed to address MP's generationshortfall included in its lRP, andor a solution for nuclear generation that recognize their environmental benefits.
Managementanticipates that the viability of these alternatives will be determ ined in the near term with a target to implement lhese strategic optionswithin the next 12 to 18 months and could result in material asset impairments.
Based on current market forwards, CES, including FES, expects to have more than sufiicient cash flow from operations in 2017 and2018 to fund anticipated capital expenditures with no equity contributions from FirstEnergy. However, in addition to exposure lo market price volatility and operational risks, CES, including FES, faces signilicant financial risks that could impact its anticipated cash flow and liquidity, including, bul not limited to, the following:. Requests to post additional collateral or accelerated payments of up to $355 million resulting from current credit ralings atFES, including Moodys downgrade of the Senior Unsecured debt rating for FES to Caal as well as S&P's downgrade of the Senior Unsecured debt raling at FES to B, both of which occurred on November 4, 2016.. Adverse outcomes in the previously disclosed disputes regarding long-term coal transportation contracls. The inability to extend or refinance debt maturities at CES, including at FES subsidiaries, in 2017 and 2018 of$130 million and $515 million, respectively.
Asignificant collateralcallor the inability to refinance 2017 debt maturities at FES subsidiaries is sxpected to be addressed by FESthrough a combination of cash on hand, additional capital expenditure reductions, asset sales, and/or borrowings under theunregulated money pool. However, adverse outcomes in the coal transportation contracts disputes, the inability to refinance 2018 debt maturities, or lack of viable alternative strategies could cause FES lo take one or more of the following actions: (i) restructuring of debt and other financial obligations, (ii) additional borrowings under the unregulated money pool, (iii) further asset sales or plantdeactivations, and/or (iv) seek protection under bankruptcy laws. In the event FES seeks such proteclion, FENOC maysimilarly seek protection under bankruptcy laws.
Materialasset impairments resulting from the sale ordeactivation of generation assets orfrom a determination by management of its intent to exit competitive generation assets before the end of their estimated useful lite resulting from the inability lo implementalternative strateg ies d iscussed above, adverse iudgments or a FES bankruptcy tiling could result in an event of default under various agreements related to the indebtedness of FE. Although management expecG to successlully resolve any FE defaults through waivers or other actions on acceptable terms and conditions, the failure to do so would have a material and adverse impact onFirstEnergy's linancial condition, and FirstEnergy cannot provide any assurance that itwillbe able to successfully resolve any suchdefaults on satisfactory terms.l,lew Ac@unting Prcnou ncen}?'nlsIn May 2014, the FASB issued ASU 2014-09, 'Revenue from Contracts with Customers'. Subs*quent accounting standards updates have been issued which amend and/or clarify the application ofASU 2014-09.
The core principle of the new guilance is that an entityrecognizes revenue to depictthe transfer ot promised goods or services to cuslomers in an amount that refrects the consaderation to which the entity expecb to be entitled in exchange for those goods or services. More detailed disclosures will also be required toenable users offinancialslatemenb to understand the nature, amount, timing and uncertainty ot revonue and cash flows arising ftom contracts with customers. For public business entities, the new revenue recognition guidancewill be efiective for annual and intedm reporting periods beginning after December 15, 2017. Earlier adoption is pemitted forannualand interim reporting periods beginning after December 15, 2016. The standards shall be applied retrospectively to each period presented or as a cumulati\*-etfectadiustment as of lhe date of adoption. FirstEneEy is currently evaluating the impact on its financial siatements of adopting these standads.In February 2015, the FASB issued ASU 201+02, 'Consolidations: Amendments to the Consolidation Analysis', which amendscurent consolidation guidance including changes to both the variable and voting interest models used by companies to e\raluate whetheran entity should be consolidated. A reporting entity must apply the amendments using a modified retospective approach by recoding a cumulative-effect adjustment to equity as ol the beginning of the period of adoption or apply the amendments retrospectively.
FirstEnergys adoption ofASU 2015-02, on January 1 , 2016, did not result in a change in the consolilation of VlEs by FE or its subsidiaries.In April 2015, the FASB issued ASU 2015-03, "Simplifying the Presentation of Debt lssuance Costs", which requires debt issuancecosts to be presented on the balance sheet as a direct deduction from the carrying value ofthe associated debt liability, consistent with the presentation of a debt discount. In addition, inAugust 2015, the FASB issued ASU 2015-15, "Presentation and Subsequert Measurementot Debt lssuance Costs Associated with Lineot-Credit Arrangements', which allows debt issuance costs related to lineof credit arrangements to be presented as an asset and amortized ratably over the term of the arrangement, regardless otwhetherthere are any outstanding borrowings on the line-ot-credit. FirstEnergy adopted ASU 2015-15 and ASU 2015-03 beginning January 1,2016. As of December 31, 2015, FirstEnergy and FES reclassified
$93 million and
$17 million of debt issuance costs included in Deferred charges and otherassetsto Long-term debt and Other long-term obligations. FirstEnergy has elected to continue presenting debt issuance costs relating to its revolving credil tacilities as an asset.
In January of 2016, the FASB issued ASU 2016-01, "Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities", which primarily atfects the accounting lor equity investments, financial liabilities under the fair valueoption, and the presentation and disclosure requirements forfinancial instruments. In addition, the FASB clarif ied guidance related to the valuation allowance assessmenl when recognizing deferred tax assets resulting from unrealized losses on available{oFsaledebt securities. The ASU will be efiective in fiscal years beginning atter December 15, 2017, including interim periods within those fiscal years. Eady adoption for certain provisions can be elected for all financial statements offiscalyears and inlerim periods that have not yet been issued orthat have not yet been made available for issuance. FirstEnergy is currently evaluating the impact on ils financialstatements of adopting this standard.
10 In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)", which will require organizations that lease asseb with leaseterms of more than 12 months to recognize assets and liabilities for the rights and obligations created by those leases on theirbalance sheets. In addition, new qualitative and quantitative disclosures ofthe amounts, timing, and uncertainty ofcash flows arisingftom leases will be required. The ASU will be elfective for liscal years, and interim periods within those fiscal years, beginning atter DecembelI 5, 201 8, with early adoption pmitted. Lessors and lessees will be required to apply a modified retospeciive lransitionappoach, which requires adjusting the accounting tor any leases existing at the beginning of the earliest comparative period presented in the adoption-period financial statements. Any leases that expire before the initial application date will not require anyaccounting adiustrnent. FirstEnergy is currently evaluating the impact on its financial statements of adopting this standard.In March of2016, the FASB issued ASU 2016-09, "lmprovements to Employee ShareBased Payment Accounting', wfiich simplifiesseveralaspecG of the accounting foremployee sharebased payment. The new guidancewillrequire allincome tax efiects of awardsto be recognized in the income statement when the awards vest or are settled. lt also will not require liability accounting when anemployer repurchases more of an employee's shares for iax withholding purposes. The ASU will be etfective lor tiscal years, and interim periods within those fiscalyears, beginning atter December 15,2016, with early adoption permitted. FirslEnergy is curlenlly evaluating the impact on its financial statements of adopting this standard.In June 2016, the FASB issued ASU 2016-13, 'Financial Instrumenls - Credit Losses (Topic 326): Measurement of Credit Losses onFinancial Instruments,' which removes all recognition thresholds and will require companies to recognize an allowance tor creditlosses lor the ditference belween the amortized cost basis ot a tinancial instrument and the amount of amortized cost that the company expects to collect over the instrument's contractual life. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December'15,2019.
Early adoption is permitted forfiscalyears beginning after December 15,2018. FirstEnergy is currently evaluating the impact on its financial statements of adopting this standard.In August 2016, the FASB issued ASU 2016-l5, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments".
The standard is intended to eliminate diversity in practice in how certain cash receipls and cash payments are presented and classified in the statement of cash flows. The guidance is ellsctive lor fiscal yea]s, and for interim periods within lhose fiscal years, beginning after December 15, 2017. Early adoption is permitted for allentities. FirstEnergy does not oQect thisASU tohave a material effect on its financial statements.In October 2016, the FASB issued ASU 2016-16, 'AccountirE for Income Taxes: Intra-Entity Asset Transfers of AsseB Olher thanInventory." ASU 201S16 eliminates the exception for all intra-entity sales ol assets other than invenlory which allows companies to defer the tax effects of intra-entity asset transters. As a result, a repoding entity would recognize lhe tax expense from the sale ofthe asset in the seller's tax jurisdiction when the intra-entity transfer o@urs, even though the pre-tax etfects of that transaction are eliminaled in consolidation. Any delerred tax asset that arises in the buyer's iurisdiction would also be recognized atthetime of the transfer.
The guidance is etfective tor fiscal years, and for interim periods within those fiscal years, bginning after December 15,2017. Early adoption is permitted andthe modified retmspective approach willbe required tor transition tothe newguidance, with acumulative-effect adjustment recorded in retained eamings as of the beginning of the period of adoption.
FirstEnergy is currentlyevaluating the impact on its financial statements of adopting this standard.
Additionally, dudng 2016, the FASB issued the following ASUS: ASU 2016-05, "Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships," ASU 2016-06, "Contingent Put and Call Options in Debt lnstruments (a consensus of the FASB Emerging lssues Task Force),"ASU 2016-07, "Simplifying the Transition to the Equity Method of Accounting," andASU 2016-17, "Consolidation (Topic 810): lnterests Held through Related Parties That Are under Common Control." FirstEnergy does not expect these ASUs to have a material effect on its financial statements.
11
: 2. ASSET IMPAIRMENTSPlant lmDaimenE FirstEnergy reviews longlived assets for impairmenl whenever events or changes in circumstances indicate thatthe carryirE value otsuch assets may not be recoverable. The recoverability ol a longlived asset is measured by comparing its carrying value to the sumof undiscounted future cash flows expected to resuh from the use and eventual disposition of the asset. tt the carryirE value is greatsrthan the undiscounted cash flows, an impairment exists and a loss is recognized for the amount by u,hich the carrying value of the longiived asset exceeds its estimated fair value. FirstEnergy utilizes the income approach, based upon discounted cash flows bestimate fairvalue.On July 19, 2016, FirstEnergy and FES committed to exit operations of the Bay Shore Unit 1 generatirE station (136 l"fw) by frober1, 2020, through either sale or deactivation and to deactivate Units 1-4 of the W. H. Sammis genorating siation (720 lvfw) by May31,2020. As a result, FirstEnergy recorded a non-cash pre-tax impai.ment charge of
$647 million ($517 million - FES) in the second quarter of 2016, which is included in lmpairment ot assets on the Consolidated Statement of Income (Loss) and included within the results of the CES segment. PJM has approved the W.H Sammis Units 1-4 and Bay Shore Unit 1 deactivations pending revia f by theIndependent Market Monitor. In addition, FirstEnergy and FES recorded termination and settlement cosb on luel contracb ol approximately
$58 million (pre-tax) in the second quarter of 2016 resulting from plant retirements and deactivations.During the first nine months of 2015, FirstEnergy and FES recognized impairment charges ot
$24 million and
$16 million, respectively, associated with certain transportation equipment and tacilities.
In order to confotm to cunent year presenlation, thecharge was reclassified from Other operating expenses in the Consolidated Statement of Income (Loss) to lmpairment of assets.
Goodwi In a business combination, the excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed is recognized as goodwill. FirstEnergy's reporting units are consistent with ib reportable segments and consist of RegulatedDistribution, Regulated Transmission, and CES. The lollowing table presents the changes in the carrying value ofgoodwillforlhe ninemonths ended September 30, 2016: Goodwill Regulated Regulated Distribution Transmission Competitive Energy ServiCes Gonsolidated Balance as of December 31. 2015 lmpairment Balance as of September 30, 2016 5,092 $(ln millions)526 $800 $ 6,418 (800)(800)5,092 $526 $5,618FirstEnergy tests goodwill for impairment annually as of July 31 and considers more frequent testing if indicators of potentialimDairment arise.
As a result of low capacity pdces associated with the 2019/2020 PJM Base ResidualAuction in May A)16, as well as its annualupdate to its tundamental long-term capacity and en*rgy price forecast, FirstEnergy deiermined that an intedm impairment analysis ofthe CES reporting unit's goodwill was necessary during the second quarter of 2016.Consistentwith FirstEnergy's annualgoodwillimpairment test, a discounled cash flow analysis was used to determine tho fairvalueof the CES reporting unitfor purposes of step one of the interim goodwill impairment test. Key assumptions incorporated inb the CESdiscounted cash flow analysis requiring significant management judgment included the tollowing:. FutuB Energy and Capaclty Prlces: Observable market information for near-term forward pow*r prices, PJM auctionresults for nearterm capacity pricing, and a longer-term fundamental picing modelfor energy and capacity that consideredthe impact of key factors such as load groMh, plant retirements, carbon and other environmentalregulations, and naturalgas pipeline construction, as well as coal and natural gas pricing.. hefail Sates and Margln: CES' current retail targeted portfolio to estimate future retail sales volume as well as historical financial results to eslimate retail margins.. Operating and Capltal Costs: Estimated future operating and capital costs, including the estimated impact on costs of pending carbon and other envionmentalregulations, aswellas cosb associated with capacity performance reforms in he PJM markel.. Discount Rate: Adiscount rate of 9.50%. based on selected comparable companies'capiial structure, retum on debt and return on equity.
Terminal Value: A terminal value of 7.0x earnings before interest, taxes, consideration of peer group data and analyst consensus expectations.
12 and amortization based on Based on the impairment analysis, FirstEnergy determined that the carrying value of goodwillexceeded itsfairvalueand Iecognized a non-cash pre-tax impairment charge of
$8OO million ($23 million - FES) in the second quarter of 2016, which is included within the caption lmpairment ot assets in the Consolidated Slatemenl of Income (Loss).As of July 3'1, 2016, FirstEnergy performed a qualitative ass*ssment of the Regulated Distribution and Regulated Transmissionreporting units' goodwill, assessing economic, industry and market considorations in addition to the reporting units' overall tinancial performance. lt was determined that the fair value of these reporting units were, more likely than not, greater than theircarrying valueand a quantitative analysis was not necessaryTermination of Customer ContactDuring the third quarter of 2016, FES recorded a pre-tax charge of
$32 million associated with the termination ol a cuslomer contracl,which is included in Other operating expenses in the Consolidated Statement of Income (Loss).3. EARNINGS PER SHARE OF COMMON STOCKBasic earnings per share of common stock are computed using the weighted a\*rage number of common shares oulstanding during the relevant period as lhe denominator. The denominator for diluted earnings per share ol common sbck reflects the weightedaverage ot common shares outstanding plus the potentialadditionalcommon shares that could result ifdilutive securities and othelagreemenb to issue @mmon slock were exercised.The following taHe reconciles basic and diluted earnings per share ot common stock:
For the Three Months For the Nine Months (ln millions, except per share amounts)
Reconciliation of Basic and Diluted Earnings per Share of Common StockEnded September 30 Ended September 30 2016 2015 2016 2015Net income (loss)Weighted average number of basic shares outstanding Assumed exercise of dilutive stock options and awards(1)
Weighted average number of diluted shares outstanding Basic earnings (losses) per share of common stock Diluted earnings (losses) per share of common stock 380 $395 $(381) $804 425 2 423 1 425 422 1 424 425 423$$0.8e $0.8e $0_e4 $0.93 $(0.e0) $(0.e0) $1.91 1.90 (r) For the nine months *nded Seoternber 30. 201 6. three million shares were exclud*d lrom the calculation of diluted sharEs outstanding, as theirinclusion would be aniidilutive as a result ol lhe net loss for the period. For the thr*e months endod September 30, 201 6 and 201 5, ard lor thenine months ended September 30, 201 5, one m illion shares werc exclud*d from the calculation of diluted shargs outstanding, as their inclusion wodd be antidilutive.4. PENSION AND OTHER POSTEIIPLOYMEITT BENEFTS Through October 2016, FirstEnergy satisfied its minimum required funding obligations to its qualified pension plan for the year withcontributions of
$382 million ($85 million in October 2016), including
$138 million at FES. Depending on, among other things, market conditions, Fi6tEnergy expects to make additional conlributions to its qualified pension plan in 2016 of up to
$500 million of equity b address ib funding obligations for future years.13 The components of the consolidated net periodic cost (credits) for pension and OPEB (including amounts capitalized) were as follows:Components of Net Periodic Benefit Costs (Credits)For the Three Months Ended September 30Service costs Interest costs Expected return on plan assets Amortization of prior service costs (credits)Net periodic costs (credits)Gomponents of Net Periodic Benetit Costs (Credits)For the Nine Months Ended September 30 2016 2015 2016 Pension OPEB 2016 2015 2016 48 99 (100)2 4e$36$2 7 (e)(33)(33)(ln millions)4e$ 2 $967 (111) (7)2 (20)Pension (18) $OPEB Service costs Interest costs Expected return on plan assets Amortization of prior service costs (credits)Net periodic costs (credits)For the Three Months Ended September 30 For the Nine Months Ended September 30 Net Periodic Benefit Expense (Gredit)For the Three Months Ended September 30 144 $298 (2e7)6 (ln millions)145 $ 4 288 22 (333) (23)6 (60)4 21 (25)(100)$ (100)151 $106 $(57)FES' share of the net periodic pension and OPEB costs (credits) were as follows: Pension 2016 2015 2016 2015 Pension and OPEB obligations are allocated to FE s subsidiaries, including FES, employing he plan participants. The net periodic pension and OPEB costs (credits), net ot amounts capiialized, recognized in eamings by FirstEnergy and FES were as follows: (ln millions)6 $ 4 $ (4) $ (5)18 12 (12) (15)Pension OPEB 2016 2015 2016 FirstEnergy FESNet Periodic Benefit Expense (Credit)For the Nine Months Ended September 30 2016 2015 2016 35$5 Pension (ln millions)25$4 (11) $(4)OPEB (21)(4)FirstEnergy FES 107 $17 (ln millions)74$12 (41) $(12)(66)(12)14
: 5. ACCUMULATED OTHER COMPREHENSIVE INCOME The changes in AOCI, net of tax, in the three and nine months ended September 30, 2016 and 2015, for FirstEnergy are included in the following tables: FirstEnergyGains &Losses on Cash Flow Hedges UnrealizedGains on AFS Defined BenefitPension &Securities OPEB Plans (31) $(ln millions)58$164 $191 AOCI Balance as of July 1, 20'16Other comprehensive income before reclassifications Amounts reclassified from AOCIOther comprehensive income (loss)Income taxes (benefits) on other comprehensive income (loss)Other comprehensive income (loss), net of taxAOCI Balance as of September 30, 2016AOCI Balance as of July 1,2015 Other comprehensive loss before reclassificationsAmounts reclassified from AOCIOther comprehensive income (loss)Income taxes (benefits) on other comprehensive income (loss)Other comprehensive income (loss), net of taxAOCI Balance as of September 30, 2015AOCI Balance as of January 1, 2016Other comprehensive income before recl assif icationsAmounts reclassified from AOCIOther comprehensive income (loss)Income taxes (benefits) on other comprehensive income (loss)Other comprehensive income (loss), net of taxAOCI Balance as of September 30, 2016AOCI Balance as of January 1, 2015Other comprehensive loss before reclassificationsAmounts reclassified from AOCI Other comprehensive income (loss)Income taxes (benefits) on other comprehensive income (loss)Other comprehensive income (loss), net of taxAOCI Balance as of September 30, 2015 2 21 (17)(18)21 (33)(18)(7)(12)(5)(7)(11)(2e) $60$153 $184 (36) $1e$219 $202 2 (8)(3)(31)(8)(32)(40)(15)2 1 (11)(4)(31)(12)(7)(1e)(25)(35) $12$200 $177Gains &Losses on Cash Flow Hedges Unrealized Gains on Defined Benefit AFS Pension &Securities OPEB Plans (33) $(ln millions)18$186 $171 6 109 (42)(54)109 (e0)67 25 6 2 (54)(21)19 6 13 (33)(2e) $60$153 $184 (37) $25$258 $246 4 (1)(20)(e4)(1)(110)4 2 (21)(8)(e4)(36)(111)(42)(6e)(13)(58)15 (35) $12$200 $177 The following amounts were reclassified from AOCI for FirstEnergy in the three and nine months ended September 30, 2016 and 2015:Rec lassif ications f rom AOGI(2)
For the Three Months For the Nine Months Ended September 30 Ended September 30 2016 2015 2016 2015Affected Line ltem in Gonsolidated Statements of Income (Loss)Gains & losses on cash flow hedges Commodity contracts Long-term debt Unrealized gains on AFS securities Realized gains on sales of securities
$Defined benefit pension and OPEB plans Prior-service costs $$2$6 (ln millions)$2 (2) Other operating expenses 6 Interest expense 2 2 (1)1$(3) $1 6 (2)4 Total before taxes (2) Income taxes2 Net of tax (20) lnvestment income (loss)7 Income taxes 2$(17) $7 4$(42) $16$ (11) $ (1e) $(1) These AOCI components are included in the computation of net Postemployment Benefits for additional details.(26)$ (13) Net of tax (94) (1)36 Income taxes (33) $ (58) Net of tax periodic pension cost. See Note 4, Pension and Other (10) $(18) $7 (2) $(31) $12 (54) $21 (z)Amounts in parenthesis represent credits to the Consolidated Statements of Income (Loss) from AOCI.16 The changes in AOCI, net of tax, in the three and nine months ended September 30, 2016 and 2015, for FES are included in the following tables: FES Gains &Losses on Gash Flow Hedges Unrealized DefinedGains on Benefit AFS Pension &Securities OPEB Plans Total (10) $(ln millions)50$ 35$75AOCI Balance as of July 1 , 2016Other comprehensive income before reclassifications Amounts reclassified from AOCIOther comprehensive income (loss)Income taxes (benefits) on other comprehensive income (loss)Other comprehensive income (loss), net of taxAOCI Balance as of September 30, 2016AOCI Balance as of July 1 , 2015Other comprehensive loss before reclassificationsAmounts reclassified from AOCIOther comprehensive loss Income tax benefits on other comprehensive lossOther comprehensive loss, net of taxAOCI Balance as of September 30, 2015AOCI Balance as of January 1, 2016Other comprehensive income before reclassificationsAmounts reclassified from AOCIOther comprehensive income (loss)Income taxes (benefits) on other comprehensive income (loss)Other comprehensive income (loss), net of taxAOCI Balance as of September 30, 2016AOCI Balance as of January 1, 20'15Other comprehensive loss before reclassificationsAmounts reclassified from AOCIOther comprehensive loss lncome tax benefits on other comprehensive lossOther comprehensive loss, net of taxAOCI Balance as of September 30, 2015 10$35$Unrealized Defined Gains on Benefit AFS Pension &Securities OPEB Plans Total (3)1 5 2 1 22 (17)22 (1e)3 1 (3)(1)(2)(e) $53$33$(e) $16$38$45 (7)
(4)(4)(7)
(8)(15)(6)(11)(5)(4)
(1)(3)(6)(e)36 (e) $""in*Losses on Cash Flow Hedges (e) $(ln millions)16$3e$46 102 (41)(10)102 (51)51 20 61 24 (10)(4)37 31 (6)(e) $53$33$77 (7) $21 $43$(2)(2)(1)(1e)(12)(1)(33)(34)(13)(21)(20)(e)(12)(4)(8)(11 )(2)17 (e) $10$35$36 The following amounts were reclassified from AOCI for FES in the three and nine months ended September 30, 2016 and 2015:Reclassif ications f rom AOCI(2)
For the Three Months For the Nine Months Ended September 30 Ended September 30 2016 2015 2016 2015 Affected Line ltem in Consolidated Statements of Income (Loss)Gains & losses on cash flow hedges Commodity contracts Unrealized gains on AFS securities Realized gains on sales of securities
$Defined benefit pension and OPEB plans Prior-service costs $1$(z',)(ln millions)$Other operating expensesIncome taxesNet of tax 1$(17) $6 (11) $(3) $1$(3) $1$(41) $15 (2)(18) Investment income (loss)7 lncome taxes (2) $(4) $1 (26)$ (t 1) Net of tax (10) $4 (12) (1)4 Income taxes
$ (2) $(3) $(6) $(8) Net of tax (1) These AOCI comoonents are included in the comDutation of net Deriodic pension cost. See Note 4, Pension and OtherPostemployment Benefils for additional details.(2) Amounts in parenthesis represent credits to the Consolidated Statements of Operations from AOCI.6. INCOME TAXES FirstEnergy's and FES'interim efiective tax rates reflectthe estimated annualeffective tax rates for 2016 and 2015. These tax ratesare affected by estimated annual permanent items, such as AFUOC equity and other flow-through items, as well as discrete itemsthat may occur in any given period, but are not consistent from period to period.FirstEnergy's effective tax rate for the three months ended September 30, 2016 and 2015 was 39.8% and 36.4%, respectively.Changes in FirstEnergy's ellective tax rate forthe nine months ended September 30,2016 as compared tothesame period of 2015,resulted from the second quarter of 2016 impairment of $8OO million of goodwill (as described in Note 2), of which $433 million is non-deductible for tax purposes.
Additionally, $159 million of valuation allowances were recorded in the second quarter of 2016 againststate and local NOL carryforwards that manag*ment believes, more likelythan not, will not be realized based primarily on projecled taxable income rellecting updates to FirstEnergy's annual long-term fundamental pricing model for energy and capacity, as well ascertain statutory limitations on the utilization of stale and local NOL carMorwards.
FES'etfective tax rate forthe three months ended September 30,2016 and 2015was 58.3%and 36.8%, respectively. The increase in the effective tax rate is primarilydueto the impact ofestimated annualpermanent items onlorecasted lowel pre-tax incometorthe penoo.FES' effective tax rate tor the nine months ended September 30, 2016 and 2015 was 1 .8% and 40.0%, respectively. The change inthe ettective tax rate primarily resulted from
$65 million of valuation allowances recorded against state and localNOL carMorwardsthat management believes, more likelythan not, will not be realized as described above.
Additionally, FES recorded an impairment of goodwill (as described in Note 2) in the second quarter of 2016, of which $23 million is non-deductible for lax purposes.In March 2016, FirstEnergy recorded unrecognized tax benefits of
$69 million primarily related to protective retund claims filed withthe Commonwealth of Pennsylvania as a result of a recent ruling by the Commonwealth Court finding that the state's NOLcarryoverlimitation violated the unilormity clause and was unconstitutional.
The Commonwealth of Pennsylvania has appealed this ruling to thePennsylvania Supreme Court.As oI September 30, 2016, it is reasonably possible that approximately
$54 million of unrecognized tax benefits may be resolvedwithin the next twelve months as a result ot the statute of limitations expiring and expected resolution with respect to cenain claims, ofwhich approximately
$15 million would atfect FictEnergy's etfective tax rate 18 In February 2016, the IRS completed its examination ol FirstEnergy's 2014 federal income tax return and issued a fullacceptanceletter with no adjustments.7. VARIABLE INTEREST ENTITIES FirstEnergy performs qualitative analyses based on control and economics to determine whether a variable interest classifies FirstEnergy as the primary b*neficiary (a controlling financial interest) ot a VlE.
An enterprise has a controlling financial interest if it has both power and economic control, such that an entity has; (i) the power to direct the activities of a VIE that most significantlyimpact the entity's economic performance, and (iD the obligation to absorlc losses ofthe entity that could potentially be signiticant tothe VIE or the rightto receive benefits from the entity that could potentially be signilicant to the VlE. FirstEnergy consolidates a VIEwhen it is determined that it is the primary beneficiary The caption "noncontrolling interest" within the consolidated financial statements is used to retlect the portion ol a VIE that FirstEnergy consolidates, but does not own.
In order to evaluate contracts for consolidation treatment and entities forwhich FirstEnergy has an interest, FirstEnergy aggregatesvariable interests into categories based on similar risk characteristics and significance.Consolldated VlEsVlEs in which FirstEnergy is the primary beneficiary consist ot the following (included in FirstEnergy's consolidated financial statements):. PNBV Trust -PNBV, a business trust established by OE in 1996, issued certain beneficial interests and notes to fund theacquisition of a portion ot the bonds issued by certain owner trusts in connection with the sale and leaseback in 1987 of a portion of OE s interest in the Perry Plant and BeaverValley Unit 2. OE used debt and availablo fundsto purchase lhe notes issued by PNBV. The beneficial ownership of PNBV includes a 3% interest by unafiiliated third parlies.. Ohio Securrtlzat on-In September2O12, the Ohio Companies created separate, wholly-owned limited liability companies (SPES)which issued phase-in recovery bonds to securitize the recovery of certain all-electric cuslomer heating discounts, fuel and purchased power regulatory assets.
The phase-in recovery bonds are payable only from, and secured by, phase-in recovery property owned by the SPES. The bondholder has no recourse to the generalcredit of FirstEnergy or any oftheOhio Companies. Each of the Ohio Companies, as seNicer ol its respective SPE, manages and administers the phase-in recovery property including the billing, collection and remitlan@ of usagebased charges payable by retail electriccustomers. In the aggregate, the Ohio Companies are entitled to annual servicing tees of $445 thousand that are recoverable through the usage-based charges. The SPES are considered VlEs and each one is consolidated into itsapplicable utility. As ot September 30, 2016 and December 31, 2015, $339 million and
$362 million of the phase-in recovery bonds were outstanding, respectively.. JCP&L *curlthat on - In June 2002, JCP&LTransition Funding sold transition bonds b securitize the recoveryofJCP&USbondable stranded costs associated with the previously divested Oyster Creek NuclearGenerating Station. In August 2006,JCP&L Transition Funding ll sold transition bonds to securitize the recovery of deferred costs associated wilh JCP&LSsupply of BGS. JCP&Ldid notpurchase and does not own any of the transition bonds, which are included as long-term debt on FirstEnergy's and JCP&LS Consolidated Balance Sheets. The transition bonds are the sole obligations ot JCP&LTransition Funding and JCP&L Transition Funding ll and are collateralized by each company's equity and assets, which consist primarily of bondable transition property. As of September 30,2016 and December 31, 2015, $97 million and
$128 million of the lransition bonds were outstanding, respectively.. MP and PE Environnl*nl*/t Fundlng Comrynles - The entities issued bonds, the proceeds of which were used toconstruct environmental control facilities. The specialpurpose limited liability companies own the irrevocable right to collect non-bypassable environmental control charges from all customers who receive eleclric delivery service in MP's and PE s West Virginiaservice territories.
Principaland interest owed on the environmentalcontrolbonds is secured by, and payablesolely from, the proceeds of the environmental control charges. Creditors of FirstEnergy, other than the special purpose limited liability companies, have no recourse to any assets or revenues otthe specialpurpose limited liability companies.
Asof September 30, 2016 and December 31, 2015, $407 million and $429 milljon of the environmental control bonds wereoutstanding, respectively.Unconsolldatod VlEg FirslEnergy is not the primary beneficiary of the following VlEs:. Gtobal Holding - FEV holds a 33-1/3% equity ownership in Global Holding, the holding company for a joint venture in theSignal Peak mining and coal transportation operations with coal sales in U.S. and intemational markels. FEV is nol the primary beneficiary ofthe jointventure, as it does not have controloverthe significant activities atfecting thejoint venture's economic performance.
FEV'S ownership interest is subjecl to lhe equity method of accounting.
As discussed in Note l2, Commitments, Guarantees and Contingencies, FE is the guarantor underGlobal Holding's
$300 million term loan facility. Failure by Global Holding to meettheterms and conditions under its term loan facilitycould require FE to be obligated under the provisions of its guarantee, resulting in consolidation of Global Holding by FE.19 PATH WV -PAfrH is a series limited liability company that is comprised of multiple series, each of which has separate rights, powers and duties regarding specified property and the series profits and losses associated with such property.
Asubsidiary of FE owns 100o/" of the Allegheny Series (PATH-Allegheny) and 50% of the West Virginia Series (PATH-WV), which is a joint venture with a subsidiary of AEP. FirstEnergy is not the primary beneficiary of PATH-WV as it does not have control over the significant activities affecting the economics of PATH-WV. FirstEnergy's ownership interest in PATH-WV is subjectto the equity method of accounting.
Purchase Power Agreements - FirstEnergy evaluated its PPAs and determined that certain NUG entities at its Regulated Distribution segment may be VlEs to the extent that they own a plant that sells substantially all of its output tothe applicable utilities and the contract price for power is correlated with the plant's variable costs of production.
FirstEnergy maintains 14long{erm PPAswith NUG entities that were entered into pursuantto PURPA. FirstEnergywas not involved in the creation of, and has no equity or debt invested in, any of these entities.
FirstEnergy has determined that forall but one of these NUG entities, it does not have a variable interest or the entities do not meet the criteria to be considereda VlE. FirstEnergy may hold a variable interest in the remaining one entity; however, it applied the scope exception that exempts enterprises unable to obtain the necessary information to evaluate entities.Because FirstEnergy has no equity or debt interests in the NUG entities, its maximum exposure to loss relates primarily tothe above-market costs incurred for power. FirstEnergy expects any above-market costs incurred at its Regulated Distribution segment to be recovered from customers.
Purchased power costs related to the contracts that may contain a variable interest during the three months ended September30,2016 and 2015 were $22 million and
$29 million, respectively, and $78 million and $86 million during the nine months ended September 30, 2016 and 2015, respectively.Sale and Leaseback Transactions - OE and FES have obligations that are not included on their Consolidated BalanceSheets related to the Beaver Valley Unit 2 and 2007 Bruce Mansfield Unit 1 sale and leasebackarrangements, respectively, which are satisfied through operating lease payments. FirstEnergy is not the primary beneficiary of these interests as it doesnot have control over the significant activities affecting the economics of the arrangements. As of September 30, 2016, FirstEnergy's leasehold interest was 2.60% of Beaver Valley Unit 2 and FES' leasehold interest was 93.83% of Bruce Mansfield Unit 1.On June 24,2014, OE exercised its irrevocable right to repurchase from the remaining owner participants the lessors'interests in Beaver Valley Unit 2 at the end of the lease term (June 1 ,2017), which right to repurchase was assigned to NG.Upon the completion of this transaction, NG will have obtained all of the lessor equity interests at Beaver Valley Unit 2.Therefore, upon the expiration of the Beaver Valley Unit 2 leases, NG will be the sole owner of Beaver Valley Unit 2 and entitled to 100o/o of the unit's output.On May 23,2016, NG completed the purchase of the 3.75%
lessor equity interests of the remaining non-affiliated leasehold interest in Perry Unit 1 for $50 million. In addition, the Perry Unit 1 leases expired in accordance with their terms on May 30, 2016, resulting in NG being the sole owner of Perry Unit 1 and entitled to 100% of the unit's output. Thereafter, OEtransferred its NDT assets and related ARO to NG associated with Perry Unit 1 . See Note 10, Asset Retirement Obligations, for additional information.
FES and other FE subsidiaries are exposed to losses under their applicable sale and leaseback agreements upon the occurrence of certain contingent events. The maximum exposure under these provisions represents the net amount ofcasualty value payments due upon the occurrence of specified casualty events. Net discounted lease payments would not be payable if the casualty loss payments were made. The following table discloses each company's net exposure to loss based upon the casualty value provisions as of September 30, 2016:Maximum Discounted LeaseExposure Payments, net Net Exposure (ln millions)1,137 $ 895 $1 ,110 887 FirstEnergy FES 242 223 20
: 8. FAIR VALUE IIEASUBE ENTSRECURRING FAIR VALUE IIEASUREIIENTS Authoritative accounting guidance establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy gives be highest priority to Level 1 measurements and the lowest priority to Level 3 measuremenb. The three lsveb of thefair value hierarchy and a description of the valualion techniques are as tollows:Level 1Level 2 Quoted prices for identical instruments in active market Quoted prices for similar instruments in active market Quoted prices for identical or similar instruments in markets that are not activeModel-derived valuations for which all significant inputs are observable market data Models are primarily industry-standard models that consider various assumptions, including quoted forward prices forcommodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures.Valuation inputs are unobservable and significant to the fair value measurement FirstEnergy produces a long-term power and capacity price forecast annually with periodic updates as market conditions change. When underlying prices are not observable, prices from the long-term price forecast, which has been reviewed and approved by FirstEnergy's Risk Policy Committee, are used to measure fair value. A moredetailed description of FirstEnergy's valuation process for FTRs and NUGs follows: FTRs are financial instruments that entitle the holder to a stream of revenues (or charges) based on the hourly day-ahead congestion price differences across transmission paths. FTRs are acquired by FirstEnergy in the annual, monthly and long-term PJM auctions and are initially recorded using the auction clearing price less cost. After initial recognition, FTRs'carrying values are periodically adjusted to fair value using a mark-to-model methodology, whichapproximates market.
The primary inputs into the model, which aregenerally less observablethan objective sources,are the most recent PJM auction clearing prices and the FTRs'remaining hours. The modelcalculates the fairvalue by multiplying the most recent auction clearing price by the remaining FTR hours less the prorated FTR cost.Generally, significant increases or decreases in inputs in isolation could result in a higher or lower fair value measurement.
See Note 9, Derivative Instruments, for additional information regarding FirstEnergy's FTRs.NUG contracts represent PPAs with third-party non-utility generators that are transacted to satisfy certain obligationsunder PURPA. NUG contract carrying values are recorded at fair value and adjusted periodically using a mark-to-model methodology, which approximates market. The primary unobservable inputs intothe modelare regionalpower prices and generation MWH. Pricing for the NUG contracts is a combination of market prices for the current year and next three years based on observable data and internal models using historical trends and market data for the remaining years under contract. The internal models use forecasted energy purchase prices as an inputwhen prices are not defined by the contract.
Forecasted market prices are based on ICE quotes and management assumptions.Generation NrWH reflects data provided by conlractual arrangements and historical trends. The modelcalculates thefair value by multiplying the prices by the generation MWH. Generally, significant increases or decreases in inputs in isolation could result in a higher or lower fair value measurement.
Level 3 FirstEnergy primarily applies the market approach for recuning tair value measurements using the best information available.Accordingly, FirstEnergy maximizes the use of observable inputs and minimizes the use of unobservable inputs. There were nochanges in valualion methodologies used as of September 30, 2016, from those used as of December 31,2015.
The determination of the fair value measures takes into consideration various factors, including but not limited to, nonpertormance risk, counterparty creditrisk and the impact of credit enhancements (such as cash deposits, LOCS and priority interests). The impact of these forms of riskwas not significant to the fair value measurements.
21 Transfers between levels are recognized at the end ot the reporting period. There were no transfers between levels duling the ninemor hs ended September 30, 2016. The following tables set forth the recurring assets and liabilities that are accounted for at fairvalue by levelwithin the fair value hierarchy:
FirstEnergyRecurring Fair Value Measurements Assets Corporate debt securities Derivative assets - commodity contractsDerivative assets - FTRs Derivative assets - NUG contracts(r)
Equity securities(2)
Foreign governm ent debt securities U.S. government debt securitiesU.S, state debt securities Other(g)Total assets LiabilitiesDerivative liabilities - commodity contracts Derivative liabilities - FTRsDerivative liabilities - NUG contracts(l)Total liabilitiesNet assets (l iabilities)t+l September 30,2016 December 31,2015Level 1 Level 2 Level 3 Total Level 1Level 2 Level 3Total 1,242 $230 77 173 255 551 126$ 1/66 $ 'J03 $ 13$ 3,582 $685$7$13$8 1 1,245 228 8 1 576 75 180 246 317 908 (ln millions)1,242 $ $237 4 13 908 576 77 173 255 677 105 1,245 224 75 180 246 212$ 2,182 g $ 2,976 (13)(13)$ (122) $ (150) $ (281)(e)$ 1,454 $ 1 ,e81 !_q2 !_3,313_
! 6?6 !__r,060_
!-(141) !_r,ses_(1)(?\(3)(4)NUG contracts are subject to regulatory accounting treatment and do not impact earnings,NDT funds hold equity portfolios whose performance is benchmarked against the Alerian MLP Index or the Wells Fargo Hybrid and PreferredSecurities REIT index.
Primarily consists of short-term cash investments.
Excludes $(8) million and $7 million as of September30,2016 and December31,2015, respectively, of receivables, payables, taxes andaccrued income associated with financial instruments reflected within the fair value table.22 Bollfotwatd of Level 3 fuleasuremenEThe following table provides a reconciliation ofchanges in the fair value of NUG contracts and FTRS that are classified as Level3 inthe fair value hierarchy for the periods ended September 30, 2016 and December 31, 2015: NUG Contracts(l)
FTRs Derivative Derivative Assets Liabllities Net Derivative Assets Derivative Liabilities NetJanuary 1, 2015 Balance Unrealized gain (loss)Purchases Settlements December 31, 2015 Balance Unrealized gain (loss)
Purchases Settlements September 30, 2016 Balance (ln millions)2 $ (1s3) $ (151) $: 'i' ':'(3) 65 62 1 $ (137) $ (136) $(14) $ 25(7) (12)22 (11) 11 (48) 1e (2e)I $ (13) $ (5)(8) 1 (7)3e$(5)17 (4)(17)(17)(1)NUG contracts are subject to regulatory accounting treatment and do not impact earnings.
Level 3 Quantitative InformationThe lollowing table provides quantitative information lor FTRS and NUG contracb that are classitied as Level 3 in the fair valuehierarchy for the period ended September 30, 2016: (1) 36 35 Significant Input Range Weighted AverageRTO auction clearing prices Generation Regional electricity prices$(2.20) to $7.60 400 to 3,207,000
$30.90 to $35.30 (8) e13 I$1.00 Dollars/MWH 661,000 MWH$32.10 Dollars/MWHFair Value. Net Valuation (ln milliohsl Technique Units FTRsNUG Contracts FES 6 (118)Model Model Recurring Fair Value Measurements AssetsCorporate debt securities Derivative assets - commodity contracts Derivative assets - FTRs Equity securities(1)
Foreign governm ent debt securities U.S. government debt securitiesU.S. state debt securities other(2)Total assets LiabilitiesDerivative liabilities - commodity contracts Derivative liabilities - FTRsTotal liabilities Net assets (liabilities)tslSeptember 30,2016December 31,2015Level 1 Level 2 Level 3 Total Level 1 Level2 Level3 Total (ln millions)$ 714$ $ sze$237 4 224 7 624 59 53 4 7 $ 1,787 $$ 1,172$ 714 230;53 4 87$ 1J4?;23 4 184$-7$7 624;378$ 678 228 5 378 59 23 4 184$ 155e (e)(e)$ 621 $ 1,025 $ 2 $ 1,648 $ sZs $ 1,050 $ (6)$ 1,417 I_23 (21 (3)NDT funds hold equity portfolios whose performance is benchmarked against the Alerian MLP lndex or the Wells Fargo Hybrid and PreferredSecurities REIT index.
Primarily consists of short-term cash investments.
Excludes $1 million as of September 30, 2016 and December 31 , 2015, of receivables, payables, taxes and accrued income associated with thefinancial instruments reflected within the fair value table.Rollforward of Level 3 MeasurementsThe following table provides a reconciliation of changes in the fair value of FTRS held by FES and classified as Level 3 in the fairvalue hierarchy tor the periods ended September 30, 2016 and December 31, 2015:Derivative Asset Derivative Liability Net Asset (Liability)January 1, 2015 Balance Unrealized gain (loss)Purchases Settlements December 31, 2015 Balance Unrealized gain (loss)Purchases SettlementsSeptember 30, 2016 Balance Level 3 Quantitative lnformation 27$2 I (33)(ln millions)(13) $(5)(10)17 14 (3)(1)(16)5$(7)10 (1)(11) $1 (5)10 (6)(6)5 I$ (5) gThe following table provides quantitative information for FTRS held by FES that are classified as Level 3 in the fak value hierarchy for the period ended September 30, 2016:Fair Value.
Net Valuation (ln milliohs; Technique Significant Input Range Weighted Average Units FTRs $ 2 Model INVESTMENTSRTO auction clearing prices ($2.20) to $7.60$0.70 Dollars/MWHAll temporary cash investments purchased with an initial maturity ol three months or less are repolted as cash equivalenb on theConsolidated Balance Sheets at cost, which appmximates their fair market value. Investments other than cash and cash equivalenbinclude held-to-maturity securities and AFS securities.At the end ot each reporting period, FirstEnergy evaluates its investments lor OTTI. Investments classified as AFS securilies areevaluated to determine whether a decline in fair value below the cost basis is other than temporary. FirstEnergy considers its intentand abilityto hold an equity security until recoveryand then considers, among other factors, the duration andthe extent to which thesecurity's fair value has been less than its cost and the neaFterm tinancial prospects ol the security issuer when evaluating aninvestment for impairment. For debt securities, FirstEnergy considers its intent to hold the securities, the likelihood that it will berequired to sell the securities before recovery ot its cost basis and the likelihood of recovery ot the securities' entire amortized cost basis. ltthe decline in fair value is determined to be other than temporary the cost basis ol the securities is written down to fairvalue.Unrealizedgains and losses onAFS securities are recognized in AOCI. However, unrealized losses held in the NDTS of FES, OE and TE are recognized in earnings sincethe trust arrangements, as they are currently defined, do not meetthe required ability and intent to hold criteria in consideration of OTTI. The NDTs ofJCP&1, ME and PN aresubjectto regulatory accounting with unrealizsd gainsand losses offset against regulatory assets.The investment policy for the NDTfunds restricts or limib the trusts'ability to hold certain types of assets including private or direct placements, warrants, securities of FirtEnergy, investments in companies owning nuclear power plants, financial derivatives,securities convertible into common stock and securities of the trust funds'custodian or managers and their parents or subsidiaries.
AFS SecuntiesFirstEnergy holds debt and equity securities within its NDT and nuclearfueldisposaltrusts. These trust investments are consideGdAFS securities, recognized at fair market value. FirstEnergy has no securities held for trading purposes'24 The following table summarizes lhe amortized cost basis, unrealized gains (there were no unrealized losses) and fair values ofinvestments held in NDT and nuclear fuel disoosaltrusts as of Seotember 30. 2016 and December 31, 2015:September 30, 201601 December 31,2015(z)Cost Unrealized Gost Basis Gains Fair Value Basis Unrealized Gains Fair Value Debt securities FirstEnergy FES Equitv securities FirstEnergy
$FES (ln millions)1,797 $ 1,778 $879 801 1,728 $834 816 $561 6s$45 s2$63 908 $624 542 $354 16 $9 34$24 1,794 810 576 378 0) Excludes short-lerm cash investmenb: Fi6tEnergy - $50 million; FES - $39 million.e) Excludss short-tem cash investments: FirslEnergy - $157 million; FEs - $139 million.Proceeds from the sale of investmenB in AFS securities, realized gains and losses on those sales, OTTI and interest and dividendincome for the three and nine months ended September 30, 2016 and 2015 were as follows: For the Three Months Ended September 30,2016 Sale Proceeds Realized Gains Realized Losseslnterest and Dividend Income FirstEnergy FES September 30,2015 337 $135 Sale Proceeds (ln millions)$ (1s) $(6)Realized Losses 27 16lnterest and Dividend Income 36 23 (3) $(3)Realized Gains FirstEnergy FES 307 $127 (ln millions)33 $ (32) $28 (24)(46) $(41)25 14 For the Nine Months Ended September 30,2016 Sale Proceeds Realized Gains Realized Losseslnterest and Dividend Income FirstEnergy FES September 30, 2015 1,361 $576 Sale Proceeds (ln millions)131 $ (88) $s0 (4e)Realized Losses 75 42lnterest and Dividend lncome (13) $(12)Realized Gains FirstEnergy FES 1,126 $503 (ln millions)135 $ (121) $e8 (7s)(70) $(63)75 43 25 He WTo-Matu tW Seanities Unrealized gains (there were no unrealized losses) and approimate fair values of investments in held-to-maturity securities as ot September 30, 2016 and December 31, 2015 are immaterial to FiFtEnergy. Investments in employee benefit trusts and equitymethod investments totaling $276 million as of September 30, m16 and
$255 million as of December 31, 2015, are excluded fromthe amounts reported above.LONG-TERII DEBT AND OTHER LONG-TER OALIGATIOI{S All borrowings with initial maturities of less than one year are defined as short-term tinancial instruments under GAAP and are reported as Short-term borrowings on the Consolidated Balance Sheets at cost. Since these borrowings are short-term in nature, FirstEnergy believes that their costs approximate their fair market value. The following table provides the approximate fair value and related carrying amounts of long-term debt and olher long-tem obligations, excluding capitallease obligations a]d net unamortizeddebt issuance costs, premiums and discounts:September 30, 2016 December 31,2015 Carrying Fair GarryingValue Value Value Fair Value FirstEnergy FES 19,745 $3,003 (ln millions)21,465 $ 20,244 $2,662 3,027 21,519 3,121The fair values of long-term debt and other long-term obligations reflect the present value of the cash outflows relating to thosesecurities based on the current call price, the yield to maturity or the yield to call, as deemed appropriate at the end ot each respective period. The yields assumed were based on securities with similar characteristics ofiered by corporations with credit ratings similarto those of FirstEnergy. FirstEnergy classified short-term borrowings, long-term debt and other long-lerm obligationsas L*vel2 in the fak value hierarchy as of September 30, 2016 and December 31, 2015.9. DERIVATIVE INSTRUMENTSFirstEnergy is exposed to financialrisks resuhing from fluctuating interest rales and commodity prices, including prices for electricity, naturalgas, coaland energy transmission. To managethe volatility relatedtothese exposures, FirstEnergy's Risk Policy Committes, comprised ol senior management, provides general management oversight for risk management activities throughout FirstEnergy.The Risk Policy Committee is responsible lor promoting the elfective design and implementation ofsound riskmanagemenl programsand oversees compliance with corporate risk management policies and established riskmanagement practice. FirstEnergyalso uses a variety of derivative instruments tor risk management purposes including foMard contracts, options, futures conlracts and swaps.
FirstEnergy accounts for derivative inslruments on its Consolidated Balance Sheets at fair value (unless they meet the normal purchases and normal sales criteria) as lollows:. Changes in the fair value of derivative instruments that are designated and qualify as cash flow hedges are recorded toAOCI with subsequent reclassification to earnings in the period during which the hedged forecasted transaction afiects earnrngs,. Changes in the tair value of derivative instruments that are designated and qualify as fairvalue hedges are recorded as anadjustment to the item being hedged. When fairvalue hedges are discontinued, the adjustment recorded to the item beinghedged is amortized into earnings.. Changes in the fair value of derivative instruments that are not designated in a hedging relationship are recorded ineamings on a mark-to-market basis, unless otherwise noted.Derivative instruments meeting the normal purchases and normal sales criteria are accounted for under the accrual method ofaccouniing with their effects included in earnings at the time of contract perlormance.FirslEnergy has contractual derivative agreements through 2020.Cash Flow HedgesFirstEnergy has used cash flow hedges lor risk management purposes to manage the volatility related to eposures associatedwith fluctuating commodity prices and interest rates.
Total pre-tax net unamortized losses included in AOClassociated with instrumenb previousv designated as cash flow hedges lotaled$11 mitlion as of September 30, 2016 and December 31, 2015. Since the forecasted transactions remain probable of occurring, theseamounts will be amortized into earnings over the life of the hedging instruments.
Less than $1 million of net unamortized losses isexpected to be amortized to income during the next twelve months.
26 FirstEnergy has used forward starting interest rate swap agreements to hedge a portion of the consolidated inleresl rate riskassociated with anticipated issuances offixed-rate, long-term debt securities ot its subsidiaries. These derjvatives were designatd as cash flow hedges, protecting against the risk of changes in future interest payments resulting trom changes in benchmark U.S.Treasury rates between the date of hedge inception and the date of the debt issuance. Total pre-tax unamortized losses included in AOCI associated with prior interest rate cash flow hedges totaled
$35 million and $42 million as of September 30, 2016 andDecember 31,2015, respectively. Based on current estimates, approximately
$8 million otthese unamonized losses are expecled tobe amortized to interest expense during the next twelve months.
Reter to Note 5, Accumulated Other Comprehensive Income, for reclassifications from AOCI during the three ard nine months endedSeptember 30, 2016 and 2015.As of September 30,2016 and December 31,2015, no commodity or interest rate derivatives were designated as cash flow hedges.
Fair Value HedgesFirstEnergy has used fixedJoFlloating interest rate swap agreements to hedge a porlion of the consolidated interest rate risk associated with the debt portfolio of ib subsidiaries.
As of September 30, 2016 and December 31 , 2015, no fixed-foFfloating ifieresl rate swap agreements were outstanding.
Unamortized gains included in long-term debt associated with prior fixed-for4oatirE inierest rate sutap agreements totaled $1 2 million and $20 million as of September 30, 2016 and December 31,2015, respectively. During the next twelve months, approximately
$8million of unamortized gains are e&ected to be amortized to interest expense. Amortization of unamortized gains included in long-term debt totaled appoximately
$2 million during the three months ended September 30,2016 and $3 million dudng the thrse monthsended September 30, 20 l5. Amonization ol unamortized gains included in long-term debt btaled approximately
$8 million during thenine months ended September 30, 2016 and $9 million during the nine months ended September 30, 2015.Commodity Deivalives FirstEnergy uses both physically and financially settled derivatives to manage its exposur* to
\,olatility in commodity prices.Commodity derivatives are used for risk management purposes to hedge exposures when it makes economic sense to do so, including circumstances where the hedging relationship does not qualify for hedge accounting.Electricity iorwards are used to balance expected sales with e)eected generation and purchased power.
Natural gas futures are entered into based on expected consumption of natural gas primarily for use in FirstEnergy's combustion turbine units. Derivative instruments are not used in quantities greater than forecasted needs.As of Seplember 30, m16, FirtEnergy's net asset position under commodily derivative contracts was $103 million, which related to FES positions. Under these commodity derivative contracts, FES posted $9 million of collateraland recei\*d $22 million of collateral.Based on commodity derivati\re contracts held as of September 30, 2O'l6, an increase in commodity prices of 10% would decreasenet income by approximately
$37 million dudng the next twelve months.NUGS As of September 30, 2016, FirstEnergys net liability position under NUG contracts was $118 million, representing contracts held at JCP&L, ME and PN. Changes in the fair value of NUG contracts are subiect to regulalory accounting treatment and do not impact eamings.FTRs As ol September 30, 2016, FirstEnergy's and FES'net asset associated with FTRS was
$6 million and $2 million, respectively, and FES posted $7 million of collateral. FirstEnergy holds FTRS that generally represent an economic hedge of future congestion charges that will be incurred in connection with FirstEnergy's load obligations. FirstEnergy acquires the majority of its FTRS in an annualauction through a self-scheduling process involving the use ofARRS allocated to member of PJM that have load serving obligations.The future obligations for the FTRS acquired at auction are reflected on the Consolidated Balance Sheets and have not bsen designated as cash flow hedge instruments. FirstEnergy initially records these FTRS at the auction price less the obligation due toPJM, and subsequently adjusts the carrying value of remaining FTRS to their estimated fair value at the end of each accountingperiod pdorto settlement. Changes in the fairvalue of FTRS held by FES andAE Supplyare included in other operating epenses as unrealized gains or losses. Unrealized gains or losses on FTRS held by the Utilities are recorded as regulatory assets or liabilities.Dkectly allocated FTRS are accounted tor underlhe accrual method ot accounting, and their elfects are included in earnings at thetime of contract Derformance.
27 FirstEnergy records the lair value of derivative instruments on a gross basis. The tollowing table summarizes the fair value andclassification of derivative instruments on FirstEnergy's Consolidated Balance Sheets:Derivative Assets Derivative LiabilitiesGurrent Assets
-Derivatives Commodity Contracts
$FTRs Deferred Gharges and Other Assets - Other Commodity Contracts FTRs\[JQsit)Derivative Assets Fair ValueSeptember 30, December 31, 2016 2015 (ln millions)139 $13 152Fair Value Current Liabilities
-Derivatives 150 Commodity Contracts7 FTRs 157 Noncurrent Liabilities
-Adverse Power Contract Liability NUGs(1)Noncurrent Liabilities
-78 other 1 Commodity Contracts1 FTRs September 30, December 31, 2016 2015 (ln millions)(84) $(7)(106)Fair Value (e4)(12)(e1)98 (118)(50)(137)(37)(1)98 80 (168)(175)250 $237 Derivative Liabilities (25e) $(281)(1) NUG comracts are subject to Jegulalory accounting treatrnent and do not impact *amingts.
FirstEnergy enters into contracls with counteparties that allow for the otfsetting of derivati\re assets and deriva$ve liabilities under ne$ing arrangements with the same counterparty. Certain ol these contracts contain margining provisions that require the use ofcollateral to mitigate credit exposure between FirstEnergy and these coufierparlies.
In situations where collatetal is pledged lomitigate exposures related to derivative and non-derivative instruments with the same counterparty, FirstEnergy allocates thecollateral based on the perconiage ol the net fair value of derivative instruments to the total fair value of the combined delivalive andnon-derivative instruments. The following tables summadze the fair value of derivative assets and derivative liabililies on FirstEnergy's Consolidated Balance Sheets and the effect of netting arrangements and collateral on its financial position: Amounts Not Otfset in ConsolidatedBalance SheetSeptember 30, 2016Derivative Gash Collateral Net Fair Instruments (Received)/Pledged Value Derivative Assets Commodity contracts FTRs NUG contracts Derivative LiabilitiesCommodity contracts FTRs NUG contracts 237 13 (ln millions)(120) $(7)(22) $95 6 250 $(127) $(22)$ 101 (134) $(7)(118)120 7 8$ (6)(25e) $(118)9-(1'z41 28 127 $
December 31, 2015Fair Value Amounts Not Offset in ConsolidatedBalance Sheet Derivative Cash Collateral Net Fair Instruments (Received)/Pledged Value Derivative AssetsGommodity contracts FTRs NUG contracts Derivative LiabilitiesCommodity contracts FTRs NUG contracts Power Contracts FTRs NUGs Natural Gas .228 $I 1 (ln millions)(125) $(8)103 1 237 $(133) $$ 104 (131) $(13)(137)125 $8$ (3)(137)q ___(140)3 5 133 $Thefollowing table summarizes thevolumes associated with FirstEnergy's outsianding derivative transactions as of September 30, 2016: Purchases Sales Net Units (ln millions)49 (281) $9 42 3 49 (40) MWH 42 MWH 3 MWH 49 mmBTU 29 The effect of active derivative instruments not in a hedging relationship on the Consolidated Statements of lncome (Loss) duringthe three months and nine months ended September 30, 2016 and 2015, are summarized in the following tables:
For the Three Months Ended September 30-Conliictj rrns rotal (ln millions)2016Unrealized Gain (Loss) Recognized in:Other Operating Expense(t)
Realized Gain (Loss) Reclassified to: Revenues(1)Purchased Power Expense(t
)Other Operating Expense(t
)Fuel Expense (1) All amounts are associated with FES.For the Three Months Ended September 30 Commodity
, Contracts FTRs Total (ln millions)2015Unrealized Gain (Loss) Recognized in: Other Operating Expense(e)
Realized Gain (Loss) Reclassified to:
Revenues(2)
Purchased Power Expense(z)Other Operating Expense(z)
Fuel Expense (2)All amounts are associated with FES.le$(3) $$ 32 $ 1$(:) ., (2)16 33 (22)(6)(2)5e$41 $(1)(5)(2) $2$(11)57 43 (50)(11)(5)30 2016 Unrealized Gain Recognized in:
Other Operating Expense(t
)Realized Gain (Loss) Reclassified to: Revenues(1)
Purchased Power Expense(t
)Other Operating Expense(t
)Fuel Expense (1) All amounts are associated with FES.2015 Unrealized Gain (Loss) Recognized in:
Other Operating Expense(z)
Realized Gain (Loss) Reclassified to: Revenues(s)


