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

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)

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.

10

InFebruary 2016,theFASBissuedASU2016-02, "Leases (Topic 842)",whichwillrequireorganizations thatleaseassebwithlease termsof morethan12 monthsto recognize assetsandliabilities for the rightsandobligations createdby thoseleaseson their balance sheets.Inaddition, newqualitative andquantitative disclosures oftheamounts, timing,anduncertainty ofcashflowsarising ftomleaseswill be required.TheASUwill be elfectivefor liscalyears,andinterimperiodswithinthosefiscalyears,beginningatter DecembelI5, 2018, withearlyadoptionpmitted. Lessorsandlesseeswill be requiredto applya modifiedretospeciivelransition appoach,whichrequiresadjusting the accounting tor any leasesexistingat the beginning of the earliestcomparative period presented in theadoption-period financial statements. Anyleasesthatexpirebeforetheinitialapplication datewillnotrequireany accounting adiustrnent. FirstEnergy is currently evaluating theimpacton itsfinancial statements of adopting thisstandard.

InMarchof2016,theFASBissuedASU2016-09, "lmprovements to Employee ShareBased Payment Accounting', wfiichsimplifies severalaspecG of theaccounting foremployee sharebased payment. Thenewguidancewillrequire allincome taxefiectsofawards to be recognized in the incomestatement whentheawardsvestor aresettled.lt alsowillnotrequireliabilityaccounting whenan employer repurchases moreof an employee's sharesforiaxwithholding purposes. TheASUwillbe etfective lor tiscalyears,and interimperiods withinthosefiscalyears, beginning atterDecember 15,2016,withearlyadoption permitted. FirslEnergy is curlenlly evaluatingtheimpacton itsfinancial statements of adopting thisstandard.

InJune2016,theFASBissuedASU2016-13, 'Financial Instrumenls - CreditLosses(Topic326):Measurement of CreditLosses on FinancialInstruments,' whichremoves all recognition thresholds andwillrequirecompanies to recognize an allowance torcredit losseslor the ditference belweenthe amortized costbasisot a tinancialinstrument andthe amountof amortized costthatthe companyexpectsto collectovertheinstrument's contractual life.TheASUis effective forfiscalyears,andinterimperiodswithin thosefiscalyears,beginning afterDecember'15,2019. Earlyadoptionis permitted forfiscalyearsbeginning afterDecember 15, 2018.FirstEnergy is currently evaluating theimpacton itsfinancial statements of adopting thisstandard.

InAugust2016,theFASBissuedASU2016-l5,"Statement of CashFlows(Topic230):Classification of CertainCashReceipts and CashPayments". Thestandard is intended to eliminate diversity in practicein howcertaincashreceiplsandcashpayments are presentedandclassifiedinthestatementof cashflows.Theguidanceis ellsctivelor fiscalyea]s,andfor interimperiodswithinlhose fiscalyears,beginning afterDecember 15,2017.Earlyadoption is permitted forallentities. FirstEnergy doesnotoQectthisASUto havea materialeffecton itsfinancial statements.

InOctober2016,the FASBissuedASU2016-16, 'AccountirEforIncomeTaxes:Intra-Entity AssetTransfers ofAsseBOlherthan Inventory."

ASU201S16eliminates theexception forallintra-entity salesol assetsotherthaninvenlorywhichallowscompanies to deferthetaxeffectsof intra-entityassettransters.Asa result,a repodingentitywouldrecognizelhe taxexpensefromthesaleofthe assetin the seller'stax jurisdictionwhenthe intra-entitytransfero@urs,eventhoughthe pre-taxetfectsof that transactionare eliminaled in consolidation. Anydelerred taxassetthatarisesinthebuyer'siurisdiction wouldalsobe recognized atthetimeofthe Theguidance transfer. is etfectivetorfiscalyears,andfor interimperiodswithinthosefiscalyears,bginningafterDecember 15, 2017.Earlyadoption is permitted andthemodified retmspective approach willberequired tortransition tothenewguidance, witha cumulative-effect adjustment recorded in retained eamingsas of the beginning of the periodof adoption. FirstEnergy is currently evaluatingthe impacton its financialstatementsof adoptingthisstandard.

Additionally,dudng2016,the FASBissuedthefollowing ASUS:

ASU 2016-05,"Effectof Derivative ContractNovationson ExistingHedgeAccountingRelationships,"

ASU 2016-06,"Contingent Putand CallOptionsin Debtlnstruments (a consensusof the FASBEmerginglssuesTask Force),"

ASU 2016-07,"Simplifying the Transition to the EquityMethodof Accounting," and ASU 2016-17,"Consolidation (Topic810):lnterestsHeldthroughRelatedPartiesThatAre underCommonControl."

FirstEnergy does not expecttheseASUsto havea materialeffecton its financialstatements.

11

2. ASSETIMPAIRMENTS PlantlmDaimenE FirstEnergy reviewslonglivedassetsforimpairmenl whenever eventsorchanges incircumstances indicatethatthecarryirE valueot suchassetsmaynotbe recoverable. Therecoverability ol a longlivedassetis measuredbycomparingitscarryingvalueto thesum of undiscounted futurecashflowsexpectedto resuhfromtheuseandeventualdisposition oftheasset.ttthecarryirEvalueisgreatsr thantheundiscounted cashflows,an impairment existsanda lossis recognized fortheamountbyu,hichthecarryingvalueof the longiivedassetexceedsitsestimated fairvalue.FirstEnergy utilizestheincomeapproach, basedupondiscounted cashflowsb estimatefairvalue.

OnJuly19,2016,FirstEnergy andFEScommitted to exitoperations of theBayShoreUnit1 generatirE station(136l"fw)byfrober 1,2020,througheithersaleordeactivation andtodeactivate Units1-4of theW.H.Sammis genorating siation(720lvfw)byMay31, 2020.As a result,FirstEnergy recorded a non-cash pre-taximpai.ment chargeof $647million($517million- FES)in thesecond quarterof 2016,whichis included in lmpairment ot assetsontheConsolidated Statement of Income(Loss)andincluded withinthe resultsoftheCESsegment. PJMhasapproved theW.HSammisUnits1-4andBayShoreUnit1deactivations pending reviaf bythe Independent MarketMonitor.In addition,FirstEnergy and FESrecordedtermination andsettlement cosb on luel contracbol approximately $58million(pre-tax) in thesecondquarterof 2016resulting fromplantretirements anddeactivations.

Duringthe first ninemonthsof 2015,FirstEnergy and FES recognized impairment chargesot $24 millionand $16 million, respectively, associatedwithcertaintransportation equipmentandtacilities.In orderto confotmto cunentyearpresenlation, the chargewas reclassified fromOtheroperatingexpensesin the Consolidated Statementof Income(Loss)to lmpairmentof assets.

Goodwi In a businesscombination, the excessof the purchase priceoverthe estimated fairvalueof the assetsacquiredand liabilities assumed is recognized asgoodwill. FirstEnergy's reporting unitsareconsistent withib reportable segments andconsist ofRegulated Distribution, Regulated Transmission, andCES.Thelollowing tablepresents thechanges inthecarrying valueofgoodwillforlhe nine monthsendedSeptember 30,2016:

Competitive Regulated Regulated Energy Goodwill Distribution Transmission ServiCes Gonsolidated (ln millions)

Balanceas of December 31. 2015 5,092 $ 526 $ 800 $ 6,418 lmpairment (800) (800)

Balanceas of September30, 2016 5,092 $ 526 $ 5,618 FirstEnergy testsgoodwillfor impairment annuallyas of July31 and considersmorefrequenttestingif indicators of potential imDairment arise.

As a resultof lowcapacitypdcesassociated withthe 2019/2020 PJMBaseResidualAuction in MayA)16,as wellas its annual updateto itstundamental long-termcapacityandenrgypriceforecast,FirstEnergy deiermined thatanintedmimpairment analysisof theCESreporting unit'sgoodwillwasnecessary duringthesecondquarterof 2016.

Consistentwith FirstEnergy's annualgoodwillimpairment test,a discounled cashflowanalysis wasusedto determine thofairvalue of theCESreportingunitforpurposesofsteponeof theinterimgoodwillimpairment test.Keyassumptions incorporated inb theCES discounted cashflowanalysisrequiring significantmanagement judgment included thetollowing:

. FutuB Energyand CapacltyPrlces:Observablemarketinformationfor near-termforwardpowrprices,PJMauction resultsfornearterm capacity pricing, anda longer-term fundamental picingmodelforenergyandcapacity thatconsidered theimpactof keyfactorssuchasloadgroMh,plantretirements, carbonandotherenvironmentalregulations, andnatural gaspipelineconstruction, aswellascoalandnaturalgaspricing.

. hefailSatesand Margln:CES'currentretailtargeted portfolioto estimate futureretailsalesvolumeaswellas historical financialresultsto eslimateretailmargins.

. Operatingand CapltalCosts: Estimatedfutureoperatingandcapitalcosts,includingthe estimatedimpacton costsof pending carbonandotherenvionmentalregulations, aswellascosbassociated withcapacity performance reforms inhe PJMmarkel.

. DiscountRate:Adiscount rateof9.50%.basedonselected comparable companies'capiial retumondebtand structure, returnonequity.

TerminalValue:A terminalvalueof 7.0xearningsbeforeinterest, taxes, and amortizationbased on consideration of peergroupdataandanalyst consensus expectations.

12

Basedontheimpairment analysis, FirstEnergy determined thatthecarrying valueofgoodwillexceeded itsfairvalueand Iecognized a non-cash pre-taximpairment chargeof $8OO million($23million- FES)inthesecondquarterof 2016,whichis included withinthe captionlmpairment ot assetsin the Consolidated Slatemenl of Income(Loss).

As of July3'1,2016,FirstEnergy performed a qualitative assssment of the Regulated Distribution andRegulated Transmission reporting units'goodwill,assessing economic, industry andmarketconsidorations inadditionto thereporting units'overalltinancial performance. lt wasdetermined thatthefairvalueofthesereporting unitswere,morelikelythannot,greater thantheircarrying value anda quantitative analysis wasnotnecessary Termination of CustomerContact Duringthethirdquarterof 2016,FESrecorded a pre-tax chargeof$32millionassociated withthetermination ol a cuslomercontracl, whichis included in Otheroperating expenses in theConsolidated Statement of Income(Loss).

3. EARNINGS PERSHAREOF COMMON STOCK Basicearnings pershareofcommonstockarecomputed usingtheweighted a\ragenumberofcommonshares oulstanding during the relevantperiodas lhe denominator. Thedenominator for dilutedearnings per shareol commonsbck reflectstheweighted average otcommon sharesoutstanding plusthepotentialadditionalcommon sharesthatcouldresultifdilutivesecurities andothel agreemenbto issue@mmonslockwereexercised.

Thefollowing taHereconciles basicanddilutedearnings pershareot commonstock:

For the Three Months For the Nine Months (ln millions, except per share amounts) Ended September30 Ended September30 Reconciliationof Basic and Diluted Earningsper Shareof CommonStock 2016 2015 2016 2015 Net income(loss) 380 $ 395 $ (381)$ 804 Weightedaveragenumberof basicsharesoutstanding 425 423 425 422 Assumedexerciseof dilutivestockoptionsand awards(1) 2 1 1 Weightedaveragenumberof dilutedsharesoutstanding 424 425 423 Basicearnings(losses)per shareof commonstock $ 0.8e $ 0_e4$ (0.e0)$ 1.91 Dilutedearnings(losses)per shareof commonstock $ 0.8e $ 0.93 $ (0.e0)$ 1.90 (r) FortheninemonthsndedSeoternber 30.2016.threemillionshareswereexcluddlromthecalculation of dilutedsharEsoutstanding,astheir inclusionwouldbe aniidilutiveasa resultol lhe netlossfor the period.ForthethremonthsendodSeptember 30,2016 and2015, ard lor the ninemonthsendedSeptember 30,2015, onemillionshareswercexcluddfromthecalculation of dilutedshargsoutstanding, astheirinclusion woddbe antidilutive.

4. PENSIONAND OTHERPOSTEIIPLOYMEITT BENEFTS ThroughOctober2016,FirstEnergysatisfiedits minimumrequiredfundingobligationsto its qualifiedpensionplanfor the yearwith contributions of $382million($85millionin October2016),including$138millionat FES.Dependingon, amongotherthings,market conditions,Fi6tEnergyexpectsto makeadditionalconlributionsto itsqualifiedpensionplan in 2016of up to $500millionof equityb addressib fundingobligationsfor futureyears.

13

Thecomponents of the consolidatednetperiodiccost(credits)for pensionandOPEB(including amountscapitalized) wereas follows:

Components of Net Periodic Benefit Costs (Credits) Pension OPEB For the Three Months EndedSeptember30 2016 2015 2016 (ln millions)

Servicecosts 48 4e$ 2 $ 2 Interestcosts 99 967 7 Expectedreturnon plan assets (100) (111) (7) (e)

Amortizationof priorservicecosts(credits) 2 2 (20) (33)

Net periodiccosts(credits) 4e$ 36$ ( 1 8 )$ (33)

Gomponents of Net Periodic Benetit Costs (Credits) Pension OPEB For the Nine Months EndedSeptember30 2016 2015 2016 (ln millions)

Servicecosts 144 $ 145 $ 4 4 Interestcosts 298 288 22 21 Expectedreturnon plan assets (2e7) (333) (23) (25)

Amortization of priorservicecosts(credits) 6 6 (60) (100)

Net periodiccosts (credits) 151 $ 106 $ (57) $ (100)

FES'shareof the net periodicpensionand OPEBcosts(credits)were as follows:

Pension 2016 2015 2016 2015 (ln millions)

For the ThreeMonthsEndedSeptember30 6 $ 4 $ (4) $ (5)

For the NineMonthsEndedSeptember30 18 12 (12) (15)

Pension andOPEBobligations areallocatedto FEs subsidiaries,includingFES,employing he planparticipants. Thenetperiodic pensionandOPEBcosts(credits), netot amounts capiialized, recognized in eamingsby FirstEnergy andFESwereasfollows:

Net Periodic Benefit Expense(Gredit) Pension OPEB For the Three Months EndedSeptember30 2016 2015 2016 (ln millions)

FirstEnergy 35$ 25$ ( 1 1 )$ (21)

FES 5 4 (4) (4)

Net PeriodicBenefit Expense(Credit) Pension OPEB For the Nine Months EndedSeptember30 2016 2015 2016 (ln millions)

FirstEnergy 107 $ 74$ ( 4 1 )$ (66)

FES 17 12 (12) (12) 14

5. ACCUMULATED OTHERCOMPREHENSIVE INCOME The changesin AOCI,net of tax, in the threeand ninemonthsendedSeptember30, 2016and 2015,for FirstEnergy are includedin the followingtables:

FirstEnergy Gains& Unrealized Defined Losses on Gainson Benefit Cash Flow AFS Pension &

Hedges Securities OPEB Plans (ln millions)

AOCIBalanceas of July1, 20'16 ( 3 1 )$ 58$ 164 $ 191 Othercomprehensive incomebeforereclassifications 21 21 Amountsreclassified fromAOCI 2 (17) (18) (33)

Othercomprehensive income(loss) (18) (12)

Incometaxes(benefits)on othercomprehensive income (loss) (7) (5)

Othercomprehensive income(loss),net of tax (11) (7)

AOCI Balanceas of September30, 2016 (2e)$ 60$ 153 $ 184 A O CIB alanc ea s o f J u l y1 ,2 0 1 5 (36) $ 1e$ 219 $ 202 Othercomprehensive lossbeforereclassifications (8) (8)

Amountsreclassified fromAOCI 2 (3) (31) (32)

Othercomprehensive income(loss) 2 (11) (31) (40)

Incometaxes(benefits) on othercomprehensive income (loss) 1 (4) (12) (15)

Othercomprehensive income(loss),net of tax (7) (1e) (25)

AOCIBalanceas of September30, 2015 (35) $ 12$ 200 $ 177 Gains& Unrealized Defined Losses on Gainson Benefit Cash Flow AFS Pension&

Hedges Securities OPEB Plans (ln millions)

AOCIBalanceas of January1, 2016 (33)$ 18$ 186 $ 171 Othercomprehensive incomebeforereclassifications 109 109 Amountsreclassified fromAOCI 6 (42) (54) (e0)

Othercomprehensive income(loss) 6 67 (54) 19 Incometaxes(benefits) on othercomprehensive income (loss) 2 25 (21) 6 Othercomprehensive income(loss),net of tax (33) 13 AOCIBalanceas of September30, 2016 (2e)$ 60$ 153 $ 184 AOCIBalanceas of January1, 2015 (37) $ 25$ 258 $ 246 Othercomprehensive lossbeforereclassifications (1) (1)

Amountsreclassified fromAOCI 4 (20) (e4) (110)

Othercomprehensive income(loss) 4 (21) (e4) (111)

Incometaxes(benefits)on othercomprehensive income (loss) 2 (8) (36) (42)

Othercomprehensive income(loss),net of tax (13) (58) (6e)

AOCIBalanceas of September30, 2015 (35) $ 12$ 200 $ 177 15

Thefollowing amounts werereclassifiedfromAOCIfor FirstEnergy in thethreeandninemonthsendedSeptember 30,2016and 2015:

For the Three Months For the Nine Months Ended September30 Ended September30 Affected Line ltem in GonsolidatedStatementsof Reclassifications f rom AOGI(2) 2016 2015 2016 2015 Income (Loss)

(ln millions)

Gains& losseson cashflow hedges Commoditycontracts $ $ $ (2) Otheroperatingexpenses Long-termdebt 2 2 6 6 Interestexpense 2 2 6 4 Totalbeforetaxes (1) (2) (2) Incometaxes 2$ 1$ 4$ 2 Net of tax Unrealizedgainson AFS securities Realizedgainson salesof securities ( 1 7 )$ (3) $ (42) $ (20) lnvestmentincome(loss) 7 1 16 7 Incometaxes

$ ( 1 0 )$ (2) $ (26) $ (13) Net of tax Definedbenefitpensionand OPEBplans Prior-service costs $ ( 1 8 )$ ( 3 1 )$ (54) $ (94) (1) 7 12 21 36 Income taxes

$ ( 1 1 )$ ( 1 e )$ (33) $ (58) Net of tax (1)TheseAOCI componentsare includedin the computationof net periodicpensioncost. See Note 4, Pensionand Other Postemployment Benefitsfor additionaldetails.

(z)Amounts in parenthesisrepresentcreditsto the Consolidated Statements of Income(Loss)fromAOCI.

16

ThechangesinAOCI,netof tax,in thethreeandninemonthsendedSeptember 30,2016and2015,for FESareincluded in the following tables:

FES Gains& Unrealized Defined Losses on Gains on Benefit Gash Flow AFS Pension&

Hedges Securities OPEBPlans Total (ln millions)

AOCIBalanceas of July 1, 2016 ( 1 0 )$ 50$ 35$ 75 Othercomprehensive incomebeforereclassifications 22 22 Amountsreclassified fromAOCI 1 (17) (3) (1e)

Othercomprehensive income(loss) 1 5 (3) 3 Incometaxes(benefits)on othercomprehensive income(loss) 2 (1) 1 Othercomprehensive income(loss),net of tax (2)

AOCIBalanceas of September30, 2016 (e)$ 53$ 33$

AOCIBalanceas of July 1, 2015 (e)$ 16$ 38$ 45 Othercomprehensive lossbeforereclassifications (7) (7)

Amountsreclassified fromAOCI (4) (4) (8)

Othercomprehensive loss (11) (4) (15)

Incometax benefitson othercomprehensive loss (5) (1) (6)

Othercomprehensive loss,netof tax (6) (3) (e)

AOCIBalanceas of September30, 2015 (e)$ 10$ 35$ 36 Unrealized Defined Losses

""in* on Gains on Benefit Cash Flow AFS Pension&

Hedges Securities OPEBPlans Total (ln millions)

AOCIBalanceas of January1, 2016 (e)$ 16$ 3e$ 46 Othercomprehensive incomebeforereclassifications 102 102 Amountsreclassified fromAOCI (41) (10) (51)

Othercomprehensive income(loss) 61 (10) 51 Incometaxes(benefits)on othercomprehensive income(loss) 24 (4) 20 Othercomprehensive income(loss),net of tax 37 (6) 31 AOCI Balanceas of September30, 2016 (e)$ 53$ 33$ 77 AOCIBalanceas of January1, 20'15 (7) $ 21 $ 43$

Othercomprehensive lossbeforereclassifications (1) (1)

Amountsreclassified fromAOCI (2) (1e) (12) (33)

Othercomprehensive loss (2) (20) (12) (34) lncometax benefitson othercomprehensive loss (e) (4) (13)

Othercomprehensive loss,netof tax (2) ( 1 1) (8) (21)

AOCI Balanceas of September30, 2015 (e)$ 10$ 35$ 36 17

The followingamountswere reclassified fromAOCIfor FES in the threeand ninemonthsendedSeptember30, 2016and 2015:

For the Three Months For the Nine Months Ended September30 Ended September30 Affected Line ltem in Consolidated Statements Reclassificationsf rom AOCI(2) 2016 2015 2016 2015 of Income(Loss)

(ln millions)

Gains& losseson cashflow hedges Commoditycontracts 1$ $ (z',)Otheroperatingexpenses Incometaxes 1$ $ $ (2) Net of tax Unrealized gainson AFS securities Realizedgainson salesof securities ( 1 7 )$ (3) $ ( 4 1 )$ (18) Investment income(loss) 6 1 15 7 lncometaxes

$ (11$ ) (2) $ (26)$ (t 1) Net of tax Definedbenefitpensionand OPEBplans Prior-service costs $ (3) $ (4) $ ( 1 0 )$ (12) (1) 1 1 4 4 Income taxes

$ (2) $ (3) $ (6) $ (8) Net of tax (1)TheseAOCIcomoonents are includedin the comDutation of net Deriodic pensioncost.See Note4, PensionandOther Postemployment Benefils foradditional details.

(2)Amountsin parenthesis represent creditsto theConsolidated Statements of Operations fromAOCI.

6. INCOME TAXES FirstEnergy's andFES'interim efiectivetaxratesreflectthe estimated annualeffective taxratesfor2016and2015.Thesetaxrates areaffected byestimated annualpermanent items,suchasAFUOCequityandotherflow-through items,aswellasdiscreteitems thatmayoccurin anygivenperiod,butarenotconsistent fromperiodto period.

FirstEnergy's effective taxrateforthethreemonthsendedSeptember 30,2016and2015was39.8%and36.4%,respectively.

Changes in FirstEnergy's ellectivetaxratefortheninemonthsendedSeptember 30,2016ascompared tothesameperiod of 2015, resulted fromthesecondquarterof2016impairment of $8OO millionofgoodwill (asdescribed inNote2),ofwhich$433million isnon-deductible fortaxpurposes. Additionally,$159millionof valuation allowances wererecorded inthesecondquarterof 2016against stateandlocalNOLcarryforwards thatmanagment believes, morelikelythan not,willnotberealized basedprimarily onprojecled taxableincomerellecting updates to FirstEnergy's annuallong-term fundamental pricingmodelforenergyandcapacity, aswellas certainstatutory limitations onthe utilization of staleandlocalNOLcarMorwards.

FES'etfective taxrateforthethreemonthsendedSeptember 30,2016and2015was58.3%and36.8%,respectively. Theincrease intheeffective taxrateis primarilydueto theimpactofestimated annualpermanent itemsonlorecasted lowelpre-tax incometorthe penoo.

FES'effective taxratetortheninemonthsendedSeptember 30,2016and2015was1.8%and40.0%,respectively. Thechangein theettective taxrateprimarily resulted from$65millionofvaluation allowances recorded againststateandlocalNOL carMorwards thatmanagement believes, morelikelythan not,willnotberealized asdescribed above.Additionally, FESrecorded animpairment of goodwill(asdescribed in Note2) in thesecondquarterof 2016,of which$23millionis non-deductible forlax purposes.

In March2016,FirstEnergy recorded unrecognized taxbenefits of $69millionprimarily related to protectiveretundclaimsfiledwith theCommonwealth of Pennsylvania asa resultofa recentrulingbytheCommonwealth Courtfindingthatthestate'sNOLcarryover limitationviolated theunilormity clauseandwasunconstitutional. TheCommonwealth of Pennsylvania hasappealed thisruling tothe Pennsylvania Supreme Court.

As oI September 30,2016,it is reasonably possible thatapproximately $54millionof unrecognized tax benefitsmaybe resolved withinthenexttwelvemonthsasa resultotthestatuteof limitations expiring andexpected resolutionwithrespect to cenainclaims,of whichapproximately $15millionwouldatfectFictEnergy's etfective taxrate 18

In February 2016,theIRScompleted itsexamination ol FirstEnergy's 2014federalincometaxreturnandissueda fullacceptance letterwithno adjustments.

7. VARIABLE INTEREST ENTITIES FirstEnergy performsqualitative analysesbasedon controlandeconomics to determine whethera variableinterestclassifies FirstEnergy astheprimarybneficiary (a controlling financial interest) ot a VlE.An enterprise hasa controlling financial interestif it hasbothpowerandeconomic control,suchthatan entityhas;(i)thepowerto directtheactivities of a VIEthatmostsignificantly impacttheentity'seconomic performance, and(iDtheobligation to absorlc lossesoftheentitythatcouldpotentially besigniticant to theVIEortherighttoreceivebenefits fromtheentitythatcouldpotentially besignilicant to theVlE.FirstEnergy consolidates a VIE whenit is determined thatit is theprimarybeneficiary The caption"noncontrolling interest"withinthe consolidated financialstatements is usedto retlectthe portionol a VIE that FirstEnergy consolidates, butdoesnotown.

Inorderto evaluate contracts forconsolidation treatment andentities forwhichFirstEnergy hasaninterest, FirstEnergy aggregates variableinterests intocategories basedon similarriskcharacteristics andsignificance.

Consolldated VlEs VlEsin whichFirstEnergy is theprimarybeneficiary consistot thefollowing (included in FirstEnergy's consolidated financial statements):

. PNBVTrust-PNBV,a business trustestablished byOEin 1996,issuedcertainbeneficial interests andnotesto fundthe acquisition of a portionotthebondsissuedbycertainownertrustsinconnection withthesaleandleaseback in 1987of a portionofOEs interest inthePerryPlantandBeaverValley Unit2. OEuseddebtandavailablo fundstopurchase lhenotes issuedby PNBV.Thebeneficial ownership of PNBVincludes a 3% interestby unafiiliated thirdparlies.

. OhioSecurrtlzat on- InSeptember2O12, theOhioCompanies createdseparate, wholly-owned limitedliability companies (SPES)which issuedphase-in recovery bondsto securitize therecovery of certainall-electriccuslomer heating discounts, fuelandpurchased powerregulatory assets. Thephase-in recovery bondsarepayable onlyfrom,andsecured by,phase-in recovery property ownedbytheSPES.Thebondholder hasnorecourse to thegeneralcredit of FirstEnergy or anyofthe OhioCompanies. EachoftheOhioCompanies, asseNicerol itsrespective SPE,manages andadministers thephase-in recoverypropertyincludingthe billing,collectionand remitlan@of usagebasedchargespayableby retailelectric customers.In the aggregate, the OhioCompanies are entitledto annualservicingtees of $445thousandthat are recoverable throughthe usage-based charges.The SPESare considered VlEsandeachoneis consolidated intoits applicable utility.

AsotSeptember 30,2016andDecember 31,2015,$339millionand$362million ofthephase-in recovery bondswereoutstanding, respectively.

. JCP&L*curlthat on - InJune2002,JCP&LTransition Funding soldtransition bondsb securitize therecoveryofJCP&US bondable stranded costsassociated withthepreviously divested OysterCreekNuclearGenerating Station. InAugust2006, JCP&LTransition Fundingll soldtransition bondsto securitize the recovery of deferredcostsassociated wilhJCP&LS supplyof BGS.JCP&Ldidnotpurchase anddoesnotownanyof thetransition bonds,whichareincluded aslong-term debt on FirstEnergy's andJCP&LSConsolidated BalanceSheets.The transitionbondsare the soleobligations ot JCP&L Transition FundingandJCP&LTransition Fundingll andarecollateralized by eachcompany's equityandassets,which consistprimarily ofbondable transition property. Asof September 30,2016andDecember 31,2015,$97millionand$128 millionof thelransition bondswereoutstanding, respectively.

. MP and PE Environnlnl/tFundlng Comrynles - The entitiesissuedbonds,the proceedsof whichwere usedto construct environmental controlfacilities. Thespecialpurpose limitedliability companies owntheirrevocable righttocollect non-bypassable environmental controlchargesfromallcustomers whoreceiveeleclricdeliveryservicein MP'sandPEs WestVirginiaservice territories. Principaland interest owedontheenvironmentalcontrolbonds issecured by,andpayable solelyfrom,theproceeds of theenvironmental controlcharges.Creditors of FirstEnergy, otherthanthespecialpurpose limitedliability companies, havenorecourse to anyassetsor revenues otthespecialpurpose limited liabilitycompanies. As of September 30,2016andDecember 31,2015,$407millionand$429milljonof theenvironmental controlbondswere outstanding, respectively.

Unconsolldatod VlEg FirslEnergyis nottheprimarybeneficiary of thefollowing VlEs:

. -

GtobalHolding FEVholdsa 33-1/3% equityownership in GlobalHolding, theholdingcompany fora jointventurein the SignalPeakminingandcoaltransportation operations withcoalsalesin U.S.andintemational markels.FEVis nolthe primarybeneficiary ofthejointventure, asit doesnothavecontroloverthe significant activitiesatfecting thejointventure's economic performance. FEV'Sownership interest is subjeclto lhe equitymethodof accounting.

Asdiscussed in Notel2, Commitments, Guarantees andContingencies, FEistheguarantor underGlobal Holding's $300 milliontermloanfacility. Failure byGlobalHolding to meettheterms andconditions underitstermloanfacilitycould require FEto be obligated undertheprovisions of itsguarantee, resulting in consolidation of GlobalHoldingby FE.

19

PATHWV -PAfrHis a serieslimitedliabilitycompanythatis comprisedof multipleseries,eachofwhichhasseparaterights, powersanddutiesregardingspecifiedpropertyand the seriesprofitsand lossesassociated withsuchproperty. Asubsidiary of FE owns 100o/" of theAlleghenySeries(PATH-Allegheny) and 50% of the WestVirginiaSeries(PATH-WV), whichis a jointventurewitha subsidiary of AEP.FirstEnergy is notthe primarybeneficiary of PATH-WVas it does not havecontrol overthe significantactivitiesaffectingthe economicsof PATH-WV. ownershipinterestin PATH-WVis subject FirstEnergy's to the equitymethodof accounting.

