As filed with the Securities and Exchange Commission on January 4, 1994.
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: December 22, 1993
(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)
55 Public Square
Cleveland, Ohio 44113
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 Energy"), The Cleveland Electric Illuminating Company ("Cleveland
Electric") and The Toledo Edison Company ("Toledo Edison"). Centerior
Energy, 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 Energy.
Item 5. Other Events
1. Cleveland Electric and Toledo Edison Securities Downgraded. For
background and earlier developments relating to this topic, see "Item 5.
Other Information- 3. Potential Downgrading of Securities" in the Companies'
Quarterly Reports on Form 10-Q for the quarter ended September 30, 1993 and
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Companies' Annual Reports on Form 10-K for the
year ended December 31, 1992.
On December 22, 1993, Moody's Investors Service, Inc. announced that it
downgraded the credit ratings of Cleveland Electric and Toledo Edison as
follows:
Security Old Rating New Rating
first mortgage bonds, secured
medium-term notes and secured
pollution control bonds Baa3 Ba2
unsecured pollution control
notes and debentures Ba1 Ba3
preferred stock
Cleveland Electric ba1 b1
Toledo Edison ba2 b1
secured lease obligation
bonds* Ba1 Ba3
commercial paper Prime-3 Not Prime
_____
*Issued by CTC Beaver Valley Funding Corporation, Beaver
Valley II Funding Corporation and CTC Mansfield Funding
Corporation and secured by rental payments made by
Cleveland Electric and Toledo Edison.
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Also on December 22, 1993, Standard & Poor's Corporation ("S&P") announced
that it downgraded the credit ratings of Cleveland Electric and Toledo Edison
as follows:
Security Old Rating New Rating
first mortgage bonds and
secured pollution control
bonds BBB- BB
unsecured pollution control
notes and debentures BB+ B+
preferred stock BB+ B
secured lease obligation bonds
issued by CTC Mansfield
Funding Corporation BB+ B+
issued by CTC Beaver Valley
Funding Corporation and
Beaver Valley II Funding
Corporation BB+ B
commercial paper A-3 B
S&P also stated that the outlook for the Companies remains negative.
The lower ratings are expected to increase Cleveland Electric's and Toledo
Edison's cost of any new financing.
2. Strategic Plan, Dividends and Write-offs. For background and earlier
developments related to these topics, see "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Notes
3(c), 6 and 10(d) in "Item 8. Financial Statements and Supplementary Data",
all in the Companies' Annual Reports on Form 10-K for the year ended December
31, 1992 and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Companies' Quarterly Reports on Form 10-Q for
the quarters ended March 31, 1993, June 30, 1993 and September 30, 1993.
On January 4, 1994, the Board of Directors of Centerior Energy approved
management's comprehensive new strategic plan to strengthen the Companies'
financial and competitive position. As part of the plan, the Board of
Directors of Centerior Energy declared a quarterly common stock dividend of
$.20 per share payable February 15, 1994, a reduction from the $.40 per share
declared for previous quarters. The Board believes that the new level is
sustainable barring unforeseen circumstances and that the new plan will
provide the opportunity to increase the dividend as the Companies' strategic
objectives are achieved. Nevertheless, future dividend action by the Board
of Directors will continue to be decided on a quarter-to-quarter basis after
the evaluation of financial results, potential earnings capacity and cash
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flow. The Board also authorized the write-off of the Companies' investment
in Unit 2 of the Perry Nuclear Power Plant ("Perry Unit 2") and the write-off
of certain deferred charges related to Unit 1 of the Perry Nuclear Power
Plant and Unit 2 of the Beaver Valley Power Station pursuant to a January
1989 rate agreement authorized by The Public Utilities Commission of Ohio
("PUCO") ("phase-in plan").
These financial actions resulted from a comprehensive strategic planning
initiative which assessed existing strategies and developed new ones. In
addition to the financial actions, the plan involves new strategic objectives
to increase revenues, increase customer satisfaction, motivate employees,
reduce power production costs, control total expenditures and provide greater
total return to share owners over the long term. The new plan is expected to
strengthen the Companies financially and competitively in order to ultimately
improve financial results.
The after-tax write-off of Perry Unit 2 is about $260 million for Cleveland
Electric, about $170 million for Toledo Edison and about $430 million for
Centerior Energy. The write-off was taken because the Companies determined
that it is probable that Perry Unit 2 would not be completed or sold for the
foreseeable future.
The after-tax write-off of the phase-in plan deferrals is about $430 million
for Cleveland Electric, about $160 million for Toledo Edison and about $590
million for Centerior Energy. The phase-in plan was designed so that
projected revenues would provide for the recovery of all nuclear-related
deferred costs over a ten-year period. The plan required the deferral of
costs during the first five years and amortization and recovery of such costs
in the last five years. Current forecasts now indicate that revenues
projected over the 1994-1998 period will not provide for the recovery of
these deferrals as scheduled, due primarily to the effects of economic and
competitive pressures. Accordingly, the Board concluded that it was
necessary to write off the cumulative deferred balance.
The provisions of the Rate Stabilization Program approved by the PUCO in 1992
are not affected by these actions.
The write-offs will result in a loss in 1993 and a negative retained earnings
balance for the Companies. Nevertheless, the Operating Companies expect to
continue to pay all preferred stock dividends out of appropriated retained
earnings and current earnings. The Operating Companies also expect to pay a
common dividend to Centerior out of appropriated retained earnings and
current earnings, although dividend action by the Boards of Directors of the
Operating Companies will continue to be determined on a quarter-to-quarter
basis after an evaluation of financial results, potential earning capacity
and cash flow.
As of September 30, 1993 and giving effect to these write-offs, Cleveland
Electric would have been permitted to issue approximately $325 million of
first mortgage bonds only on the basis of refundable bonds. Toledo Edison
would have been permitted to issue approximately $286 million of first
mortgage bonds only on the basis of refundable bonds.
Certain fixed charge and capitalization covenants contained in various
financial agreements in an aggregate amount of $473 million will not be met
as a result of the write-offs. The Companies have entered into discussions
with the affected creditors to seek waivers or amendments where necessary.
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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: J. T. Percio
J. T. Percio,
Assistant Secretary of each Registrant
January 4, 1994
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