Purchased Power Expense(+)
FIRSTENERGY    CORP.
Other Operating Expense(s)Fuel Expense For the Nine Months Ended September 30 Commodity Contracts (ln millions)2 $ 8 $FTRs Total 162 $(rT)(e)5 (28)167 (105)(28)(e)For the Nine Months Ended September 30 Commodity Contracts (ln millions)81 $ (17) $4s $ 48 $(78)(38)(26)FTRs Total 96 (78)(38)(26)(2) lncludes $81 million for commodity contracts and
CoNSoLTDATED      STATEMENTS      OF COMPREHENSIVE      INCOME(LOSS)
$(16) million for FTRs associated with FES.(3) Includes $48 million for commodity contracts and
(Unaudited)
$46 million for FTRs associated with FES.(a) All amounts are associated with FES.(s) Includes $(37) million for FTRs associated with FES.31 The following table provides a reconciliation ofchanges in lhefairvalue of FirstEnergys derivative instruments subject lo regulatoryaccaunting during the three and nine months ended September 30, 2016 and 2015. Changes in the value oI these instruments are deferred for future recovery from (or credil to) customers:
For the Three Months        For the Nine Months Ended September30          Ended September30 (ln millions)                                                     2016        2015          2016          2015 NET TNCOME    (LOSS)                                                  380 $                     (381$ )
For the Three Months Ended September 30 Derivatives Not in a Hedging Relationship with Requlatory Offset Regulated FTRs NUGs TotalOutstanding net asset (liability) as of July 1 , 2016 Unrealized loss SettlementsOutstanding net asset (liability) as of September 30, 2016Outstanding net asset (liability) as of July 1, 2015Unrealized loss SettlementsOutstanding net asset (liability) as of September 30, 2015 Derivatives Not in a Hedging Relationship with Regulatory OffsetOutstanding net asset (liability) as of January 1 ,2016Unrealized loss Purchases SettlementsOutstanding net asset (liability) as of September 30, 2016Outstanding net asset (liability) as of January 1 , 2015Unrealized loss Purchases Settlements (ln millions)(124) $ 4 $(6)12$-111q $ (114)(120)(6)12$ (140) $(20)12$(4)(128)(24)14 17 (3)138For the Nine Months Ended September 30 NUGs Regulated FTRs Total (ln millions)(136) $ 1 $(17)35 (1)4 (135)(18)4 35$ (118) $_____l 114$ (151) $(36)44 11 $(3)12 (140)(3e)12 29 Outstanding net asset (liability) as of September 30, 2015 $_1119) $ 5_ $ (138)32 10.ASSET RETIRE ENT OBLIGATIONSFirstEnergy has recognized applicable legal obligations for AROS and their associated cost primarily for nudear power plantdecommissioning, reclamation of sludge disposalponds, closure ofcoalash disposal sites, undergound and aboveground storage tanks, wastewater treatment lagoons ard lransformers containing PCBS. ln addition, FirstEnergy has recognized conditional retirement obligations, primarily for asbestos remedialion.TheARO liabilities for FES primarily relate to the decommissioning of the Beaver Valley, Davis-Besse and Petry nuclear generatingfacilities, which are approximately
OTHERCOMPREHENSTVE        TNCOME  (LOSS):
$701 million, as of September 30, 2016. FES uses an epected cash flouv approacfi b measuG thefair value of their nuclear decommissioning AROS.FirstEnergy and FES maintain NDTS that are legally restlicted tor purposes of settling the nuclear decommissioning ARO. The fair values of the decommissioning trust assets as ot September 30, 2016 and December 31, 2015 were as follows: 2016 2015 (ln millions)$ 2,502 $ 2,282$ 1,542 $ 1,327The following table summarizes the changes to the ARO balances during 2016:ARO Reconciliation FirstEnergy FES (ln millions)$ 1,410 $(25)4 70 1,459 $887 During the second quarter of 2016, in connection with NG purchasing the lessor equity interests of the remaining non-affiliatedleasehold interests from an owner participant in Perry Unit l, OE transferred theARO (included within the FES liabilitiss incurredabove) and related NDT assets associated with the leasehold interest to NG with the difference of
Pensionand OPEBpriorservicecosts                                    (18)         (31)         (54)       (e4)
$28 million credit*d to the commonstock of FES. As ofJune 30, 2016, NG owns 100% of Perry Unit 1.Federal and state hazadous waste regulations have been promulgated as a result of the RCRA, as amended, and the ToxicSubstances Control Acl. Certain coal combustion residuals, such as coal ash, were exempted from hazardous waste disposal requiremenb pending the EPA'S evaluation of the need for future regulation.In December 2014, the E PA finalized regulations forthe disposalof CCRS (non-haz ardous), establishing national standards regarding landfilldesign, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring and protection procedures and other operational and reporting procedures to assure the safe disposal of CCRS from electdc generating plants.Based on an assessment ofthe finalized regulations, the future cost of compliance and eryected timing of spend had no significantimpact on FirstEnergys or FES existing AROS associated with CCRS.Although none are currefily e)eected, any changes intimingand closure plan requirements in the future could materially and adversely impact FirstEnelgys and FES'AROS.1 1. REGULATORY iIATTERSSTATE REGULATIONEach of the Utilities' retail rates, conditions otselice, issuance of securities and other matters are sublect to regulation in the siatesin which it operates - in Maryland bythe MDPSC, in Ohio by the PUCO, in New Jersey by the NJBPU, in Pennsytvania bythe PPUC,in West Virginia by the WVPSC and in New York by the NYPSC. The transmission operations ol PE in Virginia are subject to certainregulations of the VSCC. In addition, under Ohio law, municipalities may regulate rates of a public utility, subject to appeal to thePUCO if not acceptable to the utility.As competitive retail electric suppliers serving retail customers primarily in Ohio, Pennsylvania, lllinois, Michigan, New Jersey andMaryland, FES and AE Supply are subject to state laws applicable to competitive electric suppliers in those states, including affiliatecodes ot conduct that apply to FES, AE Supply and theirpublic utility affiliates. In addition, ilany ofthe FirstEnergy affiliates were to engage in the construction of significant new transmission or generation facilities, dependirE on the state, they may be required toobtain slate regulatory authorization to site, construct and operate the new transmission or generation facility.FirstEnergy FES Balance, December 31, 2015 Liabilities settledLiabilities incurred Accretion Balance, September 30, 2016 831 (17)32 41 33 MARYLAND PE provides SOS pursuant to a combination ot settlement agreements, MDPSC orders and regulations, and siatutory provisions.SOS supply is competitively procured in the torm ot rolling contracts ofvarying lengthsthough periodic auctions that are overseen bythe MDPSC and a third party monitor. Although settlements with respect to SOS supply for PE customers have expired, servicecontinues in the same manner until changed by order of the MDPSC. PE recovers its costs plus a return tor providing SOS.The Maryland legislature adopted a statute in 2008 codifying the EmPOWER Maryland goals to reduce electric consumption anddemand and requiring each electric utility to file a plan every three years. PE's current plan, covering the three-year period 2015-2017, was approved by the MDPSC on December 23, 2014. The costs of the 2015-2017 plan are expected to be approximately
Amortizedlosseson derivativehedges                                    2            2            6            4 Changein unrealizedgainson available-for-sale securities                4          (11)         67        (21)
$68million, of which
Othercomprehensive  income(loss)                                   (12)         (40)         19        ( 1 1)1 Incometaxes(benefits)on othercomprehensive  income(loss)             (5)         (15)           6        (42)
$38 million was incurred through September 30, m16. On July 16, 2015, the MDPSC issued an order selting new incremental energy savings goals for 2017 and beyond, beginning with the level ot savings achieved under PE s currenl plan for 2016, and ramping up O.2o/o per fear thereatter to rcach 2o/o. PE continues to recover program costs subj*cl to a live-yearamortization. Maryland law only allows for the utility to recover lost distribution revenue attributable to energy elficiency or demand reduction programs through a base rate case proceeding, and to date, such recovery has not been sought or obtained by PE.On February 27, 2013,lhe MDPSC issued an oder (the Febuary 27 Orde0 requiring the Maryland electric utilities to submit analyses relating to the costs and benefits of making further system and staffing enhan@ments in orderlo attempt to reduce stormoutage durations. The orderfurther required the Stafi ofthe MDPSC to report on possible performance-based rate structures and to propose additionalrules relating to feeder performance standards, outage communication and reporting, and sharing olspecialneedscustomer information. PE's responsive filings discussed the steps needed to harden the utilitys system in order to attempt to achievevarious levels of storm response speed described in the February 27 Order, and projected that it would require approximately
Othercomprehensive  income(loss),net of tax                        (7)          (25)          13        (6e)
$2.7billion in infrastructure investments over 15 years to attempt to achieve the quickest level of response forlhe largest storm projectedin the February 27 Order. On July 1, 2014, the Statf ot the MDPSC issued a set ot repons that recommended the imposition ofextensive additionalrequirements in the areas of storm response, fe*der performance, estimales ot restoration times, and regulatoryreporting. The Staff ofthe MDPSC also recommended the imposition of penalties, including customer rebates, for a utility's failure orinability tocomplywith the escalating standards of storm restoration speed proposed bythe Staffofthe MDPSC. In addition, the Stafiof the MDPSC proposed that the utilities be required to develop and implement system hardening plans, up to a rate impact cap oncost. The MDPSC conducted a hearing Septemberl5-18,2014, to consider certain otthese matters, and has not yet issued a rulingon any of those matters.
GoMPREHENSlVE    TNCOME  (LOSS)                                     373 $       370 $        (368) $      735 The accompanying CombinedNotesto Consolidated                    are an integralpartof thesefinancialstatements.
NEW JERSEY JCP&Lcurrently provides BGS lor reiailcustomers who do not choose a third party EGS and for customers of third party EGSS that failto provide the contracted service. The supply for BGS is comprised ot two components, procured through separate, annually helddescending clock auctions, the results of which are approved by the NJBPU. One BGS component reflects hourly real lime energy prices and is available lor larger commercial and industrial customers.
FinancialStatements
The second BGS component provides a fixed price service and is intended for smaller commercial and residential customers. All New Jersey EDCS participate in this competitive BGS procurement process and recover BGS costs directly from customers as a charge separate from base rates.Pursuant to the NJBPU'S March 26, 2015 final order in JCP&L'S 2012 rate case proceeding dkecting that certain sludies be completed, on July 22,2015, the NJBPU approved the NJBPU staff's recommendation to implement such sludies, which includeoperational and financial components. The independent consultant conducting the review issued a final report on July 27, 2016, recognizing that JCP&L is meeting the NJBPU requirements and making various operational and financial recommendations.
 
