[Federal Register Volume 66, Number 175 (Monday, September 10, 2001)]
[Notices]
[Pages 47044-47054]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-22593]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27435]


Filings Under the Public Utility Holding Company Act of 1935, as 
Amended (``Act'')

August 31, 2001.
    Notice is hereby given that the following filing(s) has/have been 
made with the Commission pursuant to provisions of the Act and rules 
promulgated under the Act. All interested persons are referred to the 
application(s) and/or declaration(s) for complete statements of the 
proposed transaction(s) summarized below. The application(s) and/or 
declaration(s) and any amendment(s) is/are available for public 
inspection through the Commission's Branch of Public Reference.
    Interested persons wishing to comment or request a hearing on the 
application(s) and/or declaration(s) should submit their views in 
writing by September 25, 2001, to the Secretary, Securities and 
Exchange Commission, Washington, DC 20549-0609, and serve a copy on the 
relevant applicant(s) and/or declarant(s) at the address(es) specified 
below. Proof of service (by affidavit or, in the case of an attorney at 
law, by certificate) should be filed with the request. Any request for 
hearing should identify specifically the issues of facts or law that 
are disputed. A person who so requests will be notified of any hearing, 
if ordered, and will receive a copy of any notice or order issued in 
the matter. After September 25, 2001, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

FirstEnergy Corp., GPU, Inc., et al. (70-9793)

    FirstEnergy Corp. (``FirstEnergy''), an Ohio holding company 
claiming exemption from registration under the Act through rule 2, its 
utility subsidiaries: Ohio Edison Company (``Ohio Edison''), American 
Transmission Systems, Incorporated (``ATSI''), The Cleveland Electric 
Illuminating Company (``Cleveland Electric''), The Toledo Edison 
Company (``Toledo Edison''), Pennsylvania Power Company (``Penn 
Power''), and Northeast Ohio Natural Gas Corp. (``NONGC''), and their 
respective subsidiaries; FirstEnergy's direct nonutility subsidiaries: 
FE Acquisition Corp. (``FE Acquisition''), FirstEnergy Properties, Inc. 
(``FE Properties''), FirstEnergy Facilities Services Group, LLC (``FE 
Facilities''), FE Holdings, LLC (``FE Holdings''), FELHC, Inc. 
(``FELHC''), FirstEnergy Securities Transfer Company (``FirstEnergy 
Transfer''), FirstEnergy Nuclear Operating Company (``FENOC''), 
FirstEnergy Solutions Corp.
(``FirstEnergy Solutions''), FirstEnergy Generation Corp. (``GenCo''), 
FirstEnergy Ventures Corp. (``FirstEnergy Ventures''), MARBEL Energy 
Corporation (``MARBEL''), Centerior Indemnity Trust (``CIT''), 
Centerior Service Company (``Centerior Service'') and FirstEnergy 
Service Company (``ServeCo''), and their respective subsidiaries, all 
located at 76 South Main Street, Akron, Ohio, 44308; and GPU, Inc. 
(``GPU''), a registered public utility holding company, its utility 
subsidiaries: Jersey Central Power & Light Company (``JCP&L''), 
Pennsylvania Electric Company (``Penelec''), Metropolitan Edison 
Company (``Met-Ed''), York Haven Power Company (``York Haven''), and 
Waverly Electric Power & Light Company (``Waverly Electric''), and 
their respective subsidiaries; and its nonutility subsidiaries: GPU 
Capital, Inc. (``GPU Capital''), GPU Electric, Inc.
(``GPU Electric''), GPU Diversified Holdings, LLC (``GPUDH''), GPU 
EnerTech Holdings, Inc. (``GPU EnerTech''), GPU Power, Inc. (``GPU 
Power''), GPU Advanced Resources, Inc. (``GPUAR''), GPU Service, Inc. 
(``GPU Service''), GPU Telcom Services, Inc. (``GPU Telcom''), GPU 
Nuclear, Inc. (``GPU Telecom''), and MYR Group, Inc. (``MYR''), and 
their respective subsidiaries, all located at 300 Madison Avenue, 
Morristown, New Jersey, 07962, (collectively, ``Applicants''), have 
filed an application-declaration, as amended (``Application''), under 
sections 6(a), 7, 9(a), 10, 11, and 13 of the Act and rules 42, 43, 45, 
46, 52, 53, 54, and 85-91 under the Act.
    Applicants request authority for, among other things, the merger of 
GPU with and into FirstEnergy (``Merger''); GPU will no longer be a 
separate entity after the Merger. Following consummation of the Merger, 
FirstEnergy will register with the Commission as a holding company 
under the Act. Under the terms of the Agreement and Plan of Merger, 
dated August 8, 2000 (``Merger Agreement''), FirstEnergy will pay cash 
for 50% and issue FirstEnergy common shares for 50% of the shares of 
GPU common stock outstanding at the time of the completion of the 
Merger, subject to a tax adjustment. The total Merger consideration to 
be paid by FirstEnergy

[[Page 47045]]

is estimated to be approximately $4.5 billion.\1\
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    \1\ Consideration estimation is based on the market price of 
FirstEnergy common stock and the number of shares of GPU common 
stock outstanding at the time the Merger Agreement is executed.
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    In addition, Applicants seek approval for the creation and 
reorganization of certain nonutility subsidiaries and other matters. In 
connection with the Merger, Applicants seek approval for financing by 
FirstEnergy for the purpose of paying the cash and common stock 
portions of the Merger consideration and other general corporate 
purposes that may be required in the period immediately following the 
Merger (``Acquisition Financing''). Applicants also seek approvals for 
the ongoing financing activities of, the provision of intrasystem 
services and guaranties by, and certain investments and other matters 
relating to FirstEnergy and its subsidiaries following the Merger. 
Applicants further seek preliminary and temporary approval for ServeCo 
(the new service company for the FirstEnergy system) and GPU Service to 
act as service companies for the FirstEnergy system under section 13 of 
the Act and applicable rules.
    All pre-Merger subsidiaries of FirstEnergy and GPU are referred to 
as ``Subsidiaries.'' ``FirstEnergy Utility Subsidiaries'' include: Ohio 
Edison, Cleveland Electric, Toledo Edison, Penn Power, NONGC and ATSI; 
``FirstEnergy Nonutility Subsidiaries'' include all the FirstEnergy 
Subsidiaries, except for the FirstEnergy Utility Subsidiaries; ``GPU 
Subsidiaries'' means all current subsidiaries of GPU; ``GPU Utility 
Subsidiaries'' include JCP&L, Met-Ed, Penelec, York Haven and Waverly 
Electric; ``GPU Nonutility Subsidiaries'' include all GPU Subsidiaries, 
except for the GPU Utility Subsidiaries; ``Utility Subsidiaries'' means 
FirstEnergy Utility Subsidiaries and GPU Utility Subsidiaries; 
``Nonutility Subsidiaries'' means FirstEnergy Nonutility Subsidiaries 
and GPU Nonutility Subsidiaries; and ``Subsidiary'' or ``Subsidiaries'' 
means all subsidiaries of post-Merger FirstEnergy, including 
FirstEnergy Utility Subsidiaries, FirstEnergy Nonutility Subsidiaries, 
GPU Utility Subsidiaries and GPU Nonutility Subsidiaries.