PurchasePower Agreements- FirstEnergyevaluatedits PPAsanddeterminedthatcertainNUGentitiesat its Regulated Distribution segmentmaybe VlEsto the extentthattheyowna plantthatsellssubstantially allof itsoutputtotheapplicable utilitiesand the contractpricefor poweris correlatedwith the plant'svariablecostsof production.

FirstEnergy maintains14long{ermPPAswithNUGentitiesthatwereenteredintopursuanttoPURPA.FirstEnergywas not involvedin the creationof, and hasno equityor debtinvestedin,anyof theseentities.FirstEnergy hasdetermined thatfor all but oneof theseNUGentities,it doesnothavea variableinterestor the entitiesdo notmeetthe criteriato be considered a VlE. FirstEnergy may holda variableinterestin the remainingone entity;however,it appliedthe scopeexceptionthat exemptsenterprises unableto obtainthe necessaryinformation to evaluateentities.

BecauseFirstEnergy hasno equityor debtinterestsin the NUGentities,its maximumexposureto lossrelatesprimarilyto the above-marketcosts incurredfor power. FirstEnergyexpects any above-marketcosts incurredat its Regulated Distribution segmentto be recoveredfromcustomers.Purchasedpowercostsrelatedto the contractsthat maycontaina variableinterestduringthe three monthsended September30,2016and 2015 were $22 millionand $29 million, respectively, and $78 millionand $86 millionduringthe ninemonthsendedSeptember30, 2016and 2015,respectively.

Saleand LeasebackTransactions- OE and FES have obligationsthat are not includedon their ConsolidatedBalance Sheetsrelatedto the BeaverValleyUnit2 and 2007 BruceMansfieldUnit1 saleand leasebackarrangements, respectively, whichare satisfiedthroughoperatingleasepayments.FirstEnergyis notthe primarybeneficiary of theseinterestsas it does not havecontroloverthe significantactivitiesaffectingthe economicsof the arrangements. As of September30, 2016, FirstEnergy's leaseholdinterestwas 2.60%of BeaverValleyUnit 2 and FES'leaseholdinterestwas 93.83%of Bruce Mansfield Unit1.

On June 24,2014,OE exercisedits irrevocablerightto repurchasefrom the remainingownerparticipants the lessors' interestsin BeaverValleyUnit2 at theendof the leaseterm(June1,2017),whichrightto repurchase was assignedto NG.

Uponthe completionof this transaction, NG will haveobtainedall of the lessorequityinterestsat BeaverValleyUnit2.

Therefore,uponthe expirationof the BeaverValleyUnit2 leases,NG will be the soleownerof BeaverValleyUnit2 and entitledto 100o/o of the unit'soutput.

On May 23,2016,NG completed the purchaseof the 3.75%lessorequityinterestsof the remaining leasehold non-affiliated interestin PerryUnit1 for $50 million.In addition,the PerryUnit1 leasesexpiredin accordance withtheirtermson May30, 2016, resultingin NG beingthe sole ownerof Perry Unit 1 and entitledto 100%of the unit'soutput.Thereafter,OE transferred its NDTassetsandrelatedAROto NG associated with PerryUnit1. SeeNote10,AssetRetirement Obligations, for additionalinformation.

FES and otherFE subsidiaries are exposedto lossesundertheir applicablesale and leasebackagreementsuponthe occurrenceof certaincontingentevents.The maximumexposureundertheseprovisionsrepresentsthe net amountof casualtyvaluepaymentsdue uponthe occurrence of specifiedcasualtyevents.Netdiscounted leasepaymentswouldnot be payableif the casualtylosspaymentswere made.The followingtablediscloseseachcompany'snet exposureto loss baseduponthe casualtyvalueprovisionsas of September30, 2016:

Maximum DiscountedLease Net Exposure Payments,net Exposure (ln millions)

FirstEnergy 1,137 $ 895 $ 242 FES 1,110 887 223 20

8. FAIRVALUEIIEASUBE ENTS RECURRING FAIRVALUEIIEASUREIIENTS Authoritative accounting guidanceestablishes a fairvaluehierarchy thatprioritizesthe inputsusedto measure fairvalue.This hierarchygivesbe highestpriorityto Level1 measurements andthe lowestpriorityto Level3 measuremenb. Thethreelsvebofthe fairvaluehierarchy anda description of thevalualion techniques areastollows:

Level1 Quotedpricesfor identicalinstruments in activemarket Level2 Quotedpricesfor similarinstruments in activemarket Quotedpricesfor identicalor similarinstruments in marketsthat are not active Model-derived valuationsfor whichall significant inputsare observablemarketdata Modelsare primarilyindustry-standard modelsthatconsider variousassumptions, quotedforwardpricesfor including commodities, timevalue,volatilityfactorsandcurrentmarketandcontractual pricesfor the underlying instruments, as wellas otherrelevanteconomicmeasures.

Level3 Valuationinputsare unobservable and significant to the fair valuemeasurement FirstEnergyproducesa long-termpower and capacityprice forecastannuallywith periodicupdatesas market conditions change.Whenunderlying pricesare notobservable, pricesfromthe long-termpriceforecast,whichhas been reviewedand approvedby FirstEnergy's Risk PolicyCommittee,are used to measurefair value.A more detaileddescription of FirstEnergy's valuationprocessfor FTRsand NUGsfollows:

FTRsarefinancialinstruments thatentitlethe holderto a streamof revenues(orcharges)basedon the hourlyday-aheadcongestionpricedifferencesacrosstransmission paths.FTRsare acquiredby FirstEnergy in the annual, monthlyand long-termPJMauctionsand are initiallyrecordedusingthe auctionclearingpricelesscost.Afterinitial recognition,FTRs'carrying valuesare periodically adjustedto fairvalueusinga mark-to-model methodology, which approximates market.Theprimaryinputsintothe model,whicharegenerally lessobservablethan objectivesources, arethe mostrecentPJMauctionclearingpricesandthe FTRs'remaining hours.The modelcalculates thefairvalue by multiplyingthe most recentauctionclearingprice by the remainingFTR hours less the proratedFTR cost.

Generally,significantincreasesor decreasesin inputsin isolationcould resultin a higheror lowerfair value measurement. See Note9, DerivativeInstruments, for additionalinformation regardingFirstEnergy's FTRs.

NUGcontractsrepresentPPAswiththird-partynon-utilitygeneratorsthat are transactedto satisfycertainobligations underPURPA.NUGcontractcarryingvaluesare recordedat fairvalueand adjustedperiodically usinga mark-to-modelmethodology, whichapproximates market.The primaryunobservable inputsintothemodelareregionalpower pricesandgeneration MWH.Pricingfor the NUGcontractsis a combination of marketpricesforthecurrentyearand nextthree yearsbasedon observabledata and internalmodelsusinghistoricaltrendsand marketdata for the remaining yearsundercontract.The internalmodelsuseforecasted energypurchasepricesas an inputwhenprices are notdefinedby the contract.Forecasted marketpricesarebasedon ICEquotesand management assumptions.

Generation NrWHreflectsdataprovidedby conlractual arrangements and historicaltrends.Themodelcalculates the fairvalueby multiplying the pricesby the generation MWH.Generally, significantincreasesor decreasesin inputsin isolationcouldresultin a higheror lowerfair valuemeasurement.

FirstEnergyprimarilyappliesthe marketapproachfor recuningtair valuemeasurements usingthe bestinformation available.

Accordingly, FirstEnergy maximizes the useof observable inputsandminimizes the useof unobservable inputs.Therewereno changes invalualion methodologies usedasofSeptember 30,2016,fromthoseusedasof December 31,2015. Thedeterminationof thefairvaluemeasures takesintoconsideration variousfactors,including butnotlimitedto,nonpertormance risk,counterparty credit riskandtheimpactof creditenhancements (suchascashdeposits, LOCSandpriorityinterests). Theimpactof theseformsof risk wasnotsignificant to thefairvaluemeasurements.

21

Transfersbetweenlevelsare recognizedat theendotthe reportingperiod.Therewerenotransfersbetweenlevelsdulingthe nine mor hsendedSeptember 30,2016.Thefollowing tablessetforththerecurring assetsandliabilities thatareaccounted forat fair valueby levelwithin thefairvaluehierarchy:

FirstEnergy Recurring Fair Value Measurements September30,2016 December31,2015 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets (ln millions)

Corporatedebt securities $ 1,242 $ $ 1,242 $ $ 1,245 $ 1,245 Derivativeassets- commoditycontracts 7 230 237 4 224 228 Derivativeassets- FTRs 13 13 8 8 Derivativeassets- NUG contracts(r) 1 1 Equitysecurities(2) 908 908 576 576 Foreigngovernment debt securities 77 77 75 75 U.S.government debtsecurities 173 173 180 180 U.S,statedebt securities 255 255 246 246 Other(g) 551 126 677 105 212 317 Total assets $ 1/66 $ 'J03 $ 13 $ 3,582 $ 685 $ 2,182 g $ 2,976 Liabilities Derivativeliabilities- commoditycontracts Derivativeliabilities- FTRs (13) (13)

Derivativeliabilities- NUG contracts(l)

Totalliabilities (e)$ ( 1 2 2 )$ ( 1 5 0 )$ (281)

Net assets (l iabilities)t+l $ 1,454$ 1,e81!_q2 !_3,313_! 6?6 !__r,060_  !-(141) !_r,ses_

(1)

NUG contractsare subjectto regulatoryaccountingtreatmentand do not impactearnings,

(?\

NDTfundsholdequityportfolios whoseperformance is benchmarked againstthe AlerianMLP Indexor the WellsFargoHybridand Preferred SecuritiesREITindex.

(3)

Primarilyconsistsof short-termcash investments.

(4)

Excludes$(8) millionand $7 millionas of September30,2016and December31,2015,respectively, of receivables, payables,taxesand accruedincomeassociated reflectedwithinthe fairvaluetable.

withfinancialinstruments 22

Bollfotwatdof Level3 fuleasuremenE Thefollowing tableprovides a reconciliation ofchanges inthefairvalueof NUGcontracts andFTRSthatareclassified as Level3in thefairvaluehierarchy fortheperiodsendedSeptember 30,2016andDecember 31,2015:

NUG Contracts(l) FTRs Derivative Derivative Derivative Derivative Assets Liabllities Net Assets Liabilities Net (ln millions)

January1, 2015Balance 2 $ (1s3$ ) ( 1 5 1$ ) 3e$ (14)$ 25 Unrealized Purchases gain (loss)

'i' ':' (5) 22 (7)

(11)

(12) 11 Settlements (3) 65 62 (48) 1e (2e)

December31, 2015Balance 1 $ ( 1 3 7 )$ ( 1 3 6 )$ I $ (13) $ (5)

Unrealized gain(loss) (17) (17) (8) 1 (7)

Purchases 17 (8) e Settlements (1) 36 35 (4) 13 I September30, 2016Balance (1)

NUG contractsare subjectto regulatoryaccountingtreatmentand do not impactearnings.

Level 3 Quantitative Information Thelollowingtableprovides quantitative information lor FTRSandNUGcontracbthatareclassitied as Level3 in thefairvalue hierarchy fortheperiodendedSeptember 30,2016:

Fair Value.Net Valuation Weighted (ln milliohsl Technique SignificantInput Range Average Units FTRs 6 Model RTOauctionclearingprices $(2.20)to $7.60 $1.00 Dollars/MWH Generation 400 to 3,207,000 661,000 MWH NUGContracts (118) Model Regionalelectricityprices $30.90to $35.30 $32.10 Dollars/MWH FES Recurring Fair Value Measurements September30,2016 December31,2015 Level 1 Level 2 Level 3 Total Level 1 Level2 Level3 Total Assets (ln millions)

Corporatedebt securities $ $ 714 $ - $ 714$ $ sze$ $ 678 Derivativeassets- commoditycontracts 7 230 237 4 224 228 Derivativeassets- FTRs 7 7 5 Equitysecurities(1) 624 624 378 378 Foreigngovernment debt securities  ; 59  ; 59 U.S.government debtsecurities 53 53 23 23 U.S.statedebtsecurities 4 4 4 4 other(2)  ; 87 184 184 Total assets $ 1J4? 7 $ 1,787 $ $ 1,172 $ 155e Liabilities Derivative - commoditycontracts liabilities (e)

Derivativeliabilities- FTRs Total liabilities (e)

Net assets (liabilities)tsl $ 621 $ 1,025$ 2 $ 1,648 $ sZs $ 1,050$ (6)$ 1,417 I _

23

NDTfundsholdequityportfolioswhoseperformanceis benchmarked againstthe AlerianMLP lndexor the Wells FargoHybridand Preferred SecuritiesREITindex.

(21 Primarilyconsistsof short-termcash investments.

(3) Excludes$1 millionas of September30, 2016and December31, 2015,of receivables, payables,taxesandaccruedincomeassociated withthe financialinstruments reflectedwithinthe fair valuetable.

Rollforward of Level 3 Measurements Thefollowing tableprovides a reconciliation of changes in thefairvalueof FTRSheldby FESandclassified as Level3 in thefair valuehierarchy torthe periods endedSeptember 30,2016and December 31, 2015:

DerivativeAsset Derivative Liability Net Asset (Liability)

(ln millions)

January1, 2015Balance 27$ ( 1 3 )$ 14 Unrealized gain (loss) 2 (5) (3)

Purchases I (10) (1)

Settlements (33) 17 (16)

December31, 2015Balance 5$ ( 1 1 )$ (6)

Unrealized gain (loss) (7) 1 (6)

Purchases 10 (5) 5 Settlements (1) 10 I September30, 2016 Balance $ (5)g Level 3 Quantitativelnformation Thefollowingtableprovidesquantitativeinformation for FTRSheldby FESthatareclassifiedas Level3 in thefakvaluehierarchy for theperiodendedSeptember 30,2016:

Fair Value.Net Valuation Weighted (ln milliohs; Technique SignificantInput Range Average Units FTRs $ 2 Model RTOauctionclearingprices ($2.20)to $7.60 $0.70 Dollars/MWH INVESTMENTS All temporarycashinvestmentspurchasedwithan initialmaturityol threemonthsor lessare repoltedas cashequivalenbon the Consolidated BalanceSheetsat cost,whichappmximates theirfairmarketvalue.Investments otherthancashandcashequivalenb includeheld-to-maturity securities andAFSsecurities.

At theendot eachreporting period,FirstEnergy evaluates itsinvestments lor OTTI.Investments classifiedasAFSsecurilies are evaluated todetermine whethera declinein fairvaluebelowthecostbasisis otherthantemporary. FirstEnergyconsiders itsintent andabilitytoholdanequitysecurity untilrecoveryand thenconsiders, amongotherfactors, theduration andtheextentto whichthe security's fairvaluehasbeenlessthanits costandthe neaFterm tinancialprospects ol the securityissuerwhenevaluating an investment for impairment. Fordebtsecurities, FirstEnergy considers its intentto holdthe securities, the likelihood thatit willbe required to sellthesecurities beforerecovery ot itscostbasisandthelikelihood of recovery ot thesecurities'entireamortized cost basis.ltthedeclineinfairvalueisdetermined to beotherthantemporary thecostbasisol thesecurities iswrittendowntofairvalue.

Unrealizedgains andlossesonAFSsecurities arerecognized inAOCI.However, unrealized lossesheldintheNDTS of FES,OEand TEarerecognized inearnings sincethetrustarrangements, astheyarecurrently defined, donotmeettherequired abilityandintent to holdcriteriainconsideration ofOTTI.TheNDTsofJCP&1,MEandPNaresubjectto regulatory accounting withunrealizsd gains andlossesoffsetagainstregulatory assets.

Theinvestment policyfortheNDTfundsrestricts or limibthetrusts'ability to holdcertaintypesof assetsincluding privateordirect placements, warrants,securities of FirtEnergy,investments in companies owningnuclearpowerplants,financialderivatives, securities convertible intocommonstockandsecurities of thetrustfunds'custodian or managers andtheirparents or subsidiaries.

AFS Secunties FirstEnergy holdsdebtandequitysecurities withinitsNDTandnuclearfueldisposaltrusts. Thesetrustinvestments areconsideGd AFSsecurities,recognizedat fair marketvalue.FirstEnergy hasno securitiesheldfor tradingpurposes' 24

Thefollowing tablesummarizes lhe amortized costbasis,unrealized gains(therewereno unrealized losses)andfairvaluesof investments heldin NDTandnuclearfueldisoosaltrusts as of Seotember 30.2016andDecember 31,2015:

September30, 201601 December31,2015(z)

Cost Unrealized Gost Unrealized Basis Gains Fair Value Basis Gains Fair Value (ln millions)

Debt securities FirstEnergy 1,728 $ 6s$ 1,797 $ 1,778 $ 16 $ 1,794 FES 834 45 879 801 9 810 Equitv securities FirstEnergy $ 816 $ s2$ 908 $ 542 $ 34$ 576 FES 561 63 624 354 24 378

0) Excludes short-lermcashinvestmenb: Fi6tEnergy - $50million; FES- $39million.

e) Excludss short-tem cashinvestments: FirslEnergy - $157million; FEs- $139million.

Proceedsfromthesaleof investmenB inAFSsecurities, realizedgainsandlossesonthosesales,OTTIandinterest anddividend incomeforthethreeandninemonthsendedSeptember 30,2016and2015wereas follows:

For the Three Months Ended Sale Realized Realized lnterest and September30,2016 Proceeds Gains Losses DividendIncome (ln millions)

FirstEnergy 337 $ 36 $ ( 1 s )$ (3) $ 27 FES 135 23 (6) (3) 16 Sale Realized Realized lnterest and September30,2015 Proceeds Gains Losses Dividend Income (ln millions)

FirstEnergy 307 $ 33 $ (32) $ (46) $ 25 FES 127 28 (24) (41) 14 For the Nine Months Ended Sale Realized Realized lnterest and September30,2016 Proceeds Gains Losses DividendIncome (ln millions)

FirstEnergy 1,361$ 131 $ (88) $ ( 1 3 )$ 75 FES 576 s0 (4e) (12) 42 Sale Realized Realized lnterest and September30, 2015 Proceeds Gains Losses Dividend lncome (ln millions)

FirstEnergy 1,126$ 135 $ ( 1 2 1 )$ (70) $ 75 FES 503 e8 (7s) (63) 43 25

HeWTo-Matu tW Seanities Unrealized gains(therewereno unrealized losses)andapproimatefairvaluesof investments in held-to-maturitysecuritiesasot September 30, 2016and December 31, 2015are immaterial to FiFtEnergy. Investments in employee benefittrustsandequity methodinvestments totaling$276millionasof September 30,m16 and$255millionasof December 31,2015,areexcluded from the amountsreportedabove.

LONG-TERII DEBTANDOTHERLONG-TEROALIGATIOI{S All borrowings withinitialmaturities of lessthanoneyearare definedas short-term tinancialinstruments underGAAPandare reportedas Short-termborrowingson the Consolidated BalanceSheetsat cost.Sincetheseborrowingsare short-termin nature, FirstEnergy believesthattheircostsapproximate theirfairmarketvalue.Thefollowing tableprovides theapproximate fairvalueand relatedcarrying amounts of long-term debtandolherlong-temobligations, excluding capitallease obligations a]d netunamortized debtissuance costs,premiums anddiscounts:

September30, 2016 D ecember31,2015 Carrying Fair Garrying Fair Value Value Value Value (ln millions)

FirstEnergy 19,745 $ 21,465 $ 20,244 $ 21,519 FES 3,003 2,662 3,027 3,121 Thefairvaluesof long-term debtandotherlong-term obligations reflectthe presentvalueof the cashoutflowsrelatingto those securities basedon the currentcall price,the yieldto maturityor the yieldto call,as deemedappropriate at the endot each respective period.Theyieldsassumed werebasedonsecurities withsimilarcharacteristics ofiered bycorporations withcreditratings similartothoseof FirstEnergy. FirstEnergy classifiedshort-term borrowings, long-term debtandotherlong-lerm obligationsas Lvel 2 in thefak valuehierarchy asof September 30,2016andDecember 31,2015.

9. DERIVATIVE INSTRUMENTS FirstEnergyis exposed tofinancialrisks resuhing fromfluctuating interest ralesandcommodity prices,includingpricesforelectricity, naturalgas, coalandenergytransmission. Tomanagethe volatilityrelatedtothese exposures, FirstEnergy'sRiskPolicy Committes, comprised ol seniormanagement, provides generalmanagement oversight forriskmanagement throughout activities FirstEnergy.

TheRiskPolicyCommittee is responsible lor promoting theelfective designandimplementation ofsoundriskmanagemenl programs andoversees compliance withcorporate riskmanagement policies andestablished riskmanagement practice.FirstEnergyalso uses a varietyofderivativeinstruments torriskmanagement purposes including foMardcontracts, options, futuresconlracts andswaps.

FirstEnergy accounts for derivative inslruments on its Consolidated BalanceSheetsat fairvalue(unlesstheymeetthe normal purchases andnormalsalescriteria)aslollows:

. Changes in thefairvalueof derivative instruments thataredesignated andqualifyas cashflowhedgesarerecorded to AOCIwithsubsequent reclassificationto earnings in theperiodduringwhichthe hedgedforecasted transaction afiects earnrngs,

. Changes inthetairvalueofderivative instruments thataredesignated andqualifyasfairvaluehedgesarerecorded asan adjustment to theitembeinghedged. Whenfairvaluehedges arediscontinued, theadjustment recorded to theitembeing hedgedis amortized intoearnings.

. Changesin the fairvalueof derivative instruments thatare not designated in a hedgingrelationship are recordedin eamingson a mark-to-market basis,unlessotherwise noted.

Derivativeinstruments meetingthe normalpurchases and normalsalescriteriaare accounted for underthe accrualmethodof accouniingwiththeireffectsincludedin earningsat the timeof contractperlormance.

FirslEnergy hascontractual derivative agreements through2020.

CashFlowHedges FirstEnergy has usedcashflowhedgeslor riskmanagement purposesto managethe volatilityrelatedto eposures associated withfluctuatingcommoditypricesandinterestrates.

Totalpre-taxnetunamortized lossesincludedinAOClassociated withinstrumenbpreviousvdesignated ascashflowhedgeslotaled

$11mitlionasofSeptember 30,2016andDecember 31,2015.Sincetheforecasted transactions remainprobable ofoccurring,these amounts willbe amortized intoearnings overthelifeof thehedginginstruments. Lessthan$1 millionof netunamortized lossesis expected to be amortized to incomeduringthenexttwelvemonths.

26

FirstEnergy has usedforwardstartinginterestrateswapagreements to hedgea portionof the consolidated inlereslraterisk associated withanticipated issuances offixed-rate, long-term debtsecurities otitssubsidiaries. Thesederjvatives weredesignatdas cashflowhedges,protecting againstthe riskof changesin futureinterestpayments resulting tromchangesin benchmark U.S.

Treasury ratesbetween thedateof hedgeinception andthedateof thedebtissuance. Totalpre-taxunamortized lossesincluded in AOCIassociated with priorinterestratecashflowhedgestotaled$35 millionand$42 millionas of September 30, 2016and December 31,2015,respectively. Basedoncurrentestimates, approximately $8millionottheseunamonized lossesareexpecled to be amortized to interestexpense duringthe nexttwelvemonths.

Reterto Note5,Accumulated OtherComprehensive Income, forreclassifications fromAOCIduringthethreeard ninemonths ended September 30,2016and2015.

AsofSeptember 30,2016andDecember 31,2015,nocommodity or interest ratederivatives weredesignated ascashflowhedges.

Fair ValueHedges FirstEnergy has usedfixedJoFlloating interestrateswapagreements to hedgea porlionof the consolidated interestraterisk associated withthedebtportfolio of ib subsidiaries. Asof September 30,2016andDecember 31, 2015,nofixed-foFfloating ifieresl rateswapagreementswereoutstanding.

Unamortized gainsincludedin long-termdebtassociated withpriorfixed-for4oatirE inierestratesutapagreements totaled$12 million and$20millionasof September 30,2016andDecember 31,2015,respectively. Duringthenexttwelvemonths, approximately $8 millionof unamortized gainsaree&ectedto beamortized to interestexpense. Amortization of unamortized gainsincluded in long-termdebttotaledappoximately $2 millionduringthethreemonths endedSeptember 30,2016and$3million dudngthethrsemonths endedSeptember 30,20l5. Amonization ol unamortized gainsincluded in long-term debtbtaledapproximately $8million duringthe ninemonthsendedSeptember 30,2016and$9 millionduringtheninemonthsendedSeptember 30,2015.

CommodityDeivalives FirstEnergy usesbothphysically and financially settledderivatives to manageits exposurto \,olatility in commodity prices.

Commodityderivativesare usedfor risk management purposesto hedgeexposureswhenit makeseconomicsenseto do so, including circumstances wherethe hedgingrelationship doesnotqualifyfor hedgeaccounting.

Electricityiorwardsare usedto balanceexpectedsaleswithe)eectedgenerationandpurchasedpower.Naturalgasfuturesare enteredintobasedon expected consumption of naturalgasprimarily for usein FirstEnergy's combustion turbineunits.Derivative instruments arenotusedin quantities greaterthanforecasted needs.

AsofSeplember 30,m16, FirtEnergy's netassetposition undercommodily derivative contracts was$103million, whichrelated to FESpositions. Underthesecommodity derivative contracts, FESposted$9 millionof collateraland recei\d$22million ofcollateral.

Basedoncommodity derivati\re contracts heldasof September 30,2O'l6,an increase in commodity pricesof 10%woulddecrease netincomeby approximately $37milliondudngthenexttwelvemonths.

NUGS As ofSeptember 30,2016,FirstEnergys netliability position underNUGcontracts was$118million, representing contractsheldat JCP&L,MEandPN.Changes in thefairvalueof NUGcontracts aresubiectto regulalory accounting treatment anddo notimpact eamings.

FTRs Asol September 30,2016,FirstEnergy's andFES'netassetassociated withFTRSwas$6 millionand$2 million,respectively, and FESposted$7 millionofcollateral. FirstEnergy holdsFTRSthatgenerally represent aneconomic hedgeoffuturecongestion charges thatwillbe incurredin connection withFirstEnergy's loadobligations. FirstEnergy acquires the majorityof its FTRSin an annual auctionthrougha self-scheduling process involving theuseofARRS allocated to memberof PJMthathaveloadserving obligations.

Thefutureobligations for the FTRSacquiredat auctionare reflected on the Consolidated BalanceSheetsandhavenot bsen designated ascash flow hedge instruments. FirstEnergy records initially these FTRS at the auction pricelesstheobligation dueto PJM,andsubsequently adjuststhecarryingvalueof remaining FTRSto theirestimated fairvalueat theendof eachaccounting periodpdortosettlement. Changes inthefairvalueof FTRSheldbyFESandAESupplyare included inotheroperating epensesas unrealized gainsor losses.Unrealized gainsor losseson FTRSheldbythe Utilities arerecorded asregulatory assetsor liabilities.

Dkectlyallocated FTRSareaccounted torunderlheaccrualmethodot accounting, andtheirelfectsareincluded in earnings at the timeof contractDerformance.

27

FirstEnergy recordsthelair valueof derivative instruments on a grossbasis.Thetollowing tablesummarizes thefairvalueand classification of derivativeinstruments on FirstEnergy'sConsolidated Balance Sheets:

DerivativeAssets DerivativeLiabilities Fair Value Fair Value September30, December31, September30, December31, 2016 2015 2016 2015 (ln millions) (ln millions)

Gurrent Assets - Current Liabilities-Derivatives Derivatives CommodityContracts $ 139 $ 150 CommodityContracts (84) $ (e4)

FTRs 13 7 FTRs (7) (12) 152 157 (e1) ( 106)

NoncurrentLiabilities-DeferredGhargesand Adverse Power Contract Other Assets - Other Liability N U Gs(1) (118) ( 137)

NoncurrentLiabilities-CommodityContracts 98 78 other FTRs 1 CommodityContracts (50) (37)

\[JQsit) 1 FTRs (1) 98 80 (168) ( 175)

DerivativeAssets 250 $ 237 Derivative Liabilities (25e)$ ( 281)

(1) NUGcomracts aresubjectto Jegulalory accounting anddonotimpactamingts.

treatrnent FirstEnergy entersintocontraclswithcountepartiesthatallowfor the otfsettingof derivati\re assetsandderiva$veliabilitiesunder ne$ingarrangements withthesamecounterparty. Certainol thesecontracts containmargining provisions thatrequirethe useof collateralto mitigatecreditexposurebetweenFirstEnergyandthesecoufierparlies.In situationswherecollatetalis pledgedlo mitigateexposuresrelatedto derivativeand non-derivativeinstrumentswith the samecounterparty, FirstEnergyallocatesthe collateralbasedontheperconiageol thenetfairvalueof derivativeinstruments to thetotalfairvalueofthecombineddelivaliveand non-derivative instruments. The followingtablessummadzethe fair valueof derivativeassetsand derivativeliabililieson FirstEnergy's Consolidated Balance Sheetsandtheeffectof nettingarrangements on itsfinancial andcollateral position:

Amounts Not Otfset in Consolidated Balance Sheet Derivative Gash Collateral Net Fair September30, 2016 Fair Value Instruments (Received)/Pledged Value (ln millions)

DerivativeAssets Commoditycontracts 237 ( 1 2 0 )$ (22) $ 95 FTRs 13 (7) 6 NUGcontracts 250 $ (127)$ (22) $ 101 DerivativeLiabilities Commoditycontracts ( 1 3 4 )$ 120 8$ (6)

FTRs (7) 7 NUG contracts (118) (118)

(25e)$ 127 $ 9-(1'z41 28

Amounts Not Offset in Consolidated BalanceSheet Derivative Cash Collateral Net Fair December31, 2015 Fair Value Instruments (Received)/Pledged Value (ln millions)

DerivativeAssets Gommodity contracts 228 $ ( 1 2 5 )$ 103 FTRs I (8)

NUGcontracts 1 1 237 $ ( 1 3 3 )$ $ 104 DerivativeLiabilities Commoditycontracts ( 1 3 1$) 125 $ 3 $ (3)

FTRs (13) 8 5 NUGcontracts (137) (137)

( 2 8 1 )$ 133 $ q

___(140)

Thefollowing tablesummarizes thevolumes associated withFirstEnergy's outsianding derivative transactions 30, asof September 2016:

Purchases Sales Net Units (ln millions)

PowerContracts 9 49 (40) MWH FTRs 42 42 MWH NUGs 3 3 MWH NaturalGas . 49 49 mmBTU 29

not in a hedgingrelationship The effectof activederivativeinstruments on the Consolidated Statements of lncome(Loss)during the threemonthsand ninemonthsendedSeptember30, 2016and 2015,are summarized in the followingtables:

For the Three Months EndedSeptember30

-Conliictj rotal rrns (ln millions) 20 1 6 UnrealizedGain(Loss)Recognized in:

OtherOperatingExpense(t) le$ (3) $ 16 RealizedGain(Loss)Reclassified to:

Revenues(1) $ 32 $ 1$ 33 PurchasedPowerExpense(t ) (:) (22)

OtherOperatingExpense(t ) ., (6)

FuelExpense (2) (2)

(1)Allamounts withFES.

areassociated For the Three Months EndedSeptember30 Commodity ,FTRs Contracts Total (ln millions) 20 1 5 UnrealizedGain (Loss)Recognized in:

OtherOperatingExpense(e) 5e$ (2) $ 57 RealizedGain(Loss)Reclassified to:

Revenues(2) 41 $ 2$ 43 PurchasedPowerExpense(z) (1) (11)

(50)

(11)

OtherOperatingExpense(z)

FuelExpense (5) (5)

(2)All amounts withFES.

areassociated 30

For the Nine Months Ended September30 Commodity Contracts FTRs Total 20 1 6 (ln millions)

Unrealized Gain Recognized in:

OtherOperatingExpense(t ) 2 $ 8 $

RealizedGain(Loss)Reclassified to:

Revenues(1) 162 $ 5 167 PurchasedPowerExpense(t ) (rT) (105)

OtherOperatingExpense(t ) (28) (28)

FuelExpense (e) (e)

(1)

Allamounts areassociated withFES.

