ML20035G252

Centerior Energy Annual Rept, for Davis-Besse Nuclear Power Station & Perry Nuclear Power Plant,Unit 1, Respectively

ML20035G252
Person / Time
Site:	Davis Besse, Perry
Issue date:	12/31/1992
From:	Farling R CENTERIOR ENERGY
To:
Shared Package
ML20035G237	List: ML20035G252 ML20035G258 ML20035G264 PY-CEI-NRR-1628, Forwards 1992 Annual Financial Repts for Davis-Besse Nuclear Power Station & Perry Nuclear Power Plant,Unit 1, Respectively
References
NUDOCS 9304270047
Download: ML20035G252 (39)

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{{#Wiki_filter:, I CEN TE R I 0 R E NE R GY l 1 l i L l l l l l I i f i i 1 i 4 l l .1 t .i j I f i l i f 4 I l i f e A N N UA L REPORT i l' 9304270047 930421 PDR ADOCK 05000346 I PDR .s

b i - Anancial Summary -. ~ 1992 1991 % Change i { Earnings Nr Share of Common Stock. 1.50 1.71 (12) n + Dividends Declared Nr Share of Common Stock. 5 1.60 5 1.60 0 Book Value Per Share of Common Stock at Year End 5 20.22 5 20.37 (1) ) i Closing Common Stock Price at Year End - 5 19 % 5 19 % 0 Common Stock Share Owners at Year End. 171,255 177,560 (4) .l Common Stock Shares Outstanding at Year End (millions) 143 140 2 + Operating Revenues (millions): 5 2,438 5 2,560 (5) Operatmg Expenses (millions). 5 1,901 5 1,981 (4) Net income (milhons). 5 212 5 237 (11) i Return on Average Common Stock Equity 7.4% 8.4 % j ) I Kilowatt-hour Sales (Millions of Kilowatt-hours) Residential. 6,666 6,981 (5) Commercial. 7,086 7,176 (1) - Industrial. 11,551 11.559 0 l Wholesale 2,814 2,690 5 f Other. 1,011 1,048 (4) Total. 29,128 29,454 (1) l .i Employees at Year End 8,376 8,592 (3) t QUARTLRLY RA NGE OF COMMON STOCK PRICLS 1992 High low 1991 High Low 1st Quarter ' 520 517% lst Quarter $19% $16% 2nd Quarter 18% 16%- 2nd Quarter 19% 16% 3rd Quarter 17% 15% 3rd Quarter 18% 15 l 4th Quarter 20 17% 4th Quarter 19% 17%

i Q Letter to Share Owners ] o Q Financial 5trategies j O Marketingstrategies @ Operating 5trategies ) @ Management's Statement of [ a Responsibihty for Financial Statements $ Rep t ndependent Pubbe $ Summary of Signihcant Accountmg Pohcies @ Management's Financial Analysis, Financial Statements l and Notes @ Executives of Centerior Energy ~; Corporation and Centenor gjffg i Service Company l @ Financial and Statistical Review j $ Board of Directors @ Sharc OwnerInformation l i i Reported earnings were down 12% resulted in annual savings of $14 Cen!cncr Ecog Corpaatwn was I to SL50 per share. million in interest and preferred formed m Arn! 1986 apa the o dividend costs ajlihanon of tlc Claeland Elainc j The common dividend was gg, m:narmg Company and The a i maintained at $1.60 per share. Davis-Besse was the nation's 3,kdo Dun Cmpany u'd cus number one nuclear power plant f"" l Agreement on a Rate Stabih:ation n 1992. It set a plant record with a Program was reached with customer 99% capacity factor, the highest representative groups.The Program amongthel100peraungcommercial '"Y" ~"# freezes rates until1996 and limits plants in the U.S. Davis-Besse also rate increases from 1996 to 1998. I'#I# * # """ " " " set a plant record with 304 con-

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and subsequently recover certain December 31. The previous record costs not currently in rates and was 258 days. T ""I to accelerate the amortization of certain benefits. These actions Power sales to other uuhties added 48C per share to 1992 resulted in a pre-tax contribution l earnings. to earnings of $32 milhon. sur-passed only by the record level of Refinancingof 5930 million of $33 million in' 1991. debt and equity secunties in 1992 @ rnnted on rccyard paper f r

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Dear Share Owner:

As anticipated,1992 was a pivotal year for Centerior Energy. Two events were especially significant. One was enactment of The Energy Policy Act of 1992. The other, closer to home, was our agreement wnh customer representanvc groups on a long-term Rate 5tabihration Program. 64 SC. m:, e.e g',% -r /.? s g agr# g; 3 The former underscores the q W h3 if' ' _ f;f increasingimportance of energy in u ~J Ji the national consciousness and the A 1[ h. hj - growmg public demand for energy C s efficiency, stable prices and p El &$gfD-environmental protection Thelatter demonstrates our willingness to explore ahernatives with our cus-tomers to serve their needs whi!c meeting out own competitis e and O L fmancial challenges ~ , ww,- 4.1 u 4 eca j The Energy Act marks the end of f-a highly structured and regulated 9 era for investor-owned electric k.4 utilities. It also signa!s an era of $N s g" v mer e mtense competition, including he that from other energy sources and p, i, from would-be municipal electric d N' ,e systems. e i )g y&,w,

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.g r* y 4t, Vx g The Act, for example, has opened [Ykh , EdsvaN3dg w ph M % Q the way for a municipal electric O i @On$$N f Shdl3 system to shop for power from m E bbenJ ruhng regional suppliers. The investor-owned utdity in whose terntory the municipality islocated must deliver that power to it. Such com-petition is not new to Centerior as f it will be to most other utilities. We have competed off and on for almost 80 years with the City of

F t t i i 1 Cleveland's public power system. Edison. In return, the Program

• Financial Strategies: To further f

Funber, we have been required to allows us regulatory accounting strengthen our fmancial position provide open transmission access measures that reschedule the by controlbng operating costs, to all municipal systems m our timmg of rate recovery of certain keeping down capital expenditures service area since 1979 as a costs and the amortization of and mcreasingincome through condition of the licenses we were certam benefits. This will prevent off-system sales. r granted to operate our nuclear what otherwise would be an

• Marketing Strategies: To expand generatmg units-erosion of earnings during the our partnerships wuh customers 1992-1995 penod.

