FirstEnergy’s revenues are primarily derived from the sale of energy and related products and services by its unregulated competitive subsidiaries (FES and AE Supply), and 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).

FES, a subsidiary of FE, was organizedincorporated under the laws of the State of Ohio law in 1997. FES provides energy-related products and services to retail and wholesale customers. FES also owns and operates, through its FG subsidiary, fossil generating facilities and owns, through its NG subsidiary, nuclear generating facilities. FES purchases the entire output of the generation facilities, ownedwhich are operated by FENOC. FG, and NG, and purchases the uncommitted output of AE Supply, as well as the output relating to leasehold interests of OE and TE in certain of those facilities that are subject to sale and leaseback arrangements, and pursuant to full output, cost-of-service PSAs. FG, asa subsidiary of FES, was organized under the laws of the State of Ohio law in 2000. FG sells the entire output of its fossil generating facilities (5,636(5,440 MWs) to FES. NG as subsidiary of FES, was organized under the laws of the State of Ohio law in 2005. NG sells the entire output of its nuclear generating facilities (4,048 MWs) to FES. NG's nuclear generating facilities are operated and maintained by FENOC, a separate subsidiary of FE, organized under the laws of the State of Ohio law in 1998.

AE Supply was organized under the laws of the State of Delaware law in 1999. AE Supply provides energy-related products and services primarily to FES.wholesale customers. AE Supply also owns and operates fossilthe Pleasants generating facilitiesfacility (1,300 MWs), and purchasesowns approximately 59% of AGC and sells energy and energy-related commodities.a 50% interest in the Buchanan Generating facility.

AGC was organized under the laws of the Commonwealth of Virginia law in 1981. Approximately 59% of AGC is owned by AE Supply and approximately 41% is owned by MP. AGC’s sole asset is a 40% undivided interest in the Bath County, Virginia pumped-storage hydroelectric generation facility (1,200 MWs) and its connecting transmission facilities. AGC provides the generation capacity from this facility to AE Supply and MP.

On January 18, 2017, AE Supply and AGC entered into an asset purchase agreement with Aspena subsidiary of LS Power, as amended and restated in August 2017, to sell four natural gas generating plants, AE Supply's interest in the Buchanan Generating facility and approximately 59% of AGC’s interest in Bath County (1,615 MWs of combined capacity) for an all-cash purchase price of $825 million, subject to adjustments. On December 13, 2017, AE Supply completed the sale of 1,572 MWs ofits four natural gas generating plants and hydroelectric assets, including AE Supply's indirectexpects to complete the sale of approximately 59% of AGC’s interest in the Bath County. Under the terms of the agreement, the facilities would be purchased for an all cash purchase price of approximately $925 million. The transaction is expected to closeCounty hydroelectric power station and BU Energy’s 50% interest in the third quarter of 2017 subject to satisfaction of various customary and other closing conditions, including, without limitation, receipt of regulatory approvals, third party consents and the satisfaction and discharge of AE Supply’s senior note indenture, under which there is approximately $305 million aggregate principal amount of indebtedness outstanding. There can be no assurance that any such approvals will be obtained and/or any such conditions will be satisfied or that such sale will be consummated. Further, the satisfaction and discharge of AE Supply’s senior note indenture in connection with the closing is expected to require the payment of a “make-whole” premium calculated just prior to the redemption, which based on current interest rates is approximately $100 million. It is expected that proceeds from the sale will be investedBuchanan Generating facility in the unregulated money pool and may be used for the repaymentfirst half of debt and general corporate purposes.

FES, FG, NG, AE Supply and AGC comply with the regulations, orders, policies and practices prescribed by the SEC, FERC, and applicable state regulatory authorities. In addition, NG and FENOC comply with the regulations, orders, policies and practices prescribed by the NRC.

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 the laws of the State of 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 the laws of the Commonwealth of 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 the State of 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 the laws of the State of 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 the laws of the State of 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 the laws of the State of 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 a hydroelectric generating facility.

