As filed with the Securities and Exchange Commission on February 6, 1997.
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: January 30, 1997
(Date of earliest event reported)
Commission Registrant; State of Incorporation; I.R.S. Employer
File Number Address; and Telephone Number Identification No.
1-9130 CENTERIOR ENERGY CORPORATION 34-1479083
(An Ohio Corporation)
6200 Oak Tree Boulevard
Independence, Ohio 44131
Telephone (216) 447-3100
1-2323 THE CLEVELAND ELECTRIC 34-0150020
ILLUMINATING COMPANY
(An Ohio Corporation)
c/o Centerior Energy Corporation
6200 Oak Tree Boulevard
Independence, Ohio 44131
Telephone (216) 622-9800
1-3583 THE TOLEDO EDISON COMPANY 34-4375005
(An Ohio Corporation)
300 Madison Avenue
Toledo, Ohio 43652
Telephone (419) 249-5000
This combined Form 8-K is separately filed by Centerior Energy
Corporation ("Centerior"), The Cleveland Electric Illuminating Company
("Cleveland Electric") and The Toledo Edison Company ("Toledo Edison").
Centerior, Cleveland Electric and Toledo Edison are sometimes referred
to collectively as the "Companies". Cleveland Electric and Toledo
Edison are sometimes referred to collectively as the "Operating
Companies". Information contained herein relating to any individual
registrant is filed by such registrant on its behalf. No registrant
makes any representation as to information relating to any other
registrant, except that information relating to either or both of the
Operating Companies is also attributed to Centerior.
Centerior has made forward-looking statements in this Form 8-K regarding
the merger with Ohio Edison Company ("Ohio Edison") herein referred to
and the associated regulatory plan, which statements are subject to
risks and uncertainties, including the impact on the Companies if: (1)
competitive pressure in the electric utility industry increases
significantly;(2) state and federal regulatory initiatives are
implemented that increase competition, threaten costs and investment
recovery and impact rate structures; (3) the effects of unanticipated
events on the Operating Companies' expectations regarding cost recovery
over the regulatory plan period or on the carrying value of regulatory
assets and on the Operating Companies' ability to continue to comply
with the provisions of SFAS 71 (as defined herein) cause an impairment
of property, plant and equipment or variances from the amounts
disclosed; (4) expected cost savings from the merger cannot be fully
realized; (5) costs or difficulties related to the integration of the
business of Ohio Edison and Centerior are greater than expected; or (6)
general economic conditions, either nationally or in the area in which
the combined company will be doing business, are less favorable than
expected.
Item 5. Other Events
Rate Reduction and Economic Development Plan. For additional information
relating to this topic, see "Item 5. Other Events - Merger with Ohio
Edison Company" in the Companies' combined Current Report on Form 8-K
dated September 13, 1996 and "NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED) - (8) Commitments and Contingencies" in the Companies'
combined Quarterly Report on Form 10-Q for the quarter ended September
30, 1996.
The Regulatory Plan
On January 30, 1997, The Public Utilities Commission of Ohio ("PUCO")
approved a comprehensive Rate Reduction and Economic Development Plan
("Plan") for Cleveland Electric and Toledo Edison. The Plan takes
effect only upon consummation of the merger of Centerior with Ohio
Edison ("Merger"), pursuant to which a new holding company called
FirstEnergy Corp. ("FirstEnergy") would be formed.