I We have competed successfully in to help them improve energy the past and imend to do so in the Our Board of Directors maintained efficiency and hold down their f ature But the challenge to us is the common stock dividend at $1 to e sts w hile we aggressively pursue greater today, The cost of the major per share in 1992 even though new markets for electricity sales. construction we completed in the unusually moderate weather and . Operating Strategies: To contmu-j 1980s considerably raised our a sluggish economy resulted in ously tmprove our operations to kilowatt-hour pnces. Our pnces earnings of only $1.50 per share achieve the most profitable use of have since leveled off. but they This compares to SL71 per share our facihties while actingas respon-are sull above the regional and for 1991, w hen carnings benefited sible stewards of the environment. national averages. from the hottest summer in more than six decades. As we work to maintain good We are delaying further rate service without increasing electric j mereases to become more competi-As we have previously reported, rates, we will be severely challenged g! tive w hile helping our customers we expect to contmue the cunent to achieve the cost reductions and recover from the recessmn. At dividend even if it exceeds our revenue increases necessary for the same time, we are commined earnings for the short term. For the earnings growth. liowever, we have { to maintaining and ultimately long term, we intend to mcrease great confidence in our strong enhancmg the value of your earnmgs per share by contmued management team and the talented 1 investment in Cemerior. This has cost-reduction and revenue-and caring employees who each I hecome more challenging because enhancingimtiatives. Should our day demonstrate anew our concern of the earnings erosion that results efforts not result in a posiuve long-for customers. Together, we are i from holding our kilowatt-hour term carnings outlook, or if we en-determmed to reward your trust in prices steady agamst inflation. counter unforeseen circumstances, Centenor Energy. f That is why our Rate Stahihntion naturally the Board would have to Program was such an important reconsider our dividend pohey. Sincerely, f achievement for us. But we are optimisnc. Our vision j The Program was approved by is to be the utihty of choice-the The Public Utilities Commissmn choice of both customers and 1 of Ohio in October 1992. Details investors. Our progress is discussed RobertJ. Farling l are explained later in this Report. in the following text, orgam:ed Chairman, President & j in summary, we agreed to keep according to our long-term Chief Executive Officer down electne ra:es for customers objecutes: l of Cleveland Electric and Toledo February 16.1993 ) h J l i

i__ d i I 1 ~~ s j( A NOIABLE ACHIE\\DfENT As part of the Program, we agteed to extend until 1996 the current The Rate Stabih:ation Program was freeze on base electric rates and to a notable achievement for us in 1992. limit f.uture rate increases to 4.7% It wdl stabihre electric rates for our in 1996,3 4% in 1997 and 2.5% in 4 customers and provide us an oppor-3 1998. W,e expect to keep the average tunity to implement measures annual rate increase during this which wdl ultimate!y strengthen j decade below the average annual our fmancial postion. increase m the cost of hymg. 4 The Program also addresses the In ur judgment. negonatmg the Weather Deviation earnings crosion we have experi-ate StaM:ation Program uas far From Normal enced because current electric preferable to seekmg rate increases Cente0cr Energy Service Area } rates, set m 1989, do not er.a& us t s ume. e cheve the latter Pcmr i to recover capital ccas incurred I P "*" "'"'"U'" l smce Februar) of 1988 j producute to our competitive g,,,y,,,,, In effect. the Program reschedules standing and to the long-term <..u, u o m, f the timing of rate recovery of those mterests of our share owners and 75 _ ..? { costs and accelerates the amorti:a-customers Clearly, the Program j tion of certam beneftts The aggregate improves our compeauve position. l 5d - - - - - l f effect of these cegulatory ac countmg it also underscores the need-measures on earnings over the and our commitment-to achieve 1992-1995 penod could be as sigmficant cost reductions and i S

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' ' " ' " " " " " " " ' ' * * " ' " '*P'""" 'O tax basis, dependmg on our success our long-term fmancial results. { in reducing costs and mcreasing o s ma g7 ictenue. We also must periodically PLAN OF ACTION assess our fmancial outlook and with the Rate Stabih:ation Program conclude that recosery of these as tLe crmcalintenm step that -25 deferred cests in rates is probable-provides us an opportunity to The measures are detaded in Note 6 improve both our fmancial and h.. " k -.. ( -50. - _ _...... l of the Fmancial Statements competitive positions. this is our f P '" I 3C" I In 1992, under the Program, we l began the accrual of carrying

• Strict cost control:In the past

[ i charges on new facihties not yet two years, we achieved reductions u 99 90 .gy 92 l in rate base and the deferral of of nearly $80 million,or 9%,in I depreciation and property taxes on operation and m#ntenance expenus those facdities. We eventually wdl (excludmg fuel and puabased E SUMMLR j recover these costs m rates rather power) despite inflationat, mes-WER [ than having them charged to share sures and new expenses (Examples owners. The Prcgram also allowed of cost reductions are discussed m [ us to begin the accelerated amor-separate articles ) We plan additional tization of certain tax and other significant cost cuts in 1993 I benehts. Combmed, these measures contnbuted 48c to per share carnings for 1992. l L in t t t i I l i

-T'H E M0TNER 0F i N-V E N T I O N It is said that necessity is the mother of invention.Our employ-ees are proving that maxim as theyworkto reduce costs andadd

• Workforce rrductions: We value to our customer service, poruon of our planned reimancings.

reduced our workforce by about although additionalopportunities 200 emplo)ces and 200 coniractors Untillast year, for example,it took will be pursued as redemption in 1992, a total reduction of about a team of four workers up to two provisions and interest rates permit.- 1,500, or 14% smce 1989. We weeks to remove blockages in

• Unit retiremer.ts: In 1992,we plan to contmue reduemg our the p1 pes, or suhways, that carry retired six fossil fueled generating employment, now at about 8.370, underground cebles. Each job to achieve the level that best allows required us to obtain digging us to maintain 9uaht) service to permits, break through pavement saves nearly $5 million in annual customers while minimi:mg costs.

with Jackhammers and dig down Operating expenses, primarily some 10 feet just to reach the

• Rcrenue enhancements: We are Property taxes. We also will not trouble spot.

aggr essively pursuing off-system spend about 565 million budgeted sales, particularly with utihties on L.ast year, field personnel came up over the next ten years to upgrade the East Coast, in 1992, revenues with the idea of rnounting a com. those units and comply with from such sales exceeded related bination water-jet and vacuum environmental regulations. We fuel costs by $32 million That device on a truck to power-wash are considering other retirements nearly equaled the record 533 blockages from underground with potentially greater savings. milhon reahred m 1991 when subways. As a result, today many We also are studying the feasibihty demand was considerably greater. blockages can be cleared by two of "recychng" retired turbines and people in just a few hours, for a generators for use as wholesale - We are ideally located as one of the savings of up1o 58.000 per job,or independent power producers. Midwest s two main transfer points $60,000-590,000 a year. to the East. We can compete effec.

