APPLICATION FOR AUTHORIZATION UNDER SECTION 203 OF THE FEDERAL POWER ACT, REQUEST FOR EXPEDITED ACTION AND REQUEST FOR WAIVERS

Transcription

1 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION FirstEnergy Generation Corp. ) American Transmission Systems, Incorporated ) Docket No. EC12- APPLICATION FOR AUTHORIZATION UNDER SECTION 203 OF THE FEDERAL POWER ACT, REQUEST FOR EXPEDITED ACTION AND REQUEST FOR WAIVERS Randall B. Palmer Kenneth G. Jaffe Senior Corporate Counsel II Richard P. Sparling FirstEnergy Alston & Bird, LLP 800 Cabin Hill Drive 950 F Street, NW Greensburg, PA Washington, DC (724) (202) Attorneys for FirstEnergy Generation Corp. and American Transmission Systems, Incorporated Dated: July 16, 2012 Washington, D.C.

2 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION FirstEnergy Generation Corp. ) American Transmission Systems, Incorporated ) Docket No. EC12- APPLICATION FOR AUTHORIZATION UNDER SECTION 203 OF THE FEDERAL POWER ACT, REQUEST FOR EXPEDITED ACTION AND REQUEST FOR WAIVERS Pursuant to section 203(a)(1) of the Federal Power Act ( FPA ), 16 U.S.C. 824b (2006), and Part 33 of the Federal Energy Regulatory Commission s ( FERC or the Commission ) regulations, 18 C.F.R. Part 33 (2012), FirstEnergy Generation Corp. ( FE GenCo ) and American Transmission Systems, Incorporated ( ATSI ) (collectively, the Applicants ) respectfully submit this application requesting Commission authorization for FE GenCo s transfer of certain generation assets ( Transferred Assets ) to ATSI (the Transaction ) for the purpose of conversion to synchronous condensers to support the ATSI transmission system. The terms and conditions of the Transaction are described in the Asset Purchase Agreement entered into by the Applicants. 1 Specifically, the Transaction involves the transfer of the power islands and associated property and equipment for Eastlake Units 1 through 5, located in Eastlake, Ohio (the Eastlake Units ) and Lakeshore Unit 18, located in Cleveland, Ohio (the Lakeshore Unit ). All of the Transferred Assets will be deactivated by FE GenCo prior to conversion to synchronous condensers by ATSI. The 1 The Asset Purchase Agreement is Exhibit I to this Application. 1

3 portion of the Transferred Assets that is necessary for the synchronous condenser conversion and operation and maintenance will be transferred at the assets original cost, less accumulated depreciation. 2 The portion of the Transferred Assets consisting of the remainder of the equipment, fixtures and other contents of the transferred buildings will be transferred at FE GenCo s net book value at closing, which will be zero. ATSI is acquiring the Transferred Assets in order to convert them into synchronous condensers. PJM Interconnection, L.L.C. ( PJM ) and ATSI have determined that the installation of synchronous condensers at the Eastlake and Lakeshore locations is the most cost-effective and expedient means of providing the voltage support that the ATSI transmission system will need in the Cleveland area upon the deactivation of these and other generating units. PJM has directed the installation of the first synchronous condenser at Eastlake Unit 5 with an in-service date of June 1, 2013 to maintain reliability. So that ATSI may complete the conversion of the Eastlake Unit 5 portion of the Transferred Assets by this date, the Applicants respectfully request the Commission to issue an order approving the Transaction by no later than October 15, 2012, to permit closing of the Transaction with respect to Eastlake Unit 5 by October 31, 2012 and the timely completion of the conversion of this unit to a synchronous condenser. As discussed below, the Transaction is consistent with the public interest because it will not harm competition and will not adversely affect rates or regulation. Further, the Transaction will not result in cross-subsidization of a non-utility associate company or a 2 In 2010 and 2011, FE GenCo took write-downs on the Transferred Assets due to the anticipated impact of the new environmental regulations on the plants economic viability as generating units. This write down is not reflected in the purchase price for the portion of the Transferred Assets that is necessary for the synchronous condenser conversion and operation and maintenance. 2

4 pledge or encumbrance of utility assets for the benefit of an associate company. The Applicants also request that the Commission waive certain informational and exhibit requirements specified in Part 33 of the regulations. I. COMMUNICATIONS The Applicants request that all correspondence, pleadings and other communications concerning this filing be served upon the following: Randall B. Palmer* Kenneth G. Jaffe* Senior Corporate Counsel II Richard P. Sparling FirstEnergy Service Company Alston & Bird, LLP 800 Cabin Hill Drive 950 F Street, NW Greensburg, PA Washington, DC (724) (202) rpalmer@firstenergycorp.com kenneth.jaffe@alston.com richard.sparling@alston.com Stanley F. Szwed* Vice President, Compliance and Regulated Services FirstEnergy Service Company 76 South Main Akron, Ohio (330) sfszwed@firstenergycorp.com * Designated to receive service. II. PARTIES TO THE PROPOSED TRANSACTION A. FE GenCo FE GenCo is a wholly-owned subsidiary of FirstEnergy Solutions Corp., which is a wholly-owned subsidiary of FirstEnergy Corp. ( FirstEnergy ). FirstEnergy is a holding company under the Public Utility Holding Company Act of whose subsidiaries and affiliates are involved in the generation, transmission and distribution of electricity, as well as energy management and other energy-related services. It is a 3 42 U.S.C et seq. (2006). 3

5 diversified energy company that has franchised public utility affiliates, market-regulated power sales affiliates and non-utility affiliates. Its ten electric utility operating companies serve retail customers in Ohio, Pennsylvania, West Virginia, Maryland and New Jersey, and a small village in New York just across the Pennsylvania state line. FirstEnergy s generation subsidiaries, including FE GenCo, currently control approximately 22,810 MW of generation capacity, including the capacity of the plants to be deactivated. FE GenCo owns the Eastlake and Lakeshore Units that are the subject of the Transaction, and has authority to sell power at market-based rates. 4 FE GenCo is not a franchised public utility and does not have captive customers. It does not own or control transmission or distribution facilities other than limited interconnection facilities connected to its generation. B. ATSI ATSI is a wholly-owned subsidiary of FirstEnergy Transmission, LLC, which is a wholly-owned subsidiary of Allegheny Energy, Inc., a wholly-owned subsidiary of FirstEnergy. ATSI is a transmission-only public utility, which owns, operates and maintains transmission facilities in Ohio and western Pennsylvania. Its transmission facilities are subject to the functional control of PJM which provides transmission service to customers pursuant to the PJM Open Access Transmission Tariff ( PJM OATT ). 5 ATSI does not own generation and provides no retail utility service. ATSI is not a franchised public utility and has no captive customers. 4 The Commission first granted FE GenCo authorization to make power sales at market-based rates in Docket No. ER FirstEnergy Generation Corp., 94 FERC 61,177 (2001). 5 PJM Interconnection, L.L.C., FERC Electric Tariff, Sixth Revised Volume No. 1. 4