I. Parties to the Merger

A. FirstEnergy and Its Affiliates

    FirstEnergy directly owns all of the issued and outstanding voting 
securities of Ohio Edison,\2\ ATSI, Cleveland Electric, Toledo Edison, 
Penn Power, and NONGC.\3\ Ohio Edison, Cleveland Electric, Toledo 
Edison and Penn Power, collectively comprise the ``FirstEnergy 
Operating Companies.'' The FirstEnergy Operating Companies, ATSI, 
NONGC, OVEC and IKEC are all ``public-utility companies'' as defined in 
the Act.
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    \2\ Ohio Edison directly owns 16.5% of the issued and 
outstanding voting securities of Ohio Valley Electric Corporation 
(``OVEC''), and OVEC owns all of the issued and outstanding voting 
securities of Indiana-Kentucky Electric Corporation (``IKEC'').
    \3\ The acquisition of NONGC by FirstEnergy is the subject of a 
separate filing currently before the Commission (File No. 70-9941).
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    For the twelve months ending December 31, 2000, FirstEnergy had 
total revenue of $7,028,961,000 and net income of $598,970,000. 
FirstEnergy had total assets of $17,941,294,000, as of December 31, 
2000.
1. Utility Operations
    Ohio Edison is both a public utility and a public utility holding 
company exempt from registration under the Act by order of the 
Commission.\4\ Ohio Edison engages in the generation, distribution, and 
sale of electric energy to approximately one million customers within a 
7,500-square-mile area of central and northeastern Ohio. For the twelve 
months ending December 31, 2000, Ohio Edison had total revenue of 
$2,343,596,000 and net income of $313,609,000; Ohio Edison's operating 
revenue during this period was principally derived from the sale of 
electricity. Ohio Edison had total assets of $7,165,242,000, as of 
December 31, 2000. Ohio Edison owns all of the issued and outstanding 
voting securities of Penn Power, an electric public utility organized 
under Pennsylvania law in 1930. Penn Power is also authorized to do 
business and owns property in Ohio. Penn Power furnishes electric 
service to approximately 138,000 customers in a 1,500-square-mile area 
of western Pennsylvania. For the twelve months ending December 31, 
2000, Penn Power had total revenue of $383,112,000, and net income of 
$22,847,000; Penn Power's operating revenue was principally derived 
from the sale of electricity. Penn Power had total assets of 
$988,909,000, as of December 31, 2000.
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    \4\ See Ohio Edison Company, HCAR No. 21019 (April 26, 1979).
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    Cleveland Electric is engaged primarily in the generation, 
distribution and sale of electric energy to approximately 741,000 
customers in an area of approximately 1,700 square miles in 
northeastern Ohio, including the City of Cleveland. Cleveland Electric 
also has ownership interests in certain generating facilities located 
in the Commonwealth of Pennsylvania. Cleveland Electric also engages in 
the sale, purchase and interchange of electric energy with other 
electric companies. For the twelve months ending December 31, 2000, 
Cleveland Electric had total revenue of $1,887,039,000 and net income 
of $202,950,000; Cleveland Electric's operating revenue was principally 
derived from the sale of electricity. Cleveland Electric had total 
assets of $5,964,631,000, as of December 31, 2000.
    Toledo Edison is a public utility engaged primarily in the 
distribution and sale of electric energy to approximately 303,000 
customers in an area of approximately 2,500 square miles in 
northwestern Ohio, including the City of Toledo. Toledo Edison owns 
directly 4% of the issued and outstanding voting securities of OVEC. 
For the twelve months ending December 31, 2000, Toledo Edison had total 
revenue of $954,947,000, and net income of $137,233,000; Toledo 
Edison's operating revenue was principally derived from the sale of 
electricity. Toledo Edison had total assets of $2,652,267,000, as of 
December 31, 2001.
    ATSI owns and operates certain major, high-voltage transmission 
facilities, which consist of approximately 7,100 circuit miles (5,752 
``pole'' miles) of transmission lines with voltages of 345 kV and 138 
kV (the ``Bulk Transmission System'') and 69 kV (the ``Area 
Transmission System,'' and together with the Bulk Transmission System, 
the ``Transmission System''). ATSI has 37 interconnections with six 
neighboring control areas. ATSI is the control area operator for the 
FirstEnergy system. The primary function of the Transmission System is 
to integrate the generation resources of the FirstEnergy Companies with 
their native retail and wholesale loads. To perform this network 
function, the Bulk Transmission System and the Area Transmission System 
are integrated and operate in a parallel manner to each other. The 
FirstEnergy Companies also operate low voltage 23, 33, 34.5, and 36 kV 
facilities.
    NONGC is a public-utility company that provides gas distribution 
and transportation service to approximately 5,000 customers located in 
central and northeast Ohio. NONGC operates approximately 420 miles of 
distribution and transportation pipeline and ancillary facilities. 
NONGC receives its gas supplies from local gas producers as well as 
from interstate pipeline companies. For the twelve months ending 
December 31, 2000, NONGC had total revenue of $6,074,120, and net

[[Page 47046]]

income of $112,985; NONGC's operating revenue was principally derived 
from the distribution and transportation of natural gas. NONGC had 
total assets of $18,374,761, as of December 31, 2000.
2. Nonutility Subsidiaries
    FirstEnergy Properties owns nonutility land and coal rights held 
for sale, investment or potential development; office buildings rented 
to affiliated companies and third parties; and also holds the former 
Centerior Energy Corporation's partnership share of investments in 
economic development investments. FirstEnergy Properties has one 
subsidiary, BSG Properties, Inc. (``BSG Properties'').\5\ FirstEnergy 
Properties also owns a 1.47% limited partnership interest in Cleveland 
Development Partnership I (``Cleveland Development'').\6\ FirstEnergy 
Properties also owns a 5% interest in CID.
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    \5\ BSG Properties owned a commercial building, which it sold, 
and is engaged in post-closing matters.
    \6\ Cleveland Development is a partnership created to provide a 
source of private sector funding for real estate development in the 
City of Cleveland.
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    FirstEnergy Ventures' principal business involves the ownership of 
stock investments in certain unregulated enterprises and business 
ventures. FirstEnergy Ventures has eight wholly owned subsidiaries 
organized under Ohio law.\7\ FirstEnergy Transfer is an Ohio 
corporation organized in 1997 to act as transfer agent and registrar 
for the securities of FirstEnergy and its direct and indirect 
subsidiaries.
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    \7\ FirstEnergy Ventures' subsidiaries include: (1) Centerior 
Power Enterprises, Inc. (``Centerior Power''), which will be 
dissolved upon the planned cancellation of a contract which required 
it (together with CPICOR Management LLC (``CPICOR''), a non-
affiliate) to implement the Department of Energy (``DOE'') clean 
coal project; (2) Centerior Energy Services, Inc. (``Centerior 
Energy Services''), which provides various consulting services 
related to energy management and procurement under the registered 
trade name ``The E Group''; (3) Advanced Technologies Development 
Corp. (``Advanced Technologies''), which owns fiber optics cables, 
communications towers and electronics for cell siting operations, as 
well as some proprietary software for telecommunications services; 
(4) Centerior Communications Holdings, Inc. (``Centerior 
Communications''), which holds an interest in Fiber Venture Equity, 
Inc. (``Fiber Venture'') (Fiber Venture owns a 6.5% interest in 
America's Fiber Network, LLC (``AFN'') and 100% of AFN Finance 
Company No. 3 (``AFN No. 3'')); (5) Bay Shore Power Company (``Bay 
Shore''), which is undergoing start-up operations and will own and 
operate a petroleum coke disposal facility that will supply steam to 
GenCo for the operation of turbines at the Bay Shore Power Plant and 
to BP Amoco Corporation (``BP''); (6) FirstEnergy Fuel Marketing 
Company (``FirstEnergy Fuel Marketing''), which provides products 
and services to electricity generators and industrial fuel 
suppliers, including logistics services, contract administration, 
inventory management and fuel blending; (7) FirstEnergy 
Telecommunications Corp. (``FirstEnergy Telecommunications''), which 
will be a competitive telecommunications services provider offering 
services only in the regulated activities area; and (8) Warrenton 
River Terminal, Ltd. (``Warrenton River''), which owns facilities 
for the transloading of bulk materials on the Ohio River--primarily 
coal. FirstEnergy Ventures is also part owner of two Ohio limited 
liability companies: Eastroc Technologies, LLC (``Eastroc 
Technologies'') and Engineered Processes, Ltd. (``Engineered 
Processes''), which own or apply technologies for the production of 
gypsum products.
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    FirstEnergy Facilities is the parent company of 11 direct 
subsidiaries which provide mechanical contracting, facilities 
management and energy management services to regional and national 
customers.\8\ FirstEnergy Facilities is also the parent company of six 
indirect subsidiaries providing related services.\9\
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    \8\ These subsidiaries consist of the following: (1) Ancoma, 
Inc. (``Ancoma'') of Rochester, New York (a New York corporation); 
(2) Colonial Mechanical Corporation (``Colonial Mechanical'') of 
Richmond, Virginia (a Virginia corporation); (3) Webb Technologies, 
Inc. (``Webb Technologies'') of Norfolk, Virginia (a Virginia 
corporation); (4) Dunbar Mechanical Inc. (``Dunbar Mechanical'') of 
Toledo, Ohio (an Ohio corporation); (5) Edwards Electrical & 
Mechanical, Inc. (``Edwards E&M'') of Indianapolis, Indiana (an 
Indiana corporation); (6) Elliott-Lewis Corporation (``Elliot-
Lewis'') of Philadelphia, Pennsylvania (a Pennsylvania corporation); 
(7) L.H. Cranston and Sons, Inc. (``Cranston and Sons'') of 
Timonium, Maryland (a Maryland corporation); (8) Roth Bros., Inc. 
(``Roth Bros.'') of Youngstown, Ohio (an Ohio corporation); (9) The 
Hattenbach Company (``Hattenbach'') of Cleveland, Ohio (an Ohio 
corporation); (10) R. P. C. Mechanical, Inc. (``R. P. C. 
Mechanical'') of Cincinnati, Ohio (an Ohio corporation); and (11) 
Spectrum Controls Systems, Inc. (``Spectrum'') of Cincinnati, Ohio 
(an Ohio corporation).
    \9\ E-L Enterprises, Inc. (``E-L Enterprises'') is a wholly 
owned subsidiary of Elliot-Lewis. E-L Enterprises holds all of the 
issued and outstanding stock of Modern Air Conditioning, Inc. 
(``Modern AC'') and R.L. Anderson, Inc. (R.L. Anderson'') (both of 
which provide HVAC equipment installation and service, energy 
management, facilities management and plumbing services). Elliot-
Lewis also has two other direct subsidiaries: A.A. Duckett, Inc. 
(``Duckett'') (provides HVAC installation and service) and Sautter 
Crane Rental, Inc. (``Sauter Crane'') (provides crane rental service 
to affiliated companies and third parties, including other utilities 
and mechanical contractors).
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    MARBEL is the parent company of NONGC, a gas utility, and a holding 
company, Marbel Holdco, Inc. (``Marbel Holdco'').\10\ In addition, 
MARBEL is the contracting party to two large gas supply agreements.
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    \10\ Marbel Holdco holds FirstEnergy's 50% ownership in Great 
Lakes Energy Partners, LLC (``Great Lakes''). Great Lakes is an oil 
and gas exploration and production company in a joint venture with 
Range Resources Corporation and holds a majority of its assets in 
the Appalachian Basin, including more than 7,700 oil and natural gas 
wells, drilling rights on nearly one million acres, proven resources 
of 450 billion cubic feet equivalent of natural gas and oil, and 
5,000 miles of pipeline. Great Lakes also owns intrastate gas 
pipelines and a small interstate pipeline between Ohio and West 
Virginia.
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    FirstEnergy Services is a natural gas and power marketer in both 
wholesale and retail markets. FirstEnergy Services has two wholly owned 
subsidiaries, Penn Power Energy, Inc. (``Penn Power Energy'') \11\ and 
GenCo.\12\ FE Acquisition holds all of the outstanding shares of Mid-
Atlantic Energy Development Co. (``Mid-Atlantic''), an inactive holding 
company.\13\ FENOC operates the Davis-Besse Nuclear Power Station, and 
the Perry and the Beaver Valley Nuclear Power Plants under the 
supervision and direction of the owners of those facilities. FELHC is a 
wholly owned FirstEnergy, first tier subsidiary that serves as licensee 
with respect to all Federal Communications Commission (``FCC'') radio 
licenses for the FirstEnergy Operating Companies.\14\ FirstEnergy also 
holds all of the issued and outstanding voting securities of the 
following three direct, inactive, nonutility subsidiaries: Centerior 
Service, CIT,\15\ and FE Holdings.
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    \11\ Penn Power Energy is a licensed electric supplier providing 
retail electricity service in Pennsylvania.
    \12\ GenCo is an exempt wholesale generator within the meaning 
of Section 32 of the Act (``EWG'') and operates fossil fuel plants 
and the Seneca pumped storage plant, all of the output of which is 
sold at wholesale prices to FirstEnergy Services. Most of the 
generating facilities operated by GenCo are leased from the 
FirstEnergy Operating Companies.
    \13\ Mid-Atlantic owned three 130 MW gas-fired peaking turbines 
at Richland, Ohio. Mid-Atlantic sold those turbines to GenCo 
effective January 1, 2001, prior to their going into service.
    \14\ An application was made on January 18, 2001, for FCC 
approval of FELHC as an exempt telecommunications company (``ETC'').
    \15\ CIT is a wholly owned subsidiary of FirstEnergy and the 
remnant of an executive compensation program that required the 
creation of a trust if the rating of Centerior Energy Corporation 
dropped below investment grade. That event occurred, and the trust 
was funded using short term debt instruments, but it is expected 
that the trust will cease to exist between December 2001 and June 
2002.
    \15\ CIT is a wholly owned subsidiary of FirstEnergy and the 
remnant of an executive compensation program that required the 
creation of a trust if the rating of Centerior Energy Corporation 
dropped below investment grade. Tha event occurred, and the trust 
was funded using short term debt instruments, but is is expected 
that the trust will cease to exist between December 2001 and June 
2002.
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    FirstEnergy directly holds minority interests in nonutility 
businesses comprised of two real estate companies,\16\ two 
telecommunications companies,\17\ and eight companies engaged in power 
marketing and brokering, investing venture capital in the energy 
industry, emission technology, electronic commerce related to the power 
markets, and alternative energy storage systems.\18\ Further,

