S&P Affirms Ratings on FirstEnergy (FE) Following Reassessment

• FirstEnergy Corp. has materially weakened its stated support for its competitive energy service business, FirstEnergy Solutions Corp. (FES).
• We now assess FES as nonstrategic to FirstEnergy.
• We are affirming the ratings and negative outlook, including the 'BBB-' issuer credit ratings, on FirstEnergy and its regulated utility subsidiaries American Transmission Systems Inc., Cleveland Electric Illuminating Co., FirstEnergy Transmission LLC, Jersey Central Power & Light Co., Metropolitan Edison Co., Monongahela Power Co., Ohio Edison Co., Pennsylvania Electric Co., Pennsylvania Power Co., Potomac Edison Co., Toledo Edison Co., Trans-Allegheny Interstate Line Co., and West Penn Power Co.
• The negative outlook continues to reflect the possibility that we could downgrade FirstEnergy and its regulated utility subsidiaries one notch within the next 12 to 18 months. This incorporates the minimal cushion at the current rating level and the potential for weaker financial measures based on persistent weak commodity prices and the regulatory difficulties it has encountered in its efforts to stabilize the competitive energy services business through long-term purchased power contracts with its utility affiliates.

S&P Global Ratings affirmed its rating, including the 'BBB-' issuer credit rating (ICR) and negative rating outlook, on FirstEnergy Corp. and its regulated utility subsidiaries American Transmission Systems, Cleveland Electric Illuminating Co, FirstEnergy Transmission LLC, Jersey Central Power & Light Co, Metropolitan Edison Co, Monongahela Power Co, Ohio Edison Co, Pennsylvania Electric Co, Pennsylvania Power Co, Potomac Edison Co, Toledo Edison Co, Trans-Allegheny Interstate Line Co, and West Penn Power Co.

"Our reassessment of FES' group status to nonstrategic from core reflects the company's public comments and our understanding based on recent conversations with senior management that FirstEnergy Corp. would no longer support FES even if FES falls into financial difficulties," said credit analyst Gabe Grosberg. "This materially weaker support since the Federal Energy Regulatory Commission rescinded the affiliate waiver regarding a purchased power agreement between FES and FirstEnergy Corp.'s regulated Ohio utilities, leads us to consider FES as nonstrategic to FirstEnergy. Based on this revised assessment, we now rate FES based on its stand-alone credit profile, which results in a FES downgrade."

The negative outlook reflects the possibility that we could downgrade FirstEnergy and its regulated utility subsidiaries one notch within the next 12 to 18 months. This incorporates the minimal cushion at the current rating level and the potential for weaker financial measures based on persistent weak commodity prices and the regulatory difficulties it has encountered in its efforts to stabilize the competitive energy services business through long-term purchased power contracts with its utility affiliates.

We could lower the rating by one notch if financial measures consistently weaken, reflecting FFO to debt below 12%. This could occur if the company cannot implement something similar to its purchase power agreement as previously approved by the Ohio Commission, commodity prices do not improve, or the management does not recapitalize its balance sheet.

We could affirm the rating and revise the outlook to stable if financial measures are consistently maintained reflecting FFO to debt of about 13%, or if the company's business risk profile materially improves by reducing the size of its higher-risk competitive business.

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