PUCO: FirstEnergy Rate Certainty Plan

Ohio Edison Company, Cleveland Electric Illuminating Company and Toledo Edison Company (collectively “FirstEnergy”) filed an application for authority to implement a Generation Charge Adjustment Rider (GCAR) beginning in 2006 (Case No. 05-704-EL-ATA). The purpose of the GCAR would allow the FirstEnergy companies to recover increased furl costs. Perhaps in response to the controversy caused by the GCAR filing, FirstEnergy then filed an application for approval of a Rate Certainty Plan (RCP) on September 9, 2005 Cases Nos. 05-1125-EL-ATA. FirstEnergy entered into a stipulation as to the terms of the plan. Under the proposed RCP, FirstEnergy would seek authority to implement fuel increases, decrease the RTC rate component in an equivalent amount to the fuel cost increase and extend the recovery period.

Ultimately the PUCO approved the stipulation with modification. Below is a summary of the terms of the stipulation and PUCO orders:

• The distribution rates will remain the same such that no increase in distribution rates may be effective until January 1, 2009 for Ohio Edison (OE) and Toledo Edison (TE) and May 1, 2009 for Cleveland Electric Illuminating Company (CEI).

• The RTC and Extended RTC recovery periods and rate levels will be adjusted such that OE and TE will have recovered the full amounts authorized by the PUCO by December 31, 2008 and CEI will have recovered the full amounts by December 31, 2010.

• Recovery for OE and TE will begin on January 1, 2006. Of the total revenues collected (before residential credits) 30 percent of that amount for OE and 15 percent for TE specifically recovers the Extended RTC and the associated regulatory asset amortization. The balance will be used for the recovery of transition costs based on usage through December 31, 2008.

• CEI’s RTC rate will not change, but will be reduced by approximately 30 to 35 percent once its transition costs are recovered. Recovery should be completed by April 30, 2009. CEI’s RTC rate components will be at a reduced level to allow full recovery of all Extended RTC.

• FirstEnergy will reduce deferred shopping incentive balance as of January 1, 2006 by $75 million for OE, $45 million for TE and $85 million for CEI.

• As to the 2007 fuel recovery mechanism, the PUCO found that the price to beat or the evaluation of the price range should be developed in the auction proceeding and should be reflective of actual costs anticipated to be incurred.

• The certain expenditures will be deferred and capitalized from January 1, 2006 through December 31, 2008 (“Distribution Deferrals”). The Distribution Deferrals shall not exceed $150 million in 2006 through 2008. The amounts deferred will be recovered in distribution rates beginning January 1, 2009 for OE and TE and May 1, 2009 for CEI. FirstEnergy is to establish separate accounts for each of the projects established under the stipulation. Prior to distribution deferrals being booked, FirstEnergy must provide staff on an annual basis a demonstration of the usage of expense amounts included in current rates along with documentation that the amounts claimed is in excess of the amounts of the current rates. The results of the annual review will be considered in the next distribution rate case.

• Special contracts will remain in effect until the customer’s meter read date in November 2007 for OE, February 2008 for TE and December 2008 for CEI.

PUCO: FirstEnergy Competitive Bid Process

In December 2004, the first competitive bid process auction for FirstEnergy took place. Based upon the auction results as compared to the rate stabilization plan, the PUCO found that the final auction price of 5.45 cents per kWh should be rejected. However, the PUCO noted “the auction showed that there are bidders available to supply the load of FirstEnergy territory. The indicative offers sufficiently covered the retail load being bid and the auction cleared the first round successfully.” The PUCO “will analyze the process, procedure and substance of the auction, as well as consider another auction next year for the remaining two years of the RSP.”

On July 22, 2005, FirstEnergy filed an application for approval of the 2005 competitive bid process for its 2007-2008 retail electric load. The filing consisted of an application, supplier master agreement, auction rules, price matrix and reconciliation mechanism, communications protocol, and schedule. The PUCO approved the application with modification. The auction was to commence on March 21, 2006. However, on February 23, 2006, the Auction Manager notified the PUCO that there was insufficient interest to proceed with the auction, and consequently the competitive bid process was not able to proceed to the next stage.

PUCO: Dayton Power & Light Company’s Distribution Rate Increase

On September 3, 2003, the PUCO approved Dayton Power & Light Company’s (DP&L) rate stabilization plan (RSP), which established a rate stabilization period of January 1, 2006 through December 31, 2006. This allowed DP&L to assess a rate stabilization surcharge (RSS) rider of up to 11 percent of its generation charges over a three year period. DP&L filed an application for authority to increase rates and to establish the RSS Rider. The PUCO approved a partial stipulation, which included the following provisions:

• The rate stabilization period would be extended through December 31, 2010.

• DP&L’s RSS Rider would increase to 11 percent of its January 1, 2004 tariff generation rates, which would allow DP&L to increase its revenues by $76,250,127.

• DP&L would provide market-based standard service rates fixed in the stipulation throughout the extended rate stabilization period.

• The 5 percent residential generation discount provided in Senate Bill 3 would continue through December 31, 2008, and the 2.5 percent residential generation discount provided for in the RSP stipulation would be in effect from January 1, 2006 through December 31, 2008.

