SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) October 21, 2003
Commission Registrant; State of Incorporation; I.R.S. Employer
File Number Address; and Telephone Number Identification No.
----------- --------------------------------------- ------------------
333-21011 FIRSTENERGY CORP. 34-1843785
(An Ohio Corporation)
76 South Main Street
Akron, Ohio 44308
Telephone (800)736-3402
1-2578 OHIO EDISON COMPANY 34-0437786
(An Ohio Corporation)
76 South Main Street
Akron, OH 44308
Telephone (800)736-3402
1-2323 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY 34-0150020
(An Ohio Corporation)
c/o FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Telephone (800)736-3402
1-3583 THE TOLEDO EDISON COMPANY 34-4375005
(An Ohio Corporation)
c/o FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Telephone (800)736-3402
Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits
(c) Exhibits
Exhibit No. Description
----------- -----------
99 Comparison of Proposed Rate Stabilization Plan versus
Current Restructuring Plan
Item 9. Regulation FD Disclosure
On October 21, 2003, FirstEnergy Corp.'s Ohio electric utility
operating companies (Companies) filed an application to establish generation
service rates beginning January 1, 2006, in response to expressed concerns of
the Public Utilities Commission of Ohio (PUCO) about price and supply
uncertainty following the end of the market development period.
Background
----------
On July 19, 2000, the PUCO approved an electric restructuring plan
for Ohio Edison Company (OE), The Cleveland Electric Illuminating Company (CEI)
and The Toledo Edison Company (TE). In its approval, the PUCO adopted a
settlement that was signed on April 17, 2000, by the major parties to
FirstEnergy's electric restructuring proceeding, and modified on May 9, 2000, by
FirstEnergy and several intervenors.
The approved restructuring plan contained provisions that provided a
variety of customer rate benefits and incentives for customers to contract with
competitive suppliers for their energy supply, and allowed the utilities an
opportunity to recover transition costs. The Companies' obligation to provide
generation service at the current fixed tariff rate terminates at year-end 2005.
Additionally, the Companies' delivery rates are frozen until year-end 2007 under
the existing restructuring plan. The Application filed today to establish
electric generation service rates beginning January 1, 2006, was in response to
expressed concerns of the PUCO about price and supply uncertainty following the
end of the market development period.
Application Proposal
--------------------
In the Application, the Companies propose to either (1) establish a
competitive bidding process to determine standard offer generation service rates
as of January 1, 2006 under which the prices for generation services would be
determined by then current market prices, or (2) implement a comprehensive Rate
Stabilization Plan (Plan) designed to provide stable long-term competitive
pricing of energy services for their customers, assure supplies of electricity
and enhance economic development within their service areas.
Brief descriptions of some of the key elements of the Application's
two options follow.
The Competitive Bid Process (Alternative 1) - The competitive bid process
alternative would establish generation prices based upon a competitive bid to be
undertaken probably during 2005. The bid prices would be for full service, i.e.,
would include provider of last resort (POLR) responsibility, and would be passed
on to customers without markup by the Companies, except for costs incurred. The
Companies believe that a process much like the Basic Generation Service (BGS)
auction process established in New Jersey would work well in these instances.
Generally, under the process proposed, the entire load of the
Companies, including loads served under contracts that could be terminated by
the customer and by alternative suppliers, would be bid to the market. The
suppliers would be responsible for whatever portion of generation service they
have committed to supply, plus or minus the proportion of increased or decreased
requirements that may be demanded by customers at a fixed price for the period.
In other words, the suppliers would have a full
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service requirement obligation to the customer and would assume all of the
related supply risks and costs.
Under this proposed alternative, price and supply risk is shifted to
customers, although there would be recourse against suppliers that fail to meet
their contractual obligations. In such instances of supplier failure, the
Companies' obligation would be to acquire the supplies necessary to cover the
default or shortfall at the then current market prices, and they would be
permitted to recover the costs in a timely manner.
Under this proposed alternative, the Companies' current restructuring
plans are unaffected and all of their tariff and other plan provisions continue
to operate as approved by the PUCO in 2000.
The Rate Stabilization Plan (Alternative 2) - Under the Rate Stabilization Plan
option, the Companies would continue to be obligated to provide full service to
customers, thus assuring customers of an adequate supply of electricity, while
giving customers the opportunity to select alternative suppliers and the
opportunity to receive lower market prices based upon a competitive bid
provision within the Plan. Further, the Plan stabilizes the price customers pay
for electricity by essentially maintaining current prices through 2008, subject
to limited adjustments, and continues in effect rate discounts that otherwise
would have expired.
