Greetings, and welcome to the FirstEnergy Corp. Third Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Meghan Beringer, Director, Investor Relations for FirstEnergy Corp. Thank you, Ms. Behringer, you may begin.

Thank you, Melissa, and good afternoon. Welcome to FirstEnergy's third quarter earnings call. First, please be reminded that during this conference call, we will make various forward-looking statements within the meaning of the Safe Harbor provision of the United States Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements with respect to revenues, earnings, performance, strategies, prospects and other aspects of the business of FirstEnergy Corp. are based on current expectations that are subject to risks and uncertainties. A number of factors could cause the actual results or outcomes to differ materially from those indicated by such forward-looking statements. Please read the Safe Harbor statement contained in the consolidated report to the financial community, which was released earlier today and is also available on our website under the Earnings Release link. Today, we will be referring to operating earnings, which are non-GAAP financial measures previously referenced as normal as non-GAAP earnings. Reconciliations to GAAP for operating earnings are contained in the consolidated report, as well as on the investor information section on our website at www.firstenergycorp.com/ir. Participating in today's call are Tony Alexander, President and Chief Executive Officer; Leila Vespoli, Executive Vice President and General Counsel; Jim Pearson, Senior Vice President and Chief Financial Officer; Donny Schneider, President of FirstEnergy Solutions; Jon Taylor, Vice President, Controller and Chief Accounting Officer; Steve Staub, Vice President and Treasurer; and Irene Prezelj, Vice President, Investor Relations. Now I will turn the call over to Tony Alexander.

Thank you, Meghan, and good afternoon, everyone. I'm glad you could join us. This morning, we announced third quarter operating earnings of $0.94 per share in line with our expectations, and we narrowed the 2013 operating earnings range to $2.90 to $3.10 per share, maintaining the midpoint of $3 per share from our previous guidance of $2.85 to $3.15 per share. While there were a host of small items, some positive, some negative, the narrowing of the guidance primarily reflects that weather has essentially been neutral so far this year. Jim will provide a more detailed overview of the third quarter financial results, as well as an update on our cost control initiatives and financial plan we outlined earlier this year. Leila will provide an overview of regulatory developments. My comments today will focus on the actions we're taking to strategically reposition the company and improve its overall business profile. We've always said that one of our greatest strengths, is the diversity of our assets. Our mix of operations, as well as the size and scope of each of our 3 businesses provide the flexibility to capitalize on opportunities, while mitigating risk and we are using that flexibility to improve our business profile. I'll spend the next few minutes walking you through the actions we've taken to reduce our exposure to power markets, control costs and turn our strategic focus to more predictable and sustainable growth through systematic investments in our core regulated businesses. As you know, our competitive operations have been challenged not by operational performance, but by capacity in energy markets that do not support investment in, or in some instances, the operation of generating units. While we can debate for reasons this is occurring, the fact is, power prices have been weak for the last couple of…

Thanks, Tony. This has been a busy period in our regulated service area and I will update you on the status of several matters in West Virginia, Pennsylvania, Ohio and New Jersey. In West Virginia, we achieved a settlement in August with the majority of the parties through our generation transaction involving the Harrison power station and received an order from the Public Service Commission of West Virginia on October 7, approving the transaction with certain conditions. On October 9, the company has accepted the conditions and the transaction closed. Mon Power sold its approximate 8% share of the Pleasants Power Station for about $73 million to Allegheny Energy Supply and Allegheny Energy Supply sold its approximate 80% share of Harrison to Mon Power at a book value of $1.2 billion. The transaction resulted in a net purchase price of about $1.1 billion to Allegheny Energy Supply, and Mon Power's assumption of a $73.5 million pollution control notes. The settlement also provided for a reduction of approximately $330 million to the West Virginia rate base valuation of Harrison. Mon Power now has 100% ownership of the Harrison power station. This transaction preserve the opportunity to use locally mined coal, sustaining employments and benefiting the regional economy. The terms of the agreement also require the filing of base rate case in West Virginia for Mon Power and the Potomac Edison, no later than April 30, 2013. We also continue to evaluate the opportunity for additional rate cases across our service territories to help insure timely recovery of our investment. Let's turn now to Pennsylvania. In September, the U.S. district court granted the public -- Pennsylvania Public Utility Commission motion to dismiss the Met-Ed and Penelec proceedings on the recovery of $254 million and marginal transmission losses and associated carrying charges through…