• Decreasedcapitalbudgets:By d*fi"E *"d **~#"Ei"##'I"E tively in the very compenove Just es field personnel exercise capital pr jects.we have reduced U@

wholesale energy market.12te in ingenuity, so do the dozen me-ur 10-year capital budget from 1992, for example, General Pubhc chanicsin our Transformer Repair Utihties contracted with us for and Fabricating Shop. They de. nearly $5.7 billion in 1989 to $3.2 200-300 megawatts for 1993, vise ways to repair and put back billion today That's a 44% reduction. enough electricity to serve the in service used transformers and typical needs of up to 400,000 other equipment. To extend the OUTLOOK TOR RETAIL SALES residenual customers service life of aged electrical ' Consensus economic forecasts facilities, they often fabricate indicate a 2-3% annualincrease in a Refinancing:Takingadvantage partsthat otherwise would be very Gross Domestic Product for the of favorable mierest rates. we costly or unobtainable. nut semal years. lf the economy reimanced some $930 mdhon

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" Employees throughout the or-I"***~ savings of about $14 mdlion in ganization recognize the im-we return to more normal weather interest and prefer red dividend portance of cutting costs;'says patterns in 1993, we expect costs. This is in addition to the 59 Shop Supervisor Pat Rode. "The residential sales to rebound 31% milhon of annual savmgs achieved more experience we gain here at Commercial sales, our fastest through refmancings in 194L the shop, the more proficient we Also in 1992., we refmanced debt are in this work and the more we growing segment, are expected to associated with ourlease of Unit 2 can salvage" increase 3.6% in 1993. In total, we expect M3 retad sales to increase of the Beaver Valley Nuc! car Power Station. This reduced our annual The reclamation of transformers 2.6% over 1992. After 1993, we rent expense by about 59 million. and other equipment at the shop expect a 1-2% annualincrease in saves an estimated 57 million a retail sales. We now have completed the major year. Ingenuity has its rewardr.

. =. l 1 -1IAGRIEMMRE i n ENERGY POLICY AND encourage greater energy COMPETIDON efficiency, the wise use of res urces and the development The Energy Pohey Act of 1992 I new technologies such as impacts virtually every segment electric vehicles. Our progress of the energy industry its influ-in those areas is discussed later j ence extends to economic and environmental matters as well m this Repon. { Average Retail Price Per KWH l Of parncular concern to many HIE MUNICIPALIZADON 155UE Compared With The j electne unhnes is a provmon Consumer Price Index ^*

• P' '* F * * ' f"* ' * * ""i' (1987 = 100) 3 that allows for a new class of hh

) nes in our service area are con-who,iesale power generators sidermgspendmgtens of millions a j larcelv exempt from regulanon. of dollars to create their own A related provision gives fecteral municipal electric systems. Their i i regulators more authorny to 1 intent is to provide busmesses DJ i require eiectric utihties to and residents with the low-cost j transmit, or " wheel., power power currently avadable m the ~ i across their hnes from who,iesale l l rer, ton's spot wholesale market. 1;g j generators to other utihnes i We behese our best ally m the For now. these reqm.rements l municipahaation aatteris ate hmited to wholesale power H0 I educanon. We are meenng with transactions between a power 1 1 mQ civic leaders in communities + J generator and an electnc unhty. ) considermg municipali:ation to j They do not open the way for r i explam the high costs and nsks 100 ~ retml whcchnc -- which would of this option. We also provide i require unhties to wheel power comparisons of electnc rate f rom a wholesale generator to projections between our oper-ga a retad customer in n3 own ating c mpanies and municipal sernce area. ) systems. In more than 50 years, j i Since we already has e wholesale only one community in our whechng requirements as part service area has deseloped its M F9 '90 '91 '92 of our nuclear licenses, this own municipal system.Just last I I f pronsion does not hurt our year, several communities in our competnive standing as it dces service area rejected the idea of N coxst'utR rr;ct isotx that of many other ut hties. In municipahzanon once the nsks, mnmumARn fact, the provision affords us new costs and complexities were CENILEIOR ENERGY KWH l opportunities to expand our own made known to them and PRICE INDEX I off-system sales to the benefit of evaluated our share owners and customers. In another effort to counteract Nevertheless.the Energy Act illus municipahranon, we continue to trates the increasingly competitive pursue long-term contracts with l nature of the energy industry major energy users. Currently, ( lt also contams provisions to 60% of Toledo Edison and 40% i a e i

^t THE T0TAL QUALITY APPR0ACH. l I in 1990, we made a commitment to the Total Quality process to q help empicyees follow the path l of continuous improvement. i of Cleveland Electne mdustnal To date, customer and revenue l sales are under sole-suppher A hallmark of Total Quality is the losses have not been severe, but contracts which typically are for team approach. In one projeet we could lose up to 35,000 more hve years. These contracts involving materials manage-Cleveland customers, mostly i provide customers econorme ment, seven teams of employees residential, by 1997. Eventually, incentives to remain with us. from the Customer Operations this could mean an accompanying. I Sector met last year to help stan-loss of up to 540 million in in the Ory of Toledo, where dardire specifications between annual revenues, about 1.5% of mumcipah: anon has been under Cleveland Electric and Totedo Cemenor,s current annual + study for several ycars, a ciurens-Edison for poles, conductors, committee recommended in vehicles, meters, ttansformers revenues llowever, we expect f and other items. that our rate 5tabut:ation efforts 1992 that the City negotiate wah i and superior customer service Toledo Edison before moving Standardization creates more will considerably dimmish the l toward the creanon of its own op ortunities for volume buying allure of municipali:ation over l clectne system. Negnttanons are from vendors, resulting in ower the long term centmuing unit costs,it also reduces the vari-ety of items we must maintain in Another commumty, the Oty of We already have reduced out our inventory. One team, for ex-Btook Park, continues to study rates m Toledo to the extent ample, standardized utility pole the municipah:atmn issue. One practicable. However, we are specifications. That, alone, is of our largest industrial cus-offermg the City and its residents yielding $100,000 in annual tomers is located there We are a five-year, multi-milhon-dollar savings-negotiarmg with both of them to package ol energy-efficiency M i dhh programs, economic devel-Additionally, the teams looked g opment minanves and other at ways to reduce costs through community benefits. Our most improved work practices and QUAUTY CUSTOMER SERVICE rec ent price projecnons indicate better relations with suppliers, As part of the Rate Stabih:ation continued service from Toledo While teamwork is a hallmark of Program, we agreed to maintam Edison will be more economical Total Quality, individual effort can high quality elecinc service to for out customers over the long i be just as important. Hundreds customers. This, of course, is term than municipal servict of employees submitted ideas consistent with our traditional t in the Oty of Cleveland, to our suggestion program last commitment to customers. l Cleveland Pubhc Power con-year producing some $3 million Without them, we wouldn't be in In annual say ngs. business. l tinues its expansion program. It now serves about 53,000 Working in teams or on their own, We work in many ways to customers, er 25% of all electnc s Centerior people are employin9 respond to customer interests customers in the u, ty We con-Total Quality concepts to reduce and needs. Our monthly Elearic tinue to secure long-term con-costs. I Connutions newsletter, for tracts with key commercial and