The Plan represents the Companies' attempt to put in place a
comprehensive program to address the PUCO's expressed concerns regarding rising
power prices should competitive electric markets not fully develop before the
current generation price caps end at year-end 2005. The Plan protects consumers
from price volatility and supply concerns, while still providing the benefits of
a competitive marketplace.
The Rate Stabilization Plan consists of four principal elements:
1. Maintenance of current generation rates, subject to limited
exceptions, for the Plan period which is from the end of the
market development period (year-end 2005) through the earlier of
year-end 2008 or termination of the Plan;
2. Continuation of certain rate discounts that otherwise would have
expired;
3. A stable generation price and a competitive bidding process,
which could pass on to customers any additional market-based
savings that may be available during the period; and
4. Modification, continuation and implementation of specified
regulatory accounting practices.
In effect, the Plan attempts to ensure that customers would pay no
higher than today's prices for generation, with certain limited exceptions,
while retaining the option to pay less through the competitive bidding process.
The following constitutes only a summary of the Plan and is qualified
in its entirety by reference to the Plan.
o Generation Rate (little g) - effective 1/1/06, shall equal the
12/31/05 charge and may be adjusted within certain limits for
net cost increases above 2002 reference year levels for fuel
(including emission allowances consumed), fuel disposal, nuclear
security, environmental, regulatory costs, or taxes, subject to
an annual cap.
o Residential Rate Credits - continuation of the 5% generation
credit and the monthly customer charge credit.
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o Competitive Bidding Process - no more often than annually, the
PUCO may undertake or cause the Companies to undertake a
competitive bid process to test the generation price provided for
under the Plan against market prices.
o Distribution Rate - continues to be frozen through 2007 with
limited exceptions.
o Transmission Rate - effective 1/1/06, may be adjusted to FERC
approved rates or charges.
o Generation Transition Charge (GTC) - expires at the end of 2005
as originally scheduled; beginning 1/1/04 through 12/31/05, the
GTC rate will be reduced to include the 5% residential
generation credit and the monthly residential customer charge
credit.
o Rate Stabilization Charge (RSC) - effective 1/1/06, customers
will pay a non-bypassable RSC, equal to the charge previously
attributable to the unbundled GTC, before inclusion of the
residential rate credits.
o Regulatory Transition Charge (RTC) - shall continue to be in
effect through the earlier of specific kilowatt-hour sales
targets for each Company or the end of 2007 for OE, the end of
2008 for TE, and the end of 2009 for CEI; beginning 1/1/06
through the end of the RTC collection period, the rate will be
reduced to reflect the continuation of the residential rate
credits that were included in the GTC charge.
o Extended Regulatory Transition Charge (Extended RTC) - effective
at the expiration of the RTC charge and continues until the
shopping credit incentive deferrals and other deferrals created
by the Plan are recovered but no later than December 31, 2010.
o Shopping Credits - effective 1/1/06, the shopping credit shall
equal the generation charge. The shopping credit will be
increased to include 65% of the RSC for government aggregators
and commercial/industrial customers that enter full-service
contracts with an alternative provider prior to 12/31/04 for the
three-year period of 1/1/06 through 12/31/08.
o Deferred Shopping Incentives and Other Plan Deferrals - the
deferrals created will be recovered through the Extended RTC;
upon approval of the Plan, the Companies will begin to accrue
and defer interest upon the deferred balances, which will be
recovered through the Extended RTC.
o Market Support Generation (MSG) - continuation of the MSG
program if shopping levels after 1/1/06 are not at least 20% by
customer class.
o Amortization Schedule - other than the deferred shopping
incentives and other deferrals created by the Plan, all
regulatory transition costs will be fully amortized from 1/1/04
through the RTC period reflecting the use of the effective
interest (mortgage-style) amortization method; the deferred
costs recovered by the Extended RTC will be amortized on a
dollar-for-dollar basis as the Extended RTC revenues are
received.
o Energy Efficiency - the Companies will make available $1.25
million per year in grants from 2006 through 2008.
o Economic Development - commencing 1/1/06 through 12/31/08,
the Companies will make available up to $5 million during the
term of the Plan.
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o Early Termination Provisions - PUCO has the authority to
terminate the plan early with one-year's notice if they decide
to accept the results of the competitive auction for generation
or for any other reason; the termination of the Plan shall not
affect the recovery of regulatory transition costs, including
deferrals created by the terms of the Plan.
