FirstEnergy 10-K 2018-12-31

10-K 1 fe-12312018x10k.htm 10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the FISCAL YEAR ended December 31, 2018

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ___________________

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and ask price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

$17,109,706,919 as of June 30, 2018

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:

Documents Incorporated By Reference

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GLOSSARY OF TERMS

The following abbreviations and acronyms are used in this report to identify FirstEnergy Corp. and its current and former subsidiaries:

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vi

PART I

The Companies

FE was incorporated under Ohio law in 1996. FE’s principal business is the holding, directly or indirectly, of all of the outstanding equity of its principal subsidiaries: OE, CEI, TE, Penn (a wholly owned subsidiary of OE), JCP&L, ME, PN, FESC, AE Supply, MP, PE, WP, and FET and its principal subsidiaries (ATSI, MAIT and TrAIL). In addition, FE holds all of the outstanding equity of other direct subsidiaries including: FirstEnergy Properties, Inc., FEV, FELHC, Inc., GPU Nuclear, Inc., AESC and Allegheny Ventures, Inc.

FE and its subsidiaries are principally involved in the transmission, distribution and generation of electricity. FirstEnergy’s ten utility operating companies comprise one of the nation’s largest investor-owned electric systems, based on serving over six million customers in the Midwest and Mid-Atlantic regions. FirstEnergy’s transmission operations include approximately 24,500 miles of lines and two regional transmission operation centers. AGC, JCP&L and MP control 3,790 MWs of total capacity.

FirstEnergy’s revenues are primarily derived from electric service provided by its utility operating subsidiaries (OE, CEI, TE, Penn, JCP&L, ME, PN, MP, PE and WP) and its transmission subsidiaries (ATSI, MAIT and TrAIL).

Regulated Utility Operating Subsidiaries

The Utilities’ combined service areas encompass approximately 65,000 square miles in Ohio, Pennsylvania, West Virginia, Maryland, New Jersey and New York. The areas they serve have a combined population of approximately 13.3 million.

OE was organized under Ohio law in 1930 and owns property and does business as an electric public utility in that state. OE engages in the distribution and sale of electric energy to communities in a 7,000 square mile area of central and northeastern Ohio. The area it serves has a population of approximately 2.3 million.

OE owns all of Penn’s outstanding common stock. Penn was organized under Pennsylvania law in 1930 and owns property and does business as an electric public utility in that state. Penn is also authorized to do business in Ohio. Penn furnishes electric service to communities in 1,100 square miles of western Pennsylvania. The area it serves has a population of approximately 0.4 million.

CEI was organized under Ohio law in 1892 and does business as an electric public utility in that state. CEI engages in the distribution and sale of electric energy in an area of 1,600 square miles in northeastern Ohio. The area it serves has a population of approximately 1.6 million.

TE was organized under Ohio law in 1901 and does business as an electric public utility in that state. TE engages in the distribution and sale of electric energy in an area of 2,300 square miles in northwestern Ohio. The area it serves has a population of approximately 0.7 million.

JCP&L was organized under New Jersey law in 1925 and owns property and does business as an electric public utility in that state. JCP&L provides transmission and distribution services in 3,200 square miles of northern, western and east central New Jersey. The area it serves has a population of approximately 2.7 million. JCP&L also has a 50% ownership interest (210 MWs) in the Yard's Creek hydroelectric generating facility.

ME was organized under Pennsylvania law in 1917 and owns property and does business as an electric public utility in that state. ME provides distribution services in 3,300 square miles of eastern and south central Pennsylvania. The area it serves has a population of approximately 1.2 million.

PN was organized under Pennsylvania law in 1919 and owns property and does business as an electric public utility in that state. PN provides distribution services in 17,600 square miles of western, northern and south central Pennsylvania. The area it serves has a population of approximately 1.2 million. PN, as lessee of the property of its subsidiary, The Waverly Electric Light & Power Company, also serves customers in the Waverly, New York vicinity.

PE was organized under Maryland law in 1923 and under Virginia law in 1974. PE is authorized to do business in Virginia, West Virginia and Maryland. PE owns property and does business as an electric public utility in those states. PE provides transmission and distribution services in portions of Maryland and West Virginia and provides transmission services in Virginia in an area totaling approximately 5,500 square miles. The area it serves has a population of approximately 0.9 million.