For the Nine Months EndedSeptember30 Commodity Contracts FTRs Total (ln millions) 2015 Unrealized Gain(Loss)Recognizedin:

OtherOperatingExpense(z) 81 $ (17) $

RealizedGain(Loss)Reclassified to:

Revenues(s) 4s $ 48 $ 96 PurchasedPowerExpense(+) (78) (78)

OtherOperatingExpense(s) (38) (38)

FuelExpense (26) (26)

(2)lncludes$81 millionfor commoditycontractsand $(16)millionfor FTRsassociatedwith FES.

(3)Includes$48 millionfor commoditycontractsand $46 millionfor FTRsassociated with FES.

(a)All amountsare associatedwith FES.

(s)Includes$(37)millionfor FTRsassociated with FES.

31

Thefollowingtableprovidesa reconciliationofchanges inlhefairvalue of FirstEnergys derivative instruments lo regulatory subject accauntingduringthethreeandninemonthsendedSeptember 30,2016and2015.Changes inthevalueoI theseinstrumentsare deferredforfuturerecoveryfrom(orcredilto)customers:

For the Three Months Ended September30 DerivativesNot in a Hedging Relationshipwith Regulated RequlatoryOffset NUGs FTRs Total (ln millions)

Outstandingnet asset(liability) as of July 1, 2016 (124)$ 4 $ (120)

Unrealizedloss (6) (6)

Settlements 12 12 Outstandingnet asset(liability) as of September30, 2016 $-111q $ (114)

Outstandingnet asset(liability) as of July1, 2015 $ (140)$ 12$ (128)

Unrealized loss (20) (4) (24)

Settlements 17 (3) 14 Outstandingnet asset(liability) as of September30, 2015 138 For the Nine Months EndedSeptember30 DerivativesNot in a HedgingRelationshipwith Regulated RegulatoryOffset NUGs FTRs Total (ln millions)

Outstandingnet asset(liability) as of January1,2016 (136)$ 1 $ (13 5)

Unrealizedloss (17) (1) (18)

Purchases 4 4 Settlements 35 35 Outstandingnet asset(liability) as of September30, 2016 $ (118)$_____l 114 Outstandingnet asset(liability) as of January1, 2015 $ ( 1 5 1 )$ 11 $ (140)

Unrealizedloss (36) (3) (3e)

Purchases 12 12 Settlements 44 29 Outstandingnetasset(liability)as of September 30,2015 $_1119) $ 5_$ (138) 32

10.ASSETRETIRE ENTOBLIGATIONS FirstEnergy has recognized applicable legalobligations for AROSand theirassociated costprimarilyfor nudearpowerplant decommissioning, reclamation of sludgedisposalponds, closureofcoalashdisposal sites,undergound andaboveground storage tanks,wastewater treatmentlagoonsard lransformers containingPCBS.ln addition,FirstEnergy has recognized conditional retirement obligations, primarily forasbestos remedialion.

TheAROliabilities forFESprimarily relatetothedecommissioning of theBeaverValley, Davis-Besse andPetrynuclear generating facilities, whichareapproximately $701million, asof September 30,2016.FESusesanepectedcashflouv b measuG approacfi the fairvalueof theirnucleardecommissioning AROS.

FirstEnergy andFESmaintain NDTS thatarelegallyrestlicted torpurposes of settlingthenuclear decommissioning ARO.Thefair valuesof thedecommissioning trustassetsasot September 30,2016andDecember 31,2015wereasfollows:

2016 2015 (ln millions)

FirstEnergy $ 2,502 $ 2,282 FES $ 1,542 $ 1,327 The followingtablesummarizes the changesto theARO balancesduring2016:

ARO Reconciliation FirstEnergy FES (ln millions)

Balance,December31, 2015 $ 1 , 4 1 0$ 831 Liabilitiessettled (25) (17)

Liabilitiesincurred 4 32 Accretion 70 41 Balance,September30, 2016 1,459$ 887 Duringthe secondquarterof 2016,in connection withNG purchasing the lessorequityinterests of the remaining non-affiliated leasehold interests froman ownerparticipant in PerryUnitl, OEtransferred theARO(included withinthe FESliabilitiss incurred above)andrelatedNDTassetsassociated withtheleaseholdinterestto NGwiththedifference of $28millioncreditdtothecommon stockof FES.As ofJune30,2016,NGowns100%of PerryUnit1.

Federalandstatehazadouswasteregulations havebeenpromulgated as a resultof the RCRA,as amended, andthe Toxic SubstancesControlAcl. Certaincoal combustionresiduals,suchas coal ash, wereexemptedfrom hazardouswastedisposal requiremenb pendingthe EPA'S evaluation of theneedforfutureregulation.

InDecember 2014,theEPAfinalized regulations forthedisposalof CCRS(non-haz ardous), establishing nationalstandards regarding landfilldesign, structural integritydesignandassessment criteriaforsurfaceimpoundments, groundwater monitoringandprotection proceduresandotheroperationaland reportingproceduresto assurethe safedisposalof CCRSfromelectdcgeneratingplants.

Basedonanassessment ofthefinalized regulations,thefuturecostof compliance anderyectedtimingof spendhadnosignificant impacton FirstEnergys or FESexisting AROSassociated withCCRS.Although nonearecurrefilye)eected, anychanges intiming andclosureplanrequirements in thefuturecouldmaterially andadversely impactFirstEnelgys andFES'AROS.

11. REGULATORY iIATTERS STATEREGULATION EachoftheUtilities' retailrates,conditions otselice, issuance of securities andothermatters aresublectto regulation inthesiates inwhichit operates - in Maryland bytheMDPSC, inOhiobythePUCO,in NewJerseybytheNJBPU,in Pennsytvania bythePPUC, inWestVirginia bytheWVPSCandin NewYorkbytheNYPSC. Thetransmission operations ol PEinVirginia aresubjectto certain regulations of theVSCC.In addition, underOhiolaw,municipalities mayregulateratesof a publicutility,subjectto appealto the PUCOif not acceptableto the utility.

As competitive retailelectricsuppliers servingretailcustomers primarily in Ohio,Pennsylvania, lllinois,Michigan, NewJerseyand Maryland,FESandAE Supplyaresubjectto statelawsapplicableto competitiveelectricsuppliersinthosestates,includingaffiliate codesotconductthatapplyto FES,AESupplyandtheirpublic Inaddition, utilityaffiliates. ilanyoftheFirstEnergy wereto affiliates engageintheconstruction of significant newtransmission or generation facilities, dependirE onthestate,theymaybe required to obtainslate regulatoryauthorization to site,constructandoperatethe newtransmissionor generationfacility.

33

MARYLAND PEprovides SOSpursuant to a combination ot settlement agreements, MDPSCordersandregulations, andsiatutory provisions.

SOSsupplyiscompetitively procured inthetormot rollingcontracts ofvaryinglengthsthough periodic auctions thatareoverseen by the MDPSCanda thirdpartymonitor. Althoughsettlements withrespectto SOSsupplyfor PEcustomers haveexpired,service continues in thesamemanneruntilchangedbyorderof theMDPSC. PErecovers itscostsplusa returntorproviding SOS.

TheMaryland legislature adopteda statutein 2008codifying theEmPOWER Maryland goalsto reduceelectricconsumption and demandandrequiring eachelectricutilityto filea planeverythreeyears.PE'scurrentplan,covering thethree-year period2015-2017,wasapproved bytheMDPSCon December 23,2014.Thecostsof the2015-2017 planareexpected to beapproximately $68 million,ofwhich$38millionwasincurred throughSeptember 30,m16. OnJuly16,2015,theMDPSCissuedanorderseltingnew incremental energysavingsgoalsfor2017andbeyond,beginning withthe levelot savingsachieved underPEs currenlplanfor 2016,and rampingup O.2o/o per fear thereatterto rcach2o/o.PE continuesto recoverprogramcostssubjclto a live-year amortization. Maryland lawonlyallowsfortheutilityto recoverlostdistribution revenue attributable to energyelficiency or demand reduction programs througha baseratecaseproceeding, andto date,suchrecovery hasnotbeensoughtor obtained by PE.

On February 27, 2013,lheMDPSCissuedan oder (theFebuary27 Orde0requiring the Maryland electricutilitiesto submit analyses relating tothecostsandbenefits of makingfurthersystemandstaffing enhan@ments in orderloattemptto reducestorm outagedurations. Theorderfurther required theStafioftheMDPSC to reportonpossible performance-based ratestructures andto propose additionalrules relatingtofeederperformance standards, outage communication andreporting, andsharing olspecialneeds customer information. PE'sresponsive filingsdiscussed thestepsneeded to hardentheutilityssysteminordertoattempt toachieve variouslevelsofstormresponse speeddescribed intheFebruary 27 Order,andprojected thatit wouldrequireapproximately $2.7 billionininfrastructure investments over15yearsto attemptto achieve thequickest levelof response forlhelargeststormprojected in the February 27 Order.On July1, 2014,the Statfot the MDPSCissueda set ot reponsthatrecommended the imposition of extensive additionalrequirements intheareasofstormresponse, federperformance, estimales ot restoration times,andregulatory reporting. TheStaffoftheMDPSCalsorecommended theimposition of penalties, including customer rebates, fora utility'sfailureor inabilitytocomplywith theescalating standards ofstormrestoration speedproposed bytheStaffoftheMDPSC. Inaddition, theStafi oftheMDPSCproposed thattheutilities be required to developandimplement systemhardening plans,upto a rateimpactcapon cost.TheMDPSC conducted a hearing Septemberl5-18,2014, to consider certainotthesematters, andhasnotyetissueda ruling on anyof thosematters.

NEWJERSEY JCP&Lcurrently provides BGSlor reiailcustomers whodo notchoosea thirdpartyEGSandforcustomers of thirdpartyEGSS that failtoprovide thecontracted service. ThesupplyforBGSiscomprised ottwocomponents, procured through separate, annually held descending clockauctions, theresultsofwhichareapproved bytheNJBPU.OneBGScomponent reflectshourlyreallimeenergy pricesandis available lor largercommercial andindustrial customers. ThesecondBGScomponent provides a fixedpriceservice and is intendedfor smallercommercial and residential customers. All NewJerseyEDCSparticipate in this competitive BGS procurement process andrecoverBGScostsdirectlyfromcustomers as a chargeseparate frombaserates.

Pursuant to the NJBPU'S March26, 2015finalorderin JCP&L'S 2012ratecaseproceeding dkectingthatcertainsludiesbe completed, onJuly22,2015,the NJBPUapproved the NJBPUstaff'srecommendation to implement suchsludies,whichinclude operational andfinancial components. Theindependent consultant conducting the reviewissueda finalreporton July27,2016, recognizing thatJCP&Lis meeting theNJBPUrequirements andmakingvariousoperational andfinancial recommendations. The NJBPUissuedanOrderonAugust24,2016,thataccepted theindependent consultant's finalreportanddirected JCP&L, theDivision of RateCounsel, andotherinterested partiesto addresstherecommendations.

ln an OrderissuedOclober22,2014,in a genericproceeding to reviewits policieswithrespectto theuseol a CTAin baserate cases(Generic CTAproceeding), theNJBPUstatedthatit wouldcontinueto applyitscurrentCTApolicy inbaseratecases,subject to incorporating thetollowing modifications: (i)calculating savings usinga five-year lookbacklromthebeginning ofhe testyear;(ii) allocating savings with75%retained bythecompany and25%allocatsd to ratepayers;and(iii)excluding transmission assstsof electric distribution companies inthesavings calculation. OnNovember 5, 2014,theDivision of RateCounselappealed theNJBPU Orderregarding theGeneric CTAproceeding totheNewJerseySuperior CourtandJCP&L hasftledto participate asa respondent in thatproceeding. Briefing hasbeencompleted. Theoralargument washeldon October25,2016.

OnApril28,2016,JCP&LfilediariffswiththeNJBPUproposing a generalrateincrease associated withib distribulion operations thatseeksto improve serviceandbenetitcustomers bysupporting equipment maintenance, treetrimming, andinspections of lines, polesandsubstations, whilealsocompensating torotherbusiness andoperating expenses. Thefilingrequested approvalto increase annualoperating Evenuesby approximately $142.1millionbasedupona hybridtestyearforthetwelvemonthsendingJune30, 2016.On July13,2016,thismatterwassubmitted to the Officeof Administrative Lawfor hearingandthe issuance of an Initial Decision. OnSeptember 30,2016,JCP&Ltiled an updateto itsfiling,whichinciudes actualdata forthetwelvemonthsendedJune 30,2016,requesting anincrease toannualoperating revenues byapproximately $146.6million. OnOctober19,2016,anorderwas received approving theagreeduponprocedural schedule. Hearings arescheduled tooccurinJanuary 2017thloughMarch2017.On November 2, 2016,JCP&Lachieved a settlement-in-p nciplewithall the intervening partiesproviding for an annual$80million 34

distribution revenueincrease, whichwilltakeeffectonJanuary1,2017,subjecttolinalization, execution andNJBPUapproval ofa Stipulation of Settlement.

On June19,2015,JCP&L,alongwithPN,ME,FETandMAITmadetilingswithFERC,the NJBPU,andthe PPUClequesting authorization forJCP&L,PNandMEtocontribute theirtransmission assetsto MAII a newtransmission-only subsidiaryofFETThe procedural schedule was suspended whilethe NJBPUconsidered a motionon a legalissueregarding whetherMAITcan be designated as a "publicutility"in NewJersey.On February 24,2016,theNJBPUissuedan Orderconcluding thatMAITdoesnot satisfythe'electricity distribution" elementnecessary for"publicutility"statusbecause MAlTwould notownanyelectricdistribution assetsin NewJersey.OnApril22,2016,JCP&LandMAITfileda supplemental petitionandtestimony seekingto includecertain JCP&Ldistributions assetsin the transferto satisfythe "electricity distribution" elementnecessary for'publicutility'statusin accordance withtheNJBPU'S February 24,2016order.Inorderto allowMAlTtofileitstormulatransmission ratewithanstfective dateof January1,2017,on September 8, 2016,JCP&LandMAITsubmitted a letterto the NJBPUto withdraw theirpetitionto transferJCP&Lassetsinto MAIT.The NJBPUadminisfavely closedthe matteron September 30, 2016.See Transferof Transmission Assetsto MAITin FERCMattersbelowforfurtherdiscussion ot thistransaction.

oHro OnAugust4, 2014,theOhioCompanies tiledanapplication withthePUCOseeking approvalottheir ESPlVe illedPowedng Ohb's Progress. ESPlV included a proposed RiderRRS,whichwouldflowthrough to customers eithercharges orcreditsrepresenling the net resultof the pricepaidto FESthroughan eight-year FERo-jurisdictional PPA,referredto as the ESPlV PPA,againslthe revenues received tromsellingsuchoutputintothePJMmarkets. TheOhioCompanies entered intostipulationswhichmodified ESP lV andwhichincludedPUCOStaffas a signatory party,in addition to othersignatories. On March31,2016,lhe PUCOissuedan OpinionandOrderadopting andapproving theOhioCompanies'stipulated ESPlVwithmodifications. FESandtheOhioCompanies enteredintothe ESPlV PPAonApril1,2016.

OnJanuary27,2016,certainpartiesfileda complaintwith FEBCagainstFESandtheOhioCompanies requesling FERCreviewthe ESPlV PPAunderSection205 of the FPA.On April27,2016,FERCissuedan ordergrantingthe complaint, prohibiting any transactions underthe ESPlV PPApendingfutureauthorization by FERC,anddirecting FESto submittheESPlV PPAforFERC reviewif thepartiesdesiredto transactundertheagreement. FESandtheOhioCompanies didnotfilethe ESPlV PPAtorFERC reviewbutratheragreedto suspend theESPlV PPA.FESandtheOhioCompanies subsequently advisedFERCof thiscourseof acton.

OnApril29,2016andMay2, 2016,severalparties,including the OhioCompanies, liledapplications for rehearing on the Ohio Companies'ESP lVwiththePUCO. TheOhioCompanies'Application forRehearing included a modified RiderRRSproposalbutdid notincludea FERC-jurisdiclional PPA.ThePUCOaccepted theapplications for rehearing torfurtherconsideration andprovided partiesan opportunity to comment on theOhioCompanies'Application for Rehearing andfileanalternative proposal. PUCOStaff recommended thatthe PUCOdenythe OhioCompanies' modifiedRiderRRSproposalandrecommended a newRiderDMR providing forthecollection of $204millionannually (grossed upforincometaxes)forthreeyearswitha possible extension foran additional twoyears.TheOhioCompanies recommended thatthe PUCOapprovethe proposed modified RiderRRSandthata properly designed RiderDMRwould bevaluedat$558millionannuallyfor 8 years,andinclude anadditionalamount thatrecognizes thevalueof theeconomic impactof FirtEnergymaintaining its headquarters in Ohio.

Severalpartiessubsequently filedprotestsandcomments withFERCalleging, amongotherthings,thatthe modiliedRiderRRS constitutes a'virtualPPA".ThefilingsandFirstEnergy's responses theretoarependingbetoreFERC.

OnSeptember 6,2016,whiletheapplications forrehearing werestillpending beforethePUCO,theOCCandNOACfileda noticeof appealwiththe OhioSupremeCourtappealing variousPUCOandAttorneyExaminerEntrieson lhe parlies'applications for rehearing. On September'16, 2016,theOhioCompanies intervened andfileda motionto dismisstheappeal. Theappealremains pendingbetoretheOhioSupreme Court.

OnOctober12,2016,thePUCOissuedan opinionandoder rulingon theparties'applications forIehearing andturthermodified ESPlV ThePUCOorderdenied theOhioCompanies' modilied RiderRRSproposal, andinsteadapproved a RiderDMRproposed by PUCOStatf,withmodifications.

Asa resultofthestipulations, thePUCO'S March31,2016OpinionandOrderandthePUCO'S Octobell2,2016order,thematerial termsof ESPlV include:

. An eight-year term(June1,2016-May31,2024J..

. TheRiderDMRwhichprovides fortheOhioCompanies to collect$132.5millionannually forftreeyears,withthepossibility of a two-yearexlension. TheRiderDMBwillbe grossed for up taxes, resulting in an approved amountof approximately

$204millionannually. Revenuesfrom theRiderDMRwillbeexcluded fromthesignificantly excessive earnings testtorthe initialthree-year termbuttheexclusion willbe reconsidered uponapplication for a potentialtwo-year extension.

. Threeconditions torcontinued recoveryunderthe RiderDMR:(1)retention of thecorporate headquarters andnexusof operations inAkron,Ohio;(2)nochangeincontroloftheOhioCompanies; and(3)a demonstration of suffcientprogr$sin theimplementation of gridmodernization programs approved by the PUCO.

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No restrictions on the OhioCompanies'use of fundscollectedunderthe RiderDMR.However,the PUCOdirectedthe PUCOStaffto periodically reviewhowthe OhioCompaniesand FE usethe fundsto ensurethe fundsare used,directlyor indirectly,in supportof grid modernization. Uses of funds to indirectlysupportgrid modernization could include,e.9.,

reducingoutstanding pensionobligations or reducingdebt.

Continuation of a basedistribution ratefreezethroughMay 31,2024.

Continuation of the supplyof powerto non-shopping customersat a market-based priceset throughan auction process.

Continuation of RiderDCRwith increasedrevenuecapsof approximately $30 millionper yearfromJune 1,2016through May 31, 2019;$20 millionper yearfromJune 1, 2019throughMay 31, 2022;and $15 millionper yearfromJune 1, 2022 throughMay31,2024 that supportscontinuedinvestmentrelatedto the distribution systemfor the benefitof customers.

Collectionof lostdistribution revenuesassociatedwithenergyefficiencyand peakdemandreductionprograms.

Continuation of a commitment notto recoverfromretailcustomerscertaincostsrelatedto transmission costallocationsfor the longerof the five-yearperiodfromJune 1,2011 throughMay31, 2016or whenthe amountof suchcostsavoidedby customersfor certaintypesof productstotals$360 million.

Potentialprocurement of 100 MW of newOhiowind or solarresourcessubjectto a demonstrated needto procurenew renewableenergyresourcesas partof a strategyto furtherdiversifyOhio'senergyportfolio.

An agreementto file a casewiththe PUCOby April3, 2017,seekingto transitionto decoupledbaseratesfor residential customers.

An agreement to filea GridModernization BusinessPlanfor PUCOconsideration andapproval(whichfilingwas madeon February29,2016).

A goalacrossFirstEnergy to reduceCOzemissionsby 90% below2005levelsby 2045.

A contribution of $3 millionperyear($24millionoverthe eight-year term)to fundenergyconservation programs,economic development andjob retentionin the OhioCompaniesserviceterritory.

Contributions of $2.4 millionper year ($19 millionover the eight-year term)to fund a fuel-fundin each of the Ohio Companiesserviceterritories to assistlow-income customers.

. A contribution ol $1millionperyear($8millionovertheeight-year term)to establish a Customer Advisory Councilb ensure preservation andgrowthof thecompetitive marlGtin Ohio.

Finallton March21,2016,a numberof generation ownersliledwithFERCa complaint againstPJMrequesting thatFERCe{cand the MOPRin the PJMTariffto preventthe allegedartificialsuppressionof pricesin the PJMcapacitymarketsby state-subsidized generation,in particularallegedpricesuppression thatcouldresult fromtheESPlV PPAandothersimihragreements. Thecomplaint requestedthatFERCdirectPJMto initiatea siakeholderprocessto developa long-termMOPRreformfor existingresourcesthat receiveout-of-market revenue. Thisproceeding remainspendingbeforeFERC.

UnderOhios energyefiiciency standards (58221andS8310),andbasedontheOhioCompanies'amended energy plans, efiiciency theOhioCompanies are requiredto implementenergyefficiencyprogramsthatachievea totalannualenergysavingsequivalentof 2,266GWHSin 2015and 2,288GWHSin 2016,andthenbeginto increaseby 1% eachyea(in 2017,subjectto legislative amendments to theenergyefiiciency standards discussed below.TheOhioCompanies arealsorequired to retainthe2014peak demandreduction levellor2015and2016andthenincrease thebenchmark byanadditional0.T5%thereafErthrough 2020,subject to legislativeamendments to the peakdemandreductionstandardsdiscussedbelow.

OnSeptemberSo, 2015,theEnergyMandates StudyCommittee issueditsreportrelated to energyefficiency andrenervable energy mandates,recommending that the cunentlevelol mandatesremainin dace indefinitely. The reportalso recommended: (i) an expeditedprocessfor reviEwof utiliv propossdgnsrgyEfficiencyplans;(ii) ensuringmadmumcrEditfur all of Ohio'sEnergy Initiatives;(iii)a switchfromsnrgymandabsto enorgyincentives; and(iv)a declaraton bemadethattheGeneralAssmbly may determine the energypolicyot the state.Legislation was introduced lo addressissuesraisedin the EnergyMandates Sludy Committeereport,namelyS8320andH8554.SB320proposestofreezeenergyeffciencyandrenewable energyrequirements foran additional fouryea6 at 2014levels,as wellas addressing netmetering issues.HB554proposes to freezeenergyefficiency and renewable energyrequirements lhrough2027at 2014levels.

OnSeptember 24,2014,theOhioCompanies filedanamendment totheireneqyefiiciency portfolio planascontemplated bySBSl0, seekingto suspendcertainprograms for the2015-2016 periodin orderto betteralignthe planwiththe newbenchmarks under SB31O. OnNovember 20,2014,thePUCOapproved theOhioCompanies'amended phn.Several portfolio applicationsforrehearing werefiled,andthePUCOgrantedthoseapplications forfurtherconsideration ofthematterspecified in thoseapplications andthe malterremainspendingbeforethe PUCO.

OnApril15,ml6, theOhioCompanies ftledan applicationforapproval of theirthree-yearenergyelficiency portfolioplansforthe periodfiomJanuary1,2017throughDecember 31,2019.Theplansasproposed complywithbenchmarks contemplated bySB3'10 and provisionsof the ESPlV,and includea portfolioof energyefficiencyprogramstargetedto a varietyof qrstomersegmenb, including residentialcustomers, lowincomecustomers, smallcommercialcustomers,large comrnercial andindustrialcustomers and govemmental entities.

TheOhioCompanies anticipate thecostof theplanswillbe approximately $323millionoverthe lfieof the portfolioplansandsuchcostsareepected to be recoveredthroughthe OhioCompanies' existingratemechanisms. Thehearingis scheduled forNovember 21-23.2016.

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OnSeptember 16,2013,theOhioCompanies filedwiththeSupreme Courtof Ohioa notioeof appealofthePUCO'S July17,2013 Entryon Rehearingrelatedto energyefficiency,altemativeenergy,andlong-temforecastrulesstatingthatthe rulesissuedbythe PUCOareinconsistent with,andarenotsupported by,statutory authority.OnOctober 23,2013,thePUCOfileda motiontodismiss theappeal, whichwasdenied.OnAugust9,2016,upona JointApplication forDismissalfiled bytheOhioCompanies, PUCOandthe ELPC,theOhioSupreme Courtdismissed theappeal.

Ohiolawrequires electric utilitiesandelectricseruice @mpanies in Ohioto servepartoftheirloadfromrenewable energyresources measured byanannually increasing percentage amountthrough 2026,subject to legislative amendmenb discussed above,excspt 2015and2016thatremainatthe2014level. TheOhioComoanies conducted RFPSin2009,2010 and2011b secureRECS to help meettheserenewable energyrequirements. In September 2011,the PUCOopeneda docketto reviewthe OhioCompanies' alternativeenergyrecovery riderthrough whichtheOhioCompanies recover thecostsof acquidng theseRECS. ThePUCOissued anOpinion andOrderonAugust7,2013,approving theOhioCompanies' acquisition processandtheirpurchases of RECS to meet statutorymandalesin all instancesexceptforcertainpurchases arisingfromoneauctionanddirectedtheOhioCompanies to credit non-shopping customers in the amountol $43.4million,plusinterest, on thebasisthattheOhioCompanies did notpro/esuch purchases wereprudent. On December 24,2013,following thedenialoftheir application forrehearing,theOhioCompanies fileda noticeot appealanda motionlor siayof the PUCO'S orderwiththeSupreme Courtof Ohio,whichwasgranted. On February 18, 2014,theOCCandthe ELPCalsotiledappealsof the PUCO'S order.TheOhioCompanies timelyfiledtheirmeritbriefwiththe Supreme Courtof Ohioandthebrietingprocesshasconcluded. Thematteris notyetscheduled for oralargument.

OnApril9, 2014,thePUCOinitiated a genericinvestigation of marketing practices inthecompetitive retailelectricservicemarket, witha focusonthema*etingof fixod-priceor guaranteedpercentoffSSOratecontractswherethereis a provisionthatpemib the pass-through of newor additional charges. On November 18,20'15,the PUCOruledthaton a going-foMadbasis,pass-though clausesmaynotbe included in lixed-price conlracts forallcustomer classes. On De@mber 18,2015,FESfiledanApplication ior

'13, Rehearing seeking to changetherulingor haveit onlyapplyto residential andsmallcommercial customers. OnJanuary 2016, the PUCOgrantedreconsideration forfurtherconsideration ol themattersspecitied in theapplications forrehearing.

PENNSYLVANIA The Pennsylvania Companies currentlyoperateunderDSPSthat expireon May31, 2017,andpmvidefor the competitive procuEmentofgeneration supplyforcustomers lhatdo notchooseanalternative EGSorforcustomers of altemative EGSS thatfail to providethecontractedservice.Thedefaultseivicesupplyis currentlyprovidedbywholesalesuppliersthrougha mixof long-term andshort-term contracts procured throughspotmarketpurchases, quarterly descending clockauctions for3-, 12-and24-month energycontracts, andoneRFPseeking2-yearcontracts to serveSRECS forME,PNandPenn.

Following theexpiration ofthecurrentDSPS, thePennsylvania Companies willoperate undernewDSPSfortheJune 1,2017through May31,2019delivery period,whichwouldprovide forlhe competitive procurement of generation supplyforcustomers whodo not chooseanalternative EGSorforcustomers of alternative EGSS thatfailto provide thecontracted seMce.Underthepmgrams, the supplywouldbprovided bywholesale suppliers througha mixot'12and24-month energycontracts, aswellasoneRFPfor2-year SRECcontracts forME,PNandPenn.Inaddition, the planincludes modifications to the Pennsylvania Companies' existingPOR programsin oder to reducethe levelof uncollectible e)eensethe Pennsyivania Companies expedenceassociatedwithaltemative EGScharges.

Pursuant to Pennsylvania s EE&Clegislation (Acl129of 2008)andPPUCorders,Pennsylvania EDCSimplement energyefficiency andpeakdemandreduction programs. ThePennsylvania Companies'Phase ll EE&CPlanswereeftective throughMay31,2016.

TotalPhasell costsof theseplanswereexpectedto be approximately $175millionandrecoverable throughthe Pennsylvania Companies' reconcilable EE&Criders.OnJune19,2015, thePPUCissueda Phaselll Finallmplementation Ordersetting:demand reductiontargeb,relativeto eachPennsylvania Companies' 2007-2008peakdemand(inMW),at 1.8%forME,1.7yofor Penn,1.8%

forwP,and0%forPN;andenergyconsumption reduclion targeb,asa prcentage ofeachPennsylvania Companies'historic 2010 forecasts(inlvlwH),at 4.0%torME,3.9%tor PN,3.3%forPenn,and2.6%forwP.ThePennsylvania Companies'Phase lll EE&C plansfor the June2016throughMay2021period,whichwereappmvedin March2016,are designedto achievethe targets esiablished in the PPUC'S Phaselll Finallmplementation Orderwithoutrecovery to implement theEE&Cplans.

