Fitch Affirms FirstEnergy Corp & FirstEnergy Solutions at 'BBB'; Outlook Revised to Negative

  Fitch Affirms FirstEnergy Corp & FirstEnergy Solutions at 'BBB'; Outlook
  Revised to Negative

Business Wire

CHICAGO -- May 24, 2012

Fitch Ratings has affirmed the ratings of FirstEnergy Corporation (FE) and its
wholly-owned merchant generation subsidiaries FirstEnergy Solutions (FES),
Allegheny Energy Supply Co. (Supply) and Allegheny Generating Co. (AGC).

The Rating Outlooks for FE and FES have been revised to Negative from Stable.
The Rating Outlook for Supply has been revised to Stable from Positive. The
Rating Outlook for Allegheny Generating Company (AGC) is Stable.

Fitch has also downgraded the short-term ratings of FE, FES, Supply and AGC to
'F3' from 'F2'. The reduction in short-term ratings reflects Fitch's more
common corporate long-term/short-term notching criteria. In the case of FE and
FES, the lower ratings also reflect the Outlook revision to Negative from
Stable.

Approximately $6 billion of debt is affected by today's action. A full list of
ratings is shown at the end of this release.

Concurrently, Fitch has taken several rating actions on FE's regulated utility
and transmission companies. For additional details, please refer to Fitch's
press release titled 'Fitch Affirms the Ratings of FirstEnergy Corp.'s Utility
Subsidiaries; Outlook Stable' dated May 24, 2012.

The Negative Outlooks for FE and FES primarily reflect the ongoing, unusually
prolonged downturn in power prices driven by a surfeit of natural gas supply,
strong reserve margins and a tepid economic recovery. In addition, compliance
with Environmental Protection Agency (EPA) rules will result in significant
additional capital investment and operating costs in 2012 and beyond. These
factors have resulted in a more leveraged financial profile.

Key rating drivers for FE include:
--Electric utility operating subsidiaries with relatively stable earning
profiles that provide the vast majority of consolidated operating earnings;
--Generally balanced regulatory environments in Ohio, New Jersey and
Pennsylvania
--Strong May 2012 results for FE in PJM's reliability pricing model capacity
auction for the 2015/2016 year;
--Solid liquidity position underscored by the recent extension of FE's credit
facilities.

Key rating concerns include:
--Low power prices that adversely affect power supply margin;
--Significant capital spending requirement and operating cost increases due to
environmental compliance standards, which further pressure margins and cash
flows;
--Financial and operating risk associated with nuclear operations.

FE's consolidated credit metrics, as estimated by Fitch, are expected to be
somewhat weak compared to other 'BBB' rated utility parent holding companies.
Fitch estimates 2012 and 2013 EBITDA-to-interest of 4x and debt-to-EBITDA of
5x - 6x.

The ratings also consider the company's relatively well-positioned generating
assets in its regional markets and first-mover advantage in emerging retail
power supply markets.

In addition, Fitch believes earnings and cash flow volatility is mitigated by
its large electric distribution and transmission utility investment and
integrated, retail-customer-oriented power supply strategy.

Fitch believes FE's consolidated liquidity position is solid. FE recently
extended its $4.5 billion of revolving credit agreements through 2017. FE also
negotiated a $1 billion credit facility at subsidiary FE Transmission which
replaces the $450 million facility at Trans-Allegheny Interstate Line Company
(TrAILCo). FE's regulated companies also participate in a money pool to meet
their short-term working capital requirements.

The Stable Outlook for Supply takes into consideration plans by FE management
to eventually merge Supply into FES. The companies will remain separate
entities for the near to medium term. However, FES and Supply are currently
managed operationally and financially as one entity (together FE Generation).

AGC's ratings and Stable Outlook reflect the company's strong credit metrics
relative to Fitch's 'BBB' internal guidelines, with EBITDA to interest
estimated to approximate than 6 - 7 times (x) during 2012 - 2014. Debt
leverage is low. Fitch estimates debt-to-EBITDA will be 2.8x - 3.1x during
2012 - 2014.

Operating risk is low. AGC's sole asset is a 40% undivided interest in a
pumped storage facility and related transmission assets. All of the company's
revenues, earnings and cash flow are derived from its sales to Supply and
affiliate, Monongahela Power Co. ('BBB', Stable Outlook). Revenues are
provided via a favorable tariff structure approved by the Federal Energy
Regulatory Commission.

In February 2012, FE announced a series of plant retirements to comply with
the EPA's mercury and air toxics standard. The company also announced
revisions to its environmental retrofit cost estimate to $1.3 - 1.7 billion,
significantly lower than the previously announced $2 - 3 billion investment
plan.

As part of its environmental compliance plan, FE plans to close 3,349 MW of
unregulated (2,689 MW) and regulated (660 MW) generating capacity in 2012 and
2015.

Fitch has taken the following rating actions:

FirstEnergy Corp.
--Issuer Default Rating (IDR) affirmed at 'BBB';
--Senior unsecured debt affirmed at 'BBB';
--Short-term IDR and commercial paper downgraded to 'F3' from 'F2'.

FirstEnergy Solutions
--IDR affirmed at 'BBB';
--Senior unsecured debt affirmed at 'BBB';
--Short-term IDR downgraded to 'F3' from 'F2';

The Outlook is revised to Negative from Stable for FE and FES.

Allegheny Energy Supply Co., LLC
--IDR affirmed at 'BBB-';
--Senior unsecured debt and revenue bonds affirmed at 'BBB-';
--Senior unsecured revolving credit facility affirmed at 'BBB-';
--Short-term IDR and commercial paper downgraded to 'F3' from 'F2'.

The Outlook is revised to Stable from Positive for Supply.

Allegheny Generating Co.
--IDR affirmed at 'BBB';
--Short-term IDR downgraded to 'F3' from 'F2';

The Rating Outlook is Stable.

Additional information is available at www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 12, 2011);
--'Utility Sector Notching and Recovery Ratings' (May 16, 2011); and,
--'Parent and Subsidiary Rating Linkage' (Aug. 12, 2011)

Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229
Recovery Ratings and Notching Criteria for Utilities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=677735
Parent and Subsidiary Rating Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647210

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PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Contact:

Fitch Ratings
Primary Analyst:
Philip W. Smyth, CFA, +1-212-908-0531
Senior Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analysts:
Kevin Beicke, CFA, +1-212-908-9112
Director
or
Committee Chairperson:
Glen Grabelsky, +1-212-908-0557
Managing Director
or
Media Relations:
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com
 
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