TheNJBPU issued an Order on August 24,2016, that accepted the independent consultant's final report and directed JCP&L, the Division of Rate Counsel, and other interested parties to address the recommendations.
FIRSTENERGY        CORP.
ln an Order issued Oclober 22,2014, in a generic proceeding to review its policies with respect to the use ol a CTA in base rate cases (Generic CTAproceeding), the NJBPU stated that it would continueto apply its current CTApolicy in base rate cases, subject to incorporating the tollowing modifications: (i) calculating savings using a five-year look back lrom the beginning ofhe test year; (ii)allocating savings with 75% retained by the company and 25% allocatsd to rate payers; and (iii) excluding transmission asssts ofelectric distribution companies in the savings calculation. On November 5, 2014, the Division of Rate Counselappealed the NJBPU Order regarding the Generic CTAproceeding to the New Jersey Superior Court andJCP&L has ftled to participate asa respondent in that proceeding. Briefing has been completed.
CONSOLIDATED        BALANCESHEETS (Unaudited)
The oral argument was held on October 25, 2016.On April 28, 2016, JCP&L filed iariffs with the NJBPU proposing a general rate increase associated with ib distribulion operationsthat seeks to improve service and benetit customers by supporting equipment maintenance, tree trimming, and inspections of lines, poles and substations, while also compensating torother business and operating expenses. The filing requested approvalto increaseannual operating Evenues by approximately
September30,  December31, (ln millions, except share amounts)                                                                                 2015 ASSETS CURRENTASSETS:
$142.1 million based upon a hybrid test year for the twelve months ending June 30, 2016. On July 13, 2016, this matter was submitted to the Office of Administrative Law for hearing and the issuance of an Initial Decision. On September 30, 2016, JCP&Ltiled an update to its filing, which inciudes actualdata for the twelve months ended June 30, 2016, requesting an increase to annual operating revenues by approximately
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:
$146.6 million. On October 19, 2016, an order was received approving the agreed upon procedural schedule. Hearings are scheduled to occur in January 2017 thlough March 2017. OnNovember 2, 2016, JCP&L achieved a settlement-in-p nciple with all the intervening parties providing for an annual
Nuclearplantdecommissioning    trusts                                                                  2,502          2,282 Other                                                                                                    533            506
$80 million 34 distribution revenue increase, which will take effect on January 1, 2017, subject to linalization, execution and NJBPU approval of aStipulation of Settlement.
                                                                                                  -       3,035          2,788 DEFERREDCHARGESAND OTHERASSETS:
On June 19, 2015, JCP&L, along with PN, ME, FET and MAIT made tilings with FERC, the NJBPU, and the PPUC lequesting authorization forJCP&L, PN and ME to contribute their transmission assets to MAII a newtransmission-only subsidiary of FET The procedural schedule was suspended while the NJBPU considered a motion on a legal issue regarding whether MAIT can bedesignated as a "public utility" in New Jersey. On February 24, 2016, the NJBPU issued an Order concluding that MAIT does notsatisfy the'electricity distribution" element necessary for "public utility" status because MAlTwould not own any electric distribution assets in New Jersey. On April 22, 2016, JCP&L and MAIT filed a supplemental petition and testimony seeking to include certainJCP&L distributions assets in the transfer to satisfy the "electricity distribution" element necessary for'public utility'status in accordance with the NJBPU'S February 24,2016 order. In order to allow MAlTto file its tormula transmission rate with an stfectivedate of January 1,2017, on September 8, 2016, JCP&L and MAIT submitted a letter to the NJBPU to withdraw their petition totransfer JCP&L assets into MAIT. The NJBPU adminisfa vely closed the matter on September 30, 2016. See Transfer of Transmission Assets to MAIT in FERC Matters below for further discussion ot this transaction.
Goodwill(Note2)                                                                                         5,618          6,418 Regulatoryassets                                                                                        1,088          1,348 Other                                                                                                    907          1,286 7.613          9.052
oHro On August 4, 2014, the Ohio Companies tiled an application with the PUCO seeking approvalottheir ESP lV e illed Powedng Ohb'sProgress. ESP lV included a proposed Rider RRS, which would flowthrough to customers either charges or credits represenling thenet result of the price paid to FES through an eight-year FERo-jurisdictional PPA, referred to as the ESP lV PPA, againsl therevenues received trom selling such output into the PJM markets. The Ohio Companies entered into stipulations which modified ESPlV and which included PUCO Staff as a signatory party, in addition to other signatories.
                                                                                                  $_51,gq]-      $     saqq_
On March 31, 2016, lhe PUCO issued anOpinion and Orderadopting and approving the Ohio Companies'stipulated ESP lVwith modifications. FES and the Ohio Companies entered into the ESP lV PPA on April 1, 2016.On January 27,2016, certain parties filed a complaintwith FEBC against FES and the Ohio Companies requesling FERC reviewtheESP lV PPA under Section 205 of the FPA. On April 27,2016, FERC issued an order granting the complaint, prohibiting anytransactions under the ESP lV PPA pending future authorization by FERC, and directing FES to submit the ESP lV PPAfor FERC review if the parties desired to transact under the agreement.
LIABILITIESAND CAPITALIZATION CURRENTLIABILITIES:
FES and the Ohio Companies did not file the ESP lV PPA tor FERC review but rather agreed to suspend the ESP lV PPA. FES and the Ohio Companies subsequently advised FERC of this course of acton.On April 29, 2016 and May 2, 2016, several parties, including the Ohio Companies, liled applications for rehearing on the OhioCompanies'ESP lVwith the PUCO. The Ohio Companies'Application for Rehearing included a modified Rider RRS proposalbutdidnot include a FERC-jurisdiclional PPA. The PUCO accepted the applications for rehearing tor further consideration and provided parties an opportunity to comment on the Ohio Companies'Application for Rehearing and file an alternative proposal. PUCO Staff recommended that the PUCO deny the Ohio Companies' modified Rider RRS proposal and recommended a new Rider DMR providing for the collection of
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:
$204 million annually (grossed up for income taxes) for three years with a possible extension for anadditional two years. The Ohio Companies recommended that the PUCO approve the proposed modified Rider RRS and that a properly designed Rider DMRwould be valued at $558 million annuallyfor 8 years, and include an additionalamount that recognizes the value of the economic impact of FirtEnergy maintaining its headquarters in Ohio.Several parties subsequently filed protests and comments with FERC alleging, among other things, that the modilied Rider RRSconstitutes a'virtual PPA". The filings and FirstEnergy's responses thereto are pending betore FERC.On September 6,2016, whilethe applications for rehearing were stillpending before the PUCO, the OCC and NOAC filed a notice ofappeal with the Ohio Supreme Court appealing various PUCO and Attorney Examiner Entries on lhe parlies' applications forrehearing. On September'16, 2016, the Ohio Companies intervened and filed a motion to dismiss the appeal. The appeal remains pending betore the Ohio Supreme Court.On October 12, 2016, the PUCO issued an opinion and oder ruling on the parties' applications for Iehearing and turther modifiedESP lV The PUCO orderdenied the Ohio Companies' modilied Rider RRS proposal, and instead approved a Rider DMR proposed by PUCO Statf, with modifications.As a result of the stipulations, the PUCO'S March 31, 2016 Opinion and Order and the PUCO'S Octobell2, 2016 order, the materialterms of ESP lV include:. An eight-year term (June 1,2016- May 31,2024J... The Rider DMR which provides for the Ohio Companies to collect
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    :
$132.5 million annually forftree years, with the possibilityof a two-year exlension. The Rider DMB will be grossed up for taxes, resulting in an approved amount of approximately
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)
$204 million annually. Revenuesfrom the Rider DMR willbe excluded from the significantly excessive earnings test tor the initial three-year term but the exclusion will be reconsidered upon application for a potential two-year extension.. Three conditions tor continued recovery under the Rider DMR:
                                                                                                  $       51,961$       s2,094 The accompanying      CombinedNotesto Consolidated      FinancialStatementsare an integralpartof thesefinancialstatements.
(1) retention of the corporate headquarters and nexus ofoperations in Akron, Ohio; (2) no change in control of the Ohio Companies; and (3) a demonstration of s uffcient progr$s in the implementation of grid modernization programs approved by the PUCO.35 No restrictions on the Ohio Companies' use of funds collected under the Rider DMR. However, the PUCO directed the PUCO Staff to periodically review how the Ohio Companies and FE use the funds to ensure the funds are used, directly or indirectly, in support of grid modernization. Uses of funds to indirectly support grid modernization could include, e.9., reducing outstanding pension obligations or reducing debt.Continuation of a base distribution rate freeze through May 31 ,2024.Continuation of the supply of power to non-shopping customers at a market-based price set through an auction process.Continuation of Rider DCR with increased revenue caps of approximately
 
$30 million per year from June 1,2016 through May 31 , 2019; $20 million per year from June 1 , 2019 through May 31 , 2022; and $15 million per year from June 1, 2022through May 31 ,2024 that supports continued investment related to the distribution system for the benefit of customers.
FIRSTENERGY      CORP.
Collection of lost distribution revenues associated with energy efficiency and peak demand reduction programs.Continuation of a commitment not to recover from retail customers certain costs related to transmission cost allocations for the longer of the five-year period from June 1 ,2011 through May 31 , 2016 or when the amount of such costs avoided by customers for certain types of products totals $360 million.Potential procurement of 100 MW of new Ohio wind or solar resources subject to a demonstrated need to procure new renewable energy resources as part of a strategy to further diversify Ohio's energy portfolio.
CONSOLIDATED        STATEMENTS        OF CASH FLOWS (Unaudited)
An agreement to file a case with the PUCO by April 3, 2017, seeking to transition to decoupled base rates for residential customers.
For the Nine Months Ended September30 (ln millions)                                                                                2016                 2015 CASH FLOWS FROMOPERATINGACTIVITIES:
An agreement to file a Grid Modernization Business Plan for PUCO consideration and approval (which filing was made on February 29,2016).A goal across FirstEnergy to reduce COz emissions by 90% below 2005 levels by 2045.A contribution of
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)
$3 million per year ($24 million over the eight-year term) to fund energy conservation programs, economic development and job retention in the Ohio Companies service territory.
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)
Contributions of $2.4 million per year ($19 million over the eight-year term) to fund a fuel-fund in each of the Ohio Companies service territories to assist low-income customers.. A contribution ol $1 million per year ($8 million over the eight-year term) to establish a Customer Advisory Council b ensure preservation and growth of the competitive marlGt in Ohio.Finallt on March 21,2016, a number of generation owners liled with FERC a complaint against PJM requesting that FERC e{candthe MOPR in the PJM Tariff to prevent the alleged artificial suppression of prices in the PJM capacity markets by state-subsidized generation, in particular alleged price suppression that could resu lt from the ESP lV PPA and other simihr agreements.
Pensiontrustcontributions                                                                          (2e7)              (143)
The complaint requested that FERC direct PJM to initiate a siakeholder process to develop a long-term MOPR reform for existing resources that receive out-of-market revenue. This proceeding remains pending before FERC.UnderOhios energy efiiciency standards (58221 and S8310), and based on the Ohio Companies'amended energy efiiciency plans,the Ohio Companies are required to implement energy efficiency programs that achieve a total annual energy savings equivalent of2,266 GWHS in 2015 and 2,288 GWHS in 2016, and then begin to increase by 1% each yea( in 2017, subject to legislativeamendments to the energy efiiciency standards discussed below. The Ohio Companies are also required to retain the 2014 peak demand reduction levellor 2015 and 2016 and then increase the benchmark by an additional0.T5%thereafErthrough 2020, subject to legislative amendments to the peak demand reduction standards discussed below.On SeptemberSo, 2015, the Energy Mandates Study Committee issued its report related to energy efficiency and renervable energymandates, recommending that the cunent level ol mandates remain in dace indefinitely. The report also recommended: (i) an expedited process for reviEw of utiliv propossd gnsrgy Efficiency plans; (ii) ensuring madmum crEdit fur all of Ohio's Energy Initiatives; (iii) a switch from sn*rgy mandabs to enorgy incentives; and (iv) a declaraton be made that the GeneralAss*mbly maydetermine the energy policy ot the state. Legislation was introduced lo address issues raised in the Energy Mandates SludyCommittee report, namely S8320 and H8554. SB320 proposes to freeze energy effciency and renewable energy requirements for anadditional four yea6 at 2014 levels, as well as addressing net metering issues.
Commodityderivativetransactions,net (Note9)                                                          (10)               (64)
HB554 proposes to freeze energy efficiency andrenewable energy requirements lhrough 2027 at 2014 levels.On September 24, 2014, the Ohio Companies filed an amendment to their eneqy efiiciency portfolio plan as contemplated by SBS l0, seeking to suspend certain programs for the 2015-2016 period in order to better align the plan with the new benchmarks under SB31O. On November 20, 2014, the PUCO approved the Ohio Companies'amended portfolio phn. Several applications for rehearingwere filed, and the PUCO granted those applications for further consideration of the matter specified in those applications and themalter remains pending before the PUCO.On April 15, ml6, the Ohio Companies ftled an application for approval of their three-year energy elficiency portfolio plans for the period fiom January 1,2017 through December 31, 2019. The plans as proposed comply with benchmarks contemplated by SB3'10 and provisions of the ESP lV, and include a portfolio of energy efficiency programs targeted to a variety of qrstomer segmenb,including residentialcustomers, low income customers, smallcommercialcustomers,large comrnercial and industrial customers and govemmental entities. The Ohio Companies anticipate the cost of the plans will be approximately
Leasepaymentson sale and leasebacktransaction                                                        (s4)              (102)
$323 million over the lfie of theportfolio plans and such costs are epected to be recovered through the Ohio Companies' existing rate mechanisms. The hearing is scheduled for November 21-23. 2016.
Changesin currentassetsand liabilities-Receivables                                                                                          (34)                  7 Materialsand supplies                                                                                  45                  32 Prepaymentsand othercurrentassets                                                                    (28)                (43)
36 On September 16,2013, the Ohio Companies filed with the Supreme Court of Ohio a notioe of appealofthe PUCO'S July 17,2013 Entry on Rehearing related to energy efficiency, altemative energy, and long-tem forecast rules stating that the rules issued by the PUCO are inconsistent with, and are not supported by, statutory authority. On October 23, 2013, the PUCO filed a motion to dismissthe appeal, which was denied. On August 9, 2016, upon a Joint Application for Dismissalfiled by the Ohio Companies, PUCO and the ELPC, the Ohio Supreme Court dismissed the appeal.
Accountspayable                                                                                      (17)              (285)
Ohio law requires electric utilities and electric seruice @mpanies in Ohio to serve part oftheir load from renewable energy resources measured byan annually increasing percentage amountthrough 2026, subject to legislative amendmenb discussed above, excspt 2015 and 2016 that remain at the 2014level. The Ohio Comoanies conducted RFPS in 2009,2010 and 2011 b secure RECS to help meet these renewable energy requirements. In September 2011, the PUCO opened a docket to review the Ohio Companies'alternative energy recovery riderthrough which the Ohio Companies recover the costs of acquidng these RECS. The PUCO issuedan Opinion and Order on August 7, 2013, approving the Ohio Companies' acquisition process and their purchases of RECS to meetstatutory mandales in all instances except for certain purchases arising from one auction and directed the Ohio Companies to credit non-shopping customers in the amount ol
Accruedtaxes                                                                                          (81)                (68)
$43.4 million, plus interest, on the basis that the Ohio Companies did not pro/e such purchases were prudent. On December 24,2013, following the denialoftheir application for rehearing, the Ohio Companies filed a notice ot appeal and a motion lor siay of the PUCO'S order with the Supreme Court of Ohio, which was granted. On February 18, 2014, the OCC and the ELPC also tiled appeals of the PUCO'S order. The Ohio Companies timely filed their merit brief with theSupreme Court of Ohio and the brieting process has concluded. The matter is not yet scheduled for oral argument.
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:
On April 9, 2014, the PUCO initiated a generic investigation of marketing practices in the competitive retailelectric service market, with a focus on the ma*eting of fixod-price or guaranteed percentoff SSO rate contracts where there is a provision that pemib the pass-through of new or additional charges. On November 18, 20'15, the PUCO ruled that on a going-foMad basis, pass-though clauses may not be included in lixed-price conlracts for all customer classes.
New Financing-Long-termdebt                                                                                        521              1,094 Short-termborrowings,net                                                                          1,275                  134 Redemptions  and Repayments-Long-termdebt                                                                                    ( 1, 0 1 7 )          (781)
On De@mber 18, 2015, FES filed an Application ior Rehearing seeking to change the ruling or have it only apply to residential and small commercial customers. On January
Commonstockdividendpayments                                                                          (458)              (455)
'13, 2016, the PUCO granted reconsideration for further consideration ol the matters specitied in the applications for rehearing.
Other                                                                                                    (s)              (11)
PENNSYLVANIAThe Pennsylvania Companies currently operate under DSPS that expire on May 31, 2017, and pmvide for the competitive procu Ement of generation supply for customers lhat do not choose an alternative EGS or for customers of altemative EGSS that fail to provide the contracted service. The default seivice supply is currently provided by wholesale suppliers through a mix of long-termand short-term contracts procured through spot market purchases, quarterly descending clock auctions for 3-, 12- and 24-monthenergy contracts, and one RFP seeking 2-year contracts to serve SRECS for ME, PN and Penn.Following the expiration of the current DSPS, the Pennsylvania Companies willoperate under new DSPSfortheJune 1,2017 throughMay 31, 2019 delivery period, which would provide for lhe competitive procurement of generation supply for customers who do notchoose an alternative EGS or for customers of alternative EGSS that fail to provide the contracted seMce. Under the pmgrams, thesupply would b*
Net cash providedfrom (usedfor) financingactivities                                                  316                  (2s)
provided by wholesale suppliers through a mix ot'12 and 24-month energy contracts, aswellas one RFP for 2-yearSREC contracts for ME, PN and Penn. In addition, the plan includes modifications to the Pennsylvania Companies' existing POR programs in oder to reduce the level of uncollectible e)eense the Pennsyivania Companies expedence associated with altemativeEGS charges.
CASH FLOWSFROMINVESTINGACTIVITIES:
Pursuant to Pennsylvania s EE&C legislation (Acl 129 of 2008) and PPUC orders, Pennsylvania EDCS implement energy efficiency and peak demand reduction programs. The Pennsylvania Companies'Phase ll EE&C Plans were eftective through May31, 2016.Total Phase ll costs of these plans were expected to be approximately
Propertyadditions                                                                                  (2,156)            (2,025)
$175 million and recoverable through the Pennsylvania Companies' reconcilable EE&C riders. On June 19,2015, the PPUC issued a Phase lll Final lmplementation Order setting:demand reduction targeb, relative to each Pennsylvania Companies' 2007-2008 peak demand (in MW), at 1 .8% for ME, 1 .7yo for Penn, 1 .8%for wP, and 0% for PN; and energy consumption reduclion targeb, as a p*rcentage ofeach Pennsylvania Companies'historic 2010 forecasts (in lvlwH), at 4.0% tor ME, 3.9% tor PN,3.3% for Penn, and 2.6%forwP. The Pennsylvania Companies'Phase lll EE&C plans for the June 2016 through May 2021 period, which were appmved in March 2016, are designed to achieve the targets esiablished in the PPUC'S Phase lll Final lmplementation Order without recovery to implement the EE&C plans.Pu6uant to Act 1 l of A)12, Pennsylvania EDCS may establish a DSIC to recover costs of infrastructure implovemenB and cosls related to highway relocation projects with PPUC approval. Pennsylvania EDCS mustfile LTllPs otjllining infrastructure improvement plans for PPUC review and approval prior to approval of a DSIC. On October'19, 2015, each of the Pennsylvania Companies filedLTIIPS with the PPUC ior infrastructure impovement over the five-year period of 2016 to 2020 for the following costs:
Nuclearfuel                                                                                          (1e5)              (101)
WP $88.34million; PN
Salesof investmentsecuritiesheldin trusts                                                          1,361              1,126 Purchasesof investmentsecuritiesheld in trusts                                                    (1,437\            ( 1, 2 1 3 )
$56.74 million; Penn
Assetremovalcosts                                                                                    ( 1 0 1)            (111)
$56.35 million;and ME
Other                                                                                                    52                  37 Net cash usedfor investingactivities                                                            (2,476\            (2,287)
$43.44 million. On February 11,2016,ihe PPUC appo\*d the Pennsylvania Companies' LTllPs. On February 15, 2016, the Pennsylvania Companies filed DSIC riders for PPUC approval for quarterly cost recovery associated with the capital projects approved in the LTllPs. On June 9, 2016, the PPUC approved the Pennsylvania Companies'DSIC riders to be effective July 1, 2015, subiect to hearings and refund or reallocation among customels.
Net changein cash and cash equivalents                                                                  420                    1 Cashand cashequivalents  at beginningol period                                                        131                  85 Cashand cash equivalentsat end of period                                            --
On April2S,2016, each ofthe Pennsytuania Companies filed tarifis with the PPUC proposing generalrate increases associated withlheir distribution operations that will benelit customers by modemizing the grid with smart technologies, increasing vegetation management activilies, and continuing other customer service enhancements. The lilings request approval to increase annualoperating revenues by approximately
The accompanying      CombinedNotesto Consolidated      FinancialStatementsare an integralpartof thesefinancialstatements.
$140.2 million at ME, $158.8 million at PN, $42.0 million at Penn, and
 
$98.2 million at We 37 based upon fully projected future test years for the twelve months ending December 31, 2017 at each of the PennsylvaniaCompanies. As a result of the enactment of Acl
FIRSTENERGY      SOLUTIONSCORP.
/tO of 2016 that terminated the practice of making a CTAwhen calculating a utility'sfederal income taxes lor ratemaking purposes, the Pennsylvania Companies submitted supplemental testimony on July 7,2016, that quantified the value ol the elimination ofthe CTA and outlined their plan for investing 50 percent of that amount in rate base eligibleequipment as required by the new law Formal settlement agreements for each of the Pennsyfuania Companies werc fled on October14,2016, which provide increases in annualoperating revenues of approximately
coNsoLrDATEDSTATEMENTS              OF TNCOME    (LOSS)AND COMPREHENSTVE              TNCOME    (LOSS)
$96 million at ME, $100 million at PN, $29 million at Penn, and $66 million atWP, and are subiect to PPUC approval. One item related b the calculation of DSIC rates was reserved for briefing, with briefs filed by two parties. The proposed new rates are expected to take effect in January 2017 pending regulatory approval, which is expected no later than January 26,2017.On June '19, 2015, ME and PN, along with JCP&I, FET and MAIT made tilings with FERC, the NJBPU, and the PPUC requesting aulhorization for JCP&1, PN and ME to contribute their transmission assets to MAIT, a newtransmission-only subsidiary of FET. OnMarch 4, 20'16, a Joint Petition for Full Settlement was submitted to the PPUC tor consideration and approval. On April 18, 2016, theALJS issued an Initial Decision approving the Joint Petition for Full Settlement without moditications. On July 21, 2016, the PPUCadopted a Motion approving the Joint Petition for Full Settlement with minor modifications. On August 24, 2016, lhe PPUC issued a FinalOrder approving theJoint Settlement consistent with the July 21, 2016 Motion. See Transter oI Transmission Assets to MAIT inFEBC Matters below for further discussion of this transaction.WEST VIRGINIA MP and PE provide electric service to all customers through traditionalcost-based, regulated utility ratemaking. MP and PE recover net power supply costs, including fuel costs, purchased power costs and related exp*nses, net of related market sales revenuethrough the ENEC. MP's and PE's ENEC rale is updated annually.
(Unaudited)
MP and PE filed with the WVPSC on March 31, 2016 their Phase ll energy etficiency program proposalfor approval. MP and PE are proposing three energy efficiency programs to meet their Phase ll requirement of energy etficiency reduclions of 0.5% of 2013distribution sales for the January 1, 2O17 through May 31, 2018 period, as agreed to by MP and PE, and approved by the VWPSC inthe 2012 proceeding approving the transfer of ownership of Harrison Power Station to MP The costs forthe program are epected to be $10.4 million and will be eligible for recovery through the existing energy etficiency riderwhich is reviewed in the tuel (ENEC) case each year. A unanimous settlement was reached by the parties on all issues and presented to the WVPSC on August 18, 2016. Anorder approving the settlement in fullwithout modilication was issued by theWVPSC on September 23, 2016. Under lhe order, the programs may begin as of the date of such orde( but no later than January 1, 2017.The Staff of the WVPSC and the ConsumerAdvocate Division filed a Show Cause petition on August 5,2016, requesting the WVPSCorder MP and PE lo file and implement RFPS for allfuture capacity and energy requirements above l00 lvlws and that they complywith an RFP settlement provision from the Harrison asset acquisition.
For the Three Months        For the Nine Months Ended September30        Ended September30 (ln millions)                                                      ffiffi STATEMENTS    OF INCOME(LOSS)
MP and PE filed a timely response to the petition arguing fordismissal on September 7, 2016. On October
REVENUES:
'17, 2016, the wvPSC denied the petition filed by the Stafi of the WVPSC and theConsumer Advocate Division and dismissed the case.
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:
On August 16,2016, MP and PE filed their annual ENEC case proposing an approximate
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):
$65 million annual increase in ralesetfective January 1 , 2017, which is a 4.7% overall increase over existing rates. The $65 million increase is comprised of $119 millionunder-recovered balance as ofJune 30, 2016, and a projected
Investment  income(loss)                                                    24          (21)          56          (7)
$54 million over-recovery tor the 2017 rate effective period. Aheadnghas been set for November 9 and 10, 2016 with an order expected to be issued in the fourth quarter of 2016.On August 22, 2016, MP and PE liied an application for approval of a modernization and improvement plan torcoal-fired boilers at electric power plants and cost-recovery surcharge proposing an approximate
Miscellaneous  income                                                          1            1            4            5 lnterestexpense- affiliates                                                  (3)          (2)          (6)          (6) lnterestexpense- other                                                      (36)        (36)        (10e)      (110)
$6.9 million annual increase in rales proposed to beefiective May 1 , 2017, which is a 0.5% overall increase over existing rates. The tiling is in response to recent legislation by the WestVirginia Legislature session permitting accelerated recovery of cosls related to modernizing and improving coal-fired boilers, including costs related to meeting environmental requirements and reducing emissions. The filing was supplemented on Seplember2S, 2016,to add two additional projects, resulting in an approximate
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)
$7.4 million annual increase in rates. The Statt ofthe WVPSC has filed amotion to dismiss the case arguing the new statute was not meant to recover these types of projects, but the WVPSC has set thecase lor hearing tor Feuuary 2'l-29,2017 -On December 30, 2015, MP filed an IRP identifying a capacity shortfall starting in 2016 and exceeding 700 tvfw by 2020 and 850lvfw W 2027. On June 3, 2016, the WVPSC accepted the IRP finding that lRPs are informational and that it must not approve ordisapprove the IRP MP Plans to issue a RFP to address its generation shortfall identified in the IRP by lhe end of the year.38 RELIABILIW MATTEBS Federally-enforceable mandatory reliability slandads apply b the bulk eleclric system and impose certain opeft ing, recod-keepillg and reporting requiremenB on the t tilities, FES, AE Supply, FG, FENOC, NG, ATSI and TrAlL. NERC is the ERO designated byFE RC to esiablish and enforce these reliability standads, although NERC has delegated day-tcday implemeniation and enbrcementof these reliability standards to eight regionalentities, including BFC. All of FirstEnergy's facilities are located within the RFC region.
NET TNCOME      (LOSS)                                                        40$       120 $        (267) $        96 STATEMENTS      OF COMPREHENSIVE      INCOME(LOSS)
FirstEnergy aclively padicipales inthe NERC and RFC stakeholder processes, and otherwise monitors and manages its companiesin responsetothe ongoing development, implementation and enforcement of the reliability standards implemented and eniorced by RFC.FirstEnergy believes that it is in compliance with all currently-etfective and enforceable reliability standards.
NET TNCOME      (LOSS)                                                        40$        120 $        (267) $        96 OTHERCOMPREHENSTVE          TNCOME  (LOSS):
Nevertheless, in thecourse of operating its extensive electric utility systems and facilities, FirstEnergy occasionally leams of isolated lacts oIcircumstances that could be interpreted as excursions from the reliability standards.
Pensionand OPEBpriorservicecosts                                              (3)          (4)        (10)        ( 12)
ll a]d when such o@urences are found, FirstEnergy develops information about the occurrence and develops a remedial response to the specific cilcumstances, induding inappropriate cases "self-reporting" an occurrence to RFC. Moreover, it is clear that NERC, RFC and FERC will continue b refine existing reliability standards as well as to develop and adopt new reliability standards. Any inability on FirstEnergys patt to comply with the reliability standards for its bulk electric system could result in the imposition offinancial penalties, and obligations b upgradeor build transmission facilities. that muld have a material adverse effect on its financial condition, results of operations and cash flows.FERC IIATTERSOhio ESP lV PPAFor information regarding matters before FERC related to the ESP lV PPA between FES and the Ohio Companies, see'Regulatory Matters - Ohio' above.PJM Transmission Bates PJM and its stakeholders have been debating the proper melhod to allocate costs for newtransmission facilities. While FirstEnergy and other parties advocate fora traditional"beneficiary pays' (or usage based) approach, others advocate fol "socializing" the costson a load-ratio share basis, where each customer in the zone would pay based on its total usage of energywithin PJM. This questionhas been the subiect ot extensive litigation before FERC andthe appellate courts, including before the Seventh Circuit. On June 25, 2014, a divided three-judge panel ofthe Seventh Ckcuit ruled that FERC had not quantified the benelits that westem PJM utilities would derive from certain new 500 kV or higher lines and thus had not adequately supported its decision to socialize the costs of these lines. The maiority lound that eastem PJM utilities are the primary b*neficiaries of the lines,rvtrilet *stem PJM utilities areonly incidental beneficiaries, and that, while incidental beneficiaries should pay some share ofthe costs of the lines, that share should be proportionate to the benetit they derive from the lines, and not on load-ratio share in PJM as awhole. The court remanded the case toFERC, which issued an order setting the issue of cost allocation tor hearing and settlement proceedings. On June 15, 2016 various parties, including ATSI and the Utilities, filed a settlement agreement at FERC agreeing to apply a combind usagebased/socialization approach to cost allocation for charges to transmission customers in the PJM rogion br transmission proiec{soperating at or above 500 kV. Certain parties in the proceeding did not agree to the settlement and filed protests to the settlementseeking, among other issues, to strike certain of the evidence advanced by FirstEnergy and certain of the other settling parties in support of the settlement, as lr*ll as provided further comments in opposition to the settlement. The PJM TOs responded to theprotesting parties'vadous pleadings ard motions. The settlement is pending before FERC.In a series of orders in cerlain Order No. lOOO dockets. FERC asserted that the PJMtransmission owners do not hold an incumbent1ig ht of first refusal" to construct, own and operate lransmission projects within their respective botprints that are approved as patt of PJM'S RTEP process. FirstEnergy and other PJM transmission owners appealed these rulings to the U.S. Court of Appeals for the D.C. Circuitwhich, in a July 1, 2016 opinion, ruled that the PJM transmission owners failed to preserve their arguments in the legal proceedings betore FERC and, on that basis, d*nied the appeal. In a related case howht bythe Southwest Powel Pooltransmission owners and issued on the same day, the court ruled that the Mobile-Siena standard does not protect transmission owners' rights offirst refusal that may be provided for in RTO taritfs because, according to the coutt, the tariff language is designed to block competition. The Mob,7+Srbna standard presumes that rates negotiated by private parties at arm's length are jusl and reasonable and prohibits FERC from modifying such rates unless the public interest requires.The outcome of these proceedings and their impact, if any, on FirstEnergy cannot be predicted at this time.
Amortizedlosses(gains)on derivativehedges                                      1-(2)
BTO RealignnentOn June l, 2011, ATSI and the ATSI zone transferred lrom MISO to PJM. While many of the matters involvsd with the move have been resotved, FERC denied recovery under ATSI'S transmission rate for certain charges that collectively can be described as "exit fees'and certain other transmission cost allocation charges totaling approximately
Changein unrealized  gainson available-for-sale securities                      5 -11o    (11)          61        (20)
$78.8 million until such time as ATSI submits acost/benefit analysis demonstrating net benefits to customers from the transbr to PJM. Subs*quently, FERC reiected a poposed settlement ag reement to resohre the exit fee and lransmission cost allocation issues, stating that its action is without ptejudice to ATSI 39 submitting a cost/benefit analysis demonstrating that the benelits ot the RTO realignment decisions outweigh the exit tee andtransmission cost allocation charges. On March 17, 20'16, FERC denied FirstEnergy's request for rehearing of FERC's earlier order rejecting the senlement agreement and afiirmed its prior ruling that ATSI must submit the cosvbenefit analysis.
Othercomprehensive    income(loss)                                          3                        51 Incometaxes(benefits)on othercomprehensive    income(loss)                    1          (6)          20 - -    (13)
Separately, the question ot ATSI's responsibility for cenain costs for the "Michigan Thumb' transmission project continues to bedisputed. Potential responsibility arises under the MISO MVP taritf, which has been litigated in complex proceedings before FERCand certain Uniled States appellate courts. On October 29,2015, FERC issued an orderfinding thatATSl and theATSlzone do not have to pay MISO MVP charges for the Michigan Thumb transmission project. MISO and the MISO TOs filed a request for rehearing,which FERC denied on May 19, 2016. On July 15, 2016, the MISO TOs filed an appeal ot FERC'S orders with the Sixth Circuit.
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 intervened in the proceedings and intendsto participate in theappeal. On a related issue, FirstEnergyjoinsd certain other PJM transmission owners in a protest of MISO'S proposalto allocate MVP costs to energy transactions that cross MISO'S borders intothe PJM Region. On July 13,2016, FERC issued its order finding it appropriate for MISO to assess an MVP usage charge fortransmission exports from MlSOto PJM. Various parties, including FirstEnergy andthe PJMTOs, requested rehearing or clarificationof FERC's order. These parties'request for rehearing remains pending before FERC.In addition, in a May 31, 2011 order, FERC ruled that the costs for certain "legacy RTEP" transmission proiects in PJM approved before ATSI joined PJM could be charged to transmission customers in the ATSI zone.
 
The amount to be paid, and the question ofderived benefits, is pending betore FERC as a result of the Seventh Circuit's June 25,2014 order described above under PJMTransmission Rates.The outcome of the proceedings that address the remaining open issues relaled to costs for the "Michigan Thumb' transmission project and "legacy RTEP" transmission projects cannot be predicted at this lime.Transfer of Ttansmission Asseb to MAITOn June 10, 2015, MAIT, a Delaware limited liability company, was formed as a new transmission-only subsidiary of FET for the purposes of owning and operating all FERc-jurisdictional transmission assets ot JCP&1, ME and PN lollowing the receipt oI all necessary state and federal regulatory approvals. On June 19, 2015, JCP&1, PN, ME, FET, and MAIT made filings with FERC, theNJBPU, and the PPUC requesting authorization forJCP&1, PN and ME to contributo theirtransmission assets to MAIT. Additionally, the filings requested approval trom the NJBPU and PPUC, as applicable, of: (i) a lease to MAIT ot real property and rights-of-wayassociated with the utilities' trsnsmission assets; (ii) a MutualAssistance Agreemsnt (iii) MAIT being deemed a public utility under state law: (iv) MAITS participation in FE's regulated companies' money pool; and (v) certain affiliated interestagreemenb. As initially proposed, it was expected that JCP&L, ME, and PN would contribute their transmission assets at net book value and an allocated portion of goodwill in a tax-tree exchange to MAIT, which would operate similar to FETS two existing siand-alone transmission subsidiaries, ATSI and TrAlL. MAITS transmission facilities will remain under the functional control of PJM, and PJM will providetransmission service using these facilities under the PJM Tariff.
FIRSTENERGY        SOLUTIONSCORP.
FERC approved the transaction on February 18,2016. On August 24, 2016, the PPUC issued a Final Order approving the transaction.
CONSOLIDATED          BALANCESHEETS (Unaudited)
In order to allow MAIT to file its formula transmission rate with anefiective date of January 1, 2017, on September 8, 2016, JCP&L and MAIT submitted a letterto the NJBPU lo withdraw their petitionto transfer JCP&L assets to MAIT. The NJBPU administratively closed the matter on September 30, 2016. See New Jersey andPennsylvania in State Regulation above for further discussion of lhis transaction.On October 14 and 28, 2016, MAIT submitted applications to FERC requesting authorization to issue equity, short-torm debt, and long-term debt. MAIT intends to issue membership interests to FET, PN, and ME in exchange for their respective cash and asset contributions. MAIT is epected to issue short-term debt and participate in the FirstEnergy Utility Money Poolfor working capital, to fund day-to-day operations, and forother general corporate purposes.
September30,     December31, (ln millions, except share amounts)                                                        2016            2015 ASSETS CURRENTASSETS:
Overthe long-term, MAIT is expected lo issue long-termdebtto support capital investment and to establish an actual capital structure for ratemaking purposes. On October 28, 2016, MAITsubmitted an application to FERC requesting authorization to implement a formula transmission rate to recovel and earn a return ontransmission costs effective January'1,2017. On October 28,2016, MAlTand PJM submitted joint applications to FERC requesting authorization for (i) ME and PN to withdraw from the PJM Consolidated Transmission Owners Agreement as TOs, and (ii) MAIT tobecome a participating PJM TO. Acceptance of MAIT as a PJM TO would grant PJM tunctional control over MAITS transmissionassets, and would permit PJM to implement MAIT'S formula rate on MAIT'S behalf.JCP&L Ttansmission Formula RateGiven that JCP&Lwill not be hansferring its transmission assets to MAIT, there is a need forJCP&Lto update its transmission rate.Accordingly, on October 28, 2016, JCP&L submitted an application to FERC requesting authorization to implement a tormulatransmission rate to recover and earn a relurn on transmission costs etfeclive January 1, 2017.Cal itomi a Claims Litigatb nSince 2002, AE Supply has been involved in litigation and claims based on its power sales to the California Energy ResourceScheduling division ol the CDWR during 2001-2003. This litigation and claims are related to litigation and claims advanced by the Califomia Attorney Generaland certain California utilities regarding alleged market manipulation ofthewholesale energy markets inCalifornia during the 2000-2001 period. AE Supply negotiated a senlement with the Calitornia Atlorney General and lhe Californiautilities and, on August 24, 2016, filed the settlement agreement for FERC approval.
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:
The settlement calls tor AE Supply to pay, 40 without admission of any liability, $3.6 million in settlement in principle of all remaining claims that are based on AE Supply's power sales in the westem energy markeb during the 2001-2003 time period. On October 27, 2016 FERC approved this settlemenl.PAT H Ttans mis sio n P roied On August 24, 2012, the PJM Board of Managers canceled the PATH project, a prcposed transmission line from West Virginia through Mrginia and into Maryland which PJM had previously suspended in February 2011. As a result of PJM canceling the project, approximately
ln service                                                                                  14,100          14,311 Less- Accumulatedprovisionfor depreciation                                                    5,822            5,765 8,278            8,546 Constructionwork in progress                                                                  1,048            1j57
$62 million and appmximately
                                                                                          -          9,326            9,703 INVESTMENTS:
$59 million in costs incurred by PATH-Allegheny and PATH-WV respectively, were reclassified from net property, plant and equipment to a regulatory asset for future reclery. PATH-Allegheny and PATH-WV requested authodzation from FERC to recover the costs with a proposed ROE of 10.9%
Nuclearplantdecommissioning      trusts                                                        1,542            1,327 Other                                                                                            10                10
(10.4% base plus 0.5% for RTO membership) from PJM customers over five years. FERC issued an order dsnying the 0.5% ROE adder for RTO membership andallowing the tariff changes enabling recovery of these costs to become eftective on December 1, 2012, subject to senbment proceedings and hearing if the parties could not agree to a settlement. On March 24,2014, the FERC Chief AU teminated settlement proceedings and appointed an ALJ to preside over the hearing phase of the case, including discovery and additional pleadings leading up to hearing, which subsequently included the parlies addressing the application ol FERC'S Opinion No. 531,discussed below, to the PATH proceeding.
                                                                                          -         1.552            1,337 DEFERREDCHARGESAND OTHERASSETS:
On September 1 4, 201 5, the ALJ issued his initial decision, disallowing recovery of certaincosts. The initialdecision and exceptions thereto remain before FERC for review and afinalorder FirstEnergy continues to believethe costs are re@verable, subject io final ruling ftom FERC.
Customerintangibles                                                                              11                61 Goodwill(Note2)                                                                                                   23 Propertytaxes                                                                                    10              40 Derivatives                                                                                      98                79 Other                                                                                            374              367 493              570
FERC ODinion No-531On June 19, 2014, FERC issued Opinion No. 531, in which FERC revised its approach for calculating the discounted cash flowelement ot FERC'S ROE methodology, and announced the potential for a qualitative adiustment to the ROE methodology lesults.Under the old methodology, FERC used a five-year torecast for the dividend growth variable, whereas going iorward lhe growthvariable will consist ot t yo parts: (a) a fiv+year for*cast br dividend growlh (2,3 weight); and (b) a long-tem dividend growth torecastbased on a forecast for the U.S. economy (l/3 weight). Regading the qualitative adjustment, for single-utility rate cases FERC tormerly pegged ROE at the median of the '2one of reasonableness' that came out of the ROE formula, wtrereas going forward,FERC may rely on record evidence to make qualitative adiustments to the outcome of the ROE methodology in orderto reach a levelsufficient to attrac{ future investment. On October 16, 2014, FERC issued its Opinion No. 531-A, applying the revis*d ROE methodology to certain ISO New England transmission owners, and on March 3,2015, FERC issuedOpinion No.531-B affirmirE ib prior rulings. Appeals ot Opinion Nos. 531, 531-A and 531-B are pending before the U.S. Court ofAppeals for the D.C. Circuit.
                                                                                          $        12,867 $        13,168 LIABILITIESAND CAPITALIZATION CURRENTLIABILITIES:
MISO Capacity PotabilvOn June 11, 2012, in response to certain arguments advanced by MISO, FERC requested comments regalding whether sxisting rules on transfer capability act as barriers to the delivery of capacity between MISO and PJM. FirstEnergy and other parties submitbd filings arguing that MISOS conoerns largely are without foundation, FERC did not mandate a solution in response to MISO'S concerns. At FERC'S direction, in May, 2015, PJM, MISO, and their respective independent market monitors provided additional information on their various joint issues surrounding the PJIiUMlSO seam to assist FERC's understanding ofthe issues and rvhat, ifany, additional steps FERC should iake to improve the efiiciency of operations at the PJI,VMISO seam. Stakeholders, including FESCon behalf of certain of its afiiliates and as part of a coalition of certain other PJM utilities, filed responses to the RTO submissions.
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:
The various submissions and resmnses remain before FERC for consideration.Changes lo the criteria and qualifications for participation in the PJM RPM capacity auctions could have a significant impacl on theoutcome of those auctions, including a negative impact on the prices at which those auctions would clear.12. COIIMITIIEiITS, GUARAI{TEES AND COiITINGEI{CIESGUAFANTEES AND OTHER ASSURANCESFirstEnergy has various financial and performance guarantees and indemnifications which are issued in the normal course ofbusiness. These contracts include perbmance guarantees, stand-by letters of credit, debt gualantees, sur*ty bonds andindemnifications. FirstEnergy enters into these arrangements to facilitate commercial transactions with third panies by enhancing thevalue of the transaction to the third party.As of September 30, 2016, FirstEnergys outstanding guarantees and olher assurances aggregated approximately
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:
$3.4 billion,consisting of parental guarantees
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
($584 million), subsidiaries' guarantees
                                                                                          --        3.535            3,491 COMMITMENTS,      GUARANTEES      AND CONTINGENCIES      (NOIE12)
($2.0 billion), othel guarantees ($300 million) and other assurances
                                                                                          $        12,86r_ $      13, 168 The accompanying      CombinedNotesto Consolidated        FinancialStatementsare an integralpartof thesefinancialstatements.
($504 million).O{ this aggregate amount, substantially all relates to guarantees of wholly-owned consolidated entities of FirstEnergy. FES' debtobligations are generally guaranteed by its subsidiaries, FG and NG, and FES guarantees the debt obligatbns of each of FG and NG.Accordingly, present and future holders of indebtedness of FES, FG and NG would have claims against each of FES, FG and NG,regardless of whether their piimary obligor is FES, FG or NG.41 COLLATERAL AND CONTINGENT-RELATED FEATURES In the normalcourse ot business, FE and its subsidiaries routinely enter into physical or tinancially settled contracts forthe sale and purchase of electric capacity, energy,Iuel, and emission allowances. Certain bilateralagreements and derivative instruments contain provisions that require FE or its subsidiaries to post collateral.
 