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industrial customers in the City. cust mers showingthem how to In addition, we have launched use energy wisely and to reduce energy efhciency programs to their bdis. help our industrial and com-mercial customers in Cleveland lower thetr energy bdls.

l 4 Despite an unusual number of of the 590 milhon we plan to i storms during the sprmg and invest in such programs over the o i summer of 1992, our reliability next 10 years j record was above the average for l our mdustry comparison group. Demand-side programs include The customer favorabihty rating energy-efficiency rate incenoves, for Cleveland Electnc and Toledo e nsenati n imtiatives,1 ad Edison, combmed, was up c mr A energy mf rmanon another five percentage points and other measures to help in 1992, to 66% This is the customers reduce their monthly electric bills highest level since Centenor began tracking favorabihty. Why would an electric utthty Favorability I m ent j help customers reduce their ENERGY ElTICIENCY i j electric bills, thereby reducmg l Our most frequent request from utihty revenues? The reason is l g l customers is for new energy. that such measures are essential l cfficiency programs to help them to good customer service and 73 l l gam more control over their customer satisfaction. They also l l electncity usage and cost. he!p our commercial and indus-g j trial customers reduce costs This dovetails with our' demand-and remam competinve, thus 33 l side management" efforts to increasing our sales and revenue t !O reduce growth in Peak dem nd prospects to the ultimate hencht 40 i for electncity and spread kilo-of our share owners in addttion, watt-hour usage more evenly the efficient use of energy 30 ( l throughout the day, week and prntects the environment and l year. Improved usage patterns our planet's natural resources. 20 i permit us to use existing l generating facihties more As their part of the demand-side g efficiently and delay buildmg program agreement, customer l plant construction keeps down working with us to develop an { new power plants. Limiting new and environmental groups are g i long-term costs for our improved regulatory mechanism l customers and avoids any to allow us recovery of demand-g pg '97 g 92 l l environmental impact. Such side program costs and the costs i l efforts are consistent with the associated with lost revenues. l l objecuves of the Energy Act. l \\ COhtMLRCIAL ANDINDUSTRIAL l late in 1992,we reached agree-PARTNER 51ilPS l ment with customer and We work hard with our environmental groups on a plan to mvest $35 million in demand-cust mers to improve icir j ( side programs from 1993 satisfacti n and competinveness. through 1995. This will b-part i i i o r I i l [ i

t i + i i 3 i i 1 J l These workmg partnerships growth in energy consumption. help retam and create jobs for with electncity expandmg tts l Northern Ohio-a wm wm share of the energy pie I j proposition for us and the We believe that electne energy d communines we sers e l is a good value for the price We l f or example, Horsburgh 6c scott, also know it is the most efficient, j an mdustrial gear maker m economical and environmentally ) Cln eland, ts savmg 550.000 companble form of energy for l , ash Generated a > car m total energy costs as a most apphcanons, consistent From Results Of resuh of our energy-sarmg with national energy objectives. Operations

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e "" recommendations. American t l Sprmg Wue in a Cleveland We enc urage electnc-powered suburb is saving 572100 rechnologies by offenng rate n l l annually from the electncalload

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G and other benehts to commercial t i management system we helped ~ j 2 f the hrm develop. j andindustrialcustomers Electric process heatmg for example,is i We're also planmng a cogen-a sound economic investment l eranon projett with Sauder for many manufacturers. As we j Woodworking. one of the develop new markets for elec-l j nation's largest manufacturers of tncity, the customer also benchts M l ready-to-assemble furniture, from improved efhciency and located west of Toledo Sauder reduced costs 250 Q; plans to burn woodwaste and l sawdust to generate electncity We are adding electnc vehicles "m l for sale to Toledo Ed: son. This to our Deet to gain hands-on partnership adds to our elec-experience regardmg the I tricuy supply while ehminatmg' operatmg characteristics and 15j some of the 200 tons of waste c sts of these pollution-free cars 9-l and trucks of the future. Wah o d this customer produc es each dar. i 1 assistance and support from our Sauder is the largest electnaty mdustry research orgam:ation. user in the commumty of the Electric Power Research M M 9] '91 m2 j i ArcFbold. Our partnership with Insuture (EPRI), we are working l 'Nr! mum,r wl:usk lfM lhc m"wh Yqa:t d 3 q Sauder not only helps a customer with business, industrial, g, m., g,,,3m m a,p,39,,4 l stay c ompentive, it also helps academic and civic representa-sc,,ur w nmiw wa i,nnwr,a as I ( maimam the econorme heahh rives to build a local framework mJn h e h$ndsw any l of the entire commumty. for the development and ""

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commerciah:ation of electric '""*"A""' { Nf WMARfli$ vehicles. Production of electnc vehicles could mean a major new j Even with the growmg emphasis i l industry for Northern Ohio, i on energy efhciency and con-i hundreds of newjobs and a new servation, the U.S Department I i i source of revenue for us. of E.nergy forecasts contmued n i l i l l ~ ~-. - -