[[Page 47047]]

FirstEnergy holds a 10% membership interest in The Alliance 
Participants Administrative and Startup Activities Company, LLC 
(``BridgeCo'').\19\ In addition, FirstEnergy owns varying shares of 
passive financial investments in an array of companies.\20\
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    \16\ Cleveland Civic Vision Housing Fund, L.L.C. (5.5%) and 
Marion Senior Housing Limited Partnership (29.21%).
    \17\ FirstEnergy Telecommunications Corp. (``First 
Communications'') (31.08%) and Pantellos Corporation (``Pantellos'') 
(5.38%); these companies have applied to the FCC for approvals as 
ETCs.
    \18\ PowerSpan Corp. (``PowerSpan'') (18.63%); Nth Power 
Technologies II, LLC, (``Nth Power'') (8.2%); Kinetic Ventures I, 
LLC (formerly Utility Competitive Advantage Fund I, LLC) (11.1049%); 
Kinetic Ventures II, LLC (formerly Utility Competitive Advantage 
Fund II, LLC) (17.63%); Envirotech Investment Fund I, L.P. 
(``Envirotech'') (6.36%); Automated Power Exchange, Inc., Active 
Power, Inc. (``APX'') (1.16%); Active Power, Inc. (``Active Power'') 
(0.006%); and Utility.com, Inc. (``Utility.Com'') (5.0%).
    \19\ BridgeCo is a short-term entity created to manage the 
financial and other affairs of the ten members of the Alliance RTO 
until the company begins operations.
    \20\ Corvis Corporation; Cisco Systems Inc.; S1 Corporation; 
Smarthouse, Inc.; Silas Creek Retail, Inc.; Smith International, 
Inc.; Steel City Products, Inc.; Madisons of Columbus, Inc.; The 
Mason And Dixon Lines, Inc.; Luckey Farmers, Inc.; The Lionel Corp.; 
Jewel Recovery L.P. (d/b/a Zales Corp.); Hermans Sporting Goods, 
Inc.; Homeplace of America, Inc.; House of Fabrics, Inc.; Federals, 
Inc.; Country Spring Farms Co-Op, Inc.; Cook United, Inc.; County 
Seat Stores, Inc.; Busy Beavers Building Centers, Inc.; Bulk 
Materials, Inc.; Best Products Co., Inc.; Value Merchants Inc.; 
COLOROCS Corp.; Republic Technologies International, Inc.; United 
Merchants and Manufacturers, Inc.; Edison Brothers Stores, Inc.; EBS 
Pension, L.L.C.; EBS Building, L.L.C.; EBS Litigation, L.L.C.; 
EnviroSource, Inc.; and Oakhurst Capital, Inc.
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    In addition to the utility subsidiaries mentioned above, Ohio 
Edison owns multiple wholly owned, indirect and direct, nonutility 
subsidiaries involved in energy operations and financing.\21\ Ohio 
Edison also has interests in 14 real estate subsidiaries: McDonald 
Corporate Tax Credit Fund Limited Partnership (12.37%); McDonald 
Corporate Tax Credit Fund--1995 Limited Partnership (9.0%); McDonald 
Ohio Tax Credit Fund--1996 Limited Partnership (42.13%); McDonald Ohio 
Tax Credit Fund--1998 Limited Partnership (30.94%); Ohio Equity Fund 
For Housing Limited Partnership II (7.62%); USA Institutional Tax 
Credit Fund VII, L.P. (8.11%); Boston Financial Institutional Tax 
Credits III, a Limited Partnership (5.38%); Boston Financial 
Institutional Tax Credits V, a Limited Partnership (3.24%); Boston 
Financial Institutional Tax Credits XVI, a Limited Partnership (5.83%); 
Apollo Tax Credit Fund III, L.P. (33.33%); Apollo Tax Credit Fund--IX, 
Limited Partnership (99.99%); Boston Capital Corporate Tax Credit Fund 
IV, a Limited Partnership (2.95%); Boston Capital Corporate Tax Credit 
Fund X, a Limited Partnership (10.93%); and Boston Capital Corporate 
Tax Credit Fund XIV, a Limited Partnership (20.00%). Further, Ohio 
Edison owns a 10% limited partnership interest in CID Ohio Equity 
Capital, Limited Partnership Fund IV (``CID''), a vehicle for 
investments in a portfolio of private equity and equity-related 
securities of start-up and early-stage growth companies operating 
principally in Ohio (inactive). Further, Penn Power, a subsidiary of 
Ohio Edison, owns a 50% limited partnership interest in Cranberry 
Square Associates, L.P. (``Cranberry Square'') (a real estate limited 
partnership).
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    \21\ Ohio Edison has seven other wholly owned subsidiaries 
organized, unless otherwise noted, under Ohio law: (1) OES Capital, 
Incorporated (``OES Capital''), re-organized in December 1999 under 
Delaware law; (2) OES Fuel, Incorporated (``OES Fuel''); (3) OES 
Finance, Incorporated (``OES Finance''); (4) Ohio Edison Financing 
Trust, organized under Delaware law; (5) Ohio Edison Financing Trust 
II, organized under Delaware law; (6) OES Nuclear, Incorporated 
(``OES Nuclear''); and (7) OES Ventures, Incorporated (``OES 
Ventures''). These subsidiaries manage and finance nuclear fuel for 
Ohio Edison and Penn Power, finance certain electric accounts 
receivable, provide structures for investment in energy-related 
projects and the raising of capital by Ohio Edison, finance and 
manage business opportunities not directly related to the provision 
of electric service, or provide other energy-related products and 
services. OES Ventures has a 49% beneficial interest in PNBV Capital 
Trust, a Delaware corporation (``PNBV''), which was formed to 
acquire the publicly held bond indebtedness for the acquisition of 
lease obligation bonds relating to Ohio Edison's sale and leaseback 
of individual interests in Beaver Valley Nuclear Power Station 
(``Beaver Valley'') Unit No. 2 and Perry Nuclear Power Plant 
(``Perry'') Unit No. 1. Finally, Ohio Edison has a 49% interest in 
FirstEnergy Engineering, Incorporated, an Ohio corporation 
(``FirstEnergy Engineering''), which provides engineering services 
at cost as a subcontractor on construction projects undertaken by 
the FirstEnergy Subsidiaries.
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    Further, two other FirstEnergy utilities hold interests in 
nonutility businesses. Cleveland Electric has three nonutility 
subsidiaries,\22\ and Toledo Edison has nonutility interests through 
the ownership of 90% of The Toledo Edison Capital Corporation 
(``TECC'').
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    \22\ Cleveland Electric owns Centerior Funding Corporation 
(``Centerior Funding''), which is a Delaware corporation organized 
in 1996 that factors accounts receivable. It also owns 10% of The 
Toledo Edison Capital Corporation (``TECC''), which is a Delaware 
corporation organized in 1997 that makes equity investments in 
Delaware business trusts that hold lessor debt instruments issued in 
connection with Cleveland Electric's and Toledo Edison's sale and 
leaseback of interests in the Bruce Mansfield Plant. Cleveland 
Electric Financing Trust I (``CEI Financing Trust I'') is a wholly 
owned financing subsidiary of Cleveland Electric.
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B. GPU and Its Affiliates