This collateral may be posted in lhe lorm of cash orcredit support withthresholds contingent upon FE's or its subsidiaries' credit rating trom each oI the major credit rating agencies. The collateral andcredit support requirements vary by contract and by counterparty. The incremental collateral requiremenl allows for the offsetting ofassets and liabilities with the same counterparty, where the contractual right of ofiset exists under applicable masler netting agreemenls.
FIRSTENERGY      SOLUTIONS      CORP.
Bilateralagreements and derivative instruments entered into by FE and its suboidiaries have margining provisions that require postingof collateral. Based on FES'power portfolio exposures as of September 30,2016, FES has posted collateralof
CONSOLIDATED        STATEMENTS        OF CASH FLOWS (Unaudited)
$193 million and AESupply has posted collateral of
For the Nine Months Ended September30 fln millions)                                                                                    2016                2015 CASH FLOWSFROMOPERAilNG AGTIVITIES:
$4 million.These credit-risk-related contingent teatures, orthe margining provisions within bilateralagreements, stipulate that itthe subsidiarywere to be downgraded or lose its investment grade credit rating (based on its senior unsecured debt rating), itwould be requiredto provide additional collateral. Depending on the volume of torward contracts and future price movements, higher amounts formargining, which is the ability to secure additional collateral when needed, could be required.As a result of the downgrades by Moody's and S&P on July 29, 2016 and August 1, 2016, CES posted additional collateral of
Net income(loss)                                                                                        (267) $
$53million. Additionally, on November 4, 2016, Moody's and S&P further downgraded FES. Given the downgrades, CES has further potential cotlateral posting obligations totaling
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)
$81 million for which counterparties have not exercised their right to require CES to post collateral. Subsequent to the o@urrence of a senior unsecured credil rating downgrade below S&P's and Moody's current ratings, or a "material adverse event," the immediate posting of collateral or accelerated paymenls may be requked of FirstEnergy.The following table discloses the additionalcredit contingent contractual obligations that may be required undercertain events as ofNovember 4, 2016:
Commodityderivative  transactions,net (Note9)                                                          (10)              (6s)
Potential Collateral Obligations CES Regulated Total (in millions)Contractual Obligations for Additional Collateral At Current Credit Rating Upon Further DowngradeUpon Material Adverse Event Surety Bonds (Collateralized Amount)Total Exposure from Contractual Obligations 81 $10 264$48 81 48 10 360 355 96$ 144 499Excluded from the preceding table are the potential collateral obligations due to affiliate transactions between the Regulated Distribution segment and CES segment.
Leasepaymentson sale and leasebacktransaction                                                          (e4)            (102) lmpairment  of assets(Note2)                                                                            540                16 Changesin currentassetsand liabilities-Receivables                                                                                              19              171 Materialsand supplies                                                                                    25                (1)
As of September 30, 2016, neither FES norAE Supply had any collateral posted wjth lheir affiliates.
Accountspayable                                                                                        (6e)            (241)
OT}IER COMMITMENTS AND CONTINGENCIESFE is a guarantor under a syndicated senior secured term loan facility due March 3,2020, underwhich Global Holding bormwed
Accruedtaxes                                                                                              (6)            (28)
$300million. In addition to FE, Signal Peak, Global Rail, GlobalMining croup, LLC and GlobalCoalSales Group, LLC, each being a direct or indirect subsidiary of clobal Holding, continue to provide their loint and several guaranties of the obligations of Global Holdingunder the facility.In connection with the tacility, 69.99% ot Global Holding's direct and indirect membership interests in Signal Peak, Global Rail andtheir affiliates along with FEV'S and WMB Marketing Ventures, LLC'S respective 33- 1/3% membership interests in Global Holding, are pledged lo the lenders under the current facility as collateral.
Accruedcompensationand benefits                                                                                              2 Othercurrentliabilities                                                                                  ;                24 Cashcollateral,net                                                                                          6            107 Other                                                                                                    (16)                (4)
ENVIRONMEiTIAL MATTERSVarious federal, state and local authorities regulate FirstEnergy with regard to airand waterquality and other environmentalmatters.
Net cash providedtrom operatingactivities                                                              604 CASH FLOWSFROMFINANCINGACTIVITIES:
Compliance with environmental regulations could have a materialadverse eftect on FirstEnergys earnings and competitive position tothe extent that FirstEnergy competes with companies that are nol subject to such regulations and, therefore, do not bearthe risk ofcosts associated with compliance, or failure to comply, with such regulations.Clean Ah Act FirstEnergy complies with SO, and NOx emission reduction requirements under the CAA and SIP(s) by burning lower-sulfur fuel, utilizing combustion controls and post-combustion controls, generating more eleciricity from lower or non-emitting plants and/or usingemission allowances.
Newfinancing-Long-termdebt                                                                                          471              '1 Short-termborrowings,net                                                                                101 Redemptionsand repayments-Long-term debt                                                                                        (503)            (382)
CSAPR requires reductions of NOx and SOz emissions in two phases (2015 and 2017), ultimately capping SO2 emissions in affectedstates to
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


===2.4 million===
ThechangesinAOCI,netof tax,in thethreeandninemonthsendedSeptember        30,2016and2015,for FESareincluded    in the following tables:
tons annually and NOx emissions to 1.2 million tons annually. CSAPR allows trading of NOx and SO2 emissionallowances between power plants located in the same state and interstate trading of NOx and SO2 emission allowances with some restrictions. The U.S. Court ofAppeals for the D.C.
FES Gains&          Unrealized        Defined Losses on        Gains on         Benefit Gash Flow          AFS            Pension&
Circuit ordered the EPA on July 28, 20'15, to leconsiderthe CSAPR caps on NOxand SO2 emissions from power plants in 13 states, including Ohio, Pennsylvania and West Virginia. This follows the 2014 U.S.Supreme Courl ruling generally upholding EPAs regulatory approach under CSAPR, but questioning whelher EPA required upwindstates to reduce emissions by more than their contribution to air pollution in downwind states. EPA issued a CSAPR updaie rule onSeptember 7,20'16, reducing summertime NOx emissions trom power plants in 22 states in the eastern U.S., including Ohio, Pennsylvania and West Virginia, beginning in 2017. Depending on how the EPAand the states implement CSAPR, the future cost ofcompliance may be material and changes lo FirstEnergy's and FES'operations may result.
Hedges          Securities      OPEBPlans    Total (ln millions)
EPAtightened the primary and secondary NMQSfor ozone from the 2008 standard levels of75 PPBto 70 PPB on October 1,2015.EPA stated the vast majonty of U.S. counties will meet the new 70 PPB standard by 2025 due to other federal and siate rules and programs but EPA will designate those counties that fail to attain the new 2015 ozone NMQS by October 1 , 2017. States will thenha\* roughly three years to develop implementation plans to attain the new 2015 ozone NMQS. Depending on how the EPA and thestates implement the new 2Ol 5 ozone NMQS, ltre future cost of compliance may be material and changes b FirstEnergys and FES'operations may result. In August 2016, the State of Delaware filed a CAA Section 126 petition wilh the EPAalleging that the Harison generating facilitys NOx emissions significantly contribute to Detaware's inabilityto attain the ozone NMQS. The petition seeks a sho term NOx emission rate limit of 0.125lb/mmBTU over an averaging pedod of no more than 24 hours. On September 27,2016, EPA extended the time lrame for acting on the CAA Section 126 petition by six months to April 7, 2017. FirstEnergy is unable to predict the outcome of this matter or estimate the loss or range of loss.MATS imposes emission limits for mercury PM, and HClfor allexisting and new fossiltuelfired electric aenerating unib effective in April 2015 with averaging of emissions from multiple units located at a single plant. FirstEnergys totalcarital cost for compliance (over the 2012 to 2018 time priod) is currently expected to be approximately
AOCIBalanceas of July 1, 2016                                       ( 1 0 )$          50$            35$        75 Othercomprehensive  incomebeforereclassifications                                    22                        22 Amountsreclassified fromAOCI                                          1            (17)              (3)    (1e)
$345 million (CES segment of $168 million and Regulated Distribution segment of
Othercomprehensive  income(loss)                                    1                5              (3)        3 Incometaxes(benefits)on othercomprehensive    income(loss)                            2              (1)        1 Othercomprehensive  income(loss),net of tax                                                        (2)
$177 million), of which $267 million has been spent through September 30, 2016 ($117 million at CES and $150 million at Regulated Distribution).OnAugust3,2O15, FG, asubsidiary ot FES, submitted to the AAA office in New York, N.Y., a demand for arbitration and staEment of claim against BNSF and CSX seeking a declaration that MATS constituted a force majeure event that excuses FG's p*rformanceu nder its coal transportation contract with these panies. Specifically, the dispute arises from a contract br the fanspodation by BNSF and CSX of a minimum of 3.5 million tons of coal annually through 2025 to cenain coal-fired power plants owned by FG that arelocated in Ohio. As a result of and in compliance with MATS, all plants covered by this
AOCIBalanceas of September30, 2016                                    (e)$           53$            33$
@ntracl were deactivated by April 16,2015. InJanuary 2012, FG notified BNSF and CSX that MATS constituted a torce majeure event underthe contracl that excused FG's lurth*r p*rformance. Separately, on August 4, 2015, BNSF ard CSX submitted to the AAA office in Washington, D.C., a demand for arbitration and statement of claim against FG alleging that FG breached the contract and that FG's declaration of a force majeure under the contract is not valid and seeking damages under the contract through 2025. On [,lay 31, a)16, the parties agreed to a stipulation that if FG's force majeuredefense is determinedto be wholly or partially invalid,liquidated damages are the sole remedy available to BNSFand CSX. The abitration Danelhas determined to consolidate the claims with a liability hearit* scheduled lo beginon November 28,2016, and, if necessary a damages hearing scheduled to begin on May 8,2017. The decision on liability is expected to be issued within sixty days from the end ofthe liabitity hearirE proceedings, which are scheduled to conclude February24, 2017. FirstEnergy and FES continue to believe that MATS constitutes a force maieure event urder the @firacl als it relates b the deactivated plants and that FG's periormance under the contract is thereiore excused. FG intends to vigorously assen its position inthe abitration proceedings. lf, however, the arbitration panel rules in favor ol BNSF and CSX, the resulb of operations andfinancial condition of both FirstEnergy and FES could be materially adversely impacted. Refer to the Strategic Review of CompetitiveOperations seciion of Note 1 , Organization arxd Basis ot Presentation, for possible actions that may be taken by FES in the avent ofan adverse outcome, including, withoul limitation, seeking protection under the bankruptcy laws. FirstEnergy and FES are unable toestimate the loss or range of loss.
AOCIBalanceas of July 1, 2015                                          (e)$            16$             38$       45 Othercomprehensive  lossbeforereclassifications                                      (7)                      (7)
FG is also a party to another coal transportation contract covering the delivery o12.5 million tons annually through 2025, a portion ofwhich is to be delivered to another coal-fired plant owned by FG that was deactivated as a result of MATS. FG has asserted adefense of force maieure in response to delivery shortFalls to such plant under this contract as well. lf FG fails to reach a resolutionwith the applicable counterpaniesto the contract, ard if it wsre ultimately determined that, contrary to FirstEnergy's and FES'belief, the force majeure provisions of that contract do not excuse the delivery shortfalls to the deactivated plant, the results of operations and financial condition of both FirstEnergy and FES could be materially adversely impacted. FirstEnergy and FES are unable toestimate the loss or range of loss.As to both coal transportation agreements refersnced above, FG paid approximately
Amountsreclassified fromAOCI                                                          (4)             (4)      (8)
$70 million in the aggregate in liquidateddamages to settle delivery shortfalls in 2014 related to its deaclivated plants, which approximated fullliquidated damages undertheagreements for such year related to the plant deactivations. Liquidated damages for the p*rjod 2015-2025 remain in dispute.As to a specific coal supply agreement, AE Supply has asserted termination rights etfective in 2015. In response to notltication of thetermination, the coal supplier commenced litigation alleging AE Supply does not have sutlicient justificalion to terminate the agreement.
Othercomprehensive  loss                                                          (11)            (4)    (15)
AE Supply has filed an answer denying any liability related to the termination.
Incometax benefitson othercomprehensive    loss                                      (5)            (1)      (6)
This matter is currently in the discovery phase of litigation and no trialdate has been established.
Othercomprehensive  loss,netof tax                                                  (6)            (3)        (e)
There are approximately
AOCIBalanceas of September30, 2015                                    (e)$            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


===5.5 million===
The followingamountswere reclassified      fromAOCIfor FES in the threeand ninemonthsendedSeptember30, 2016and 2015:
tons remaining underthe conlract fordelivery At this time, AE Supply cannot estimate the loss or range of loss regarding the on-going litigation with respsct to this agreement, In September 2007, AE received an NOV from the EPAalleging NSR and PSD violations under the CAA, as wellas Pennsylvaniaand West Virginia state laws at the coal-fired Hatfeld's Ferry and Armstrong plants in Pennsylvania and the coal-fired Fort Martin andWillow lsland plants in West Virginia. The EPA'S NOV alleges equipment r*placements during maintenance outages trigge*d the pre-construction permitting requirements underthe NSR and PSD programs.
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)
On June 29, 2012, January 31, 2013, March 27,2013 ardOctober 18, 2017, EPA issued CM section 114 requesb ior the Harison coal-fired plant seeking infomation and documentationrelevant to its operation and maintenance, including capital pojecls underlaken since 2007. On December 12, 2014, EPA issued aCAA section 114 request for the Fort Martin coal-fired plant seeking information and documentation relevant lo its operation andmaintenance, including capitalprojects undertaken since 2009. FirstEnergy intends b comply with the CAA but, at this time, is unable to predict the outcome of this matter or estimate the loss or range of loss-Clinate ChangeFirstEnergy has established a goal to reduce CO2 emissions by 907" below 2005 levels by 20/15. There are a number of initiatives to reduce GHG emissions at the state, federal and international level.
(ln millions)
Certain northeaslern states are participating in the RGGI and westein states led by California, have implemented programs, primarily cap and trade mechanisms, to control emissions ot certain GHGS. Additional policies reducing GHG emissions, such as demand reduction programs, renewable portfolio stiandards and renewable subsidies have been imDlemented across the nation.The EPA released its final "Endangerment and Cause or Contribute Findings for Greenhouse Gases under the Clean Air Act' inDecember 2009, concluding that concentrations of several key GHGS constitutes an "endangermenf and may be regulated as'air polluiants" under the CAA and mandated measurement and reporting of GHG emissions from certain sources, including elecllicgenerating plants. The EPA released its tinal regulations in August 2015 (which have been stayed by the U.S. Supreme Cou]t), to reduce Co2 emissions from existing fossil fuel fired electric generating units that would rcquire each siate to develop SlPs bySeptember 6, 2016, lo meet the EPAS state specific CO2 emission rate goals. The EPAS CPP allows states to request a two-yearextension to finalize SlPs by September 6, 2018.
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
ff states failto develop SlPs,lhe EPA also proposed a federal implemenlafon planthat can be implemented by the EPA that included modelemissions trading rules which states can also adopt in their SlPs. The EPA also finalized sepaftrte regulations imposing COz emission limits for new, modified, and reconstructed fossil fuel fired eleclric generating units. On June 23, 2014, the United States Supreme Court decided that CO2 or olher GHG emissions alone cannot trigger permitting requiremenls under the CAA, but that air emission sou rces that need PSD permits due to other regulated air pollutants canbe rcquired by the EPAto install GHG control technologies.
                                                  $        (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
Numerous siates and privato parties filed appeals and motions to stay theCPPwith the U.S. Court of Appeals for the D.C. Circuit in October2015. On January 21,2015, a panelofthe D.C. Circuit deniedthemotions lor stay and set an expedited schedule for briefing and argument. On February9,2016, the U.S. Supreme Court stayed the rule during the pendency of the challenges to the D.C. Circuit and U.S. Supreme Court. Depending on the oubome of further appeals and how any final rules are ultimately implemented, the future cost ot compliance may be material.At the international tevel, the United Nations Framework Converfion on Climate Change resulted in the Kyoto Protocol requiring participating countdes, which does not include the U.S., to reduce GHGS commencing in 2008 and has been sxtended through 2020.The Obama Administration submitted in March 2015, a fomal pledge for the U.S. to reduce iF economy-wide greenhouse gasemissions by 26to 28 percent below2005levels by 2025 and joined in adoptng the agGement reached on December '12,2015 atthe United Nations Framework Convention on Climate Change meetings in Paris. The Paris Agreement was raffied by the requisitenumber ot countries (i.e. at least 55 countries representing at least 55% of global GHG emissions) in October 2016 and iF non-binding obligations to limit globalwarming to wellbelow two degrees Celsius are effective on November 4,2016. FirstEnergy cannotcurrently eslimate the financial impact of climate change policies, although potentiallegislative or legulatory programs rcslricting CQemissions, or litigation alleging damages from GHG emissions, could require material capilal and other expenditures or result inchanges to its operations. The COz emissions per l(WH of electricity generated by FirstEnergy is lower than many of its regionalcompetitors due to its diversified generation sources, which include low or non-Co2 emitting gas-fired and nuclear generators.
                                                  $         (2) $         (3) $         (6) $         (8) Net of tax (1)TheseAOCIcomoonents          are includedin the comDutation      of net Deriodic  pensioncost.See Note4, PensionandOther Postemployment      Benefils foradditional  details.
Clem Wabt ActVarious water quality regulations, the majorityof which are the result of the federalCWAand its amendmenb, apply to FirstEhergy's plants. In addition, the states in which FirstEnergy operates have water quality standards applicable to FirstEnergys operations.The EPA finalized CWA Section 316(b) regulations in May 2014, requiring cooling water intake structures with an intake velocity greater than 0.5 feet per second to Gduce tish impingement when aquatic organisms are pinned against screens or other parts ot a cooling water intake system toa 12% annualaverage and requiring cooling water intake structures e)ceeding 125 million gallons perday to conduct studies to determine site-specitic controls, if any, to reduce entrainment, which occuls when aquatic life is drawn into a facility's cooling water system. FirstEnergy is studying various conlroloptions and their costs and effectiveness, including pilot testing of reverse louvers in a portion ot the Bay Shore planfs cooling water intake channelto divert fish away from the plants cooling water intake system. Depending on the results otsuch studies and any finalaction taken bythe states based on those studies, the tuturecapital costs of compliance with these standards may be substantial.
(2)Amountsin parenthesis      represent creditsto theConsolidated    Statements  of Operations    fromAOCI.
44 On September 30, 2015, the EPAfinalized new, more stringent effluent limits for the Steam Electric Power Generating category (40CFR Part 423) for arsenic, mercury selenium and nitrogen for wastewater from wet scrubber systems and zero discharge of pollutants in ash transpon wabr. The treatment obligations willphase-in as permits are renewed on a fiv+year cycle ftom 2018 to2023. The final rule also allows plants to commit to more stringent efiluent limits for wet scrubber systems based on evaporativetechnology and in return have untilthe end ot 2023 to meet the more stringent limits. Depending on the outcome ol app*als and ho,Yanyfinal rules are ultimately implemented, the future costs ofcompliance with these standads may be substantialand changes toFirstEnergys and FES' operations may result.
: 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.
In October 2009, the WVDEP issued an NPDES water discharge permit tor the Fort Martin plant, which imposes TDS, sulfateconcentralions and other effluent limitations for heavy metals, as well as temperahire limitations. Concurrent with the issuance of theFort Martin NPDES permit, WVDEP also issued an administralive order setting deadlines for MP to meet certain ol the efiluent limitsthat were effective immediately undertheterms of the NPDES pemit. MP appealed, and a stay of certain @nditions of the NPDES pemit and ord*r have been granted pending a final decision on the appeal and subiect to WVDEP moving to dissolve the stay.
FirstEnergy's effective  taxrateforthethreemonthsendedSeptember              30,2016and2015was39.8%and36.4%,respectively.
TheFort Martin NPDES permit could require an initial capital investment ranging from $150 million to
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.
$300 million in order to installtechnology to meet the TDS and sultate limits, which technology may also meet certain ot the other effluent limits. Additional technology may be needed to meet certain other limits in the Fort Martin NPDES permit. MP intends to vigorously pursue these issues but cannot predict the outcome of lhe appeal or estimate lhe possible loss or range of loss.FirstEnergy intends to vigorously defend against the CWA matters described above but, except as indicated above, cannot predict their outcomes or eslimate the loss or range of loss.Regulation ot Waste Disposal Federal and state hazardous waste regulations have been promulgated as a result of the RCRA, as amended, and the Toxic Substances Control Act. Certain coal combustion residuals, such as coal ash, were exempted from hazardous waste disposal requirements pending the EPA'S evaluation of the need for fulure regulation.In December 2014, the EPAfinalized regulations forthe disposalof CCRs (non-hazardous), establishing national standards regarding landfilldesign, structural integritydesign and assessmenl crileria tor surtace impoundments, groundwaler monitoring and protection procedures and other operational and reporting procedures to assure the sate disposal of CCRS trom electric generating plants.Based on an assessment ot the finalized regulations, the future cost ofcompliance and expected timing of spend had no significanlimpact on FirstEnergy's or FES' existing AROS associated with CCRs. Although none are currenlly expected, any chang*s in timingand closure plan requirements in the luture could materially and adversely impact FirstEnergy's and FES'AROS.Pursuant to a 2013 consent decree, PA DEP issued a 2014 permit for the Little Blue Run CCR impoundment requiring lhe Bruce Mansfield plant to cease disposal of CCRS by December 31, 2016 and FG to provide bonding for 45 years of closure and post-closure activities and to complete closure within a 12-year period, but authorizing FG to seek a permit modification based on"unexpected site conditions that have orwill slow closure progress.-
FES'etfective  taxrateforthethreemonthsendedSeptember              30,2016and2015was58.3%and36.8%,respectively.                Theincrease intheeffective  taxrateis primarilydueto    theimpactofestimated    annualpermanent      itemsonlorecasted    lowelpre-tax incometorthe penoo.
The permit does not require active dewatering of the CCRS, but does require a groundwaler assessment for arsenic and abatement if certain conditions in the permit are met. The Bruce Mansfield plant is pursuing several options for disposal of CCRS following December 31, 2016 and expects beneficial reuse and disposal options will be sufficient for the ongoing operation of the plant. On May 22, 2015 and September 21, 2015, the PA DEP reissued a permittorthe Hatfield's Ferry CCR disposal facility and then modifiedthat permitto allowdisposalot Bruce Mansfield plantCCR.
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.
OnJuly 6, 2015 and October 22, 2015, the Sierra Club tiled Notices of Appeal with the Pennsylvania Environmental Hearing Boardchallenging the renewal, reissuance and modification ot the permit for the Hattield's Ferry CCR disposal lacility.FirstEnergy or its subsidiaries have been named as potentially responsible panies at waste disposalsites, which may require cleanupunder the CERCLA.
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.
Allegations of disposal of hazardous substances at historical sites and the liability involved are otten unsubstiantiated and subject to dispute; howgver, bderal law provides that all potentially responsible parties iora particular site may be liable on a joint and several basis. Environmental liabilities that are considered probable have been recognized on the Consolidated Balance Sheets as of SeDtember 30.2016 based on estimates ol thetotalcosts ol cleanup, FEs and its subsidiaries' proportionate responsibility for such costs and the financialability ot other unaffiliated entities b pay. Total liabilities ot approximately
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
$121 million have been accrued through September 30, 2016. Included in the totalare accrued liabilities ot approximately
$89 million for environmental remediation of lormer manufactured gas plants and gas holdertacilities in New Jersey, which are being reco\reredby JCP&L through a non-bypassable SBC. FirstEnergy or its subsidiaries could be found potentially responsible for additionalamounts or additional sites, but the loss or range of losses cannot be determined or reasonably estimated at this time.OTHER LEGAL PROCEEDINGSNudear Plant MattersUnder NRC regulations, FirstEnergy must ensure that adequale funds willb* available to decommission its nuclear tacilities.
As ofSeptember 30, 2016, FirstEnergy had appmximately
$2.5 billion invested in extemaltrusts to be used lor the decommissioning andenvironmental remediation of Davis-Besse, Beaver Valley, Perry and TMI-2. The values of FirstEnergy's NDTS fluctuate based onmarket conditions. lf the value of the trusts decline by a material amount, FirstEnergys obligation b fund the trusts may increase.Disruptions in the carital markets and their effects on panicular businesses and the economy could also aftect the values of theNDTS. FE and FES have also entered into a total of
$24.5 million in parenial guarantees in support of the decommissioning of the 45 spent fuel storage facilities located al the nuclear facilities. However, as FES no longer mainlains investment grade credit ratings fromeither S&P or Moody's, NG plans to tund a supplemental trust in lieu of a parental guaranlee that would be required to support thedecommissioning of the spent luel storage facilities. As required by the NRC, FirstEnergy annually recalculates and adjusts theamount of its parental guarantees, as appropriate.In August 2010, FENOC submitted an application to the NRC for renewal of the Davis-Besse operating license lor an additional twenty years. On Decembei 8,2015, the NRC renewed the operating license for Davis-Besse, which is now autholized to continueoperation through April 22,2037 . Priol lo that decision, the N RC Commissioners denied an intervenois request to reopen the recordand admit a contention on the NRC'S Continued Storage Rule. On August 6, 2015, this intervenor sought review of the NRC Commissioners'decision before the U.S. Court of Appeals for the DC Circuit. FENOC intervened in that proceeding. On September21, 2016, the U.S. Court ot Appeals for the DC Circuit granted the intervenor's unopposed motion and dismissed this case.As part of routine inspections ofthe concrete shield building at Davis-Besse in 2013, FENOC identified changes to the subsurface laminar cracking condition originally discovered in 2011. These inspections revealed that the $acking condition had propagated a smallamount in selecl areas. FENOC'S analysis confirmsthatthe building continuesto maintain its structural integlity, and its abililyto safely perform all of its functions. In a May 28, 20'15, Inspection Report regading the apparent cause evaluation on crack propagation, the NRC issued a non-cited violation tor FENOC'S tailure to request and obtain a license amendmentfor its method ofevaluating the significance ol the shield building cracking. The NRC also concluded that the shield building ]emained capable of performing its design salety functions despite the identified laminar cracking and that this issuewas of very low satety significance.
FENOC plans to submit a license amendment application to the NRC related to the laminar cracking in the Shield Building.On March 12, 2012, the NRC issued orders requiring satety enhancements at U.S. reactors based on recommendations from thelessons leamed Task Force review of the accident at Japan's Fukushima Daiichi n uclear po$/er plant. These orders require additional mitigation strategies for beyord-design-basis external events, and enhanced equipment for monitoring water levels in spent fud pools. The NRC also requested that licensees including FENOC: re-analyze earthquake and flooding risks using the latestinformation available; conduct earlhquake and fiooding hazard welkdowns at their nuclear plants; assess the ability of cunentcommunications systems and equipment to perform under a prolonged loss ofonsite and otrsiE eleclrical powe[ and assess plant staffing levels needed to lill emergency positions.
These and other NRC requirements adopted as a result of the accident atFukushima Daiichi are likely to result in additional material costs from plant modifications and upgrades at FirstEnergys nuclear facilities.Other Legal liitatP./']sThere are various larusuits, claims (including claims for asbestos exposure) and proceedings related to FiFtEnergy's normal business operations pending against FirstEnergy and its subgidiaries. The loss or range of loss in these matters is not expected to be matedal to FirstEnergy or its subsidiaries.
The other potentially material items not othe ise discussed above are described under Note 11,Regulatory Matters of the Combined Notes to Consolidated Financial Statements.
FirtEnergy accrues legal liabilities only when it concludes that it is probable that it has an obligation for such costs and can reasonably estimate the amount of such cosb.
In cases where FirstEnergy determines that it is not probable, but reasonably possible that it has a materialobligation, itdiscloses such obligations and the possible loss or rar*e of loss ifsuch estimate can be made. lf it were ultimately detemined that FirstEnergy or its subsidiaries have legal liabilityorare otherwise made subject to liability based onany of the matters referenced above, it cluld have a material adverse effect on FirstEnergys or its subsidiades' financial condition, results of operations and cash flows.13. SUPPLEIIEiIfAL GUARANTOR INFORIIATIONIn A)07, FG compleied a sale and leaseback transaction for a 93.83% undivided interest in Bruce Mansfield Unit 1. FG's parent company has fully and unconditionally and inevocably guaranteed all of FG's obligations under each ofthe leases. The related lessolnotes and pass through certificates are not guaranteed by FG or ib parent company, but the notes are securd by, among otherthings, each lessortrust's undivided interest in Unit 1 , rights and interests under the applicable lease and rights and interests underother related agreements, including FES' learse guaranty.
This transaction is classified arsi an operating lease for FES and FitslEnergyand as a financing lease br FG.The Condensed Consolidating Statemenb of Income (Loss) and Comprehensive Income (Loss) for the three and nine monhs endedSeptember 30, 2016 and 2015, Condensed Consolidating Balance Sheets as of September 30, 2016 and December 31, 2015, andCondensed Consolidating Statemen$ ofCash Flows for the nine months ended September 30,2016 and 2015, for the parent and guarantor and non-guarantor subsidiaries are presented below. These statements are provided as FG's parent company fully and unconditionally guarantees outstanding registered securities of FG as wellas FG's obligations underthe tacility lease for the BruceMansfield sale and leaseback that underlie outsianding registered pass-through trust certificates.
Investments in wholly ownedsubsidiaaies are accounted forbythe parentcompany using the equity method. Results of operations for FG and NG ate,therefore,reflected in their parent companys investment accounts and earnings as if operating lease treatment was achieved.
The principalelimination entries eliminate investments in subsidiaries and intercompany balances and transactions and the entries required toreflect operating lease treatment associated with the 2007 Bruce Mansfield Unil 1 sale and leaseback transaction.
46 FIRSTENERGY SOLUTIONS CORP.CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME For the Three Months Ended September 30, 2016 FES FG NG Eliminations Gonsolidated 494 $(ln millions)400 $(85s) $1,100STATEMENTS OF INCOME REVENUES OPERATING EXPENSES: Fuel Purchased power from affiliates Purchased power f rom non-affiliatesOther operating expensesProvision for depreciation Generaltaxes Total operating expenses oPERATTNG TNCOME (LOSS)oTHER TNCOME (EXPENSE):
Investment income, including net income from equity investees Miscellaneous incomeInterest expense - affiliates Interest expense - other Capitalized interestTotal other income (expense)rNcoME (LOSS) BEFORE TNCOME TAXES (BENEFITS) rNcoME TAXES (BENEFTTS)NET INCOME STATEMENTS OF COMPREHENSIVE INCOME NET INCOME orHER COMPREHENSTVE TNCOME (LOSS): Pension and OPEB prior service costs Amortized gains on derivative hedgesChange in unrealized gains on available-for-sale securitiesOther comprehensive income (loss)lncome taxes (benefits) on other comprehensive income (loss)Other comprehensive income (loss), net of tax COMPREHENSIVE INCOME$ 1,065 1,0;186 95 4 8 245 999 224 I 28 (236) 24 1-1 (13) (3) (2) 15 (3)(14) (27) (e) 14 (36)1s7 (18) 23 (207) (5)(218)2 40$144 $76$(220) $40$144 $76$(220) $53 39 149 51 6 149;28 7 (85s)11 202 191 186 316 83 21 101 102 1,304 (23e)(848)(11)(42)(82)125 231 49 96 40 (3)1 5 3 (s)(3)(3)1 5 (3)(1)(2)
(1)42 (2)$ 142 (221\ $CONDENSED CONSOLIDATING STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)For the Nine Months Ended September 30, 2016 FES NG Eliminations Consolidated FG STATEMENTS OF INCOME (LOSSI REVENUES 3,281 $(ln millions)1 ,309 $ 1,404 $47 (2,593) $3,401 OPERATING EXPENSES: Fuel Purchased power from aftiliates Purchased power f rom non-aff iliates Other operating expenses Provision for depreciation Generaltaxes lmpairment ol assetsTotal operating expenses oPERATTNG TNCOME (LOSS)oTHER TNCOME (EXPENSE):
Investment income, including net income (loss)from equity investees Miscellaneous incomeInterest expense - affiliatesInterest expense - other Capitalized interestTotal other income (expense)rNcoME (LOSS) BEFORE TNCOME TA)GS (BENEFITS) rNcoME TAXES (BENEFTTS)
NET TNCOME (LOSS)STATEMENTS OF COMPREHENSIVE INCOME (LOSS)NET TNCOME (LOSS)oTHER COMPREHENSTVE TNCOME (LOSS): Pensions and OPEB prior service costs Amortized gains on derivative hedges Change in unrealized gains on available-for-sale securitiesOther comprehensive income (loss)Income taxes (benefits) on other comprehensive income (loss)Other comprehensive income (loss), net of tax coMPREHENSTVE TNCOME (LOSS)FIRSTENERGY SOLUTIONS CORP.449 146 2,ggg 145 829 218 220 450 10 91 151 23 23 20 23 517 3,991 1,300 912 492 (2,593)37 (2)595 440 829 925 250 66 540(2,558)3,645 (710)(3s)(244)310 3 (34),1'21 1 (7)(7e)7 67 (4)(33)20 (57)so (260) (28)-(':)39: 56 4 (6)(10e)27 239 (471)(204)(267) $(48)(1)(2e5)4 (272)(5)196 (267) $(47) $(47) $346 $(2es) $(267)346 $(2ee) $(267)60 (10)(10)1 (60)(10)61 61 51(10) 60 51 (50)20 (4) 23 (1e) 20------.sr--
rqrl-$ (136) $- $ 383 $ (s3o) $-]mo)--+: 48 FIRSTENERGY SOLUTIONS CORP.CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOMEFor the Three Months Ended September 30, 2015 FES NG Eliminations Consolidated 1,293 $420 $(ln millions)531 $(s06) $1,338STATEMENTS OF INCOME REVENUES OPERATING EXPENSES: Fuel Purchased power from affiliates Purchased power f rom non-aff iliatesOther operating expensesProvision for depreciation Generaltaxes Total operating expenses oPERATTNG lNCOM E (LOSS)OTHER TNCOME (EXPENSE):lnvestment income (loss), including net income from equity investeesMiscellaneous income Interest expense - affiliatesInterest expense - other Capitalized interest Total other income (expense)rNcoME BEFORE TNCOME TD(ES (BENEFTTS)rNcoME TAXES (BENEFTTS)NET INCOME STATEMENTS OF COMPREHENSIVE INCOME NET INCOMEOTHER COMPREHENSIVE LOSS:Pension and OPEB prior service costs Amortized gains on derivative hedges Change in unrealized gains on available for sale securitiesOther comprehensive loss Income tax benelits on other comprehensive lossOther comprehensive loss, net of taxCOMPREHENSIVE INCOME 9;
401 34 3 10 1,380 t: 66 30 8 52 77 134 47 6 316 (rT)12 (1)245 103 401 246 79 24 (8e5)1,098 (87)(11)215 123 191 (8)4 (18)1-(r1) ,r], (13) (26)(2) (1) e (2)(12) 15 (36)17o (22) (24) (174) (s0)(37)83 101 191 (185) 190 120 $65$121 $(186) $70 36 120 120 $65$121 $(186) $(3)t+)j 11 (4)(11)14 5 (1s)(6)9 (e)I 111 $ 63 q 114 9_(1?1 g 111 CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOMEFor the Nine Months Ended September 30,2015 FES NG Eliminations ConsolidatedSTATEMENTS OF INCOME 49 FG (ln millions)
REVENUES OPERATING EXPENSES: Fuel Purchased power from affiliates Purchased power from non-affiliatesOther operating expenses Provision for depreciation Generaltaxes lmpairment of assetsTotal operating expenses oPERATTNG TNCOME (LOSS)orHER TNCOME (EXPENSE):lnvestment income (loss), including net income from equity investees Miscellaneous incomeInterest expense - affiliatesInterest expense - other Capitalized interest Total other income (expense)rNcoME (LOSS) BEFORE TNCOME TA)GS (BENEFITS) rNcoME TAXES (BENEFTTS)
NET INCOMESTATEMENTS OF COMPREHENSIVE INCOME NET INCOME OTHER COMPREHENSIVE LOSSPension and OPEB prior service costs Amortized gains on derivative hedges Change in unrealized gains on available-for-sale securitiesOther comprehensive loss Income tax benefits on other comprehensive lossOther comprehensive loss, net of tax COMPREHENSIVE INCOMEFIRSTENERGY SOLUTIONS CORP.$ 3,699 $ 1,259 $1,494 $(2,618) $3,834 523 2,657 1,336 300 208 892 36 23 16 143 211 452 142 19 (2,618)36?666 250 1,336 996 240 78 16 4,353 967 (2,584)(34)'u1'24: 3,582 (654)551 1 (21)(3e)413 527 252 12 4 (6)(78)(1)(3)(37)(7)5 (6)(110)26 422 492 (64) (1e) (s01) (e2)(162)(2s8)187 131 508 (535)4 160 64 e6$218 $321 $(53e) $e6$218 $321 $(53e) $(12)(2)(34)(13)31 11 (12)(2)(20)(34)(13)(11)11 (20) (20)(11) (20)(4) (7)211 $308 $(s1e)(21) (7) (13) 20 (21)75$50 As of September 30, 2016FIRSTENERGY SOLUTIONS CORP.CONDENSED CONSOLIDATING BALANCE SHEETS FES FG NG Eliminations Consolidated ASSETS CURRENT ASSETS: Cash and cash equivalents Receivables-CustomersAffiliated companies Other Notes receivable from affiliated companies Materials and supplies Derivatives Collateral Prepayments and other PROPERTY, PLANT AND EQUIPMENTln service Less - Accumulated provision for depreciation Construction work in progress INVESTMENTS:
Nuclear plant decommissioning trustsInvestment in affiliated com panies OtherDEFERRED CHARGES AND OTHER ASSETS:Accumulated deferred income tax benefits Gustomer intangiblesProperty taxes