i d t i PORTR PLANT OPERATIONS capacuy to serve our customers' needs. We als have adequate gen- { n In today's competmve chmate, crati n avadable at low margmal j l power plam operations are among mt t pursue intermediate and i our most importam strengths. i long-term wholesale power i l Our three nudear units provided contracts wah other unhties The 1 44% of our total output m 1992. pre-tax contribution to earnings j All performed well, wnh the from these sales was about 5135 Davis-Besse Nuclear Power Station milhon over the last f te years. I achiermg the highest capacnv factor (total power generated h nsuun n n Perry Unn 2 has Pre Tax Contribution been suspended smce 1985 We To Earnings From compared with total capabihty) c ntine to nww vanous opnens Off-System Sales 1 among the 110 commercial nuclear includmg resumed construcuan. 5 mumm ) units m the U.S. Davis-Besse's c mmion to a nonnuclear design, capacity facter was 99%. l sale of all or part of our ownership For the three years ended 1992, or cancellation The umt is about 40 our three nuclear units achieved 50% complete. If it were canceled, l j high leveh of avadabdity which our net mvestment would have to be 35 l 1s the penentage of time a umt is written ofL If n were converted to a j avadabie to generate cleetncay nonnuclear design, we would have 30 i to wnte off the cost of unusable The three-year avadabihty averages nuclear equipment and f acihties. 25 j of Davis-Besse and Deaver Valley ,k Umt 2, which is operated by LNVIRONMENTAL AND 20 l Duquesne Light Company, were SAf EITisSUES 84% and 87% respectively. The 15 most receta three-year industry We remain committed to protecung the environment. j average for such pressun:ed-water reactors was 755 Perry Unit 1 Because of previous reductions m had a _< 6% average compared sulfur dioxide emissions, we face 5 to the industry average of 72% for comparanvely moderate costs to boihng-water reactors. meet the emission standards set by 0 j the Clean Air Act Amendments of j As for our fossd-fueled plams, the 12 umts that help make up our 1990 We've reached agreement baseload capacity also performt d wnh imervemng groups on a com-ss s9 >9a 9; 92 t weil as they achieved a combmed phance plan and have apphed for avadabihty average of 83% in 1992. approva.1 from The Pubhc Unhoes Commissmn of Ohio and the U.S. The good performante of our Environmental Protection Agency nuclear units and a decrease in the cost of fuel m 1992 resulted in a The plan calls for expendaures of about S208 milhon by the year 3% reduction of the f uel factor in I eustomer bdls. We expect a f urther 2002. Th sleast-cost plan also calls reductmn in 1093. for Cleveland Electric to place in service a scrubber or other sulfur j l Wuh our combmed nuclear and dioxide enussen control equip-i fossil generation, we have enough ment after 2004 The potential rate o l i i 1

- ~ I I N - H 0 U S.E T R 0 U B L 'E -;S H 0.0 T E R S j 9 The maintenance of boilers, turbine-generators and auxiliary . equipment for some 30 fosslI-fueled generating units often ' increase associated with these requires the help of contractors Another environmental concern is-i expenditures would be about 1-2% and consultants at considerable the effect of Electric and Magnetic l in the late 1990s and another in-expense.- Fields, known as EME These helds crease after the year 2000 for an ate associated with electrical j aggregate total of only 3-6%. Many Through the past decade or so, voltage and current.They are coal-based utthties in our region we have worked to controlthe es-found anywhere clecnicity is used. i fac e mot e substantial cost increases calating costs forthese services. i We have developed our own Studies of potential health har.atds Our three nuclear generating umts teams of highly quellfled person-from EMF have been inconclusive l not only are free of sulfur dioxide nel, known collectively as the thus far. The issue remains under emissions, they also keep the air Technical Support Section. study by the electne utility - 1 free of the carbon dioxide, a mdustry, parucularly EPRI, and a " greenhouse" gas, that would result Teams from this section provide international health orgamzations. from the same amount of electncity day to-day consultations, analy-We are monitoring the progress of being produced from coal. ses and trouble-shooting to these studies and are pleased that l power plantstaffs.Here are some the Energy Act provides increased j We esnmate that our nuclear of the team recommendations funding for research in this area. I generation has prevented 70 milhon that were implemented in 1992: tons of carbon dioxide emissions IIIE CENTERIOR WORKFORCE over the past 10 years and will

• Repairing, on our own, turbine Our successes would have been :

prevent an additional 200.300 blades at the Bay Shore Plant impossible and our goals for the I milhon tons over the next 20 years. rather than buying replacement future would be unattainable with-l blades as recommended by the t out ur outstanding workforce of j We have an environmental original manufacturer. Savings: initiative under way with LTV Steel s700,000, men and women m power plants, g and Air Products Inc, two of our service centers and olhces through-i

• Having a Technical Support biggest customers. Together we out our service area.

j team, instead of the original F are seekmg fundmg from the U.S. marsutacturer, carry out a detailed Their concem for customers is the Department of Energy to evaluate a inspectionof aturbine-generator reason we are known for quahty new technology, called COREX* at the Ashtabula Plant. Savings: electric service. Their com.mitment - l for making steel.The new process More than $40,000. to cost reduction has kept us I burns coal directly wah iron me, financially viable. Their high level ehminating the use of coke, which

• Repairing and replacing main 60 mecrism has won nadonal would reduce LTV's pollution.

boller feedwater pumps without .j control costs. The process also outside assistance. Savings: At recognition and helps us remam j least $10,000 for each overhaul. a visible and salued presence m creates combustible process gas the commumtv. which we could use to generate

• Fabricating special tools rather electricity. Our other partner Air than renting them. Savings:

The Centenor Board of Directors Products, would use some of the $20,000 per use. and officers are proud of the clectncity to make the oxygen Centerior Energy team. With their needed by the COREX* process. In-house maintenance and repalt help, we are conhdent of our abdity Completion of this project would saves money and helps our em-to fulhll our corporate responsibihty provide us with about 150addmonal ployees improve their job skills. to share owners, customers and megawatts of electricity for sale the comm:mities of Northern Ohio. while helpmg two important -l customers stay compettave i ) ~ l 1

i a y ement's Statement of Responsibility ancial Statements l t The management of Centerior Energy Corporation is The Board has appointed an Audit Committee, com- ? responsible for the consolidated financial statements prised entirely of outside directors, which met two i U in this Annual Report. The statements were pre-times in 1992. The Committee recommends annually ' i pared in accordance with generally accepted account-to the Board the hrm of independent public account- .j ing principles. Under these principles, some of the ants to be retained for the ensuing year and reviews - i recorded amounts are based on estimates which are, the audit approach used by the accountants plus the -l in turn, based on an analysis of the best information results of their audits. It also oversees the adequacy ] available. and effectiveness of our intemal accounting controls and ensures that our acmunting system produces. j We maintain a system of intemal accounting controls "#"cial statements which present fairly our financial designed to assure that the financial records are sub-stantially complete and accurate. The controls also are designed to help protect the assets and their related records. We structure our control procedures such that their costs do not exceed their benefits. Our internal audit program monitors the internal ac-l l counting controls. This program gives us the oppor-tunity to assess the adequacy and effectweness of E H' MAU,GANS. dent and -i lhecutier Uce Presi q existing controls and to identify and institute changes Chief financial Officcr where needed. In addition, an examination of our 1 fmancial statements is conducted by Anhur Andersen & Co., independent public accountants, whose report l appears below. 1 Our Board of Directors is responsible for determining ' Q[ A, l whether management and the independent public 7 e accountants are carrying out their responsibilities. PAUL G. BUSBY l The Board is also responsible for making changes in Centroller and <t g management or independent public accountants if Chief Accounting Of]icer needed. Report of independent Pub c Accountants t' ARTHUR To the Share Owners and Board ANDERSEN ~ o of Directors of Centerior Energy Corporation: l I We have audited the accompanying consolidated bal-subsidiaries as of December 31,1992 and 1991, and i ance sheet and consolidated statement of preferred the results of their operations and their cash flows for - stock of Centerior Energy Corporation (an Ohio cor-each of the three years in the period ended December. l poration) and subsidiaries as of December 31,1992 31,1992,in conformity with generally accepted ac-e and 1991, and the related consolidated statements of counting principles. 2 income, retained camings and cash flows for each of As discussed further in the Summary of Significant .t the three years in the period ended December 31, Acc untmg Policies, a change was made m, the 3 1992. Ther.e financial statements are the responsibility method of accounting for nuclear plant depreciation of the Company's management. Our responsibility is in 1991, retroactwe to January 1,1991. to express an opinion on these fmancial statements based on our audits. As discussed further in Note 3(c), the future of Perry i Unit 2 is undecided. Construction has been sus-We conducted our audits in accordance with generally pended since July 1985. Various options are being accepted auditing standards. Thoce standards require e nsidered, mclud, g resummg construction, con-m that we plan and perform the audit to obtain reason, vertmg the umt to a nonnuclear design, sale of all or able assurance about whether the financial Matements a*e free of material misstatement. An audit includes pan of the Company's ownership share, or canceling examining, on a test basis, evidence supporting the !he um,t. Management can gwe no assurance when, -t amounts and disclosures in the financial statements. f em Pcrry Unit 2 will go in service or whether the l An audit also includes assessing the accounting princi. Company,s investment m, that unit and a retum j thereon will ultimately be recovered. ples used and significant estimates made by manage-ment, as well as evaluating the overall financial " statement presentation. We believe that our audits i provide a reasonable basis for our opinion. My [k { 5 in our opinion, the financial statements referred to above present fairly, in all material respects, the finan-Cleveland Ohio ctal positmn of Centerior Energy Corporation and h M93