6 The ATSI transmission system is entirely within the PJM region and consists of approximately 7,500 circuit miles of transmission lines with nominal voltages of 500 kv, 345 kv, 138 kv and 69 kv. The system has 35 normally closed interconnections with unaffiliated transmission owners and five normally closed interconnections with affiliated transmission owners, all at voltages of 69 kv or higher. III. JURISDICTION The Transaction involves the sale of certain jurisdictional generation facilities by FE GenCo, which is a FERC-jurisdictional public utility, and thus is subject to the Commission s jurisdiction under section 203(a)(1) 6 of the Federal Power Act. Specifically, the Transferred Assets (described below) include generator step-up transformers associated with the Eastlake Units and Lakeshore Unit. The Commission has held that section 203 applies to the sale of generator step-up transformers. 7 Also, although the Eastlake Units and Lakeshore Unit will be deactivated prior to transfer to ATSI and will not operate as generating units after the transfer, the Commission s regulations extend to the transfer of generating units that were in operation prior to a transaction. 8 6 See, e.g., Brazos Elec. Power Coop., 118 FERC 61,199 P 46 (2007); see also Duke Power Co., 36 FPC 399 (1966), relevant holding affirmed in Duke Power Co. v. Fed. Power Comm n, 401 F.2d 930, 941 (D.C. Cir. 1968) ( Governmental agencies and instrumentalities are not public utilities, but we have no doubt that any acquisition from either by a public utility of what would normally be a jurisdictional facility, such as a transmission line conducting interstate energy, would fall within the purview of the clause under consideration. ). 7 See, e.g., Niagara Mohawk Power Corporation, NRG Energy, Inc., Huntley Power LLC and Dunkirk Power LLC, 87 FERC 61,283 (1999) CFR 33.1(a)(1)(iv); see also Transactions Subject to FPA Section 203, Order No. 669, FERC Stats. & Regs. 31,200 at P 84 (2005), order on reh g, Order No. 669-A, FERC Stats. & Regs. 31,214, order on reh g, Order No. 669-B, FERC Stats. & Regs. 31,225 (2006) ( Order No. 669 ) ( The Commission adopts the NOPR s proposal that an existing generation facility is a generation facility that is operational at or before the time the transaction is consummated. ). 5

7 IV. THE TRANSACTION A. Background On January 26, 2012, FirstEnergy announced that two of its generation subsidiaries would deactivate a number of generating units at six older, coal-fired power plants located in Ohio, Pennsylvania and Maryland by September 1, The decision to close the plants was based on the U.S. Environmental Protection Agency Mercury and Air Toxics Standards, which had been recently finalized, and other environmental regulations. As a result of these new standards and regulations, the older, coal-fired power plants were less likely to be dispatched under current market rules. As announced on January 26, 2012, the total capacity of FE GenCo s plants that will be deactivated is 2,217 MW. 9 The Eastlake Units and Lakeshore Unit are among the plants to be deactivated. A study performed by PJM following the announcement of the deactivations found significant reliability concerns as a result of the deactivations, including concerns with continued reliability of the ATSI transmission system supporting the Cleveland area. It determined that there was a need for numerous transmission upgrades, including additional voltage support in that area. In addition, PJM has requested FirstEnergy to continue to operate Eastlake Units 1, 2 and 3 and Lakeshore Unit 18, beyond the 9 The units to be deactivated by FE GenCo as a result of the January 26, 2012 announcement are Bay Shore Units 2 through 4 in Oregon, Ohio; Eastlake Units 1 through 5 in Eastlake, Ohio; Ashtabula Plant in Ashtabula, Ohio; and Lake Shore Plant in Cleveland, Ohio. FirstEnergy also announced on January 26, 2012 the deactivation of an additional 472 MW of generation owned by another generation subsidiary, Allegheny Energy Supply Company, LLC. On February 8, 2012, FirstEnergy announced the deactivation of an additional 660 MW of generation owned by its regulated subsidiary, Monongahela Power Company. 6

8 proposed September 1, 2012 deactivation date under Reliability-Must-Run arrangements. 10 B. The Voltage Support Solution The PJM analysis identified numerous low voltage violations in the ATSI transmission zone. PJM and ATSI coordinated their efforts and developed a solution to address the voltage violations in the Cleveland area on a long-term basis. That solution includes conversion of the deactivated Eastlake and Lakeshore units to synchronous condensers providing up to 1,385 MVAR of dynamic reactive voltage support with the following in-service dates: Eastlake Unit 5 June 1, 2013 Eastlake Unit 4 December 1, 2013 Eastlake Units 1, 2 and 3 June 1, 2015 Lakeshore Unit 18 June 1, 2015 Although dynamic reactive voltage support also can be provided by static var compensators ( SVCs ), the conversion of the units to synchronous condensers is a more economical, effective and expedient solution than the installation of new SVCs. In addition, synchronous condensers have several advantages over SVCs, including the following: Maintaining higher short circuit current levels than would exist if the generators were fully deactivated with the plants, Short-term overload capability to produce more reactive power, Reactive capability not impacted by system voltage level, and Negligible harmonic and resonance issues. 10 On July 10, 2012, FE GenCo submitted informational filings for these units to the FERC pursuant to the Deactivation Avoidable Cost Rate under Section 116 of the PJM OATT. 7

9 The conversion of the Transferred Assets to synchronous condensers can be completed for approximately $60 million. This amount when added to the transfer price of the Transferred Assets (which, as discussed below, is approximately $21.5 million) results in an overall cost for 1,385 MVAR of voltage support distributed across six devices (i.e. units) of approximately $81.5 million. That amount is substantially less than the approximate $120 million cost to purchase and install the SVCs necessary to provide the equivalent voltage support. 11 Further, synchronous condensers, based on the conversion of the deactivated generating units, can be brought on line more quickly than new SVCs could be installed. The lead time for ordering and installing SVCs is a minimum of approximately eighteen months. As a result, there is insufficient time for ATSI to order and install SVCs to meet the June 1, 2013 and December 1, 2013 inservice dates needed for the additional voltage support. By comparison, the conversion of the Transferred Assets to synchronous condensers can be completed within the timeframe necessary to meet the required in-service dates identified by PJM. 12 C. The Transaction The Transferred Assets are identified in Schedule A of the Asset Purchase Agreement and include boiler buildings, turbine buildings, administration buildings, control rooms, generators, exciters, voltage regulators, seal oil systems, protective relays, 11 This estimate of the cost of providing the necessary voltage support through SVCs is based on the recent experience of one of ATSI s affiliates, which purchased and installed an SVC with a capacity of 575 MVAR at the Black Oak Substation in 2007 for approximately $50 million, or approximately $87,000 per MVAR. At this per-mvar cost, the total cost of providing the 1,385 MVAR of voltage support that the six synchronous condensers that ATSI plans to install will provide, is approximately $120.4 million. 12 During an April 27, 2012 Transmission Expansion Advisory Committee meeting, PJM Staff recommended the conversion of Eastlake Units 1 through 5 and Lake Shore Unit 18 to synchronous condensers with in-service dates of June 1, 2013 for Eastlake Unit 5, December 1, 2013 for Eastlake Unit 4 and June 1, 2015 for Eastlake Units 1, 2 and 3, and Lake Shore Unit 18. See The PJM Board approved this recommendation on May 17,