    GPU directly owns all of the outstanding shares of common stock of 
three electric utilities: JCP&L, Penelec, and Met-Ed (together, ``GPU 
Energy Companies'').\23\ The customer service function and transmission 
and distribution operations of these three electric utilities are 
conducting business under the name ``GPU Energy.'' The GPU Energy 
Companies rely almost exclusively on purchased power agreements, 
principally short- and intermediate-term contracts and existing power 
purchase agreements with non-utility generators, to supply energy to 
their customers. GPU indirectly owns all of the voting securities of 
two additional utility companies: York Haven and Waverly Electric. As 
of May 31, 2000, GPU's domestic electric utility operations served 
approximately two million customers in New Jersey, Pennsylvania and New 
York. For the twelve months ending December, 31, 2000, GPU had total 
revenue of $5,196,256,000, and net income of $233,538,000. GPU had 
total assets of $19,262,461,000, as of December 31, 2000.
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    \23\ In addition, GPU owns interests in various nonutility 
businesses. GPU's nonutilities conduct businesses permitted by the 
Act under sections 32, 33, or 34, by Commission order under section 
11(b)(1), or by rule 58.
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    JCP&L is engaged in the sale, purchase, transmission and 
distribution of electric power to 1,016,650 customers (as of May 31, 
2001) located within 13 counties and 236 municipalities in northern, 
western and east central New Jersey. For the twelve months ending 
December 31, 2000, JCP&L had total revenue of $1,979,297,000, and net 
income of $210,812,000; operating revenues were derived from the 
distribution and resale of electricity. JCP&L had total assets of 
$6,217,355,000, as of December 31, 2000.
    Penelec is an electric utility company engaged in the sale, 
purchase, transmission, and distribution of electric power to 576,091 
customers (as of May 31, 2001) in approximately 31 counties in northern 
and central Pennsylvania. Penelec also provides wholesale service to 
six municipalities in Pennsylvania and five municipalities in New 
Jersey. Additionally, Penelec, through Waverly Electric, a direct 
subsidiary of Penelec, provides retail electric service to 3,741 
customers (as of May 31, 2001) in Waverly, New York, and vicinity.\24\ 
For the twelve months ending December 31, 2000, Penelec had total 
revenue of $901,881,000, and net income of $39,250,000; operating 
revenues were derived from the distribution and resale of electricity. 
Penelec had total assets of $3,048,119,000, as of December 31, 2000.
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    \24\ Waverly Electric's revenues account for less than 1% of 
Penelec's total operating revenue.
---------------------------------------------------------------------------

    Met-Ed was organized under Pennsylvania law in 1922 and is engaged 
in the sale, purchase, transmission and distribution of electric power 
to 497,609 customers (as of May 30, 2001) in 14 counties in central and 
eastern Pennsylvania. Met-Ed owns all of the voting securities of York 
Haven, a public utility company. For the twelve months ending December 
31, 2000, Met-Ed had total revenue of $842,333,000, and net income of 
$81,895,000; operating revenues were derived from the distribution and 
resale of electricity. Met-Ed had total assets of $3,161,379,000, as of 
December 31, 2000.

II. Description of the Merger

    As mentioned above, the Merger Agreement provides for GPU to be 
merged with and into FirstEnergy, with FirstEnergy as the surviving 
corporation and the separate existence of GPU ceasing. The GPU Energy 
Companies will become direct subsidiaries of FirstEnergy following the 
merger. On November 21, 2000, the shareholders of FirstEnergy and GPU 
approved the Merger.

[[Page 47048]]

    Shortly before the Merger is completed, FirstEnergy will give each 
GPU shareholder the opportunity to elect to receive, for each share of 
GPU common stock he or she owns, either: $36.50 in cash, without 
interest; or, a number of shares of FirstEnergy common stock equal to 
an exchange ratio designed to provide GPU shareholders with FirstEnergy 
shares having a value of $36.50.\25\
---------------------------------------------------------------------------

    \25\ FirstEnergy will determine the exact exchange ratio by 
dividing $36.50 by the average of the closing sale prices for a 
share of FirstEnergy common stock on the New York Stock Exchange as 
reported in The Wall Street Journal over the 20-day trading period 
ending on the seventh trading day before the Merger is completed. 
The exchange ratio, however, will be fixed at 1.2318 if the average 
closing price of the FirstEnergy shares over this period is equal to 
or greater than $29.6313, and at 1.5055, if the average closing 
price over this period is equal to or less than $24.2438. This means 
that the number of FirstEnergy shares a GPU shareholder will receive 
for each GPU share he or she owns will never be less than 1.2318 nor 
more than 1.5055, regardless of what happens to FirstEnergy's share 
price.
---------------------------------------------------------------------------

    If GPU shareholders elect to receive cash for more than 50% of the 
GPU shares, the amount of cash that GPU shareholders will receive for 
each GPU share for which they made a cash election will be reduced pro 
rata so that the total amount of cash that FirstEnergy will pay to all 
GPU shareholders in the Merger is the same as the amount that 
FirstEnergy would have had to pay if cash elections were made for only 
50% of the GPU shares. Similarly, if GPU shareholders elect to receive 
FirstEnergy shares for more than 50% of the GPU shares, the number of 
FirstEnergy shares GPU shareholders will receive for each GPU share for 
which they made a share election will be reduced pro rata so that the 
total number of shares that FirstEnergy will issue to all GPU 
shareholders in the Merger is the same as the number of shares that 
FirstEnergy would have had to issue if share elections had been made 
for only 50% of the GPU shares.
    FirstEnergy will not issue fractional interests in its shares in 
connection with the Merger. Any GPU shareholder otherwise entitled to a 
fractional interest, including in connection with a tax adjustment, 
will instead receive cash in an amount equal to that fraction 
multiplied by the average of the closing prices of the shares of 
FirstEnergy common stock over the five-day trading period ending on the 
trading day before the Merger is completed.
    Under certain circumstances it may be necessary for FirstEnergy to 
reduce the total amount of cash it pays in the Merger in order to 
ensure that the Merger qualifies as a ``reorganization'' for U.S. 
federal income tax purposes. In this event, all GPU shareholders who 
are entitled to receive cash, other than as a result of being a 
dissenting shareholder or being entitled to cash in lieu of a 
fractional share of FirstEnergy common stock, will receive a reduced 
amount of cash, as nearly pro rata as possible, and FirstEnergy shares 
with a value equal to the reduced cash amount. For these purposes, 
FirstEnergy will determine the value of those FirstEnergy shares based 
on the closing price of the FirstEnergy shares on the date the Merger 
is completed.
    After the Merger, FirstEnergy proposes to hold as first tier 
subsidiaries seven public utility companies: Ohio Edison, Cleveland 
Electric, Toledo Edison, JCP&L, Penelec, Met-Ed and ATSI. FirstEnergy 
will hold as second tier subsidiaries five public utility companies: 
Penn Power, York Haven, Waverly, NONGC and OVEC. FirstEnergy will hold 
IKEC as a third-tier subsidiary. For the purpose of the Application at 
issue, Ohio Edison, Cleveland Electric, Toledo Edison, JCP&L, Penelec, 
and Met-Ed are collectively are referred to as the ``Primary Operating 
Utilities.'' FirstEnergy also proposes to own a number of nonutility 
subsidiaries as described above.