MP was organized under Ohio law in 1924 and owns property and does business as an electric public utility in the state of West Virginia. MP provides generation, transmission and distribution services in 13,000 square miles of northern West Virginia. The area it serves has a population of approximately 0.8 million. MP is contractually obligated to provide power to PE to meet its load obligations in West Virginia. MP owns or contractually controls 3,580 MWs of generation capacity that is supplied to its electric utility business, including a 16% undivided interest in the Bath County, Virginia pumped-storage hydroelectric generation facility (487

MWs) and its connecting transmission facilities owned through AGC, which was organized under Virginia law in 1981 and became a wholly owned subsidiary of MP in May 2018.

WP was organized under Pennsylvania law in 1916 and owns property and does business as an electric public utility in that state. WP provides transmission and distribution services in 10,400 square miles of southwestern, south-central and northern Pennsylvania. The area it serves has a population of approximately 1.5 million.

Regulated Transmission Operating Subsidiaries

ATSI was organized under Ohio law in 1998. ATSI owns high-voltage transmission facilities, which consist of approximately 7,800 circuit miles of transmission lines with nominal voltages of 345 kV, 138 kV and 69 kV in the PJM Region.

TrAIL was organized under Maryland law and Virginia law in 2006. TrAIL was formed to finance, construct, own, operate and maintain high-voltage transmission facilities in the PJM Region and has several transmission facilities in operation, including a 500 kV transmission line extending approximately 150 miles from southwestern Pennsylvania through West Virginia to a point of interconnection with VEPCO in northern Virginia.

MAIT was organized under Delaware law in 2015. MAIT owns high-voltage transmission facilities, which consist of approximately 4,240 circuit miles of transmission lines with nominal voltages of 500 kV, 345 kV, 230 kV, 138 kV, 115 kV, 69 kV and 46 kV in the PJM Region.

Service Company

FESC provides legal, financial and other corporate support services at cost, in accordance with its cost allocation manual, to affiliated FirstEnergy companies. In addition, pursuant to the FES Bankruptcy settlement agreement discussed below, FE will extend the availability of shared services to the FES Debtors until no later than June 30, 2020, subject to reductions in services if requested by the FES Debtors.

Legacy CES Subsidiaries

On March 31, 2018, FES and FENOC announced that, in order to facilitate an orderly financial restructuring, they filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code with the Bankruptcy Court. As a result of the bankruptcy filings, FirstEnergy concluded that it no longer had a controlling interest in FES and FENOC as the entities are subject to the jurisdiction of the Bankruptcy Court and, accordingly, as of March 31, 2018, FES and FENOC were deconsolidated from FirstEnergy’s consolidated financial statements. Since such time, FE has accounted and will account for its investments in FES and FENOC at fair values of zero. FE concluded that in connection with the disposal, FES and FENOC became discontinued operations.

AE Supply was organized under Delaware law in 1999. AE Supply previously provided energy-related products and services primarily to wholesale customers. AE Supply

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We operate in a business environment that involves significant risks, many of which are beyond our control. Management regularly evaluates the most significant risks of its businesses and reviews those risks with the Board of Directors or appropriate Committees of the Board. The following risk factors and all other information contained in this report should be considered carefully when evaluating FirstEnergy. These risk factors could affect our financial results and cause such results to differ materially from those expressed in any forward-looking statements made by or on behalf of us. Below, we have identified risks we consider material. Additional information on risk factors is included in “Item 1. Business,” “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in other sections of this Form 10-K that include forward-looking and other statements involving risks and uncertainties that could impact our business and financial results.

Risks Related to the FES Bankruptcy

We Are Subject to Risks Relating to the FES Bankruptcy

As previously disclosed, the FES Debtors filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code to facilitate an orderly restructuring. It is possible that as part of the restructuring process, claims may be asserted by or on behalf of the FES Debtors against non-debtor affiliates of the FES Debtors. Any assertions of claims by creditors of the FES Debtors against FirstEnergy may require significant effort, resources, and money to defend or could result in material losses to FirstEnergy. We can provide no assurance that any such claims, if asserted, will be resolved in accordance with the FE Bankruptcy settlement agreement or a manner that is satisfactory to FirstEnergy.