Thanks, Leila. Let's get started with a look at our financial results. You may want to refer to the consolidated report, which was issued this morning and is available on our website. As Tony mentioned earlier, our third quarter operating earnings of $0.94 per share were in line with our expectations. These results compare with third quarter 2012 operating earnings of $1.11 per share. On a GAAP basis, this year's third quarter earnings were $0.52 per share compared to $1.02 per share last year. The full list of special items that make up the $0.42 per share difference between GAAP and operating earnings can be found on Page 5 of the consolidated report. Most significant of these are regulatory charges of $0.36 per share, primarily related to the impairment of Met-Ed and Penelec's regulatory assets associated with transmission line losses, which Leila just mentioned. Other special items for the third quarter include trust securities impairment of $0.03 per share, plant deactivation cost of $0.02 per share, a decrease of $0.02 per share related to merger accounting for commodity contracts, restructuring charges of $0.01 per share and gains of $0.02 per share for debt redemption and mark-to-market adjustments. Turning now to the drivers of our operating earnings. A lower effective income tax rate increased earnings by $0.09 per share. I'll take a moment to talk through this item. In 2012, our effective tax rate was 41%, primarily due to increases in the valuation allowances against net operating losses. This year, as outlined in our earnings guidance, we assumed an effective tax rate of about 38%, largely reflecting the realization of state tax planning initiatives to simplify our tax structure and our estimated mix of earnings. Additionally, in the third quarter of 2013, in conjunction with filing our 2012 tax returns, we…

[Operator Instructions] Our first question comes from the line of Dan Eggers with Credit Suisse. Dan Eggers - Crédit Suisse AG, Research Division: Just on -- I knew, you're going to probably give us a lot more detail at the EEI and the transmission spending. But just kind of as we start to plot out the capital being deployed. Can you walk through what, if any, approvals need to be made to start spending the money? And if there's any threshold requirements over economic benefit or any sort of measures that have to be considered when you guys look at these dollars being deployed?

Well, at this point, Dan, as we start this project, most of this is, is internal approvals only. We're concentrating initially on our 69 kV system and the 34.5 kV system, which will be upgraded to 69. So much of what we do will be below power siding approvals or any other specific approvals. Dan Eggers - Crédit Suisse AG, Research Division: Okay. And then you said that those dollars can be targeted primarily at ATSI in the first few years that should we see the majority of that first 4 years can be kind of independent in the ATSI structure or is that going to creep into some of the legacy Allegheny transmission systems as well?

Well, we have a fairly robust transmission program over the next several years. Part of which we talked about before and more will discuss at the EEI Financial Conference. But we'll be spending across the footprint. The transmission reliability program that we announced today is primarily ATSI. We'll begin in ATSI, I should say. Dan Eggers - Crédit Suisse AG, Research Division: Okay. So the 14 and 15 is ATSI, and then it probably catches up in the other jurisdictions?

Well, again, we're only talking about the incremental spend over and above what we're already planning, that is primarily ATSI at the beginning. Yes. Dan Eggers - Crédit Suisse AG, Research Division: Okay. Great. And then I guess just on the cost cutting program, Jim, with $170 million of cash benefits. Do you guys have any feel for kind of what the underlying O&M growth rate is going to be if we look at 14, 15, 16 just to try to get a handle on inflation?

We're not in a position to give any of that O&M growth rate. But the way I look at this, Dan, is these actions we've taken are going to help mitigate any types of cost increases going forward such as general wage increases and that. Dan Eggers - Crédit Suisse AG, Research Division: Do you think you in kind of flattening out of O&M, is that the right way to read that?