III. Financing Authorization

A. Overview

    In order to ensure that the FirstEnergy system is able to meet its 
capital requirements immediately following registration and plan its 
future financing, FirstEnergy and its Subsidiaries request 
authorization to enter into numerous types of financing transactions 
for the period beginning with the effective date of the Commission's 
order in this matter and continuing to and including June 30, 2003 
(``Authorization Period''). In addition to engaging in Acquisition 
Financing, Applicants request that FirstEnergy be able to engage in 
other financing transactions as set forth below during the 
Authorization Period.
    FirstEnergy requests authority to engage in Acquisition Financing 
in order to meet the cash and common stock portions of the Merger 
consideration. FirstEnergy will issue between 74 million and 95 million 
shares of common stock in connection with the Merger. Approximately 
$2.2 billion of cash will be used at closing to fund the cash portion 
of the Merger consideration. In addition to this Merger consideration, 
FirstEnergy plans to refinance at or about the effective time of the 
Merger certain then-outstanding GPU-related short-term debt (expected 
to be approximately $1.8 billion). Applicants plan to meet the 
Acquisition Financing requirements through a short-term bank bridge 
loan, but may use long-term or short-term financing, including 
preferred stock and preferred stock equivalent securities 
(collectively, ``Preferred Securities'') or securities convertible into 
common stock. The bridge loan will ultimately be repaid with proceeds 
from permanent debt financing by FirstEnergy or other entities in the 
FirstEnergy system as approved by the Commission in this filing or in 
subsequent requests contained in later submissions to the Commission.
    Applicants also seek authority for: (1) External issuances by 
FirstEnergy of common stock, Preferred Securities, long-term debt, 
short-term debt and other securities; guarantees of obligations of 
affiliated or unaffiliated persons in favor of other unaffiliated 
persons; and the entering into by FirstEnergy of transactions to manage 
interest rate risk (``Hedging Transactions''); (2) the entering into by 
the Utility Subsidiaries of hedging transactions to the extent not 
exempt pursuant to rule 52; (3) lending to non-wholly owned Non-Utility 
Subsidiaries at a rate not less than the cost of capital of the lending 
associate company; (4) the establishment of a utility money pool 
(``Utility Money Pool'') and a nonutility money pool (``Nonutility 
Money Pool'') and the issuance of intrasystem guaranties by FirstEnergy 
and the Nonutility Subsidiaries on behalf of the Subsidiaries; (5) the 
continuation of existing intrasystem debt, guarantees and other 
financing arrangements; (6) the ability of 50% or more owned 
Subsidiaries to alter their capital stock in order to engage in 
financing transactions with their parent company; (7) the ability of 
FirstEnergy and those Subsidiaries identified below to pay dividends 
out of capital or unearned surplus; and (8) the formation of financing 
entities (``Financing Subsidiaries'') and the issuance by these 
entities of securities otherwise authorized to be issued and sold in 
accordance with this Application or to applicable exemptions under the 
Act, including intrasystem guaranties of these securities and the 
retention of existing Financing Subsidiaries.
    Applicant's effective cost of money on long-term debt borrowings 
under the authorizations granted under this Application will not exceed 
the greater of (1) 350 basis points over the comparable term U.S. 
Treasury securities or (2) a gross spread over U.S. Treasuries that is 
consistent with similar securities of comparable credit

[[Page 47049]]

quality and maturities (or perpetual preferred) issued by other 
companies. Applicant's effective cost of money on short-term debt 
borrowings under authorizations granted under this Application will not 
exceed the greater of (1) 350 basis points over the comparable term 
London Interbank Offered Rate (``LIBOR'') or (2) a gross spread over 
LIBOR that is consistent with similar securities of comparable credit 
quality and maturities issued by other companies. The dividend rate on 
any series of Preferred Securities will not exceed the greater of (1) 
500 basis points over the yield to maturity of a U.S. Treasury security 
having a remaining term equal to the term of such series of Preferred 
Securities or (2) a rate that is consistent with similar securities of 
comparable credit quality and maturities (or perpetual preferred) 
issued by other companies. The maturity of indebtedness will not exceed 
fifty years. All Preferred Securities (other than perpetual preferred) 
will be redeemed no later than fifty years after their issuance.
    The proceeds from the sale of securities in external financing 
transactions will be used for general corporate purposes, including: 
financing the cash and stock portion of the Merger consideration under 
the Merger Agreement; the financing, in part, of the capital 
expenditures of FirstEnergy and its Subsidiaries; the financing of 
working capital requirements of FirstEnergy and its Subsidiaries; the 
acquisition, retirement or redemption under rule 42 of securities 
previously issued by FirstEnergy or its Subsidiaries; and authorized 
investments in energy-related companies, as defined in rule 58 under 
the Act (``Rule 58 Subsidiaries''), other energy-related companies 
(``Energy-Related Companies''), exempt wholesale generators (``EWGs''), 
foreign utility companies (``FUCOs''), ETCs; and for other lawful 
purposes.
    Financings by each Applicant will be subject to the following 
conditions (``Financial Conditions''): (1) FirstEnergy's pro forma 
common equity ratio at the assumed closing date of the Merger will be 
29.5%; \26\ (2) FirstEnergy's consolidated common equity \27\ will be 
at least 30% of consolidated capitalization by December 31, 2002, and 
at all times thereafter during the Authorization Period; (3) within 
nine months following the date of the order in this matter and at all 
times thereafter during the Authorization Period, FirstEnergy will 
maintain at least an investment grade corporate credit rating or senior 
secured debt rating by at least one nationally recognized rating 
agency; (4) each Primary Operating Utility, other than Cleveland 
Electric, will maintain common equity of at least 30% of its 
capitalization and at least an investment grade senior secured debt 
rating by at least one nationally recognized rating agency; (5) 
Cleveland Electric will achieve a 30% common equity ratio and an 
investment grade senior secured debt rating by at least one nationally 
recognized credit agency by June 30, 2003; and (6) except as otherwise 
approved by the Commission in accordance with any request contained in 
this Application FirstEnergy represents that it also will be in 
compliance with rule 53. Notwithstanding the commitments described in 
the preceding paragraph regarding investment grade ratings and the 30% 
common equity criteria, Applicants request that the Commission reserve 
jurisdiction over the issuance of securities in those circumstances 
where FirstEnergy does not comply with either the investment grade 
ratings or the 30% common equity criteria.
---------------------------------------------------------------------------

    \26\ For this purpose, consolidated capitalization includes 
common equity, preferred stock, including preferred stock subject to 
mandatory redemption within one year, and long-term and short-term 
debt, including current maturities of long-term debt.
    \27\ Common equity is to be based upon the balance sheets 
contained in FirstEnergy's most recent 10-K or 10-Q filed with the 
Commission pursuant to the Securities Exchange Act of 1934.
---------------------------------------------------------------------------

B. Existing Financing Arrangements

    Applicants estimate that FirstEnergy has a $450 million credit 
agreement outstanding and that the FirstEnergy Operating Companies and 
ATSI have $7.4 billion outstanding in first mortgage bonds, preferred 
stock, debentures, and other notes. Applicants seek authority for these 
existing outstanding securities and financing arrangements to stay in 
place following the Merger. Applicants also each seek authority, 
following the Merger, to refinance or refund these existing securities 
for the purpose of lowering interest costs, changing from fixed rate to 
variable rate, refunding short-term debt with long-term debt (including 
any refinancing of the Acquisition Financing), extending the maturity, 
altering covenants, changing capitalization ratios or for other proper 
financial purposes. Further, Applicants seek approval for the 
outstanding securities and financing arrangements of the FirstEnergy 
Nonutility Subsidiaries to remain in place following consummation of 
the Merger.
    In addition, each of the GPU Energy Companies has in place approval 
from the Commission for the issuance of short term debt.\28\ Applicants 
propose that such approvals remain in place following the Merger and to 
the extent any such approval contemplated a transaction between GPU and 
a GPU Energy Company, FirstEnergy proposes to succeed to the rights and 
duties of GPU. Accordingly, Applicants request authority for 
FirstEnergy to assume any short-term debt outstanding or credit 
facility of GPU existing at the time of the Merger. As mentioned 
FirstEnergy proposes to refinance at or about the effective date of the 
Merger certain then-outstanding GPU-related short-term debt (expected 
to be about $1.8 billion). Such short-term debt refinancing will count 
against the Aggregate Financing Limit.
---------------------------------------------------------------------------

    \28\ HCAR No. 27041 (June 22, 1999), supplemented by, HCAR No. 
27302 (Dec. 15, 2000); HCAR No. 26544 (July 17, 1996); and HCAR No. 
26801 (Dec. 22, 1997).
---------------------------------------------------------------------------

C. FirstEnergy External Financing

    In addition to existing financing, Applicants request authority for 
FirstEnergy to obtain funds externally through sales of common stock, 
Preferred Securities, long-term debt, and short-term debt securities. 
With respect to common stock, FirstEnergy also requests authority to 
issue common stock to third parties in consideration for the 
acquisition by FirstEnergy or a Nonutility Subsidiary of equity or debt 
securities of a company being acquired under rule 58 or sections 32, 33 
or 34 of the Act. In addition, FirstEnergy seeks the flexibility to 
enter into certain hedging transactions to manage rate risk and for 
other lawful purposes. The aggregate amount of new equity, Preferred 
Securities, long-term debt and short-term debt financing to be obtained 
by FirstEnergy during the Authorization Period shall be not more than 
$8.0 billion (``Aggregate Financing Limit''), which includes the common 
stock and debt portions of the Acquisition Financing. The Aggregate 
Financing Limit does not include the existing financing, and any 
refinancing or refunding of outstanding securities as described in 
Section III. B. above.
1. Common Stock
    FirstEnergy is authorized under its restated articles of 
incorporation to issue 300 million shares of common stock ($.10 par 
value).\29\ FirstEnergy proposes, during the Authorization

[[Page 47050]]

Period, to issue common stock (other than for employee benefit plans or 
stock purchase and dividend reinvestment plans and other than shares 
issued in the Merger) in amounts that, when combined with the proposed 
additional long-term debt, short-term debt, and Preferred Securities 
issued and then outstanding, shall not exceed the Aggregate Financing 
Limit.
---------------------------------------------------------------------------