Pu6uantto Act 1l of A)12, Pennsylvania EDCSmayestablisha DSICto recovercostsof infrastructure implovemenBandcosls relatedto highway relocation projects withPPUCapproval. Pennsylvania EDCSmustfileLTllPsotjllining infrastructureimprovement plansfor PPUCreviewandapproval priorto approval of a DSIC.On October'19, 2015,eachof thePennsylvania Companies filed LTIIPSwiththe PPUCior infrastructure impovement overthefive-year periodof 2016to 2020forthefollowing costs:WP$88.34 million;PN$56.74million;Penn$56.35million;and ME$43.44million. OnFebruary 11,2016,ihe PPUCappo\dthePennsylvania Companies' LTllPs.On February 15,2016,the Pennsylvania Companies filedDSICridersfor PPUCapproval for quarterly cost recoveryassociated withthe capitalprojectsapprovedin the LTllPs.On June9, 2016,the PPUCapproved the Pennsylvania Companies'DSIC ridersto beeffective July 1,2015,subiectto hearings andrefundor reallocation amongcustomels.

OnApril2S,2016, eachofthePennsytuania Companies filedtarifiswiththePPUCproposing generalrate increases associated with lheirdistribution operations thatwill benelitcustomers by modemizing the gridwithsmarttechnologies, increasing vegetation management activilies, andcontinuing othercustomerserviceenhancements. Thelilingsrequestapprovalto increase annual operating revenues by approximately $140.2 million at ME, $158.8 million at PN, $42.0millionat Penn,and$98.2millionat We 37

baseduponfullyprojected futuretest yearsfor the twelvemonthsendingDecember 31, 2017at eachof the Pennsylvania Companies. Asa resultoftheenactment ofAcl/tOof 2016thatterminated thepractice of makinga CTAwhen calculatinga utility's federalincometaxeslor ratemaking purposes, thePennsylvania Companies submitted supplemental testimony onJuly7,2016,that quantifiedthevalueol theelimination oftheCTAandoutlined theirplanfor investing 50 percentofthatamountin ratebaseeligible equipmentas requiredbythenewlaw Formalsettlementagreements for eachofthePennsyfuania Companies wercfled onOctober 14,2016, whichprovideincreases inannualoperating revenues of approximately $96million atME,$100million at PN,$29millionat Penn,and$66millionatWP,andaresubiectto PPUCapproval. Oneitemrelatedb thecalculation of DSICrateswasreserved for briefing,withbriefsfiledby twoparties. Theproposed newratesareexpected to takeeffectin January2017pendingregulatory approval, whichis expected no laterthanJanuary26,2017.

OnJune'19,2015,MEandPN,alongwithJCP&I,FETandMAITmadetilingswithFERC,theNJBPU,andthePPUCrequesting aulhorization forJCP&1,PNandMEtocontribute theirtransmission assetsto MAIT,a newtransmission-only subsidiary of FET.On March4,20'16,a JointPetition forFullSettlement wassubmitted to thePPUCtorconsideration andapproval. OnApril18,2016,the ALJSissuedan InitialDecision approving theJointPetition for FullSettlement withoutmoditications. OnJuly21,2016,thePPUC adopted a Motionapproving theJointPetition forFullSettlement withminormodifications. OnAugust24,2016,lhe PPUCissueda FinalOrder approving theJointSettlement consistent withtheJuly21,2016Motion. SeeTranster oITransmission Assetsto MAITin FEBCMattersbelowforfurtherdiscussion of thistransaction.

WESTVIRGINIA MPandPEprovideelectric servicetoallcustomers throughtraditionalcost-based, regulated utilityratemaking. MPandPErecover netpowersupplycosts,including fuelcosts,purchased powercostsandrelatedexpnses, netof relatedmarketsalesrevenue throughthe ENEC.MP'sandPE'sENECraleis updated annually.

MPandPEfiledwiththeWVPSConMarch31,2016theirPhasell energyetficiency program proposalfor approval. MPandPEare proposing threeenergyefficiency programs to meettheirPhasell requirement of energyetficiency reduclions of 0.5%of 2013 distributionsalesfortheJanuary1,2O17throughMay31,2018period,asagreedto byMPandPE,andapproved bytheVWPSCin the2012proceeding approving thetransfer ofownership of Harrison PowerStation to MPThecostsfortheprogram areepectedto be$10.4millionandwillbeeligible forrecovery through theexisting energyetficiency riderwhich is reviewed inthetuel(ENEC) case eachyear.A unanimous settlement wasreached bythepartiesonallissuesandpresented to theWVPSConAugust18,2016.An orderapproving thesettlement infullwithout modilication wasissuedbytheWVPSC on September 23,2016.Underlhe order,the programs maybeginas of thedateof suchorde(butno laterthanJanuary1, 2017.

TheStaffoftheWVPSCandtheConsumerAdvocate Divisionfileda ShowCausepetition onAugust 5,2016,requesting theWVPSC orderMPandPElo fileandimplement RFPSforallfuturecapacity andenergyrequirements abovel00 lvlwsandthattheycomply withan RFPsettlement provisionfromtheHarrison assetacquisition. MPandPEfileda timelyresponse to thepetition arguingfor dismissal on September 7, 2016.On October'17,2016,thewvPSC deniedthepetitionfiledbythe Stafiof theWVPSCandthe Consumer Advocate Divisionanddismissed thecase.

On August16,2016,MPand PEfiledtheirannualENECcaseproposing an approximate $65millionannualincreasein rales etfectiveJanuary1, 2017,whichisa 4.7%overallincrease overexisting rates.The$65millionincrease iscomprised of $119million under-recovered balanceasofJune30,2016,anda projected $54millionover-recovery torthe2017rateeffective period.Aheadng hasbeensetfor November 9 and10,2016withan orderexpected to be issuedinthefourthquarterof 2016.

OnAugust22,2016,MPandPEliiedanapplication forapproval of a modernization andimprovement plantorcoal-fired boilersat electricpowerplantsandcost-recovery surcharge proposing an approximate $6.9millionannualincrease in ralesproposed to be efiective May1, 2017,whichis a 0.5%overallincrease overexisting rates.Thetilingis in response to recentlegislation bytheWest Virginia Legislature sessionpermitting accelerated recovery ofcoslsrelated to modernizing andimproving coal-firedboilers,including costsrelatedtomeeting environmental requirements andreducing emissions. Thefilingwassupplemented onSeplember2S, 2016, to addtwoadditional projects,resulting inanapproximate $7.4millionannualincrease in rates.TheStattoftheWVPSChasfileda motionto dismissthecasearguingthenewstatutewasnotmeantto recoverthesetypesof projects, buttheWVPSChassetthe caselor hearingtor Feuuary2'l-29,2017 -

OnDecember 30,2015,MPfiledanIRPidentifying a capacity shortfall startingin2016andexceeding 700tvfwby2020and850lvfw W 2027.On June3, 2016,the WVPSCaccepted the IRPfindingthat lRPsare informational andthatit mustnot approveor disapprove the IRPMPPlansto issuea RFPto addressitsgeneration shortfallidentifiedinthe IRPbylhe endof theyear.

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RELIABILIWMATTEBS Federally-enforceable mandatory reliabilityslandadsapplyb thebulkeleclricsystemandimposecertainopeft ing,recod-keepillg andreporting requiremenB on the t tilities,FES,AE Supply,FG,FENOC,NG,ATSIandTrAlL.NERCis theEROdesignated by FERCto esiablishandenforcethesereliabilitystandads,althoughNERChasdelegated day-tcdayimplemeniation andenbrcement ofthesereliability standards to eightregionalentities, including BFC.Allof FirstEnergy's facilitiesarelocatedwithintheRFCregion.

FirstEnergy aclivelypadicipales intheNERCandRFCstakeholder processes, andotherwise monitors andmanages itscompanies in responsetothe ongoing development, implementation andenforcement of thereliability standards implemented andeniorced by RFC.

FirstEnergybelievesthat it is in compliancewithall currently-etfective andenforceablereliabilitystandards.Nevertheless, in the course of operatingits extensiveelectric utility systemsand facilities,FirstEnergyoccasionallyleams of isolatedlacts oI circumstances thatcouldbe interpreted as excursions fromthe reliability standards. ll a]d whensucho@urencesarefound, FirstEnergy developsinformation abouttheoccurrenceanddevelopsa remedialresponseto thespecificcilcumstances, indudingin appropriate cases"self-reporting" an occurrence to RFC.Moreover, it is clearthatNERC,RFCandFERCwillcontinue b refine existingreliability standards aswellasto developandadoptnewreliability standards. Anyinability on FirstEnergys pattto comply withthereliability standards foritsbulkelectric systemcouldresultintheimposition offinancialpenalties, andobligations b upgrade or buildtransmission thatmuld havea materialadverseeffecton itsfinancial facilities. condition, resultsof operations andcash flows.

FERCIIATTERS Ohio ESPlV PPA Forinformation regarding matters beforeFERCrelated to theESPlV PPAbetween FESandtheOhioCompanies, see'Regulatory Matters- Ohio'above.

PJMTransmission Bates PJManditsstakeholders havebeendebating thepropermelhodto allocate costsfornewtransmission WhileFirstEnergy facilities.

andotherpartiesadvocatefora traditional"beneficiary pays' (orusagebased)approach,othersadvocatefol "socializing" thecosts on a load-ratiosharebasis,whereeachcustomerinthezonewouldpaybasedon itstotalusageof energywithinPJM.Thisquestion hasbeenthesubiectotextensive litigationbeforeFERCandtheappellate courts,including beforetheSeventh Circuit.OnJune25, 2014,a dividedthree-judge paneloftheSeventh CkcuitruledthatFERChadnotquantified thebenelitsthatwestemPJMutilities wouldderivefromcertainnew500kVor higherlinesandthushadnotadequately supported itsdecision to socialize thecostsof theselines.Themaiority loundthateastemPJMutilities aretheprimarybneficiaries ofthelines,rvtriletstemPJMutilities areonly incidental beneficiaries, andthat,whileincidental beneficiaries shouldpaysomeshareofthecostsofthelines,thatshareshouldbe proportionate to thebenetittheyderivefromthelines,andnoton load-ratiosharein PJMas awhole.Thecourtremanded thecaseto FERC,whichissuedanordersettingtheissueofcostallocation torhearingandsettlement proceedings. OnJune15,2016various parties,includingATSI and the Utilities,filed a settlementagreementat FERCagreeingto apply a combind usage based/socialization approachto costallocationfor chargesto transmission customersin the PJMrogionbr transmissionproiec{s operatingat or above500kV.Certainpartiesin the proceedingdid notagreeto the settlementandfiled proteststo the settlement seeking,amongotherissues,to strikecertainof the evidenceadvancedby FirstEnergy andcertainof the othersettlingpartiesin supportof the settlement,as lrll as providedfurthercommentsin oppositionto the settlement.The PJMTOsrespondedto the protesting parties'vadous pleadings ard motions. Thesettlement is pendingbeforeFERC.

Ina seriesofordersincerlainOrderNo.lOOO dockets. FERCasserted thatthePJMtransmission ownersdo notholdan incumbent 1ightof firstrefusal"to construct,ownandoperatelransmission projectswithintheirrespective botprintsthatareapprovedaspattof PJM'SRTEPprocess. FirstEnergy andotherPJMtransmission ownersappealed theserulingsto theU.S.Courtof Appeals forthe D.C.Circuitwhich, in a July1,2016opinion, ruledthatthePJMtransmission ownersfailedto preserve theirarguments inthelegal proceedings betoreFERCand,onthatbasis,dniedtheappeal.Ina relatedcasehowht bytheSouthwestPowelPooltransmission ownersandissuedonthesameday,thecourtruledthatthe Mobile-Siena standarddoesnotprotecttransmission owners'rightsof first refusalthat may be providedfor in RTOtaritfs because,accordingto the coutt, the tariff languageis designedto block competition. TheMob,7+Srbna standardpresumesthat ratesnegotiatedby privatepartiesat arm'slengtharejusl andreasonable and prohibitsFERCfrommodifying suchratesunlessthepublicinterestrequires.

Theoutcomeof theseproceedings andtheirimpact,if any,on FirstEnergy cannotbe predicted at thistime.

BTORealignnent OnJunel, 2011,ATSIandtheATSIzonetransferred lromMISOto PJM.Whilemanyof themattersinvolvsd withthemovehave beenresotved, FERCdeniedrecovery underATSI'S transmission rateforcertaincharges thatcollectivelycanbedescribed as "exit fees'andcertainothertransmission costallocation charges totalingapproximately $78.8millionuntilsuchtimeasATSIsubmitsa cost/benefitanalysisdemonstrating netbenefitsto customersfromthe transbrto PJM.Subsquently, FERCreiecteda poposed settlementagreementto resohre theexitfeeandlransmission costallocationissues,statingthatitsactioniswithoutptejudicetoATSI 39

submitting a cost/benefit analysisdemonstrating thatthe benelitsot the RTOrealignment decisions outweigh the exittee and transmission costallocation charges. OnMarch17,20'16,FERCdeniedFirstEnergy's request forrehearing of FERC'searlierorder rejecting thesenlement agreement andafiirmeditspriorrulingthatATSImustsubmitthecosvbenefit analysis.

Separately, the questionot ATSI'sresponsibility forcenaincostsforthe "Michigan Thumb'transmission projectcontinues to be disputed. Potential responsibility arisesundertheMISOMVPtaritf,whichhasbeenlitigated incomplexproceedings beforeFERC andcertainUniledStatesappellate courts.OnOctober 29,2015,FERCissuedanorderfinding thatATSlandtheATSlzone do not haveto payMISOMVPcharges fortheMichigan Thumbtransmission project. MISOandtheMISOTOsfileda request forrehearing, whichFERCdeniedon May19,2016.On July 15,2016,the MISOTOsfiledan appealot FERC'S orderswiththeSixthCircuit.

FirstEnergy intervened intheproceedings andintendsto participate intheappeal. Ona related issue,FirstEnergyjoinsd certainother PJMtransmission ownersin a protestof MISO'S proposalto allocate MVPcoststoenergy transactions thatcrossMISO'S borders into the PJMRegion.On July13,2016,FERCissuedits orderfindingit appropriate for MISOto assessan MVPusagechargefor transmission exports fromMlSOtoPJM.Various parties, including FirstEnergy andthePJMTOs, requested rehearing orclarification of FERC'sorder.Theseparties'request for rehearing remainspendingbeforeFERC.

In addition, in a May31,2011order,FERCruledthatthecostsforcertain"legacyRTEP"transmission proiects in PJMapproved beforeATSIjoinedPJMcouldbechargedto transmission customers intheATSIzone.Theamountto be paid,andthequestion of derivedbenefits, is pendingbetoreFERCas a resultof the SeventhCircuit's June25,2014orderdescribed aboveunderPJM Transmission Rates.

Theoutcomeof theproceedings thataddresstheremaining openissuesrelaledto costsforthe"Michigan Thumb'transmission projectand"legacyRTEP"transmission projects cannotbe predicted at thislime.

Transferof Ttansmission Assebto MAIT On June10,2015,MAIT,a Delaware limitedliability company, wasformedas a newtransmission-only subsidiary of FETfor the purposes of owningandoperating all FERc-jurisdictional transmission assetsot JCP&1,MEand PNlollowingthe receiptoI all necessary stateandfederalregulatory approvals. OnJune19,2015,JCP&1,PN,ME,FET,andMAITmadefilingswithFERC,the NJBPU, andthePPUCrequesting authorization forJCP&1, PNandMEto contributo theirtransmission assetsto MAIT. Additionally, thefilingsrequested approval tromtheNJBPUandPPUC,as applicable, of:(i) a leaseto MAITot realproperty andrights-of-way associated withtheutilities' trsnsmission assets;(ii)a MutualAssistance Agreemsnt(iii)MAITbeingdeemeda publicutilityunder statelaw:(iv)MAITSparticipation in FE'sregulated companies' moneypool;and(v)certainaffiliated interestagreemenb. Asinitially proposed, it wasexpected thatJCP&L,ME,andPNwouldcontribute theirtransmission assetsat netbookvalueandan allocated portionof goodwillin a tax-treeexchange to MAIT,whichwouldoperatesimilarto FETStwoexistingsiand-alone transmission subsidiaries, ATSIandTrAlL.MAITStransmission facilities willremainunderthefunctional controlof PJM,andPJMwillprovide transmission serviceusingthesefacilities underthePJMTariff.FERCapproved thetransaction onFebruary 18,2016. OnAugust 24, 2016,thePPUCissueda FinalOrderapproving thetransaction. In orderto allowMAITto fileitsformulatransmission ratewithan efiective dateofJanuary1,2017,onSeptember 8, 2016,JCP&LandMAITsubmitted a lettertotheNJBPUlo withdraw theirpetition to transferJCP&Lassetsto MAIT.TheNJBPUadministratively closedthe matteron September 30,2016.SeeNewJerseyand Pennsylvania in StateRegulation aboveforfurtherdiscussion of lhistransaction.

OnOctober14and28,2016,MAITsubmitted applications to FERCrequesting authorization to issueequity,short-torm debt,and long-term debt.MAITintendsto issuemembership interests to FET,PN,andMEin exchange fortheirrespective cashandasset contributions. MAITis epectedto issueshort-term debtandparticipate intheFirstEnergy UtilityMoneyPoolforworkingcapital, to fundday-to-day operations, andforothergeneral corporate purposes. Overthelong-term, MAITis expected lo issuelong-termdebt to supportcapitalinvestment andto establishan actualcapitalstructure for ratemaking purposes. On October28, 2016,MAIT submitted anapplication to FERCrequesting authorization to implement a formulatransmission rateto recovelandearna returnon transmission costseffective January'1,2017. OnOctober 28,2016,MAlTandPJMsubmitted jointapplications to FERCrequesting authorization for(i) MEandPNto withdraw fromthePJMConsolidated Transmission OwnersAgreement asTOs,and(ii)MAITto becomea participating PJMTO.Acceptance of MAITas a PJMTOwouldgrantPJMtunctional controloverMAITStransmission assets,andwouldpermitPJMto implement MAIT'S formularateon MAIT'S behalf.

JCP&LTtansmission FormulaRate GiventhatJCP&Lwill notbehansferring itstransmission assetsto MAIT,thereis a needforJCP&Ltoupdateitstransmission rate.

Accordingly, on October28, 2016,JCP&Lsubmitted an application to FERCrequesting authorization to implement a tormula transmission rateto recoverandearna relurnontransmission costsetfeclive January1, 2017.

Calitomia ClaimsLitigatbn Since2002,AE Supplyhasbeeninvolvedin litigation andclaimsbasedon its powersalesto the California EnergyResource Scheduling divisionol theCDWRduring2001-2003. Thislitigation andclaimsarerelatedto litigation andclaimsadvanced bythe Califomia Attorney Generaland certainCalifornia utilitiesregarding allegedmarketmanipulation ofthewholesale energymarkets in California duringthe2000-2001 period. AE Supplynegotiated a senlement withtheCalitornia AtlorneyGeneralandlhe California utilitiesand,on August24,2016,filedthe settlement agreement for FERCapproval. Thesettlement callstorAE Supplyto pay, 40

withoutadmission of anyliability,

$3.6millioninsettlement in principle of all remaining claimsthatarebasedonAESupply's power salesin thewestemenergymarkebduringthe2001-2003 timeperiod.On October27,2016FERCapproved thissettlemenl.

PATH Ttansmission Proied On August24, 2012,the PJMBoardof Managers canceled the PATHproject,a prcposed transmission linefromWestVirginia throughMrginiaandintoMaryland whichPJMhadpreviously suspended in February 2011.Asa resultof PJMcanceling theproject, approximately $62millionandappmximately $59millionin costsincurredby PATH-Allegheny andPATH-WV respectively,were reclassifiedfrom net property,plant and equipmentto a regulatoryassetfor future reclery. PATH-Allegheny and PATH-WV requested authodzation from FERCto recoverthe costswith a proposedROEof 10.9%(10.4%baseplus 0.5%for RTO membership) fromPJMcustomers overfiveyears.FERCissuedan orderdsnyingthe0.5%ROEadderfor RTOmembership and allowingthe tariffchangesenablingrecoveryof thesecoststo becomeeftectiveon December 1, 2012,subjectto senbment proceedings and hearingif the partiescouldnot agreeto a settlement. On March24,2014,the FERCChiefAU teminated settlement proceedings andappointed an ALJto presideoverthe hearingphaseof thecase,including discovery andadditional pleadings leadingupto hearing, whichsubsequently included theparliesaddressing theapplication ol FERC'S OpinionNo.531, discussedbelow,to the PATHproceeding. OnSeptember14, 2015,theALJissuedhisinitialdecision,disallowing recoveryofcertain costs.Theinitialdecision andexceptions theretoremainbeforeFERCforreviewandafinalorderFirstEnergy continues to believe the costsare re@verable, subjectio finalrulingftom FERC.

FERCODinionNo-531 On June19,2014,FERCissuedOpinionNo.531,in whichFERCrevisedits approach for calculating thediscounted cashflow elementot FERC'S ROEmethodology, andannounced thepotential fora qualitative adiustment to the ROEmethodology lesults.

Underthe old methodology, FERCuseda five-yeartorecastfor the dividendgrowthvariable,whereasgoingiorwardlhe growth variablewillconsistot t yoparts:(a)a fiv+yearforcastbr dividendgrowlh(2,3weight);and(b)a long-temdividendgrowthtorecast basedon a forecastfor the U.S.economy(l/3 weight).Regadingthe qualitative adjustment, for single-utilityratecasesFERC tormerlypeggedROEat themedianof the'2oneof reasonableness' thatcameoutof the ROEformula,wtrereas goingforward, FERCmayrelyon recordevidenceto makequalitativeadiustments to theoutcomeofthe ROEmethodology in ordertoreacha level sufficientto attrac{futureinvestment. On October16, 2014,FERCissuedits OpinionNo. 531-A,applyingthe revisdROE methodology tocertainISONewEngland transmission owners,andon March3,2015,FERCissuedOpinion No.531-B affirmirEib priorrulings. Appealsot OpinionNos.531,531-Aand531-Barependingbeforethe U.S.CourtofAppeals forthe D.C.Circuit.

MISOCapacityPotabilv OnJune11,2012,in response to certainarguments advanced by MISO,FERCrequested comments regalding whethersxisting rulesontransfercapabilityactasbarriersto thedeliveryof capacitybetweenMISOandPJM.FirstEnergy andotherpartiessubmitbd filingsarguingthat MISOSconoernslargelyare withoutfoundation, FERCdid not mandatea solutionin response to MISO'S concerns. At FERC'S direction,in May,2015,PJM,MISO,andtheirrespective independent marketmonitors provided additional information ontheirvariousjointissuessurrounding thePJIiUMlSO seamto assistFERC'sunderstanding oftheissuesandrvhat,if any,additionalstepsFERCshouldiaketo improvetheefiiciencyofoperations atthe PJI,VMISO seam.Stakeholders, includingFESC on behalfofcertainof its afiiliatesandas partof a coalitionof certainotherPJMutilities,filedresponses totheRTOsubmissions. The varioussubmissions andresmnsesremainbeforeFERCforconsideration.

Changes lo thecriteriaandqualifications forparticipation in thePJMRPMcapacity auctions couldhavea significant impaclonthe outcomeof thoseauctions, including a negative impacton thepricesat whichthoseauctions wouldclear.

12.COIIMITIIEiITS, GUARAI{TEES ANDCOiITINGEI{CIES GUAFANTEES ANDOTHERASSURANCES FirstEnergy hasvariousfinancialand performance guarantees and indemnifications whichare issuedin the normalcourseof business.These contractsincludeperbmance guarantees,stand-byletters of credit, debt gualantees,surty bonds and indemnifications.FirstEnergy entersintothesearrangements to facilitatecommercial transactions withthirdpaniesbyenhancing the valueof thetransaction to thethirdparty.

As of September 30, 2016,FirstEnergys outstanding guarantees andolherassurances aggregated approximately $3.4billion, consisting of parentalguarantees ($584million), subsidiaries' guarantees ($2.0billion), othelguarantees ($300million)andother assurances ($504million).

O{ this aggregateamount,substantially all relatesto guaranteesof wholly-owned consolidated entitiesof FirstEnergy. FES'debt obligationsaregenerally guaranteed byitssubsidiaries, FGandNG,andFESguarantees thedebtobligatbns ofeachof FGandNG.

Accordingly, presentandfutureholdersof indebtedness of FES,FGandNGwouldhaveclaimsagainsteachof FES,FGandNG, regardless of whethertheirpiimaryobligoris FES,FGor NG.

41

COLLATERAL ANDCONTINGENT-RELATED FEATURES Inthenormalcourse ot business, FEanditssubsidiaries enterintophysical routinely ortinancially settledcontracts forthesaleand purchase ofelectriccapacity, energy,Iuel, andemission allowances.Certainbilateralagreements andderivative instrumentscontain provisions thatrequireFEor itssubsidiaries to postcollateral.Thiscollateralmaybepostedinlhelormof cashorcreditsupport with thresholds contingent uponFE'sor its subsidiaries' creditratingtromeachoI themajorcreditratingagencies. Thecollateral and creditsupportrequirements varybycontract andbycounterparty. Theincremental collateralrequiremenl allowsfortheoffsetting of assetsand liabilities withthe samecounterparty, wherethe contractual rightof ofisetexistsunderapplicable maslernetting agreemenls.

Bilateralagreements andderivative instruments enteredintobyFEanditssuboidiaries havemargining provisions posting thatrequire ofcollateral.Basedon FES'power portfolio exposures asof September 30,2016,FEShaspostedcollateralof $193millionandAE Supplyhaspostedcollateral of $4 million.

Thesecredit-risk-related contingent teatures, orthemargining provisionswithinbilateralagreements, stipulatethatitthesubsidiary wereto bedowngraded or loseitsinvestment gradecreditrating(basedon itsseniorunsecured debtrating), itwouldbe requiredto provideadditional collateral.Depending on the volumeof torwardcontractsandfuturepricemovements, higheramountsfor margining, whichis theabilityto secureadditional whenneeded,couldbe required.

collateral As a resultofthedowngrades by Moody'sandS&PonJuly29,2016andAugust1, 2016,CESpostedadditional collateral of $53 million.Additionally, on November 4, 2016,Moody'sandS&Pfurtherdowngraded FES.Giventhedowngrades, CEShasfurther potential cotlateral postingobligations totaling$81millionforwhichcounterparties havenotexercised theirrightto requireCESto postcollateral. Subsequent to the o@urrence of a seniorunsecured credilratingdowngrade belowS&P'sandMoody'scurrent ratings, ora "material adverseevent,"theimmediate postingof collateral or accelerated paymenls mayberequkedof FirstEnergy.

Thefollowing tablediscloses theadditionalcredit contingent contractualobligationsthatmayberequired undercertain eventsasof November 4, 2016:

PotentialCollateralObligations CES Regulated Total (in millions)

Contractual Obligations for AdditionalCollateral At CurrentCreditRating 81 $ $ 81 UponFurtherDowngrade 48 48 UponMaterialAdverseEvent 10 10 SuretyBonds(Collateralized Amount) 264 96 360 TotalExposurefromContractual Obligations 355 $ 144 499 Excluded fromthe preceding tableare the potential collateralobligationsdueto affiliatetransactions betweenthe Regulated Distribution segment andCESsegment. Asof September 30,2016,neitherFESnorAESupplyhadanycollateral postedwjthlheir affiliates.

OT}IERCOMMITMENTS ANDCONTINGENCIES FEis a guarantor undera syndicated seniorsecured termloanfacilitydueMarch3,2020,underwhich GlobalHolding bormwed $300 million.Inaddition to FE,SignalPeak,GlobalRail,GlobalMining croup,LLCandGlobalCoalSales Group,LLC,eachbeinga direct or indirectsubsidiary of clobalHolding, continue to providetheirlointandseveralguaranties of theobligations of GlobalHolding underthefacility.

Inconnection withthetacility,69.99%ot GlobalHolding's directandindirectmembership interestsin SignalPeak,GlobalRailand theiraffiliatesalongwithFEV'S andWMBMarketing Ventures, LLC'Srespective 33-1/3%membership interestsinGlobalHolding, are pledgedlo the lendersunderthecurrentfacilityascollateral.

ENVIRONMEiTIAL MATTERS Various federal,stateandlocalauthorities regulate FirstEnergy withregardto airandwaterquality andotherenvironmentalmatters.

Compliance withenvironmental regulations couldhavea materialadverse eftectonFirstEnergys earnings andcompetitive positionto theextentthatFirstEnergy competes withcompanies thatarenolsubjectto suchregulations and,therefore, do notbeartheriskof costsassociated withcompliance, or failureto comply, withsuchregulations.

CleanAh Act FirstEnergy complies withSO,andNOxemission reduction requirements undertheCAAandSIP(s)by burninglower-sulfur fuel, utilizingcombustion controls andpost-combustion controls,generatingmoreeleciricityfromlowerornon-emitting plantsand/orusing emission allowances.

CSAPRrequires reductions of NOxandSOzemissions intwophases(2015and2017),ultimately capping SO2emissions inaffected statesto 2.4milliontonsannually andNOxemissions to 1.2milliontonsannually. CSAPRallowstradingof NOxandSO2emission allowances between powerplantslocatedin thesamestateandinterstate tradingof NOxandSO2emission allowances withsome restrictions.TheU.S.CourtofAppeals fortheD.C.Circuitordered theEPAonJuly28,20'15, to leconsiderthe CSAPRcapsonNOx andSO2emissions frompowerplantsin 13 states,including Ohio,Pennsylvania andWestVirginia. Thisfollowsthe 2014U.S.

Supreme Courlrulinggenerally upholding EPAsregulatory approach underCSAPR,butquestioning whelherEPArequired upwind statesto reduceemissions by morethantheircontribution to airpollution in downwind states.EPAissueda CSAPRupdaieruleon September 7,20'16,reducingsummertime NOxemissions trompowerplantsin 22 statesin the easternU.S.,including Ohio, Pennsylvania andWestVirginia, beginning in2017.Depending onhowtheEPAand thestatesimplement CSAPR, thefuturecostof compliance maybe material andchangeslo FirstEnergy's andFES'operations mayresult.

EPAtightened theprimaryandsecondary NMQSforozonefromthe2008standard levelsof75 PPBto70PPBonOctober 1,2015.