10 step-up, auxiliary transformers, start-up transformers, cooling water systems and hydrogen systems. The portion of the Transferred Assets that is necessary for the synchronous condenser conversion and operation and maintenance will be transferred at the assets original cost, less accumulated depreciation through the date of closing. The following table shows the original cost and accumulated depreciated for these assets on assumed closing dates: Unit Original Cost Accumulated Depreciation At Closing Net Book Value At Closing Assumed Closing Date Eastlake Unit 1 $ 6,510,012 $ 5,250,322 $ 1,259, Eastlake Unit 2 3,180,347 2,982, , Eastlake Unit 3 6,141,437 4,816,688 1,324, Eastlake Unit 4 13,004,960 8,953,093 4,051, Eastlake Unit 5 29,585,040 16,942,197 12,642, Lakeshore Unit 18 15,643,274 13,629,995 2,013, Totals $74,065,070 $52,574,714 $21,490,356 Based on the assumed closing dates shown above, the purchase price of the assets necessary for the conversions is $16,694,710 for Eastlake Units 4 and 5 on October 31, 2012, and $4,795,646 for Eastlake Units 1, 2 and 3 and Lakeshore Unit 18 on December 31, 2014, resulting in a total purchase price of $21,490, The portion of the Transferred Assets consisting of the remaining equipment, fixtures and other contents in the transferred buildings will be transferred at FE GenCo s net book value at closing which will be zero. Also, under the terms of the sale, ATSI will assume responsibility for environmental remediation of the buildings in which the synchronous condensers and 13 As a result of the Transaction, ATSI will assume obligations associated with environmental liabilities related to the transferred buildings, including asbestos-containing materials contained in the Purchased Buildings and any asbestos remediation obligations related thereto. The assumption of this obligation is reflected in the accounting entries provided in Part VI.F. of this Application. 9

11 related equipment will be located. ATSI and FE GenCo also will enter into a ground lease, with market rent, for use of the land on which the synchronous condensers will be located. 14 D. Timing PJM has indicated that a portion of the voltage support will be needed by June 1, 2013, with additional support by December 1, 2013 and at later periods over the next eighteen months. The conversion of the deactivated generation equipment to synchronous condensers will take several months to complete. As a result, the Applicants will need Commission approval of this Application on or before October 15, This will permit the closing of the Transaction with respect to Eastlake Unit 5 and Eastlake Unit 4 by October 31, 2012 and ATSI s completion of the conversion of those units to synchronous condensers by June 1, 2013 for Eastlake Unit 5 and December 1, 2013 for Eastlake Unit 4 and the closing of the Transaction and the completion of the conversion with respect to the remaining four units in accordance with the schedule directed by PJM. In summary, the Transaction is a necessary component of the PJM Board of Manager s approved May 17, 2012 Regional Transmission Expansion Plan ( RTEP ) transmission additions addressing the reliability of the ATSI transmission system supporting the Cleveland area. Consummation of the Transaction will permit ATSI to resolve pending voltage support issues in this area at the least cost and in an expedient manner by the conversion of the Transferred Assets to synchronous condensers to assure the long-term reliability of the ATSI transmission system supporting the Cleveland area. 14 Other matters addressed by the Asset Purchase Agreement (Exhibit I to this Application) include mutual access rights and the allocation of operation and maintenance expenses during the period of Reliability Must Run arrangements associated with certain of the Transferred Assets. 10

12 V. THE TRANSACTION MEETS THE STANDARDS FOR APPROVAL Section 203(a)(4) of the Federal Power Act requires that the Commission approve a transaction if it determines that the transaction will be consistent with the public interest. 15 The Commission s analysis of whether a transaction will be consistent with the public interest generally involves consideration of three factors: (1) the effect on competition; (2) the effect on rates; and (3) the effect on regulation. 16 Section 203 also requires the Commission to find that the transaction will not result in cross-subsidization of a non-utility associate company or the pledge or encumbrance of utility assets for the benefit of an associate company, unless the Commission determines that the crosssubsidization, pledge, or encumbrance will be consistent with the public interest. 17 The Commission s regulations establish verification and informational requirements for applicants that seek a determination that a transaction will not result in inappropriate cross-subsidization or pledge or encumbrance of utility assets. 18 The Transaction easily satisfies all of these requirements. A. The Transaction Is Consistent With the Public Interest To assess whether a transaction is consistent with the public interest, the Commission will consider factors such as the effect on competition, rates and regulation, along with any other information relevant for consideration FPA Section 203(a)(4), 16 U.S.C. 824b(a)(4) (2006). See Inquiry Concerning the Commission s Merger Policy Under the Federal Power Act: Policy Statement, Order No. 592, FERC Stats. & Regs. 31,044 at 30, (1996), reconsideration denied, Order No. 592-A, 79 FERC 61,321 (1997) ( Merger Policy Statement ) U.S.C. 824b(a)(4) (2006). 18 C.F.R. 33.2(j) (2012). 18 C.F.R. 33.2(g) (2012). 11

13 1. The Transaction Will Not Harm Competition In analyzing transactions requiring approval under section 203, the Commission seeks to determine whether the transaction will result in higher prices or reduced output in electricity markets. 20 To assess such concerns, the Commission evaluates the impact on horizontal and vertical market concentration. Part 33 of the Commission s regulations requires an applicant to submit a Horizontal Competitive Analysis Screen if a single corporate entity obtains ownership or control over the generating facilities of previously unaffiliated merging entities. 21 Similarly, Part 33 requires a Vertical Market Competitive Analysis when a single corporate entity has ownership or control over one or more merging entities that provides inputs to electricity products and one or more merging entities that provides electric generation products. 22 Neither analysis is required for this Application. The Transaction does not concern a utility merger. Rather, it involves the transfer of generation assets that will be deactivated and converted to serve a transmission function that the PJM Board of Managers has determined to be needed in the near term. It does not present any horizontal competitive impacts because it will not result in a single corporate entity obtaining ownership or control over the generating facilities of previously unaffiliated merging entities. Likewise, the Transaction does not present any vertical competitive impacts. The Transaction will not result in a single corporate entity having ownership or 20 Revised Filing Requirements Under Part 33 of the Commission s Regulations, Order No. 642, FERC Stats. & Regs. 31,111 at 31,879 (2000) ( Order No. 642 ) ( The Commission s objective in analyzing a proposed merger s effect on competition is to determine whether the merger will result in higher prices or reduced output in electricity markets. ); order on reh g, Order No. 642-A, 94 FERC 61,289 (2001) C.F.R. 33.3(a)(1) (2012). 18 C.F.R. 33.4(a)(1) (2012). 12

14 control over one or more merging entities that provides inputs to electricity products and one or more merging entities that provides electric generation products. a. The Transaction Will Not Affect Horizontal Concentration in Any Market The Transaction plainly will not change horizontal concentration in any electricity market. First, the Transaction does not involve the transfer of generating assets between unaffiliated companies. As discussed above, both the seller, FE GenCo, and the buyer, ATSI, are currently owned indirectly by FirstEnergy. Thus, there will be no transfer of generation ownership between unaffiliated entities. Second, the generation assets to be transferred will not only be deactivated at the time of the transfer, but after their transfer, they will be physically converted to serve a transmission function and will be rendered incapable of any generation function by the permanent removal of all prime mover inputs. Therefore, the Transaction will not result in a change in the generation market share of the subsidiaries of FirstEnergy. b. The Transaction Presents No Vertical Market Power Concerns The core of the Transaction is the transfer of certain of FE GenCo s generating facilities that ATSI plans to convert to a transmission function as synchronous condensers to provide voltage support. ATSI will provide open, non-discriminatory access to these facilities, together with its existing transmission facilities, under the PJM OATT. Moreover, as noted above, the Transaction involves affiliated entities, so there is no change in concentration of ownership or control of transmission facilities. The Commission has repeatedly stated that a mere disposition of transmission facilities does 13