- Summary of Significant Accounting Policies GENERAL nuclear fuel disposal costs are being recovered Centerior Energy Corporation (Centerior Energy) is a through the base rates. n' holding company with two electric utilities as subsid-The Operating Companies defer the differences be-iaries, The Cleveland Electric illuminating Company tween actual fuel costs and estimated fuel costs cur-(Cleveland Electric) and The Toledo Edison Com-rently being recovered from customers through the pany'(Toledo Edison), The consolidated fmancial fuel factor. This matches fuel expenses with fuel-statements also indude the accounts of Centedor En-related revenues. ergy's other wholly owned subsidiary, Centerior Ser-vice Company (Service Company), and Cleveland Electric's wholly owned subsidiaries. The Service DETERRED CARRYING CHARGES AND OPERATING EXPENSES Company provides management, financial, adminis. trative, engineering, legal and other services at cost to As discussed in Note 6, the January 1989 PUCO rate Centerior Energy, Cleveland Electric and Toledo orders for the Operating Companies induded ap-Edison. Cleveland Electric and Toledo Edison (Oper-proved rate phase.in plans for their investments in ating Companies) operate as separate compames, Perry Nudear Power Plant Unit 1 (Perry Unit 1) and each sernng the customers m its service area. The Beaver Valley Power Station Unit 2 (Beaver Valley preferred stock, first mortgage bonds and other debt Unit 2). These plans called for the Operating Compa-obligations of the Operating Compames contmue to nies to begin deferring in January 1989 operating be outstanding securities of the issuing utility All expenses and both interest and equity carrying sigruficant intercompany items have been ehmmated charges on deferred rate. based investment. These de-m consolidation-ferrals, called phase.in deferrals, will be amortized Centerior Energy and the Operating Companies fol. and recovered by December 31,1998. Previously, the low the Uniform System of Accounts prescribed by PUCO authorized the Operating Companies to defer the Federal Energy Regulatory Commission (FERC) operating expenses and carrying charges for Perry and adopted by The Public Utilities Commission of Unit I and Beaver Valley Unit 2 from their respective Ohio (PUCO). As rate-regulated utilities, the Operat-in-service dates in 1987 through December 1988. The ing Companies are subject to Statement of Financial amortization and recovery of these deferrals, called Accounting Standards (SFAS) 71 which governs pre-phase-in deferrals, also began in January 1989 and accounting for the effects of certain types of rate will continue over the lives of the related property. Beginning in January 1992, the O k regulation. The Service Company follows the Unifonn deferred charges for depreciation;perating Companie System of Accounts for Mutual Service Compames property taxes and presenbed by the Secun, ties and Exchange Comrms-interest carrying charges related to plant placed in sion (SEC) under the Public Utility Holding Com-service after February 29,1988 and not yet induded pany Act of 1935. in rate base. The PUCO authorized these deferrals in The Operating Companies are members of the Central October 1992 under a Rate Stabilization Program. Area Power Coordination Group (CAPCO). Other Similar deferrals may be recorded through December members include Duquesne Light Company (Du-31,1995. Amortization and recovery of these defer-quesne). Ohio Edison Company (Ohio Edison) and rals will occur over the average life of the assets and Ohio Edison's wholly owned subsidiary, Penn-will commence with future rate recognition. See Notes sylvania Power Company (Pennsylvania Power). The 6 and 13. Toledo Edison is also deferring operating members have constructed and operate generation expenses equivalent to an accumulated excess rent and transmission facilities for their use, reserve for Beaver Valley Unit 2 over a 39-month period commencing October 1,1992. Amortization REVENUES and recovery of this deferral will occur over the unit's remaining lease term beginning in 1996. See Note 6. Customers are billed on a monthly cyde basis for their energ~y consumption based on rate schedules or con-DEPRECIATlON AND AMORTIZATlON tracts authonzed by the PUCO or on ordinances of individual municipalities. An accrualis made at the The cost of property, plant and equipment is depred-end of each month to record the estimated amount of ated over their estimated useful lives on a straight-unbilled revenues for kilowatt-hours sold in the cur-1 ne basis. The annual straight-line depreciation pro-rent month but not billed by the end of that month. vision for nonnudear property expressed as a per-A fuel factor is added to the base rates for electric cent of average depreciable utility plant in service was. service. This factor is designed to recover from cus-3.4% in both 1992 and 1991 and 3.3% in 1990. Effec-tomers the costs of fuel and most purchased power. It tive January 1,1991, the Operating Companies, after is reviewed and adjusted semiannually in a PUCO obtaining PUCO approval, changed their method of proceeding. accounting for nudear plant depreciation from the units-of-production method to the straight-line method at about a 3% rate. This change decreased TUEL EXPENSE 1991 depreciation expense $36 nullion and increased The cost of fossil fuel is charged to fuel expense based 1991 net income $28 million (net of $8 million of on inventory _ usage. The cost of nudear fuel, indud-income taxes) and earnings per share 5.20 from what ing an interest component, is charged to fuel expense they otherwise would have been. The PUCO subse-based on the rate of consumption. Estimated future quently approved in 1991 a change to lower tha 3%