    \29\ Under its articles of incorporation, FirstEnergy is 
authorized to issue 305 million shares consisting of 300 million 
shares of common stock and 5 million shares of preferred stock. As 
of December 31, 2000, FirstEnergy had 224,531,580 shares of common 
stock outstanding and no shares of preferred stock outstanding. Upon 
consummation of the Merger, FirstEnergy will be authorized to issue 
up to 375 million shares of common stock and 5 million shares of 
preferred stock.
---------------------------------------------------------------------------

    Common stock financings may be made through underwritten public 
distributions, private placements, or other non-public offerings to one 
or more persons. All such common stock sales will be at rates or prices 
and under conditions negotiated or based upon, or otherwise determined 
by, competitive capital markets.
2. Preferred Securities
    FirstEnergy requests authority to issue preferred stock or other 
types of Preferred Securities in one or more series with such rights, 
preferences and priorities as may be designated in the instrument 
creating each such series, as determined by FirstEnergy's Board of 
Directors. Dividends or distributions on Preferred Securities will be 
made periodically and to the extent funds are legally available for 
such purpose, but may be made subject to terms which allow the issuer 
to defer dividend payments for specified periods. Preferred Securities 
may be convertible or exchangeable into shares of FirstEnergy common 
stock or indebtedness.
3. Long-Term Debt
    FirstEnergy proposes to issue long-term debt securities, including 
bonds, notes, medium-term notes or debentures under one or more 
indentures (each, the ``FirstEnergy Indenture'') or long-term 
indebtedness under agreements with banks or other institutional 
lenders. The maturity dates, interest rates, redemption and sinking 
fund provisions, tender or repurchase and conversion features, if any, 
with respect to the long-term securities of a particular series, as 
well as any associated placement, underwriting or selling agent fees, 
commissions and discounts, if any, will be established by negotiation 
or competitive bidding. In addition to the long-term debt noted above, 
FirstEnergy expects to assume $300 million of GPU debentures (7.7% 
Series A, due December 1, 2005) upon consummation of the Merger. 
Because it is part of existing capitalization, this $300 million will 
not count against the Aggregate Financing Limit.
4. Short-Term Debt
    FirstEnergy seeks authority to issue short-term debt in order to 
provide for the reissuance of pre-Merger letters or lines of credit or 
commercial paper and to provide financing for general corporate 
purposes, working capital requirements, and temporary financing of 
Subsidiary capital expenditures. Any short-term debt outstanding or 
credit facility of GPU existing at the time of the Merger would be 
assumed by FirstEnergy. FirstEnergy's proposed short-term debt may also 
include commercial paper, from time to time, in established domestic or 
European commercial paper markets. This commercial paper would be sold 
to dealers at the discount rate or the coupon rate per annum prevailing 
at the date of issuance for commercial paper of comparable quality and 
maturities sold to commercial paper dealers generally. The aggregate 
amount of additional capitalization obtained by FirstEnergy during the 
Authorization Period from issuance and sale of short-term debt, when 
combined with common stock (other than for employee benefit plans or 
stock purchase and dividend reinvestment plans and other than shares 
issued in the Merger), long-term debt, and Preferred Securities issued 
then outstanding, as described in this section, shall not exceed the 
Aggregate Financing Limit. FirstEnergy will limit the amount of short-
term debt issued and outstanding at any time under the authority 
requested in this Application plus any short-term debt outstanding at 
the date of the Merger, to $5.0 billion. Further, FirstEnergy may, 
without counting against the above $5.0 billion limit, maintain back-up 
lines of credit in connection with a commercial paper program in an 
aggregate amount not to exceed the amount of authorized commercial 
paper. Credit lines may be set up for use by FirstEnergy for general 
corporate purposes in addition to credit lines to support commercial 
paper as described in this subsection. FirstEnergy would borrow and 
repay under such lines of credit, from time to time, as it is deemed 
appropriate or necessary.
5. Hedging Transactions
    FirstEnergy requests authority to enter into, perform, purchase and 
sell financial instruments intended to reduce or manage the volatility 
of interest rates, including but not limited to interest rate swaps, 
caps, floors, collars and forward agreements or any other similar 
agreements. Hedges may also include issuance of structured notes (i.e., 
a debt instrument in which the principal and/or interest payments are 
indirectly linked to the value of an underlying asset or index), or 
transactions involving the purchase or sale, including short sales, of 
U.S. Treasury or Agency (e.g., Federal National Mortgage Association) 
obligations or LIBOR based swap instruments (collectively, ``Hedge 
Instruments''). FirstEnergy will not engage in speculative transactions 
unassociated with its outstanding debt and financing needs and 
activities. FirstEnergy will only enter into agreements with 
counterparties (``Approved Counterparties'') whose senior debt ratings, 
as published by a national recognized rating agency, are greater than 
or equal to ``BBB,'' or an equivalent rating.
    In addition, FirstEnergy and the Subsidiaries request authorization 
to enter into interest rate hedging transactions with respect to 
anticipated debt offerings (the ``Anticipatory Hedges''), subject to 
certain limitations and restrictions. Anticipatory Hedges would only be 
entered into with Approved Counterparties, and would be utilized to fix 
and/or limit the interest rate risk associated with any new issuance 
through: (1) A forward sale of exchange-traded Hedge Instruments 
(``Forward Sale''), (2) the purchase of put options on Hedge 
Instruments (``Put Options Purchase''), (3) a Put Options Purchase in 
combination with the sale of call options Hedge Instruments (``Zero 
Cost Collar''), (4) transactions involving the purchase or sale, 
including short sales, of Hedge Instruments, or (5) some combination of 
a Forward Sale, Put Options Purchase, Zero Cost Collar and/or other 
derivative or cash transactions, including, but not limited to, 
structured notes, caps and collars, appropriate for the Anticipatory 
Hedges.

D. Subsidiary External Financing

    ATSI and NONGC each seek approval to issue debt or Preferred 
Securities on the same terms and conditions as FirstEnergy as described 
above. The maximum amount of new financing to be obtained by ATSI and 
NONGC during the Authorization Period shall not exceed $500 million for 
ATSI and $200 million for NONGC.\30\ Additionally, to the extent not 
exempt under rule 52, the Utility Subsidiaries request authority to 
enter into, perform, purchase, and sell Hedge Instruments and 
Anticipatory Hedges subject to the

[[Page 47051]]

limitations and requirements applicable to FirstEnergy.
---------------------------------------------------------------------------

    \30\ These securities shall be included in determining 
compliance with the overall financing limitation of $8 billion for 
FirstEnergy.
---------------------------------------------------------------------------

    Financings obtained by the Utility Subsidiaries within and beyond 
the scope of rule 52 will be used for general corporate purposes and 
working capital requirements, including contributions to the Utility 
Money Pool. These financings may be made under instruments in place at 
the time of the Merger or new agreements.

E. Intrasystem Transactions

1. Guaranties
    Applicants request authority to enter into guaranties, obtain 
letters of credit, enter into support or expense agreements or 
otherwise provide credit support with respect to the obligations of the 
Subsidiaries as may be appropriate or necessary to enable such 
Subsidiaries to carry on in the ordinary course of their respective 
businesses, and to enter into guaranties of nonaffiliated third 
parties' obligations in the ordinary course of FirstEnergy's business 
(``FirstEnergy Guaranties''). In addition, Applicants request authority 
for each Nonutility Subsidiary to provide guaranties and other forms of 
credit support (``Nonutility Guaranties'') (together with FirstEnergy 
Guaranties, ``Guaranties'').
    The aggregate amount of the Guaranties will not exceed $4.0 billion 
outstanding at any one time, not taking into account obligations exempt 
under rule 45 (``Guaranty Limit''). Excluded from this amount are 
guaranties and other credit support mechanisms by FirstEnergy and GPU 
in favor of their respective Subsidiaries which were previously issued 
and are expected to remain in place following the Merger.\31\
---------------------------------------------------------------------------

    \31\ FirstEnergy and GPU each has, respectively, $846 million 
and $58 million in existing guaranties.
---------------------------------------------------------------------------

