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) September 24, 2002
Commission Registrant; State of Incorporation; I.R.S. Employer
File Number Address; and Telephone Number Identification No.
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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
1-3491 PENNSYLVANIA POWER COMPANY 25-0718810
(A Pennsylvania Corporation)
c/o FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Telephone (800)736-3402
1-3141 JERSEY CENTRAL POWER & LIGHT COMPANY 21-0485010
(A New Jersey Corporation)
c/o FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Telephone (800)736-3402
1-446 METROPOLITAN EDISON COMPANY 23-0870160
(An Ohio Corporation)
c/o FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Telephone (800)736-3402
1-3522 PENNSYLVANIA ELECTRIC COMPANY 25-0718085
(A Pennsylvania Corporation)
2800 Pottsville Pike
Reading, Pennsylvania 19640-0001
Telephone (610)929-3601
Item 9. Regulation FD Disclosure
On September 24, 2002, FirstEnergy Corp. (Company) updated the
investment community on activities associated with efforts to return the
Davis-Besse Nuclear Power Station to service in a safe and reliable manner and
other matters.
Nuclear Regulatory Commission (NRC) IMC 0350 Restart Process - September 17,
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2002 Public Meeting
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The NRC's IMC 0350 panel held one of its monthly public meetings on
the status of Davis-Besse's restart efforts in Oak Harbor, Ohio on September 17,
2002. At the meeting, FirstEnergy presented its plan for testing significant
plant equipment and systems prior to restarting the Davis-Besse Nuclear Power
Station. The plan, which is one of the Company's original restart action
commitments to the NRC, also calls for intensive training of key personnel
involved in the start-up efforts.
The plan focuses on a variety of activities designed to assure the
safety and reliability of plant equipment and the readiness of personnel before
Davis-Besse goes back into operation. Some of those activities include:
o Testing the Reactor Coolant System, including components and
piping exposed to full operational pressure, to confirm the new
reactor head and other equipment meet high industry standards
for safety and reliability
o Conducting a test of the containment vessel to assure its
integrity following the resealing of the vessel and
containment building
o Testing plant equipment that had maintenance and modifications
performed so that good performance can be assured
o Ensuring that the operations staff is prepared to restart and
operate the plant safely through comprehensive training
o Developing a restart procedure that identifies the sequence of
critical steps, procedures and tests necessary to return the
plant to service, and assuring oversight by senior managers
during the process
Company management also provided the NRC panel with the status of
other major activities under way at the plant. Those included: replacement of
the reactor head; restoration of the containment building; an update on the
Technical Root Cause report, including cracks found in the stainless steel liner
of the old reactor head; progress of inspections of 31 other major plant
systems; and status of other significant work, such as the modification of the
containment sump equipment and painting in the containment building.
The report on the replacement of the reactor head noted that the old
reactor head had been removed from the containment building, the new head had
been moved in and preparations are under way to install the service structure.
The old reactor head was moved to a storage area on site, pending removal of
three more samples for ongoing root cause research.
Restoration of the containment building began last week. The work
includes welding the rebar back into place, welding shut the opening in the 1
1/2-inch thick steel containment vessel and replacing the concrete in the 2
1/2-foot thick outer wall. Restoration is expected to be completed by the end of
the month.
Company managers noted that while there is much work to do, steady
progress is being made toward restart. While recognizing that the NRC must
approve restart after they are satisfied with the technical repairs and human
performance changes, the Company outlined its schedule for the major restart
milestones to be achieved. The Company's schedule could support restart and full
power ascension by year-end.
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Management and Organizational Issues - September 18, 2002 Public Meeting
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The NRC also held a special public meeting the following day on
September 18, 2002 at the Davis-Besse plant, to discuss the Company's plan for
resolving the human performance issues that contributed to the corrosion problem
on the reactor head at Davis-Besse. Initiatives in the Company's plan fall
broadly into three categories--organizational changes; training; and changes in
programs, practices and policies.
Developed jointly by a team of outside and Company nuclear experts,
the plan focuses on nuclear safety and human performance issues identified in a
previous management root cause report. Addressing those problems is part of the
plant's program to improve performance and earn approval of the NRC for
restarting Davis-Besse. The plan calls for such actions as improving plant
personnel focus on safety, stricter adherence to industry performance standards,
improving program implementation, increasing effectiveness in making corrective
actions, and enhancing management oversight.