15 not raise competitive concerns. 23 In this case, the Transaction concerns the transfer of deactivated generating assets that will be converted to serve a transmission function. The Commission has indicated that competitive concerns are further reduced when the facilities will be subject to a Regional Transmission Organization, such as PJM, which is the case here. 24 In the past, the Commission has approved transactions involving only transmission facilities without requiring the applicants to submit horizontal competitive analysis screens or vertical market competitive analyses. 25 In summary, the Transaction concerns only the disposition of certain deactivated generation assets and associated facilities between affiliated companies. It does not involve the merger or acquisition of another entity, or the issuance or exchange of any securities. It does not raise horizontal market power concerns by combining any generating assets or vertical market power concerns by transferring inputs to electric power generation. It does not result in the creation of a single entity holding both transmission and generation. Thus, the Transaction does not present competitive concerns, which require a full horizontal or vertical market power analysis. 23 Order No. 642 at 31,902-3 (2000) ( [W]e will not require Section 203 applicants to provide a competitive analysis under 33.3 or 33.4 of the regulations if the transaction only involves a disposition of transmission facilities anticompetitive effects are unlikely to arise with regard to internal corporate reorganizations or transactions that only involve the disposition of transmission facilities. ). See also, Order No. 669 at P C.F.R (c)(1) (2011) (providing expedited review for a disposition of only transmission facilities that both before and after the transaction remain under the functional control of a Commissionapproved regional transmission organization or independent system operator ). See also, Order No. 669 at P 190 ( We believe that ISOs and RTOs are pro-competitive and are effective at preventing market power abuse because they have Commission-approved market-monitoring and mitigation measures in place. ). 25 See, e.g., Illinois Power Co. and Ameren Illinois Transmission Co., 129 FERC 62,225 (2009); Startrans IO, L.L.C., 122 FERC 61,307 (2008); ITC Holdings Corp., 121 FERC 61,229 (2007). 14

16 2. The Transaction Will Not Adversely Affect Rates In considering section 203 applications, the Commission requires that the applicant demonstrate that the transaction will have no adverse effect on its rates for costbased wholesale power sales or transmission service. 26 In this case, the Transaction will have no effect on any rates for wholesale power sales because the generation assets at issue will be deactivated, then permanently converted for use as transmission assets and will not be capable of nor used to make wholesale power sales. ATSI will include the purchase price of the Transferred Assets, as well as the costs of the conversion and the installation of synchronous condensers, in its transmission formula rate under the PJM OATT. However, ATSI will not include any Transactionrelated costs 27 in its transmission formula rate, except as provided below. To the extent ATSI s acquisition of these assets could affect rates for transmission service, ATSI makes the following hold harmless commitment. For a period of five years, ATSI will not seek to include Transaction-related costs in its filed transmission revenue requirements unless it can demonstrate Transaction-related savings equal to or in excess of the Transaction-related costs. The Commission has approved this type of commitment in its Merger Policy Statement and in a number of subsequent cases See. e.g., Old Dominion Elec. Coop., 119 FERC 61,253 (2007). The Commission has interpreted transaction costs to include all transaction-related costs (including acquisition premiums, if any), not only costs related to consummating a transaction. See ITC Midwest LLC, 139 FERC 62,020, at 61,040 (2012) (citing PPL Corporation and E.ON U.S. LLC, 133 FERC 61,083 (2010)). In this case, because ATSI will acquire a portion of the Transferred Assets at their original cost, less accumulated depreciation, and the remainder at zero net book value, there will be no acquisition premium. 28 Merger Policy Statement at 30,124; see also Ameren Corp., 108 FERC 61,094 at P 6-8 (2004); Great Plains Energy Inc., 121 FERC 61,069 at P 48 (2007). 15

17 3. The Transaction Will Not Adversely Affect Regulation The Merger Policy Statement explained that certain section 203 transactions may open a regulatory gap between state and federal authorities. 29 No such concerns arise in this case. As discussed above, under the Transaction, FE GenCo will simply convey ownership of certain facilities to ATSI, which will be converted to transmission assets to support a transmission function. FE GenCo and ATSI will remain subject to regulation by the Commission after the Transaction closes to the same extent each was regulated before the closing of the Transaction. The newly converted transmission facilities will be placed under the functional control of PJM, a FERC-jurisdictional Regional Transmission Organization. The cost of the facilities, including the cost to convert the facilities to synchronous condensers, will be recovered under rates set forth in the PJM OATT, a FERC-jurisdictional tariff. And, the Commission will continue to have jurisdiction over the use of and access to these transmission assets, which will be subject to the terms of the PJM OATT. Consequently, no facilities will be removed from the Commission s jurisdiction as a result of the Transaction. The Merger Policy Statement also requires a statement of whether a state commission has authority to act on the proposed transaction. 30 Because neither FE GenCo nor ATSI engage in retail sales of electricity, neither is subject to state jurisdiction. Consequently, no state commission has authority to act on the Transaction. 4. Summary As detailed above, the Transaction is a necessary component of the RTEP approved by PJM s Board of Managers to address the continued reliability of the ATSI Merger Policy Statement at 30, Id. 16

18 transmission system supporting the Cleveland area in the most economical and expedient manner. Consummation of the Transaction will permit ATSI to resolve pending dynamic reactive and voltage support issues in this area by the timely conversion of the acquired assets to synchronous condensers to assure the long-term reliability of the ATSI transmission system supporting the Cleveland area. Combined with the absence of any adverse implications for competition, rates or regulation, these considerations firmly establish that the Transaction is in the public interest. B. The Transaction Will Not Result In an Improper Cross-Subsidization, Pledge or Encumbrance Order No. 669-A, as clarified by Order No. 669-B, requires applicants to specifically address each of the Commission s four cross-subsidization and pledge or encumbrance concerns, now codified in the Commission s regulations at section 33.2(j). 31 Section 33.2(j) requires applicants to demonstrate based on known or foreseeable facts and circumstances that the proposed transaction will not result in crosssubsidization of a non-utility associate company or pledge or encumbrance of utility assets for the benefit of an associate company. Section 33.2(j) provides that a section 203 application should contain: (j) An explanation, with appropriate evidentiary support for such explanation (to be identified as Exhibit M to this application): (1) Of how applicants are providing assurance, based on facts and circumstances known to them or that are reasonably foreseeable, that the proposed transaction will not result in, at the time of the transaction or in the future, cross-subsidization of a non-utility associate company or pledge or encumbrance of utility assets for the benefit of an associate company, including: 31 Transactions Subject to FPA Section 203, Order No. 669, FERC Stats. & Regs. 31,200 at P 190 (2005), order on reh g, Order No. 669-A, FERC Stats. & Regs. 31,214 at P 144, order on reh g, Order No. 669-B, FERC Stats. & Regs. 31,225 at P 49 (2006). 17