Management of FirstEnergy has been and may continue to be required to spend a significant amount of time and effort dealing with the FES Bankruptcy instead of focusing on FirstEnergy’s business operations, which could have an adverse impact on our ability to execute our business plan and operations. Additionally, FirstEnergy’s relationship with its employees, suppliers, customers and other parties may be adversely impacted by negative or confusing publicity related to the FES Bankruptcy or otherwise and FirstEnergy’s operations could be materially and adversely affected. The FES Bankruptcy also may make it more difficult to retain, attract or replace management and other key personnel.

We are Subject to Risks that the Conditions to the FES Bankruptcy Settlement Agreement May Not be Satisfied or the Settlement May Not Otherwise be Consummated, Which Could Have a Material Adverse Impact on FirstEnergy’s Business, Financial Condition, Results of Operations and Cash Flows

On September 26, 2018, the Bankruptcy Court approved a FES Bankruptcy settlement agreement dated August 26, 2018, by and among FirstEnergy, the FES Key Creditor Groups, the FES Debtors. Under the FES Bankruptcy settlement agreement, FirstEnergy agreed to provide the FES Debtors a release of substantially all claims related to the FES Debtors and their businesses, including for the full borrowings under intercompany financing arrangements and recovery of obligations previously paid under guarantees; payments in the form of cash and new FE notes not to exceed $628 million in aggregate principal amount; the transfer of AE Supply’s Pleasants Power Station; an offsetting credit for shared services costs; funding for certain employee benefit programs; and continued performance under the intercompany tax sharing agreements, including waiver of an FES overpayment, reversal of a payment made for estimated net operating losses and agreement to pay certain 2018 tax year payments. In exchange, the FES Bankruptcy settlement agreement would resolve all outstanding disputes with respect to the claims and causes of action related to the FES Debtors and their businesses among FirstEnergy, on the one hand and the FES Debtors, the FES Key Creditor Groups, and the UCC, on the other hand.

The FES Bankruptcy settlement agreement and the releases granted therein are subject to material conditions, which primarily consist of the issuance of a final order by the Bankruptcy Court approving the plan or plans of reorganization for the FES Debtors acceptable to FirstEnergy. There can be no assurance that the conditions to the settlement agreement will be satisfied or that the settlement will otherwise be consummated, and the actual outcome of this matter may differ materially from the terms of the agreement described herein. If the settlement were not consummated, the FES Debtors or their creditors could assert various claims against FirstEnergy, while FirstEnergy’s ability to recover any value from obligations owed it by the FES Debtors, secured or otherwise, may be limited.

In the event the FES Bankruptcy settlement agreement is not fully consummated, the costs of potential liabilities resulting from the FES Bankruptcy could have a material and adverse impact on FirstEnergy’s business, financial condition, results of operations and cash flows.

Adverse Developments Related to the FES Bankruptcy Could Trigger Events of Default under Certain FirstEnergy Obligations

FirstEnergy's credit facilities contain various events of default, including with respect to the borrowers or significant subsidiaries (each as defined in the credit agreements), a bankruptcy or insolvency of FirstEnergy, the failure to pay any principal of or premium or interest on any indebtedness in excess of $100 million, or the failure to satisfy any judgment or order for the payment of money exceeding any applicable insurance coverage by more than $100 million. Although the FES Debtors are not “significant subsidiaries” for these purposes, it is possible that an adverse development related to the FES Bankruptcy could otherwise trigger an event of

default under the FirstEnergy credit facilities if creditors of the FES Debtors asserted successful claims against FE or our significant subsidiaries.