EPAstatedthe vast majontyof U.S.countieswill meetthe new70 PPBstandardby 2025dueto otherfederalandsiaterulesand programs butEPAwilldesignate thosecounties thatfailto attainthenew2015ozoneNMQS byOctober1, 2017.Stateswillthen ha\roughly threeyearsto developimplementation plansto attainthenew2015ozoneNMQS.Depending onhowtheEPAandthe statesimplementthenew2Ol5 ozoneNMQS, ltrefuturecostof compliancemaybematerialandchangesb FirstEnergys andFES' operations mayresult.InAugust2016,theStateof Delaware fileda CAASection126petition wilhtheEPAalleging thattheHarison generating facilitysNOxemissions significantly contribute to Detaware's inabilitytoattaintheozoneNMQS.Thepetition seeksa sho termNOxemission ratelimitof 0.125lb/mmBTU overanaveraging pedodof nomorethan24 hours.OnSeptember 27,2016, EPAextended thetimelramefor actingon theCAASection126petitionby six monthsto April7, 2017.FirstEnergy is unableto predicttheoutcome of this matter or estimate the loss or range of loss.

MATSimposes emission limitsformercuryPM,andHClforallexisting andnewfossiltuelfired electricaenerating unibeffective in April2015withaveraging of emissions frommultiple unitslocatedat a singleplant.FirstEnergys totalcaritalcostforcompliance (overthe 2012to 2018timepriod) is currently expected to be approximately $345million(CESsegmentof $168millionand Regulated Distribution segment of $177million), ofwhich$267millionhasbeenspentthroughSeptember 30,2016($117millionat CESand$150millionat Regulated Distribution).

OnAugust3,2O15, FG,asubsidiary ot FES,submitted to theAAAofficein NewYork,N.Y.,a demand forarbitration andstaEment of claimagainstBNSFandCSXseekinga declarationthat MATSconstituteda forcemajeureeventthatexcusesFG'sprformance underitscoaltransportation contractwiththesepanies.Specifically, thedisputearisesfroma contractbr thefanspodationbyBNSF andCSXof a minimum of 3.5 milliontonsof coalannually through2025to cenaincoal-fired powerplantsownedby FGthatare locatedinOhio.Asa resultofandincompliance withMATS,allplantscoveredbythis@ntraclweredeactivated byApril16,2015. In January2012,FGnotifiedBNSFandCSXthatMATSconstituteda torcemajeureeventunderthecontraclthatexcusedFG'slurthr prformance. Separately, on August4, 2015,BNSFard CSXsubmitted to theAAAofficein Washington, D.C.,a demandfor arbitrationandstatementof claimagainstFGallegingthat FGbreachedthe contractandthat FG'sdeclarationof a forcemajeure underthecontractis notvalidandseekingdamages underthecontractthrough2025.On [,lay31,a)16,thepartiesagreedto a stipulation thatif FG'sforcemajeuredefense isdeterminedto bewhollyor partially invalid,liquidated damages arethesoleremedy available to BNSFandCSX.TheabitrationDanelhas determined to consolidate theclaimswitha liability hearitscheduled lo begin on November 28,2016,and,if necessarya damageshearingscheduled to beginon May8,2017.Thedecisionon liabilityis expected to be issuedwithinsixtydaysfromtheendoftheliabitity hearirEproceedings, whicharescheduled to conclude February 24,2017.FirstEnergy andFEScontinueto believethatMATSconstitutesa forcemaieureeventurderthe@firacl alsit relatesb the deactivated plantsandthatFG'speriormance underthecontractis thereioreexcused.FGintendsto vigorouslyassenitspositionin theabitration proceedings. lf, however, thearbitration panelrulesinfavorol BNSFandCSX,theresulbof operations andfinancial conditionof both FirstEnergyand FES could be materiallyadverselyimpacted.Referto the StrategicReviewof Competitive Operationsseciionof Note1, Organization arxdBasisot Presentation, for possibleactionsthatmaybetakenby FESintheaventof anadverse outcome, including, withoullimitation, seeking protection underthebankruptcy laws.FirstEnergy andFESareunableto estimate thelossor rangeof loss.

FGis alsoa partytoanother coaltransportation contract covering thedelivery o12.5milliontonsannually through 2025,a portionof whichis to be deliveredto anothercoal-firedplantownedby FG that was deactivatedas a resultof MATS.FG has asserteda defenseof forcemaieurein responseto deliveryshortFalls to suchplantunderthiscontractaswell.lf FGfailsto reacha resolution withtheapplicable counterpaniesto thecontract, ard if it wsreultimately determined that,contrary to FirstEnergy's andFES'belief, theforcemajeureprovisions ofthatcontractdo notexcusethedeliveryshortfalls to thedeactivated plant,theresultsof operations andfinancial condition of bothFirstEnergy andFEScouldbe materially adversely impacted. FirstEnergy andFESareunableto estimate thelossor rangeof loss.

As to bothcoaltransportation agreements refersnced above,FG paidapproximately $70millionin the aggregate in liquidated damages tosettledelivery shortfalls in 2014related to itsdeaclivated plants,whichapproximated fullliquidateddamages underthe agreements forsuchyearrelatedto theplantdeactivations. Liquidated damages fortheprjod2015-2025 remainin dispute.

Astoa specific coalsupplyagreement, AESupplyhasasserted termination rightsetfective in2015.Inresponse to notlticationofthe termination, the coalsuppliercommenced litigationallegingAE Supplydoesnot havesutlicient justificalionto terminatethe agreement. AE Supplyhasfiledan answerdenyinganyliability relatedto thetermination. Thismatteris currently in thediscovery

phaseof litigation andnotrialdatehasbeenestablished. Thereareapproximately 5.5milliontonsremaining undertheconlractfor deliveryAt thistime,AE Supplycannotestimate the lossor rangeof lossregarding the on-goinglitigation withrespsctto this agreement, In September 2007,AE received an NOVfromtheEPAalleging NSRandPSDviolations undertheCAA,aswellasPennsylvania andWestVirginiastatelawsat thecoal-firedHatfeld'sFerryandArmstrongplantsin Pennsylvania andthecoal-firedFortMartinand WillowlslandplantsinWestVirginia. TheEPA'S NOValleges equipment rplacements duringmaintenance outages triggedthepre-construction permitting requirements undertheNSRandPSDprograms. OnJune29,2012,January 31,2013,March27,2013ard October18,2017,EPAissuedCM section114requesbior the Harisoncoal-fired plantseekinginfomationanddocumentation relevant to itsoperation andmaintenance, including capitalpojeclsunderlaken since2007.OnDecember 12,2014,EPAissueda CAAsection114requestfor the FortMartincoal-firedplantseekinginformationanddocumentation relevantlo its operationand maintenance, including capitalprojects undertaken since2009.FirstEnergy intends b comply withtheCAAbut,atthistime,is unable to predictthe outcomeof this matteror estimatethe lossor rangeof loss-ClinateChange FirstEnergy hasestablished a goalto reduceCO2emissionsby907"below2005levelsby20/15.Therearea numberof initiativesto reduceGHGemissions at thestate,federalandinternational level.Certainnortheaslern statesareparticipating inthe RGGIand westeinstatesledbyCalifornia, haveimplemented programs, primarily capandtrademechanisms, to controlemissions ot certain GHGS.Additional policiesreducingGHGemissions, suchas demandreduction programs, renewable portfoliostiandards and renewable subsidies havebeenimDlemented acrossthenation.

TheEPAreleased its final"Endangerment andCauseor Contribute Findings for Greenhouse Gasesunderthe CleanAirAct' in December2009,concludingthatconcentrations of severalkeyGHGSconstitutesan "endangermenfandmaybe regulatedas'air polluiants" undertheCAAandmandated measurement andreporting of GHGemissions fromcertainsources, including elecllic generating plants.TheEPAreleased itstinalregulations inAugust2015(whichhavebeenstayedbytheU.S.Supreme Cou]t),to reduceCo2emissions fromexistingfossilfuelfiredelectricgenerating unitsthatwouldrcquireeachsiateto developSlPsby September6, 2016,lo meetthe EPASstatespecificCO2emissionrategoals.The EPASCPPallowsstatesto requesta two-year extension tofinalizeSlPsbySeptember 6,2018.ffstatesfailtodevelopSlPs,lheEPAalsoproposed a federalimplemenlafon plan thatcanbeimplemented bytheEPAthatincluded modelemissions tradingruleswhichstatescanalsoadoptintheirSlPs.TheEPA also finalizedsepaftrteregulationsimposingCOzemissionlimitsfor new,modified,and reconstructed fossilfuel fired eleclric generating units.OnJune23,2014,theUnitedStatesSupreme Courtdecided thatCO2orolherGHGemissions alonecannot trigger permittingrequiremenls undertheCAA,butthatair emissionsourcesthatneedPSDpermitsdueto otherregulated airpollutants can be rcquiredbythe EPAtoinstallGHGcontroltechnologies. Numeroussiatesandprivatopartiesfiledappealsandmotionsto staythe CPPwiththeU.S.CourtofAppeals fortheD.C.CircuitinOctober2015. OnJanuary21,2015,a paneloftheD.C.Circuitdeniedthe motions lor stayandsetanexpedited schedule forbriefing andargument. OnFebruary9,2016, theU.S.Supreme Courtstayedthe ruleduringthependency ofthechallenges totheD.C.CircuitandU.S.Supreme Court.Depending ontheoubomeoffurther appeals andhowanyfinalrulesareultimately implemented, thefuturecostot compliance maybe material.

At the international tevel,the UnitedNationsFramework Converfion on ClimateChangeresultedin the KyotoProtocolrequiring participating countdes, whichdoesnotinclude theU.S.,to reduceGHGScommencing in2008andhasbeensxtended through 2020.

TheObamaAdministration submitted in March2015,a fomal pledgefor the U.S.to reduceiF economy-wide greenhouse gas

'12,2015 emissions by26to 28 percentbelow2005levels by2025andjoinedin adoptngtheagGement reached on December at the UnitedNationsFramework Convention on ClimateChangemeetingsin Paris.TheParisAgreement wasraffiedbythe requisite numberot countries (i.e.at least55 countries representing at least55%of globalGHGemissions) in October2016andiF non-bindingobligations to limitglobalwarming towellbelow twodegreesCelsius areeffective onNovember 4,2016.FirstEnergy cannot currently eslimate thefinancial impactofclimate changepolicies, although potentiallegislativeorlegulatory programs rcslricting CQ emissions, or litigation allegingdamages fromGHGemissions, couldrequirematerialcapilalandotherexpenditures or resultin changesto its operations. TheCOzemissions perl(WHof electricity generated by FirstEnergy is lowerthanmanyof its regional competitors dueto itsdiversified generation sources, whichincludelowor non-Co2 emitting gas-fired andnucleargenerators.

Clem Wabt Act Various waterqualityregulations, themajorityof whicharetheresultof thefederalCWAand itsamendmenb, applyto FirstEhergy's plants.Inaddition, thestatesin whichFirstEnergy operates havewaterqualitystandards applicable to FirstEnergys operations.

TheEPAfinalizedCWASection316(b)regulations in May2014,requiring coolingwaterintakestructures withan intakevelocity greaterthan0.5feetpersecondto Gducetishimpingement whenaquaticorganisms arepinnedagainstscreens or otherpartsot a coolingwaterintakesystemtoa 12%annualaverage andrequiring coolingwaterintakestructures e)ceeding 125million gallons per dayto conductstudiesto determinesite-specitic controls,if any,to reduceentrainment, whichocculswhenaquaticlifeisdrawnintoa facility'scoolingwatersystem.FirstEnergy is studyingvariousconlroloptionsandtheircostsandeffectiveness, includingpilottesting of reverselouversina portionottheBayShoreplanfscooling waterintakechannelto divertfishawayfromtheplantscoolingwater intakesystem.Depending ontheresultsotsuchstudiesandanyfinalaction takenbythestatesbasedonthosestudies, thetuture capitalcostsof compliancewiththesestandardsmaybe substantial.

44

OnSeptember 30,2015,theEPAfinalized new,morestringent effluent limitsfortheSteamElectricPowerGenerating category (40 CFR Part 423) for arsenic,mercuryseleniumand nitrogenfor wastewaterfrom wet scrubbersystemsand zero dischargeof pollutantsin ashtranspon wabr.Thetreatment obligations willphase-in aspermitsarerenewed on a fiv+yearcycleftom2018to 2023.Thefinalrulealsoallowsplantsto committo morestringent efiluentlimitsforwetscrubber systemsbasedon evaporative technology andin returnhaveuntiltheendot2023to meetthemorestringent limits.Depending ontheoutcome ol appals andho,Y anyfinalrulesareultimately implemented, thefuturecostsofcompliance withthesestandadsmaybesubstantialand changes to FirstEnergys andFES'operations mayresult.

In October2009,theWVDEPissuedan NPDESwaterdischarge permittor the FortMartinplant,whichimposesTDS,sulfate concentralions andothereffluent limitationsforheavymetals,aswellastemperahire limitations.Concurrent withtheissuance ofthe FortMartinNPDESpermit,WVDEPalsoissuedanadministralive ordersettingdeadlines forMPto meetcertainol theefiluentlimits thatwereeffective immediately undertheterms oftheNPDESpemit.MPappealed, anda stayof certain@nditions of theNPDES pemitandordrhavebeengrantedpendinga finaldecision ontheappealandsubiecttoWVDEPmovingto dissolve thestay.The FortMartinNPDESpermitcouldrequirean initialcapitalinvestment rangingfrom$150millionto $300millionin orderto install technology to meetthe TDSandsultatelimits,whichtechnology mayalsomeetcertainot the othereffluentlimits.Additional technology maybe neededto meetcertainotherlimitsin the FortMartinNPDESpermit.MPintendsto vigorously pursuethese issuesbutcannotpredicttheoutcome of lhe appealor estimate lhe possible lossor range of loss.

FirstEnergy intendsto vigorously defendagainsttheCWAmattersdescribed abovebut,exceptas indicated above,cannotpredict theiroutcomes or eslimate the lossor rangeof loss.

Regulationot WasteDisposal Federalandstatehazardous wasteregulations havebeenpromulgated as a resultof the RCRA,as amended, andthe Toxic Substances ControlAct.Certaincoalcombustion residuals, suchas coalash,wereexempted fromhazardous wastedisposal requirements pendingthe EPA'S evaluation of theneedforfulureregulation.

InDecember 2014,theEPAfinalized regulations forthedisposalof CCRs(non-hazardous), establishing national standards regarding landfilldesign, structural integritydesign andassessmenl crileriatorsurtace impoundments, groundwaler monitoring andprotection procedures andotheroperational andreporting procedures to assurethesatedisposalof CCRStromelectricgenerating plants.

Basedonanassessment otthefinalized regulations, thefuturecostofcompliance andexpected timingof spendhadnosignificanl impacton FirstEnergy's or FES'existing AROSassociated withCCRs.Although nonearecurrenlly expected, anychangs intiming andclosureplanrequirements in theluturecouldmaterially andadversely impactFirstEnergy's andFES'AROS.

Pursuant to a 2013consentdecree,PADEPissueda 2014permitfortheLittleBlueRunCCRimpoundment requiring lhe Bruce Mansfield plantto ceasedisposalof CCRSby December 31,2016andFGto providebondingfor 45 yearsof closureandpost-closureactivities andto completeclosurewithina 12-yearperiod,but authorizing FG to seeka permitmodification basedon "unexpected siteconditions thathaveorwillslowclosureprogress.- Thepermitdoesnotrequireactivedewatering oftheCCRS, but doesrequirea groundwaler assessment forarsenicandabatement if certainconditions inthepermitaremet.TheBruceMansfield plantis pursuingseveraloptionsfor disposalof CCRSfollowing December 31,2016andexpectsbeneficial reuseanddisposal optionswillbe sufficient fortheongoingoperation of theplant.On May22,2015andSeptember 21,2015,thePADEPreissued a permittorthe Hatfield's FerryCCRdisposal facilityandthenmodifiedthat permittoallowdisposalot BruceMansfield plantCCR. On July6, 2015andOctober22,2015,theSierraClubtiledNoticesof Appealwiththe Pennsylvania Environmental HearingBoard challenging therenewal, reissuance andmodification ot thepermitforthe Hattield's FerryCCRdisposallacility.

FirstEnergy or itssubsidiaries havebeennamedaspotentially responsible paniesatwastedisposalsites, whichmayrequire cleanup underthe CERCLA.Allegations of disposalof hazardous substances at historicalsitesand the liabilityinvolvedare otten unsubstiantiated andsubject todispute; howgver, bderallawprovides thatallpotentially responsible partiesiora particular sitemay be liableon a joint and severalbasis.Environmental liabilitiesthat are considered probablehavebeenrecognized on the Consolidated Balance Sheetsasof SeDtember 30.2016basedonestimates ol thetotalcosts ol cleanup, FEsanditssubsidiaries' proportionate responsibility forsuchcostsandthefinancialability ot otherunaffiliated b pay.Totalliabilities entities ot approximately

$121millionhavebeenaccrued through September 30,2016.Included inthetotalareaccruedliabilities otapproximately $89million forenvironmental remediation oflormermanufactured gasplantsandgasholdertacilities inNewJersey, whicharebeingreco\rered by JCP&Lthrougha non-bypassable SBC.FirstEnergy or its subsidiaries couldbe foundpotentially responsible for additional amounts or additional sites,butthelossor rangeof lossescannotbe determined or reasonably estimated at thistime.

OTHERLEGALPROCEEDINGS NudearPlantMatters UnderNRCregulations, FirstEnergy mustensurethatadequale fundswillbavailable to decommission its nuclear tacilities.Asof September 30,2016,FirstEnergy hadappmximately $2.5billioninvested inextemaltrusts to beusedlor thedecommissioning and environmental remediation of Davis-Besse, BeaverValley,PerryandTMI-2.Thevaluesof FirstEnergy's NDTS fluctuate basedon marketconditions. lf thevalueof thetrustsdeclinebya material amount,FirstEnergys obligation b fundthetrustsmayincrease.

Disruptionsin the carital marketsandtheir effectson panicularbusinessesandthe economycouldalsoaftectthe valuesof the NDTS. FEandFEShavealsoenteredintoa totalof $24.5millionin parenialguarantees in supportof thedecommissioning ofthe 45

spentfuelstorage facilities locatedal thenuclear facilities.

However, as FESnolongermainlains investment gradecreditratings from eitherS&Por Moody's, NGplansto tunda supplemental trustin lieuof a parental guaranlee thatwouldbe required to supportthe decommissioning of thespentluelstoragefacilities. As requiredby the NRC,FirstEnergy annuallyrecalculates andadjuststhe amountof itsparental guarantees, asappropriate.

InAugust2010,FENOCsubmitted an application to the NRCfor renewalof the Davis-Besse operating licenselor an additional twentyyears.On Decembei 8,2015,theNRCrenewed theoperating licenseforDavis-Besse, whichis nowautholized to continue operation through April22,2037. Priollo thatdecision, theNRCCommissioners deniedan intervenois request toreopen therecord andadmita contention on the NRC'SContinued StorageRule.On August6, 2015,thisintervenor soughtreviewof the NRC Commissioners'decision beforetheU.S.CourtofAppeals fortheDCCircuit.FENOCintervened inthatproceeding. OnSeptember 21,2016,the U.S.Courtot Appealsforthe DCCircuitgrantedtheintervenor's unopposed motionanddismissed thiscase.

As partof routineinspections oftheconcrete shieldbuilding at Davis-Besse in2013,FENOCidentified changes to thesubsurface laminar cracking condition originallydiscovered in 2011.Theseinspections revealed thatthe$ackingcondition hadpropagated a smallamount inseleclareas.FENOC'S analysis confirmsthatthe building continuesto maintain itsstructural integlity, anditsabilily to safelyperformall of its functions. In a May28, 20'15,Inspection Reportregadingthe apparentcauseevaluation on crack propagation, theNRCissueda non-cited violation torFENOC'S tailureto request andobtaina licenseamendmentfor itsmethodof evaluating the significance ol theshieldbuildingcracking. TheNRCalsoconcluded thattheshieldbuilding]emained capableof performing itsdesignsaletyfunctions despitetheidentified laminar cracking andthatthisissuewasofverylowsatetysignificance.

FENOCplansto submita licenseamendment application to the NRCrelatedto the laminarcracking in theShieldBuilding.

On March12,2012,theNRCissuedordersrequiring satetyenhancements at U.S.reactors basedon recommendations fromthe lessonsleamedTaskForcereviewof theaccidentatJapan'sFukushimaDaiichinuclearpo$/erplant.Theseordersrequireadditional mitigation strategies for beyord-design-basis externalevents,andenhanced equipment for monitoring waterlevelsin spentfud pools.The NRC also requestedthat licenseesincludingFENOC:re-analyzeearthquakeand floodingrisks usingthe latest informationavailable;conductearlhquakeand fioodinghazardwelkdownsat their nuclearplants;assessthe abilityof cunent communications systemsandequipment to performundera prolonged lossofonsiteandotrsiEeleclrical powe[andassessplant staffinglevels neededto lill emergencypositions.Theseand other NRCrequirementsadoptedas a resultof the accidentat Fukushima Daiichiare likelyto resultin additional material costsfromplantmodifications andupgrades at FirstEnergys nuclear facilities.

OtherLegalliitatP./']s Therearevariouslarusuits, claims(includingclaimsforasbestosexposure) andproceedings relatedto FiFtEnergy's normalbusiness operations pending againstFirstEnergy anditssubgidiaries. Thelossor rangeof lossinthesemattersis notexpected to bematedal to FirstEnergy or itssubsidiaries. Theotherpotentially material itemsnotothe isediscussed abovearedescribed underNote11, Regulatory Mattersof theCombined Notesto Consolidated Financial Statements.

FirtEnergyaccrueslegalliabilities onlywhenit concludes that it is probablethat it has an obligation for suchcostsandcan reasonably estimatetheamountof suchcosb. IncaseswhereFirstEnergy determines thatit is notprobable,butreasonably possible thatit hasa materialobligation, itdiscloses suchobligations andthepossible lossor rareoflossifsuchestimate canbemade.lf it wereultimately deteminedthatFirstEnergy or itssubsidiaries havelegalliabilityorare otherwise madesubject to liability basedon anyofthe mattersreferencedabove,it cluld havea materialadverseeffecton FirstEnergysor its subsidiades' financialcondition, resultsof operationsandcashflows.

13.SUPPLEIIEiIfALGUARANTOR INFORIIATION In A)07,FGcompleied a saleandleaseback transaction for a 93.83%undivided interestin BruceMansfield Unit1. FG'sparent company hasfullyandunconditionally andinevocably guaranteed allof FG'sobligations undereachoftheleases. Therelated lessol notesandpassthroughcertificatesare not guaranteedby FGor ib parentcompany,but the notesare securd by,amongother things,eachlessortrust's undivided interestin Unit1, rightsandinterests undertheapplicable leaseandrightsandinterests under otherrelatedagreements, includingFES'learse guaranty.Thistransactionis classifiedarsi anoperatingleasefor FESandFitslEnergy andas a financing leasebr FG.

TheCondensed Consolidating Statemenb of Income(Loss)andComprehensive Income (Loss) forthethreeandninemonhsended September 30,2016and2015,Condensed Consolidating Balance Sheetsasof September 30,2016andDecember 31,2015,and Condensed Consolidating Statemen$ ofCashFlowsfortheninemonthsendedSeptember 30,2016and2015,for theparentand guarantorandnon-guarantor subsidiaries are presentedbelow.Thesestatementsare providedas FG'sparentcompanyfullyand unconditionally guarantees outstanding registered securities of FGaswellasFG'sobligations underthetacilityleasefortheBruce Mansfield saleandleaseback thatunderlieoutsianding registered pass-through trustcertificates. Investments in whollyowned subsidiaaies areaccounted forbytheparentcompany usingtheequitymethod. Resultsof operations forFGandNGate,therefore, reflectedin theirparentcompanysinvestment accounts andearnings as if operating leasetreatment wasachieved. Theprincipal elimination entrieseliminate investments in subsidiaries andintercompany balances andtransactions andtheentriesrequired to reflectoperating leasetreatment associated withthe2007BruceMansfield Unil1 saleandleaseback transaction.

46

FIRSTENERGY SOLUTIONSCORP.

CONDENSED CONSOLIDATING STATEMENTS OF INCOMEAND COMPREHENSIVE INCOME For the Three Months Ended September30, 2016 FES FG NG Eliminations Gonsolidated (ln millions)

STATEMENTS OF INCOME REVENUES $ 1,065 494 $ 400 $ (85s)$ 1,100 OPERATING EXPENSES:

Fuel 149 53 202 Purchasedpowerfrom affiliates 1,0; 39 (85s) 191 Purchasedpowerfrom non-affiliates 186 186 Otheroperatingexpenses 95  ; 149 11 316 Provisionfor depreciation 4 28 51 83 Generaltaxes 8 7 6 21 Totaloperatingexpenses 1,304 245 (848) 999 oPERATTNGTNCOME(LOSS) (23e) 102 (11) 101 oTHER TNCOME (EXPENSE):

Investment income,includingnet incomefromequity investees 224 I 28 (236) 24 Miscellaneous income 1-1 Interestexpense- affiliates (13) (3) (2) 15 (3)

Interestexpense- other (14) (27) (e) 14 (36)

Capitalizedinterest Totalotherincome(expense) 1s7 (18) 23 (207) (5) rNcoME (LOSS)BEFORETNCOME TAXES(BENEFITS) (42) 231 125 (218) 96 rNcoME TAXES(BENEFTTS) (82) 49 2 NET INCOME 40$ 144 $ 76$ (220)$ 40 STATEMENTS OF COMPREHENSIVE INCOME NETINCOME 40$ 144 $ 76$ (220)$

orHER COMPREHENSTVE TNCOME (LOSS):

Pensionand OPEBpriorservicecosts (3) (3) 3 (3)

Amortizedgainson derivativehedges 1 1 Changein unrealized gainson available-for-sale securities 5 (s) 5 Othercomprehensive income(loss) (3) (2) lncometaxes (benefits)on othercomprehensive income(loss) (1) (1)

Othercomprehensive income(loss),net of tax (2)

COMPREHENSIVE INCOME 42 $ 142 (221\ $

CONDENSED CONSOLIDATING STATEMENTS OF INCOME(LOSS)AND COMPREHENSIVE INCOME(LOSS)

For the Nine Months EndedSeptember30, 2016 FES FG NG Eliminations Consolidated (ln millions)

STATEMENTS OF INCOME(LOSSI REVENUES 3,281 $ 1,309 $ 1,404 $ (2,593)$ 3,401 47

FIRSTENERGY SOLUTIONS CORP.

OPERATING EXPENSES:

Fuel 449 146 595 Purchasedpowerfrom aftiliates 2,ggg 145 (2,593) 440 Purchasedpowerf rom non-affiliates 829 829 Otheroperatingexpenses 218 220 450 37 925 Provision for depreciation 10 91 151 (2) 250 Generaltaxes 23 23 20 66 lmpairmentol assets 23 517 540 Totaloperatingexpenses 3,991 1,300 912 (2,558) 3,645 oPERATTNGTNCOME(LOSS) (710) 492 (3s) (244) oTHER TNCOME (EXPENSE):

Investment income,includingnet income(loss)from equityinvestees 310 21 67 (':) 56 Miscellaneous income 3 1 4 Interestexpense- affiliates (34) (7) (4) 39 (6)

Interestexpense- other Capitalizedinterest

,1' (7e) 7 (33) 20  :

(10e) 27 Totalotherincome(expense) 239 (57) so (260) (28)

-

rNcoME (LOSS)BEFORETNCOMETA)GS (BENEFITS) (471) (48) (2e5) (272) rNcoME TAXES(BENEFTTS) (204) (1) 196 4 (5)

NETTNCOME (LOSS) (267) $ (47) $ 346 $ (2es)$ (267)

STATEMENTS OF COMPREHENSIVE INCOME(LOSS)

NET TNCOME(LOSS) (267) $ (47) $ 346 $ (2ee)$ (267) oTHER COMPREHENSTVE TNCOME (LOSS):

(10)

Pensionsand OPEB prior costs service Amortizedgainson derivativehedges (10) (10) 1 Changein unrealized gainson available-for-sale securities 61 60 (60) 61 Othercomprehensive income(loss) 51 (10) 60 (50) 51 Incometaxes (benefits) on othercomprehensive (4) 23 (1e) 20 income(loss) - - - - - - .20 sr--

Othercomprehensive income(loss),net of tax rqrl-coMPREHENSTVE TNCOME (LOSS) $ (136)$- $ 383 $ (s3o)$-]mo)

--+:

48

FIRSTENERGYSOLUTIONSCORP.

CONDENSED CONSOLIDATING STATEMENTSOF INCOMEAND COMPREHENSIVE INCOME For the Three Months Ended September30, 2015 FES NG Eliminations Consolidated (ln millions)

STATEMENTSOF INCOME REVENUES 1,293 $ 420 $ 531 $ (s06)$ 1,338 OPERATINGEXPENSES:

Fuel t: 52 245 Purchasedpowerfrom affiliates 9; 77 (rT) 103 Purchasedpowerfrom non-affiliates 401 401 Otheroperatingexpenses 34 66 134 12 246 Provision for depreciation 3 30 47 (1) 79 Generaltaxes 10 8 6 24 Totaloperatingexpenses 1,380 316 (8e5) 1,098 oPERATTNG lNCOME (LOSS) (87) 123 215 (11)

OTHERTNCOME (EXPENSE):

lnvestmentincome(loss),includingnet incomefrom equityinvestees 191 4 (18) (r1) ,r],

Miscellaneous income 1-Interestexpense- affiliates (8) (2) (1) e (2)

Interestexpense- other (13) (26) (12) 15 (36)

Capitalizedinterest Totalother income(expense) 17o (22) (24) (174) (s0) 83 101 191 (185) 190 rNcoME BEFORETNCOME TD(ES (BENEFTTS) rNcoME TAXES(BENEFTTS) (37) 36 70 NET INCOME 120 $ 65$ 121 $ (186)$ 120 STATEMENTS OF COMPREHENSIVE INCOME NET INCOME 120 $ 65$ 121 $ ( 1 8 6 )$

OTHERCOMPREHENSIVE LOSS:

Pensionand OPEB priorservicecosts t+) (3) j (4)

Amortizedgainson derivativehedges Changein unrealized gainson availablefor sale securities 11 (11)

Othercomprehensive loss 14 (1s)

Incometax benelitson othercomprehensive loss 5 (6)

Othercomprehensive loss,netof tax 9 (e)

COMPREHENSIVE INCOME I 111$ 63 q 1149_(1?1 g 111 CONDENSED CONSOLIDATING STATEMENTS OF INCOMEAND COMPREHENSIVE INCOME For the Nine Months EndedSeptember30,2015 FES FG NG Eliminations Consolidated (ln millions)

STATEMENTSOF INCOME 49

SOLUTIONSCORP.