19 (i) Disclosure of existing pledges and/or encumbrances of utility assets; and (ii) A detailed showing that the transaction will not result in: (A) Any transfer of facilities between a traditional public utility associate company that has captive customers or that owns or provides transmission service over jurisdictional transmission facilities, and an associate company; (B) Any new issuance of securities by a traditional public utility associate company that has captive customers or that owns or provides transmission service over jurisdictional transmission facilities, for the benefit of an associate company; (C) Any new pledge or encumbrance of assets of a traditional public utility associate company that has captive customers or that owns or provides transmission service over jurisdictional transmission facilities, for the benefit of an associate company; or (D) Any new affiliate contract between a non-utility associate company and a traditional public utility associate company that has captive customers or that owns or provides transmission service over jurisdictional transmission facilities, other than non-power goods and services agreements subject to review under sections 205 and 206 of the Federal Power Act; or (2) If no such assurance can be provided, an explanation of how such cross-subsidization, pledge, or encumbrance will be consistent with the public interest. To address the section 33.2(j) requirements, the Applicants provide the following information and representations. First, based on known or foreseeable facts and circumstances, the Transaction will not result in, at the time of the Transaction or in the future, cross-subsidization of a nonutility associate company or the pledge or encumbrance of utility assets for the benefit of an associate company. Specifically, the proposed transaction will not affect any of the retail operating companies of FirstEnergy. It involves only a transfer of certain deactivated generation assets from FE GenCo to ATSI so that ATSI can convert the assets to synchronous condensers in order to support the reliability of the ATSI 18

20 transmission system supporting the Cleveland area, consistent with the RTEP approved by PJM s Board of Managers. Moreover, the Commission has and will continue to have the ability to provide ongoing protection against cross-subsidization through its authority over the rates, terms and conditions of service associated with all jurisdictional transmission facilities owned by ATSI. In particular, if ATSI elects to seek recovery of the Transaction-related costs from transmission customers, Commission policy requires ATSI to submit a filing under section 205 of the Federal Power Act. 32 And, because the proposed Transaction does not affect any state utility commission s jurisdiction over any subsidiary of FirstEnergy, the ability of all state commissions to address crosssubsidization issues also will be unaffected by the Transaction. Second, ATSI is not a franchised public utility and has no captive customers. And, to the extent that FE GenCo s transfer of the deactivated generation assets to ATSI will result in a transfer of facilities from an associate company to a traditional utility that owns or provides transmission service over jurisdictional facilities, the transfer is in the public interest because it will permit ATSI to make use of what otherwise would be deactivated and unused assets in order to improve and ensure the reliable operation of the ATSI transmission system supporting the Cleveland area. Moreover, the hold harmless commitment will protect customers from rate increases associated with Transactionrelated costs for a period of five years following the closing of the Transaction. As discussed above, the Transaction will not change state or Commission regulatory 32 PPL Corporation and E.ON U.S. LLC, 133 FERC 61,083 at P 27 (2010) ( If Applicants seek to recover transaction- related costs through their wholesale power or transmission rates they must submit a compliance filing that details how they are satisfying the hold harmless requirement. If Applicants seek to recover transaction-related costs in an existing formula rate that allows for such recovery, then that compliance filing must be filed in the section 205 docket in which the formula rate was approved by the Commission, as well as in the instant section 203 docket. ) 19

21 oversight over retail and wholesale services. And, other than the sale of the deactivated generation assets at depreciated original cost and the associated ground lease, the Transaction will not involve the sale of any other goods or services to ATSI. 33 Therefore, there is no concern that in the future the cross-subsidization of a non-utility or nonregulated associate company could result from ATSI paying too much for goods and services that it receives from FE GenCo. These facts ensure that the Transaction will not result in inappropriate cross-subsidization of a non-utility associate company. Further, the Applicants verify that the Transaction will not result in: (i) any new issuances of securities by a traditional public utility associate company that has captive customers (because ATSI has no captive customers) or that owns or provides transmission service over jurisdictional transmission facilities, for the benefit of an associate company; (ii) any new pledge or encumbrance of assets of a traditional public utility associate company that has captive customers or that provides transmission service over jurisdictional transmission facilities, for the benefit of an associate company; or (iii) any new affiliate contract between a non-utility company and a traditional public utility associate company that has captive customers or that owns or provides transmission service over jurisdictional transmission facilities, other than non-power goods and services agreements subject to review under sections 205 and 206 of the FPA. Finally, in Exhibit M of this Application, Applicants disclose the existing pledges and encumbrances of the utility assets of the Applicants as required under Order No A and 18 C.F.R (j)(l)(i). 33 The Asset Purchase Agreement provides that ATSI and FE GenCo will enter into an Expense Agreement relating to operation and maintenance costs and ground leases relating to the Purchased Assets. 20

22 VI. INFORMATION REQUIRED BY PART 33 OF THE COMMISSION S REGULATIONS The Applicants submit the following information pursuant to Part 33 of the Commission s regulations. They request limited waivers of the Part 33 filing requirements to the extent the information is not provided below or elsewhere in this Application or to the extent the information is not germane to this Application. A. Section 33.2(a): Exact Name of Applicants and Principal Business Address FirstEnergy Generation Corp. 76 South Main Akron, Ohio American Transmission Systems, Incorporated 76 South Main Akron, Ohio B. Section 33.2(b): Names and Addresses of Persons Authorized to Receive Notices and Communications in Respect to the Application See Part I of this Application. C. Section 33.2(c)(1) through Section 33.2(j): See Exhibits A through M attached to this Application. D. Section 33.3: Applications Involving Horizontal Competitive Impacts Not applicable. The Transaction will not result in a single corporate entity obtaining ownership or control over the generating facilities of previously unaffiliated merging entities. E. Section 33.4: Applications Involving Vertical Competitive Impacts Not applicable. The Transaction will not result in single corporate entity having ownership or control over one or more merging entities that provides inputs to electricity products and one or more merging entities that provides electric generation products. 21

23 F. Section 33.5: Accounting Entries Not applicable to FE GenCo which has been granted a waiver as to compliance with 18 C.F.R. Part 101 which requires maintenance of accounts in accordance with the Commission s Uniform System of Accounts. 34 ATSI proposes to use the following accounting entries to record the Transaction: Entry A B Date Oct. 31, 2012 Dec. 31, 2014 FERC Account Account Description Debit Credit 107 Construction Work In Progress - Electric $16,694, Cash $16,694, Construction Work In Progress - Electric $4,795, Cash $4,795,646 The journal entries above are to record the purchase by ATSI of Eastlake Units 4 and 5 on an assumed closing date of October 31, 2012 (Entry A) and Eastlake Units 1, 2 and 3 and Lakeshore Unit 18 on an assumed closing date of December 31, 2014 (Entry B). The Transferred Assets are not considered to be an operating unit or system since the Transferred Assets will require conversion from their original intended use as generation equipment to their new use as transmission equipment. When the Transferred Assets have been converted to synchronous condensers and placed in service they will be recorded in Account 106, Completed construction not classified. After unitization and consistent with the Commission s Uniform System of Accounts Electric Plant Instructions 2 and 5, ATSI will record the Transferred Assets in Account 101, Electric Plant In Service, at the purchase price plus conversion costs. The Electric Plant in Service will be depreciated consistent with ATSI s depreciation rates in Account 403, Depreciation Expense. 34 FirstEnergy Generation Corp., 94 FERC 61,177 (2001), 22