Derivatives OtherLIABILITI ES AND CAPITALIZATION CURRENT LIABILITIES:
In February 2016,theIRScompleted        itsexamination      ol FirstEnergy's   2014federalincometaxreturnandissueda fullacceptance letterwithno adjustments.
Currently payable long-term debt Short-term borrowings-Affiliated companies Accounts payable-Affiliated companies OtherAccrued taxes Derivatives Other CAPITALIZATION:
: 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.
TotalequityLong-term debt and other longterm obligations NONCUR RENT LIABILITIES :
Inorderto evaluate  contracts    forconsolidation    treatment  andentities    forwhichFirstEnergy    hasaninterest,   FirstEnergy   aggregates variableinterests intocategories    basedon similarriskcharacteristics          andsignificance.
Deferred gain on sale and leaseback transactionAccumulated deferred income taxesRetirement benefits Asset retirement obl igations Derivatives Other 57 1,4n 2.025 1,643 (3.594) 1.496 5,683 8,674 (378) 14,100 5,822 8,278 287 758 1.048 75 4,055 5,382 (186) 9.326 1 ,915 4,050 (192)3,768 4,624 (186)$225 356 21 494 38 146 85 2$351 4 1,501'1 (ln millions)$267 30 1,133 ,,:$(4e2)(t,t3 225 482 55 26 403 146 85 72 121 49 72 3 7,826 1,542 (7,826)1,542 10 10 7,826- 10 1,s42 (7,826) 1,552 29 333 12 374-i;; -ot$-tu'- S-57d $-E,ffi
Consolldated    VlEs VlEsin whichFirstEnergy      is theprimarybeneficiary      consistot thefollowing      (included  in FirstEnergy's consolidated    financial statements):
$-Tmboi s--12*67-279 27 11 37 98$ $ 1es $2,723 480 597 165 180 18 71 31 28 51 88 1-66 71 12 ss 1015 -5,409 2,897 4,893;-817 25 194 186 701 455--:' I 8 $ (25)$ 182 (3,102) 101(u:) '33 (38) 72 89 33 182 (3,681) 1,108 691 2,108 1 ,120 (1 ,104) 2,815 6Joo - oos qo13 -'%)-(7,790\ 5,409 765 765 (90) 734 219 887 50 40 48 792 880$--6;ass S-s5r4 ,goo) $ te,eoz ,-:-r#51 As of December 31,2015 FIRSTENERGY SOLUTIONS CORP.CONDENSED CONSOLIDATING BALANCE SHEETS FES NG Eliminations Consolidated (ln millions)FG ASSETS CURRENT ASSETS:Cash and cash equivalents Receivables-Customers Affiliated companies OtherNotes receivable from affiliated companies Materials and supplies Derivatives Collateral Prepayments and other PROPERTY, PLANT AND EQUIPMENT ln service Less - Accumulated provision for depreciationConstruction work in progress INVESTMENTS:
    . 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.
Nuclear plant decommissioning trustslnvestment in affiliated companies OtherDEFERRED CHARGES AND OTHER ASSETS: Accumulated deferred income tax benefits Customer intangibles Goodwill Property taxes Derivatives OtherLIABILITI ES AND CAPITALIZATION CURRENT LIABILITIES:
    . 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.
Currently payable long-term debtShort-term borrowings-Affiliated companies Other Accounts payable-Affiliated companies OtherAccrued taxes Derivatives Other CAPITALIZATION:
AsotSeptember        30,2016andDecember          31,2015,$339millionand$362million          ofthephase-in     recovery bondswereoutstanding,         respectively.
TotalequityLong-term debt and other long-term obligationsNONCURRENT LIABILITIES
    . 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.
: Deferred gain on sale and leaseback transactionAccumulated deferred income taxes Retirement benefitsAsset retirem ent obl igations Derivatives Other 48 18 66 1,4?5 1*41 ?256) -T5s8 93 6,367 8,233 (382)14,311$275 433 36 406 53 154 70 2$ $403 461 419 1,210 805 ,t: ,:$(846)12,+i'1 2 275 451 59 11 470 154 70 1,327 10 40 2,144 3,775 (194) ?'19?53 4,223 4,458 (188) 8,546 30 24s 878 - !'!5-!83 4,472 5.336 (188) 9,703- -io-re- 0,+szt 1,337 7,452 300 61 23 79 884 21 7 103 5,605 690 1,327 10 146 368 118 93 62 1-(25) $(2,410)(r1)(86)45 570$ 13,199_104 181 61 23 40 79 367 28 T 12 (.:)29 312 14 12--Eao--to4)
    . 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.
$ e5o2 $-5bt$-g,ud,t$-Tit2ooi 22s $ 308 $2,021 389 8 512 8 542 139 76 66619 3J 02 1 .045 747 (3,332) 1 ,562 2,944 4,476 (7,420)2,116 840 (1 ,136)5,605 2,510 6.295-5,060 5,316 (8,556) 8"115;27 37 305 191 1 697 640 791 (rT)791 600 332 831 38 899 105 558 2,140 688 = ,9'1?1$ esot $-G-o6t 5-8"203 il (tt,eoo) $ 13,168$g50r- S----6.06t f 8,203- $ (11,299I $ 13'Eq-35 61 803 52 FIRSTENERGY SOLUTIONS CORP.CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWSFor the Nine Months Ended September 30, 2016 FES FG NG Eliminations Consolidated 401 $(ln millions)820 $(12) $NET CASH PROVTDED FROM (USED FOR)OPERATING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES:
Unconsolldatod    VlEg FirslEnergyis nottheprimarybeneficiary          of thefollowing  VlEs:
New Financing-Long-term debt Short-term borrowings, netRedemptions and Repayments-Long-term debt OtherNet cash provided from (used for) financing activities CASH FLOWS FROM INVESTING ACTIVITIES:
GtobalHolding FEVholdsa 33-1/3%              equityownership      in GlobalHolding,   theholdingcompany      fora jointventurein the SignalPeakminingandcoaltransportation                operations   withcoalsalesin U.S.andintemational          markels.FEVis nolthe primarybeneficiary    ofthejointventure,     asit doesnothavecontroloverthe          significant activitiesatfecting thejointventure's economic    performance. FEV'Sownership      interest  is subjeclto lhe equitymethodof accounting.
Property additions Nuclear fuel Sales of investment securities held in trustsPurchases of investment securities held in trusts Cash investmentsLoans to affiliated companies, net Other Net cash used for investing activities Net change in cash and cash equivalentsCash and cash equivalents at beginning of periodCash and cash equivalents at end of period (e6)(463)(7ee)$ (605)701 285 12 186 92 (211)(5)62 (304)(2)(6e2)47',l101 (503)(7)701 (21)(680)62 ,m, 10 (87)9 (,r:)(2s2)(233)(1e5)576 (61e)(328)692 (432)(1e5)576 (61e)10 (15)9 692 (666)2 e, Y': c 53 FIRSTENERGY SOLUTIONS CORP.CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 2015 FES FG NG Eliminations ConsolidatedNET CASH PROVTDED FROM (USED FOR)OPERATING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES:
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.
New Financing-Long-term debt Short-term borrowings, netRedemptions and Repayments-Longterm debt Short-term borrowings, net OtherNet cash provided from (used for) financing activities CASH FLOWS FROM INVESTING AGTIVITIES:Property additions Nuclear fuel Sales of investment securities held in trusts Purchases of investment securities held in trustsLoans to affiliated companies, net Cash Investments Other Net cash used for investing activitiesNet change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 672 35 (54)(3) (144) (1e4)(101)503 (546)(45) (302) (475)(10)10 6 (48)(440) (813)405 $(ln millions)867 $$ (oz+)689 (17)(12) $636 43 51 ,1'(4)296 (322)(27)(1)(740)12 (82)(382)(10e)(5)339 (810)(157)2 2 822 (341)(101)503 ,u1, (10)16 822 (47e)2$54
19
: 14. SEGIIENT INFORiIATION FirstEnergys reportable segments are as follows: Regulated Distribution, Regulated Transmission, and CES.Financial information for each ot FirstEnergy's reportable segments is presented in the tables below. FES does not have separatereportable operating segments.The Regulated Distribution segment distributes electdcity through FirstEnergy's ten utility oPrating companies, serving approxi;ately six million ostomerswithin 65,000 square miles of Ohio, Pennsylvania, Wesf Virginia, Maryland, New Jersey and New vbi.4 ana pulcnases power lor its POLR, SOS, SSO and default service requirements in Ohio, Penns,ylvania, New Jersey andMarytand. ihis segment also controls 3,790lvfws of regulaled electric generation capacity located pdmalilyin WeslMryinia, Viqinia and New Jersey. The segment's results retlect the com;pdity cosB of aecuring electric generation and the deferal and amonizationof ceftain fuel costs.The Regulatad Transmission segmenttransmib electricity through transmission tacilities owned and operated byATSl,TrAlL, a]d certain;f FirsrEnergys utitities (Jcp&L, ME, PN, MB PE a;d WP). This s*gment also includesthe regulatory asset associated withthe abandoned PATi proiect. The segments revenues are primarily derived from forwardlooking rates at ATSI and TrAlL, as u*ll asfixed rates at certain-ot FirstEnergy;s utilities.
Both the fonyardiooking and fixed rates recover costs and provide a return ontransmission capital investment. Unierthe fo]ward-lookng rates, eaci of ATSI'S atd TrAlUs revenue *quilement is updated annuallybased on a proiected rate base and pmjected costs, which is subject to annualtrue-up based on actualcosts.
Except for the recoveryof the pATti abandoned project regutatory asset, the segments revenues are primarilyfrom transmission selvices provided b LSES pursuant to the PJM tarif.
ite segmenti results also reflect the net transmission expenses related to the delivery of slectricity onFirstEnergys transmission facilities.The CES segment, through FES and AE Supply, primarily supplies electricity to end-use customers through retail and wholesale anangementl, including aompetitive retait sit'ei ti customers primarily in Ohio, Pennsytvania, lllinois, Michigan, New Jersey and t,tarytind, anO ttre proviiion oi partiat POLR and delault servicelorsome utilities in Ohio, Pennsylvania and Maryland, including the Utitiiies. As of September 30,2016, this business segment controlled 13,162 l Ws of electric generating capacity. The CES segment's net income is pdmarily derived from electric g;neration sales less the relaled costs of electricily generation, includingfuel, puicnased power and net transhission (including con-gestion) and ancillary costs and capacrty costs charged.by PJM to deliver;nergy to lhe segment's customers, as well as othel operating and mainlenance @sts, including costs incuned by FENOC.Colporate support and other businesses that do not constitute an operating segment, interest epense on sland-alone holding company delii and corporate income taxes are categorized as Corporate/Other for reportable business segment purposes.Additionally, reconciling adjustments for the elimination of inler-segment transactions are included in Corporate/Other. As of SeptembeiSO, ZOt 6, C6rpoiate/Other nad 94.2 billion of stand-alone holding company long-term debt, of which 28% was subject tovariable-interest rales, and
$2.7 billion was borrowed by FE undel its revolving credit facility.55 Segment Financial lnformation For the Three Months Ended Regulated Distribution Regulated Transmission Gompetitive Energy Services Corporate/
Other ReconcilinE Adiustmentl Gonsolidated Seotember 30.2016 External revenues lnternal revenuesTotal revenues Depreciation Amortization of regulatory assets, net Investment incomeInterest expenseIncome taxes (benelits)Net income (loss)Total assets Totalgoodwill Property additions Seotember 30.2015 External revenues Internal revenues Total revenues DepreciationAmortization of regulatory assets, net lmpairment ol assets Investment income (loss)Interest expense Income taxes (benefits)
Net income (loss)Totalassets Totalgoodwill Property additionsFor the Nine Months Ended Seotember 30.2016 External revenues lnternal revenues Total revenues Depreciation Amortization of regulatory assets, net lmpairment of assets (Note 2)Investment income Interest expense Income taxes (benefits)
Net income (loss)Property additions September
: 30. 2015 External revenues lnternal revenues Total revenues Depreciation Amortization ol regulatory assets, nellmpairment of assets Investment income (loss)lnterest expense Income taxes (benef its)Net income (loss)Property additions
$ 248 $ 1,327- 141 248!;41 70 6,988 526 149 t:$(141)(2y 2,702 $'y$(ln millions)9e8 $117 3,917 2,702 171 98 13 139 167 283 28,276 5,092 303 2,624 285 i 43 45 78 8,034 526 246 79 23 48 49 86 15,165 110 311 98 28 286 251 380 51,961 5,618 664 4,123 4,123 328 110 8 (28)285 226 395 51,930 6,418 539 2,624 174 110 8 8 149 137 234 27,883 5,092 292 7,423 $1,468 i (1e)48 84 145 16,229 800 83 3,158 377 (11 7)(185) 3,917 16 , trol 56 (11) 1 (67)486 5-$ (76) $15 (6) (11)48 (3e) 3 (54)830 15 (218) $ 11,187 7,423 510 218 7,425 $3,535 284 1,447 56 143 (s6)(1,029)492 i 13 161 (51)(16e)31 824 132 4$ 3,536 $ $ (231)$ 11,48s s63 (563)-----loee"--
11/8s 293 44 969--+ii rc 974 222 1,447 75 863 334 (381)2,156 ttl tsll 144 (84) 8 (1s4)41 201 24 (14)846 485 804 2,025 37 431 349 594 878 128 130 223 755'1 (31)2 7,425 516 196 I 33 439 350 598 884 16 (7)144 76 129 400 755 116 j 119 135 231 700 56 Item 2.Management's Discussion and Analysis of Registrant and Subsidiaries FIRSTENERGY CORP.MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSFIRSTENERGY'S BUSINESSFirstEnergy and ib subsidiaries are principally involved in the generation, lransmission and distribution of electricity.
lts reportable segments are as follows:
Regulated Distribution, Regulated Transmission, and CES.The Regulated Dbtrlbu on segment distibutes electricity through FirstEnergy's ten utility operating companies' servingapproxiriately six million customers within 65,000 square mib; otOhio, Pennsyhrania, West Virginia, Maryland, New Jersey and New ybrk, and puichases poyver for its POLR, SOS, SSO and default service requirements in Ohio, Penns}lvania, New Jersey and Maryland.
This segment also controls 3,790 lWVs of regulated electric aeneration capacity located primarilyinl/t/est Virginia' Virginia and New Jersey. The segment's resulb reflect the comirodity costs ot iecuring electric generation and the deferral and amonizationof cenain fuel costs.The Regulated Transml$lon segment transmits electricity through transmission tacilities owned and operated byATSl,TrAlL, andcertain 6f FirstEnergy's utitities (JCP&1, ME, PN, MP, PE and WP). This segment also includes the regulatory asset associated withthe abandoned PATH project. The segment's revenues are primarily derived from forwardlooking rates atATSland TrAlL, as
\'vell asfixed rates at certain of FirstEnergyls utilities. Both the forwardlooking and fixed rates recover costs and provide a return on transmission capitalinvestment. Un-der the lonarardlooking rates, each of ATSI's and TrAlUs revenue Equirementis updated annuallybased on a projected rate base and projected costs, which is subject lo annualtrue-up based on actualcosb.
Exceptbrthe recovery ofthe PATH abandoned project regula6ry asset, the segment's revenues are primarily from transmission services provided to LSES pursuant to the pJM taritt. itre segmentt results also reflect the net transmission expenses related to the delivery of electricily onFirstEnergy's transmission facilities.The CES segment, through FES and AE Supply, primarily supplies electricity to end-use customers through retail and wholesale arrangemenG, including competitive retail salei to customers primarily in Ohio, Pennsylvania, lllinois, Michioan, Now Jersey and tvtarytind, and tne proviiion oipartial POLR and detault servicefor some utilities in Ohio, Pennsylvania and Maryland, including lhe Utitiiies.
es of September gO, ZO1O, ttris business segment controlled 13,162 lvlvvs of electric generating capacity. The CES segment's net income is primarily derivedfrom electric g;neration sales lessthe related costs ol electricity generation, including tuel'puichased power and net transmission (including congestion) and ancillary costs and capacity costs charged.by PJM to deliver;nergy to the segment's customers, as well as other operating and maintenance costs, including costs incurred by FENOC.Corporate support and other businesses that do not constitute an operating segment, interest expense on stand-alone holding company debi and corporate income iaxes are categorized as Corporate/Other for reportable business segment purposes'AOOition'atty, reconciling adjustments for ihe elimination of inter-segmenl transactions are included in CoPorate/Other. As of Septembei gO, ZOt O, C6rpoiate/Other trad g4.2 billion of stand-alone holding company long-term debt, of which 28% was subject tovariable-interest rates, and
$2.7 billion was borrowed by FE under its revolving credil facility.57 EXECUTIVE SU iIARYFirstEnergy believes having a combination ot distribution, transmission and generation assets in a regulated or regulatedlike construct is the best way to serve customers.
The Company's strategy is to be a fully regulated utility, focusing on stable and prediciable earnings and cash flow from its regulated business units.C@pdllveElersyscrviegs In order to execute on this strategy, FirstEnergy has begun a strategic review of its competitive operations focused on the sals of gas and hydroetectric unis as wellas Lpbring atilftematives for the remaining generation assets at FES and AE Supply.
These indude,but are not limited to, legislative efforts to aonvert generation from competitive operations to a regulated or regulated-like constructsuch as a regulatory reJtructuring in Ohio, offering generation into any process to address MP's generation shortfall included in itsIRR and/or a-solution for nuclear generation that recognize their environmentalbenefib. Management anticipates that the viatility ofthese altematives will be determined in the near ter; with a target to implement these strategic options within the next 12 lo 18months and could result in material asset impairments.Based on cunent maket foMards, CES, including FES, expects to have more than sufficient cash flowfrom operations in 2017 and2018 to fund anticipated capital expenditures with no equity contributions trom FirstEnergy.
However, in addilion to exposure to market price volatility and operational risks, CES, including FES, faces significant financialrisks thatcould impact its anticipated cash flow and liquidity including, bul not limited to, the following:Requests to post additionalcollateral or accelerated payments of up to $355 million resulting from current credit ratings at FEd, including Moody's downgrade of the Senior Unsecured debt rating for FES to Caal as well as S&P's downgrade of theSenior Unsecured debt rating at FES to B, both of which occurred on November 4,2016.Adverse outcomes in the previously disclosed disputes regarding longterm coal transportation contracts-The inability to extend or refinance debt maturities at CES, including at FES subsidiaries, in 2017 and 2018 of $130 million and $515 million, respectively.
A significant collateralcallor the inability to refinance 2017 debt maturities at FES subsidiaries is expected to be addressed by FESthrough a combination of cash on hand, additional capital exp*nditure reductions, asset sales, ancvor borrowings under the unreg-ulated money pool. However, adverse outcomes in the coal transportation contracts disputes, the inability to relinance 2018debt;aturities, oriack of viable alternative strategies could cause FES to iake one or more of the lollowing actions: (i) restructuringot debt and otherlinancial obligations, (ii) additio;al borrowings under the unregulated money pool, (iii) further asset sales or plantdeactivations, and/or (iv) seekprotection underbankruptcy laws. In the event FES seeks such protection, FENOC may similarly seek protection under bankruptcy laws.Material asset impairments, resulting from the sale or deactivation of generation assets or from a determination by management of itsintent to exit competitive generatio; assets before the end of their estimated useful life resulting lrom the inability to implementalternative strategies discussed above, adverse judgments or a FES bankruptcyfiling could result in an event of dehult u nder various agreements relaied to the indebtedness ol FE- Although management expects to successfully resolve any FE defaults lhroughwaivers or other actions on acceptable terms and conditions, the failure to do so would have a material and adverse impact on FirstEnergy's financial condition, and FirstEnergy cannot provide any assurance that it will be able to successtully resolve any suchdefaults on satisfactory terms.During this period oftransition, subject to strategic decisions regarding competitive generation assets, it is anlicipated that CES will produie approximatety 70 to 75million MWHS of electricity annually, with up to an additional five million MWHS available from purchased iower agreements forwind, solar, and CES'entitiement in OVEC. In 2017 and 2018, CES expects to hedge 75% - 85%of its generation out-put by targeting approximately 50 to 65 million [lwHs in annual contract sales and maintaining upto 25 millionMWHI as ,eserue margiri. for thJpdrioO Octobei 1,2016 to December 31,2016, CES'committed sales are S2y"tedged against 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 for A)16 are approximately 67 million lvfwHs.
CES will continue to make prudent investmenb in its nuclear units in order to maintain safe and reliable operations in accordance with nuclear standards, buiwill continue to focus on costs given current market @nditions, specifically surounding its lossilieet.
Management curren y anticipates totalcapitale4enditureJ of $370 million and
$300 million in 2017 and 2018, tespectively, which represents a significant reduction lrom 2Ol6 forecasted capital ependitures of $540 million.Reoulated TransmissionThe centerpiece of FirstEnergy's regulated investment strategy continues to be ib Enelgirng the Fulutetransmission plan. The plan inctudes gi.2 biltion in investments irom 2014 through 2017 a;d an additional
$8OO million to
$1.2 billion annually from 2018 to 2021 58 to modernize FirstEnergy's transmission system to make it more reliable, robust, secure and resistant to extreme weather events,with improved operational flexibility.These investments will continue to be focused in oul stand-alone transmission @mpanie6 with lormula rates including ATSI, TrAIL and MAIT (which will include the transmission assets from Met-Ed and Penelec), as well as the transmission system at JCP&L asfilingswere made with FERC on October 28,2016 to implement and transition to aformula rate for MAIT and JCP&L's transmission investments.
FirstEnergy believes efsting transmission infrastructure creates improvement inr*slment opportuni$es ol apgofmately
$20 billion beyond those idenlilied through 2021.Reoulated Distdbution The scale and diversity ot our regulated utilities has uniquely positioned Regulat6d Distribulion for growth and represents anaddilional investment opportunity. Although weather-adjusted distribufion deliveries through 2019 are forecasted to be flat ascompared to 2016, Regulated Distribution's eamings over the next three years are anticipated to increase as a result of the recentorder by the PUCO regarding the Ohio Companies' ESP lV, which includes approfmately
$204 million, gossed up ior income bxes, in additional annual revenue through rider DMR, cunent settlement agreements that are pending betore the PAPUC regarding the Pennsylvania Companies' base rate cases, as well as the impact of the settlement-in-principle achieved in the base l?lte case in New Jersey, which provides for an annual
$80 million distribution revenue increase effective on January 1, 2017, subject to finalization,execution and NJBPU approval of a Slipulation ol Setllement.
Planned capital ependitures for Regulated Distribution are approximately
$1.3 billion, annually for 2017 through 2019.
59 FINANCIAL OVERVIEW (ln millions, except per share amounts)For the Three Months Ended September 30For the Nine Months Ended September 30 2016 2015 Change$ (206) (5)%2016 2015 Change REVENUES:OPERATING EXPENSES:
Fuel Purchased powerOther operating expensesProvision for depreciation Amortization of regulatory assets, net Generaltaxes lmpairment of assets Total operating expensesOPERATING INCOME OTHER TNCOME (EXPENSE):
Investment income (loss)Interest expenseCapitalized financing costs Total other expense rNcoME (LOSS) BEFORE TNCOME TAXESINCOME TAXES NET TNCOME (LOSS)$ 11,187 $ 11,485 $ (298) (3)/.(32) (7)o/" 1,269 1,378 (109)(230) (19)%
2,992 3,311 (319)13 % 2,835 2,79936 5 21 39 (5)%(8) (100)%
1,447 24 1,423 NM10.525 9.429 1,096 12 %-3,056 3,215 861 28 (286)28(230) (287t 57 (20\%$ 3,917$ 4,123 482 1,209 842 328 110 236 8 450 979 953 311 98 265 111 (17l'89 (17)(8)%(10)%1 "/" 1 o/o 10 o/" 5%NM 2%(12\ (11)./" 29 12%974 222 786 969 201 747 (15e) (5t%(47) (5)%56 (2001./" 662 2.056 (1,3s4) (68)%(28)(28s)26-%8 o/o (1)2 75 (14)(863) (846)
(47) 1,289 334 485 (1,336) (104) /0 (151) (31)%9_(1 ,185)_ (147)/" (2.81) (147)%(2,80) (147)%7s e3 (14) (15)%?oe) 06?\ -58 (8)%631 251$ gao 621 226 g 1.e1 $$ 1.e0 $$ 0.89$ 0.89 2 o/"11 %$ (15) _<al%. $_(381)10 25 0.94 0.93 (0,0s)(0.04)(5)./, (4)%(0.e0)(0.e0)EARNTNGS (LOSSES) PER SHARE OFCOMMON STOCK:
Basic Diluted$
$$$$$NM - Not Meani.lulFor the Thr** iltonlhs Ended Septem'*,t 30. 2016FirstEnergy's net income in thethird quarter of 2016 was
$380 million, ora basic and diluted earnings ot$0.89 pershare of common stock, compared with net income ol $395 million, or basic earnings of
$0.94 per share of common stock
($0.93 diluted) in the third quarter of 2015.As further discussed below third quarter 2016 earnings improved over the same period ot 2015 at Regulated Distribution andRegulaled Transmission but were partially otfset by lower earnings at CES and Corp/Other.
During the third quarter of 2016, FirstEnergy's revenues decreased
$206 million as compared to the same period in 2015, primarilyresulting from a $353 million decrease at CES, partially ofiset by a
$78 million increase at Regulated Oistribution and a
$37 million increase al Regulaled Transmission.. The decrease in revenue al CES resulted trom a 2.6 million MWH decline in contract sales as the segmenl continues to align its sales to its generation, as well as lower capacity revenue associated with lower capacity auction prices, parliallyoffset by higher wholesale sales.. The increase in revenue at Regulated Distribution primarily resultedlrom a 7% increasein MWH deliveries mainly related to higherweatheFrelated usage as well as higher rates associated with the recovery of detened program costs, partially offsel by lower default service generation sales resulting primarily from lower prices in Ohio and Pennsylvania.. The increase in revenue at Regulatsd Transmission resultedtrom recovery of incrementaloperating expenses and a higher rate base at ATSI and TrAlL, parlially offset by a lower ROE at ATSI.Operating expenses deffeased
$159 million in the third quarter of 2016 as compared to the third quarter o12015, primarily reflecting a decrease at CES of
$217 million, partially otfset by an increase at Regulated Transmission of $22 million and an increase alRegulated Distribution of $14 million. Changes in certain operating expenses include the following:. Fuel expense decreased
$32 million, primarily resulting from lower generation at CES associated with outages and economic dispatch ol fossil units resulling trom low wholesale spot market energy prices, as well as lower unit prices onfossil fuel contracts.. Purchased power decreased
$230 million, primarily due to lower capacity expense at CES as a result of lower conlract sales and capacity rates, as well as lower default service and wholesale spot ma*et prices.. Other operating expenses increased
$111 million, primarily retlecting an increase of  
$81 million at Regulated Distribution primarily associated with higher storm restoration expenses, network transmission expenses in Ohio and retirement benefitcosts as well as a
$31 million increase at CES resulting primarily from a contract termination charge.60 Other income (expense) increased
$57 million, prjmarily from lower OTTI on NDT investments. FirstEnergy's ofiective lax rate was39.8% tor the three months ended September 30, 2016 compared to 36.4% for the same period in 2015.For the Nlne Months En ted sF,otember 30. m16 For the nine months ended September 30, 2016, FirstEnergy's net loss was
$381 million, or a basic and diluted loss of $(0.90) pershare of common stock, compared to net income of
$804 million, or basic earnings of $1.91 per share of common stock
($1.90 diluted) for the nine months ended September 30, 2015.FirstEnergy's 2016 year-to-date eamings decreased
$1,185 million as compared tothe same period of 2015 primarily reflecting assetimpairment and plant exit costs recognized in the second quarter ot 2016 consisting of:. Non-cash impairment charge of
$800 million (pre-tax) associated with goodwill at CES,Non-cash impairment charges of $647 million (pretax) associated with the announced plan to exit operations by 2020 ot Units 1-4 of the W.H. Sammis generation station (720 MW) and the Bay Shore Unit 1 generating station (136 MW), Coal contract settlement and termination costs of $58 million (pre-tax), and Valuation allowances against state and local NOL carryforwards of $159 million.During the first nine months of 2016, FirstEnergy's revenues decreased
$298 million as compared to the same period in 2015,resulting from a $564 million decrease at CES, partially offset by an increase of $69 million at Regulated Transmisshn.. The decrease in revenue at CES resulted from a 13 million MWH decline in contract sale6 as the segment cortinuesto align its sales to its generation. The decline in contract sales volume was partially olfset by higher wholesale salss, increased capacity revenue associated with capacity auction prices, and higher net gains on linancially settl*d contrac{s.. The increase in revenue at Regulated Transmission primarily reflecled recovery of incremental operating expenses am higher rate base at ATSI and TrAlL, panially offset by adjustments associated with ATSI and TrAlUs annual rate liling for costs previously recovered as well as a lower ROE at ATSI under its FERc-approved comprehensive settlsmefi related to the implementation of a foMardlooking rate.Operating expenses increased
$1,096 million during the first nine months of 2016 as compared to2015, mainly reflecting an increaseat CES of
$830 million, resulting primarily ftom the asset impairment and plant exit costs descdbed above, and an inclease atRegulated Transmission of
$62 million. Changes in certain operating expenses include the tollowing:. Fuelexpense decreased
$109 million mainly resulting from lowergeneralion at CES associated with oulages and economicdispatch of fossil units reflecting low wholesale spot market energy prices, as well as lower unit prices on lossil fuel contracts.. Purchased power decreased
$319 million mainly due to lorver volumes at CES and Regulated Distribution and lowercapacity e)pense at CES.Other income (e4ense) increased
$58 million, primarily from lower OTTI on NDT investments. Changes in FirstEnergys efiective taxrate forthe nine months ended September 30, 2016 compared to the same period in 2015, primarily related to the second quarter of2016 impairment of
$8OO million of goodwill, of which $433 million is non-deductible for tax purposes.
Additionally, $159 million ofvaluation allowances were recorded against state and local NOL carryforwards in the second quarter of 2016 that managementbelieves, more likely than not, will not be realized based primarily on projected taxable income refectilE updates to FirstEneagys annual long-term fundamental pricing model for energy and capacity, as w*ll as certain statutory limitations on the utilization of stateand local NOL carryfoMards.
61 RESULTS OF OPEFATIONSThe financial resulb discussed below include revenues and expenses from transaclions among FirstEnergy's segments.
A reconciliation of segment financial results is provided in Note 14, Segment Informalion, ot the Combined Notes to Consolidated Financial StatemenF.
Certain prior year amounts have been reclassifiod to contorm to the current year presentiation.Summary ol Besults of Ope/,a,tlons - Thhtt Atarw 2016 Compared wfth mh.t Quaftr m15Financial results for FirstEnergy's business segments in the third quarter of 2016 and 2015 were as follows: Third Quarter 2016 Financial ResultsRegulated RegulatedDistribution Transmission Competitive Corporate/Other Energy and Reconciling
_FirstEnergy ServiCes Adiustments Consolidated Revenues: External Electric Other lnternalTotal RevenuesOperating Expenses:
Fuel Purchased powerOther operating expensesProvision for depreciation Amortization of regulatory assets, net Generaltaxes lmpairment of assets Total Operating Expenses Operating Income Other Income (Expense)
:Investment income