ME was organized under the laws of the Commonwealth of Pennsylvania law in 1917 and owns property and does business as an electric public utility in that state. ME provides transmission and 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. Additionally, as discussed in "FERC Matters" below, ME transferred its transmission assets to MAIT on January 31, 2017.

PN was organized under the laws of the Commonwealth of Pennsylvania law in 1919 and owns property and does business as an electric public utility in that state. PN provides transmission and 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. Additionally, as discussed in "FERC Matters" below, PN transferred its transmission assets to MAIT on January 31, 2017.

PE was organized under the laws of the State of Maryland law in 1923 and in the Commonwealth ofunder Virginia law in 1974. PE is authorized to do business in the Commonwealth of Virginia, and the States of 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 the laws of the State of 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. As of December 31, 2016,2017, MP owned or contractually controlled 3,580 MWs of generation capacity that is supplied to its electric utility business. In addition, MP is contractually obligated to provide power to PE to meet its load obligations in West Virginia. Refer to "Regulated Generation" below for discussion of MP's RFPs to address its generation shortfall and to sell its interest in Bath County.

WP was organized under the laws of the Commonwealth of 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.

The Utilities comply with the regulations, orders, policies and practices prescribed by the SEC, FERC, NERC, and their respective state regulatory authorities (PUCO, PPUC, NJBPU, WVPSC, MDPSC, NYPSC, and VSCC).

ATSI was organized under the laws of the State of Ohio law in 1998. ATSI owns major, 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 the laws of the State of Maryland law and the Commonwealth of 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

MAIT was organized under the laws of the State of Delaware law in 2015. As discussed in "FERC Matters" below, ME and PN transferred their transmission facilities to MAIT on January 31, 2017. The assets transferred consist of approximately 4,2834,234 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.

Each of ATSI, MAIT and TrAIL plans, operates, and maintains its transmission system in accordance with NERC reliability standards, and other applicable regulatory requirements. In addition, each of ATSI, MAIT and TrAIL complies with the regulations, orders, policies and practices prescribed by the SEC, FERC and applicable state regulatory authorities.

FESC provides legal, financial and other corporate support services at cost, in accordance with its cost allocation manual, to affiliated FirstEnergy companies.

FirstEnergy's reportable operating segments are as follows: Regulated Distribution, Regulated Transmission and CES.

Additional information regarding FirstEnergy’s reportable segments is provided in "Item 7. Management'sItem 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations"Operations," and "NoteNote 19, Segment Information","Segment Information," of the Combined Notes to Consolidated Financial Statements. FES does not have separate reportable operating segments.

As of February 21, 2017,January 31, 2018, FirstEnergy’s competitive generating portfolio consists of 13,16212,303 MWs of electric generating capacity. Of the competitive generation asset portfolio, approximately 6,136 MWs (46.6%(49.9%) consist of coal-fired capacity; 4,048 MWs (30.8%(32.9%) consist of nuclear capacity; 713 MWs (5.4%(5.8%) consist of hydroelectric capacity; 1,592733 MWs (12.1%(6.0%) consist of oil and natural gas units; 496 MWs (3.8%(4.0%) consist of wind and solar power arrangements; and 177 MWs (1.3%(1.4%) consist of capacity entitlements to output from generation assets owned by OVEC. All units are located within PJM and sell electric energy, capacity and other products into the wholesale markets that are operated by PJM. Within CES' generation portfolio, 10,180 MWs consist of FES' facilities that are operated by FENOC and FG (including entitlements from OVEC, wind and solar power arrangements), and except for portions of Bruce Mansfield and Beaver Valley Unit 2 facilities that are subject to the sale and leaseback arrangements with non-affiliates for which the corresponding output of these arrangements is available to FES through power sales agreements, are all owned directly by NG and FG. Another 2,9822,123 MWs of the CES' portfolio consists of AE Supply's facilities, including AE Supply's entitlement to 713 MWs from AGC's interest in Bath County and 67 MWs of AE Supply's 3.01% entitlement from OVEC's generation output. As discussed below, AE Supply and AGC have agreed to sell to Aspen 1,572a subsidiary of LS Power 1,615 MWs of electric generating capacity, andcapacity. On December 13, 2017, AE Supply offeredcompleted the sale of its 1,300 MW Pleasants power station into MP's RFP process.four natural gas generating plants (859 MWs). The sale of the remaining 756 MWs of generating capacity

is expected to close in the first half of 2018. FES' generating facilities are concentrated primarily in Ohio and Pennsylvania and AE Supply's generating facilities are primarily located in Pennsylvania, West Virginia, Virginia and Ohio.