    The issuance of any guaranties will also be subject to the 
limitations of rule 53(a)(1) or 58(a)(1), as applicable. Applicants 
propose that each Subsidiary be charged a fee for each guaranty 
provided on its behalf that is not more than that obtainable by the 
beneficiary of the guaranty from third parties.
2. Money Pools
    Applicants request authority for FirstEnergy and the Utility 
Subsidiaries to establish the Utility Money Pool. In addition, 
Applicants request authority for the Utility Subsidiaries, to the 
extent not exempted by rule 52, to make unsecured short-term borrowings 
from the Utility Money Pool, to contribute surplus funds to the Utility 
Money Pool, and to lend and extend credit to (and acquire promissory 
notes from) one another through the Utility Money Pool.
    In addition, FirstEnergy and the Nonutility Subsidiaries request 
authority to establish the Nonutility Money Pool. FirstEnergy requests 
authority to contribute its surplus funds and to lend and extend credit 
to: (1) The Utility Subsidiaries through the Utility Money Pool; and 
(2) the Nonutility Subsidiaries through the Nonutility Money Pool. 
Amounts borrowed by each Utility Subsidiary from the Utility Money Pool 
would be limited to amounts authorized by each applicable state 
commission. FirstEnergy will receive no loans and will borrow no funds 
from either Money Pool.
    Utility Money Pool participants that borrow would borrow pro rata 
from each company that lends, in the proportion that the total amount 
loaned by each such lending company bears to the total amount then 
loaned through the Utility Money Pool. On any day when more than one 
fund source (e.g., surplus treasury funds of FirstEnergy and other 
Utility Money Pool participants (``Internal Funds'')) and proceeds from 
external financings (``External Funds''), with different rates of 
interest, is used to fund loans through the Utility Money Pool, each 
borrower would borrow pro rata from each such fund source in the 
Utility Money Pool in the same proportion that the amount of funds 
provided by that fund source bears to the total amount of short-term 
funds available to the Utility Money Pool.
    If only Internal Funds make up the funds available in the Utility 
Money Pool, the interest rate applicable and payable to or by Utility 
Subsidiaries for all loans of these Internal Funds will be the greater 
of the 30-day LIBOR rate as quoted in The Wall Street Journal or the 
money market rate that a lending Subsidiary could have obtained if it 
placed its excess cash in such an investment.
    If only External Funds comprise the funds available in the Utility 
Money Pool, the interest rate applicable to loans of such External 
Funds would be equal to the lending company's cost for such External 
Funds (or, if more than one Utility Money Pool participant had made 
available External Funds on such day, the applicable interest rate 
would be a composite rate equal to the weighted average of the cost 
incurred by the respective Utility Money Pool participants for such 
External Funds).
    In cases where both Internal Funds and External Funds are 
concurrently borrowed through the Utility Money Pool, the rate 
applicable to all loans comprised of these ``blended'' funds would be a 
composite rate equal to the weighted average of: (1) The cost of all 
Internal Funds contributed by Utility Money Pool participants (as 
determined in accordance with the second-preceding paragraph above) and 
(2) the cost of all such External Funds (as determined in accordance 
with the immediately preceding paragraph above). In circumstances where 
Internal Funds and External Funds are available for loans through the 
Utility Money Pool, loans may be made exclusively from Internal Funds 
or External Funds, rather than from a ``blend'' of these funds, to the 
extent it is expected that these loans would result in a lower cost of 
borrowing.
    Funds not required by the Utility Money Pool to make loans (with 
the exception of funds required to satisfy the Utility Money Pool's 
liquidity requirements) would ordinarily be invested in one or more 
short-term investments, including: (1) Interest-bearing accounts with 
banks; (2) obligations issued or guaranteed by the U.S. government and/
or its agencies and instrumentalities, including obligations under 
repurchase agreements; (3) obligations issued or guaranteed by any 
state or political subdivision of a state, provided that these 
obligations are rated not less than ``A'' by a nationally recognized 
rating agency; (4) commercial paper rated not less than ``A-1'' or ``P-
1'' or their equivalent by a nationally recognized rating agency; (5) 
money market funds; (6) bank certificates of deposit; (7) Eurodollar 
funds; and (8) other investments that are permitted by section 9(c) of 
the Act and rule 40 under the Act.
    The Nonutility Money Pool will be operated on the same terms and 
conditions as the Utility Money Pool, except that FirstEnergy funds 
made available to the two money pools will be made available first for 
loans through the Utility Money Pool and then for loans through the 
Nonutility Money Pool. Operation of the Utility and Nonutility Money 
Pools, including record keeping and coordination of loans, will be 
handled by FirstEnergy's service company, ServeCo, under the authority 
of the appropriate officers of the participating companies. ServeCo 
will administer the Utility and Nonutility Money Pools on an ``at 
cost'' basis and will maintain separate records for each money pool.
3. Other Borrowings
    Applicants request authority for FirstEnergy or a Nonutility 
Subsidiary, as the case may be, to make loans to Nonutility 
Subsidiaries at interest rates and maturities designed to provide a 
return to the lending company of not less than its effective cost of 
capital. If

[[Page 47052]]

these loans are made to a Nonutility Subsidiary, that Nonutility 
Subsidiary will not sell any services to any associate Nonutility 
Subsidiary unless that company falls within one of the categories of 
companies to which goods and services may be sold on a basis other than 
``at cost'' as described in the Application in this matter.
    Applicants also request authority for FirstEnergy or a Nonutility 
Subsidiary to make loans to Nonutility Subsidiaries that are not wholly 
owned by FirstEnergy, directly or indirectly, at interest rates and 
maturities designed to provide a return to the lending company of not 
less than its effective cost of capital. If these loans are made to a 
Nonutility Subsidiary, that Nonutility Subsidiary will not sell any 
services to any associate Nonutility Subsidiary unless that company 
falls within one of the categories of companies to which goods and 
services may be sold on a basis other than ``at cost,'' as described in 
the Application.

F. Other Transactions

1. Financing Subsidiaries
    FirstEnergy and the Subsidiaries request authority to acquire, 
directly or indirectly, the equity securities of one or more Financing 
Subsidiaries. Financing Subsidiaries may be corporations, trusts, 
partnerships or other entities created specifically for the purpose of 
facilitating the financing of the authorized and exempt activities 
(including exempt and authorized acquisitions) of FirstEnergy and the 
Subsidiaries through the issuance of long-term debt, Preferred 
Securities or equity securities, to third parties and the transfer of 
the proceeds of these financings to FirstEnergy or these 
Subsidiaries.\32\
---------------------------------------------------------------------------

    \32\ One of the special purpose subsidiaries already in 
existence, such as OES Capital or Centerior Funding, may be used for 
these purposes as well.
---------------------------------------------------------------------------

    FirstEnergy or a Subsidiary may, if required, guarantee or enter 
into support or expense agreements in respect of the obligations of any 
such Financing Subsidiaries. Any amounts issued by such financing 
entities to third parties will be included in the overall external 
financing limitation, if any, applicable to its immediate parent. 
However, any intrasystem borrowing by the parent of the proceeds of 
those issuances would not count against the proposed aggregate 
financing limitation, if any, applicable to the parent and a guaranty 
by the parent with respect to those issuances would not count against 
the Guaranty Limit.
2. Nonutility Subsidiary Reorganizations
    Applicants request the authorization and approval of the Commission 
to organize and acquire the securities of one or more additional 
Subsidiaries to act as a holding company for nonutility investments if, 
in FirstEnergy's judgment, there are organizational, functional, tax or 
other benefits to be derived in separating nonutility businesses at the 
first-tier level. Accordingly, unless otherwise indicated, references 
to the ``Nonutility Holding Company'' shall include such other first-
tier Subsidiaries as FirstEnergy may choose to organize to serve a 
similar purpose. Applicants request authority, through the 
Authorization Period, to sell or otherwise transfer: (1) Nonutility 
Subsidiary businesses; (2) the securities of current Subsidiaries 
engaged in some or all of these nonutility businesses; or (3) 
investments which do not involve a Subsidiary (i.e., less than 10% 
voting interest) to certain first-tier nonutility holding companies 
(collectively, ``Nonutility Holding Companies'') or a Subsidiary of 
Nonutility Holding Company, and, to the extent approval is required, 
Nonutility Holding Company or any Subsidiary of Nonutility Holding 
Company requests authority to acquire the assets of these businesses, 
securities of former Subsidiaries of FirstEnergy or GPU or other 
investment interests.\33\ Applicants state that the proposed 
transactions will not involve the sale or disposition of any utility 
assets, and will not involve the acquisition of any new businesses or 
activities.
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    \33\ Applicants state that transfers of these securities or 
assets may be effected by share exchanges, share distributions or 
dividends followed by contribution of these securities or assets to 
the receiving entity.
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3. Changes in Capital Stock of Majority Owned Subsidiaries
    Applicants state that proposed sales of capital securities (i.e., 
common stock or Preferred Stock) may in some cases exceed the then 
authorized capital stock of a Subsidiary. In addition, the Subsidiary 
may choose to use capital stock with no par value. Therefore, 
Applicants request authority to change the terms of any 50% or more 
owned Subsidiary's authorized capital stock capitalization or other 
equity interests by an amount deemed appropriate by FirstEnergy or 
other intermediate parent company, provided that the consent of all 
other shareholders has been obtained for this change. This request for 
authorization is limited to FirstEnergy's 50% or more owned 
Subsidiaries and will not affect the aggregate limits or other 
conditions contained in this Application. A Subsidiary would be able to 
change the par value, or change between par value and no-par stock, or 
change the form of such equity from common stock to limited partnership 
or limited liability company interests or similar instruments, or from 
such instruments to common stock, without additional Commission 
approval. Any action by a Utility Subsidiary would be subject to and 
would only be taken upon receipt of necessary approval by the state 
commission in the state or states where the Utility Subsidiary is 
incorporated and doing business.
4. Payment of Dividends
    a. FirstEnergy. Applicants state that as a result of the 
application of the purchase method of accounting to the Merger, the 
current retained earnings of the GPU Subsidiaries will be 
recharacterized as additional paid-in-capital. In addition, the Merger 
will give rise to a substantial level of goodwill. In accordance with 
the Commission's Staff Accounting Bulletin No. 54, Topic 5J, the 
goodwill will be ``pushed down'' to the GPU Subsidiaries, and the 
difference between the purchase price allocated to the GPU Subsidiaries 
and the par values, if any, of their outstanding common stock will be 
reflected as additional paid-in capital on the GPU Subsidiaries' 
financial statements. The effect of these accounting practices will be 
to leave the GPU Subsidiaries with no retained earnings, the 
traditional source of dividend payments. Accordingly, Applicants 
request authority for FirstEnergy to pay dividends out of additional 
paid-in-capital up to the amount of $155 million, representing the 
total amount of dividends out of capital from the GPU Subsidiaries.
    b. Nonutility Subsidiaries. The Nonutility Holding Company proposes 
to pay dividends, on behalf of itself and every direct or indirect 
Nonutility Subsidiary, from time to time through the Authorization 
Period, out of capital and unearned surplus (including revaluation 
reserve), to the extent permitted under state law. Without further 
approval by the Commission no Nonutility Subsidiary will declare or pay 
any dividend out of capital or unearned surplus if that Nonutility 
Subsidiary derives any material part of its revenue from the sale of 
goods, services, electricity, or natural gas to any of the Utility 
Subsidiaries.
5. EWGs and FUCOs
    Following the Merger, Applicants request authority for FirstEnergy 
to

