Allegheny Power 2010 Annual Report Download - page 21

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The Signal Peak coal mining operation in Montana, a joint venture owned 50% by FirstEnergy, began production in
December 2009, providing FirstEnergy flexibility with respect to coal commodity supply for its fossil generation fleet. As part
of this transaction, we also entered into a 15-year agreement to purchase up to 10 million tons of coal annually from the
mine, securing a long-term western fuel supply at attractive prices. Signal Peak provides us with optionality – to either burn
its western coal in our units, or sell the coal through the venture to other domestic or international buyers.
Finally, in 2010 we completed a $1.8 billion environmental retrofit of the W.H. Sammis Plant in Stratton, Ohio. This project
was designed to reduce SO2 emissions by 95% at the plant and NOx emissions by 90% at its two largest units. This project
was among the largest AQC retrofits ever completed in the United States.
Ohio Wind Power Project
On February 8, 2011, FES announced its agreement to purchase 100 MW of output from Blue Creek Wind Farm (304 MW),
which is being built in western Ohio by Iberdrola Renewables. Under terms of the agreement FES will purchase 100 MW of
the total output of the project for 20 years beginning in October 2012.
Financial Matters
Cash flow from operations in 2010 was at a record level of $3.1 billion. During the year we also completed refinancing $725
million of variable rate debt to fixed rate debt.
In April and June of 2010, FGCO, a subsidiary of FES, purchased $235 million of variable rate PCRBs and $15 million of
fixed rate PCRBs, respectively, originally issued on its behalf. In August of 2010, FES completed the remarketing of the $250
million of PCRBs; $235 million were successfully converted from a variable interest rate to a fixed interest rate and the
remaining $15 million of PCRBs remain in a fixed rate mode. The $235 million series now bears a per-annum rate of 2.25%
and is subject to mandatory purchase on June 3, 2013. The $15 million series now bears a per-annum rate of 1.5% and is
subject to mandatory purchase on June 1, 2011.
Subsequently, in October of 2010, FES completed the refinancing and remarketing of six series of PCRBs totaling $313
million. These series were converted from a variable interest rate to a fixed interest rate of 3.375% per-annum and are
subject to mandatory purchase on July 1, 2015. On December 3, 2010, FES and Penelec completed the refinancing and
remarketing of five series of PCRBs totaling $178 million. These series were converted from variable rate to fixed interest
rates ranging from 2.25% to 3.75% per-annum and are subject to mandatory purchase.
In May of 2010, FirstEnergy terminated fixed-for-floating interest rate swap agreements with a notional value of $3.2 billion,
which resulted in cash proceeds of $43.1 million. As of June 30, 2010, the debt underlying the $3.2 billion outstanding
notional amount of interest rate swaps had a weighted average fixed interest rate of 6%, which the swaps converted to a
current weighted average variable rate of 4%. On July 16, 2010, FirstEnergy terminated these fixed-for-floating interest rate
swap agreements resulting in cash proceeds of $83.6 million. The related gain from both of those transactions will generally
be amortized to earnings over the life of the underlying debt. As of December 31, 2010, there were no fixed-to-floating swaps
hedging the consolidated interest rate risk associated with FirstEnergy’s consolidated debt.
On June 1, 2010, Penn redeemed $1 million of 5.40% PCRBs, due 2013, and on July 30, 2010, redeemed $6.5 million of its
7.65% FMBs due in 2023.
On October 22, 2010, Signal Peak Energy and Global Rail Group, as borrowers; entered into a new $350 million senior
secured term loan facility. The two-year syndicated bank loan is guaranteed by FirstEnergy and the other owners of the
borrowers. The proceeds from the loan were used to repay bank borrowings ($63 million) and debt owed to FirstEnergy
($258 million) with the balance to be used for other general corporate purposes.
In February 2010, S&P issued a report lowering FirstEnergy’s and its subsidiaries’ credit ratings by one notch, while
maintaining its stable outlook. Moody's and Fitch affirmed the ratings and stable outlook of FirstEnergy and its subsidiaries.
These rating agency actions were taken in response to the announcement of the proposed merger with Allegheny. On
September 28, 2010 S&P affirmed the ratings and stable outlook of FE and its subsidiaries. On December 15, 2010, Fitch
revised its outlook on FirstEnergy and FES from stable to negative and affirmed the rating for FirstEnergy and its
subsidiaries.