OverOn January 10, 2018, a fire damaged the pastscrubber, stack and other plant property and systems associated with Bruce Mansfield Units 1 and 2. Evaluation of the extent of the damage, which may be significant, to the scrubber, stack and other plant property and systems associated with Units 1 and 2 is underway and is expected to take several years, CES hasweeks. Unit 3, which had been impactedoff-line for maintenance, was unaffected by a prolonged decrease in demandthe fire. The affected plant property and excess generation supply insystems are insured and management is working with the PJM Region, which has resulted in a periodinsurance carriers to complete the assessment. At this time management is unable to estimate the financial effect of protracted low powerthe fire on Units 1 and capacity prices. To address this, CES sold or deactivated more than 6,770 MWs of competitive generation from 2012 to 2015. Additionally, CES has continued to focus on cost reductions, including those identified as part of FirstEnergy's previously disclosed cash flow improvement plan.2.

Additionally, on March 6, 2017, in connection with MP's RFP seeking additional generation capacity, AE Supply offered theand MP entered into an asset purchase agreement for MP to acquire AE Supply’s Pleasants power stationPower Station (1,300 MWs) for approximately $195 million, resulting from an RFP issued by MP to address its generation shortfall. On January 12, 2018, FERC issued an order denying authorization for the transaction, holding that MP and AE Supply did not demonstrate the sale was consistent with the public interest and the transaction did not fall within the safe harbors for meeting FERC’s affiliate cross-subsidization analysis. On January 26, 2018, the WVPSC approved the transfer of the Pleasants Power Station, subject to certain conditions as further described in "West Virginia Regulatory Matters," below, which remains pending.included MP assuming significant commodity risk. Based on the FERC ruling and the conditions included in the WVPSC order, MP and AE Supply terminated the asset purchase agreement and on February 16, 2018, AE Supply announced its intent to exit operations of the Pleasants Power Station by January 1, 2019, through either sale or deactivation, which resulted in a pre-tax impairment charge of $120 million.

Although FirstEnergyWith the sale of the gas plants completed, upon the consummation of the sale of AGC's interest in the Bath County hydroelectric power station or the sale or deactivation of the Pleasants Power Station, AE Supply is targeting mid-2018obligated under the amended and restated purchase agreement and AE Supply's applicable debt agreements, to exit competitive operations,satisfy and discharge approximately $305 million of currently outstanding senior notes as well as its $142 million of pollution control notes and AGC’s $100 million senior notes, which are expected to require the payment of “make-whole” premiums currently estimated to be approximately $95 million based on current interest rates. For additional information see "Outlook" below.

The strategic options forto exit the remaining portion of CES' generationthe CES portfolio, which is primarily at FES, are still uncertain, but could include one limited. The credit quality of FES, including its unsecured debt rating of Ca at Moody’s, C at S&P, and C at Fitch and the negative outlook from Moody’s and S&P, has challenged its ability to consummate asset sales. Furthermore, the inability to obtain legislative support under the Department of Energy’s recent NOPR, which was rejected by FERC, limits FES’ strategic options to plant deactivations, restructuring its debt and other financial obligations with its creditors, and/or moreto seek protection under U.S. bankruptcy laws.

As part of the following:

 

Each of the Utilities' retail rates, conditions of service, issuance of securities and other matters are subject to regulation in the states in which it operates - in Maryland by the MDPSC, in Ohio by the PUCO, in New Jersey by the NJBPU, in Pennsylvania by the PPUC, in West Virginia by the WVPSC and in New York by the NYPSC. The transmission operations of PE in Virginia are subject to certain regulations of the VSCC. In addition, under Ohio law, municipalities may regulate rates of a public utility, subject to appeal to the PUCO if not acceptable to the utility.