In terms of organizational changes, both the First Energy Nuclear
Operating Company (FENOC) and Davis-Besse organizations have been restructured
to enable more direct oversight of programs and projects by senior management.
Also, a new senior management team has been put into place at Davis-Besse, with
emphasis on specific experience and skills needed to strengthen the safety
culture at the plant, as well as improve plant operations.
Enhanced employee communications represents a significant change in
policies and practices at Davis-Besse. Weekly meetings between senior management
and employees have been established to discuss the status of plant restart
activities, as well as to give employees a chance to ask questions related to
plant operations.
Other initiatives include a program requiring managers--senior
management through supervisors--to spend more time in the field overseeing the
implementation of specific projects and programs, revamped company and plant
policies aimed at assuring the proper focus on safety issues, and survey
employees periodically to assess improvements in the safety culture at
Davis-Besse.
A number of training initiatives or changes to training have been
created to address human performance issues. For example, mandatory training for
every employee and manager at Davis-Besse will cover the evolution of the boric
acid corrosion. Also, special training has been created to improve decision
making and adherence to technical standards, and all employees and managers will
undergo special safety-focus training to make sure everyone understands the new
safety standards of Davis-Besse and FENOC.
The NRC commented that the Company gave a comprehensive report and
appreciated management's candor. The NRC also stated that the programs proposed
were comprehensive but that implementation will be the key.
Davis-Besse Restart Timing and Outage Cost Impact
-------------------------------------------------
The Company continues to believe that replacement of the Davis-Besse
reactor vessel head and other ancillary maintenance work can be completed on a
schedule to support restart of the plant by year-end, recognizing however, that
the NRC must approve resumption of operations at the unit under its IMC 0350
restart process. The NRC has stated that the management and human performance
improvement plan would likely be the "pacing issue" for restart.
The estimated incremental cost impacts for the identified work scope,
as previously communicated, are:
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o $55 million to $75 million of mostly capital expenditures to
replace the reactor vessel head
o $50 million to $70 million of mostly operation and maintenance
(O&M) expenditures for additional maintenance, including the
acceleration of various programs/projects
o $10 million to $15 million per month for replacement power in
the non-summer months
o $20 million per month for replacement power in the summer months
of July and August
The Company continues to believe that its estimates of the capital
cost of replacing the reactor vessel head and the cost of replacement energy
remain valid. However, the Company expects an increase in the anticipated cost
of the O&M work as the scope of maintenance projects has expanded, including the
accelerated maintenance projects that had been planned for future outages.
The Company is currently conducting a comprehensive review of all of
its known O&M work elements at the plant and expects an upward revision to the
current estimate of $50 million to $70 million. It expects to complete this cost
review in about two weeks and will make the appropriate disclosures upon
completion of the review.
Davis-Besse Replacement Energy Status
-------------------------------------
The Company is fully hedged for its 850 megawatts of on-peak
replacement energy supply for Davis-Besse through the end of 2002, and although
it expects the plant will be ready to return to service before year-end, it has
also made some on-peak power purchases during the early portion of 2003.
Updates on Other Company Items
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Provider of Last Resort (PLR) Supply in Pennsylvania---In 2001, the Pennsylvania
Public Utility Commission approved a settlement agreement that allowed for the
merger of the two Pennsylvania utility subsidiaries of the former GPU, Inc. into
FirstEnergy.
One of the settlement terms allows Metropolitan Edison Company
(Met-Ed) and Pennsylvania Electric Company (Penelec) to assign all or any part
of their PLR responsibility to an affiliate company of FirstEnergy. The
assignment requires that such service be provided to Met-Ed's and Penelec's
customers at the shopping credit tariff rate (i.e., at the fixed generation
tariff rate that retail customers are currently charged). Met-Ed and Penelec
have elected to make that assignment to their unregulated supply affiliate
FirstEnergy Solutions (FES) through a wholesale power transaction.
The initial term of the assignment is from September 1, 2002 through
December 31, 2002. This initial term will be automatically extended for each
succeeding calendar year unless any party (FES, Met-Ed or Penelec) elects to
cancel the assignment by November 1 of the preceding year.
This is essentially a wholesale power transaction between FES and the
two regulated companies who will continue to be responsible for billing,
collections and customer care activities. Under this assignment, FES assumes the
supply obligation for whatever portion of the PLR power supply requirements that
are not self-supplied by Met-Ed and Penelec.