Certain Events in Connection with the Disposition of Competitive Generation Assets May Significantly Increase Cash Flow and Liquidity Risks and Have a Material Adverse Effect on Results of Operations and the Financial Condition of FirstEnergy

As part of the FES Bankruptcy settlement agreement, AE Supply entered into a definitive agreement on December 31, 2018, to transfer the 1,300 MW Pleasants Power Station and related assets to FG, while retaining certain specified liabilities. After closing, AE Supply will continue to provide access to the McElroy's Run CCR Impoundment Facility, which is not being transferred, and FE will provide certain guarantees for retained environmental liabilities of AE Supply, including the McElroy’s Run CCR Impoundment Facility. The transfer is subject to various customary and other closing conditions, including the Bankruptcy Court’s approval of the definitive transfer agreement, effectiveness of the FES Bankruptcy settlement agreement and the effectiveness of a plan of reorganization for the FES Debtors in connection with the FES Bankruptcy. Liabilities incurred under these guarantees could have an adverse impact on the financial condition of FirstEnergy.

Further, as part of AE Supply’s sale of gas generation assets to a subsidiary of LS Power, FE provided two limited three-year guarantees totaling $555 million of certain obligations of AE Supply and AGC arising under the purchase agreement. Liabilities incurred under these guarantees could have an adverse impact on the financial condition of FE.

If Our "FE Tomorrow" Organizational Realignment Plans Do Not Achieve the Expected Benefits, There Could Be Negative Impacts to FirstEnergy's Business, Results of Operations and Financial Condition

In support of the strategic review to exit commodity-exposed generation, management launched the FE Tomorrow initiative to define FirstEnergy's future orga

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None.

The first mortgage indentures for the Ohio Companies, Penn, MP, PE and WP constitute direct first liens on substantially all of the respective physical property, subject only to excepted encumbrances, as defined in the first mortgage indentures. See Note 13, "Capitalization," of the Notes to Consolidated Financial Statements for information concerning financing encumbrances affecting certain of the Utilities’ properties.

FirstEnergy controls the following generation sources as of December 31, 2018, shown in the table below. Except for the OVEC participation referenced in the footnotes to the table, the competitive generating units are owned by AE Supply and the regulated generating units are owned by JCP&L and MP.

The above generating plants and load centers are connected by a transmission system with various voltage ratings ranging from 23 kV to 500 kV. FirstEnergy's overhead and underground transmission lines aggregate 24,506 circuit miles.

The Utilities’ electric distribution systems include 277,284 miles of overhead pole line and underground conduit carrying primary, secondary and street lighting circuits. They own substations with a total installed transformer capacity of approximately 164,611,989 kV-amperes.

All of FirstEnergy's transmission, distribution and generation assets operate in PJM.

FirstEnergy’s distribution and transmission systems as of December 31, 2018, consist of the following:

Reference is made to Note 16, "Regulatory Matters," and Note 17, "Commitments, Guarantees and Contingencies," of the Notes to Consolidated Financial Statements for a description of certain legal proceedings involving FirstEnergy.

Not applicable.

PART II

The information required by Item 5 regarding FirstEnergy’s market information, including stock exchange listings, dividends and holders of common stock is included in Item 6, "Selected Financial Data."

FirstEnergy had no transactions regarding purchases of FE common stock during the fourth quarter of 2018.

FirstEnergy does not have any publicly announced plan or program for share purchases.

(1) Prior year numbers have been re-casted for discontinued operations.

PRICE RANGE OF COMMON STOCK

The common stock of FirstEnergy Corp. is listed on the New York Stock Exchange under the symbol “FE” and is traded on other registered exchanges.

SHAREHOLDER RETURN

The following graph shows the total cumulative return from a $100 investment on December 31, 2013, in FE’s common stock compared with the total cumulative returns of EEI’s Index of Investor-Owned Electric Utility Companies and the S&P 500.

HOLDERS OF COMMON STOCK

There were 74,813 holders of 511,915,450 shares of FE’s common stock as of December 31, 2018, and 74,535 holders of 530,152,175 shares of FE's common stock as of January 31, 2019. Information regarding retained earnings available for payment of cash dividends is given in Note 13, "Capitalization," of the Notes to Consolidated Financial Statements.

Forward-Looking Statements: This Form 10-K includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 based on information currently available. Such statements are subject to certain risks and uncertainties and readers are cautioned not to place undue reliance on these forward-looking statements. These statements include declarations regarding management's intents, beliefs and current expectations, and typically contain, but are not limited to, the terms “anticipate,” “potential,” “expect,” "forecast," "target," "will," "intend," “believe,” "project," “estimate," "plan" and similar words. Forward-looking statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, which may include the following (see Glossary of Terms for definitions of capitalized terms):

Dividends declared from time to time on our common stock, and thereby on our preferred stock, during any period may in the aggregate vary from prior periods due to circumstances considered by our Board of Directors at the time of the actual declarations. A security rating is not a recommendation to buy or hold securities and is subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating.