Well, Dan, why don't you wait until we provide guidance in the future. We're doing everything we can just like we always have to maintain O&M and only incur the types of costs that are absolutely we can't really avoid.

Our next question comes from the line of Jonathan Arnold with Deutsche Bank.

Just staying on transmissions, Tony, I think you said that your intent was to finance the $2.8 billion with debt and equity. So -- I mean, are we saying that this $100 million a year that Jim spoke to is sufficient to provide to go to the the equity piece of build out or is that sort of a separate financing that you weren't really speaking to?

Jonathan, my plan is to give you a little more detail next week. I think what Jim was trying to indicate, basically, is that the minimum amount of equity that's going to be necessary will be the continuation of whatever that program as we call it, it's the dividend reinvestment and the employee benefit types of programs. So I would -- so from your modeling standpoint, you can assume that that's going to continue through at least this period, and then we will be evaluating in discussing more with you next week some of the options as the transmission spend grows over time.

Okay. So we start sort of a -- will look forward to hearing that next week.

Our next question comes from the line of Julien Dumoulin-Smith with UBS.

So first, perhaps not to spill to much in there for next week, but could you perhaps summarize, if you will, the growth trajectory and output base from on EPS perspective, you're talking about for transmission, just kind of summarizing everything?

It's up. You'll hear about it Next week.

All right, fair enough. I'll hang tight there. With regards to the hedge position in '15, you talked about a $4-megawatt hour improvement on what it seems to be like 43 million megawatt hours. How much of that -- is that correct, first off?

Yes.

How much of that is derived from capacity price improvement versus through energy hedge position, if you get what I'm saying? Like because I take it that, that price is in on-inclusive numbers?

Yes, it is. And Donny is here. He can jump in. But the majority of that increase, Julien, would be from the capacity.

Yes, that's correct. Jim made reference back to the 13 number. And so as the roll-off occurred and we faced lower wholesale prices, obviously, the energy component gets depressed, Julien.

Now I don't want to push this too far, but is there actually a negative offset in the energy and actually the capacity more than offset the decline in the energy price? Or is it...

Yes, I thank you know what the capacity prices are out there. So you can calculate that Julian, and I have not that done that calculation.

Our next question comes from the line of Paul Fremont with Jefferies.

I guess my first question is have you guys looked at potential opportunities to ultimately separate out your transmission business?

Paul, we look at all types of opportunities. Obviously, as we think about how we're going to finance and address these issues over time. Right now, we're pretty comfortable with where we're at. That doesn't necessarily mean that it'll stay that way. But that clearly is something that has been on our radar screen for quite some time.

And the other question that I have is with respect to the O&M cut of 130 that you've already identified, how much of that is utility and how much of that is competitive business?

I don't have the exact breakdown on that, Paul. But I would say it's probably about in the 50/50 range since a lot of it deals with benefit reductions that would be similar for all of our staff. I would just look at 50/50.

Our next question comes from the line of Stephen Byrd with Morgan Stanley.

I wanted to first talk about your -- the coal cost for your fleet. As you look out, obviously, the coal industry is facing pressure. Do you see opportunity there in terms of further negotiations in terms of your coal cost and your outlook given the pressure that the coal industry is facing? Or how should we think about your coal cost over time?

Go ahead, Donny.

Stephen, this is Donny. I think we have a pretty solid track record over the years of being able to keep our coal cost low and actually push them down even in a rising market. So obviously, we'll continue to pull on all of the levers. I think it is getting more difficult as our coal suppliers are hitting points to where they're kind of operating at some of their cash cost, so it becomes more difficult. But we'll continue to pull on all those levers.

Understood. And then I guess just switching over to the big ass side of things. Tony, you mentioned at the beginning, the gas outlook is challenging and the power price outlook is challenging. As you all look out today and you think about the size of your retail business at about 100 million-megawatt hours overtime, which is I guess about 25% above fleet output, do you see that staying fairly stable? Or given the sort of gas and power look as you see it out in '15 and '16, is there a potential that, that retail business would need to get a bit smaller than the 100 million-megawatt hours?

