31 Jul 2002 1:05 PMFitch Ratings-New
York-July 31, 2002: Fitch Ratings has revised the Rating Outlook for
FirstEnergy Corp (FE), Cleveland Electric & Illuminating (CEI),
and Toledo Edison's (TED) outstanding securities to Negative from
Stable. The Negative Outlook reflects the likelihood that debt
reduction will be slower than previously anticipated due to
difficulty in completing the proposed generation sale to NRG, and
the adverse impact of the ongoing Davis-Besse nuclear plant outage.
The plant is owned by FE subsidiaries CEI and TED. Fitch's current
ratings for FE, CEI and TED's outstanding securities are listed
NRG's evolving financial difficulties introduce a significant
measure of uncertainty regarding the close of the proposed asset
sale, under the original terms and conditions. If the deal were to
be renegotiated or fall through, FE's deleveraging effort would be
delayed. Under the proposed transaction, FE agreed to sell 2,535 mWs
to NRG for $1.355 billion in cash and $145 million in assumed debt.
The cash proceeds would be used to retire relatively high cost debt
and preferred securities at CEI, TED, and other FE electric utility
operating subsidiaries. With regard to Davis-Besse, our projections
for 2002 include incremental O&M expenditures of approximate
$50-70 million and estimated capital expenditures of approximately
$55-75 million. While the financial implications of the outage
appear manageable, any slippage vis-a-vis the company's targeted
fourth quarter 2002 restart date would be a cause for concern
warranting further review, especially if the delay is combined with
escalating 2003 energy prices. Management estimates that incremental
purchased power costs will approximate $10-15 million during 2003
non-summer months and $20-25 million in July and August 2003, based
on current energy market conditions.
The 883-mW Davis-Besse nuclear plant (which is 51%- and- 49%
owned by FE subsidiaries CEI and TED, respectively) has been
out-of-service since the February 2002 refueling outage began.
During the outage, FirstEnergy Nuclear Operating Company (FENOC)
discovered corrosion in the reactor vessel head. Management is
currently undertaking efforts to replace the vessel head, with a
reactor head acquired from CMS Energy, and has targeted the fourth
quarter 2002 for restart. In addition to the presumed success of the
reactor head replacement effort, Nuclear Regulatory Commission (NRC)
approval will be required to restart the plant. FENOC will be
required to demonstrate to the NRC that it has addressed management
issues at the unit, including leadership and oversight issues,
before the commission will allow the plant to resume commercial
The outstanding ratings are as follows:
First Energy --Senior unsecured debt 'BBB'.
Cleveland Electric & Illuminating --First mortgage bonds
'BBB'; --Secured notes 'BBB'; --Preferred stock 'BB+'; --Trust
Toledo Edison --First mortgage bonds 'BBB-'; --Secured notes
'BBB-'; --Unsecured debt 'BB'; --Preferred stock 'BB'.
Contact: Philip Smyth 1-212-908-0531 or Robert Hornick
1-212-908-0523, New York.
Media Relations: James Jockle 1-212-908-0547, New York.