[[Page 47053]]

finance the acquisition of additional investments in EWGs and FUCOs 
provided that its ``aggregate investment'' in EWGs and FUCOs (as that 
term is defined in rule 53) of up to $5 billion (including amounts 
currently invested in EWGs and FUCOs by FirstEnergy and GPU). 
Applicants state that GPU's aggregate investment in EWGs and FUCOs as 
of March 31, 2001, was $1,846,598,000. As of the same date, 
FirstEnergy's aggregate investment in EWGs was $354,831,392. Applicants 
note that pro forma consolidated retained earnings of FirstEnergy as of 
December 31, 2000, was $1.1 billion.
6. Stock and Incentive Plans
    Applicants request authority for FirstEnergy, from time to time, to 
issue up to 30 million shares of FirstEnergy common stock under the 
employee benefit and incentive plans described below and under a 
dividend reinvestment plan currently in place at FirstEnergy and 
anticipated to continue after the Merger.
    After the Merger, FirstEnergy will continue to have several 
employee and director stock-based plans. These include an Executive and 
Director Incentive Compensation Plan, an Executive Deferred 
Compensation Plan, a Deferred Plan for Directors, two Employee Savings 
Plans and two plans that were assumed by FirstEnergy in connection with 
the merger between Ohio Edison and Centerior Energy Corporation that 
resulted in the formation of FirstEnergy. In addition, as a result of 
the Merger, FirstEnergy will assume certain obligations of GPU under 
GPU related stock option and incentive plans.
7. Tax Allocation Agreement
    The Applicants request the Commission approve an agreement for the 
allocation of consolidated tax among FirstEnergy and its Subsidiaries 
following the Merger (``Tax Allocation Agreement''). Applicants state 
that the Tax Allocation Agreement is subject to the approval by the 
Commission under the Act because it provides for the retention by 
FirstEnergy of certain tax benefits related to the incurrence of 
indebtedness by FirstEnergy rather than the allocation of such benefits 
to Subsidiaries. The Applicants request that the Commission reserve 
jurisdiction over approval of the Tax Allocation Agreement pending 
completion of the record.
8. Investment in Nonutility Subsidiaries
    Applicants propose to acquire directly or indirectly the securities 
of one or more corporations, trusts, partnerships, limited liability 
companies or other entities (collectively, ``Intermediate 
Subsidiaries''), which would be organized exclusively for the purpose 
of acquiring, holding and/or financing the acquisition of the 
securities of or other interest in one or more EWGs, FUCOs, ETCs, Rule 
58 Subsidiaries, and Energy Related Companies (collectively, ``Exempt 
Subsidiaries'') and make additional investments in other Nonutility 
Subsidiaries approved by the Commission as requested in this 
Application (collectively, ``Non-Exempt Securities''). FirstEnergy 
states that Intermediate Subsidiaries also may engage in development 
and administrative activities related to these Exempt Subsidiaries and 
other Nonutility Subsidiaries, and proposes to expand, directly or 
through Nonutility Subsidiaries up to $300 million in the aggregate 
outstanding at any one time during the Authorization Period on these 
development activities. Applicants also maintain that the Intermediate 
Subsidiaries will provide both development and administrative 
activities ``at cost'' in accordance with section 13(b) and rules 90 
and 91 of the Act.
9. Sale of Certain Goods and Services Outside the United States
    Applicants request authority to allow Energy Related Companies to 
acquire interests in the entities not only within the United States as 
permitted by rule 58 but also outside the United States. Specifically, 
Applicants request that they be allowed to engage in energy management 
and consulting services anywhere outside the United States. Applicants 
also request that these entities be allowed to engage in energy 
marketing in Canada and Mexico and request that the Commission reserve 
jurisdiction with respect to the granting of authority to provide 
energy marketing services elsewhere outside the United States. Finally, 
Applicants request authority to allow these entities to engage in 
infrastructure services anywhere outside the United States and request 
that the Commission reserve jurisdiction over this proposal.

IV. Affiliate Transactions

A. Service Companies

    Applicants propose that ServeCo will enter into a service agreement 
with each of the Utility Subsidiaries and other affiliates. Applicants 
seek certain exemptions from or waiver of the Commission's rules 
regarding the provision of services at cost to FirstEnergy affiliates 
as described below. GPU's nuclear operating company, GPU Nuclear, is an 
approved subsidiary service company. FirstEnergy Nuclear Operating 
Company also provides operating services to the FirstEnergy nuclear 
generating plants under the direction and supervision of the plants' 
owners.
1. Proposed Interim Operations
    Currently, FirstEnergy provides many common corporate services to 
its affiliates, including the FirstEnergy Utility Subsidiaries.\34\ As 
a part of the Merger, GPU Service will become a subsidiary of 
FirstEnergy. GPU Service is an approved subsidiary service company 
which provides services to the GPU Subsidiaries. FirstEnergy currently 
anticipates that all of the service functions of FirstEnergy and of GPU 
Service will be transferred to ServeCo. ServeCo will be staffed 
primarily by transferring existing personnel from the current employee 
rosters of FirstEnergy, GPU Service and the Utility Subsidiaries or 
other affiliates. In the interim, subject to Commission approval, 
FirstEnergy will continue to provide services to all its affiliates 
after the Merger, and GPU Service will function as it has in the past 
in accordance with Commission approvals. GPU Service may render 
services to the FirstEnergy Utility Subsidiaries or other Subsidiaries 
of FirstEnergy following the Merger.
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    \34\ These services include: energy supply management of the 
bulk power and natural gas supply, procurement of fuels, 
coordination of electric and natural gas distribution systems, 
maintenance, construction and engineering work; customer bills and 
related matters; materials management; facilities; real estate; 
rights of way; human resources; finance; accounting; internal 
auditing; information systems; corporate planning and research; 
public affairs; corporate communications; legal; environmental 
matters; and executive services.
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    FirstEnergy will cause ServeCo to begin at least minimal operations 
within 90 days following the closing of the Merger and will transfer to 
ServeCo the service functions currently conducted by FirstEnergy 
consistent with continued efficient operation of the FirstEnergy 
system. In any event, Applicants state that all these service functions 
will be transferred to ServeCo no later than January 1, 2003. 
Applicants also state that a determination regarding the status of 
FENOC and GPU Nuclear will made before January 1, 2003. FirstEnergy 
requests authority under section 13(a) permitting FirstEnergy to 
continue to provide services to affiliates, including the Utility 
Subsidiaries, during this interim period. FirstEnergy will file a 
separate application with the Commission on or before September 1,

[[Page 47054]]

2002, seeking authorization for ServeCo to consolidate service 
functions now provided by FirstEnergy, other FirstEnergy entities and 
GPU Service.
    During the interim period, in order to assure that an allocable 
portion of certain services to be provided by FirstEnergy (e.g., 
executive services) are properly charged or allocated to all of 
FirstEnergy's Subsidiaries after the Merger, FirstEnergy will enter 
into a service agreement with GPU Service. Any charges by FirstEnergy 
to GPU Service will in turn be assigned and allocated to the GPU 
Subsidiaries in accordance with the terms of the existing GPU system 
service agreements. Amounts that were allocated to GPU under the GPU 
system service agreements will be allocated to FirstEnergy. Except as 
noted in Section IV.A.2., all services provided by FirstEnergy, 
ServeCo, GPU Service, GPU Nuclear, and FENOC will be at cost, as 
defined in rules 90 and 91 under the Act.
2. Exemption Requests
    Applicants request authorization for ServeCo, GPU Service and the 
Nonutility Subsidiaries to enter into agreements to provide 
construction, goods or services to certain associate companies at fair 
market prices determined without regard to cost and therefore request 
an exemption (to the extent that rule 90(d) of the Act does not apply) 
under section 13(b) from the cost standards of rules 90 and 91.
    Applicants note that certain associate companies, currently provide 
services to the FirstEnergy Utility Subsidiaries at a price not 
restricted to cost. Applicants request authorization to allow these 
arrangements, as well as extensions, additions and replacements of 
these arrangements in the ordinary course of business (the ``At Market 
Service Arrangements''), to remain in place for a period ending not 
later than December 31, 2002, and request an exemption or waiver under 
section 13 from the cost standards of rules 90 and 91, as applicable, 
for these At Market Service Arrangements.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-22593 Filed 9-7-01; 8:45 am]
BILLING CODE 8010-01-P