24 Entry C Date Oct. 31, 2012 FERC Account Account Description Debit Credit 101 Electric Plant In Service $1,203, Accumulated Deferred Income Taxes Asset Retirement Obligation Accumulated Deferred Income Taxes Other Property 437,107 $1,203, ,107 D Dec. 31, Electric Plant In Service $3,920, Accumulated Deferred Income Taxes Asset Retirement Obligation Accumulated Deferred Income Taxes Other Property 1,423,637 $3,920,912 1,423,637 The journal entries above are to record the Asset Retirement Obligation ( ARO ) associated with the purchase of Eastlake Units 4 and 5 on October 31, 2012 (Entry C); and Eastlake Units 1, 2 and 3 and Lakeshore Unit 18 on December 31, 2014 (Entry D). The ARO liability represents the legal obligation that ATSI is assuming for the remediation and disposal of asbestos and chemicals related to the assets acquired in this transaction. The value of the ARO represents the present value of the future obligation to remediate asbestos and chemicals that exist at these facilities, which was calculated and validated for appropriateness. Consistent with the Commission s Uniform System of Accounts, General Instruction 25, ATSI will record an ARO liability in Account 230 and charge the associated Asset Retirement Costs ( ARC ) to electric utility plant (Account 101), which will be depreciated over the useful life of the related asset in Account 403.1, Depreciation Expense for Asset Retirement Cost. In addition, ATSI will record accretion expense in Account to accrete the ARO liability. The 23

25 amounts recorded in Accounts 190 and 282 represent offsetting deferred taxes associated with the ARO and ARC. G. Section 33.7: Verification See Attachment 1. VII. REQUEST FOR EXPEDITED ACTION The Applicants request expedited Commission action on this Application and seek an order approving the Transaction on or before October 15, Good cause exists for this request. As described above, approval of the Transaction on or before October 15, 2012 will permit ATSI to complete the conversion of the deactivated generation assets to synchronous condensers in a timely fashion. As noted above, the new synchronous condensers are necessary as directed by the RTEP approved by PJM s Board of Managers to support the reliability of the ATSI transmission system supporting the Cleveland area. Moreover, section of the Commission s regulations provides that the Commission will provide for the expeditious consideration of completed applications for the approval of transactions that are not contested, do not involve mergers and are consistent with Commission precedent. Such transactions that will generally be subject to expedited review include a disposition of only transmission facilities, including, but not limited to, those that both before and after the transaction remain under the functional control of a Commission-approved regional transmission organization or independent system operator. 35 In this case, the Applicants are not aware of any party in interest that opposes the Transaction. The Transaction does not involve a utility merger, and as C.F.R (b) & (c) (2011). 24

26 discussed above, is consistent with Commission precedent. Thus, the Applicants respectfully submit that the Transaction satisfies the requirements of section for expedited review. VIII. CONCLUSION For the foregoing reasons, the Transaction meets the standards for Commission approval under section 203 of the FPA, Part 33 of the Commission s regulations and applicable precedent. The Applicants therefore request that the Commission: (1) authorize the Transaction, (2) grant limited waiver of Part 33 filing requirements, as requested herein, and (3) act on this Application and issue an order approving the Transaction on or before October 15, Respectfully submitted, Randall B. Palmer Senior Corporate Counsel II FirstEnergy 800 Cabin Hill Drive Greensburg, PA (724) /s/ Kenneth G. Jaffe Kenneth G. Jaffe Richard P. Sparling Alston & Bird, LLP 950 F Street, NW Washington, DC (202) Attorneys for FirstEnergy Generation Corp. and American Transmission Systems, Incorporated 25

27 Exhibit A Section 33.2(c)(1): Description of Applicants Business Activities All relevant business activities are discussed above in Part II of this Application. To the extent necessary, the Applicants request waiver of any additional information requirements of Section 33.2(c)(1).

28 Exhibit B Section 33.2(c)(2): Applicants Relevant Affiliates Both Applicants are wholly-owned indirect subsidiaries of FirstEnergy Corp. and have the same affiliates. The Transaction will not result in the formation of any new affiliates of the Applicants or the change in control of any affiliates of the Applicants. The Applicants respectfully request a waiver of the requirements of Section 33.2(c)(2).

29 Exhibit C Section 33.2(c)(3): Organizational Charts Depicting Current and Proposed Post-Transaction Corporate Structure Section 33.2(c)(3) provides that an applicant need not submit an organizational chart if it demonstrates that the proposed transaction does not affect the corporate structure of any party. The Transaction will not affect the Applicants corporate structure.

30 Exhibit D Section 33.2(c)(4): Effect on Business Arrangements The Applicants respectfully request waiver of section 33.2(c)(4) because the Transaction does not involve any joint venture, strategic alliance, tolling arrangement or other business arrangement to which the Applicants or any of their parent companies, subsidiaries or affiliates are parties.

31 Exhibit E Section 33.2(c)(5): Identity of Common Officers or Directors of Parties to the Proposed Transaction The Applicants respectfully request waiver of this requirement. As stated in this Application, ATSI and FE GenCo are both indirect wholly-owned subsidiaries of FirstEnergy.

32 Exhibit F Section 33.2(c)(6): Description and Location of Wholesale Power Sales Customers and Unbundled Transmission Services Customers Served by the Applicant or its Parent Companies, Subsidiaries, Affiliates and Associate Companies See Part II of this Application. To the extent necessary, the Applicants respectfully request waiver of this requirement. As discussed herein, the Transaction will not adversely affect rates for wholesale power sales or transmission service.

33 Exhibit G Section 33.2(d): Description of Jurisdictional Facilities Owned, Operated, or Controlled by the Applicant or Its Parent Companies, Subsidiaries, Affiliates, and Associate Companies The Applicants have described jurisdictional facilities relevant to the Transaction in Parts II and IV of this Application. To the extent necessary, they respectfully request waiver of any requirement to list jurisdictional facilities that are not germane to this Application.

34 Exhibit H Section 33.2(e): Narrative Description A narrative description is provided in Part IV of this Application that includes (1) the identity of all parties involved, (2) all jurisdictional facilities affected, (3) the consideration provided, and (4) the Transaction s effect on the jurisdictional facilities. To the extent necessary, the Applicants request waiver of any additional informational requirements of section 33.2(e).

35 Exhibit I Section 33.2(f): Contracts Related to the Proposed Transaction A copy of the Asset Purchase Agreement is attached.

36 EXHIBIT I ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered into as of this /4774 day of July, 2012, (the "Effective Date"), by and between FirstEnergy Generation Corp, ("Seller"), and American Transmission Systems, Incorporated ("Purchaser"). WHEREAS, Seller is the owner of certain electric power generation facilities referred to as Eastlake Units 1, 2, 3, 4 and 5 and Lake Shore Unit 18 located in the cities of Eastlake and Cleveland, State of Ohio (the "Plant Sites"); WHEREAS, located within the Plant Sites are certain buildings ("Purchased Buildings") and equipment that once converted to synchronous condensers are useful to Purchaser's transmission operations, as more fully described on attached Schedule A (collectively the "Purchased Assets"); WHEREAS, concurrent with the conversion of the Purchased Assets to synchronous condensers certain of the units will be subject to PJM reliability must run arrangements for various periods of time ("RMR Period"); and WHEREAS, Seller desires to sell, and Purchaser desires to purchase, the Purchased Assets upon the terms and conditions set forth more fully herein, NOW, THEREFORE, for and in consideration of the mutual covenants, agreements, and understandings hereinafter set forth and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Purchaser hereby agree as follows: 1. PURCHASED ASSETS. Seller agrees to sell and convey to Purchaser, and Purchaser agrees to purchase and accept from Seller the Purchased Assets. 2. EXCLUDED ASSETS. Purchaser acknowledges and agrees that the Purchased Assets do not include any and all tangible or intangible assets or rights, not set forth on Schedule A including, but not limited to, electric energy capacity rights, interconnection or energy injection rights, permits, licenses, regulatory approvals, credits, emission allowances (whether accrued or not), or any other similar rights associated with the Seller's ownership or operation of the Purchased Assets prior to the Closing Date ("Excluded Assets"). Purchaser shall have the right but not the obligation to remove any Excluded Assets from the Plant Sites. 3. ASSUMED LIABILITIES AND COSTS. Purchaser shall assume the liability of and shall defend, indemnify and hold Seller harmless against any and all liabilities related to, or arising out of environmental liability related to the Purchased Buildings, whenever arising, including without limitation asbestos-containing materials contained within the Purchased Buildings and any asbestos remediation obligations related thereto. The cost of any electrical system upgrades or system reconfiguration required by PJM Interconnection, L.L.C. ("PJM") in association with Purchaser's installation of 81)63 v16 (Pcg) - I -

