Allegheny Power 2010 Annual Report Download - page 24

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Our near-term focus is on getting the merger closed and then successfully managing the merger integration process and
capturing long-term value to benefit our customers, shareholders and employees.
The merger integration process is underway and is expected to create significant efficiencies and economies of scale as
we share best practices across the new organization. Merger integration teams comprised of employees from both
FirstEnergy and Allegheny began working in April 2010 to identify value drivers and estimate transaction benefits.
The proposed merger is a natural geographic fit that would bring together complementary assets and corporate cultures
and create a strong company that is well-positioned for growth. Our strength is the diversity of our assets, and our
strategic focus is on creating long-term value through our core operations – distribution operations, transmission
operations and competitive generation and retail operations.
In our distribution operations, we remain focused on reliability, customer service and safety, and maintaining stable
earnings growth. Our combined company will be committed to meeting regulatory expectations and leveraging best
practices across seven states and ten operating utilities. FirstEnergy’s management structure and philosophy supports
local authority and decision-making by maintaining a local presence, which includes regional offices for our utility
operations.
Presently, our competitive generation portfolio of 13,236 MW contains a diverse mix of quality assets, including nuclear,
coal, natural gas, wind and pumped storage.
In response to reduced customer demand and uncertainty related to proposed new federal environmental regulations,
FirstEnergy announced in August 2010 operational changes at several fossil plants. Affected are nine units at four plants
located on the shore of Lake Erie in Ohio, with 1,620 MW of total capacity. In September 2010, the units began
operating with a minimum three-day notice and in response to customer demand. These operational changes provide
future flexibility regarding potential plant retirements given the current ongoing uncertainty regarding future EPA
mandates or environmental legislation. (see Environmental Outlook below). We plan to make a similar evaluation of
Allegheny’s fossil assets once the merger is complete; however, because most of Allegheny’s supercritical units have
already been retrofitted with environmental control equipment, it is the bulk of their older, regulated subcritical units that
are most exposed to potential regulations.
In the fall of 2011, we plan to replace Davis-Besse’s reactor vessel head, accelerating the original replacement
scheduled in 2014. We expect this proactive approach to provide additional margins of safety and reliability.
Construction continues on our Fremont Energy Center, which includes two natural gas combined-cycle combustion
turbines and a steam turbine capable of producing 544 MW of load-following capacity and 163 MW of peaking capacity.
We expect to complete construction of this facility by the end of 2011. On February 3, 2011, FirstEnergy and American
Municipal Power, Inc. (AMP), entered into a non-binding Memorandum of Understanding (MOU) for the sale of our
Fremont Energy Center. The MOU provides, among other things, for the parties to engage in exclusive negotiations
towards a definitive agreement expected to be executed in March, 2011, with a targeted closing date in July, 2011. In
addition to Fremont, Signal Peak has been identified as a non-strategic asset that could be made available for sale.
FirstEnergy has identified potential post-merger benefits in the competitive generation and retail business mostly related
to expanding the FirstEnergy operating philosophy and model to the combined operation. These include:
 Economies of scale and best practices related to fuel procurement and transportation;
 Expanded use of fuel blending techniques;
 Generation asset reliability improvement;
 Dispatch optimization;
 Outage best practices; and
 Expansion of the retail sales growth strategy.
Our strategy is to sell our own physical generation output to sales channels in close proximity to our fleet at the highest
achievable margins. Our retail business remains a key component of our strategy. FES continues to expand its regional
reach through retail sales by using its competitive generation assets to back POLR, governmental aggregation and direct
sales commitments.
Wholesale power prices remain under pressure in response to continued low gas prices, but we expect future
improvements in power prices to benefit the combined fleet.