i rate to 2.5% retroactive to January 1,1991; See 'tized over the terms of leases. These amortizations-i Note 13. and the lease expense amounts are recorded as other i The Operating Companies use external funding of operation and maintenance expenses. See Note 6.- l future decommissioning costs for their operating nu- . clear units pursuant to a PUCO order. Cash contri-INTEREST CHARGES j butions are made to the trust funds on a straight-line Debt Interest reported in the Income Statement does basis over the iemaining licensing period for each not include interest on obligations for nuclear fuel unit. The current level of expense being; funded and under cor.struction. That interest is capitalized. See recovered from customers over the remammg licens-Note 5' ing periods of the units is approximately 58 million annually. Amounts currently in rates are based on lesses and gains realized upon the reacquisition or j past estimates of decommissioning costs of $122 mil. redemption of long-term debt are deferred, consistent 'i lion in 1986 dollars for the Davis-Besse Nuclear Power with the regulatory rate treatment. Such losses and Station (Davis-Besse) and $72 million and 563 mil. gains are either amortized over the remainder of the l lion in 1987 dollars for Perry Unit I and Beaver Valley original life of the debt issue retired or amortized Unit 2, respectively. Actual decommissioning costs over the life of the new debt issue when the proceeds are expected to significantly exceed these estimates. of a new issue are used for the debt redemption. The l We expect to complete our assessment of these esti_ amortizations are included in debt interest expense. l mates in 1993 to update the decommissioning cost amounts and to continue to satisfy the external fund-EEDERAL INCOME TAXES ing requirements. It is expected that increases in the cost estimates will be recoverable in future rates. The Financial Accounting Standards Board (FASB) -- 1 The present funding requirements for Beaver Valley issued a new standard for accounting for income taxes l Unit 2 also satisfy a similar commitment made as (SFAS 109) in February 1992. We adopted the new - standard in 1992. The new standard amends certain - l part of the sale and leaseback transaction discussed in Note 2. In the Balance Sheet at December 31,1992, pmnsi ns f SFAS 96 previously adopted in 1988. .i Accumulated Depreciation and Amortization in. Adoption of the new standard in 1992 did not materi-cluded 558 million for the cumulative total of decom_ ally affect our results of operations, but did affect certam Balance Sheet accounts. See Note 7. ( missioning costs previously expensed and the earnings on the external funding. This amount ex-The financial statements reflect the liability method of ceeds the Balance Sheet amount of the extemal Nu-accounting for income taxes. This method requires l clear Plant Decommissioning Trusts because the that deferred taxes be recorded for all temporary cl reserve began prior to the external trust funding. differences between the book and tax bases of assets h and liabilities. The majority of these temporary dif. PROPERTY, PLANT AND EQlllPAfENT ferences are attributable to property-related basis dif-ferences. Included in these basis differences is the Property, plant and equipment are stated at cri;inal . equity compcment of AFUDC, which will increase t cost less any amounts ordered by the PUCO to be future tax expense when it is recovered through rates.- written off. Construction costs include related payroll Since this component is not wcognized for tax pur - t taxes, pensions, fringe benef ts, management and poses, we must record a liability for our tax obliga-general overheads and allowance for funds used dur-tion. The PUCO permits recovery of such taxes from ~j ing construction (AFUDC). AFUDC represents the customers when they become payable. Therefore,. r estimated composite debt and equity cost of funds the net amount due from customers through rates has t used to finance construction. This noncash allowance been recorded as a regulatory asset in deferred J is credited to income, except for certain AFUDC for charges and will be recovered over the lives of the j Perry Nuclear Power Plant Unit 2 (Perry Unit 2). See related assets. Note 3(c). The AFUDC rates averaged 10.8% in 1992, Investment tax credits are deferred and amortized I 105% m 1991 and 10.8% m 1990. over the estimated lives of the applicable property. Maintenance and repairs are charged to expense as as a reduction of depreciation expense. See Note 6 incurred. The cost of replacing plant and equipment is for a discussion of the amortization of certain - i charged to the utility plant accounts. The cost of unrestricted excess deferred taxes and unrestricted property retired plus removal costs, after deducting investment tax credits available after 1998 under the - any salvage value,is charged to the accumulated Rate Stabilization Program. provision for depreciation. =j RECLASSITICATIONS i DEEERRED GAIN AND LOSS TROAf Certain reclassi6 cations were made to prior years. i SALES Of UTillTY PLANT financial statements to make them comparable with The sale and leaseback transactions discussed in Note the 1992 financial statements. A reserve for Perry Unit ..t 2 resulted in a 1.et gain for the sale of the Bruce 2 AFUDC, which was previously reported under Mansfield Generating Plant (Mansfield Plant) and a Defermd Credits in the Balance Sheet, was reclassi- ~i net loss for the sale of Beaver Valley Unit 2. The net fied as an offset against the Perry Unit 2 asset balance. A gain and net loss were deferred and are being amor-See Note 3(c). l -l l