37 EXHIBIT I transmission-related assets will be assumed by Purchaser. The foregoing shall be collectively referred to as the "Assumed Liabilities". 4. RETAINED LIABILITIES. Seller shall retain the liability of and shall defend, indemnify and hold Purchaser harmless against any and all liabilities related to, or arising out of (i) Seller's pre-closing ownership, maintenance or operation of the Plant Sites and (ii) environmental liability related to the Plant Sites (but not the Purchased Buildings)whenever arising. The foregoing shall be collectively referred to as the "Retained Liabilities". 5. OPERATIONS & MAINTENANCE OBLIGATIONS DURING RMR PERIOD. On or after the Effective Date, the parties agree to negotiate in good faith agreements concerning the allocation of operation and maintenance expenses associated with the Plant Sites in a way that reasonably accounts for the Seller's and Purchaser's respective uses of the Plant Sites during the RMR Period (the "Expense Agreements"). Such expenses and rent (per Section 6) shall be prorated ("Prorated") during the RMR Period in a manner consistent with the Federal Energy Regulatory Commission ("FERC") regulations. 6. GROUND LEASES, Seller, as lessor, will grant to Purchaser, as lessee, ground leases on terms acceptable to each of the parties to permit Purchaser's access to and use of the real property underlying the Purchased Buildings and for other areas at the Plant Sites used by Purchaser for transmission-related purposes and shall pay annual rent at a market rate of $6, per acre for the Eastlake Site (approximately 14.3 acres) and $7, per acre for the Lake Shore Site (approximately 12,5 acres). Further, the ground leases will provide that Purchaser pay all costs and expenses associated with the Purchased Assets, including, without limitation, taxes, insurance, utilities, and maintenance, and environmental permits necessary for Purchaser's use of the Purchased Assets. 7. RESTRICTIONS ON FUTURE USE AND RESALE. Purchaser grants to Seller the first right to use or purchase the Purchased Assets (including any improvements to the Purchased Assets) prior to their reuse, resale or demolition by Purchaser. 8. PURCHASE PRICE. The purchase price for the Purchased Assets identified in Group A of Schedule A shall be Seller's original cost of the Purchased Assets in Group A less accumulated depreciation on the books of Seller for such assets up to the date of impairment by Seller plus any accumulated depreciation Seller would have incurred for such assets through the Closing Date but for the impairment (the "Group A Purchase Price"). The purchase price for the Purchased Assets identified in Group B of Schedule A shall be Seller's net book value of such assets as of the Closing Date (the "Group B Purchase Price"). "Purchase Price" means the Group A Purchase Price together with the Group B Purchase Price. The Purchase Price paid for the portion of the Purchased Assets associated with each unit's Closing Date shall be determined in accordance with this Section 8. 8 [363 v116 (mg) - 2 -

38 EXHIBIT I 9, PRE-CLOSING ACCESS TO PROPERTY. From the Effective Date until the last closing described in Section 12 of this Agreement, Purchaser, its agents, employees, and authorized representatives shall have reasonable access to the Purchased Assets during regular business hours and upon reasonable prior notice to Seller. Purchaser's access shall be conducted in accordance with Seller's applicable safety rules and shall be at Purchaser's sole cost and expense. 10. OPERATING PROTOCOLS. The parties shall negotiate in good faith protocols necessary to mitigate the impact of Seller's and Purchaser's operations at the Plant Sites during Purchaser's use of the Purchased Assets. 11. CONDITIONS TO CLOSING. A. Conditions to Purchaser's Obligations. With respect to the portion of the Purchased Assets to be transferred on each Closing Date, Purchaser's obligation to purchase the Purchased Assets is expressly conditioned on the satisfaction of the following conditions on or before the Closing Date: (i) (ii) (iii) (iv) Seller shall have delivered to Purchaser a Bill of Sale in substantially the same form as Exhibit A, attached hereto. Seller shall have performed and observed, in all material respects, all covenants and agreements contained in this Agreement to be performed and observed by Purchaser. All of the representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects as of the Closing Date as if made as of the Closing Date. As of the Closing Date, the Purchased Assets shall be in substantially the same condition they were on the Effective Date, wear and tear excepted. If any condition in subsection A is not satisfied on or before the Closing Date, Purchaser may, at its option, elect to (1) terminate this Agreement by written notice to Seller, in which event neither party shall have any further obligation to the other with respect to this Agreement (other than those provisions which expressly survive termination hereof), or (2) waive said condition and proceed to closing without reduction of the Purchase Price. B. Conditions to Seller's Obligations. With respect to the portion of the Purchased Assets to be transferred on each Closing Date, Seller's obligation to sell the Purchased Assets is expressly conditioned on the satisfaction of the following conditions on or before the Closing Date: v16 (rcg) - 3 -

39 EXHIBIT I (i) (ii) Purchaser shall have performed and observed, in all material respects, all covenants and agreements contained in this Agreement to be performed and observed by Purchaser. All of the representations and warranties of Purchaser contained in this Agreement shall be true and correct in all material respects as of the Closing Date as if made as of the Closing Date. If any condition set forth in this subsection B is not satisfied or waived by Seller, this Agreement shall terminate and neither party shall have any further obligation to the other with respect to this Agreement. C. Mutual Conditions. The parties' obligations to consummate the contemplated transaction are subject to the Seller and Purchaser obtaining all required board, governmental, lender and other third-party approvals necessary to complete the transaction contemplated by this Agreement. If any condition in this subsection C is not satisfied within a reasonable period of time and not later than May 31, 2015, either party may, at its option, elect to (1) terminate this Agreement by written notice to the other party, in which event neither party shall have any further obligation to the other with respect to this Agreement (other than those provisions which expressly survive termination hereof), or (2) waive said condition and proceed to closing. 12. UNIT CLOSING DATES, The date of closing ("Closing Date") for the portion of the Purchased Assets associated with individual units shall be as follows: (0 For each of Eastlake Units 4 and 5 shall occur at a mutually agreed upon date and tune that is within sixty (60) days after the later of September 1, 2012 or the date on which FERC approves the transactions contemplated by this Agreement, and (ii) For each of Eastlake Units 1, 2 and 3 and Lake Shore Unit 18 shall occur at a mutually agreed upon date and time within sixty (60) days after the later of the date of FERC approval of the transactions contemplated by this Agreement or the end of the RMR Period for such unit. 13. SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS. Seller represents, warrants, and covenants to Purchaser as of the date hereof as follows: (i) Seller has the capacity and authority to execute this Agreement and perform the obligations of Seller hereunder v16 (rcg) 4 -