• Starting January 1 of each year from 2007 through 2010, DP&L would implement an Environmental Investment Rider (EIR) that would allow DP&L to recover environmental plant investments and incremental operations and maintenance, depreciation, and tax costs during the rate stabilization period. This would increase each year by 5.4 percent. The increase would be avoidable by switching customers in 2009 and 2010. The EIR would be implemented through an application to revise its tariff (ATA), which would be subject to staff review for the limited purpose of confirming that the filing implements the rates provided for by the stipulation.

• The provisions of the RSP stipulation that were not superseded by the current stipulation would remain in effect, including the provision that the PUCO may terminate the RSP and trigger a competitive bidding process if the market-based rates do not reflect the rates established in the stipulation.

• The Voluntary Enrollment Procedure established in the RSP stipulation would continue through 2007.

• If subsequent legislation affects the terms of the stipulation, the parties would engage in good faith negotiations to comply with the legislation and preserve the economic benefits of the stipulation.

PUCO: Cincinnati Gas & Electric Company’s Distribution Rate Increase

As agreed in the rate stabilization plan stipulation, Cincinnati Gas & Electric (CG&E) refiled an application for a distribution base rate increase of approximately $78.5 million. All the parties were able to resolve the issues on December 6, 2005, and a joint stipulation was filed. The stipulation provided for, among other things, a $51.5 million rate increase in CG&E electric distribution rates. The stipulation also required CG&E to withdraw its request for a Capital Investment Rider (CIR). It was estimated that the proposed CIR would have amounted to approximately $15 million per year, or approximately a 5 percent in distribution rates. CG&E also agreed not to make a future request for the CIR in any proceeding before January 1, 2007.

The PUCO approved the stipulation in c2005. The new rates became effective January 1, 2006 for services rendered on or after January 1, 2006.

PUCO: Cinergy Corp./Duke Energy Corp.

Deer Holding Corp. (now known as Duke Energy Holding Corp.) and Cinergy Corp., on behalf of Cincinnati Gas & Electric Company (CG&E), filed a joint application on June 10, 2005 for PUCO approval of the acquisition of Cinergy Corp. by Duke Energy Holding Corp. The application provided that Duke Energy Holding Corp. would acquire Cinergy Corp. Duke Energy Corporation and Cinergy Corp. would become wholly owned subsidiaries of Duke Energy Corporation. The applicants also requested authority to implement a rate credit to share net merger savings with its customers, and to defer merger-related transaction costs and costs to achieve merger savings.

The PUCO approved the merger with the following modifications and conditions:

• The rate credit of $35,785,700 is subject to a true up after December 31, 2006. CG&E was directed to submit an accounting of all rate credits that were actually distributed to customers no later than January 1, 2007. CG&E must notify the PUCO within five days of the terms and approval of the merger granted by other states. For merger-related expenses that are not netted against merger savings, CG&E may demonstrate such costs in subsequent rate proceedings. However, the PUCO denied the request for authority to defer costs.

• While the PUCO adopted the staff’s recommendation as to electric service reliability, the PUCO noted that it is not precluded from ordering CG&E to make additional expenditures to improve service quality. The PUCO also noted that the merger would not impair its authority to ensure safe and reliable natural gas service.

• The PUCO also adopted the staff’s recommendation that CG&E must retain company officials in Ohio with the authority to resolve consumer complaints mediated by the PUCO and its staff. The PUCO directed that CG&E must also have the ability to remotely monitor all Ohio-specific customer service calls.

• In addition, the PUCO order CG&E to arrange a collaborative workshop to take place three months after the merger closes. The purpose of the workshop would be to discuss issues related to CG&E’s natural gas choice program.

• The PUCO adopted the staff’s recommendation and directed CG&E to purchase receivables of competitive natural gas and electric marketers without a discount.

• The PUCO also approved CG&E’s request to implement a rider to recover gas and electric uncollectible expenses associated with disconnected or final accounts.

PUCO: Cincinnati Gas & Electric Company System Reliability Tracker

CG&E filed an application for approval of a System Reliability Tracker (SRT) as an unavoidable surcharge to all of its customers, regardless of whether they had alternate energy suppliers. This case is an outgrowth of the Rate Stabilization Plan decisions in Case No. 03-93-EL-ATA, in which the PUCO approved the SRT. CG&E filed an application to set the SRT in Case No. 04-1820-GE-ATA. The PUCO approved the SRT subject to true up in February. They ordered CG&E to file a proceeding no later than June 1, 2005 to determine whether or not the SRT should be unavoidable in light of the commencement of the MSO Day 2 market.

A summary of the approved stipulation is as follows:

• The stipulation provided that nonresidential customers who will sign a contract or will provide a release indicating that they will remain off the Market Based Standard Service Offer through December 31, 2008, may avoid the SRT.

• CG&E will calculate the SRT for the first quarter of 2006 using a planning reserve margin of 15 percent of the projected retail load not eligible to avoid the SRT on January 31, 2006. CG&E will reconcile the calculation in its second quarter filing. The SRT estimate given by CG&E in the case approximately two mills per kilowatt-hour.

• The 2006 SRT will be adjusted and reconciled quarterly. The SRT costs will be divided into separate pools allocable to residential and nonresidential customers, with 57.618 percent allocated to nonresidential customers’ pool.

• PUCO staff will audit the SRT transactions, which will be filed in this docket at which time interested parties may request a hearing regarding such audit.

• As a result of Cinergy’s merger with Duke Energy North America, the stipulation provided that CG&E cannot use the Duke assets as part of the SRT unless it receives PUCO approval.