As competitive retail electric suppliers serving retail customers primarily in Ohio, Pennsylvania, Illinois,Maryland, Michigan, New Jersey and Maryland,Illinois, FES and AE Supply are subject to state laws applicable to competitive electric suppliers in those states, including affiliate codes of conduct that apply to FES, AE Supply and their public utility affiliates. In addition, if any of the FirstEnergy affiliates were to engage in the construction of significant new transmission or generation facilities, depending on the state, they may be required to obtain state regulatory authorization to site, construct and operate the new transmission or generation facility.

With respect to their wholesale services and rates, the Utilities, AE Supply, ATSI, AGC, FES, FG, MAIT, NG PATH and TrAIL are subject to regulation by FERC. Under the FPA, FERC regulates rates for interstate wholesale sales, transmission of electric power, accounting and other matters, including construction and operation of hydroelectric projects. FERC regulations require ATSI, JCP&L, MAIT, MP, PE, WP and TrAIL to provide open access transmission service at FERC-approved rates, terms and conditions. Transmission facilities of ATSI, JCP&L, MAIT, MP, PE, WP and TrAIL are subject to functional control by PJM and transmission service using their transmission facilities is provided by PJM under the PJM Tariff. See "FERC Matters" below.

FERC regulates the sale of power for resale in interstate commerce in part by granting authority to public utilities to sell wholesale power at market-based rates upon showing that the seller cannot exert market power in generation or transmission or erect barriers to entry into markets. The Utilities, AE Supply, FES and certain of its subsidiaries, Buchanan Generation and Green Valley each have been authorized by FERC to sell wholesale power in interstate commerce at market-based rates and have a market-based rate tariff on file with FERC, although major wholesale purchases remain subject to regulation by the relevant state commissions. As a condition to selling electricity on a wholesale basis at market-based rates, the Utilities, AE Supply, FES and certain of its subsidiaries, Buchanan Generation and Green Valley, like other entities granted market-based rate authority, must file electronic quarterly reports with FERC listing their sales transactions for the prior quarter. However, consistent with its historical practice, FERC has granted AE Supply, FES and certain of its subsidiaries, Buchanan Generation and Green Valley a waiver from certain reporting, record-keeping and accounting requirements that typically apply to traditional public utilities. Along with market-based rate authority, FERC also granted AE Supply, FES and certain of its subsidiaries, Buchanan Generation and Green Valley blanket authority to issue securities and assume liabilities under Section 204 of the FPA.

The nuclear generating facilities owned and leased by NG OE and TE, and operated by FENOC are subject to extensive regulation by the NRC. The NRC subjects nuclear generating stations to continuing review and regulation covering, among other things, operations, maintenance, emergency planning, security, environmental and radiological aspects of those stations. The NRC may modify, suspend or revoke operating licenses and impose civil penalties for failure to comply with the Atomic Energy Act, the regulations under such Act or the terms of the licenses. FENOC is the licensee for the operating nuclear plants and has direct compliance responsibility for NRC matters. FES controls the economic dispatch of NG’s plants. See Nuclear Regulation"Nuclear Regulation" below.

Federally-enforceable mandatory reliability standards apply to the bulk electric system and impose certain operating, record-keeping and reporting requirements on the Utilities, FES and certain of its subsidiaries, AE Supply, FENOC, ATSI, MAIT and TrAIL. NERC is the ERO designated by FERC to establish and enforce these reliability standards, although NERC has delegated day-to-day implementation and enforcement of these reliability standards to eight regional entities, including RFC. All of FirstEnergy's facilities are located within the RFC region. FirstEnergy actively participates in the NERC and RFC stakeholder processes, and otherwise monitors and manages its companies in response to the ongoing development, implementation and enforcement of the reliability standards implemented and enforced by RFC.