40 EXHIBIT I (ii) (iii) (iv) (v) (vi) (vii) Seller's execution of and performance of the obligations under this Agreement will not constitute a breach under any contract or agreement which affects or binds Seller or the Purchased Assets. This Agreement constitutes the valid and binding obligation of Seller. Seller has good title to all of the Purchased Assets, free and clear of all liens, claims, encumbrances, security interests and other charges of any kind, nature or description whatsoever. That Eastlake Units 4 and 5 will be retired as electric power generation facilities on or before September 1, In no event will the RMR Period with respect to any such unit continue after May 31, 2015, unless otherwise agreed upon by Seller and PJM. During the RMR Period, the Purchased Assets shall be maintained in accordance with good utility practices. 14. PURCHASER'S REPRESENTATIONS AND WARRANTIES, Purchaser represents and warrants to Seller that as of the date hereof as follows: (i) (ii) (iii) Purchaser has the capacity and authority to execute this Agreement and perform the obligations of Purchaser hereunder; Purchaser's execution of and performance of the obligations under this Agreement will not constitute a breach under any contract or agreement which affects or binds Purchaser. This Agreement constitutes the valid and binding obligation of Purchaser. 15. DISCLAIMER, EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, PURCHASER ACKNOWLEDGES AND AGREES THAT THE SALE OF THE PURCHASED ASSETS PURSUANT TO THIS AGREEMENT IS AND WILL BE MADE ON AN "AS IS, WHERE IS" AND "WITH ALL FAULTS" BASIS, WITHOUT FURTHER REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE BY SELLER. PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT SELLER HAS AFFORDED PURCHASER TI IE OPPORTUNITY FOR FULL AND COMPLETE INVESTIGATIONS, EXAMINATIONS, AND INSPECTIONS OF THE PURCHASED ASSETS. 16. POST CLOSING ACCESS RIGHTS AND EASEMENTS. From and after the first Closing Date at a Plant Site, each party will grant other party reasonable access rights necessary to the conduct of their respective operations at such Plant Sites without cost or charge. As to Seller, at the Eastlake Plant such reasonable access shall include access to 8)363 v16 (mg) - 5 -

41 EXHIBIT I the Telecommunications Room (voice and data) located on or near Eastlake Units 1-4, access to the potable water system and access to existing utilities needed for Seller's operations. 17. RISK OF LOSS. The risk of loss or damage to the Purchased Assets by casualty prior to the Closing Date applicable to such Purchased Assets shall be borne by the Seller. 18. NOTICES. Any notice, request, demand, consent, approval, or other communication required or permitted under this Agreement shall be in writing and shall be delivered to: To the Seller: To the Purchaser: FirstEnergy Generation Corp. 76 South Main Street Akron, OH Attention: President, Generation American Transmission Systems, Incorporated 76 South Main Street Akron, OH Attention: Vice President, Transmission 19. INDEMNITY, Subject to Section 20, the parties shall indemnify and hold each other, their affiliates, officers, directors, agents and representatives harmless for all loss, expense, liability or claims arising out of or related to (i) in case of Purchaser, the Assumed Liabilities and in case of the Seller, the Retained Liabilities; (ii) post-closing, conduct of their respective operations at the Plant Sites; and (iii) any breaches, or violations of any representation, warranty or covenants contained in this Agreement. 20. LIMITATION ON DAMAGES. Notwithstanding anything to the contrary, neither party shall be liable for consequential, incidental or punitive damages that arise out of or are related to this Agreement. 21. SUCCESSORS, The provisions of this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors, and assigns. 22. GOVERNING LAW, This Agreement shall be construed and governed in accordance with the laws of the State of Ohio. 23. ENTIRE AGREEMENT. This Agreement, the Schedules and the Exhibit attached hereto constitute the entire agreement between the parties pertaining to the subject matter hereof, and the final, complete, and exclusive expression of the terms and conditions thereof. All prior agreements, representations, negotiations, and understandings of the parties hereto, verbal or written, express or implied, are hereby superseded and merged herein vi 6 (rcg) - 6 -

42 EXHIBIT I 24. AMENDMENTS. No addition to or modification of any provision contained in this Agreement shall be effective unless fully set forth in writing and duly executed by both the Seller and the Purchaser. 25. ASSIGNMENT. The rights under this Agreement shall not be assignable or transferable nor the duties delegable by either party without the prior written consent of the other party, which consent shall not be unreasonably withheld. 26. COUNTERPARTS, This Agreement may be executed in any umber of counterparts, each of which shall be regarded as an original and all of which shall constitute but one and the same agreement. Signature pages may be detached from the counterparts and attached to a single copy of this Agreement to physically form one document. 27. SECTION HEADINGS. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] v16 (rcg) - 7 -

43 EXHIBIT I IN WITNESS WHEREOF, Seller and Purchaser have executed this Agreement as of the day and year first above written. SELLER: FIRSTENERGY GENERATION CORP. Date: July PURCHASER: AMERICAN TRANSMISSION SYSTEMS, INCORPORATED By: Its: President Date: July

44 EXHIBIT I Schedule A The Purchased Assets consist of two groups Group A and Group B. Group A is comprised of the Purchased Buildings which includes the boiler building, turbine building, service building, intake and discharge channel structures, and Coast Guard lighting fixtures as well as the screen house and oily waste pumphouse and treatment buildings at the Plant Sites. Group A also includes all equipment and systems within the Purchased Buildings that are necessary for synchronous condenser operations. The equipment and systems within the Purchased Buildings that are necessary for synchronous condenser operations include but are not limited to the control rooms, generators, exciters, voltage regulators, seal oil systems, protective relays, step-up transformers, auxiliary transformers, start-up transformers, cooling water systems, hydrogen systems, cold surge tank, fire suppression system, and turbine room crane. Group B consists of all equipment and other contents, including boilers, turbine and other fixtures, in the Purchased Buildings on the Closing Date that are not included in Group A v16 (rcg) Schedule A

45 EXHIBIT I EXHIBIT A BILL OF SALE Pursuant to the Asset Purchase Agreement dated July, 2012, (the "Agreement") by and between FIRSTENERGY GENERATION CORP. (Seller") and AMERICAN TRANSMISSION SYSTEMS INCORPORATED ("Purchaser"), for good consideration, the receipt and sufficiency of which are hereby acknowledged, Seller does hereby assign, transfer and convey unto Purchaser the "Purchased Assets" as such term is defined in the Agreement. TO HAVE AND TO HOLD all and singular the Purchased Assets unto Purchaser, its successors and assigns, forever. Subject to the terms and conditions of the Agreement, Seller hereby covenants and agrees to and with Purchaser, its successors and assigns, to do, execute, acknowledge and deliver, or to cause to be done, executed, acknowledged and delivered, to Purchaser, its successors and assigns, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances that may be required for the assigning, transferring, conveying, delivering, assuring and confirming, to Purchaser, its successors and assigns, or for aiding and assisting in collecting or reducing to possession, any or all of the Purchased Assets. This Bill of Sale shall be binding upon the successors and assigns of Seller and shall inure to the benefit of the successors and assigns of Purchaser. IN WITNESS WHEREOF, FIRSTENERGY GENERATION CORP. has executed and delivered this Bill of Sale this day of FIRSTENERGY GENERATION CORP. By: Name: Title: vi6 (rvg) Exhibit A