Interest expense Capitalized f inancing costs Total Other Expenselncome Before Income Taxes Income taxesNet Income 2,649 53 285 $(ln millions)959 39 117 (46)(22)(117)3,847 70 2,702 1,115 (185)3,917 156 902 615 171 98 190 8 30 46 45 37 294 194 367 79 t1ul (75)16 450 979 953 311 98 265 2,132't28 (168)3,056 570 861 (17)157 (60)(16)13 (13s)6 (43)I 23 (48)I (8)(56)4 28 (286)28 (120)450 167 (34)(230)123 45 135 49 (77)(10)631 251 283 $78$86$(67) $380 62 Third Quarter 2015 Financial Results Competitive Regulated Regulated EnergyDistribution Transmission Services Corporate/Other and Reconciling FirstEnergy Adjustments Gonsolidated Revenues: External Electric Other InternalTotal RevenuesOperating Expenses:
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.
Fuel Purchased powerOther operating expenses Provision for depreciation Amortization of regulatory assets, net Generaltaxes lmpairment of assets Total Operating Expenses Operating Income Other Income (Expense):lnvestment income (loss)Interest expenseCapitalized f inancing costs TotalOther Expense lncome Before Income Taxes Income taxesNet Income 140 980 534 42 174 41 110 172 23 I 2,118 106 2,571 53 248 $(ln millions)1,276 51 141 2,624 248 1,468 (217)(41)
PurchasePower Agreements- FirstEnergyevaluatedits PPAsanddeterminedthatcertainNUGentitiesat its Regulated Distribution segmentmaybe VlEsto the extentthattheyowna plantthatsellssubstantially        allof itsoutputtotheapplicable utilitiesand the contractpricefor poweris correlatedwith the plant'svariablecostsof production.
(35)(141)4,054 69 4,123 482 1,209 842 328 110 236 8 3,215 6 342 370 336 98 35 (141)(70)15 1,181 (1e0)506 142 (27)908 I (14e)6 (135)371 137 (40)I (31)(58)(63)(287)(1e)(48)9 (17)
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.
(48)2 (28)(285)26 111 41 229 84 (e0)
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.
(36)621 226 234 $70$(54) $395 145 $63 Changes Between Third Quarter 2016 and Third Quarter 2015 Financial Results Regulated Distribution Revenues: External Electric Other lnternalTotal Revenues Operating Expenses: Fuel Purchased powerOther operating expensesProvision for depreciation Amortization of regulatory assets, net Generaltaxes lmpairment of assets Total Operating Expenses Operating IncomeOther Income (Expense)
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.
:lnvestment income Interest expenseCapitalized f inancing costsTotalOther ExpenseIncome Before lncome Taxes lncome taxesNet lncome ComPetitive Regulated EnergyTransmission Services Corporate/Other and Reconciling FirstEnergy Adjustments Consolidated 78$37$(5)13 24 (207)1 (ln millions)(317)(12)
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.
(24',)(206)32 37 78 (353)16 (78)81 (3)(12)18 (8)2 4 4 14 (48)(176)31 ,:,:, 24 (5)1 (32)(230)111 (17)('t2)29 (8)14 (217)(15e)(47)10 15 (136)42 5 10 79 30 (3)/e\\v,, 9 (8)2 56 (1 )2 15 12 4 (e4)(3s)13 26 10 25 4e$8$(5e) $(13) $(15)64 Regulabd Dlstrlbutlon - Thhd Quarter 2016 Comparcd with Thlttt Ouarter 2015Regulated Distribution's net income increased
Uponthe completionof this transaction,   NG will haveobtainedall of the lessorequityinterestsat BeaverValleyUnit2.
$49 million in the third quarter oI 2016 as compared to the same period ot 2015,reflecting higher revenues associated with cooling degree days that were 28% above 2015, partially ofisel by higher operating and maintenance costs and increased retirement benefit costs.Revenues -The $78 million increase in toial revenues resulted from the following sources:
Therefore,uponthe expirationof the BeaverValleyUnit2 leases,NG will be the soleownerof BeaverValleyUnit2 and entitledto 100o/o of the unit'soutput.
For the Three Months Ended September 30 Increase Revenues by Type of Service 2016 2015 (Decrease)(ln millions)1,390 $ 1,245 $145 Distribution servicesGeneration sales:
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.
Retail Wholesale Total generation sales Other Total Revenues 1,117 142 1,',182 144 (65)(2)1,259 53 1,326 53 (67)2,702 $2,624 $Distribution services revenues increased
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:
$145 million primarily resulting lrom higher MWH deliveries, described bdow and a rate increase associated with the Ohio Companies'rider OCR. Additionally, distribution service revenues increased related to higher rates associated with the remvery of deferred costs, including Ohio Companies'NMB transmission rider revenues, and a surchargeincrease in West Virginia associated with the recovery otvegetation management deferred program costs, effective January'1,20'16.
Maximum          DiscountedLease            Net Exposure          Payments,net            Exposure (ln millions)
Distribution deliveries by customer class are summarized in the following iable:
FirstEnergy                              1,137 $                895 $              242 FES                                      1,110                  887                223 20
For the Three MonthsEnded September 30 lncreaseElectric Distribution MWH Deliveries 2016 2015 (Decrease)(ln thousands) 78 Residential Commercial Industrial OtherTotal Electric Distribution MWH Deliveries 16,138 12,005 13,023 144 14,305 11,463 12,721 146 12.8 "/" 4.7 "/" 2.4 V" (1.4)%41,310 38,635 6.9 %Higher distribution deliveries to residential and commercialcustomers primarily reflect increased wsather-related usage resulting fromcooling degree days that were 28% above 2015, and 46% above normal. Deliveries to industrial customers increased relaled tohigher shale, coal and steel customer usage.
: 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:
65 The following table summarizes the price and volume factors contributing to the $67 million decrease in generalion revenuesforlhe third quarter of 2016 compared to the same period of 2015: Increase Source of Change in Generation Revenues (Decrease)(ln millions)16 (81)(65)(67)The decrease in reiail generation sales primarily resulted from lower default service auction prices in Ohio and Pennsylvania. The increase in retail generalion volumes was primarily due to weather-related volume, as described above, partially offset by increasedcustomer shopping in Ohio and New Jersey. Total generation provided by alternative suppliers as a percentage of total iifwHdeliveries increased to 85% from 81% for the Ohio Companies and lo 48"/" fiom 47"/. forJCP&L.The decrease in wholesale generation revenues of $2 million in the third quarter of 2016, as compared to the same period in 2015,reflects lower capacity revenues partially oltset by higher wholesale sales.
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.
The difference bstween currenl wholesale generation revenues and certain energy costs incurred are deferred for tuture recovery or refund, with no matelial impact to earnings.Openting Expenses
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:
-Total operating epenses increased
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.
$14 million primarily due to the following:
Generally,significantincreasesor decreasesin inputsin isolationcould resultin a higheror lowerfair value measurement. See Note9, DerivativeInstruments,   for additionalinformation regardingFirstEnergy's FTRs.
Fuel expense increased
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.
$16 million in the third quarter of 2016, as compared to the same period in 2015, primarily related to higher generation.
Generation  NrWHreflectsdataprovidedby conlractual      arrangements  and historicaltrends.Themodelcalculates the fairvalueby multiplying the pricesby the generation  MWH.Generally,   significantincreasesor decreasesin inputsin isolationcouldresultin a higheror lowerfair valuemeasurement.
Purchased power costs were $78 million lower in the third quarter of 2016, as compared to the same period in 2015, primarily due to decreased unit cost reflecting lower default service auction prices in Ohio and Pennsylvania.
FirstEnergyprimarilyappliesthe marketapproachfor recuningtair valuemeasurements            usingthe bestinformation    available.
Source of Change in Purchased Power lncrease(Decr ease)(ln millions)$ (85)10 (75)(14)(e)(23)Retail: Effect of increase in sales volumes Change in prices Wholesale:Effect of increase in sales volumes Change in prices Capacity RevenueDecrease in Generation Revenues 10 (1)(11)(2\Purchases from non-affiliates:Change due to decreased unit costs Change due to increased volumes Purchases from affiliates:Change due to decreased unit costs Change due to increased volumes Capacity Expense Amortization of deferred costs Decrease in Purchased Power Costs (7)27 66 (78)
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.
. Other operating expenses increased
21
$81 million primarily due to:. Higher operating and maintenance expense of
$37 million including higher storm restoration costs of
$32 million, which are deferred for future re@very resulting in no material impact on current period earnings.. Higher transmission expenses of$24 million primarily due to an increase in network transmission epenses at theOhio Companies. The difference between currenl revenues and transmission costs incurred are debrred for future recovery or refund, resulting in no material impact on current period earnings.. Higher retirement benefit cosls ol
$12 million.. Net amorlization of regulatory assets decreased
$12 million primarily due to higher deferral of storm restoration costs, partially offset by increased recovery otvegetation management program costs in West Virginia and increased lecovery of network transmission expenses in Ohio.. General taxes increased
$18 million primarily due to higher property taxes and higher revenue-related taxes in Ohio.Othet ExDense
-Other expenses decreased
$15 million primarily due to lower interest expense associated with various debt redemptions atJCP&L,OE, and MP and lower OTTI on NDT investments.lncome Taxes
-Regulated Distrjbution's effective tax rate was 37.1% and 36.9%
for the quarter ended S'*ptember 30, 2016 and 2015, respectively.Regulatect T?,nsml9F,lon - Thid o{raner m16 Compared wfth Thhct Ouaner m15Nel income increased
$8 million in the third quarter of 2016 compared to the same period of 2015 reflecting higher transmission revenues, as described below.
Revenues -Toial revenues increased
$37 million principally due to recovery of incremental operating expenses and a higher rate base at ATSI and TrAlL, partially otfset by a lower ROE at ATSI under its FERc-approved comprehensive settlement related to lhe implementalionol a forwardiooking rate.Revenues by transmission asset owner are shown in the foliowing table:For the Thl*e Months Endod Soptember 30 Revenues by Transmission Asset Owner 2016 2015 Increase ATSI TrAIL PATH Utilities Total Revenues (ln millions)$ 139$ 110$ 2s 67607 33 76751$ 285 $ 248 $ 37Operating Expenses
-Totaloperating epenses increased
$22 million principally dueto higher pmperty taxes, depreciation, and other operating expenses atATSI, which are recovered through ATSI'S formula rate.Other Expense
-Total other expense increased
$3 million in the third quarter of 2016 as compared to the same period of 2015 primarily due toincreased inlerest expense resulting from debt issuances of $150 million at ATSI in the fourth quarter of 2015, the proceeds otwhich, in part, paid otf shorl-term borrowings.
ln@me Taxes -Regulated Transmission's etfective tax rate was 36.6%and 36.9%lorthe quarterended September 30,2016 and 2015, respectively.
67 CES - Thhct Ouarl3'r m16 Compared wlth Thhd QuatlF,r m15 Operating results decreased
$59 million in the third quarter oI20l6, compared to the same period oI 2015, primarily resulting tromlower contract sales volumes,lower capacity revenues from lower capacity auction prices,lo\,ver mark-to-market gains on commodity contract positions, and a termination charge associated with a FES customer contract, partially offset by higher wholesale sales volumes and lower fuel and purchased power, Bevenues -Total revenues decreased
$353 million in the thkd quarter of 2016, compared to the same period of 2015, primarily due to lowercapacity revenues from lower capacity auction prices, lower conlract sales volumes and lower unit prices. Revenues were alsoimpacted by higherwholesale sales volumes, partially ofiset by lower net gains on financially settled contracts, as further described below.The change in tolal revenues resulted from lhe following sources: For the Three MonthsEnded September 30 Revenues by Type of Service 2016 2015 lncrease (Decrease)(ln millions)Contract Sales: Direct Govern mental Agg regationMass Market POLR Structured Sales Total Contract Sales Wholesale Transmission OtherTotal Revenues 207 $235 47 296 $296 62 (8e)(61)(15)24 (76)165 141 94 170 748 311 17 39 1,1'15 $For the Three Months Ended September 30 (217)(118)(6)(12)1,468 $(353)965 429 23 51 MWH Sales by Channel 2016 2015 Increase (Decrease)
Contract Sales: DirectGovernmental Agg regation Mass Market POLR Structured Sales Total Contract Sales Wholesale Total MWH Sales 3,913 4,238 673 2,893 2,437 14,154 4,447 (ln thousands) 5,541 4,226 906 2,169 3,893 16,734 3,156 (2e.4)%0.3 %(25.7)%33.4 %(37.4)%(15.4)%40.9 %18,601 19,890 (6.5)%68 The following table summarizes the price and volume factors contributing to changes in revenues:
Source of Change in Revenues Increase (Decrease)
MWH Sales Channel:
Sales VolumesGain on Settled Prices Contracts Capacity Revenue Total (ln millions)(2) $ $Direct Governmental Aggregation Mass Market POLR Structured Sales Wholesale (87) $1 (16)47 (64)38 (62)1 (23)(12)3 (8e)(61)
(15)24 (76)(e)(150) (118)
Lower sales volumes in Direct and Mass Market channels primarily reflects the continuation oI CES'strategy lo more efiectivelyhedge its generation. The Direct, GovernmentalAggregation and Mass Market customer base was 1.4 million as ot September 30, 2016, compared to 1.7 million as of September 30,2015. Although unit pricing was lower year-over-year in the Governmental Aggregation channel, the decrease was primarily attribulable to lower capacity e)pense as discussed bdow which is a mmponent otthe retail price.The increase in POLR sales of $24 million was due to higher\olumes, parlially offset by lower rates associated with POLR auctions.
Structured Sales decreased
$76 million primarily duetothe impact of lower market prices and lower structured transaction volumes.Wholesale revenues decreased
$1 1 I million, primarily due to a decrease in capacity revenue lrom capacity auctions and lower gainson financially settled contracts, partially offset by an increase in short-term (net hourly position) transactions at highel realized pric*s.Although wholesale short-term transactions and prices increased year-over-yeaa, low average spol marlGt energy plices reduced the economic dispatch of fossil generating units, limiting additional wholesale sales.Openting Expenses
-Toial operating expenses decreased
$217 million in the third quarter of 2016 due to the following:. Fuelcosts decreased
$48 million, primarily due to lower generation associated with outages and economicdispabh ofbssil units resulting from lowwholesale spot maket energy prices, as described above, as well as lower unit prices on fossilfuel conlracts.. Purchased power cosF decreased
$176 million due to lower capacity e)eense
($137 million), lower prices ($27 million) andlower volumes
($12 million).
Lower volumes primarily resulted from lower contract sales as discussed above, partially ofbetby economic purchases, resulting from the low wholesale spot market price environment. The decrease in capacity expense,which is a mmponent of CES'retail price, was primarily the result ol lower contract sales and lower capacity ratesassociated with CES' retail sales obligation. Lower prices rellect lower realized prices on economic purchases.. Depreciation expense decreased
$19 million, primarily as a result ot an out-of-period adjustment to reduce the deprecialionof a hydroelectric generating station.. Transmission expenses decreased
$12 million due to lower congestion and market-based ancillarycosts, primarily resulting from lower conlract sales.. Other operating expenses increased
$* million, primarily due to lower mark-to-market gains on commodity contract positions of $41 million, higher benefit costs and a
$32 million charge associated with the termination of a FES customer contract, partially olfset by lower lease expense as a result ot the expiration of a nuclear saleleaseback agreement andlower retail-related costs.Other Expense
-Total other expense decreased
$42 million in the third quarter of 2016, as compared to the same period o12015, primarily due tolower OTTI on NDT investments.
69 lncone Taxes
-CES' efiective tax rate was 36.3% and 36.7%
for the third quaner of 2016 and 2015, respectively.Cotp0,lzte /
Other - Thltd Quarl*/r m16 Com,*,red wfth Thhtl Quatl*,r N15Financial results trom the Corporate/Other operating segment and reconciling items, includirE interest expense on hoHing companydebt, corporate supporl services revenues and expenses and income taxes, resulted in a
$13 million decrease in earnings in thethird quarter of 2016, compared to the same period of 2015, primarily associated with a higher consolidated effective lax rate.70 Summary ol Results of Operations - First Nine Months of 2016 Comparcd with First Nine Months of 2015 Financial results for FirstEnergy's business segments in the first nine months of 2016 and 2015 were as follows:First Nine Months 2016 Financial Results Regulated Distribution ComPetitive Regulated EnergyTransmission Services Corporate/Other and Reconciling FirstEnergy Adjustments Consolidated Revenues: External Electric Other InternalTotal Revenues Operating Expenses: Fuel Purchased powerOther operating expensesProvision for depreciation Amortization of regulatory assets, net Generaltaxes lmpairment of assets Total Operating Expenses Operating Income (Loss)Other Income (Expense):Investment income Interest expenseCapitalized f inancing costs Total Other Expense Income (Loss) Before Income Taxes (Benefits) lncome taxes (benefits)Net Income (Loss)7,238 $185 824 $(ln millions)3,023 135 377 (135)(83)(377)10,950 237 7,423 436 2,549 1,843 510 218 5456,1 01 1,322 824 3,535 (5e5)11,187 118 132 4 114 833 820 1,120 284 98'i.,447 4,602 tsnl (246)48 1,269 2,992 2,835 974 222 786 1,447 29 368 (546)10,525 456 (1,067)56 (143)29 (4e)37 (431)15 (37e)943 349 (128)25 (103)353 130 (18)(161)10 75 (863)79 (58)(16e)(70e)(1,125)(e6)(218)(4e)(47)334 594 $223 $(1,029) $(16e) $(381)71 First Nine Months 2015 Financial Results Regulated Distribution Gompetitive Regulated EnergyTransmission Services Corporate/Other and Reconciling FirstEnergY Adjustments Consolidated Revenues: External Electric Other Internal Total RevenuesOperating Expenses:
Fuel Purchased powerOther operating expensesProvision for depreciation Amortization of regulatory assets, net Generaltaxes lmpairment of assets Total Operating ExpensesOperating IncomeOther Income (Expense):
Investment income (loss)Interest expenseCapitalized financing costs TotalOther ExpenseIncome Before Income TaxesIncome taxesNet Income (11e)36 (385)(83)7,277 148 755 $(ln millions)3,381't55 563 (12e)(102)(563)11,284 201 7,425 755 4,099 972 1,113 1,266 293 112 16 (7e4)11,485 406 2,761 1,669 516 196 536 8 112 116 5 73 (563)(248)44 1,378 3,311 2,799 969 20'l 747 24 26 6,092 306 3,772 327 (741)9,429 1,333 (53)449 2,056 33 (43e)21 (7)(144)29 (122\205 76 (40)(144)7 (14)(846)93 (177)(767)948 350 ss8 $366 135 231 $(230)(76)1,289 485 129 $(154) $804 72 Changes Between First Nine Months 2016 andFirst Nine Months 2015 Financial Results Regulated Distribution ComPetitiveRegulated EnergyTransmission Services Corporate/Other and Reconciling FirstEnergy Adjustments Consolidated Revenues: External Electric Other InternalTotal RevenuesOperating Expenses:
Fuel Purchased powerOther operating expenses Provision for depreciation Amortization of regulatory assets, net Generaltaxes lmpairment of assets Total Operating ExpensesOperating Income (Loss)Other Income (Expense)
: Investment income lnterest expenseCapitalized financing costsTotalOther Expense Income (Loss) Before Income Taxes (Benefits)
Income taxes (benefits)Net Income (Loss)(3e)37 (ln millions)$ 6e $ (358)(20)(6)19 186 (334)36 (2) 6e (564)199 (2e8)30 (212)174 (6)22 I (8)6 16 (1)41 (13e)
(2e3)
(146)3 (14)1,431 186 2 4 3 (10e)(31e)36 5 21 39 1,423 195 62 1,096 (1,394)(1,330)(172)(1,394)4 I 63 1 (e)22 (17)3 89 (17)
(14)(6)6 (20) 64 58 (5)(1)(13)(5)12 27 (1,336)(151)(1,185)73 Regula'*d Dtsttibution - Flrst Nlne Months ol m16 Comryrd tflnh Fi'r,t NIne hnthc ol m15Regulaled Distdbution's net income decreased
$4 million in the first nine months of 2016 as compared to lhe same period ot 2015,retlecting increasing retirement benefil costs and lower distribution deliveries, partially ofiset by the impact ot net rate increasesimplemefied in 2015 as a result of approved rate cases at certain operating companies, as further described below Additionally, theOhio Companies rocognized
$51 million in regulatory charges in the second quarter of 2016 resulting ftom the PUCO'S March 31Opinion and Order adopting and approving, with modifications, the Ohio Companies'ESP lV Revenues -The $2 million decrease in total revenues resulted from the following sour@s: For the Nine MonthsEnded September 30 Increase Revenues by Type ol Service 2016 2015 (Deqease)(ln millions)Distribution servicesGeneration sales:
Retail Wholesale Totalgeneration sales OtherTotal Revenues
$ 3,681 $ 3,502 179 3,173 384 3,331 444 (158)(60)3,557 185 3,775 148 (218)37$ 7,423 $ 7,425 $(2)Distribution services revenues increased
$179 million primarily resulting from appoved base distlibution rate increases in Pennsylvania, effective May 3, 2015, and MP and PE in West Virginia, effective February 25, 2015, partially ofbet by a distributionrate decrease atJCP&L, including the recovery of 2011 and 2012 storm costs, effective April 1, 2015. Partially ofisetting this net rateincrease was a decline in lvlwH deliveries, pdmarily resulting from lower average customer usage, as desclibed below. Additionally,distdbution revenues were impacted by higher rates associated with the recovery of deterred costs. Distribution deliveries bycustomer class are summarized in lhe tollowing table:
For the Nine MonthsEnded September 30 Electric Distribution MWH Deliveries 2016 2015 (Decrease)(ln thousands)
Residential Commercial lndustrial Other Total Electric Distribution MWH Deliveries 42,130 32,913 37,746 437 42,706 33,006 38,149 438 (1.3)%(0.3)%(1.1)%
(0.2)%113,226 114,299 (0.e)%Lower distribution deliveries to residential and commercial customers retlect declining aveftrge customer usage associated with moreenergy efficient products and seMces. Additionally, wealher-related distribution deliveries to residentialand commercial cuslome6were flat resulting from heating degree days that were 17olo below 2015, and 97" below normal and cooling degree days that were 16% above 2015. and 36% above normal. Year-to-date deliveries to industrial customers have declined as the increase frcm shalecustomer usage was more than offset by a decrease from steel customer usage.
74 The following table summarizes the price and volume factors contributing to the
$218 million decrease in generalion revenues br thefirst nine months ot 2016 comoared to the same Deriod of 2015:
IncreaseSource of Change in Generation Revenues (Decrease)(ln millions)Retail: Effect of decrease in sales volumes Change in prices Wholesale:
Effect of increase in sales volumes Change in prices Capacity RevenueDecrease in Generation Revenues (1e0)32 (158)43 (101)(z',)(60)(218)The decrease in retail generation sales volumeswas primarily due to increased customer shopping in Ohio, Pennsylvania, and NewJersey and industrial usage in West Virginia, as described above. Totalgeneration provided by alternative suppliers as a percentageof total MWH deliveries increased to 82% from 80%forthe Ohio Companies, to 670lo from 65%forthe Pennsylvania Companiesandto 5l% from 49olo lor JCP&I. The increase in retail generation prices primarily resulted an ENEC rate increase in West Virginia,etfective January 1, 2016, partially offset by lower default service auction prices in Ohio and Pennsylvania.
Wholesale generation revenues decreased
$60 million in the lirst nine months of 2016, as compared to the same period oI 2015, primarily due to lower spot market energy prices, partially offset by higher wholesale sales. The difference between currentwholesale generation revenues and certain energy costs incurred are deterred torfuture recovery or refund, with no materialimpacl to earnings.Other revenues increased
$37 million primarily related to a $29 million gain on the sale of oil and gas rights at WPOperating Expenses
-Total operating expenses increased
$9 million primarily due to the tollowing:. Fuel expense increased
$30 million in the first nine months of 2016, as compared to the same period of 2015, primarily related to higher generation.. Purchased power costs decreased
$212 million during the first nine months of 2016, as compared to the same period of 20'15 primarily due to decreased volumes resulting lrom increased customer shopping, as described above, aswellas lower unit costs retlecting lower default service auction prices in Ohio and PennsylvaniaSource of Change in Purchased Power Increase (Decrease)(ln millions)Purchases from non-affiliates :Change due to decreased unit costsChange due to volumesPurchases from affiliates:Change due to increased unit costsChange due to volumes Capacity Expense Amortization of deferred costsDecrease in Purchased Power Costs (83)16 (67)6 (1e1)(185)2 38 75 (212)
. OtheI operating expenses increasd
$174 million primarily due to:. An increase ol $51 million resulting from the recognition of economic development and enelgy efficiencyobligations in accordance with the PUCO'S March 31 Opinion and Oder adopting and approving, with modifications, the Ohio ComDanies' ESP lV.. Higher operating and maintenance expense of
$42 million, including increased storm restoration costs of $39million, which are deferred for future recovery, resulting in no material impact on current period earnings.. Higher retirement b*nefit costs ot
$37 million.. Higher transmission expensesof
$36 million primarily related to an increase in network transmission expenses at the Ohio Companies, partially otfset by lower congestion expenses at MP. The difference between current revenues and costs incurred are deferred for future re@very or refund, resulting in no material impacl on current period earnings.. Net amortization of regulatory assets increased
$22 million primarily due to:. Recovery ofstorm costs in NewJersey, Pennsylvania, andwest Virginia etlective with the implementation of new rates as discussed above
($35 million),. Recovery of West Virginia vegetation management program costs ($34 million), partially offset by. Higher deferral of storm restoration costs ($39 million), and. Higher deferralof Ohio network transmission expenses
($10 million).ln@me Taxes -Regulated Distribution's effective tax rate was 37.0% for the tirst nine months of 2016 and 2015.negulal*d T'*nsmlsslon - Flrat Nlne Months o, m16 Con parcd wlth Flrst Nln* Months ot m15Net income decreased
$8 million in the first nine months of 2016, compared to the same period of 2015, primarily resulting fromadjustments associated with ATSI and TrAIL's annual rate filing for costs previously re@vered, a lower return on equity at ATSI, and lower capitalized financing costs, partially offset by higher rate base.
Revenues -Total revenues increased
$69 million principally due to recovery of incrementaloperating epenses and a higher rate base at ATSIand TrAlL, partially otfset by adjustments associated with ATSI's and TrAIL's annualrate filing for costs previously recovered as wellas a lower ROE at ATSI under its FERo-approved comprehensive settlement related to the implementation of a toru/ard-looking rate.Revenues by transmission assel owner are shown in the lollowing table:
For the Nine Months Ended September 30 Increase Revenues by Transmission Asset Owner 2016 2015 (Decrease)(ln millions)$ 333$ATSI TrAIL PATH UtilitiesTotal Revenues 401 187 I 227 186 10 226 68 1 (1)1 824 $755 $69 Opercting Expenses -Totaloperating expenses increased
$62 million principally due to higher property taxes and depreciation expense atATSl, which are recovered through ATSI's formula rate.
Other Expense -Other expense increased
$20 million in the first nine months of 2016 compared to the same period ot 2015 primarily due to lower capitalized financing costs resulting trom lower construction work in progress balances at ATSI as well as increased interest expenseresulting tmm debt issuances of$150 million at ATSI in the fourth quarter of 2015, the proceeds ofwhich, in part, paid ofi short-term borrowings.lncone Taxes
-Begulated Transmission's effective tax rate was 36.8% and 36.9%
tor the first nine months of 2016 and 2015, respectively.
76 CES - Fhst Nine Months ot 2016 Compa,Ed wlth Hrst Nlne Months ot 2015Operating results decroased
$ 1 ,158 million in the first nine months of 2016, compared to the same period ot 2015, primarily resultingIrom charges associated with impairments of goodwill, Units 1-4 of the W. H. Sammis generating station and lhe Bay Shor* Unit 1 generating station, as discussed above, termination and settlement costs on coal contracts and lower mark-to-market gains oncommodity contract positions.
In addition lo these items, operating results were impacted by higher capacity revenues, lower tuelcosts and lower purchased power, partially offset by lower sales volumes and a termination charge associated with a FES customer contract.Revenues -Total revenues decreased
$564 million in the first nine months o12016, compared to the same period of 2015, primalily due to lower sales volumes, partially offset by higher capacity revenues and higher net gains on financially settled contracts, as fuItherdescribed below.The decrease in total revenues resulted from the following sources: Revenues by Type of Service For the Nine MonthsEnded September 30 lncrease 2015 (Decrease) ftn mittiorrsl 2016 Contract Sales: Direct Govern m ental Agg regationMass Market POLRStructured Sales Total Contract Sales Wholesale Transmission OtherTotal Revenues MWH Sales by Channel
$ 610 666 133 447 371 1,014 $802 222 585 429 (404)(136)(8e)(138)(58)(825)341 (60)(20)2,227 1,117 56 135 3,052 776 116 155$ 3,535$ 4,099 $(s64)For the Nine MonthsEnded September 30 Increase (Decrease) 2016 2015Contract Sales:
Direct Governmental Agg regationMass Market POLRStructured Sales Total Contract Sales WholesaleTotal MWH Sales (ln thousands) 11 ,391 10,798 1,912 7,526 9,175 18,860 12,278 3,246 9,910 9,790 54,084 4,023 (3e.6)%(12.1)o/"
  (41.1)/"
  (24.1)/" (6.3)%40,802 9,938 (24.6)%147.0 %50,740 58,107 (12.7)/" 77 The following table summarizes the price and volume factors contributing to changes in revenues: Source of Change in Revenues Increase (Decrease)
MWH Sales Channel:
SalesVolumesPricesGain on Settled Capacity Gontracts Revenue Total Direct Governmental Agg regation Mass Market POLR Structured Sales Wholesale (401) $(e7)(e1)(140)(27)175 (ln millions)(3) $ $(3e)2 2 (31)(16) 113 (404)
(136)(8e)(138)(58)341 69 Lower sales volumes in Direct, GovernmentalAggregation and Mass Market channels primarily reflects the continuation of CES'strategy to more effectively hedge its generation. The Direct, GovernmenialAggregation and Mass Market customer base lvas 1.4million as of September 30, 2016, compared to 1.7 million as ol September 30, 2015. Although unit pricing was lower year-over-yearin the Governmental Aggregation channel, the decrease was primarily attributable to lower capacity expense as discussed belouwhich is a component of the retail price.The decrease in POLR sales ot $138 million was pdmarily due to lower volumes. Slructured Sales decreased
$58 million, primarilydue to the impact of lower market prices and lower structured transaction volumes.Wholesale revenues increased
$341 million, primarily dueto an increase in capacity revenue from capacity auctions, an increase in shon-term (nethourly position) transactionsand higher netgains on financially settled contracts, partially olfset by lower spot market energy prices. Although wholesale short-term transactions increased year-over-year, low a\ietage spot mad(et energy prices reducedthe economic dispatch of tossil generating units, limiting additional wholesale sales.Transmission revenue decreased
$60 million, primarity due to lower congestion revenue associated with less volatile marftet conditions.
Other revenue decreased
$20 million, primadlydueto the absence of a pr+tax gain on the sale of pmperty to a regulated affiliate inthe second quarter ot 2015 and lower lease revenues lrom the expiration of a nuclear sal+leaseback agreement.
Operufng E enses -Total operating expenses increased
$830 million in the lirst nine months of 2016, compared to tho same period of 2015, due to the following:
Fuel costs decreased
$139 million, primarily due to lower generation associated with outages and economic dispatch of fossil units resulting from lowwholesale spot market energy prices, as described above, aswellas lower unit prices on fossil fuelcontracts. Additionally, fuel costs were impacted by higher settlement and termination costs on coal contracts.
Purchased power costs decreased
$293 million, primarily due to lower volumes
($2OO million) and lower capacity expenses ($t t Z million), partially offset by higher losses on financial settled contracts from lower wholesale spot market prices ($25 million). Lower volumes primarily resulted from lower contract sales as discussed above, partially offset by economic purchases, resulting from the low wholesale spot market price environment. The decrease in capacity expense, which is a component of CES' retail price, was primarily the result of lower contract sales and lower capacity rates associated withCES' retail sales obligations.
Fossil operating costs increased
$18 million, primarily due to increased outage costs and higher employee benefit costs.Nuclear operating costs decreased
$31 million, primarily as a result of lower refueling outage costs, partially offset by higheremployee benefit costs. There was one refueling outage during the first nine months of 2016 as compared to two refueling outages during the same period of 2015.Retirement benefit costs increased
$24 million.78
. Transmission expenses decreased
$162 million, primarily due to lower congestion and markel-based ancillary costsassociated with less volatile market conditions as comDared to the first nine months of 2015, as well as lower load requirements.. Otheroperating expenses increased
$5 million, primarilydueto lower mark-to-market gains on commodily mntract positions of $54 million and a $32 million charge associated with the termination ol a FES customer contract, partially ofisst by lower lease expense as a result ot the expiration of a nuclear saleleaseback agreement and lower retail-related costs.. Depreciation expense decreased
$9 million, primarily as a result of an out-of-period adjustmentto reduce the deprecialion ota hydroelectric generating station, partially offset by a higher asset base.. General taxes decreased
$14 million, primarily due to lower gross Fceipts taxes associated with lower retail sales volumes.. lmpairment of assets increased
$1,431 million primarily due to an
$800 million impairment of goodwill and a decision to exit operations of Units I -4 ofthe W. H. Sammis generating station by iitay 31, 2020 and the Bay Shore Unit 1 generating stationby October 1, 2020.
Other Expense -Total other eryense decreased
$64 million in the first nine months of 2016, compared to the same period of 2015, primarily due to lower OTTI on NDT investmenls.ln@me Tax*s (BeneliB)
-CES'effective tax rate was 8.5% and 37.1%forlhe first nine months of 2016 and 2015, respectively. The decrease in the efieclive taxrate is primarily due to valuation allowances of
$159 million recorded against state and local NOL carMon ,ards that management believes, more likelythan not, will not be realized as discussed above aswellas the impairment ofgoodwill, ofwhich, $433 million is non-deductible for tax Durooses.Corpo',te /
Other - Hrct NIne ttonths of ml6 ComparEd wnh H'3,t Nine tionths ot ml,Financial results from the Corporate/Other operating segment and reconciling items resulted in a $15 million decrease in net income in the tirst nine months of 2016 compared to the same period of 2015. Increased taxes at lhe Coporate/Other operating segmentresulted from an increased consolidated tax rate and the impact ot estimated annual permanent hems on lower pre-tax income for the penoo.Ragulatory Aslsets Regulatory assets represent incurred costs that have been deferred because oI their probable future recovery from customersthrough regulated rates. Regulatory liabilities represent amounts that are expected to be credited to customers through future regulated rates or amounts collected from customers for costs not yet incurred. FirstEnergy and the Utilities net their regulatoryassets and liabilities based on federal and state jurisdictions.
The following table provides inlormaton about lhe composition of net regulatory assets as of September 30, 2016 and December 31, 2015, and the changes dudng the nine months ended September 30, 2016: Regulatory Assets (Liabilities) by Source September 30, December 31, Increase 2016 2015 (Decrease)
Regulatory transition costs Customer receivables for future income taxes Nuclear decommissioning and spent fuel disposal costsAsset removal costs Deferred transmission costs Deferred generation costs Deferred distribution costs Contract valuationsStorm-related costs OtherNet Regulatory Assets included on the Gonsolidated Balance Sheets (ln millions)123 $ 185 $355 (272)(372)115 243 335 186 403 170 427 (316)
(470)123 247 305 166 375 108 (62)72 (44)(e8)8 4 (30)(20)(28)
(62)79 1,088 $1,348 $(260)
Regulatory assets that do not earn acurrent return totaled approximately
$148 million as ot September 30,2016and December 31,2015, respectively, primarily related to storm damage costs.
As of September 30, 2016 and December 31 , 2015, FirstEnergy had approximately
$142 million and
$116 million, respectively, of net regulatory liabilities that are primarily related to asset removal costs. Net regulatory liabilities are classified wilhin Other noncurrent liabilities on the Consolidated Balance Sheets.
CAPITAL RESOURCES AND LIOUIDITY FirstEnergy expects its existing sources of liquidity to remain sufficient to meet its anticipated obligations and those of its subsidiaries.
FirstEnergy's business is capital intensive, requiring significanl resources to fund operating e&enses, construction expendilures,scheduled debt maturities and interest payments, dividend payments, and contributions to its pension plan.
In addition lo internalsources to fund liquidity and capital requirements for 20'16 and beyond, FirstEnergy expects to rely on external sources ot funds.Short-term cash requirements notmet by cash provided from operations are generally satisfied through short-lerm borrowings. Long-term cash needs, including cash requirements to fund Regulated Transmission's capitalprogram, may be met through a combinationof an additional$500 million of equity in each year 2017 through 2019, subject to certain market conditions, and new long-tem debt.
FirstEnergy also expects to issue long-term debt at ceriain Utilities to, among otherthings, refinance short-term and maturing debt,subject to maket and other conditions. Furthermore, FES subsidiaries have debt maturities in 2017 and 2018 of
$130 million and
$515 million, respectively, which will need to be refinanced. The inability to refinance the 2017 debt maturities at FES could beaddressed through a combination ot cash on hand, additional capital expenditure reductions, asset sales, and/or borrowings underthe unregulated money pool. The inability to refinance 2018 debt maturities at FES could cause FES to take one or more of the lollowing actions: (i) restructuring of debt and otherfinancialobligations, (ii) additional borrowings underthe unregulated money pool, (iii) further asset sales or plant deactivations, and/or (iv) sesk protection under bankruptcy laws. In the event FES seeks such protection, FENOC may similarly be forced lo seek protection under bankruptcy laws.FirstEnergy expectsborrowing capacity under credit facilities will continue to be available to manage working capital requirements doru with continued access lo long-term capital markets. However, it material impaiments are recognized as FirstEnergy executes on its strategy to transition b a lully regulated utility resulting in a consolidated debt to total capitalization ratio, as defined under each ol the revolving credit facilities as discussed below in excess of 65%, then FE would be in default undervarious credit agreements related to the indebtedness of FE. Furthermore, adverse iudgments or a FES bankruplcyfiling could alsoresult in an event ot default. Although management expects to successfully resolve any FE defaults through waivers or other actionson acceptable lems and conditions, the failure to do so would have a material and adverse impact on FirstEnergy's fnancialcondition, and FirstEnergy cannot povide any assurance that it will be able to successfully resolve any such defaults on satisfactory Ierms.Through October 2016, FirstEnergy satislied its minimum required funding obligations to its qualified pension plan for the year with contributions ol $382 million ($85 million in October 2016), including
$138 million at FES. Depending on, among olherthings, marketconditions, FirstEnergy expects to make additionalcontributions to ib qualified pension plan in 2016 of up lo
$500 million of equity to address its funding obligations for future years.Planned capital expenditures for 2016 through 2018 by reportable segment are included below:
that with Capital Gapital CaPital Expenditures Expenditures Expenditures Forecast Forecast Forecast 2016 2017 2018 Reportable Segment Reg ulated DistributionRegulated Transmission Competitive Energy Services Corporate/Other Total$ 1,295 $1,000 540 90 (ln millions)1,325 $ 1,305 1,000 1,000 370 300 95 90$ 2,925 $2,790 $ 2,695 Additionally, planned capital e4cenditures in 2019 lor Regulated Distribution are approximately
$1.3 billion while planned capitaiexpenditures for Regulated Transmission are expected to be approximately
$800 million to
$1.2 billion annually in 2019 to 2021.80 Forecasted capital expenditures for 2017 by operating company are shown in the following table:201 7 Gapital Expenditures Forecast oE $ 14s 45 120 45 355 135 160 250 125 205 420 65 255 325 50 90 2,790Unsecured notes


