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) August 1, 2002
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
1-3141 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
Item 5. Other Events
On August 1, 2002, Jersey Central Power & Light Company (JCP&L), a
wholly owned subsidiary of FirstEnergy Corp., submitted two rate filings with
the New Jersey Board of Public Utilities (BPU). The first related to base
electric rates (Delivery Charge Filing). The second was a request to recover
deferred costs (Deferral Filing) primarily associated with mandated
purchase-power contracts with non-utility generators (NUGs) - which produce
power at prices that exceed wholesale market prices - and providing Basic
Generation Service (BGS) to customers in excess of the state's generation rate
cap.
Delivery Charge Filing
----------------------
The delivery charge filing includes recovery of JCP&L's distribution,
transmission, customer service, administrative and general costs, along with
taxes and some assessment fees. JCP&L is requesting a decrease in the delivery
charge of $11 million, or a 0.6% rate reduction.
JCP&L's filing uses calendar year 2002 as the test year and the
delivery charge was predicated on a net rate base value of $2.1 billion. The
rate of return witness is supporting an allowed return on common equity of 12%.
Each 100 basis points of allowed return on common equity equates to an annual
earnings effect of 3.7 cents per share of common stock for FirstEnergy.
The filing uses a capital structure for JCP&L that contains two
modifications from the actual year-end 2001 capital structure. The first
modification relates to the use of purchase accounting in the merger of
FirstEnergy and GPU, Inc. (JCP&L was formerly a wholly owned subsidiary of GPU,
Inc. prior to GPU's merger with FirstEnergy).
As a result of the merger, JCP&L's capitalization increased by
approximately $1.6 billion due primarily to the application of purchase
accounting whereby the fair value of JCP&L's assets was greater than the
pre-merger book value. This increased JCP&L's common equity ratio from 51.6% to
68.3%. This increase in the equity ratio does not relate to JCP&L's real credit
needs nor its capital structure goals. Therefore, JCP&L's filing eliminates from
the capital structure the impacts of the purchase accounting adjustments.
The second capital structure modification is to remove the $300
million deferred balance write-off required by the BPU's merger approval order.
These two modifications result in a capital structure of 51.5% common
equity, 6.4% preferred stock and 42.1% long-term debt, with a weighted average
cost of capital of 9.89%. This adjusted capital structure is consistent with
JCP&L's credit quality goals and is comparable to the company's pre-acquisition
capital structure. JCP&L will be updating the capital structure and the
resulting weighted average cost of capital to the test year-end (i.e., December
31, 2002) with similar adjustments to remove the effects of purchase accounting
and the deferred balance write-off.
Deferral Filing
---------------
The deferral filing is comprised of a Market Transition Charge (MTC)
and a Societal Benefits Charge (SBC).
The MTC allows JCP&L to recover energy procurement and other
generation-related stranded costs. The most significant stranded cost elements
are the above-market costs associated with NUG PPAs. JCP&L's filing requests an
increase in the MTC to allow JCP&L to initiate recovery of the deferred costs
that have accumulated during the four-year transition period (August 1, 1999
through July 31, 2003).
JCP&L was authorized by the BPU to defer energy-related costs
incurred in providing BGS to retail customers that exceeded JCP&L's current cost
recovery rate. Additionally, in 2001 JCP&L wrote off $300 million of the MTC
deferred balance as a condition of the BPU's merger approval. The $300 million
of deferred costs -- which are no longer included in the deferred balance --
represented anticipated merger savings, which were being flowed through early to
the benefit of JCP&L's customers.
JCP&L's filing proposes to recover the MTC deferred balance through a
securitization transaction involving the issuance of transition bonds in a
principal amount equal to the projected July 31, 2003 MTC deferred balance of
$684 million. Assuming a 15-year scheduled maturity and interest at a rate of
5.5% per annum, the transition bond-related rate increase would be approximately
$69 million per year, or a 3.5% increase. As an alternative to securitization of
the deferred balance, JCP&L would propose to recover the deferred balance over a
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four-year amortization period, with interest. That alternative approach would
require an MTC rate increase of $195 million, or an increase of 10%. JCP&L's
securitization proposal minimizes the required customer rate increase.
Stranded cost securitization would create a transition bond charge
(TBC) which would be the revenue collection mechanism for the transition bond
principal and interest payments. In June 2002, JCP&L sold $320 million principal
amount of transition bonds to securitize its net stranded investment in the
Oyster Creek nuclear generating facility. The TBC was offset by a corresponding
reduction in the MTC since the stranded Oyster Creek investment was initially
being amortized through the MTC. Securitization of the deferred energy-related
cost balance would require an increase in the TBC as described above.
The SBC is comprised of six separate charges: the Remediation
Adjustment Clause (RAC), Universal Service Fund (USF) costs, Consumer Education
(CED) costs, the Demand Side Factor (DSF), Uncollectible Costs (UNC), and
Nuclear Decommissioning Costs (NDC). In JCP&L's filing, some of these charges
are increasing (the RAC and the CED), some are decreasing (the DSF and the NDC)
and some are unchanged (the USF and the UNC). JCP&L's request would reduce the
SBC by $14 million, or a 0.7% rate decrease.
The combined rate impact of JCP&L's request for the MTC and the SBC
is a 2.8% rate increase with securitization of the deferred balance; if
securitization is not available, there would be an additional 6.5% increase with
a four-year amortization of the deferred balance.
Customer Rate Impact
--------------------
JCP&L is providing a 5% rate reduction during the final year of the
four-year transition period (August 1, 2002 to July 31, 2003) through a refund
credit to customers' bills. This credit expires at the time the new rates go
into effect (August 1, 2003), so JCP&L customers will experience a billing
increase on August 1, 2003, due to the expiration of the credit in addition to
the tariff changes described above. These rate changes are summarized below.
Jersey Central Power & Light Company
Revenue and % Rate Change
Increase (Decrease)
------------------------------------
($ Millions)
Securitization of
Deferred Balance
-------------------------
Revenue % Change
------- --------
Delivery Charge............. $ (11) (0.6)%
Credit Elimination.......... 109 5.6*
MTC/TBC..................... 69 3.5
SBC......................... (14) (0.7)
------ ----
Total................... $153 7.8%
* Because customer charges have been reduced during the four-year transition
period, the credit elimination produces a percentage increase slightly
greater than the targeted nominal 5% reduction.
The indicated percent rate changes are on a company average basis. Individual
customer classes may have an increase somewhat higher or lower than the company
average.
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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.
August 1, 2002
FIRSTENERGY CORP.
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Registrant
JERSEY CENTRAL POWER & LIGHT COMPANY
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Registrant
/s/ Harvey L. Wagner
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Harvey L. Wagner
Vice President and Controller
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