Exhibit 99 is a summary comparing the key elements of the Plan to the
current restructuring Plan.
Benefits of the Rate Stabilization Plan
---------------------------------------
The Plan is expected to introduce significant customer benefits and
consumer protection elements:
o Customer savings totaling about $285 million through 2010 by
extending the five-percent discount on generation costs,
currently slated to expire in 2006, and other monthly customer
credits.
o Protection for an additional three years from market volatility
by continuing current generation prices, with limited
exceptions, through 2008.
o Provisions to support shopping for customers who sign generation
supply contracts for the three-year period covered by the Plan.
o Market-based auctions that may be conducted annually to ensure
that customers pay the lowest available prices.
o PUCO authority to end the plan with one-year's notice for any
reason.
o Continuation of the distribution rate freeze through 2007.
o Extension of FirstEnergy's support of energy-efficiency programs
with up to $1.25 million contributed annually, and up to $5
million in economic development support during the term of the
Plan.
o A continuation of the Market Support Generation program if the
Companies do not maintain at least 20-percent shopping by
customer class.
From a business perspective, the Plan also provides important
benefits:
o Timely action on the Application by the PUCO will allow
FirstEnergy to begin making generation and supply-related
decisions for the post-2005 period.
o Under the Plan, FirstEnergy will have the opportunity to file
for recovery of increases in certain costs, such as fuel,
environmental, nuclear security, and regulatory costs.
o The Plan is expected to produce a more secure and predictable
stream of earnings and cash flow. However, the Plan requires
FirstEnergy to forgo the upside benefit of a potential
high-priced generation market while retaining the downside impact
of a potential low-priced generation market due to the
termination option.
FirstEnergy continues to retain the POLR obligation for the former
GPU operating subsidiaries in Pennsylvania through 2010. Although FirstEnergy
has secured much of the on-peak energy needed to meet this obligation through
2005, approval of the Plan would require FirstEnergy to secure additional
sources of supply for the 2006 to 2008 period. A full range of alternatives will
be evaluated to ensure
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effective management of the POLR supply requirements for these companies, which
have an average fixed generation tariff rate of approximately 4.6 cents per
kilowatt-hour.
The Plan is consistent with FirstEnergy's business strategy and
produces important benefits for both consumers and FirstEnergy and the
Companies. FirstEnergy is hopeful that the PUCO will approve the Plan in a
timely manner and has requested such approval by December 31, 2003.
Forward-Looking Statement: This Form 8-K includes forward-looking statements
based on information currently available to management. Such statements are
subject to certain risks and uncertainties. These statements typically contain,
but are not limited to, the terms "anticipate," "expect," "believe," "estimate,"
and similar words. Actual results may differ materially due to the speed and
nature of increased competition and deregulation in the electric utility
industry, economic or weather conditions affecting future sales and margins,
changes in markets for energy services, changing energy and commodity market
prices, replacement power costs being higher than anticipated or inadequately
hedged, maintenance costs being higher than anticipated, legislative and
regulatory changes (including revised environmental requirements), adverse
regulatory or legal decisions, availability and cost of capital, inability of
the Davis-Besse Nuclear Power Station to restart (including because of any
inability to obtain a favorable final determination from the Nuclear Regulatory
Commission) in the fall of 2003, inability to accomplish or realize anticipated
benefits of strategic goals, the ability to access the public securities
markets, further investigation into the causes of the August 14, 2003 regional
power outage and the outcome, cost and other effects of present and potential
legal and administrative proceedings and claims related to that outage, a denial
of or material change to the Companies' Application related to the Rate
Stabilization Plan, and other factors discussed from time to time in
FirstEnergy's Securities and Exchange Commission filings, including their annual
reports on Form 10-K (as amended) for the year ended December 31, 2002, their
Forms 10-Q for the quarter ended June 30, 2003 and under "Risk Factors" in
FirstEnergy's Prospectus Supplement dated September 12, 2003 to the Prospectus
dated August 29, 2003 (which was part of the Registration Statement-SEC File No.
333-103865) and other similar factors.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, each Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
October 21, 2003
FIRSTENERGY CORP.
-----------------
Registrant
OHIO EDISON COMPANY
-------------------
Registrant
THE CLEVELAND ELECTRIC
----------------------
ILLUMINATING COMPANY
--------------------
Registrant
THE TOLEDO EDISON COMPANY
-------------------------
Registrant
/s/Harvey L. Wagner
--------------------------------
Harvey L. Wagner
Vice President, Controller
and Chief Accounting Officer
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