FMBs Unsecured PCRBs(1)Collateralized lease obligation bonds Sinking fund requirements Other notes Penn cEr TE JCP&L ME PN MP PE WP ATSI TrAIL MAIT FES AE Supply Other Total FirstEnergy's strategy is to tocus on investments in its regulated operations.
Transfersbetweenlevelsare recognizedat theendotthe reportingperiod.Therewerenotransfersbetweenlevelsdulingthe nine mor hsendedSeptember          30,2016.Thefollowing    tablessetforththerecurring    assetsandliabilities    thatareaccounted          forat fair valueby levelwithin      thefairvaluehierarchy:
The centerpiece of this strategy isthe Energizing theFut re investment plan, which began as a
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)
$4.2 billion investment plan from 2014 through 2017 to upgrade and expand FirstEnergystransmission system with additional investments of $800 million to $1.2 billion annually from 2018 through 2021. This program is focused on projects that enhance system performance, physical security and add operating flexibility and capacity siarting with the ATSI system and moving east across FirstEnergy's service territory overtime. Through 2015, FirstEnergy's capiial expenditures under this plan were $2.4 billion and in 2016 capital expenditures under this plan are currently projected to be approximately
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)
$1 billion. In total, FirstEnergy has identified over$20 billion in transmission investment opportunities across the24,000 mile transmission system,making this a continuing platform for investment in the years beyond 2021.In alignment wilh FirstEnergy's strategy to invest in its Regulated Transmission and Regulated Distribution segments and therepositioning olthe CES segment, FirstEnergy is also focused on improving the balance sheet overtime consistentwith its business protile, maintaining investment grade metrics at its regulated businesses and FirstEnergy Corp. and maintaining strong lqudilyfor anoverall stable financial position. Specifically, at the regulated businesses, authority has been obiained tor various regulated distribution and transmission subsidiaries to issue and/or refinance debt.Any financing plans by FirstEnergy, including the issuance of equity, refinancing ot maturing debt and reductions in short-termborrowings, are subject to market conditions and other factors, such as the impact of the current enelgy and capacity markets and potential credit rating changes. No assurance can be given that any such issuances, financings, refinancings, or reductions in short-term debt, as the case may be, will be completed as anticipated. Any delay in the completion offinancing plans could require FE orFES or any oftheir subsidiaries to utilize short-term borrowing capacity, which would impact available liquidity. In addition, FirslEnergyexpects to continually evaluate any planned financings, which may result in changes lrom time to time.As ot September 30, 2016, FirstEnergy's net deticit in working capital (current assets less current liabilities) was due in large part to currently payable long-term debt and short-term borrowings. Currently payable long-term debt as of September 30,2016, included the following:
Derivativeliabilities- NUG contracts(l)
Currently Payable Long-Term Debt (ln millions)680 250 158 8 82 38 81$ 1,216 (r) These PCRBS are classilied as curenily payable long-term debt b*cause the appli:aHe interesl rate mode permib individual debt holders to put the respective debt back to the bsuer prior to malurity.Short-Tam BofiowingsFirstEnergy had
Totalliabilities                                                                                      (e)$     ( 1 2 2 )$   ( 1 5 0 )$  (281)
$2,975 million and $1,708 million ol short-term borrowings as of Septemb*r 30, 2016 and December 31, 2015, respectively.
Net assets (l iabilities)t+l                      $ 1,454$ 1,e81!_q2              !_3,313_!        6?6 !__r,060_      !-(141) !_r,ses_
The $1,267 million increase in short-term borowings during the first nine-months of2016was primarily dueto pensioncontributions, debt redemptions, of which some may be refinanced inthe future, and for generalbusiness purposes. FirstEnergy also had approximately
(1)
$,100 million of short-term investments at Seplember 30, 2016 that were redeemed in early oc1ober to pay dovvn a portion of the short-term borowings.
NUG contractsare subjectto regulatoryaccountingtreatmentand do not impactearnings,
FirstEnergy's available liquidity as of November 1 , 201 6, was as follows: Borrower(s)
(?\
Type Maturity Available Gommitment Liquidity (ln millions)$ 3,500 $1,500 1.000 750 FirstEnergy(t)
NDTfundsholdequityportfolios    whoseperformance  is benchmarked  againstthe AlerianMLP Indexor the WellsFargoHybridand Preferred SecuritiesREITindex.
FES / AE Supply FET(2)Revolving March 2019 Revolving March 2019Revolving March 2019 1,241 1,500 Subtotal $Cash 6,000 $3,491 211 Total $6,000 $3,702{r) FE and the Utilities.(a Includes FET, ATSI and TrAlL.Ravolving Crac t Facfiltles FirstEnergy, FES/AE SuNy aN FET Facilities FE and certain ot its subsidiaries participate in three five-year syndicated revolving credit facilities with aggregate commitments of
$6.0 billion (Facilities) expking on March 31, 2019.Ouring September of20l6, the FES/AE Supply tacility was amended to decrease FES'S individualborrower sublimit lo
$900 million from $1.5 billion and AE Supply's individual borrower sublimit to
$600 million from $1 billion. The lending banks' aggregate commitments under the FES/AE Supply facility remain at
$1 .5 billion.Generally, borrowings under each of the Facilities are available to each borrower separately and mature on lhe earlier of 364 daystrom the date of borrowing or the commitment termination date, as the same may be extended. Each of the Facilities containsfinancial covenants requiring each borrower to maintain aconsolidated debt to total capiialization ratio (as detined undereach ofthe Facilities, as amended) of no more than 65'h, and75l"tot FET, measured at the end of each tiscal quarter.82 The following table summarizes the borrowing sublimils lor each bonower under the Facilities, the limitations on shorl-term indebtedness applicable to each bonower under current regulatory approvals and applicable statutory and/or cfiarter limitalions, as ofSeptember 30, 2016: BorrowerFE Revolving Credit Facility Sublimit FES/AE Supply Revolvidj FET Revolving
_R_egula-tory and Gredit Facility Credit Facility Other Short'Term sublimit sublimit Debt Limitations (ln millions)$FE FES AE Supply FET OE cEl TE JCP&L ME PN WP MP PE ATSI Penn TrAIL 3,500 500 500 500 600 300 300 200 500 150 500 400 900 600 50 (21 (2)(3)(3)(3)(3)(3)(3)
(3)
(3)
(3)(3)(3)(3)(3)500 500 500 500 500 300 200 500 150 500 100 400 1,000 (r) No limitations, (2) No limitation based upon blanket linancing authorization lrom lhe FERC under existing open markel laritls.
Primarilyconsistsof short-termcash investments.
(3) Includes amounts which may be bonow*d under the regulated companies' money pool.The entire amount ofthe FES/AE Supply Facility, $600 million of the FE Facility and
(4)
$225 million of the FET Facility, subject to eachborrower's sublimit, is available for the issuance ol LOCS (subject to borrowings drawn under the Facilities) expiring up to one year lrom the date of issuance.
Excludes$(8) millionand $7 millionas of September30,2016and December31,2015,respectively,          of receivables,    payables,taxesand accruedincomeassociated                            reflectedwithinthe fairvaluetable.
The staled amount of outstanding LOCS willcount against totalcommitments available under each ofthe Facilities and against the applicable borrower's bofiowing sublimil.The Facilities do not contain provisionsthat
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