The Plan provides that Cleveland Electric and Toledo Edison will not
increase base rates prior to 2006 (except to comply with any significant
changes in environmental, regulatory or tax laws). Reductions in
residential electric bills of $3 a month will begin six months after the
Merger, increasing to $4 a month on July 1, 2000, and then to $5 a month
from July 1, 2001, through the year 2005. The Plan also provides interim
rate reductions for certain commercial customers of about $4.5 million
per year; an extension through 2005 of incentive rates to companies that
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expand or locate in the Toledo Edison service area, and new incentive
rates through 2005 for companies that expand or locate in the Cleveland
Electric service area; an earnings cap through 2005 that, as explained
below, would enable customers to share in any additional benefits from
the Merger; and a commitment by FirstEnergy to reduce by $2 billion, for
regulatory purposes, nuclear and regulatory assets of Cleveland Electric
and Toledo Edison through 2005 resulting from amounts that have been
revalued, amortized and/or depreciated on an accelerated basis. The Plan
permits Cleveland Electric and Toledo Edison to dispose of generating
assets and to enter into associated power purchase arrangements in order
to comply with its provisions. By the end of 2005, net investment in
nuclear and regulatory assets is expected to be reduced, for regulatory
purposes, to approximately $1.8 billion from its current level of $6.2
billion.
Effective January 1, 2006, base rates for all customers of Cleveland
Electric and Toledo Edison will be reduced by $310 million annually,
which represents a decrease of approximately 15% from current levels.
This decrease includes a 20% reduction for residential customers. In
addition to incentive rates, the Plan further promotes economic
development by providing a $75-million economic development loan/lease
program to help attract and retain customers and create new jobs, as
well as an energy efficiency program that would make available up to $30
million to help residential customers use electricity more efficiently.
Under the Plan's earnings cap, Cleveland Electric and Toledo Edison will
be permitted to earn up to an 11.5% return on common equity (as defined
under the Plan) during calendar years prior to 2000, 12% during calendar
years 2000 and 2001, and 12.59%, the return granted in their last rate
proceeding, during calendar years after 2001. If for any calendar year
the actual return exceeds the specified level, the excess will be
credited to customers first through a reduction in the Percentage of
Income Payment Plan arrearages and then as a credit to base rates.
Total rate savings for Cleveland Electric and Toledo Edison customers of
about $390 million are anticipated over the term of the Plan, as
summarized below, excluding potential economic development benefits and
assuming that the Merger closes on December 31, 1997 (in millions).
1998 1999 2000 2001 2002 2003 2004 2005
$21 $37 $43 $54 $59 $59 $59 $59
FirstEnergy believes that the Plan would not provide for the full
recovery of costs associated with Cleveland Electric and Toledo Edison
nuclear operations. Explicit recognition of that circumstance by the
PUCO is contained in its order approving the Plan. Accordingly,
FirstEnergy expects Cleveland Electric and Toledo Edison to discontinue
the application of Statement of Financial Accounting Standards No.
71("SFAS 71") for their nuclear operations if and when consummation of
the Merger becomes probable. The remainder of their business would be
expected to continue to comply with the provisions of SFAS 71. As a
result, Cleveland Electric and Toledo Edison would be required to write
off certain of their regulatory assets, the amounts of which will be
determined at the time of discontinuance; the resulting charge to
earnings would be reflected prior to consummation of the Merger.
FirstEnergy estimates that at December 31, 1996, the write-off would
have been approximately $750 million. Nuclear generating units are not
expected to be impaired at Cleveland Electric and Toledo Edison. If
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events cause Cleveland Electric and/or Toledo Edison to conclude they no
longer meet the criteria for applying SFAS 71 for the remainder of their
business, they would be required to write off their remaining regulatory
assets and measure all other assets for impairment.
Notwithstanding the Merger and the discussions with the PUCO concerning
the effect of the Plan on Centerior's nuclear generating assets,
Cleveland Electric and Toledo Edison each believe it is reasonable to
assume that rates will be set at levels that will recover all current
and anticipated costs associated with their nuclear operations,
including all associated regulatory assets, and such rates can be
charged to and collected from customers.
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SIGNATURES
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.
CENTERIOR ENERGY CORPORATION
Registrant
THE CLEVELAND ELECTRIC ILLUMINATING
COMPANY
Registrant
THE TOLEDO EDISON COMPANY
Registrant
By: JANIS T. PERCIO
Janis T. Percio,
Secretary of each Registrant
February 6, 1997
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