Fitch Rates Metropolitan Edison's Senior Notes 'BBB'; Outlook Stable.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 22, 2004

Fitch Ratings has assigned a 'BBB' rating to Metropolitan Edison's (MetEd) proposed $200 million offering of senior notes. While the senior notes will be secured initially, the new issuance will trigger the indenture's fall-away provisions. As a result, the rating reflects the senior notes' anticipated lien release and unsecured status immediately following the issuance. In addition, Fitch expects to change the rating of MetEd's currently outstanding senior notes to 'BBB' from 'BBB+', after the release of this collateral. Proceeds from the offering will be used to redeem $100 million of trust preferred securities and reduce short-term debt. The senior notes are to be sold under Rule 144A of the Securities Act to qualified institutional investors. The Rating Outlook is Stable.

The rating reflects MetEd's relatively predictable distribution utility cash flows and strong cash coverage ratios relative to interest and total debt. The rating also considers MetEd's linkage with its corporate parent, FirstEnergy Corporation (FE - senior unsecured debt rated 'BBB-' by Fitch). Notably, MetEd has no stand-alone credit facilities and relies entirely on FE and its affiliates' shared money pool to meet its short-term working capital and financing requirements. Furthermore, as discussed below, MetEd relies on a contract with affiliate FirstEnergy Solutions (FES) for a significant portion of its power supply requirements and to hedge its fixed price provider of last resort (POLR) obligation.

This dependence on FE and its affiliates to meet its liquidity and power requirements results in more closely aligned ratings within the FE group. After the lien release, all of the senior notes (approximately $600 million, assuming $200 million of notes are issued) will be subordinate to $120 million of existing first mortgage debt, most of which will mature by 2008. The indenture of the senior notes also permits the company to issue incremental secured debt (subject to limitations) that rank ahead of the senior notes and to refinance the maturing first mortgage bonds with like instruments.

The primary concern is commodity risk associated with the utility's capped rates and POLR responsibility under the company's Pennsylvania Public Utility Commission-approved retail competition restructuring plan. MetEd's commodity risk exposure is mitigated, in part, by the company's wholesale energy contract with its unregulated energy supply affiliate, FirstEnergy Solutions (FES). The contract has a one-year term that is expected to be renewed annually.

Under the terms of MetEd's restructuring plan, stranded costs will be recovered under capped rates and its POLR responsibility will remain in effect through 2010. If MetEd's stranded costs are not recovered by December 31, 2010, cost recovery through its Competitive Transition Charge is expected to continue until all stranded costs are recovered.