===2.4 million===
EXHIBITINDEX Exhibit Number FirstEnergy (A)      12  Fixedchargeratio (A)    31.1  Certificationo{ chiefexecutiveofficer,as adoptedpursuantto Rule13a-14(a)
tons annually and NOx emissions to 1 .2 million tons annually. CSAPR allows trading of NOx and SO2 emissionallowances between power plants located in the same state and interstate trading ol NOx and SO2 emission allowances with some restrictions.
(A)    31.2   Certificationol chieffinancialofficer,as adoptedpursuantto Rule13a-14(a)
The U.S. Court ofAppeals lor the O.C. Circuit ordered the EPA on July 28, 2015, to reconsiderthe CSAPR caps on NOxand SO2 emissions from power plants in 13 states, including Ohio, Pennsylvania and West Virginia. This follows the 2014 U.S.Supreme Court ruling generally upholding EPAs regulatory approach under CSAPR, butquestioning whether EPArequired upwindstates to reduce emissions by more than their contribution to air pollution in downwind states.
(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.
EPA issued a CSAPR update rule onSeptember 7, 2016, reducing summertime NOx emissions from power plants in 22 states in the eastern U.S., including Ohio, Pennsylvania and West Virginia, beginning in 2017. Depending on howthe EPAand the states implement CSAPR, the future cosl ofcompliance may be materialand changes to FirstEnergy's and FES'operations may result.EPAtightenedthe primaryand secondary NAAOS for ozone from the2008 standard levels ot75 PPBto 70 PPBon October1,2015.
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).
EPA stated the vast maiority of U.S. counties will meet the new 70 PPB standad by 2025 due to other federal and state rules and programs but EPAwilldesignate those counties that lailto attain the new 2015 ozone NMQS by October 1,2017. States willthenhave roughly three years to develop implementation plans to attain the new 201 5 ozone NAAOS. Depending on how the EPA and the states implementthe new 2015 ozone NMQS, the future cosl of compliance may be materialand changes to FirstEnergys and FES'operations may result. In August 2016, the State of Delaware filed a CAA Section 126 petition with the EPA alleging that the Hanison generating facility's NOx emissions significantly contribute to Delaware's inability lo attain the ozone NMQS. The petition seeks ashort term NOx emission rate limit of 0.125lb/mmBTU over an averaging period of no more than 24 hours. On September 27,2016,EPA extended the time frame tor acting on the CAA Section 126 petition by six months to April 7, 2017. FirstEnergy is unable to predict the oulcome of lhis matter or estimate the loss or range of loss.MATS imposes emission limits for mercury PM, and HClfor allexisting and new fossilfuelfired electric generating units effective inApril 2015 with averaging of emissions from multiple units located at a single plant. FirstEnergy's totalcapital cost for compliance (over the 2012 to 2018 time period) is cunently expected to be approximately
4.1(a)
$345 million (CES segment ot
              '     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).
$168 million and Regulated Distribution segment of
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).
$177 million), ofwhich $267 million has been spent through September 30,2016 ($117 million atCES and $150 million at Regulated Distribution).
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),
On August 3, 2015, FG, a subsidiary ol FES, submitted to the AAA otfice in New York, N.Y., a demand for arbitration and stiatemenl ofclaim against BNSF and CSX seeking a declaration that MATS constituted a force majeure event that excuses FG's performance under its coal transportation contract with these parties. Specitically, the dispute arises from a contract lor the transportation by BNSFand CSX of a minimum of 3.5 million tons ot coal annually through 2025 to certain coaffired power plants owned by FG that arelocated in Ohio. As a resultotand in compliancewith MATS, allplants covered by this contract rvere deactivated byApril 16,20'15.InJanuary2012, FG notified BNSF and CSXthat MATS constituted a torce maieure event under the contract that excused FG'sturther performance.
4'2lal
Separately, on August 4, 2015, BNSF and CSX submined to the AAA otfice in Washington, D.C., a demand forarbitration and sialement of claim against FG alleging that FG breached the contract and that FG's declaration of a torce majeureunder the contract is not valid and seeking damages under the contract through 2025. On May 3l, 20'16, the panies agreed to astipulation that it FG's force majeure detense is determined to be wholly or partially invalid, liquidated damages are the sole remedyavailable to BNSF and CSX. The arbitration panelhas determinedto consolidate the claimswith a liability hearirE scheduled to beginon November 28, 20'16, and, if necessary a damages hearing scheduled to begin on May A,2017.
                '   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).
The decision on liability isexpected to be issued within sixty days from the end ofthe liability hearing proceedings, which are scheduledto conclude February24,2017. FirstEnergyand FES continue to believe that MATS constitutes a torce majeure event underthe contract as il relates to the deactivated plants and that FG's perlormance under the contract is therefore excused. FG intends to vigorously assert its position in the arbitration proceedings. lf, however, the arbitration panel rules in favor ot BNSFand CSX, the results otoperations andfinancial condition ot both FirstEnergy and FES could be materially adversely impacled.
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).
Refer to lhe Strategic Review of CompetitiveOperations section ol Note 1, Organization and Basis ol Presentation, for possible actions that may be taken by FES in the event ofan adverse outcome, including, without limitation, seeking protection under the bankruplcy laws. FirstEnergy and FES are unable toestimate the loss or range of loss.FG is also a party to another coal transportation contract covering the delivery of 2.5 million tons annuallythrough 2025, a portion ofwhich is to be delivered to another coal-fired plant owned by FG that was deactivated as a resuh of MATS. FG has asserted adefense of force majeure in response to delivery shorttalls to such plant underthis contract as well. lf FG lails to reach a resolutionwith the applicable counterparties to the contracl, and if it were ultimately determined that, contrary to FirstEnergy's and FES'belief, the force majeure provisions of that contract do not excuse the delivery shortfalls to the deactivated plant,lhe results of operationsand financial condition of both FirstEnergy and FES could be materially adversely impacted. FirstEnergy and FES are unable toestimate the loss or range of loss.As to both coal transportation agreements referenced above, FG paid approximately
4.2G1
$70 million in the aggregate in liquidateddamages to settle delivery shortfalls in 2014 related to its deactivated plants, which approximated full liquidated damages under the agreemenls for such year related to the plant deactivations.
              '    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).
Liquidated damages for the period 2015-2025 remain in dispute.As to a specific coal supply agreement, AE Supply has asserted termination rights etfective in 2015. In response lo notification ofthetermination, the coal supplier
4.2ldl
@mmenced litigation alleging AE Supply does not have sutficient justification to terminate the agreement.
              '    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).
AE Supply has filed an answer denying any liability related to the termination. This matter is currently in the discovery phase of litigation and no trial date has been established. There are approximately 5.5 million tons remaining under the contract fordelivery At this time, AE Supply cannot estimate the loss or range of loss regarding the on-going litigalion with respect to this agreemenl.
(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.
In September 2007, AE received an NOV from the EPA alleging NSR and PSD violations under the CAA, as well as Pennsylvania and WestVirginia state laws atthe coal-fired Hattield's'Ferry and Armstrong plants in Pennsylvania and the coal-fired Fort Martin andWillow lsland plants in West Virginia. The EPA's NOV alleges equipment replacements during maintenance outages triggered the pre construction permitting requirements underthe NSR and PSD programs. On June 29, 2012, January 3'1, 2013, March 27,2013 and Octobell8, 2017, EPA issued CAA section 114 requests for the Harrison coal-fired plant seeking intormation and documentation relevant lo its operation and maintenance, including capital projects undertaken since 2007. On December 12, 2014, EPA issued aCAA section 114 request for the Fort Martin coal-fired plant seeking information and documentation relevant to ils operation andmaintenance, including capital projects undertaken since 2009. FirstEnergy intends to comply with the CAAbut, at this time, is unable to predict the outcome of this matter or estimate the loss or range of loss.Clinate ChangeFirstEnergy has established agoalto reduce CO2 emissions by 90%
(A)    31.1 Certification  of chielExecutivs  otticsr, asadopted  pursuanllo Rule13a-14(a)
below2005levels by 2045. There are a numberof initiatives to reduce GHG emissions at the state, federal and international level. Certain northeastern states are participating in tho RGGI and western states led by California, have implemented programs, primarily cap and trade mechanisms, lo control emissions of certain GHGS. Additional policies reducing GHG emissions, such as demand reduction programs, renewable portfolio standards and renewable subsidies have been imDlemented across the nation.The EPA released its final "Endangerment and Cause or Contribute Findings lor Greenhouse Gases under the Clean Air Acl" inDecember 2009, concluding that concentrations ot several key GHGS constitutes an "endangerment" and may be regulated as "air pollutants" under the CAA and mandated measurement and reporting of GHG emissions from certain sources, including electricgenerating plants. The EPA released its tinal regulations in August 2015 (rvhich have been stayed by the U.S. Supreme Court), to 99 reduce CO2 emissions from existing fossil fuel fhed electric generating units that would require each state to develop SlPs bySeptember 6, 2016, to meet the EPAS state specific CO2 emission rate goals. The EPAS CPP allows statss to request a lrvo-yearextension tofinalize SlPs by September 6,2018. lf states failto develop SlPs, the EPA also proposed a lederalimplementation planthat can be implemented by the EPA that included model emissions trading rules which states can also adopt in thek SlPs. The EPA also finalized separate regulations imposing CO, emission limils for new, modified, and reconstructed fossil fuel fired electric generating units. On June 23,2014, the United States Supreme Court decided that CQ or other GHG emissions alone cannot trigger permitting requirements underthe CAA, but that air emission sourcesthat need PSD pemib due to oher legulaEd air pollutants canbe required by the EPAto install GHG control technologies.
(A)    31.2 Cenification  of chiellinancial ollicer,asadopted  pursuanllo Rulel3a-14(a)
Numerous states and private parties filed appeals and motions to say the CPPwith the U.S. Court ol Appeals ior the D.C. Circuit in October2015. On January 21,2015, a panelofthe D.C. Circuit denied themotions for stay and set an expedited schedule lor briefing and argument. On February9,2016, the U.S. Supreme Coun $ayed therule during the pendency ot the challenges to the D.C. Circuit and U.S. Supreme Courl. Depending on the outcome ot turther apPeals and how any final rules are ultimately implemented, the luture cost oI compliance may be material.At the international level, the United Nations Framework Convention on Climate Change resulted in the Kyoto Protocol requiring participating countries, which does not include the U.S., to reduce GHGs commencing in 2008 and has been extended through 2020.
(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.
The Obama Administration submitted in March 2015, a formal pledge for the U.S. to reduce its economy-wide greenhouse gasemissions by 26 to 28 percent below 2005 levels by 2025 and joined in adopting the agreemenl reached on December '12, 2015 atthe United Nations Framework Convention on Climate Change meetings in Paris. The Paris Agreement was ratified bythe requisite number of countries (i.e. at least 55 countries representing at least 55% of global GHG emissions) in October 2016 and ils non-binding obligations to limit globalwarming towellbelowtwo degrees Celsius are effective on November4,2016. FirstEnergy cannotcurrently estimate the financial impact ofclimatechange policies, although potential legislative or regulatory programs restricting CO,emissions, or litigation alleging damages trom GHG emissions, could require material capilal and other expendilures or result inchanges to its operations. The CO2 emissions per KWH ot electricity generated by FirstEnergy is lower than many of its regionalcompetitors due to its diversified generation sources, which include low or non-Coz emitting gasjired and nuclear generators.
(A)Provided hereinin electronic lormatasan erhibit.
Clean Watet Act Various water quality regulations, the maiorityotwhich are the result of the federalCWAand its amendments, apply to FirstEnergys plants. ln addition, the states in which FirstEnergy operates have water quality standards applicable to FiBtEnergys operations.The EPA finalized CwA Section 316(b) regulations in May 2014, requiring cooling water intake structures with an intake velociiy greaterthan 0.5leet per second to reduce fish impingement when aquatic organisms are pinned against screens or other parts ot a cooling water intake system to a 12"/" annual average and requirir* cooling water intake struclures e)ceeding 125 million gallons perday to conduct studies to detemine sitespecific controls, if any, to reduce enlrainment, which occurs when aquatic life is drawn into afacilitys cooling water system. FirstEnergy is studying various control options and their costs and efiectiveness, including pilot tssdng of reverse louvers in a portion of the Bay Shore plant's cooling waler intake channel to divert fish away ftom the plant's cooling waterintake system. Depending on the results of such studies and anyfinalaction taken by the states based on those studies, the ftJturecapital costs of compliance with these standards may be substantial.On September 30, 20'15, the EPAtinalized new, more stringent etfluent limits lor the Steam Eleclric Power Generating category (40CFR Part 423) lor arsenic, mercury selenium and nitrogen tor wastewater from wet scrubber systems and zero discharge of pollutanls in ash transport water. The treatment obligations will phase-in as permits are renewed on a tive-year cycle from 2018 to2023. The final rule also allows plants to commit to more stringent effluent limits for wet scrubber systems based on evaporativetechnology and in relurn have untilthe end of2023to meetthe more stringent limits. Depending on the outcome ofappeals and howany final rules are ultimately implemented, the future costs of compliance with these Standards may be substantial and changes toFirstEnergy's and FES'operations may result.In October 2009, the WVDEP issued an NPDES water discharge permit for the Fort Martin plant, which imposes TDS, sulfateconcentrations and other ettluent limitations lor heaw metals, as well as temperature limitations. Concurrent with lhe issuance of theFort Martin NPDES permit, WVDEP also issued an administrative order setting deadlines for MP to meet certain of the eftluent limits that were efiective immediately under the terms of the NPDES permit. MP appealed, and a stay of certain conditions of the NPDES permit and order have been granted pending a finaldecision on the appealand subject toWVDEP moving to dissolve the stay.
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.
TheFort Martin NPDES permit could require an initial capital investment ranging trom
$150 million to $300 million in order to install technology to meet the TDS and sulfate limits, which technology may also meet certain of the other etfluent limits. Additional technology may be needed to meet certain other limits in the Fort Martin NPDES permit. MP intends to vigorously pursue theseissues but cannot predict the outcome ot the appeal or estimate the possible loss or range of loss.FirstEnergy intends to vigorously defend against the CWA matters described above but, except as indicated above, cannot predicttheir out@mes or estimate lhe loss or range of loss.
Regulatbn ot Waste Disp6alFederal and state hazardous waste regulations have been promulgated as a result of the RCRA, as amsnded, and the Toxic Substances Control Act. Certain coal combustion residuals, such as coal ash, were exempted from hazardous wasle disposal requirements pending the EPAs evaluation of the need for hJture regulation.
100 In December 2014, the EPAfinalized regulations forthe disposalot CCRs (non-hazardous), establishing national standards regarding landtilldesign, structural integrity design and assessment criteria tor surface impoundments, groundwater moniloring and protection procedures and other operational and reporting procedures to assure the safe disposal of CCRS from electric generating planls.
Based on an assessment ofthe tinalized regulations, the future cost ofcompliance and expected timing of spend had no significant impact on FirstEnergy's or FES' existing AROS associated with CCRS. Although none are currently expected, any changes in timingand closure plan requirements in the future could materially and adversely impact FirstEnergy's and FES'AROS.Pursuant to a 2013 consent decree, PA DEP issued a 2014 permit for the Little Blue Run CCR impoundment requiring the Bruce Mansfield plant to cease disposal of CCRS by December 31, 2016 and FG to provide bonding tor 45 years of closure and post-closure activilies and to complete closure within a 12-year period, but authorizing FG to seek a permit modification based on"unexpected siteconditions that have or willslow closure progress." The permitdoes not require active dewatering ofthe CCRS, butdoes require a groundwater assessmenlfor arsenic and abatement if certain conditions in the permit are met. The Bruce Mansfield plant is pursuing several options for disposal ol CCRS following December 31, 2016 and expects benelicial reuse and disposaloptions wilf be sufficient for the ongoing operation of the plant. On May 22,2015 and September 21, 2015, the PA DEP reissued a permit forthe Hatfield's Ferry CCR disposal facility and then modified that permitto allowdisposalof Bruce Mansfield plant CCR. OnJuly 6, 2015 and Oclobet 22,2015, the Sierra Club filed Notices of Appeal with the Pennsylvania Environmental Hearing Boardchallenging the renewal, reissuance and modification of the permit for the Hatfield's Ferry CCR disposal facility.FirstEnergy or its subsidiaries have been named as potentially responsible parties at waste disposalsites, which may require cleanupunder the CERCLA. Allegations ol disposal of hazardous substances at historical siles and lhe iiability involved are often unsubstantiated and subjectto disputei howswr, f*d*rallaw provides that all potentially responsible parties fora particular site maybe liable on a joint and several basis. Environmental liabilities that are considered probable have been recognized on the Consolidated Balance Sheets as of September 30,2016 based on estimates otthe totalcosts of cleanup, FE's and its subsidiaries' proportionate responsibility forsuch costs and the linancial ability ot other unafiiliated entitiesto pay. Totalliabilities ofapproximately
$121 million have been accrued through September 30, 2016. Included in the totalare accrued liabilities ofapproximately$89 million for environmental remediation of tormer manufactured gas plants and gas holder facilities in NewJersey, which are being recovercdby JCP&L through a non-bypassable SBC. FirstEnergy or its subsidiari*s could be tound potentially responsible for additionalamounls or additional sites, but the loss or range of losses drnnot be determined or reasonably estimated at this time.OTHER LEGAL PROCEEDINGSNucleat Plant Matters Under NRC regulations, FirstEnergy must *nsure that adequate funds will be available to decommission ils nuclear facilities. As otSeptember 30, 2016, FirstEnergy had approximately
$2.5 billion invested in external trusts to be used for the decommissioning and environmental remediation of Davis-Besse, Beaver Valley, Perry and TMI-2. The values of FirstEnergy's NDTs fluctuate based on market conditions.
lf the value of the trusts decline by a material amount, FirstEnergy's obligation to fund the trusts may increase.
Disruptions in the capital markets and their effects on particular businesses and the economy could also atfect the values of theNDTs. FE and FES have also entered into a total ot
$24.5 milljon in parental guarantees in support of the decommissioning of the spent fuelstorage tacilities located at the nuclear tacilities. However, as FES no longer maintains investment grade credit ratings fromeither S&P or Moody's, NG plans to fund a supplemental trust in lieu of a parental guarantee that would be required to support thedecommissioning oI the spent fuel storage facilities. As required by the NRC, FirstEnergy annually recalculates and adjusts theamount ot its parental guaranlees, as appropriate.In August 2010, FENOC submitted an application to the NRC for renewal ot the Davis-Besse operating license for an additional twenty years. On December 8, 2015, the NRC renewed the operating license for Davis-Bess6, which is nowauthorized lo continueoperation through Aptil22,2037. Ptiot lolhat decision, the NRC Commissioners denied an inlervenor's request to reopen the recordand admit a contenlion on the NRC'S Continued Storage Rule. On August 6, 2015, this intervenor sought review of lhe NRC Commissioners'decision before the U.S. Court ofAppeals forthe DC Circuit. FENOC intervened in that proceeding.
On September 2'1 , 2016, the U.S. Court of Appeals for the DC Circuit granted the intervenor's unopposed motion and dismissed this case.
As part ot routine inspections of the concrete shield building at Davis-Besse in 2013, FENOC identified changes to the subsurface laminar cracking condition originally discovered in 201 1. These inspections revealed that the cracking condition had propagated a smallamount in select areas. FENOC'S analysis confirms thatthe building continuesto maintain its structural integrity, and its abilityto salely perform all of its tunctions. In a May 28, 2015, Inspection Report regarding the apparent cause evaluation on crack propagation, the NRC issued a non-cited violation for FENOC'S failure to request and obtain a license amendment for its method ofevaluating the significance of the shield building cracking. The NRC also concluded that the shield building remained capable ol performing its design salety functions despite the identified laminar cracking and that this issue was ofvery low satety significance.
FENOC plans to submit a license amendment application to the NRC related to the laminar cracking in the Shield Building.On March 12, 2012, the NRC issued orders requiring salety enhancements at U.S. reactors based on recommendations from thelessons learned Task Force reviewotthe accident at Japan's Fukushima Daiichinuclear power plant.
These orders require additional mitigation strategies tor beyond-design-basis external events, and enhanced equipment tor monitoring water levels in spent fuel pools. The NRC also requested that licensees including FENOC:
re-analyze earthquake and flooding risks using the latest 101 information available; conduct earthquake and flooding hazard walkdowns at their nuclear plants; assess the ability of cunent communications systems and equipment to p*rform under a prolonged loss ofonsite and ofisite electrical pot/r*r; and assess plantstafiing levels needed to till emergency positions.
These and other NRC requirements adopted as a result of the accident atFukushima Daiichi are likely to result in additional malerialcosts from plant modifications and upgrades at FirstEnergys nuclear facililies.Other Legal Matters There are various lawsuits, claims (including claims for asbestos exposure)and proceedings related to FirstEnergy's normalbusiness operations pending against FirstEnergy and its subsidiaries. The loss or range of loss in these matters is not expected to be materialto FirstEnergy or its subsidiaries. The other potentially material items not otherwise discussed above are described under Note 11,Regulatory Matters ot the Combined Notes to Consolidated Financial Statements.
FirstEnergy accrues legal liabilities only when it concludes that it is probable that it has an obligation for such costs and can reasonably estimale the amount of such costs. In cases where FirstEnergy determinesthat it is not probable, but reasonably possible that it has a materialobligation, it discloses such obligations and the possible loss or range of loss ifsuch estimate can be made. lf itwere ultimately determined that FirstEnergy or its subsidiaries have legal liability or are otherwise made subject to liability based onany of the matters referenced above, it could have a material adverse effect on FirstEnergy's or its subsidiaries' financial condition, results of operations and cash flows.NEW ACCOUNTING PRONOUNCEMEI{TSIn May 2014, the FASB issuedASU 2014-09, 'Revenue from Contracts with Customers". Subsequent accounting standards updates have been issued which amend an*Uor clarify the application ofASU 2014-09. The core principle ofthe newguidance isthatan entityrecognizes revenue to depictthe transferof promised goods orservicesto customers in an amountthat reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. More detailed disclosures will also be required toenable users of financialstatements to understandthe nature, amount, timing and uncertaintyol revenue and cash flows arisingfrom contracts with customers. For public business entities, the new revenue recognition guidancewillbe efiective for annual and interim reporting periods beginning atter December 15,2017.
Earlieradoption is permitted lor annualand interim reporting periods beginningafter December 15, 2016. The standards shall be applied retrospectively to each period presented or as a cumulative-effectadjustment as of the date of adoption. FirslEnergy is currently evaluating the impact on its financial statements of adopting these slandards.
In February 2015, the FASB issued ASU 2015-02, "Consolidations: Amendments to the Consolidation Analysis", which amendscurrent consolidation guidance including changes to both the variable and voling interest models used by companies to evaluatewhether an entity should be consolidated. A reporting entity must apply the amendments using a modified retrospective approach byrecording a cumulative-effect adjustment to equity as of the beginning of the period of adoption or apply the amendments retrospectively.
FirstEnergy's adoption ofASU 2015-02, on January 1, 2016, did not result in a change in the consolidation of VlEs by FE or its subsidiaries.
In April2015, the FASB issued ASU 2015-03, "Simplifying the Presentation of Debt lssuance Costs", which requires debt issuancecosts to be presented on the balance sheet as a direct deduction trom the carrying value of the associated debt liability, consistentwith the presentation of a debt discount.
In addition, in August 2015, the FASB issued ASU 2015-15, "Presentation and Subsequent Measurement of Debt lssuance CostsAssociated with Line-of-Credit Arrangements', which allows debt issuance cosls related to lineof credii arrangements to be presented as an asset and amortized ratably overthe term of the arrangement, regardless ofwhetherthere are any oulstanding borrowings on the line-of-credit. FirstEnergy adopted ASU 2015-15 and ASU 2015-03 beginning January
'1 ,2016. As of December 31, 2015, FirstEnergy and FES reclassified
$93 million and $17 million of debt issuance cosls included inDeterred charges and otherassets to Long-term debt and Other long-term obligations. FirstEnergy has elected to continue presenlingdebt issuance costs relating to its revolving credit facilities as an asset.In January ot 2016, the FASB issued ASU 2016-01, "Financial Instruments-Overall:
Recognition and Measurement of FinancialAssets and Financial Liabilities", which primarily affects the accounting lor equity investments, financial liabilities under the fah valueoption, and ihe presentation and disclosure requirements forfinancial inslruments. In addition, the FASB clarified guidance related to the valuation allowan@ assessment when recognizing deferred tax assets resulting lrom unrealized losses on availablefoFsaledebt securities.
The ASU will be efiective in fiscal years beginning after December 15, 2017, including interim periods within those liscal years. Early adoption lorcertain provisions can be elected for allfinancialslatements offiscalyears and inlerim periods that have not yet been issued orthat have not yet been made available for issuance. FirstEnergy is currently evaluating the impact on itsfinancialstatemenls of adopting this standard.In February 2016, the FASB issuedASU 20'16-02, "Leases (Topic 842)", which will require organizations thal lease assets with leaseterms of more than 12 months to re@gnize assets and liabilities tor the rights and obligations created by lhose leases on theirbalance sheets. In addition, newqualitative and quantitative disclosures ofthe amounts, timing, and uncertainty of cash flovl* arisingfrom leases will be required. TheASU will be etfective for fiscalyears, and interim periods within those fiscalyears, beginning atterDecember 15, 2018, with early adoption permitted.
Lessors and lessees will be required to apply a modified retrospective transition approach, which requires adjusting the accounting for any leases existing at the beginning of the earliest comparative period 102 presented in the adoption-period financialstatements. Any leases that expire before the initial application date will not require anyaccounting adjustment. FirstEnergy is currently evaluating the impact on its tinancial statements of adopting lhis standard.In March of 2016, the FASB issued ASU 2016-09, "lmprovements to Employee Share-Based PaymentAccounting", which simplifiesseveralaspects of the accounling for employee share-based payment. The new guidance willrequire allincome lax effecb of awardsto be recognized in the income statement when the awards vest or are settled. lt also will not require liability accounting when anemployer repurchases more of an employee's shares for tax withholding purposes. The ASU will be etfective for tiscal years, and interim periods within those tiscalyears, beginning atter December 15,2016, with early adoption permitted.
FirstEnergy is currentlyevaluating the impact on its linancial statements ot adopting this standard.
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instrumenls," which removes all recognition thresholds and will require companies to recognize an allowance for creditlosses for lhe difference between the amortized cost basis of a financial instrument and the amount ot amortized cost that thecompany expects to collect over the instrument's contractual lite. The ASU is effective for fiscal years, and interim periods withinthose fiscal years, beginning after December 15, 2019. Early adoption is permitted for fiscal years beginning atter Decembel 15,2018. FirstEnergy is currently evaluating the impact on its financial statemenls ol adopting this standard.In August 2016,ihe FASB issued ASU 201615, 'Statement of Cash Flolvs (Topic 230): Classification of Cerlain Cash Receipts and Cash Payments". The standard is intended to eliminate diversity in practice in how certain cash receipts and cash paymenls arc presented and classified in the siatement of cash flows. The guidance is effective lorfiscalyears, and lor interim periods within those fiscalyears, beginning ater December 15, 2017. Early adoption is permitted for all entities. FirstEnergy does not e)pect this ASU tohave a material effect on its financial statements.
In October 2016, the FASB issued ASU 2016-16, " Accounting for Income Taxes: Intra-Entity Asset Transters of Assets Othsr thanInventory." ASU 201Gl6 eliminates the exception for all intra-entity sales of assets othe; than inventory which allows companies iodefer the tax effects of intra-entity asset transfers.
As a result, a reporting entitywould recognize the tax e)pense from the sale oftheasset in the seller's iax jurisdiction when the intra-entity lransfer occurs, even though the pre-tax effects of that transaction areeliminated in consolidation.
Any deferred tax asset that arises in the buyer's iurisdiction would also be recognized atthetime ofthetransfer. The guidance is elfective tor liscal years, and for interim periods within those fiscal years, beginning after December 15,2017. Earlyadoption is permitted andthe modified retospective approach willbe required fortransition to the newguidance, with a cumulative-effect adjustment recorded in retained eamings as of the beginning of the period of adoption.
FirstEnergy is currenllyevaluating the impact on its financial statemenls of adopting this standard.
Additionally, during 2016, the FASB issued the tollowing ASUS:. ASU 2016-05, 'Effect ot Derivative Contracl Novations on Existing Hedge Accounting Relationships,". ASU 2016-06, 'Contingent Put and Call Options in Debt Instruments (a consensus of the FASB Emerging lssues Task Force),". ASU 2016-07, 'Simplifying the Transition to the Equity Method ol Accounting,'and. ASU 2016-17, 'Consolidation Cfopic 8'10): Interests Held through Related Parties That Are under Common Control." FirslEnergy does not expect these ASUS to have a material effect on its financial statements.
103 FIRSTENERGY SOLUTIONS CORP.MANAGEIIENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONSFES is awholly owned subsidiary of FE. FES provides energy-related products and servicesto retailand wholesale cuslomers, andthrough its principal subsidiaries, FG and NG, owns or leases, operates and maintains FirstEnergy's fossil and hydroelectric generation facilities (excluding AE Supply and MP), and owns, through its subsidiary NG, FirstEnergy's nuclear generation facilities.
FENOC, a wholly owned subsidiary of FE, operales and mainlains the nuclear generating facilities.
FES purchasesthe entireoutputof the generation facilities owned by FG, NG and AE Supply, as well as the output relating to leasehold interests of OE and TE inBeaver Valley Unit 2 which remains subject to sale and leaseback arrangements, and pursuantto fulloutput, cost-of-service PSAS.FES'revenues are derived prjmarily from sales to individual retail customers, sales to customers in the form ol governmental aggregation programs, and participation in atliliated and non-affiliated POLR auctions. FES'salesare primarily concentrated in Ohio, Pennsylvania, lllinois, Michigan, New Jersey and Maryland. The demand tor electricity produced and sold by FES, along with the price of that electricity, is principally impacted by conditions in competitive power markels, global *conomic activity as well aseconomic activity and weather conditions in the Midwest and Mid-Atlantic regions ol the United States.
As part of FirstEnergy's long-term strategy to be a lully regulated utility, FirstEnergy has begun a strat*gic review of its compelitiveoperations focused on the sale of gas and hydroelectric units as well as exploring all allernatives lor the remaining generation asseb at FES andAE Supply. These include, but are not limited lo,legislative efiorts to convert generation from competilive operations to a regulated or regulatediike construct such as a regulatory restructuring in Ohio, offering generation into any prccess designed toaddress MP's generation shortfall included in its lRe and/or a solution for nuclear generation that recognize their environmentalbenefits. Management anticipales that the viability ol these ahernatives will be determined in the near term with a taryet to implemefithese strategic options within the next 12 to 18 months and could result in material asset impairments.Based on current market forwards, FES expects to have more than sulficient cash flow from operations in 201 7 and 201 8 to fund anticipated capital ependitures with no equity contributions from FirstEnergy. However, in addition to eposure to market price volatility and operationalrisks, FES faces significant financialrisks that could impact its anticipated cash flowand liquidity including,but not limited to, the following:
Requests to post additional collateral or accelerated payments of up to $355 million resulting from current credit ratings atFES, including Moody's downgrade of the Senior Unsecured debt rating for FES to Caal as wellas S&P's downgrade of theSenior Unsecured debt rating at FES to B, both of which occurred on November 4,2016.Adverse outcomes in the previously disclosed disputes regarding long-term coaltransportation contracts.
The inability to extend or refinance debt maturities at FES subsidiaries in 2017 and 2018 of $130 million and
$515 million, respectively.A sig nificant collateral callor the inabitity to refinance 2017 debt maturities at FES subgidiaries is expected to be addressed by FESthrough a combination of cash on hand, additional capiial expenditure reductions, asset sales, and/or bormwings under theunregulaled money pool. However, adverse outcomes in the coal transportation contracb disputes, the inability to refinance 2018 debt maturilies, or lack of viable alternative strategies could cause FES to take one or more of the following actions: (i) restructuringof debt and other financial obligations, (ii) additional borrowings under the unregulated money pool, (iii) further assei sales oI plantdeactivations, and/or (iv) seek protection under bankruptcy laws. In the event FES seeks such proteclion, FENOC may similarly seek plotection under bankruptcy laws.Materialasset impairments resulting from the sale ordeactivation otgeneration assets orfrom a determlnation bymanagementof itsintent to exit competitive generation assets before the end of their estimated useful life resulting trom lhe inabilily to implement alternative strategies discussed above, adverse judgments or a FES bankruptcytiling could result in an event of default undervariousagreements related to the indebtedness of FES.During this period oltransition, subject to strategic decisions regarding competitive generation assets, it is anticipated that FES will produce or purchase from afliliates approximately 70 to 75 million MWHS ot electricity annually, with up to an additional live millionMWHs availabletrom purchased power agreements forwind, solar, and FES'entitlemern inOVEC. In 2017 and 2018 FES expectstohedge 75% - 85% of itsgeneration output by targeting approximalely 50 to 65 million MWHs in annualcontract sales and maintainingup to 25 million MWHS as reserve margin. Forthe period October 1, 2016 to Dgcember 31, 2016, FES'committed sales are 82%hedged against generation supply, including commitled purchases, assuming normalweather conditions. As of September 30, 2016,contractual sales obligations for 2017 and 2018 are approximately 48 million lvlvvHs and 28 million LlWHs, respectively. Contraclualsales obligations for 2016 ar6 approximately 67 million lvlwHs.FES willcontinue to make prudent investments in its nuclear units in order to maintain safe and reliable operations in accordance with nuclear standards, but will continue to focus on costs given current market conditions, specifically surrounding its lossil fleet.104 Management currently anticipates totalcapital expenditures of
$325 million and
$270 million in 2017 and 2018, respectively, which represents a significant reduction from 2016 forecasted capital expenditures ot $490 million.Foradditional information with respectto FES, pl*ase seethe information contained in FirstEnergy's Management's Discussion and Analysis of Financial Condition and Results of Operations under the tollowing subheadings, which intormation is incorporated byreference herein: FirstEnergy's Business, Executive Summary Capital Resources and Liquidity, Guarantees and OtherAssurances,Ofi-Balance Sheet Arrangements, Market Risk Intormation, Credil Risk and Outlook, as well as the information contained in the Forward-Looking Statements and Risk Faclors, which intormation is incorporated by refelence herein.Results of OporatlonsOperating results decreased
$363 million in the first nine months of 2016, compared to the same period of 2015, primarily resulting from charges associated with impairments of goodwill, Units 1-4 of the w. H. Sammis generating station and the Bay Shore Unit 1 generating station, as discussed above, termination and settlement costs on coal contracts, and lower mark-to-market gains oncommodity contract positions.
In addition to these items, operating results were impacted by higher capacity revenues, lower tuelcosts and lower purchased power, partially offset by lowersales volumes and atermination charge associated with a FES customer contract.Revenues -Totalrevenues decreased
$433 million in thefirst nine months of 2016, compared to the same period of2015, primarily dueto lowersales volumes. Revenues were also impacted by higher capacity revenues and higher net gains on financially settled contracts, as further described below The change in total revenues resulted trom lhe following sources: For the Nine Months Ended September 30 Increase Revenues by Type of Service 2016 2015 (Decrease)(ln millions)1,014 802 222 585 410 2,209 1,015 53 124 3,033 558 102 141 (824)457 (4e)(17)3,401 $3,834 $(433)For the Nine Months Ended September 30 MWH Sales by Channel 2016 2015 (Decrease)(ln thousands) 11,391 10,798 1,912 7,526 8,863 8,461 Contract Sales: Direct Govern mental Agg regationMass Market POLR Structured Sales Total Contract Sales Wholesale Transmission Other Total Revenues 610 $666 133 447 353 (404)(136)(8e)(138)(57)Contract Sales:
DirectGovern mental Agg regationMass Market POLR Structured Sales WholesaleTotal MWH Sales NM - Not Meaningful 18,860 12,278 3,246 9,910 9,465 951 (3e.6)%
(12.1)%(41.1)/" (24.1)/" (6.4)%NM 105 48,951 54,710 (10.5)%
The following table summarizes the price and volume factors contributing to changes in revenues in the first nine months of 2016, compared with the same period of 2015: Source of Change in Revenues Increase (Decrease)
MWH Sales Channel: Prices Gain on Settled Contracts Total Sales Volumes Capacity Revenue Direct Govern mental Agg regation Mass Market POLR Structured Sales WholesaleOperating Expenses (401) $(e7)(e1)(140)(26)167 (ln millions)(3) $ $(3e)2 2 (31)42 113 (404)(136)(8e)(138)(57)457 135 Lower sales volumes in Direct, GovernmentalAggregation and Mass Market channels primarily reflects the continuation of FES'strateoy to more efiectively hedge its generation. The Direcl, GovernmentalAggregation and Mass Market customer base was 1.4 million as of September 30,2016, compared to 1.7 million asot September 30,2015. Atthough unit pricing was lower year-over-lrear in the Governmental Aggregation channel, the decrease was primarily attributable to lower capacity epense as discussed below,which is a component of the retail price.The decrease in POLR sales ol $138 million was primarily due to lowervolumes. Structured Sales decreased
$57 million, primarilydue to the impact of lower market prices and lower structured transaction volumes.Wholesale revenues increased
$457 million, primarily due to an increase in capacity revenue trom capaclty auctions, highernet gains on linancially settled contracts and an increase in short-term (net hourty positon) transactions at higher rates. Although wholesaleshort-term transactions increased year-over-year, low average spot maftet energy prbes reduced the economic dispatch of iossil generating units, limiting additional wholesale sales.
Transmission revenue decreased
$49 million, primarily due to lower congestion revenues associated with less volatile market conditions.
Other revenues decreased
$17 million, primarily due to the abgence ofa pre-tax gain on the sale of property to a regulated affiliate inthe second quarter of 2015 and lower lease revenues from the expilation of a nuclear saleleaseback agreement, O@ruting Expenses -Toial operating expenses increased
$63 million in the first nine months of 2016, compared to the same period of 2015.Thetollowing table summarizes the factors contributing to thechanges in fueland purchased power costs in the first nine months of 2016, compared t/uith the same period of 201 5:Source ol Change Increase (Decrease)
VolumesLoss on Settled Prices Contracts Total Gapacity Expense Fossil FuelNuclear FuelAtfiliated Purchased PowerNon-affiliated Purchased Power (e4) $(26)(3e6)(ln millions)(50) $ 70 $3(41) 257 (27) 27$ (74)3 190 (111) (507)Fossil and nuclear fuel costs decreased
$71 million, primarily due to lower generation associated with outages and economicdispatch of fossil units resulting from lowwholesale spot market energy prices, as described above, as well as lower unit prices onfossilfuel contracts. Additionally, fuel costs were impacted by higher settlement and termination costs on coal contracts.
106 Atfiliated purchased power costs increased
$190 million, primarily associated with net gains on settled contracts with AE Supply in2015 resulting from higherwholesale spot ma*et prices in 2015. Effective April1,20'16, FES began lo physically purchase lhe entireoutpul of AE Supplys generation facilities under a cost-of-service PSA.Non-affiliated purchased power costs decreased
$507 million due to lower volumes
($395 million), lower prices ($27 million) and lower capacity expenses
($111 million), partially otbet by higher losses on financially settled purchased power conlracts trom lower wholesale spot maket prices ($27 million). Lotyer volumes primarily resulted trom lower contract sales as discussed above, partiallyoffset by economic purchases resulting lrom lhe low wholesale spot market price environment.
The decrease in capacity expense,which is a component ol FES' retail price, was primarily the result ot lower contract sales and lower capacity lates associated withFES' retail sales obligation.Other operating expenses decreased
$71 million in the first nine months of 2016, compared to the same period of 2015, due to the following:. Nuclear operating costs decreased
$31 million, primarily as a result of lower refueling outag* cosb, partially ofiset by higheremployee beneft costs. There was one refueling outage dudng the lirst nine months of 2016 as compared to two refueling outages during the same period of 2015.. Retirement benefit costs increased $23 million.. Transmission e{censes decreased
$134 million, primarily due to lower congestion and market-based ancillary cosb associated with less volatile market conditions as comoared to the filst nine months of 2015, as well as lo$,cl load requirements.. Other operating expenses increased
$71 million, primarily due to lower mark-temarket gains on commodity contract positions ot $54 million and a
$32 million charge associated with the termination charge on a FES cusbmer cofirilct, parlially oftset by lower retail-related costs.
Depreciation expense increased
$10 million as a result of a higher asset base.General laxes decreased
$'12 million, primarily due to lower gross receipts taxes associated with docreased retail sales volumes.lmpairment of assets increased
$524 million due to the impairment ol goodwill and a decision to exit opsrations of Units 1-4 of the W.H. Sammis generating stalion by May 31, 2020, and the Bay Shore Unit 1 generating station by October 1, 2020.Other Expense -Total other expense decreased
$6,4 million in the first nine months of 2016, compared to the same period of 2015, primarily due tolower OTTI on NDT investments.ln@me Tax Benefr's
-FES'etfective iax rate forthe nine months ended September 30, 2016 and 2015 was 1.87o and 40.0%, respectively. The decrease inthe effective tax rate is primarily due to valuation allowances of
$65 million recorded against slate and local NOL caftyfo]wards thatmanagement believes, more likely than not, will not be realized as wellasthe impairment ol goodwillwhich is non-deductible for tax purposes.ITEII 3. OUAiITITATIVE AND OUALITATIVE DISCLOSURES ABOUT MARKET RISKSee'Management's Discussion andAnalysis of FinancialCondition and Results of Operations - Market Risk Information'in ltem 2 above,ITEM 4. CONTROIS AND PROCEDURES (al Evaluatlon ol Dlsclosurc Controb and Procedurcs The management of FirstEnergy and FES, with lhe participation of each registranfs chief executive otficer and chief financial ofiicer,have reviewed and evaluated the effectiveness ottheir registranfs disclosure controls and procedures, as defined in the Securities Exchange Act of 1934, as amended, Rules l3a-15(e) and 15d-15(e), as of the end of the period covered by this report. Based on thatevaluation, the chiet executive ofiicer and chief financial officer of FirstEnergy and FES have concluded that their respectiveregistrant's disclosure controls and procedures were effective as of the end ot the period covered by this report.107 During the quarter ended September 30,2016, there were no changes in internalcontrol overlinancial reportirE that have materially affected, or are reasonably likely to materially affect, FE's and FES' internal control over financial reporling.PART II. OTHER INFORMATION ITEM 1.LEGAL PROCEEDINGSInformation required for Part ll, ltem 1 is incorporated by reference to the discussions in Note 1 1 , Regulatory Matters, and Nole 12,Commitments, Guarantees and Contingencies, ofthe Combined Notes to the Consolidated FinancialStatements in Pan l, ftem 1 of this Form 10-Q.
ITEM 1A.RISK FACTORSYou should carefullyconsiderthe risk factors discussed in "ltem 1A. Risk Factors' in the R*gistrants'Annual Report on Form 10-K for the year ended December 31,2015, which could materially afiect the Registrants' business, financial condition or tuture results. The information set forth in this report, including without limitation, the updated disclosure related to the ESP lV proceodings and the risk factors presented below updates and should be read in conjunction with, the risk factors and information disclosed it the Registlanls'Form 10-K and previously tiled Forms 10-Q.Any Sub*quant Modfflcatlons to, Dental or, or Delay in th6 EffectlveneF,s ot the PUCO'S apryoval of the AsfibulionModemha on Rider could lmpoae slgnlflcant rlsks on HBtEnerW's oryrations and Il/flte alty antt Adverg*,ly lmpactthe Credlt na ngs, Besults ol Operatlons and Flnarrclat Comtltlon ol FhstEnetwOn October 12, 2016, the PUCO denied the Ohio Companies' modified Rider RRS and, in accordance with the PUCO Staff's recommendation, approved a new Distribution Modernization Rider providing forthe collection of
$204 million annually (grossed upfor income taxes) for three years with a possible extension for an additional two years. However, the PUCO'S order approving theDistribution Modernization Rider remains subject to rehearing by the PUCO and appeal to the Supreme Court of Ohio. Any subsequent modification to, denial of, or delay in the etfectiveness ot, the PUCO'S order approving the Distribution ModernizationRidercould impose risks on our operations and materially and adversely impactthe credit ratings, results ot operations and financialcondition of FirstEnergy.Fallurc to Succflastut,y lmptement Sl/?,teglc Altemaltves lor the CES *gmant May Funher l,lagatlvely and Ma'f, atlyImpact tha Future Besuks ol Wrations and Hnanclal Conduon ot HrstE pryy and FES, amt nega.d,l**'s ot thewabltlty or Succsss ol Theg* Stuatrgltc Atonatives, &rbin Events May Slgnlticantty tncreasr Cash Flow aN Liquldlty n/6'ks, and Ulay Cause FES to Take Other Actlons, tnctudlng Debt Restructu ng or *eklng Probctlon under theBanhruptcy Laws, Whlch Coukt nesutt tn Events o, Derautt undet Va ous Agrcements Retated to tl'* lmbbtectness of FE Depressed prices in thewholesale energy and capacity markets continueto challengethe generating unib within the CES segment,including those ol FES. Additionally, because the ESP lV PPA remains suspended, FES will not realize the revenuos originallyintended bythe arrangement, which could have further materialand adverse impacts to the credit ratings, results of operations andfinancial condition of FES.Consequently, as turther discussed in FirstEnergy's Management's Discussion and Analysis of Financial Condition and Results ofOperations and FES'Narrative Analysis of Results of Operations in this Quarterly Report on Form '10-Q, FirstEnergy has begun a strategic review of its competitive operations focused on the sale of gas and hydroelectric units as wellas exploring all altornatives for the remaining generation assets at FES andAE Supply. These include, but are not limitedto, legislative efforts to convert generation lrom competitive operationsto a regulated or regulated-like construct such as regulatory restructuring in Ohio, offering generation into any process designed to address MP's generation shortfall included in its IRE ancuor a solution for nucleargeneration that recognizestheir environmental benefits.
Management anticipates that the viability of these alternatives will be determined in the near term with a target to implement these strategic options within the next '12 to 18 months. No assurance can begiven, however, thatthese stralegic alternatives are viable orwill be achieved or sufficiently realized and even if realized the entities within the CES segment may take substantial write-downs and impairments of assets currently on those companies' balance sheets, which could have a matefialadverse effect on the results of operations and financial condition of FirstEnergy and FES.Additionally, regadless ofthe viability or success of the strategic alternatives for the CES business discussed above, CES, includingFES, faces signilicant cash flow and liquidity risks including, but not limited to the following possibilities:
requests to post additionalcollateral or accelerated payments of up to $355 million resulting from current credit ratings at FES, including Moody's downgrade of the Senior Unsecured debt rating for FES to Caal as well as S&P'sdowngrade of the Senior Unsecured debt rating at FES to B, both of which occurred on November 4,2416;adverse outcomes in previously disclosed disputes regarding longterm coal and coal transportation contracts; and the inability to refinance debt maturities at FES subsidiaries of $130 million, $515 million, and
$323 million in 2017,2018 and 2019, respectively, and $1 55 million in 2019 at AE Supply at attractive rates or at all; 108 Any one of these events or the lack of success implementing the alternatives previously outlined or any other viable businessalternatives could require FES to restructure debt and other financial obligations, bonow additional funds under the unregulated money pool, sell additional assets or deactivate additional plants and/or seek protection under bankruptcy laws. In the event FES seeks such potection, FENOC may similarly seek protection under bankruptcy layvs.Material impairments or charges or adverse judgments or outcomes in ongoing disputes could result in one or more events of deiault undervarious agreements relaled to the indebtedness of FE and FES. Furthemore, a FES bankuptcyfiling would result in one or more events of deiault under various agreements related to the indebtedness of FE. In particular a bankruptcy ol FES would result inthe deconsolidation of FES, which would result in a violation of the debt to total cafitalization ratio covenant under FiFtEnergys credit facilities. lf lhe delaults underthe FirstEnergy's credit facilities are not resolved through waivers or othenflise cured, lenders couldaccelerate the matudty of such debt, and FE would lacksufficient liquidityto pay the accelerated amount in full. Thetailurelo obtainthe waiver or the acceleration of such debt would have a material adverse efiec{ on FirslEnergy's business, financial condition, resulbof operations, liquidity and the trading price of FirstEnergys securilies. No assurance can be given that such waiverswillbe obtainedon satisfactory terms or at all.The CES gEg,rnent ltae a Signiflef,nt Amount ot hldeb'*drrl9E., Which C.ould Adwr5*,ly Afiect FE s an t FES'S Cash Howand Llqudlty and the Ab lty ol the Entltl$ wlthln the CES *g,',ent to Futfill ttt*/lr Obt6atlorc, Whlch CouLt tusult lnan Everrt ot Defutft uttd*r Vadoua Agr**'niF,rts nelabd to the tn(tr,b'*ldr'*rss of FE and Cauc* FES to *k Ptgbctlon undar tll6 Bankrupw Laws The entities within the CES segment have a significant amount of indebtedness, a matedal perceniage of which is secured.spEcifically, as of September 30, 2016, the entiti$ within the CES businEss s6gment had
$3.6 billion (FES: $3 billion; AE supply:
$621 million) of outstanding long-term debt, of which approximately
$836 miltion (FES: $620 million; AE Supply:
9216 million) issecur*d and approximably
$2.8 billion (FES: $2.4 billion; AE Supply:
$405 million) b unsecuGd.
As a resull ofthis debt, a substantial portion of cash flow from the operations of CES must be used to malG payments on this debt, including the payment of principal and interest. Furthermore, since a material peroentage of the CES assets are used to secure thisdebt, this reduces the amount of collateral that is available for future secured debt or credit support and leduces FirstEnergy's andFES'fleibility in dealing with future liquidity needs or financial difficulties.
This high level of indebtedness and related collateral pledges could have other adverse consequences to FES creditors, including:. difiiculty satisfying debt seMce and other obligations at FES and/or its individual subsidiaries;. the inability to refinance debt maturities at FES subsidiaries of
$130 million, $515 million, and $323 million in 2017, 2018 and 2019, respoctivsly, and $155 million in 2019 at AE Supply at atbactive rates or at all;. the inability to exend or refinance on comparable terms the FES/AE Supply revolving credit facility, which epkes in March of 201 9:. a credit rating downgrade ol FES debl, which could cause luture debt costs and/or payments to increase and consumean even greater portion of cash flow and require additional posting ot collateral or acceleration of paymefis of up to$355 million;. increasing the vulnerability of the business ol FirstEnergy ard CES, including FES, to general adverse industry andeconomic conditions:. reducing the availability ol FES and AE Supply cash flow to fund oher corporate purposes, including the ability to paydividends to FirstEneryy;. limiting flexibility of FirstEnergy and the CES business, including FES, in planning for, or reacting to, changes in theirbusiness and the induslry;. placing FirstEnergy and the CES business, including FES, at a compelitive disadvantage to iis competitors that are notas highly leveraged; and. limiting, along with the financial and other restdctive covenants relating to such indebtedness, among other things, FE'sand the CES business', including FES, ability to borrow additional funds as needed, take advantage of businessopportunities as lhey arise or pay cash dividends.ll market conditions in the wholesale energy and capacity markets continue to be depressed and the CES strategy disqJssed inFirstEnergy's Management's Discussion and Analysis of FinancialCondition and Resdb of Operations ald FES'S Narrative Analysb of Results of Operations in this Quartedy Report on Form '10-Q and the above risk fac'tor is not viable, achieved or sufficiently realized, then lhe cash flows ofthe CES segment may not be sufiicient to fund debt service obligations, including the repayment at matudty all of the outstanding debt as it becomes due.
In that event, the CES segment, including FES, may not be able to borrow money, sell assets, raise equity or otherwise raise funds on acceptable terms or at all to refinance its debt as it becomes due, which could have a material adverse elfect on the results of operations, financial condition and liquidity of FirstEnergy and FES, result inone or more evenb of default being declared under various agreements related to the indebtedness ol FirstEnergy and FES and cause FES to seek prolection under the bankruptcy laws.Additionalu if any potential defaulb at FirstEnergy orthe CES segment are not resolved through waivers orotherwisecured,lenderscould accelerate the maturity of the applicable debt.
These defaufts would create uncertainty associated with the repayn'lent of 109 outstanding FE-related long-term debt obligations as they become due and would have a material adverse efiect on FirstEnergy's business, financial condition, results of operations, liquidity and the trading price of FirstEnergy securities.ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS (c) The table below sets forth intormation on a monthly basis regarding FirstEnergy's purchases of its common stock during the third quarter of 2016: PeriodTotal Number of Shares Purchased(l)Average Price Paid per Share Total Number of Shares PurchasedAs Part of Publicly Announced Plans or Programs(z)
Maximum Number (or Approximate Dollar Value) of Shares that May YetBe Purchased Under the Plans or Programs July 1-31 , 2016August 1-31 , 2016 September 1-30,2016 Third Quarter$1,782 $20$32.44 32.52 1,802 $32.44 (1) Share amounts reflect shares that were surrendered to FirstEnergy by a panicipant under our 2007 Inceniive Plan to satisfy tax wilhholdingobligations relating to the vesting of a restricted stock award and the subsequenl dividend reinvestmenb on such Equily award. The totalnumberol shares repurchased represents lhe net shares surrendered lo FirstEnergy to satisfy tax withholding. All such repurc+rased shar*a are now heldas [easury snares.(a FirstEnergy do*s not currenlly have any publicly announced plan or program for share purchases.
ITEM 3.NoneITEM 4.Not Applicable ITEM 5.None DEFAULTS UPON SENIOR SECURITIES MINE SAFETY DISCLOSURES OTHER INFORMATION 110 ITEM 6. EXHIBITSExhibit Number FirstEnergy (A) 12 (A) 31,1 (A) 31.2 (A) 32 101 FES4.1 Fifth Supplemental Indsnture, dated as of Auoust 15, 2016, to Open-End Mortoage, General Mongage Indenture andDeed oftrust, dated as ol June 1, 2009, by and between Fi6tEneroy Nuclearcaneration, LLC and The Bank ol NewYork Mellon Trust Company. N.A.;as truste* (incorporated herein ty reterence to FES' Form 8-K liled Augusl 18, 2016,Exhibit 4.1, File No.
000-53742).4.11a) Form of First l\,longage Bonds, GuarantEe Ssries F of 2016 due 2035 (incorporated herein by refgrerrce lo FES'Form 8-K filod August 18, 2016, Exhibit 4.1(a), File No. 000-53742)(included in Exhibit 4.1).
4.1(b) Form ot Filst Mongage Bonds, Guarantee Series G ol 2016 dus 203ii (incorporaled herein by relerence to FES' Form 8-K'' tiled Augusl 18, 2016: Exhibit 4.1(b), File No.
oo0-53742)(includEd in Eihibit 4.l ).4.2 Eighth Supplemental Indenture, dated as ol August
,l5. 2016, to Open-End Mortgage. Gener4 Molgage Ind*nlure andDeed of Tiust, dated as ol June 19, 2008, by aid between FirstEnbrgy Generation; LLC and Tho Bank ol New YorkMellon Trust Company, N.A. (lomerly knowir as ThE Bank ol New Yori Trust Company, N.A.), as truslee (incoForated herein by relersnie td FES Form 8-K fibd August 18, 2o'16. Exhibit 4.2, File No, 00G53742).
4.2lal Form ol Firsl Modgage Bonds, Guarantee Series I ol2016 due 2028 (incorporaled herein by relerence to FES' Form &K liledAugusl 18, 2016, Exhibil 4.2(a), File No.
000-53742xincluded in Exhibit 4.2).
4.2(b) Form ol Firsl Mortgaoe Bonds, Guaranlee Series J ol 2016 due 2029 (incorporat*d herein by reference to FES' Fom 8-Kfiled August 18, 2016, Exhibil 4.2(b), File No.
000-53742xincluded in Exhibil 4.2).4,21c) Form ol First l\,lortgage Bonds. Guaranl88 Series K of 2016 due 2047 (incorporated herein by rEl*rence to FES' Form 8-K
' filed August 18, 2o-16: Exhibir 4.2(c), File No. ooGssT42xincluded in Exhibit 4.2).4.2(d) Form ol First l\,lortgags Bonds, Guarantee Sgries L of 2016 due 2028 (incorporated herein by refer*rrce lo FES' Form 8-Kfiled August 18,2016, Exhibit 4.2(d), File No.
000-53742)(included in Exhibil4.2).(A) 10.'l Nolice of Borrower Sublimit Beduction Negalive Consenl, datod as ol August 30. 20'16, to the Credil Agreement, dalgd asof June 17, 2011, as amended as ol Octob'er 3, 2011, Mai 8, 2012, May 6, 2013, Octob*r 31. 2013 and March 31, 2014,amonq FirslEnerov Solutions Com. and Alleohenv Enerqi suDolv com'Panv, LLc, as borrowers, and JPMorgan chase Bank,-N.A., as adininistrative ageht. and the-lending baiks, lrbhting bairks'and swing line lenders idenlifed ther*in.(A) 31.1 Certification ot chief executive oflicer, as adopted pursuant to Rule 13a-14(a)(A) 31.2 C*rtification ol chief financial oflicer, as adopted pursuanl to Rule 13a-14(a)(A) 32 Cenification ol chigf BxecutivE olticer and chief linancial otficer, pursuant to 18 U.S.C. Section 1350101 Ths lollowino materials from the Ouaderlv Reoort on Form 104 of FirstEn*roy Solutions Corp. tor the period endedSept*mber 3-0,2016, formatted in XBRL (Eilensible Business Reporting Languag-B);(i) Consolidated Statements of Income (Ldss) and Coinprehensive Income (Losi), (ii)
Consolidated Baldnc* Sleets, (iii) Coir'solidatsd Statements of Cash Flows, (iv) relat*d notes to th*6e linancial statements and (v) document and entity inlonnation.(A) Provided herein in electronic lormat as an exhibit.
Pursuant to paragraph (b)(axiiiXA) ot ltem 601 of Regulation S-K, neither FirstEnergy nor FES have liled as an exhibil to this Form'10-Q any instrument with respect to long-term debt if the respective total amount of securities authorized thereunder does not exceed 10% ol its respective total assets, but each hereby agrees to furnish to the SEC on request any such documenls.
Fixed charge ratio Certification of chief executive officer, as adopted pursuant to Rule 13a-14(a)
Certification of chief financial off icer, as adopted pursuant to Rule 13a-14(a)Gertification of chiel executive officer and chief financialofficer, pursuant to 18 U,S,C. Section 1350The following materials from the Quarterly Report on Form 10-Q of FirstEnergy Corp. for the period ended September 30,2016, formatted in XBRL (Extensible Bu6ineds Reporting Language): (i)Consolidated Statements of Incom^e (Loss) and Consblidated Statements df Comprenensive Incom6 llos$, (ii) eonSoiiddfed Balance Sheets, (iii) Consolidated Statements ofCash Flows, (iv) related notes to these financialstatements and (v) document and entity information.
111 SIGNAIURES Pursuant to the requirements of the Securities bahange Act of 1934, each Regisirant has duly caused this report to be signed on ibbehalf by the undersigned thereunto duly authorized.November 4, 2016FIRSTENERGY CORP.
RegistrantFI RSTENERGY SOLUTIONS CORP.RegistrantlslK. Jon Taylor K. Jon TaylorVice President, Controllerand Chief Accounting Officer 112 Exhibit NumberEXHIBIT INDEX Fixed charge ratio Certification o{ chief executive officer, as adopted pursuant to Rule 13a-14(a)Certification ol chief financial officer, as adopted pursuant to Rule 13a-14(a)Certification of chief executive officer and chief financial officer, pursuant to 18 U.S.C, Section 1350The following materials from the Quarterly Report on Form 10-Q of FirstEnergy Corp. for the period ended September 30,2016, formalted in XBRL (Extensible Buiineds Reporting Language): (i) Consolida'ted Stateinents of Incom_e (Loss) andConsolidated Statements o'f Comprehensive Incomd (Losi), (ii) don5oliddied Balance Shee-ts, (iii) Consolidated Statements of Cash Flows, (iv) related notes to these financial statements and (v) document and entity information.
FirstEnergy (A) 12 (A) 31.1 (A) 31.2 (A) 32 101 FES4.1 Fifth Suoolemental lndenlure. dated as ol Auoust 15. 2016. to Ooen-End Mortqaoe. General l\4on0a0e Indenture andDeed oftrust, daled as of Juhe 1, 2009, bv a-nd between FirstEnBrgy Nuclearcaneration, LLC ani, The Bank of NewYork l\rgllon Tiust Company. N.A.. as trust6e (incorporated herein ty relerence to FES' Form 8-K liled Augusl 18, 2016,Exhibit 4.1, File No. 000-53742).
4.1(a) Form ol First Mortoaoe Bonds. Guarantee Series F of 2016 due 2035 (incorporaled h*rein by relefence lo FES' Form 8-K' liled Auoust 18, 2016: Exhibit 4.1(a), File No.
000-53742)(included in Exhibii 4.1).
4.1(b) Form ol First l\,lodgage Bonds, Guarantee Series G ol 2016 due 2033 (incorporatsd herein by ref*rgnce lo FES' Form 8-Ktiled August 18, 2016, Exhibil 4.1(b), File No.
000-53742)(includod in Exhibil 4.1).4,2 Eiohth SuoDlemenlal lndenture. daled as olAuousl 15. 2016. to Ooen-End Mortoaoe. General Mortoao8 Indenture andD;ed of Tiist, dated as ol Juns 19, 2008, by a;d between FirstEnbrgy Generation;Llc and The Bank ol New YorkMellon Trust Company, N.A. (fomdrly knorvir as The Bank of New Ydrk Trust Company. N.A.), as lrustee (incoForated her*in by r*lersnce to FES'Form 8-K filed August 18, 20'16, Exhibit 4.2, Fils No. 000-53742), 4'2lal Form of First Monoaqe Bonds. Guarantee Series I ol2016 due 2028 (incorporat*d hersin by reference to FES'Form 8-K' filed August 18, 20-16: Exhibir 4.2(a), File No.
000-53742xincluded in Exhibit 4.2).4.2(b) Form of First Mongage Bonds, cuarantee Series J o12016 due 2029 (incorporated herein by r8ference to FES'Fom 8-Kfiled Augusl 18, 2016, Exhibit 4.2(b), File No.
000-53742xincluded in Exhibit 4.2).4.2G1 Form of First Mortoaoe Bonds. Guarant** Series K of 2016 due 2047 (incomorated herein by refererrce lo FES'Form 8-K
' liled August 18, zoi 6: Exhibit 4.2(c), File No. 000-53742)(included in Exhibit a.2).4.2ldl Form ol First Mortoaoe Bonds. Guarantee Series Lof 2016 dug 2028 (incomorated hsr*in by refer*nce to FES'Form 8'K' liled August 't 8, 2016; Exhibir 4.2(d), File No, ooo-53742)(included in Exhibii 4.2).(A) 10.1 Noticg ol Borrowsr Sublimit R*duction N*gativ* Consenl, daled as ol August 30, 2016, to the Credil Agreemen\ dalgd asol June 17, 2011, as amended as ol Octobier 3, 2011, May 8. 2012, May 6, 2013. Oclober 31, 2013 and March 31, 2014, amonq FirdtEnerAv solutions corD and Alleohenv Enerqi supDlv com-panv, LLc, as borrowers, and JPMorgan chase Bank,-N.A., as adininistrative ageht, and the-lending baiks, frbhtlng bairks'and swing line lenders identified therein.(A) 31.1 Certification of chiel Executivs otticsr, as adopted pursuanl lo Rule 13a-14(a)(A) 31.2 Cenification of chiel linancial ollicer, as adopted pursuanl lo Rule l3a-14(a)(A) 32 Certificalion ol chiel executive otficer and chief finarrcial oflicer.
pursuanl lo 18 U,S.C. Section 1350101 The lollowino materials from the Quadedv Reoorl on Form'to-O of FirstEneroy Solulions Corp, for ihe period endedSeptember 30, 2016, formatted in XBRL (Eitensible Business Reponing tanguag-e): (i) Consolidaled Statements ol Income (Ldss) and Comprehensive Income (Losi), (ii) Consolidated Baldnce Sleeb, (iii) Consolidated Statements of Cash Flows, (iv) relaled noles to these financial statements and (v) document and entity inlormation.(A) Provided herein in electronic lormat as an erhibit.
Pursuant to paragraph (bx4xiiiXA) of ltem 60 l of Regulation S-K, neither FirstEnergy nor FES have tiled as an exhibit to lhis Form 10-Q any instrumentwith respect to long-term debt ifthe respective totalamount of securities authorized thereunder does not exceed10% of its respective total assets, but each hereby agrees to furnish to the SEC on request any such documents.
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Latest revision as of 22:28, 4 February 2020

Supplemental Information Regarding Pending Application for Order Consenting to Transfer of Licenses and Approving Conforming License Amendments
ML16350A077
Person / Time
Site: Beaver Valley
Issue date: 12/15/2016
From: Harden P
FirstEnergy Nuclear Operating Co
To:
Document Control Desk, Office of Nuclear Reactor Regulation
References
CAC MF78066, L-16-334
Download: ML16350A077 (126)
v • d • e


Text

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.

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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.

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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.

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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.

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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.

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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.

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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.

80

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.

82

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.

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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.

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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.

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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.

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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.

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. 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.

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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

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