FIRSTENERGY REVENUES $ 3,699 $ 1,259$ 1,494 $ (2,618)$ 3,834 OPERATING EXPENSES:

Fuel 523 143 666 Purchasedpowerfrom affiliates 2,657 211 (2,618) 250 Purchasedpowerfrom non-affiliates 1,336 1,336 Otheroperatingexpenses 300 208 452 36 996 Provisionfor depreciation Generaltaxes 892 36 23 142 19  ? 240 78 lmpairment of assets 16 16 Totaloperatingexpenses 4,353 967 (2,584) 3,582 oPERATTNG TNCOME (LOSS) (654) 413 527 (34) 252 orHER TNCOME (EXPENSE):

lnvestment income(loss),includingnet incomefrom equityinvestees 551 12 (1) 'u1' (7)

Miscellaneous income 1 4 5 Interestexpense- affiliates (21) (6) (3) 24 (6)

Interestexpense- other (3e) (78) (37) (110)

Capitalizedinterest 422  : 26 Totalotherincome(expense) 492 (64) (1e) (s01) (e2) rNcoME (LOSS)BEFORETNCOME TA)GS (BENEFITS) (162) 508 (535) 160 rNcoME TAXES(BENEFTTS) (2s8) 131 187 4 64 NETINCOME e6$ 218 $ 321 $ (53e)$

STATEMENTS OF COMPREHENSIVE INCOME NET INCOME e6$ 218 $ 321 $ (53e)$

OTHERCOMPREHENSIVE LOSS Pensionand OPEBpriorservicecosts (12) (11) 11 (12)

Amortizedgainson derivativehedges (2) (2)

Changein unrealized gainson available-for-sale securities (20) (20) (20)

Othercomprehensive loss (34) (11) (20) 31 (34)

Incometax benefitson othercomprehensive loss (13) (4) (7) 11 (13)

Othercomprehensive loss,net of tax (21) (7) (13) 20 (21)

COMPREHENSIVE INCOME 75$ 211 $ 308 $ (s1e) 50

FIRSTENERGY SOLUTIONSCORP.

CONDENSED CONSOLIDATING BALANCESHEETS As of September30, 2016 FES FG NG Eliminations Consolidated (ln millions)

ASSETS CURRENTASSETS:

Cashand cash equivalents $ 2$ $ $

Receivables-Customers 225 225 Affiliatedcompanies 356 351 267 (4e2) 482 Other 21 4 30 55 Notesreceivablefrom affiliatedcompanies 494 1,501 1,133 (t,t3 26 Materialsand supplies 38 '1 ,,: 403 146 Derivatives 146 Collateral 85 85 Prepaymentsand other 57 72 1,4n 2.025 1,643 (3.594) 1.496 PROPERTY, PLANTAND EQUIPMENT ln service 121 5,683 8,674 (378) 14,100 Less- Accumulatedprovisionfor depreciation 49 1,915 4,050 (192) 5,822 72 3,768 4,624 (186) 8,278 Constructionwork in progress 3 287 758 1.048 75 4,055 5,382 (186) 9.326 INVESTMENTS:

Nuclearplantdecommissioning trusts 1,542 1,542 Investmentin affiliatedcompanies 7,826 (7,826)

Other 10 10

-

7,826 10 1,s42 (7,826) 1,552 DEFERREDCHARGESAND OTHERASSETS:

Accumulateddeferredincometax benefits 279 27 -:'

Gustomerintangibles Propertytaxes 11 37 I Derivatives 98 Other 29 333 12 374

-i;;

-ot

$-tu'- S-57d $-E,ffi $-Tmboi s--1267-LIABILITIES AND CAPITALIZATION CURRENTLIABILITIES:

Currentlypayablelong-termdebt $ $ 1es $ 8 $ (25)$ 182 Short-termborrowings-Affiliatedcompanies 2,723 480 (3,102) 101 Accountspayable-Affiliated companies 597 165 180 (u:) '33 Other 18 71 Accruedtaxes 31 28 51 (38) 72 Derivatives 88 1- 89 Other 66 71 12 33 182 ss 1 0 1 5- (3,681) 1,108 CAPITALIZATION:

Totalequity 5,409 2,897 4,893 (7,790\ 5,409 Long-term debtand otherlongtermobligations 691 2,108 1, 1 2 0 ( 1, 1 0 4 ) 2,815

-

6Joo oos q o 1 3- ' % ) -

NONCUR RENTLIABILITIES  :

Deferredgain on sale and leasebacktransaction 765 765 Accumulateddeferredincometaxes  ;-817 (90) 734 Retirement benefits 25 194 219 Assetretirementobligations 186 701 887 Derivatives 455- 50 Other 40 48 792 880

$--6;ass S-s5r4 ,goo)$ te,eoz

,-:-r#

51

FIRSTENERGY SOLUTIONSCORP.

CONDENSED CONSOLIDATING BALANCESHEETS As of December31,2015 FES FG NG Eliminations Consolidated (ln millions)

ASSETS CURRENTASSETS:

Cashand cashequivalents $ 2$ $ $ 2 Receivables-Customers 275 275 Affiliatedcompanies 433 403 461 (846) 451 Other 36 419 59 Notesreceivablefrom affiliatedcompanies 406 1,210 805 12,+i'1 11 Materialsand supplies 53 ,t: ,: 470 Derivatives 154 154 Collateral 70 70 Prepayments and other 48 18 -T5s8 66

-?256) 1,4?5 141 -8 PROPERTY, PLANTAND EQUIPMENT ln service 93 6,367 8,233 (382) 14,311 Less- Accumulatedprovisionfor depreciation 40 2,144 3,775 (194)

?'19?

53 4,223 4,458 (188) 8,546 Constructionwork in progress 30 24s 878 -  !'!5-!

83 4,472 5.336 (188) 9,703 INVESTMENTS:

Nuclearplantdecommissioning trusts 1,327 1,327 lnvestment in affiliated companies 7,452 10 Other -io-re- 1 0 1,337

- 0,+szt DEFERREDCHARGESAND OTHERASSETS:

(.:)

Accumulateddeferredincometax benefits Customerintangibles 300 61 T 61 23 Goodwill 23 Propertytaxes 12 28 40 Derivatives 79 79 Other 29 312 14 12 367

--Eao--to4) 570

$ e5o2$-5bt$-g,ud,t$-Tit2ooi $ 13,199_

LIABILITIES AND CAPITALIZATION CURRENTLIABILITIES:

Currentlypayablelong-termdebt 22s $ 308 $ (25) $ 512 Short-termborrowings-Affiliatedcompanies 2,021 389 (2,410)

Other 8 8 Accountspayable-Affiliatedcompanies 884 146 368 (r1) 542 Other 21 118 139 Accruedtaxes 7 93 62 (86) 76 Derivatives 103 1- 104 Other 66619 45 181 3J 02 1.045 747 (3,332) 1,562 CAPITALIZATION:

Totalequity 5,605 2,944 4,476 (7,420) 5,605 Long-term debtand otherlong-termobligations 690 2,116 840 ( 1, 1 3 6 ) 2,510 6.295 5,060 5,316 (8,556) 8"115

-

NONCURRENT LIABILITIES :

Deferredgain on sale and leasebacktransaction 791 791 Accumulateddeferredincometaxes  ; 697 (rT) 600 Retirementbenefits 27 305 332 Assetretirement obligations 191 640 831 Derivatives 37 1 38 Other 35 61 803 899 105 558 2,140 688 = ,9'1?1

$ g 5 0 resot

- S - - - - 6 . 0 6 t 5-8"203

$-G-o6t f 8 , 2 0 3il$- ((tt,eoo) 11,299 $I 13'Eq-13,168 52

SOLUTIONSCORP.

FIRSTENERGY CONDENSED CONSOLIDATING STATEMENTSOF CASH FLOWS For the Nine Months EndedSeptember30, 2016 FES FG NG Eliminations Consolidated (ln millions)

NETCASHPROVTDED FROM(USEDFOR)

OPERATING ACTIVITIES $ (605) 401 $ 820 $ ( 1 2 )$

CASHFLOWSFROMFINANCINGACTIVITIES:

NewFinancing-Long-termdebt 186 285 47',l Short-term borrowings, net 701 92 (6e2) 101 Redemptions and Repayments-Long-termdebt (211) (304) 12 (503)

Other (5) (2) (7)

Net cashprovidedfrom (usedfor)financing activities 701 62 (21) (680) 62 CASHFLOWSFROMINVESTING ACTIVITIES:

Propertyadditions ,m, (,r:) (233) (432)

Nuclearfuel (1e5) (1e5)

Salesof investment securitiesheld in trusts 576 576 Purchasesof investmentsecuritiesheldin trusts (61e) (61e)

Cashinvestments 10 10 Loansto affiliatedcompanies,net (87) (2s2) (328) 692 (15)

Other 9 9 Net cashusedfor investingactivities (e6) (463) (7ee) 692 (666)

Netchangein cashand cashequivalents Cashand cashequivalents at beginningof period 2 c e, Cashand cashequivalents at end of period Y'

53

SOLUTIONSCORP.

FIRSTENERGY CONDENSED CONSOLIDATINGSTATEMENTS OF CASH FLOWS For the Nine Months EndedSeptember30, 2015 FES FG NG Eliminations Consolidated (ln millions)

NETCASH PROVTDED FROM(USEDFOR)

OPERATING ACTIVITIES $ (oz+) 405 $ 867 $ ( 1 2 )$ 636 CASH FLOWSFROMFINANCINGACTIVITIES:

NewFinancing-Long-termdebt 43 296 339 Short-termborrowings, net 689 51 (740)

Redemptions and Repayments-Longtermdebt (17) ,1' (322)

(27) 12 (82)

(382)

(10e)

Short-termborrowings,net Other (4) (1) (5)

Net cash providedfrom (usedfor)financing activities 672 35 (54) (810) ( 157)

CASHFLOWSFROMINVESTING AGTIVITIES:

Propertyadditions (3) (144) (1e4) ( 341)

Nuclearfuel (101) (101)

Salesof investment securitiesheldin trusts 503 503 Purchasesof investmentsecuritiesheldin trusts (546) ,u1, Loansto affiliatedcompanies,net (45) (302) (475) 822 CashInvestments (10) (10)

Other 10 6 16 Net cash usedfor investingactivities (48) (440) (813) 822 (47e)

Net changein cashand cashequivalents Cashand cashequivalents at beginningof period 2 2 Cashand cashequivalents at end of period 2$

54

14.SEGIIENTINFORiIATION FirstEnergys reportable segments areasfollows:Regulated Regulated Distribution, Transmission, andCES.

Financialinformation for eachot FirstEnergy's reportablesegmentsis presentedin the tablesbelow.FESdoesnothaveseparate reportableoperatingsegments.

The RegulatedDistributionsegmentdistributeselectdcitythroughFirstEnergy's ten utilityoPrating companies, serving approxi;ately sixmillionostomerswithin 65,000squaremilesof Ohio, Pennsylvania, Wesf Virginia,Maryland,New Jersey and New vbi.4anapulcnases powerlor its POLR,SOS,SSOanddefaultservicerequirements in Ohio,Penns,ylvania, NewJerseyand Marytand. ihis segment alsocontrols 3,790lvfws of regulaledelectricgeneration capacity located pdmalilyin WeslMryinia, Viqinia andNewJersey.Thesegment'sresultsretlectthecom;pdity cosB of aecuring electric generation and the deferal and amonization of ceftainfuelcosts.

TheRegulatad Transmission segmenttransmib through electricity transmission tacilities ownedandoperated byATSl,TrAlL, a]d certain;fFirsrEnergys (Jcp&L,ME,PN,MB PEa;d WP).Thissgment utitities also includesthe regulatoryasset associatedwith the abandonedPATi proiect.Thesegmentsrevenuesareprimarilyderivedfromforwardlookingratesat ATSIandTrAlL,asull as fixed ratesat certain-otFirstEnergy;sutilities.Boththe fonyardiookingand fixed rates recovercosts and providea returnon transmission capitalinvestment. Unierthe fo]ward-lookng rates,eaci ofATSI'S atd TrAlUsrevenuequilementis updatedannually basedon a proiectedratebaseandpmjectedcosts,whichis subjectto annualtrue-upbasedonactualcosts.Exceptfortherecovery of the pATtiabandoned projectregutatory asset,thesegmentsrevenuesareprimarilyfrom transmission selvicesprovidedb LSES pursuantto the PJMtarif. ite segmenti resultsalsoreflectthe nettransmission expensesrelatedto thedeliveryof slectricityon FirstEnergys transmission facilities.

TheCESsegment, throughFESandAE Supply,primarily supplieselectricity to end-usecustomers throughretailandwholesale anangementl, includingaompetitive retaitsit'ei ti customers primarilyin Ohio, Pennsytvania, lllinois, Michigan, NewJerseyand t,tarytind,anOttreproviiionoi partiatPOLRanddelaultservicelorsome utilitiesin Ohio,Pennsylvania andMaryland, including the As of September Utitiiies. 30,2016,this businesssegmentcontrolled13,162l Ws of electricgenerating capacity.The CES segment's netincomeispdmarily derived fromelectric g;neration saleslesstherelaledcostsof electricily generation,includingfuel, puicnasedpowerand net transhission(includingcon-gestion) and ancillarycostsandcapacrtycostscharged.byPJMto deliver

nergyto lhe segment's customers, aswellas otheloperating andmainlenance @sts,including costsincunedby FENOC.

Colporatesupportand otherbusinessesthat do not constitutean operatingsegment,interestepense on sland-aloneholding companydelii and corporateincometaxes are categorizedas Corporate/Other for reportablebusinesssegmentpurposes.

Additionally,reconciling adjustments for the elimination of inler-segment transactions are includedin Corporate/Other. As of SeptembeiSO, ZOt6, C6rpoiate/Other nad94.2billionof stand-alone holdingcompany long-term debt,of which28% was to subject variable-interest rales,and$2.7billionwasborrowed by FEundelits revolving creditfacility.

55

SegmentFinanciallnformation Gompetitive Regulated Regulated Energy Corporate/ ReconcilinE FortheThreeMonthsEnded Distribution Transmission Services Other Adiustmentl Gonsolidated (ln millions)

Seotember30.2016 Externalrevenues 2,702 $ 'y$ 9e8 $

( 1 17 )

3,917 lnternalrevenues 117 Totalrevenues 2,702 285 (185) 3,917 79 16 311 Depreciation Amortizationof regulatoryassets,net 171 98 i 98 Investment income 13 23 , trol 28 139 43 48 56 286 Interestexpense 167 45 49 (11) 1 251 Incometaxes (benelits)

Net income(loss) 283 78 86 (67) 380 Totalassets 28,276 8,034 15,165 486 51,961 Totalgoodwill 5,092 526 5,618 303 246 110 5- 664 Propertyadditions Seotember30.2015 2,624 $ 248 $ 1,327 $ (76) $ 4,123 Externalrevenues 141 (141)

Internalrevenues -

Totalrevenues 2,624 248 1,468 (2y 4,123 15 328 Depreciation Amortizationof regulatoryassets,net 174 110  ! i 110 8 8 lmpairmentol assets 8 (1e) (6) (11) (28)

Investment income(loss) 149  ; 48 48 285 Interestexpense 137 41 84 (3e) 3 226 Incometaxes (benefits) 234 70 145 (54) 395 Net income(loss)

Totalassets 27,883 6,988 16,229 830 51,930 5,092 526 800 6,418 Totalgoodwill 292 149 83 15 539 Propertyadditions For the Nine Months Ended Seotember30.2016 Externalrevenues 7,423 $ t:$ 3,158 (218)$ 11,187 lnternalrevenues Totalrevenues 7,423 824 377 3,535 --+ii rc 974 Depreciation Amortizationof regulatoryassets,net 510 218 132 4

284 i 222 1,447 1,447 lmpairment of assets(Note2) 37 56 13 (31) 75 Investment income 431 128 143 161 863 Interestexpense 349 130 (s6) (51) 2 334 Incometaxes (benefits) 594 223 (1,029) (16e) (381)

Net income(loss) 878 755 492 31 2,156 Propertyadditions September30. 2015 Externalrevenues 7,425 $ '1 $ 3 , 5 3 6$

s63

$ (231)$

(563) 11,48s lnternalrevenues -----l oee" --

Totalrevenues 7,425 755 11/ 8s Depreciation 516 116 293 44 969 201 Amortizationol regulatoryassets,nel 196 j 16 24 lmpairmentof assets I 33 (7) ttl tsll (14)

Investment income(loss) 439 119 144 144 846 lnterestexpense 350 135 76 (84) 8 485 Incometaxes (benefits) 598 231 129 (1s4) 804 Net income(loss) 884 700 400 41 2,025 Propertyadditions 56

Item 2. Management'sDiscussionand Analysis of Registrantand Subsidiaries FIRSTENERGYCORP.

MANAGEMENT'SDISCUSSIONAND ANALYSISOF FINANCIALCONDITIONAND RESULTSOF OPERATIONS FIRSTENERGY'S BUSINESS FirstEnergy andib subsidiaries areprincipally involved in thegeneration, lransmission anddistribution lts reportable of electricity.

segments are as follows:Regulated Distribution, Regulated Transmission, and CES.

The RegulatedDbtrlbu on segmentdistibuteselectricitythroughFirstEnergy's ten utilityoperatingcompanies'serving approxiriately sixmillioncustomers within65,000squaremib; otOhio,Pennsyhrania, WestVirginia, Maryland, NewJerseyandNew ybrk,and puichases poyverfor its POLR,SOS,SSOanddefaultservicerequirements in Ohio, Penns}lvania, NewJerseyand This Maryland. segment also controls3,790 lWVs of regulated electricaeneration capacity located Virginia'Virginia primarilyinl/t/est andNewJersey.Thesegment'sresulbreflectthecomiroditycostsot iecuringelectricgenerationandthedeferralandamonization of cenainfuel costs.

TheRegulated Transml$lonsegment transmits electricitythrough transmission tacilitiesownedandoperated byATSl,TrAlL, and certain6f FirstEnergy's (JCP&1, utitities ME, PN, MP, PE and WP). This segment also includes the regulatoryasset associated with theabandoned PATHproject. Thesegment's revenues areprimarily derived fromforwardlooking ratesatATSland TrAlL,as\'vellas fixedratesat certainof FirstEnergyls utilities.Boththe forwardlooking and fixed rates recover costs and provide a returnon transmission capitalinvestment. Un-derthelonarardlooking rates,eachofATSI's andTrAlUsrevenue Equirementis updated annually basedona projected ratebaseandprojected costs,whichis subject lo annualtrue-up basedonactualcosb. Exceptbrtherecovery ofthePATHabandoned projectregula6ryasset,thesegment's revenues areprimarily fromtransmission services provided to LSES pursuant to thepJMtaritt.itre segmenttresultsalsoreflectthenettransmission expenses relatedto thedelivery of electricilyon FirstEnergy's transmission facilities.

TheCESsegment, throughFESandAE Supply, primarily supplies electricityto end-usecustomers throughretailandwholesale arrangemenG, including competitive retail salei to customers primarily in Ohio, Pennsylvania, Michioan, lllinois, NowJerseyand tvtarytind,andtneproviiionoipartialPOLRanddetaultservicefor someutilitiesinOhio,Pennsylvania andMaryland, including lhe gO, Utitiiies.es of September ZO1O, ttrisbusinesssegmentcontrolled 13,162 lvlvvs of electric generating capacity. The CES segment's netincomeis primarily derivedfrom g;neration electric saleslesstherelated costsol electricitygeneration, including tuel' puichased powerandnettransmission (including congestion) andancillarycostsand capacity costs charged.by PJM to deliver

nergyto thesegment's customers, aswellas otheroperating andmaintenance costs,including costsincurred by FENOC.

Corporate supportandotherbusinesses thatdo notconstitute an operating segment,interestexpenseon stand-alone holding companydebi and corporateincomeiaxesare categorized as Corporate/Other for reportable businesssegmentpurposes' AOOition'atty,reconciling adjustments for ihe elimination of inter-segmenl transactions are includedin CoPorate/Other. As of gO, Septembei ZOtO,C6rpoiate/Other trad g4.2 billion of stand-alone holding company long-term debt,of which28% was subject to variable-interest rates,and$2.7billionwasborrowed by FEunderits revolving credilfacility.

57

EXECUTIVE SU iIARY FirstEnergy believeshavinga combination ot distribution, transmission andgeneration assetsin a regulated or regulatedlike constructis the bestway to servecustomers. Company's The strategy is to be a fully regulated utility,focusing on stableand prediciable earnings andcashflowfromits regulated business units.

C@pdllveElersyscrviegs Inorderto executeonthisstrategy,FirstEnergy hasbeguna strategicreviewof itscompetitive operationsfocusedonthesalsof gas andhydroetectric unis aswellasLpbring atilftematives fortheremaining generation assetsat FESandAESupply. Theseindude, butare notlimitedto, legislativeeffortsto aonvertgenerationfromcompetitiveoperationsto a regulatedor regulated-like construct suchasa regulatory reJtructuring in Ohio, offering generation into any process to address MP's generation shortfall included in its IRRand/ora-solution fornuclear generation thatrecognize theirenvironmentalbenefib. Management anticipates thattheviatilityof thesealtematives willbe determined in the nearter; witha targetto implement thesestrategic optionswithinthe next12 lo 18 monthsandcouldresultin material assetimpairments.

BasedoncunentmaketfoMards,CES,including FES,expects to havemorethansufficient cashflowfromoperations in2017and 2018to fundanticipated capitalexpenditures withno equitycontributions tromFirstEnergy. However, in addilionto exposure to marketpricevolatility andoperational risks,CES,including FES,facessignificant financialrisks thatcould impactitsanticipated cash flowandliquidityincluding, bulnotlimitedto, thefollowing:

Requeststo postadditionalcollateral or accelerated paymentsof up to $355millionresultingfromcurrentcreditratingsat FEd,includingMoody'sdowngradeof the SeniorUnsecured debtratingfor FESto Caal aswellas S&P'sdowngrade of the SeniorUnsecureddebt ratingat FESto B, bothof whichoccurredon November4,2016.

Adverseoutcomesin the previouslydiscloseddisputesregardinglongtermcoaltransportation contracts-Theinability to extendor refinance debt maturities at CES, including at FES subsidiaries, in 2017 and2018of $130million and $515million,respectively.

A significant collateralcallor theinability to refinance 2017debtmaturities at FESsubsidiaries is expected to beaddressed byFES througha combination of cashon hand,additional capitalexpnditure reductions, assetsales,ancvorborrowings underthe unreg-ulated moneypool.However, adverseoutcomes inthecoaltransportation contracts disputes, the inability to relinance 2018 debt;aturities,oriackofviablealternative strategies could cause FES to iake one or more of the lollowing actions: (i) restructuring ot debtandotherlinancial obligations, (ii)additio;alborrowings undertheunregulated moneypool,(iii)furtherassetsalesor plant deactivations, and/or(iv)seekprotection underbankruptcy laws.IntheeventFESseekssuchprotection, FENOC maysimilarly seek protection underbankruptcy laws.

Materialassetimpairments, resulting fromthesaleordeactivation ofgeneration assetsorfroma determination bymanagement of its intentto exitcompetitive generatio; assets before the end of their estimated useful life resulting lrom the inability to implement alternativestrategies discussed above,adverse judgments ora FESbankruptcyfiling couldresultinaneventofdehultundervarious agreements relaiedto the indebtedness ol FE-Althoughmanagement expects to successfully resolveanyFEdefaultslhrough waiversor otheractionson acceptable termsandconditions, thefailureto do so wouldhavea materialandadverseimpacton FirstEnergy's financial condition, andFirstEnergy cannotprovideanyassurance thatit willbeableto successtully resolveanysuch defaultson satisfactory terms.

Duringthisperiodoftransition, subject to strategic decisions regarding competitive generation assets,it is anlicipated thatCESwill produieapproximatety 70 to 75millionMWHSof electricity annually, withup to an additional fivemillionMWHSavailable from purchased agreements forwind, solar, and CES'entitiement in OVEC. In 2017 and 2018, CES expects to hedge 75%- 85%

iower of itsgeneration out-put bytargeting approximately 50to 65 million[lwHs in annualcontract salesandmaintaining upto 25million MWHIas ,eseruemargiri.for thJpdrioO Octobei1,2016to December 31,2016,CES'committed salesareS2y"tedgedagainst generation supply,including committed purchases, assuming normalweather conditions. As of Septembel 30,2016,contractual iales obligatidnjior 2017 ;nd 2018 ar; approximately 48 ;illion MWHS and 28 million MWHS, respectively. Contractual sales obligations forA)16areapproximately 67 millionlvfwHs.

CESwillcontinue to makeprudentinvestmenb in its nuclearunitsin orderto maintain safeandreliableoperations in accordance withnuclearstandards, buiwillcontinue to focuson costsgivencurrentmarket@nditions, specifically suroundingitslossilieet.

Management curreny anticipates totalcapitale4enditureJ of $370millionand$300millionin 2017and2018,tespectively, which represents a significant reduction lrom2Ol6forecasted capitalependituresof $540million.

Reoulated Transmission Thecenterpiece of FirstEnergy's regulatedinvestment strategycontinuesto be ib EnelgirngtheFulutetransmission plan.Theplan gi.2 inctudes biltionininvestments irom2014through2017a;d anadditional $8OO million to $1.2 billion annually from 2018to2021 58

to modernize FirstEnergy'stransmission systemto makeit morereliable, robust,secureandresistant to extremeweatherevents, withimprovedoperationalflexibility.

Theseinvestments willcontinue to befocusedinoul stand-alone transmission @mpanie6 withlormularatesincluding ATSI,TrAIL andMAIT(whichwillincludethetransmission assetsfromMet-EdandPenelec), aswellasthetransmission systemat JCP&Las filingsweremadewithFERConOctober 28,2016to implement andtransition to aformularateforMAITandJCP&L's transmission investments.FirstEnergy believesefsting transmission createsimprovement infrastructure inrslmentopportuni$esol apgofmately

$20billionbeyondthoseidenlilied through2021.

ReoulatedDistdbution The scale and diversityot our regulatedutilitieshas uniquelypositionedRegulat6dDistribulionfor growthand representsan addilionalinvestmentopportunity.Althoughweather-adjusted distribufiondeliveriesthrough2019 are forecastedto be flat as comparedto 2016,RegulatedDistribution's eamingsoverthe nextthreeyearsare anticipatedto increaseas a resultof the recent orderbythePUCOregarding theOhioCompanies' ESPlV,whichincludes approfmately $204million,gossedupiorincome bxes, in additional annualrevenue throughriderDMR,cunentsettlement agreements thatarependingbetorethePAPUC regarding the Pennsylvania Companies' baseratecases,aswellasthe impactof thesettlement-in-principle achievedinthebasel?ltecasein New Jersey,whichprovides foranannual$80milliondistribution revenueincrease effectiveonJanuary1,2017,subjectto finalization, executionandNJBPUapprovalof a Slipulationol Setllement.

Planned capitalependituresfor Regulated Distribution areapproximately $1.3billion,annually for2017through2019.

59

FINANCIALOVERVIEW (ln millions,exceptper shareamounts) For the Three Months Ended September 30 For the Nine Months Ended September30 2016 2015 Change 2016 2015 Change REVENUES: $ 3,917 $ 4,123 $ (206) (5)% $ 1 1 , 1 8 7$ 1 1 , 4 8 5 $ (298) (3)/.

OPERATING EXPENSES:

Fuel 450 482 (32) (7)o/" 1,269 1,378 (109) (8)%

Purchasedpower 979 1,209 (230) (19)% 2,992 3,311 (319) (10)%

Otheroperatingexpenses 953 842 111 13 % 2,835 2,799 36 1 "/"

Provisionfor depreciation 311 328 (17l' (5)% 974 969 5 1 o/o Amortizationof regulatoryassets,net 98 110 (12\ (11)./" 222 201 21 10 o/"

Generaltaxes 265 236 29 12% 786 747 39 5%

lmpairment of assets 8 (8) (100)% 1,447 24 1,423 NM Totaloperatingexpenses 3,056 3,215 (15e) (5t% 1 0 . 5 2 5- 9.429 1,096 12 %

OPERATING INCOME 861 (47) (5)% 662 2.056 (1,3s4) (68)%

OTHERTNCOME (EXPENSE):

Investment income(loss) 28 (28) 56 (2001./" 75 (14) 89 NM Interestexpense (286) (28s) (1) -% (863) (846) (17) 2%

Capitalized financingcosts 28 26 2 8 o/o 7s e 3 -58 ( 1 4 ) (15)%

Totalotherexpense (230) (287t 57 (20\% ?oe) 06?\ (8)%

rNcoME (LOSS)BEFORETNCOME TAXES 631 621 10 2 o/" (47) 1,289 (1,336) (104)/0 INCOMETAXES 251 226 25 11% 334 485 (151) (31)%

NET TNCOME (LOSS) $ gao $ (15)_<al%. $_(381) 9_(1,185)_ (147)/"

EARNTNGS (LOSSES)PERSHAREOF COMMONSTOCK:

Basic $ 0.89 $ 0.94 $ (0,0s) (5)./, $ (0.e0)g 1 . e 1$ (2.81) (147)%

Diluted $ 0.89 $ 0.93 $ (0.04) (4)% $ (0.e0)$ 1 . e 0 $ (2,80) (147)%

NM- NotMeani.lul For the Thriltonlhs EndedSeptem',t30. 2016 FirstEnergy's netincomeinthethirdquarterof2016was$380million,ora basicanddilutedearnings ot$0.89pershareofcommon stock,compared withnetincomeol $395million,or basicearnings of$0.94pershareof commonstock($0.93diluted)inthethird quarterof 2015.

As furtherdiscussed belowthirdquarter2016earningsimproved overthe sameperiodot 2015at Regulated Distributionand Regulaled Transmission butwerepartially otfsetby lowerearnings at CESandCorp/Other.

Duringthethirdquarterof 2016,FirstEnergy's revenues decreased $206millionascompared to thesameperiodin2015,primarily resulting froma $353milliondecrease at CES,partially ofisetbya $78millionincrease at Regulated Oistribution anda $37million increase al Regulaled Transmission.

. Thedecrease in revenue al CESresulted troma 2.6millionMWHdeclinein contractsalesas thesegmenlcontinues to alignitssalesto itsgeneration, aswellas lowercapacityrevenueassociated withlowercapacity auctionprices,parlially offsetby higherwholesale sales.

. Theincrease inrevenue at Regulated Distribution primarily resultedlrom a 7%increasein MWHdeliveries mainlyrelated to higherweatheFrelated usageaswellashigherratesassociated withtherecovery of detened program costs,partially offsel by lowerdefaultservicegeneration salesresulting primarily fromlowerpricesin OhioandPennsylvania.

. Theincrease inrevenue at Regulatsd Transmission resultedtrom recovery of incrementaloperating expenses anda higher ratebaseat ATSIandTrAlL,parlially offsetby a lowerROEat ATSI.