I don’t -- I'm not seeing that. I think it's perhaps just the opposite in terms of whether or not you want to take some additional risk as opposed to give up customers. So I think there will be a balancing as we go forward in that portfolio.

Our next question comes from the line of Kit Konolige with BGC.

Just a couple of sort of fill-in-the-blanks type of questions. Tony, you mentioned that you expect that you may be facing -- market may be facing weak power prices over the next several years. What -- it seems to me you've been more bullish than that in the past. What has changed your mind?

Well, I think, Kit, in the main, I'm still bullish on the competitive markets overall. But reality is we had a PJM auction for 16 and 17, which was, I think, in everyone's thought process is much weaker than any one anticipated. The delay in shutting down generation across the overall footprint, as well as the, what is it, a parent reliance and the market on what I consider to be a softer generating substitutes or resources all have an impact. The question will be what happens over time? And from our perspective, it's far more important for us to manage our business given that if it stays soft, we're prepared and positioned where we're cash flow positive, and we can talk about more of the details later. And if it improves, and we certainly would like to see some of the obstacles eliminated to help that happen, we'll be in a very strong position to take advantage of it.

Fair enough. I noticed though that in your...

But we're not going to sit back and hope and wait.

Right.

We're going to take action.

What role -- where do you see -- let me just ask it this way. What's your kind of middle and longer-term growth rate that you project for your service territories? And in assessing future pricing in PJM, what you do see as the growth rate for sales in PJM overall?

Again, I'm -- we're not going to talk about that kind of stuff, Kit, as we go forward, nor am I going to give you an indication of how I -- where I think the markets are going to go. We're targeting about 100 million-megawatt hours in sales. We think we can accomplish that. We're over that this year, so it'll be a little bit of pruning as opposed to acquiring, but I think we'll be doing both over the next several years as we reshape that portfolio to customers and markets in areas in which we can produce greater returns.

Our next question comes from the line of Paul Patterson with Glenrock Associates.

I just wanted to touch base with you on just the transmission again. Is this -- this $2.8 billion is part of the $7 billion I think you said before, is that correct?

Yes.

Okay. And what sort of triggered this appraisal of this need? Was there -- was it Sandy? Was there -- I mean, is there anything that -- is it cyber stuff? What -- I mean, it seems like a pretty large increase that you guys have come up with. I'm just wondering what led you guys to it?

Well, I think it's a combination of factors. All of these items -- I mean we don't come up with this list in a day. All these items are systematically -- as we evaluate our system, much of which in terms of age of infrastructure is reaching towards end of life. It's time now to begin the process of putting that system in a position where it provides continuing strong service to customers and now is the time to start it. Obviously, we were hoping that the economy would have recovered earlier that there would have been different opportunities across the footprint. But with what is happening around us and for many conversations we've had with customers in terms of what they'd like to see our system be capable of doing, what we're trying to do is address those as we prepare the system for what is going to have to be capable of delivering down the road.

Okay. Now there have been a whole bunch of transmission proposals for market-to-market congestion between MISO and PJM. I was wondering if you saw any opportunity in that? And also, if you saw any potential impact to PJM markets as a result of some of the things that are being proposed by some of your -- some of the other guys around you?

Well, I'm not -- we're concentrating primarily inside our footprint. We've got a large transmission system, and our focus is on that. Obviously, I think being able to increase transmission capability inside PJM would be helpful. I mean, it's frustrating that we can get generation from Louisiana to Ohio, but we can't get from the Ohio River to Philadelphia. So there are a lot of things that can be addressed inside that space over time. It all takes time and it all takes a lot of effort to accomplish. But the fact of the matter is, from our perspective, we're looking internally. We're not looking for projects that have long lead times with respect to either approval processes or likely construction processes. And we'll give you a lot more of that detail in this upcoming meeting.

Okay. And then just on sort of a housekeeping item. On Page 14 of the cash flow statement, there's an $18 million noncash gain from asset sales and I was just wondering what that represented? And I guess, that sounds like -- it was a noncash benefit to net income, I guess, is what that looks like to me. What was that?