These forward-looking statements are also qualified by, and should be read together with, the risk factors included in (a) Item 1A. Risk Factors, (b) Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and (c) other factors discussed herein and in FirstEnergy's other filings with the SEC. The foregoing review of factors also should not be construed as exhaustive. New factors emerge from time to time, and it is not possible for management to predict all such factors, nor assess the impact of any such factor on our business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statements. We expressly disclaim any obligation to update or revise, except as required by law, any forward-looking statements contained herein as a result of new information, future events or otherwise.

FIRSTENERGY CORP.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FIRSTENERGY’S BUSINESS

FE and its subsidiaries are principally involved in the transmission, distribution and generation of electricity through its reportable segments, Regulated Distribution and Regulated Transmission.

The Regulated Distribution segment distributes electricity through FirstEnergy’s ten utility operating companies, serving approximately six million customers within 65,000 square miles of Ohio, Pennsylvania, West Virginia, Maryland, New Jersey and New York. This segment also controls 3,790 MWs of regulated electric generation capacity located primarily in West Virginia, Virginia and New Jersey. Regulation of our retail distribution rates is generally premised on providing an opportunity to earn a reasonable return of and on prudently incurred invested capital to provide service to our customers through the use of both base rate proceedings and other cost-based rate mechanisms, including recovery riders and trackers. The segment's results reflect the costs of securing and delivering electric generation from transmission facilities to customers, including the deferral and amortization of certain related costs.

The service areas of, and customers served by, FirstEnergy's regulated distribution utilities as of December 31, 2018 are summarized below (in thousands):

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The information required by Item 7A relating to market risk is set forth in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of FirstEnergy Corp.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of FirstEnergy Corp. and its subsidiaries (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of income (loss), of comprehensive income (loss), of stockholders’ equity, and of cash flows for each of the three years in the period ended December 31, 2018, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Cleveland, Ohio

February 19, 2019

We have served as the Company’s auditor since 2002.

FIRSTENERGY CORP.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

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None.

Evaluation of Disclosure Controls and Procedures

The management of FirstEnergy, with the participation of the chief executive officer and chief financial officer, has reviewed and evaluated the effectiveness of their registrant's disclosure controls and procedures, as defined in the Securities Exchange Act of 1934, as amended, Rules 13a-15(e) and 15d-15(e), as of the end of the period covered by this report. Based on that evaluation, the chief executive officer and chief financial officer have concluded that FirstEnergy’s disclosure controls and procedures were effective as of the end of the period covered by this report.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934. Using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework published in 2013, management conducted an evaluation of the effectiveness of their internal control over financial reporting under the supervision of the chief executive officer and chief financial officer. Based on that evaluation, management concluded that FirstEnergy's internal control over financial reporting was effective as of December 31, 2018. The effectiveness of FirstEnergy’s internal control over financial reporting, as of December 31, 2018, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report included herein.

Changes in Internal Control over Financial Reporting

During the quarter ended December 31, 2018, there were no changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, FirstEnergy's internal control over financial reporting.

None.

PART III

The information required by Item 10 is incorporated herein by reference to FirstEnergy's 2019 Proxy Statement to be filed with the SEC pursuant to Regulation 14A under the Securities Exchange Act of 1934.

The information required by Item 11 is incorporated herein by reference to FirstEnergy’s 2019 Proxy Statement to be filed with the SEC pursuant to Regulation 14A under the Securities Exchange Act of 1934.

The Item 403 of Regulation S-K information required by Item 12 is incorporated herein by reference to FirstEnergy's 2019 Proxy Statement to be filed with the SEC pursuant to Regulation 14A under the Securities and Exchange Act of 1934.

The following table contains information as of December 31, 2018, regarding compensation plans for which shares of FE common stock may be issued.

(1) This number includes stock-based RSUs originally intended to be issued as shares but that have been converted to be paid in cash.