Met-Ed and Penelec will continue to have certain committed self-supply
arrangements such as their non-utility generation (NUG) contracts and other
existing power contracts with third party suppliers. Met-Ed and Penelec will
each collect their full PLR tariff revenues from their retail customers, deduct
revenue-based taxes, deduct the costs related to their committed contracts,
deduct an amount related to their existing deferred energy cost balances (see
discussion below) and remit the balance of the revenues to FES to compensate
them for the balance of the PLR supply that they are providing.
3
This assignment could provide for the eventual full amortization of
each company's deferred energy cost balance (exclusive of the existing deferred
NUG cost balance) that existed on September 1, 2002 ($28 million for Met-Ed;
$106 million for Penelec). If FES retains the PLR assignment through 2010, which
is the end of the generation rate cap period, the payment mechanism would
provide for the full amortization of the September 1, 2002 deferred energy cost
balances by 2010. If this assignment were terminated prior to 2010, the
remaining unamortized costs would be subject to the recovery mechanism currently
established for Met-Ed and Penelec.
As mentioned above, the NUG contracts will remain with Met-Ed and
Penelec who will continue to own the contract power and will remain obligated to
continue to pay the NUGs at their contract rates. The cost differences between
the NUG contract rates and the shopping credit will continue to be deferred into
the NUG deferred cost balance for future recovery from retail customers.
Met-Ed and Penelec will continue to apply deferred cost accounting to
their PLR energy costs, deferring the above-shopping credit NUG costs and
amortizing the existing deferred energy cost balance during the FES assignment
period. FES will assume the PLR energy supply profit and loss risk depending
upon its energy sourcing costs and the revenues that it receives from Met-Ed and
Penelec.
The use of deferred energy cost accounting for Met-Ed and Penelec is
under appeal in the Pennsylvania courts. Should the use of deferred energy cost
accounting be eventually disallowed by court decision, the deferred energy cost
balance would be written off by Met-Ed and Penelec, and not amortized over the
remaining generation rate cap period as would be the case through the wholesale
supply agreement with FES.
This arrangement reduces Met-Ed's and Penelec's exposure to high
wholesale power prices by providing power at or below the shopping credit for
their uncommitted PLR energy costs during the term of the assignment to FES. In
turn, FES will have the opportunity to create a positive supply margin depending
upon its ability to secure attractively priced energy supply.
Cost Reduction Initiative---During the past five months, the Company has been
pursuing a cost-reduction initiative that has been primarily focused on the
corporate support services or "home office" areas of costs, including the
support services for its generating plants and energy delivery group. This
initiative is separate from the Company's merger-savings efforts, which have
been primarily focused on eliminating duplicative positions and achieving
synergies that resulted from the merger, particularly in field operations.
This cost-reduction initiative, which has identified numerous
opportunities to reduce the Company's cost structure, is expected to reduce
employment levels within FirstEnergy by 710 positions when the program is fully
implemented by 2004. Specifically, by next month, FirstEnergy will have severed
160 employees and will have permanently eliminated 200 open positions. Another
350 positions will be eliminated in 2003 and 2004. When this program is fully
implemented, the Company expects to save approximately $135 million per year.
Slightly more than one-half of these savings will be labor costs. The Company
expects to incur about $35 million of one-time costs-to-achieve with the
majority of costs being employee severance costs.
The reductions to date have been focused on the Company's retail
marketing and generation support areas. The future reductions will generally be
in administrative positions, including information technology, accounting and
human resource functions. While the Company will incur some severance costs,
FirstEnergy is not offering any early retirement programs in conjunction with
this program.
The earnings impact of this program, exclusive of one-time
costs-to-achieve, is within the Company's current earnings guidance for 2002 and
2003.
4
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", "potential", "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,
legislative and regulatory changes (including revised environmental
requirements), the availability and cost of capital, ability to accomplish or
realize anticipated benefits from strategic initiatives and other similar
factors.
5
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.
September 24, 2002
FIRSTENERGY CORP.
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Registrant
OHIO EDISON COMPANY
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Registrant
THE CLEVELAND ELECTRIC
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ILLUMINATING COMPANY
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Registrant
THE TOLEDO EDISON COMPANY
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Registrant
PENNSYLVANIA POWER COMPANY
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Registrant
JERSEY CENTRAL POWER & LIGHT COMPANY
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Registrant
METROPOLITAN EDISON COMPANY
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Registrant
PENNSYLVANIA ELECTRIC COMPANY
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Registrant
Harvey L. Wagner
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Harvey L. Wagner
Vice President, Controller
and Chief Accounting Officer