FirstEnergy, including FES, believes that it is in compliance with all currently-effective and enforceable reliability standards. Nevertheless, in the course of operating its extensive electric utility systems and facilities, FirstEnergy, including FES, occasionally learns of isolated facts or circumstances that could be interpreted as excursions from the reliability standards. If and when such occurrences are found, FirstEnergy, including FES, develops information about the occurrence and develops a remedial response to the specific circumstances, including in appropriate cases “self-reporting” an occurrence to RFC. Moreover, it is clear that NERC, RFC and FERC will continue to refine existing reliability standards as well as to develop and adopt new reliability standards. Any inability on FirstEnergy's, including FES, part to comply with the reliability standards for its bulk electric system could result in the imposition of financial penalties, and obligations to upgrade or build transmission facilities, that could have a material adverse effect on its financial condition, results of operations and cash flows.

FirstEnergy accounts for the effects of regulation through the application of regulatory accounting to the Utilities, AGC, ATSI, PATHMAIT and TrAIL since their rates are established by a third-party regulator with the authority to set rates that bind customers, are cost-based and can be charged to and collected from customers.

The Utilities, AGC, ATSI, PATHMAIT and TrAIL recognize, as regulatory assets and regulatory liabilities, costs which FERC and the various state utility commissions, as applicable, have authorized for recovery/return from/to customers in future periods or for which authorization is probable. Without the probability of such authorization, costs currently recorded as regulatory assets and regulatory liabilities would have been charged to income as incurred. All regulatory assets and liabilities are expected to be recovered/returned from/to customers. Based on current ratemaking procedures, the Utilities, AGC, ATSI, PATHMAIT and TrAIL continue to collect cost-based rates for their transmission and distribution services and, in the case of PATH, for its abandoned plant, which remains regulated;services; accordingly, it is appropriate that the Utilities, AGC, ATSI, PATHMAIT and TrAIL continue the application of regulatory accounting to those operations. Regulatory accounting is applied only to the parts of the business that meet the above criteria. If a portion of the business applying regulatory accounting no longer meets those requirements, previously recorded net regulatory assets or liabilities are removed from the balance sheet in accordance with GAAP.

requirements in the areas of storm response, feeder performance, estimates of restoration times, and regulatory reporting, as well as the imposition of penalties, including customer rebates, for a utility's failure or inability to comply with the escalating standards of storm restoration speed proposed by the Staff of the MDPSC. In addition, the Staff of the MDPSC proposed that the Maryland utilities be required to develop and implement system hardening plans, up to a rate impact cap on cost. The MDPSC conducted a hearing September 15-18, 2014, to consider certain of these matters, and has not yet issued a ruling on any of those matters.

Pursuant to the NJBPU's March 26, 2015 final order in JCP&L's 2012 rate case proceeding directing that certain studies be completed, on July 22, 2015, the NJBPU approved the NJBPU staff's recommendation to implement such studies, which includeincluded operational and financial components. The independent consultant conducting the review issued a final report on July 27, 2016, recognizing that JCP&L is meeting the NJBPU requirements and making various operational and financial recommendations. The NJBPU issued an Order on August 24, 2016, that accepted the independent consultant’s final report and directed JCP&L, the Division of Rate Counsel and other interested parties to address the recommendations.

On January 31, 2018, the NJBPU instituted a proceeding to examine the impacts of the StipulationTax Act on the rates and charges of SettlementNew Jersey utilities. JCP&L must track and apply regulatory accounting treatment for the intervening parties agreed that JCP&L can accelerate the amortization of the 2012 major storm expenses (approximately $19 million annually) that are recovered through the SRC to achieve full recovery by December 31, 2019. On November 23, 2016, JCP&L filed an Amendment to itsimpacts effective January 15, 2016 SRC Filing1, 2018, and file a petition with the NJBPU requesting that JCP&L be able to accelerateby March 2, 2018, regarding the amortizationexpected impacts of the 2012 major stormTax Act on JCP&L’s expenses as agreedand revenues and how the effects will be passed through to in the Stipulation of Settlement, and a Stipulation of Settlement with NJBPU Staff and the Division of Rate Counsel regarding the SRC Filing was filed on December 27, 2016. The NJBPU approved this Stipulation of Settlement at the January 25, 2017 public meeting.its customers.