Operating expenses deffeased$159millioninthethirdquarterof 2016ascompared tothethirdquartero12015, primarily reflecting a decrease at CESof $217million,partiallyotfsetby an increase at Regulated Transmission of $22millionandan increase al Regulated Distribution of $14million.Changes in certainoperating expenses include thefollowing:

. Fuelexpensedecreased $32 million,primarilyresultingfromlowergeneration at CESassociated with outagesand economic dispatch ol fossilunitsresulling tromlowwholesale spotmarketenergyprices,aswellas lowerunitpriceson fossilfuelcontracts.

. Purchased powerdecreased $230million,primarily dueto lowercapacityexpense at CESas a resultof lowerconlract salesandcapacityrates,aswellas lowerdefaultserviceandwholesale spotma*et prices.

. Otheroperating expenses increased $111million,primarily retlecting an increase of $81millionat Regulated Distribution primarily associated withhigherstormrestoration expenses, network transmission expenses inOhioandretirement benefit costsaswellas a $31millionincrease at CESresulting primarily froma contract termination charge.

60

Otherincome(expense) increased $57million,prjmarilyfromlowerOTTIon NDTinvestments. FirstEnergy'sofiective lax ratewas 39.8%torthethreemonthsendedSeptember 30,2016compared to 36.4%forthesameperiodin 2015.

For the Nlne MonthsEn ted sF,otember30. m16 FortheninemonthsendedSeptember 30,2016,FirstEnergy's netlosswas$381million,or a basicanddilutedlossof $(0.90)per shareof commonstock,compared to netincomeof $804million,or basicearningsof $1.91pershareof commonstock($1.90 fortheninemonthsendedSeptember diluted) 30,2015.

FirstEnergy's2016year-to-date eamings decreased $1,185millionascompared tothesameperiodof2015primarily reflecting asset impairment andplantexitcostsrecognized in thesecondquarterot 2016consisting of:

. Non-cash impairment chargeof $800million(pre-tax) associated withgoodwillat CES, Non-cashimpairment chargesof $647million(pretax)associated withthe announcedplanto exitoperationsby 2020ot Units1-4of the W.H.Sammisgenerationstation(720MW)and the BayShoreUnit1 generatingstation(136MW),

Coalcontractsettlementand termination costsof $58 million(pre-tax),and Valuationallowancesagainststateand localNOLcarryforwards of $159 million.

Duringthefirstninemonthsof 2016,FirstEnergy's revenues decreased $298millionas compared to the sameperiodin 2015, resulting froma $564milliondecrease at CES,partiallyoffsetbyan increase of $69millionat Regulated Transmisshn.

. Thedecrease inrevenue atCESresulted froma 13millionMWHdeclineincontract sale6asthesegment cortinuesto align itssalesto itsgeneration. Thedeclinein contractsalesvolumewaspartially olfsetby higherwholesale salss,increased capacityrevenueassociated withcapacityauctionprices,andhighernetgainsonlinancially settldcontrac{s.

. The increasein revenueat RegulatedTransmission primarilyreflecledrecoveryof incrementaloperatingexpensesam higherratebaseat ATSIandTrAlL,paniallyoffsetby adjustmentsassociatedwithATSIandTrAlUsannualratelilingfor costspreviouslyrecoveredaswellas a lowerROEat ATSIunderits FERc-approved comprehensive settlsmefirelatedto the implementation of a foMardlookingrate.

Operating expenses increased $1,096millionduringthefirstninemonths of 2016ascompared to2015,mainlyreflecting anincrease at CESof $830million,resultingprimarilyftom the assetimpairmentand plantexit costsdescdbedabove,and an incleaseat Regulated Transmission of $62million.Changes in certainoperating expenses includethetollowing:

. Fuelexpense decreased $109millionmainlyresulting fromlowergeneralion at CESassociated withoulages andeconomic dispatchof fossil units reflectinglow wholesalespot marketenergyprices,as well as lowerunit priceson lossil fuel contracts.

. Purchased powerdecreased $319millionmainlydueto lorvervolumesat CESand Regulated Distribution andlower capacitye)penseat CES.

Otherincome(e4ense) increased$58million,primarilyfromlowerOTTIon NDTinvestments. Changesin FirstEnergys efiectivetax ratefortheninemonths endedSeptember 30,2016compared to thesameperiodin2015,primarily relatedto thesecondquarter of 2016impairment of $8OO millionof goodwill, ofwhich$433millionis non-deductible fortaxpurposes. Additionally, $159millionof valuationallowances wererecorded againststateandlocalNOLcarryforwards in the secondquarterof 2016thatmanagement believes,morelikelythannot,will not be realizedbasedprimarilyon projectedtaxableincomerefectilE updatesto FirstEneagys annuallong-termfundamental pricingmodelforenergyandcapacity,aswllascertainstatutorylimitationsontheutilizationof state andlocalNOLcarryfoMards.

61

RESULTS OFOPEFATIONS The financialresulbdiscussedbelowincluderevenuesand expensesfrom transaclions amongFirstEnergy's segments. A reconciliation of segmentfinancialresultsis provided in Note14,SegmentInformalion, ot the Combined Notesto Consolidated FinancialStatemenF.Certainprioryearamountshavebeenreclassifiod to contormto the currentyearpresentiation.

Summaryol Besultsof Ope/,a,tlons - Thhtt Atarw 2016Comparedwfth mh.t Quaftr m15 Financial resultsforFirstEnergy's businesssegments in thethirdquarterof 2016and2015wereas follows:

Competitive Corporate/Other Regulated Regulated Energy and Reconciling _FirstEnergy Third Quarter2016FinancialResults Distribution Transmission ServiCes Adiustments Consolidated (ln millions)

Revenues:

External Electric 2,649 285 $ 959 (46) 3,847 Other 53 39 (22) 70 lnternal 117 (117)

TotalRevenues 2,702 1,115 (185) 3,917 OperatingExpenses:

Fuel 156 294 450 Purchasedpower 902 194 t1ul 979 Otheroperatingexpenses 615 46 367 (75) 953 Provisionfor depreciation 171 45 79 16 311 Amortizationof regulatoryassets,net 98 98 Generaltaxes 190 37 30 8 265 lmpairmentof assets TotalOperatingExpenses 2,132 't28 (168) 3,056 OperatingIncome 570 157 (17) 861 OtherIncome(Expense)  :

Investment income 13 23 (8) 28 Interestexpense (13s) (43) (48) (56) (286)

Capitalizedf inancingcosts 6 I I 4 28 TotalOtherExpense (120) (34) (16) (60) (230) lncomeBeforeIncomeTaxes 450 123 135 (77) 631 Incometaxes 167 45 49 (10) 251 Net Income 283 $ 78$ 86$ (67) $ 380 62

Competitive Corporate/Other Regulated Regulated Energy and Reconciling FirstEnergy Third Quarter2015FinancialResults Distribution Transmission Services Adjustments Gonsolidated (ln millions)

Revenues:

External Electric 2,571 248 $ 1,276 (41) 4,054 Other 53 51 (35) 69 Internal 141 (141)

TotalRevenues 2,624 248 1,468 (217) 4,123 OperatingExpenses:

Fuel 140 342 482 Purchasedpower 980 370 (141) 1,209 Otheroperatingexpenses 534 42 336 (70) 842 Provisionfor depreciation 174 41 98 15 328 Amortizationof regulatoryassets,net 110 110 Generaltaxes 172 23 35 6 236 lmpairment of assets I 8 TotalOperatingExpenses 2,118 106 1,181 (1e0) 3,215 OperatingIncome 506 142 (27) 908 OtherIncome(Expense):

lnvestment income(loss) I (1e) (17) (28)

Interestexpense (14e) (40) (48) (48) (285)

Capitalizedf inancingcosts 6 I 9 2 26 TotalOtherExpense (135) (31) (58) (63) (287) lncomeBeforeIncomeTaxes 371 111 229 (e0) 621 Incometaxes 137 41 84 (36) 226 Net Income 234 $ 70$ 145 $ (54) $ 395 63

ComPetitive Corporate/Other Changes BetweenThird Quarter 2016 and Regulated Regulated Energy and Reconciling FirstEnergy Third Quarter2015FinancialResults Distribution Transmission Services Adjustments Consolidated (ln millions)

Revenues:

External Electric 78$ 37$ (317) (5) (207)

Other (12) 13 1 lnternal (24',) 24 TotalRevenues 78 37 (353) 32 (206)

OperatingExpenses:

Fuel 16 (48) (32)

Purchasedpower (78) (176) 24 (230)

Otheroperatingexpenses 81 4 31 (5) 111 Provisionfor depreciation (3) 4 ,:, 1 (17)

Amortizationof regulatoryassets,net (12) ('t2)

Generaltaxes 18 14 2 29 lmpairmentof assets (8)  :, (8)

TotalOperatingExpenses 14 (217) (15e)

OperatingIncome 15 (136) 10 (47)

OtherIncome(Expense)  :

lnvestment income 5 42 9 56 Interestexpense 10 (3) (8) ( 1)

Capitalizedf inancingcosts 2 2 TotalOtherExpense 15 /e\

\v,,

IncomeBeforelncomeTaxes 79 12 (e4) 13 10 lncometaxes 30 4 (3s) 26 25 Net lncome 4e$ 8$ (5e) $ ( 1 3 )$ (15) 64

Regulabd Dlstrlbutlon- Thhd Quarter2016Comparcdwith Thlttt Ouarter2015 Regulated Distribution's net incomeincreased $49millionin thethirdquarteroI 2016as compared to thesameperiodot 2015, reflectinghigherrevenues associated withcoolingdegreedaysthatwere28%above2015,partially ofiselbyhigheroperating and maintenance costsandincreased retirementbenefitcosts.

Revenues -

The$78millionincrease in toialrevenues resulted fromthefollowing sources:

For the Three Months Ended September30 Increase Revenuesby Type of Service 2016 2015 (Decrease)

(ln millions)

Distributionservices 1,390 $ 1,245 $ 145 Generationsales:

Retail 1,117 1,',182 (65)

Wholesale 142 144 (2)

Totalgeneration sales 1,259 1,326 (67)

Other 53 53 TotalRevenues 2,702 $ 2,624 $ 78 Distributionservicesrevenues increased $145millionprimarilyresultinglromhigherMWHdeliveries, described bdow anda rate increaseassociated withtheOhioCompanies'rider OCR.Additionally,distributionservicerevenues increased related to higherrates associated withthe remveryof deferredcosts,including OhioCompanies'NMB transmission riderrevenues, anda surcharge increase inWestVirginia associated withtherecovery otvegetationmanagement deferred program costs,effective January'1,20'16.

Distributiondeliveries by customer classaresummarized in thefollowing iable:

For the Three Months EndedSeptember30 lncrease Electric DistributionMWH Deliveries 2016 2015 (Decrease)

(ln thousands)

Residential 16,138 14,305 12.8 "/"

Commercial 12,005 11,463 4.7 "/"

Industrial 13,023 12,721 2.4 V" Other 144 146 (1.4)%

TotalElectricDistribution MWHDeliveries 41,310 38,635 6.9 %

Higherdistributiondeliveriesto residential andcommercialcustomers primarilyreflectincreased wsather-related usageresulting from coolingdegreedaysthatwere28%above2015,and46%abovenormal.Deliveries to industrial customers increased relaledto highershale,coalandsteelcustomer usage.

65

Thefollowing tablesummarizes thepriceandvolumefactorscontributing to the$67milliondecrease ingeneralion revenuesforlhe thirdquarterof 2016compared to thesameperiodof 2015:

Increase Source of Changein GenerationRevenues (Decrease)

(ln millions)

Retail:

Effectof increasein salesvolumes 16 Changein prices (81)

(65)

Wholesale:

Effectof increasein salesvolumes 10 Changein prices (1)

CapacityRevenue (11)

(2\

Decreasein GenerationRevenues (67)

Thedecrease in reiailgeneration salesprimarily resulted fromlowerdefaultserviceauctionpricesin OhioandPennsylvania. The increasein retailgeneralionvolumeswasprimarilydueto weather-related volume,as describedabove,partiallyoffsetby increased customershoppingin Ohioand NewJersey.Totalgenerationprovidedby alternativesuppliersas a percentageof total iifwH deliveriesincreased to 85%from81%fortheOhioCompanies andlo 48"/"fiom47"/.forJCP&L.

Thedecrease inwholesale generationrevenues of $2 millioninthethirdquarterof 2016,ascompared to thesameperiodin2015, reflectslowercapacityrevenuespartiallyoltsetby higherwholesalesales.Thedifferencebstweencurrenlwholesalegeneration revenuesandcertainenergycostsincurredare deferredfor tuturerecoveryor refund,with no matelialimpactto earnings.

Openting Expenses -

Totaloperating epensesincreased $14millionprimarily dueto thefollowing:

Fuelexpenseincreased $16 millionin thethirdquarterof 2016,as comparedto thesameperiodin 2015,primarily relatedto highergeneration.

Purchasedpowercostswere $78 millionlowerin the third quarterof 2016,as comparedto the same periodin 2015, primarilydue to decreasedunitcost reflectinglowerdefaultserviceauctionpricesin Ohioand Pennsylvania.

lncrease(Decr Source of Changein PurchasedPower ease)

(ln millions)

Purchasesfrom non-affiliates:

Changedue to decreasedunitcosts $ (85)

Changedue to increasedvolumes 10 (75)

Purchasesfrom affiliates:

Changedue to decreasedunitcosts (14)

Changedue to increasedvolumes (e)

(23)

CapacityExpense (7)

Amortizationof deferredcosts 27 Decreasein PurchasedPowerCosts (78) 66

. Otheroperating expenses increased $81millionprimarily dueto:

. Higheroperating andmaintenance expense of$37millionincluding higherstormrestorationcostsof $32million, whicharedeferred forfuturere@veryresulting in no materialimpacton currentperiodearnings.

. Highertransmission expenses of$24millionprimarilydueto anincrease in networktransmissionepensesatthe OhioCompanies. Thedifference between currenlrevenues andtransmission costsincurredaredebrredforfuture recovery or refund,resulting impacton currentperiodearnings.

in no material

. Higherretirement benefitcoslsol $12million.

. Netamorlization of regulatory assetsdecreased $12millionprimarily dueto higherdeferralof stormrestoration costs, partially offsetbyincreased recovery otvegetationmanagement program costsinWestVirginia andincreased lecoveryof networktransmission expenses in Ohio.

. Generaltaxesincreased $18millionprimarily dueto higherproperty taxesandhigherrevenue-related taxesin Ohio.

Othet ExDense -

Otherexpenses decreased $15millionprimarily dueto lowerinterest expense associated withvariousdebtredemptions atJCP&L, OE,andMPandlowerOTTIon NDTinvestments.

lncomeTaxes-Regulated Distrjbution's effectivetaxratewas37.1%and36.9%forthequarterendedS'ptember 30,2016and2015,respectively.

RegulatectT?,nsml9F,lon - Thid o{raner m16 Comparedwfth ThhctOuanerm15 Nelincomeincreased $8 millionin thethirdquarterof 2016compared to thesameperiodof 2015reflecting highertransmission revenues, asdescribed below.

Revenues -

Toialrevenues increased $37millionprincipally dueto recoveryof incremental operating expenses anda higherratebaseatATSI andTrAlL,partially otfsetbya lowerROEatATSIunderitsFERc-approved comprehensive settlement tolheimplementalion related ol a forwardiooking rate.

Revenues bytransmission assetownerareshownin thefoliowing table:

Forthe ThleMonths EndodSoptember30 Revenuesby TransmissionAsset Owner 2016 2015 Increase (ln millions)

ATSI $ 139$ 110$ 2s TrAIL 67607 PATH 33 Utilities 76751 TotalRevenues $ 285 $ 248 $ 37 OperatingExpenses -

Totaloperating epensesincreased $22millionprincipallyduetohigher pmperty taxes,depreciation,andotheroperatingexpenses at ATSI,whicharerecovered through ATSI'S formularate.

OtherExpense-Totalotherexpenseincreased $3 millionin the thirdquarterof 2016as compared to the sameperiodof 2015primarily dueto increased inlerestexpense resultingfromdebtissuances of$150millionatATSIinthefourthquarterof 2015,theproceeds otwhich, in part,paidotfshorl-term borrowings.

ln@meTaxes-Regulated Transmission's etfectivetaxratewas36.6%and 36.9%lorthe quarterended September 30,2016and2015,respectively.

67

CES- ThhctOuarl3'rm16 Comparedwlth Thhd QuatlF,rm15 Operatingresultsdecreased $59millioninthethirdquarteroI20l6, compared to thesameperiodoI 2015,primarily resulting trom lowercontract salesvolumes,lower capacity revenues fromlowercapacity auctionprices,lo\,ver mark-to-market gainsoncommodity contractpositions, anda termination chargeassociated witha FEScustomer contract, partially offsetby higherwholesale sales volumesandlowerfuelandpurchased power, Bevenues-Totalrevenues decreased $353millionin thethkdquarterof 2016,compared to thesameperiodof 2015,primarily dueto lower capacityrevenues fromlowercapacityauctionprices,lowerconlractsalesvolumesandlowerunitprices.Revenues werealso impacted byhigherwholesale salesvolumes, partially ofisetbylowernetgainsonfinancially asfurtherdescribed settledcontracts, below.

Thechangein tolalrevenues resultedfromlhe following sources:

For the Three Months Ended September30 lncrease Revenuesby Type of Service 2016 2015 (Decrease)

(ln millions)

ContractSales:

Direct 207 $ 296 $ (8e)

GovernmentalAggregation 235 296 (61)

Mass Market 47 62 (15)

POLR 165 141 24 StructuredSales 94 170 (76)

TotalContractSales 748 965 (217)

Wholesale 311 429 (118)

Transmission 17 23 (6)

Other 39 51 (12)

Total Revenues 1 , 1 ' 1 5$ 1,468 $ (353)

For the Three Months Ended September30 Increase MWHSales by Channel 2016 2015 (Decrease)

(ln thousands)

ContractSales:

Direct 3,913 5,541 (2e.4)%

Governmental Aggregation 4,238 4,226 0.3 %

Mass Market 673 906 (25.7)%

POLR 2,893 2,169 33.4 %

StructuredSales 2,437 3,893 (37.4)%

TotalContractSales 14,154 16,734 (15.4)%

Wholesale 4,447 3,156 40.9 %

Total MWH Sales 18,601 19,890 (6.5)%

68

The followingtablesummarizes the priceand volumefactorscontributing to changesin revenues:

Source of Change in Revenues Increase(Decrease)

Gain on Sales Settled Capacity MWHSalesChannel: Volumes Prices Contracts Revenue Total (ln millions)

Direct (87) $ (2) $ $ (8e)

Governmental Aggregation 1 (62) (61)

Mass Market (16) 1 (15)

POLR 47 (23) 24 StructuredSales (64) (12) (76)

Wholesale 38 3 (e) (150) (118)

Lowersalesvolumesin DirectandMassMarketchannels primarily reflectsthecontinuation oI CES'strategy lo moreefiectively hedgeitsgeneration. TheDirect,GovernmentalAggregation andMassMarketcustomer basewas1.4millionasot September 30, 2016,compared to 1.7millionas of September 30,2015.Althoughunitpricingwas loweryear-over-year in the Governmental Aggregation channel,thedecreasewasprimarilyattribulableto lowercapacitye)penseasdiscussed bdow whichis a mmponentot the retailprice.

Theincrease in POLRsalesof$24millionwasdueto higher\olumes, parlially offsetbylowerratesassociated withPOLRauctions.

Structured Salesdecreased $76millionprimarily duetotheimpactof lowermarketpricesandlowerstructured transactionvolumes.

Wholesalerevenuesdecreased$11I million,primarilydueto a decreaseincapacityrevenuelromcapacityauctionsandlowergains onfinanciallysettledcontracts,partiallyoffsetbyan increasein short-term(nethourlyposition)transactions athighelrealizedprics.

Althoughwholesaleshort-termtransactionsandpricesincreasedyear-over-yeaa, lowaveragespolmarlGtenergyplicesreducedthe economic dispatch offossilgenerating units,limitingadditional wholesale sales.

Openting Expenses -

Toialoperating expenses decreased $217millionin thethirdquarterof 2016dueto thefollowing:

. Fuelcosts decreased $48million,primarily dueto lowergeneration associated withoutages andeconomicdispabh ofbssil unitsresulting fromlowwholesale spotmaketenergyprices,asdescribed above,aswellaslowerunitpricesonfossilfuel conlracts.

. Purchased powercosFdecreased $176milliondueto lowercapacity e)eense($137million), lowerprices($27million) and lowervolumes($12million). Lowervolumes primarily resultedfromlowercontract salesasdiscussed above,partiallyofbet byeconomic purchases, resulting fromthelowwholesale spotmarketpriceenvironment. Thedecrease incapacityexpense, whichis a mmponentof CES'retailprice,was primarily the resultol lowercontractsalesand lowercapacityrates associated withCES'retailsalesobligation.Lowerpricesrellectlowerrealizedpriceson economic purchases.

. Depreciation expense decreased $19million,primarilyasa resultot anout-of-period adjustment to reduce thedeprecialion of a hydroelectric generating station.

. Transmission expenses decreased $12milliondueto lowercongestion andmarket-based ancillarycosts,primarily resulting fromlowerconlractsales.

. Otheroperating expensesincreased $ million,primarily due to lowermark-to-market gainson commodity contract positions of $41million,higherbenefitcostsanda $32millionchargeassociated withthetermination of a FEScustomer contract, partiallyolfsetby lowerleaseexpenseas a resultot theexpiration of a nuclearsaleleaseback agreement and lowerretail-related costs.

OtherExpense-Totalotherexpense decreased $42millionin thethirdquarterof 2016,as compared to thesameperiodo12015,primarily dueto lowerOTTIon NDTinvestments.

69

lncone Taxes-CES'efiectivetaxratewas36.3%and36.7%forthethirdquanerof 2016and2015,respectively.

Cotp0,lzte/ Other- Thltd Quarl/rm16 Com,,redwfth Thhtl Quatl,rN15 operatingsegmentandreconcilingitems,includirEinterestexpenseonhoHingcompany FinancialresultstromtheCorporate/Other debt,corporatesupporlservices revenuesandexpenses andincometaxes,resulted ina $13million decrease inearnings inthethird quarterof 2016,comparedto the sameperiodof 2015,primarilyassociatedwitha higherconsolidatedeffectivelax rate.

70

Summary ol Results of Operations - First Nine Months of 2016 Comparcd with First Nine Months of 2015 Financialresultsfor FirstEnergy's businesssegmentsin the firstninemonthsof 2016and 2015were as follows:

ComPetitive Corporate/Other Regulated Regulated Energy and Reconciling FirstEnergy First Nine Months 2016FinancialResults Distribution Transmission Services Adjustments Consolidated (ln millions)

Revenues:

External Electric 7,238 $ 824 $ 3,023 (135) 10,950 Other 185 135 (83) 237 Internal 377 (377)

TotalRevenues 7,423 824 3,535 (5e5) 11,187 OperatingExpenses:

Fuel 436 833 1,269 Purchased power 2,549 820 tsnl 2,992 Otheroperatingexpenses 1,843 118 1,120 (246) 2,835 Provisionfor depreciation 510 132 284 48 974 Amortizationof regulatoryassets,net 218 4 222 Generaltaxes 545 114 98 29 786 lmpairmentof assets 'i.,447 1,447 TotalOperatingExpenses 6 , 10 1 368 4,602 (546) 10,525 OperatingIncome(Loss) 1,322 456 (1,067) (4e)

OtherIncome(Expense):

Investment income 37 56 (18) 75 Interestexpense (431) (128) (143) (161) (863)

Capitalizedf inancingcosts 15 25 29 10 79 TotalOtherExpense (37e) (103) (58) (16e) (70e)

Income(Loss)BeforeIncomeTaxes(Benefits) 943 353 (1,125) (218) (47) lncometaxes (benefits) 349 130 (e6) (4e) 334 Net Income(Loss) 594 $ 223 $ ( 1 , 0 2 9 )$ (16e)$ (381) 71

Gompetitive Corporate/Other Regulated Regulated Energy and Reconciling FirstEnergY First Nine Months2015FinancialResults Distribution Transmission Services Adjustments Consolidated (ln millions)

Revenues:

External Electric 7,277 755 $ 3,381 (12e) 11,284 Other 't55 (102) 201 148 Internal 563 (563)

TotalRevenues 7,425 755 4,099 (7e4) 11,485 OperatingExpenses:

Fuel 406 972 1,378 Purchasedpower 2,761 1,113 (563) 3,311 Otheroperatingexpenses 1,669 112 1,266 (248) 2,799 Provision for depreciation 516 116 293 44 969 Amortizationof regulatoryassets,net 196 5 20'l Generaltaxes 536 73 112 26 747 lmpairmentof assets 8 16 24 TotalOperatingExpenses 6,092 306 3,772 (741) 9,429 OperatingIncome 1,333 449 327 (53) 2,056 OtherIncome(Expense):

Investment income(loss) 33 (7) (40) (14)

Interestexpense (43e) (11e) (144) (144) (846)

Capitalizedfinancingcosts 21 36 29 7 93 TotalOtherExpense (385) (83) (122\ (177) (767)

IncomeBeforeIncomeTaxes 948 366 205 (230) 1,289 Incometaxes 350 135 76 (76) 485 Net Income ss8 $ 231 $ 129 $ ( 1 5 4 )$ 804 72

ComPetitive Corporate/Other ChangesBetweenFirst Nine Months2016and Regulated Regulated Energy and Reconciling FirstEnergy First Nine Months 2015FinancialResults Distribution Transmission Services Adjustments Consolidated (ln millions)

Revenues:

External Electric (3e)$ 6e $ (358) (6) (334)

Other 37 (20) 19 36 Internal 186 TotalRevenues (2) 6e (564) 199 (2e8)

OperatingExpenses:

Fuel 30 (13e) (10e)

Purchasedpower (212) (2e3) 186 (31e)

Otheroperatingexpenses 174 6 (146) 2 36 5

Provisionfor depreciation Amortizationof regulatoryassets,net (6) 22 16 (1) 3 4 21 Generaltaxes I 41 (14) 3 39 lmpairmentof assets (8) 1,431 1,423 TotalOperatingExpenses 62 195 1,096 OperatingIncome(Loss) (1,394) (1,394)

OtherIncome(Expense)  :

Investment income 4 63 22 89 lnterestexpense I (e) 1 (17) (17)

Capitalizedfinancingcosts (6) 3 (14)

TotalOtherExpense 6 (20) 64 58 Income(Loss)BeforeIncomeTaxes(Benefits) (5) (13) (1,330) 12 (1,336)

Incometaxes (benefits) (1) (5) (172) 27 (151)

Net Income(Loss) (1,185) 73

Regula'dDtsttibution- Flrst Nlne Monthsol m16 Comryrd tflnh Fi'r,t NInehnthc ol m15 Regulaled Distdbution's netincomedecreased $4 millionin thefirstninemonthsof 2016ascompared to lhesameperiodot 2015, retlectingincreasingretirementbenefilcostsand lowerdistributiondeliveries,partiallyofisetby the impactot net rate increases implemefiedin 2015as a resultof approvedratecasesat certainoperatingcompanies, asfurtherdescribedbelowAdditionally,the OhioCompanies rocognized $51millionin regulatory chargesin thesecondquarterof 2016resulting ftomthe PUCO'S March31 OpinionandOrderadopting andapproving, withmodifications, theOhioCompanies'ESP lV Revenues-The$2 milliondecrease intotalrevenues resultedfromthefollowing sour@s:

For the Nine Months Ended September30 Increase Revenuesby Type ol Service 2016 2015 (Deqease)

(ln millions)

Distributionservices $ 3,681 $ 3,502 179 Generation sales:

Retail 3,173 3,331 (158)

Wholesale 384 444 (60)

Totalgeneration sales 3,557 3,775 (218)

Other 185 148 37 TotalRevenues $ 7,423 $ 7,425 $ (2)

Distributionservicesrevenuesincreased$179 millionprimarilyresultingfrom appovedbasedistlibutionrate increasesin Pennsylvania, effectiveMay3, 2015,andMPandPEinWestVirginia, effectiveFebruary 25,2015,partiallyofbetbya distribution ratedecrease atJCP&L,including therecovery of2011and2012stormcosts,effective April1,2015.Partially thisnetrate ofisetting increasewasa declinein lvlwHdeliveries,pdmarilyresultingfromloweraveragecustomerusage,asdesclibedbelow.Additionally, distdbutionrevenueswere impactedby higherrates associatedwith the recoveryof deterredcosts. Distributiondeliveriesby customer classaresummarized in lhe tollowingtable:

For the Nine Months EndedSeptember30 ElectricDistributionMWH Deliveries 2016 2015 (Decrease)

(ln thousands)

Residential 42,130 42,706 (1.3)%

Commercial 32,913 33,006 (0.3)%

lndustrial 37,746 38,149 (1.1)%

Other 437 438 (0.2)%

TotalElectricDistribution MWHDeliveries 113,226 114,299 (0.e)%

Lowerdistributiondeliveriesto residentialandcommercial customersretlectdecliningaveftrgecustomerusageassociated withmore energyefficientproducts andseMces.Additionally, wealher-related distribution deliveriesto residentialand commercial cuslome6 wereflat resultingfromheatingdegreedaysthatwere17olo below2015,and97"belownormalandcoolingdegreedaysthatwere 16%above2015.and36%abovenormal.Year-to-date deliveriesto industrial customers havedeclined astheincrease frcmshale customerusagewasmorethanoffsetby a decreasefromsteelcustomerusage.

74

Thefollowing tablesummarizes thepriceandvolumefactorscontributing to the$218milliondecrease ingeneralion revenuesbr the firstninemonthsot 2016comoared to thesameDeriod of 2015:

Increase Source of Changein GenerationRevenues (Decrease)

(ln millions)

Retail:

Effectof decreasein salesvolumes (1e0)

Changein prices 32 (158)

Wholesale:

Effectof increasein salesvolumes 43 Changein prices (101)

CapacityRevenue (z',)

(60)

Decreasein GenerationRevenues (218)

Thedecrease in retailgenerationsalesvolumeswas primarily dueto increased customer shopping inOhio,Pennsylvania, andNew Jerseyandindustrial usageinWestVirginia, asdescribed above.Totalgeneration provided byalternative suppliers asa percentage oftotalMWHdeliveries increasedto 82%from80%fortheOhioCompanies, from65%forthePennsylvania to 670lo Companiesand to 5l% from49olo lor JCP&I.Theincrease in retailgeneration pricesprimarily resultedan ENECrateincrease in WestVirginia, etfectiveJanuary1,2016,partially offsetby lowerdefaultserviceauctionpricesin OhioandPennsylvania.

Wholesale generation revenues decreased $60millionin thelirstninemonthsof 2016,as compared to thesameperiodoI 2015, primarilydueto lowerspotmarketenergyprices,partially offsetbyhigherwholesale sales.Thedifference between currentwholesale generation revenues andcertainenergycostsincurred aredeterred torfuturerecovery or refund, withnomaterialimpacl toearnings.