(2) Represents shares of common stock that could be issued upon exercise of outstanding options granted under the ICP 2007 and ICP 2015. This number also includes 2,432,371 shares subject to outstanding awards of stock based RSUs granted under the ICP 2015 if paid at target for the three outstanding cycles, as well as 2,432,371 additional shares assuming maximum performance metrics are achieved for the 2016-2018, 2017-2019, and 2018-2020 cycles of stock based RSUs, 41,905 outstanding FE Amended and Restated EDCP related shares to be paid in stock and 427,383 shares related to the FE DCPD that will be paid in stock. Cash based RSUs granted under the ICP 2015 are payable only in cash and therefore have not been included in the table, however, as noted above, certain stock-based awards that have been amended to pay in cash. Not reflected in the table are 129,924 stock options related to the AE 2008 Long-Term Incentive Plan and the AE 1998 Long-Term Incentive Plan and 20,558 shares related to the AYE Director's Plan and AYE DCD that will be paid in stock per the election of the recipient.

(3) Only FirstEnergy options were included in the calculation for determining the weighted-average exercise price. The weighted-average exercise price for options outstanding under the AE 2008 Long-Term Incentive Plan and the AE 1998 Long-Term Incentive Plan was $35.45 as of December 31, 2018.

(4) Represents shares available for issuance, assuming maximum performance metrics are achieved (or approximately 7,182,162 available assuming performance at target) for the 2016-2018, 2017-2019, and 2018-2020 cycles of stock-based RSUs, with respect to future awards under the ICP 2015 and future accruals of dividends on awards outstanding under ICP 2015. Additional shares may become available under the ICP 2015 due to cancellations, forfeitures, cash settlements or other similar circumstances with respect to outstanding awards. In addition, nominal amounts of shares may be issued in the future under the AYE Director's Plan and AYE DCD to cover future dividends that may accrue on amounts previously deferred and payable in stock, but new awards are no longer being granted under the Allegheny plans or the ICP 2007.

(5) All equity compensation plans have been approved by security holders.

The information required by Item 13 is incorporated herein by reference to FirstEnergy’s 2019 Proxy Statement to be filed with the SEC pursuant to Regulation 14A under the Securities Exchange Act of 1934.

A summary of the audit and audit-related fees for services rendered by PricewaterhouseCoopers LLP for the years ended December 31, 2018 and 2017, are as follows:

Tax Fees and All Other Fees

Tax-related fees totaled $120,000 in 2018. There were no tax services performed by PricewaterhouseCoopers LLP in 2017. PricewaterhouseCoopers LLP performed no other services in 2018 or 2017, however, the registrants paid approximately $6,300 and $39,500 in software subscription fees to PricewaterhouseCoopers LLP for 2018 and 2017, respectively.

Additional information required by this item is incorporated herein by reference to FirstEnergy’s 2019 Proxy Statement to be filed with the SEC pursuant to Regulation 14A under the Securities Exchange Act of 1934.

PART IV

(a) The following documents are filed as a part of this report on Form 10-K:

1. Financial Statements:

Management’s Reports on Internal Control Over Financial Reporting for FirstEnergy Corp. are listed under Item 8, "Financial Statements and Supplementary Data" herein.

Reports of Independent Registered Public Accounting Firm for FirstEnergy Corp. are listed under Item 8, "Financial Statements and Supplementary Data," herein.

The financial statements filed as a part of this report for FirstEnergy Corp. are listed under Item 8, "Financial Statements and Supplementary Data," herein.

2. Financial Statement Schedule:

Reports of Independent Registered Public Accounting Firm as to Schedule are included herein on pages:

Schedule II — Consolidated Valuation and Qualifying Accounts for each of the three years in the period ended December 31, 2018, are included herein on pages:

Pursuant to paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K, FirstEnergy has not filed as an exhibit to this Form 10-K any instrument with respect to long-term debt if the respective total amount of securities authorized thereunder does not exceed 10% of its respective total assets, but hereby agrees to furnish to the SEC on request any such documents.

None.

SCHEDULE II

FIRSTENERGY CORP.

CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: February 19, 2019

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated:

Date: February 19, 2019