That was the sale of the synchronous condensers from FirstEnergy Solutions to ATSI.

Okay. So there is a net income impact for the company?

Not on an operating basis.

Okay. So it's part of the -- okay. And you guys, can you give us -- I know you guys are sort of hesitating on giving guidance for 2014, but any sense as to what a normalized tax would be for 2014?

No, I mean if you look at the tax rate, it's going to range somewhere from 37% to 38% this year, primarily closer to 37%. But the tax rate in any given year is going to be based on the mix of earnings. So we'll have to look at it as we kind of prepare for 2014 earnings guidance.

Our next question comes from the line of Steven Fleishman with Wolfe Research.

Just on the -- first clarification on the transmission spending plan. I know there were some much lower base spending before the new plan. Is that included in the numbers you provided or that -- what was the base before this?

I think our base transmission spend over this time frame, I'm not sure we've identified that in the past, but this would be in addition to that. But we'll try to give you a better sense for that as we go forward. So I think the only real transmission spend we've identified, which is obviously in part of the base plan is the significant amount of transmission investment that's being put in place across our system to deal with power plants that are being shut down by 2015. Now if I remember that number, and don't hold me to this, but I think it was in the $700 million range. And then to that, you would add kind of the normal transmission spending that we have in each of our service areas, including for projects like the light project in Jersey at Jersey Central Power & Light that was announced about a year or so ago. So all of those kind of come together, kind of normal baseline spending that you're going to do in any event, the kind of additional spending you have in connection with power plant shutdowns, enhancement programs like the Jersey light program. And now on top of those is the additional transmission incremental spend of $2.8 billion.

Okay. And then just also on distribution. I know you mentioned things like smart grid and such. Is there a meaningful increase in the rate base investment or CapEx and distribution?

Well, we spend in excess of about $1 billion a year on distribution capital. So rate base grows every year. There will be opportunities and I think Leila will be seeking them out in the various jurisdictions. There are areas in distribution not of -- electric distribution not unlike in gas distribution where underground facilities should be getting replaced and we ought to work through the kind of mechanisms that the gas industry generally has, which typically are more favorable than the electric. So there's a lot of opportunities not only with respect to smart meters, but with respect to upgrading aging infrastructure overall. Operator, we'll take one more call.

Our next question comes from the line of the Angie Storozynski with Macquarie. [Technical Difficulty]

We can barely hear you.

Maybe this is going to be better. I had a question about your expectation for ATSI capacity prices given your transmission CapEx. Do you expect that ATSI will continue to clear at a premium versus RTO? Your spending quite a bit of CapEx on your transmission lines, so how should we think about ATSI capacity prices going forward?

Donny, could you answer that?

Angie, this is Donny. I think as time goes forward, there's probably a lower probability that ATSI separates. But I would think probably this coming May, it will probably still separate would be my guess. But what you'll see is, as we get out beyond that period if it still separates.

Okay. Secondly, when you mentioned the price, the sale price for the FES' secured sales volumes and you told us that we do know what the capacity revenue or the capacity prices are, should we assume that you are averaging out the spike in ATSI capacity prices throughout say '15, '16? Or should we assume that there is just as the cleared prices where -- that we have a sudden spike in capacity revenues, hence, the contribution of capacity through '15 sales prices is higher?

Angie, in general, those are going to be levelized capacity charges depending on obviously the length of the contract. We do have a few customers, not many, but a few customers that allow the capacity as a pass through, so that would be the one exception.

And lastly, Tony, you mentioned free cash flow positive. The expectations and investment-grade rating expectations for FES for the next 3 years. Do you include '13 in this comment or is it '14, '15, '16?

Yes, Angie, we would include all 4 years in that. We've made a significant improvement there in '13 with our competitive business unit, the metrics. Okay. Thank you. I'd like to thank everyone for joining us on the call today. We remain committed to providing value to shareholders, while positioning FirstEnergy for sustainable long-term growth. Thanks for your support and your interest in FirstEnergy, and I look forward to seeing you many next week at EEI.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.