Otherrevenues increased $37millionprimarily relatedto a $29milliongainon thesaleof oilandgasrightsat WP OperatingExpenses -

Totaloperating expenses increased $9 millionprimarily dueto thetollowing:

. Fuelexpenseincreased $30millionin thefirstninemonthsof 2016,as compared to thesameperiodof 2015,primarily relatedto highergeneration.

. Purchased powercostsdecreased $212millionduringthefirstninemonthsof 2016,as compared to thesameperiodof 20'15primarily duetodecreased volumes resulting lromincreased customer shopping, asdescribed above, aswellaslower unitcostsretlecting lowerdefaultserviceauctionpricesin OhioandPennsylvania Increase Source of Changein PurchasedPower (Decrease)

(ln millions)

Purchasesfrom non-affiliates  :

Changedue to decreasedunitcosts (83)

Changedue to volumes 16 (67)

Purchasesfromaffiliates:

Changedue to increasedunitcosts 6 Changedueto volumes (1e1)

(185)

CapacityExpense 2 Amortizationof deferredcosts 38 Decreasein PurchasedPowerCosts (212) 75

. OtheIoperating expenses increasd$174millionprimarily dueto:

. An increaseol $51 millionresultingfrom the recognition of economicdevelopment and enelgyefficiency obligations in accordance with the PUCO'SMarch31 Opinionand Oder adoptingand approving,with modifications, theOhioComDanies' ESPlV.

. Higheroperating andmaintenance expenseof $42million,including increased stormrestoration costsof $39 million,whicharedeferred forfuturerecovery,resulting in nomaterialimpacton currentperiodearnings.

. Higherretirement bnefitcostsot $37million.

. Highertransmission expensesof $36millionprimarilyrelated to anincrease in network transmission expenses at the OhioCompanies, partiallyotfsetby lowercongestion expensesat MP.The difference betweencurrent revenues andcostsincurred aredeferredforfuturere@very or refund,resulting in no materialimpacloncurrent periodearnings.

. Netamortization of regulatory assetsincreased $22millionprimarily dueto:

. Recovery ofstormcostsin NewJersey, Pennsylvania, andwestVirginia etlective withtheimplementation of new ratesas discussed above($35million),

. Recovery of WestVirginia vegetation management program costs($34million), partially offsetby

. Higherdeferralof stormrestoration costs($39million), and

. HigherdeferralofOhionetwork transmissionexpenses ($10million).

ln@meTaxes-Regulated Distribution'seffective tax ratewas37.0%forthetirstninemonthsof 2016and2015.

negulaldT'nsmlsslon- Flrat Nlne Monthso, m16 Conparcd wlth Flrst Nln Monthsot m15 Netincomedecreased $8 millionin thefirstninemonthsof 2016,compared to thesameperiodof 2015,primarily resulting from adjustments associated withATSIandTrAIL'sannualratefilingforcostspreviously re@vered, a lowerreturnonequityatATSI,and lowercapitalized financing costs,partially offsetby higherratebase.

Revenues-Totalrevenues increased $69millionprincipally dueto recoveryof incrementaloperating epensesanda higherratebaseatATSI andTrAlL,partially otfsetbyadjustments associated withATSI'sandTrAIL'sannualrate filingforcostspreviously recovered aswell asa lowerROEatATSIunderitsFERo-approved comprehensive settlement related to theimplementation rate.

ofa toru/ard-looking Revenues bytransmission asselownerareshownin thelollowing table:

For the Nine Months Ended September30 Increase Revenuesby Transmission Asset Owner 2016 2015 (Decrease)

(ln millions)

ATSI 401 $ 333$ 68 TrAIL 187 186 1 PATH I 10 (1)

Utilities 227 226 1 TotalRevenues 824 $ 755 $ 69 OperctingExpenses -

Totaloperating expenses increased $62millionprincipally dueto higherproperty taxesanddepreciation expense atATSl,whichare recovered throughATSI'sformularate.

OtherExpense-Otherexpenseincreased $20millionin thefirstninemonthsof 2016compared to thesameperiodot 2015primarily dueto lower capitalizedfinancingcostsresulting tromlowerconstruction workinprogress balances atATSIaswellasincreased interest expense resultingtmmdebtissuances of$150millionatATSIinthefourthquarterof 2015,theproceeds ofwhich,in part,paidofishort-term borrowings.

lncone Taxes-Begulated Transmission's effective tax ratewas36.8%and36.9%torthefirstninemonthsof 2016and2015,respectively.

76

CES- Fhst Nine Monthsot 2016Compa,Edwlth Hrst Nlne Monthsot 2015 Operatingresultsdecroased $ 1,158millioninthefirstninemonthsof 2016,compared to thesameperiodot 2015,primarily resulting Iromchargesassociated withimpairments of goodwill,Units1-4of theW. H.Sammisgenerating stationandlhe BayShorUnit1 generatingstation,as discussed above,termination andsettlement costson coalcontracts andlowermark-to-market gainson commodity contractpositions. In addition lo theseitems,operating resultswereimpacted by highercapacityrevenues, lowertuel costsandlowerpurchasedpower,partiallyoffsetby lowersalesvolumesanda terminationchargeassociatedwitha FEScustomer contract.

Revenues -

Totalrevenues decreased $564millioninthefirstninemonthso12016, compared to thesameperiodof 2015,primalily dueto lower salesvolumes, partiallyoffsetbyhighercapacity revenues andhighernetgainsonfinancially settledcontracts,asfuItherdescribed below.

Thedecrease in totalrevenues resulted fromthefollowing sources:

For the Nine Months EndedSeptember30 lncrease Revenuesby Type of Service 2016 2015 (Decrease) ftn mittiorrsl ContractSales:

Direct $ 610 1 , 0 1 4$ (404)

GovernmentalAggregation 666 802 (136)

Mass Market 133 222 (8e)

POLR 447 585 (138)

StructuredSales 371 429 (58)

TotalContractSales 2,227 3,052 (825)

Wholesale 1,117 776 341 Transmission 56 116 (60)

Other 135 155 (20)

Total Revenues $ 3,535 $ 4,099 $ (s64)

For the Nine Months Ended September30 Increase MWHSales by Channel 2016 2015 (Decrease)

(ln thousands)

ContractSales:

Direct 1 1, 3 9 1 18,860 (3e.6)%

Governmental Aggregation 10,798 12,278 (12.1)o/"

Mass Market 1,912 3,246 (41.1)/"

POLR 7,526 9,910 (24.1)/"

StructuredSales 9,175 9,790 (6.3)%

TotalContractSales 40,802 54,084 (24.6)%

Wholesale 9,938 4,023 147.0%

Total MWH Sales 50,740 58,107 (12.7)/"

77

The followingtablesummarizes the priceand volumefactorscontributing to changesin revenues:

Source of Changein Revenues Increase(Decrease)

Gain on Sales Settled Capacity MWHSales Channel: Volumes Prices Gontracts Revenue Total (ln millions)

Direct ( 4 0 1 )$ (3) $ $ (404)

Governmental Aggregation (e7) (3e) (136)

MassMarket (e1) 2 (8e)

POLR (140) 2 (138)

StructuredSales (27) (31) (58)

Wholesale 175 (16) 113 69 341 Lowersalesvolumesin Direct,GovernmentalAggregation andMassMarketchannels primarilyreflectsthecontinuation of CES' strategyto moreeffectivelyhedgeits generation. The Direct,GovernmenialAggregation andMassMarketcustomerbaselvas 1.4 millionasof September 30,2016,compared to 1.7millionasol September 30,2015.Although unitpricingwasloweryear-over-year in theGovernmental Aggregation channel,thedecrease wasprimarily to lowercapacity attributable expense asdiscussed belou whichis a component of the retailprice.

Thedecrease in POLRsalesot $138millionwaspdmarily dueto lowervolumes. SlructuredSalesdecreased $58million,primarily dueto the impactof lowermarketpricesandlowerstructuredtransactionvolumes.

Wholesale revenues increased $341million,primarily duetoanincrease incapacity revenue fromcapacity auctions, an increase in shon-term (nethourly position)transactionsand highernetgainsonfinancially settledcontracts,partially olfsetbylowerspotmarket energyprices.Althoughwholesaleshort-termtransactions increasedyear-over-year, lowa\ietagespotmad(etenergypricesreduced theeconomic dispatchof tossilgenerating units,limitingadditional wholesale sales.

Transmission revenuedecreased $60 million,primarity dueto lowercongestion revenueassociated withlessvolatilemarftet conditions.

Otherrevenue decreased $20million,primadlydueto theabsence of a pr+taxgainonthesaleof pmperty to a regulated in affiliate thesecondquarterot 2015andlowerleaserevenues lromtheexpiration of a nuclearsal+leaseback agreement.

OperufngE enses-Totaloperating expenses increased $830millionin thelirstninemonthsof 2016,compared to thosameperiodof 2015,dueto the following:

Fuelcostsdecreased$139 million,primarilydue to lowergenerationassociatedwith outagesand economicdispatchof fossilunitsresultingfromlowwholesale spotmarketenergyprices,as describedabove,aswellaslowerunitpriceson fossil fuelcontracts.Additionally, fuelcostswereimpactedby highersettlementand termination costson coalcontracts.

Purchased powercostsdecreased$293million,primarilydueto lowervolumes($2OO million)andlowercapacityexpenses

($t t Z million),partiallyoffsetby higherlosseson financialsettledcontractsfromlowerwholesalespotmarketprices($25 million).Lowervolumesprimarilyresultedfrom lowercontractsalesas discussedabove,partiallyoffsetby economic purchases, resultingfromthe lowwholesalespotmarketpriceenvironment. The decreasein capacityexpense,whichis a componentof CES' retailprice,was primarilythe resultof lowercontractsalesand lowercapacityratesassociatedwith CES'retailsalesobligations.

Fossiloperatingcostsincreased$18 million,primarilydue to increasedoutagecostsand higheremployeebenefit costs.

Nuclearoperatingcostsdecreased$31 million,primarilyas a resultof lowerrefuelingoutagecosts,partially offsetby higher employeebenefitcosts.Therewas one refuelingoutageduringthe firstninemonthsof 2016as comparedto two refueling outagesduringthe sameperiodof 2015.

Retirement benefitcostsincreased$24 million.

78

. Transmission expensesdecreased $162million,primarilydue to lowercongestion and markel-based ancillarycosts associated with lessvolatilemarketconditions as comDared to the first ninemonthsof 2015,as well as lowerload requirements.

. Otheroperating expenses increased $5million,primarilydueto lowermark-to-market gainsoncommodily mntractpositions of$54millionanda $32millionchargeassociated withthetermination ol a FEScustomer contract, partiallyofisstbylower leaseexpense as a resultot theexpiration of a nuclearsaleleaseback agreement andlowerretail-related costs.

. Depreciation expense decreased $9 million,primarilyasa resultof anout-of-period adjustmentto reduce thedeprecialion ot a hydroelectric generatingstation,partiallyoffsetby a higherassetbase.

. Generaltaxesdecreased $14million,primarily dueto lowergrossFceiptstaxesassociated withlowerretailsales volumes.

. lmpairment of assetsincreased $1,431millionprimarily dueto an$800millionimpairment ofgoodwill anda decision toexit operations of UnitsI -4oftheW.H.Sammis generating stationbyiitay31,2020andtheBayShoreUnit1 generating station by October1,2020.

OtherExpense-Totalothereryensedecreased $64millionin thefirstninemonthsof 2016,compared to thesameperiodof 2015,primarily dueto lowerOTTIon NDTinvestmenls.

ln@meTaxs(BeneliB)-

CES'effective taxratewas8.5%and37.1%forlhe firstninemonthsof 2016and2015,respectively. Thedecrease intheefieclive tax rateis primarily dueto valuation allowances of $159millionrecorded againststateandlocalNOLcarMon,ardsthatmanagement believes, morelikelythan not,willnotberealized asdiscussed aboveaswellastheimpairment ofgoodwill, ofwhich,$433millionis non-deductible fortaxDurooses.

Corpo',te / Other- Hrct NInettonths of ml6 ComparEdwnh H'3,t Nine tionths ot ml, Financial resultsfromtheCorporate/Other operating segment andreconciling itemsresulted ina $15milliondecrease in netincome in thetirstninemonthsof 2016compared to thesameperiodof 2015.Increased taxesat lhe Coporate/Other operating segment resulted froman increased consolidated taxrateandtheimpactot estimated annualpermanent hemsonlowerpre-tax income forthe penoo.

RagulatoryAslsets Regulatory assetsrepresent incurredcoststhathavebeendeferredbecauseoI theirprobable futurerecovery fromcustomers throughregulated rates.Regulatory represent liabilities amountsthatare expected to be creditedto customers throughfuture regulated ratesor amountscollected fromcustomers forcostsnotyet incurred. FirstEnergy andthe Utilitiesnettheirregulatory assetsandliabilitiesbasedonfederalandstatejurisdictions. Thefollowingtableprovidesinlormatonaboutlhe composition of net regulatory assetsasofSeptember 30,2016andDecember 31,2015,andthechanges dudngtheninemonths endedSeptember 30, 2016:

September30, December31, Increase RegulatoryAssets (Liabilities)by Source 2016 2015 (Decrease)

(ln millions)

Regulatory transitioncosts 123 $ 185 $ (62)

Customerreceivables for futureincometaxes 427 355 72 Nucleardecommissioning and spentfueldisposalcosts (316) (272) (44)

Asset removalcosts (470) (372) (e8)

Deferredtransmission costs 123 115 8 Deferred generation costs 247 243 4 Deferreddistribution costs 305 335 (30)

Contractvaluations 166 186 (20)

Storm-relatedcosts 375 403 (28)

Other 108 170 (62)

Net Regulatory Assetsincludedon the Gonsolidated BalanceSheets 1,088$ 1,348 $ (260) 79

Regulatory assetsthatdo notearnacurrentreturntotaledapproximately $148millionasot September 30,2016andDecember 31, 2015,respectively, primarily relatedto stormdamagecosts.

AsofSeptember 30,2016andDecember 31, 2015,FirstEnergy hadapproximately $142million and$116million, respectively,ofnet regulatory liabilitiesthatareprimarily relatedto assetremoval costs.Netregulatory liabilities areclassified wilhinOthernoncurrent liabilities ontheConsolidated BalanceSheets.

CAPITALRESOURCES ANDLIOUIDITY FirstEnergy expectsitsexisting sourcesof liquidity to remainsufficient to meetitsanticipated obligations andthoseofitssubsidiaries.

FirstEnergy's business is capitalintensive, requiring resources significanl to fundoperating e&enses,construction expendilures, scheduled debtmaturities andinterestpayments, dividend payments, andcontributions to its pensionplan.In addition lo internal sourcesto fundliquidity andcapitalrequirements for 20'16andbeyond,FirstEnergy expectsto relyon external sourcesot funds.

Short-term cashrequirements notmetbycashprovided fromoperations aregenerally satisfied through short-lermborrowings. Long-termcashneeds,including cashrequirements to fundRegulated Transmission's capitalprogram, maybemetthrough a combination of anadditional$500 millionofequityineachyear2017through2019,subjectto certainmarketconditions, andnewlong-temdebt.

FirstEnergy alsoexpectsto issuelong-term debtat ceriainUtilities to,amongotherthings, refinance short-termandmaturing debt, subjectto maketandotherconditions. Furthermore, FESsubsidiaries havedebtmaturities in 2017and2018of $130millionand

$515million,respectively, whichwill needto be refinanced. Theinabilityto refinance the 2017debtmaturities at FEScouldbe addressed througha combination ot cashon hand,additional capitalexpenditure reductions, assetsales,and/orborrowings under the unregulated moneypool.Theinabilityto refinance 2018debtmaturities at FEScouldcauseFESto takeoneor moreof the lollowing actions: (i)restructuringofdebtandotherfinancialobligations, (ii)additional borrowings underthe unregulated moneypool, (iii)furtherassetsalesor plantdeactivations, and/or(iv)seskprotection underbankruptcy laws.In the eventFESseekssuch protection,FENOCmaysimilarlybe forcedlo seekprotectionunderbankruptcylaws.

FirstEnergy expectsthat borrowingcapacityunder credit facilitieswill continueto be availableto manageworkingcapital requirementsdoru with continuedaccesslo long-termcapitalmarkets.However,it materialimpaimentsare recognizedas FirstEnergy executeson its strategyto transitionb a lully regulatedutilityresultingin a consolidated debtto totalcapitalizationratio, as definedundereachol the revolving creditfacilitiesas discussed belowin excessof 65%,thenFEwouldbe in defaultunder variouscreditagreements relatedtotheindebtedness of FE.Furthermore, adverse iudgments or a FESbankruplcyfiling couldalso resultin aneventot default.Althoughmanagement expectsto successfully resolveanyFEdefaultsthroughwaiversor otheractions on acceptable lems andconditions, the failureto do so wouldhavea materialandadverseimpacton FirstEnergy's fnancial condition,andFirstEnergy cannotpovide anyassurancethatit willbeableto successfully resolveanysuchdefaultsonsatisfactory Ierms.

Through October2016,FirstEnergy satislieditsminimum required fundingobligations to itsqualified pension planfortheyearwith contributions ol $382million($85millioninOctober 2016),including $138millionat FES.Depending on,amongolherthings, market conditions, FirstEnergy expects to makeadditionalcontributions to ib qualified pension planin2016of uplo $500millionofequityto addressitsfundingobligations forfutureyears.

Planned capitalexpenditures for2016through2018by reportable segmentareincluded below:

Capital Gapital CaPital Expenditures Expenditures Expenditures Forecast Forecast Forecast ReportableSegment 2016 2017 2018 (ln millions)

RegulatedDistribution $ 1,295 $ 1,325 $ 1,305 RegulatedTransmission 1 , 0 0 0 1 , 0 0 0 1 ,000 CompetitiveEnergyServices 540 370 300 Corporate/Other 90 95 90 Total $ 2,925 $ 2,790 $ 2,695 Additionally, plannedcapitale4cenditures in 2019lor Regulated Distribution areapproximately $1.3billionwhileplannedcapitai expenditures for Regulated Transmission areexpected to beapproximately $800 million to $1.2billionannually in 2019to 2021.

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Forecasted capitalexpenditures for 2017by operatingcompanyare shownin the followingtable:

2017 Gapital Expenditures Forecast oE $ 14s Penn 45 cEr 120 TE 45 JCP&L 355 ME 135 PN 160 MP 250 PE 125 WP 205 ATSI 420 TrAIL 65 MAIT 255 FES 325 AE Supply 50 Other 90 Total 2,790 FirstEnergy'sstrategyis to tocuson investments in its regulated operations.Thecenterpiece of thisstrategyisthe Energizing the Fut reinvestment plan,whichbeganasa $4.2billioninvestment planfrom2014through2017to upgrade andexpandFirstEnergys transmission systemwithadditional investments of $800millionto $1.2billionannually from2018through2021.Thisprogramis focusedon projects thatenhance systemperformance, physicalsecurityandaddoperating flexibilityandcapacity siartingwiththe ATSIsystemandmovingeastacrossFirstEnergy's service territory overtime.Through 2015,FirstEnergy's capiialexpenditures under thisplanwere$2.4billionandin2016capitalexpenditures underthisplanarecurrently projected to be approximately $1 billion.In total,FirstEnergyhasidentifiedover$20billionintransmission investment opportunitiesacross the24,000 miletransmission system, makingthisa continuing platform for investment in theyearsbeyond2021.

In alignment wilh FirstEnergy's strategyto investin its Regulated Transmission and Regulated Distributionsegments andthe repositioningoltheCESsegment, FirstEnergy isalsofocused onimproving thebalance sheetovertimeconsistentwith itsbusiness protile,maintaininginvestment grademetricsat itsregulated businesses andFirstEnergy Corp.andmaintaining stronglqudilyforan overallstablefinancialposition.Specifically, at the regulatedbusinesses, authorityhas beenobiainedtor variousregulated distribution andtransmission subsidiaries to issueand/orrefinance debt.

Anyfinancingplansby FirstEnergy, including the issuanceof equity,refinancing ot maturing debtandreductions in short-term borrowings, aresubjectto marketconditions andotherfactors,suchastheimpactof thecurrentenelgyandcapacity marketsand potentialcreditratingchanges. Noassurance canbegiventhatanysuchissuances, financings, refinancings, or reductions inshort-termdebt,asthecasemaybe,willbecompleted asanticipated. Anydelayinthecompletion offinancing planscouldrequireFEor FESor anyoftheirsubsidiaries toutilizeshort-term borrowing capacity,whichwouldimpact available liquidity.

Inaddition, FirslEnergy expectsto continually evaluate anyplannedfinancings, whichmayresultin changes lromtimeto time.

As otSeptember 30,2016,FirstEnergy's netdeticitinworkingcapital(current assetslesscurrentliabilities) wasduein largepartto currentlypayable long-term debtandshort-term borrowings. Currentlypayable long-termdebt as of September 30,2016, includedthe following:

Currently PayableLong-TermDebt (ln millions)

Unsecurednotes 680 FMBs 250 Unsecured PCRBs(1) 158 Collateralized leaseobligationbonds 8 Sinkingfund requirements 82 Othernotes 38

$ 1,216 81

(r) ThesePCRBS areclassilied ascurenilypayable long-termdebtbcause theappli:aHe rate interesl modepermibindividual debtholdersto puttherespective debtbacktothebsuerpriorto malurity.

Short-Tam Bofiowings FirstEnergy had$2,975millionand$1,708millionol short-term borrowings as of Septembr 30, 2016andDecember 31,2015, respectively.

The$1,267millionincrease in short-term borowingsduringthefirstnine-months of2016wasprimarily duetopension contributions, debtredemptions, ofwhichsomemayberefinanced inthefuture,andforgeneralbusiness purposes.FirstEnergy also hadapproximately $,100millionof short-terminvestments at Seplember30,2016thatwereredeemedinearlyoc1oberto paydovvna portionof theshort-term borowings.FirstEnergy's availableliquidityas of November 1, 2016, wasas follows:

Available Borrower(s) Type Maturity Gommitment Liquidity (ln millions)

FirstEnergy(t) Revolving March2019 $ 3,500 $ 1,241 FES/ AE Supply Revolving March2019 1,500 1,500 FET(2) Revolving March2019 1.000 750 Subtotal $ 6,000 $ 3,491 Cash 211 Total $ 6,000 $ 3,702

{r) FEandtheUtilities.

(a Includes FET, ATSIandTrAlL.

RavolvingCrac t Facfiltles FirstEnergy,FES/AESuNy aN FET Facilities FEandcertainot itssubsidiaries participate in threefive-year syndicated revolving withaggregate creditfacilities commitments of

$6.0billion(Facilities) expkingon March31,2019.

OuringSeptember of20l6,theFES/AESupplytacilitywasamended to decrease FES'Sindividualborrower sublimitlo $900million from$1.5 billionandAE Supply'sindividualborrowersublimitto $600millionfrom$1 billion.The lendingbanks'aggregate commitments undertheFES/AESupplyfacilityremainat $1.5 billion.

Generally, borrowingsundereachof theFacilities areavailable to eachborrower separately andmatureonlhe earlierof364days tromthe dateof borrowing or the commitment terminationdate,as the samemaybe extended. Eachof the Facilities contains financial covenants requiring eachborrower to maintain aconsolidated debtto totalcapiializationratio(asdetinedundereach ofthe Facilities, as amended) of no morethan65'h,and75l"tot FET,measured at theendof eachtiscalquarter.

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The followingtablesummarizes the borrowing sublimilslor eachbonowerunderthe Facilities, the limitations on shorl-term indebtedness applicableto eachbonowerundercurrentregulatoryapprovalsandapplicable statutoryand/orcfiarterlimitalions, asof September 30,2016:

FES/AESupply FE Revolving Revolvidj FET Revolving _R_egula-toryand Credit Facility Gredit Facility Credit Facility Other Short'Term Borrower Sublimit sublimit sublimit Debt Limitations (ln millions)

FE 3,500 $

FES 900 (21 (2)

AE Supply 600 FET 1,000 500 (3)

OE 500 cEl 500 (3) 500 TE 500 (3) 500 J CP & L 500 (3) 600 ME 500 (3) 300 PN 300 (3) 300 WP 200 (3) 200 MP 500 500 (3)

PE 150 1 5 0 (3)

ATSI 500 500 (3)

Penn 50 1 0 0 (3)

TrAIL 400 400 (3)

(r) No limitations, (2) No limitationbaseduponblanketlinancingauthorization lrom lhe FERCunderexistingopen markellaritls.

(3) Includesamountswhichmay be bonowdunderthe regulatedcompanies'moneypool.

TheentireamountoftheFES/AESupplyFacility, $600millionof theFEFacility and$225millionof theFETFacility, subjectto each borrower's sublimit, is available fortheissuance ol LOCS(subject to borrowings drawnundertheFacilities) expiring upto oneyear lromthedateof issuance. Thestaledamountofoutstanding LOCSwillcountagainsttotalcommitments available undereachofthe Facilities andagainsttheapplicable borrower's bofiowing sublimil.

TheFacilities do notcontainprovisionsthat restricttheabilitytoborrowor accelerate payment otoutstanding advances inlheevent of anychangein creditratingsof theborrowers. Pricingis definedin "pricinggrids,"whereby thecostof fundsborrowed underthe Facilities is relatedto the creditratingsof the companyborrowing the funds,otherthanthe FETFacility, whichis basedon ils subsidiaries' creditratings.Additionally, borrowings undereach oftheFacilities aresubjecttothe usualand customary provisionstor acceleration upontheoccurrence ot eventsof default,including a cross-default forotherindebtedness in excessof $'100million.

As of September 30, 2016,the borrowers werein compliance withthe applicable debtto totalcapitalization ratiosunderthe resDectiveFacilities.

lem Loans FEhasa $1 billionvariableratetermloancreditagreement witha maturity dateof March3 t, 2019.Theinitialborrowing underthe termloan,whichtooktheformofa Eurodollar rateadvance, maybeconverted fromtimeto time,inwholeor inpart,to altemate base rateadvances or otherEurodollarrateadvances. Additionally,FEhasa $200millionvariable ratetermloan,dueMay29,2020.Each ofthetermloanscontainscovenantsandothertermsandconditionssubstantially similarto thoseotthe FEFacilitydescribed abor, including thesameconsolidated debtto totalcapitalization ratiorequirement.

Asol September30,2016,FEwasin compliance withtheapplicabledebtto totalcapiialization ratiosundereachoftheelermloans.

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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.

87

Thesecredit-risk-related contingent features, orthemargining provisionswithinbilateralagreements, stipulalethatilthesubsidiary wereto bedowngraded or loseits investmentgradecreditrating(basedon itsseniorunsecureddebtrating),it wouldbe rcquiredto provideadditional collateral. Depending on the volumeof forwardcontractsand futurepricemovements, higheramountsfor margining, whichis theabilitylo secureadditional collateralwhenneeded,couldb rcquired.

As a resultofthedowngrades by MoodysandS&PonJuly29,2016andAugust1, 2016,CESpostedadditional collateral of $53 million.Additionally, on November 4, 2016,Moody'sandS&Pfurtherdowngraded FES.Giventhe downgrades, CEShasfurlher potentialcollateral postingobligations totaling$81millionforwhichcounterparties havenotexercised theirrightto requireCESto postcollateral. Subsequent to the occurrence of a seniorunsecured crcditratingdowngrade belowS&P'sandlroodyscurrent ratings,or a "material adverseevent,"the immediate postingol collateralor accelerated payments maybe required of FirstEnergy.

Thefollowing tabledisclosesthe additional creditcontingent conlractualobligationsthatmayberequired undercertain eventsasof November 4, 2016:

PotentialGollateralObligations CES Regulated Total (in millions)

Contractual Obligations for AdditionalCollateral At CurrentCreditRating 81 $ $ 81 UponFurtherDowngrade 48 48 UponMaterialAdverseEvent 10 10 SuretyBonds(Collateralized Amount) 264 96 360 TotalExposurefrom Contractual Obligations 355 $ 144 $ 499 Excluded fromthe preceding tableare the potential collateral obligations dueto afiliatetransactions betweenthe Regulated Distribution segment andCESsegment. Asot September 30,2016,neitherFESnorAESupplyhadanycollateral postedwiththeir atfiliates.

OthetCommitments andContingencies FEisa guarantor undera syndicated seniorsecured lermloantacilitydueMarch3,2020,underwhich GlobalHolding bonowed $300 million.Inaddition to FE,SignalPeak,clobalRail,GlobalMiningGroup,LLCandGlobalCoalSalesGoup,LLC,eachbeinga direct or indirectsubsidiary of GlobalHolding, continue to providetheirjointandseveralguaranties of theobligations of GlobalHolding underthetacility.

Inconnection withthefacility, 69.99%of clobalHolding's directandindirectmembership interests in SiOnal Peak,GlobalRailand theiraffiliatesalongwithFEV'S andWMBMarketing Ventures, LLC'Srespective 33-1/3% membership interestsinGlobalHolding, are pledgedto thelendersunderthecurrentfacilityascollaleral.

OFF-BALANCE SHEETARRANGEMENTS FESandcertainoftheOhioCompanies haveobligations thatarenotincluded ontheirConsolidated Balance Sheetsrelated lo the PerryUnit1,BeaverValleyUnit2, and2OO7 BruceMansfield Unit'l saleandleaseback arrangements, whicharesatisfied through operatingleasepayments. The total presentvalueof thesesale and leaseback operatingleasecommitments, net of trust investments, was$895millionasofSeptember 30,2016,andprimarily relatestothe2007BruceMansfield Unit1 saleandleaseback arrangement expiring in2040.Fromtimeto timeFirstEnergy andthesecompanies enterintodiscussionswith certainpartieslo the arrangements regarding acquisition otownerparticipant andotherinterests.However, FirstEnergycannotprovide assurance thatany suchacquisilions willoccuron satisfactory termsor at all.

As ot September 30,2016,FirstEnergy's leasehold interestwas2.60%of BeaverValleyUnit2 andFES'leasehold interest was 93.83%of BruceManslield Unit1.

OnMay23,2016,NGcompletedthe purchase ol the3.75%lessorequity interestsoftheremaining non-afiiliated leasehold interest in PerryUnit1tor$50million.Inaddition, thePerryUnit1 leasesexpiredinaccordance withtheirtermsonMay30,2016,resulting in NGbeingthesoleownerof PerryUnit1 andenlilledto 100%of theunit'soutput.

MARKETRISKINFORMATION FirstEnergy usesvariousmaketrisksensitive instruments, including derivativecontracts, primarilyto manage theriskofpriceand interestratefluctuations. FirstEnergy's RiskPolicyCommittee, comprised of membersof seniormanagement, provides genelal oversight for riskmanagement activities throughout thecompany.

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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.

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