Fitch Affirms Jersey Central Power, Met-Ed & Penelec; Outlook Stable

JCP&L

--IDR at 'BBB';

--Senior secured at 'A-';

--Senior unsecured at 'BBB+' ;

--Short-term IDR at 'F2';

Met-Ed

--IDR at 'BBB-';

--Senior secured at 'BBB+';

--Senior unsecured at 'BBB';

--Short-term IDR at 'F3';

Penelec

--IDR at 'BBB-';

--Senior secured at 'BBB+' ;

--Senior unsecured at 'BBB';

--Short-term IDR at 'F3'.

The Rating Outlook for all three entities is Stable. Approximately $3.6 billion of debt is affected.

The ratings of JCP&L, Met-Ed and Penelec are based on the companies' stable and predictable cash flows as regulated transmission and distribution (T&D) electric utilities, interest and coverage measures consistent with or above average for rating category guidelines and reasonably constructive regulatory environments in New Jersey and Pennsylvania.

The ratings also take into consideration JCP&L, Met-Ed and Penelec's linkage to parent company, FirstEnergy (FE; IDR rated 'BBB' with a Stable Outlook by Fitch), as FE manages its regulated operating subsidiaries as a system from an organizational, operational and liquidity perspective. Furthermore, FE is highly dependent on its regulated utilities for upstream cash distributions to support parent level debt obligations and working capital requirements.

Fitch plans to complete a comprehensive review of FE and its other subsidiaries in early 2009 following resolution to the Ohio companies' regulatory plans. Additional rating concerns facing MetEd and Penelec relate to the expiration of company-specific transition plans by year-end 2010 as Pennsylvania progresses towards a deregulated market for generation.

The Stable Outlook reflects Fitch's expectation that JCP&L, Met-Ed and Penelec will continue to benefit from predictable and consistent cash flows and post credit metrics commensurate with their respective ratings. Fitch also anticipates that current legislation in New Jersey and the pending transition to deregulation in Pennsylvania will not negatively impact the overall balanced nature of regulation in those states.

As providers of last resort (POLRs), Med-Ed's and Penelec's generation rates have been capped at approximately $46.00/MWh through 2010. Beginning Jan. 1, 2009, approximately 52% of MetEd's and Penelec's POLR supply requirement is met through bilateral contracts with third parties and the balance is provided by its affiliate, First Energy Solutions (FES) under a power purchase agreement (PPA). This PPA is structured at a fixed rate of $41.50, which is the utilities' current rate (before applying losses and taxes) but is below market prices, and automatically extends for successive one-year terms unless either party gives 60 days' notice prior to the end of the year. Neither party has provided such notice to date; however, if Met-Ed or Penelec were forced to replace the FES supply at current market prices without regulatory approval to increase generation rates, their credit ratings would be considerably pressured.

FE's capital spending for 2008-2012 is expected to be approximately $7.6 billion, of which approximately $2.1 billion applies to 2008. Management is currently reviewing its 2009 plans to determine what adjustments should be made to operating and capital budgets in response to the economic climate to reduce the need for external sources of capital. Management plans to reassess the economic value of discretionary projects; however, it expects to continue to meet commitments for required capital projects and necessary operational expenditures.

JCP&L, Met-Ed and Penelec are wholly-owned subsidiaries of FE, providing electric T&D service to approximately 2.2 million customers in New Jersey and Pennsylvania.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.

SOURCE: Fitch Ratings

Fitch Ratings Karen Anderson, +1-312-368-3165 (Chicago) Glen Grabelsky, +1-212-908-0577 (New York) Sandro Scenga, +1-212-908-0278 (Media Relations, New York) sandro.scenga@fitchratings.com