Management's Finencial Analysih RESULTS OP OPERATIONS We face further challenges in the years to come. In 1994, expense deferrals provided in the 1989 agree-n Orvrvicu' ment will cease. The amortization of the deferrals In recent years, our efforts to add our substantial tal'en from 1989 through 1993 will also begin and i nuclearinvestment to rate base while maintaining a continue through 1998. The amortization schedule competitive rate structure have resulted in a series provides for 527 million in 1994, increasing to $318 of agreements with the major intervenors in our million in 1998. An additional $39 million of rate cases. One agreement was approved by the expense deferrals for 1990 and 1991, related to e pUCO in January 1989 and is described more fully certain provisions of the phase-in plans, will be in Note 6. It established our rate phase-in plans to amortized and recovered by December 31,1998. In recognize in rates our allowed investment in Perry addition, we are still confronted with competitive Unit I and Beaver Valley Unit 2. The phase-in threats from municipal electric systems within our plans increased revenues and cash flows but were service territory and from cities contemplating designed to have a relatively neutralimpact on creation of their own electric systems. Although the .i earnings. Gains in revenues were to be initially rate of inflation has eased in recent years, we are offset by a reduction in the deferral of operating still affected by even modest inflation which causes expenses and carrying charges and subsequently increases in the unit cost of labor, materials and offset by the amortization of such deferrals. A key services. assumption underlying the phase-in plans was i To combat the forces described above, we have that revenues would increase as a result of pro- .j jected sales growth. When sales decreased prima _ embarked on the following course. Reductions m 3 rily because of a sluggish economy, earnings were other operation and mamtenance expenses and adversely affected. c pital expenditures were implemented in 1991 and 1992 and will be vigorously pursued m 1993 and A number of other factors also exerted a negative beyond. We will further reduce staffing levels and influence on earnings. These factors included the look to improve efficiency of operations wherever recording of nuclear plant depreciation at levels in possible. We are aggressively attempting to in-l excess of that reflected m rates, the recording of crease revenues by seeking additional long-term depreciation and interest charges on facilities power sales agree'ments with wholesale customers placed in service after February 1988 as current and by exploring various corporate asset transac-expenses even though such items were not beinS tions. The Energy Policy Act of 1992 (Energy recovered in rates and the effect of inflation on Act), which requires utilities to transmit elect'ricity expenses. Also, the need to meet competitive from wholesale suppliers to wholesale customers, I forces, coupled with a desire to encourage eco-will provide new opportunities for us to make { nonue growtn ir, our service area, prompted us to wholesale power transactions. To counter munici-reduce rates for various communities and certain pal electric system initiatives, we have continued ) industrial and commercial customers. programs that demonstrate the value inherent in We determined that the best solution to address our service, beyond what one might expect from a these factors was to delay rate increases and imple-municipal system. Such programs include provid- ? ment cost-reduction and revenue-enhancement ing services to communities to help them retain strategies. Furthermore, we sought PUCO ap-and attract businesses, providing consulting ser-proval of regulatory accounting measures designed vices to customers to improve their energy effi-to recognize the effects of a delay in rate recovery ciency and developing demand-side management t of certain costs and provide a better match of programs. current revenues and operating expenses. In 1991, I Increases in sales are expected to be modest with we obtamed PUCO approval to change the method annual sales growth projected at about 1-2% for the and rate of accrumg nuclear plant depreciation. In October 1992, the PUCO approved a Rate Stabih,- next several years, depending upon the economic i climate in our service area. Recognizing the fact zation Program, which was supported by certain that costs can be reduced only so far and the customer representative groups, as discussed m 1 m tations imposed by our sales forecasts and com-Note 6. Under the terms of the Rate Stabilization Program, we agreed to freeze base rates until 1996 petition in the wholesale power market, rate in-and to limit rate increases through 1998. In ex-creases will be necessary eventually to recognize change, we are permitted to defer and subse-the cost of our new capital investment, including that being deferred under the Rate Stabilization quent'y recover certain costs not currently Program, and inflation. recovered m rates and to accelerate amortization of certain benefits. However, our ability to utilize We believe that our Rate Stabilization Program and l these regulatory accounting measures is dependent our strategies to reduce costs and increase reve-

)

upon our taking significant actions to reduce costs nues give us the opportunity to improve our com-and increase revenues. It is also dependent upon an petitive position and our earnings. Nevertheless, ongoing determination that recovery of the de-we operate in a changing industry and market. We ferred costs in rates is probable. must monitor the impact of these changes on our t S

i t strategy and the continued appropriateness of the The federalincome tax provision for nonoperating -l regulatory accounting provided by our various income decreased because of lower carrying 1' agreements. charge credits and a greater tax allocation of inter-est charges to nonoperating activities. Credits for i c rrying charges recorded in nonoperating income l 1992 es.1991 decreased pnmanly because of lower phase-m car - Factors contributing to the 4.8% decrease in 1992 rying charge credits. Interest charges decreased as l operating revenues are as follows: a result of debt refinancings at lower interest rates j and lower short-term borrowing requirements. l occreuse in oversong Revenues s Sales Volume and Mix. 5 79 Base Rates and Miscellaneous. 32 1 91 es.1990 Fuel Cost Recovery Revenues, 11 Factors contributing to the 5.5% increase in 1991 l M2 operating revenues are as follows: .l The revenue decreases resulted primarily from the Minions i '"c"85' i" OP"i"K R'"'""'5 of D'H8'S l different w eather conditions in both years and the changes in the composition of the sales mix Base Rates and Miscellaneous. $ 86 Sales Volume and Mix 28 among customer categories. Weather accounted for Wholesale Sales. 19 l approximately 577 million of the lower 1992 reve-nues. Winter and spring in 1992 were ndidec than 5133 i in 1991. In addition, the 1992 summer was the coolest in 56 years in Northem Ohio as contrasted The increases in base rates and miscellaneous 'l with the summer of 1991 which was much hotter revenues resulted primarily from rate increases in i ihan normal. As a result, total kilowatt-hour sales the January 1989 PUCO rate orders for the l decreased 1.1% m 1992. Residential and commercial Operating Companies as discussed in Note 6. Total sales decreased 4.5% and 13%, respectively, as kilowatt-hour sales increased 1.1% in 1991. I moderate temperatures in 1992 reduced electric Residential and commercial sales increased 4.7% l heating and cooling demands. Industrial sales were and 4.8%, respectively, as a result of higher usage virtually. the same as m 1991 as sales increases to of cooling equipment in response to the unusually steel producers and auto manufacturers of 10.9% warm late spring and summer 1991 temperatures.

9 and 2.7%, respectively, offset a dechne m sales t The commercial sales increase was also influenced W

other mdustrial customers. Other sales increased by some improvement in the economy for the - 23% because of increased sales to wholesale cus-commercial sector. Industrial sales declined 5% tomers. Operating revenues in 1991 mcluded the Ingely because of the recession-driven slump in recognition by Toledo Edison of $24 million of the steel, auto and chemical industries. Other sales deferred revenues over the period of a refund t increased 8.5% because of increased sales to customers under a provision of its January 1989 rate wholesale customers and public authorities. I order. No such revenues were reflected m 1992 as the refund period ended in December 1991. The Operating expenses increased 3% in 1991. The decreases m 1992 fuel cost recovery revenues re-increase was mitigated by a reduction of 562 sulted pnmarly because of the good performance million in other operation and maintenance of our generatmg units, which m turn decreased expenses, resulting primarily from cost-cutting our fuel cost factors. The weighted averages of measures. Offsetting this decrease were an increase these factors decreased approximately 3% for the in federalincome taxes because of hi her pretax Operating Compames. operating income; an increase in fuef and pur- [ Operating expenses decreased 4% in 1992. Lower chased power expense resulting primarily from j fuel and purchased power expense resulted from increased amortization of previously deferred fuel less amortization of previously deferred fuel costs costs over the amount amortized in 1990; an in-than the amount amortized in 1991 and lower crease in taxes, other than federd income taxes, 1 generation requirements stemming from less elec-resulting from higher property and gross receipt tric sales. A reduction of $17 million in other opera-taxes and accruals for Pennsylvania tax increases - tion and maintenance expenses resulted primarily enacted in August 1991; and lower operating ex-from cost-cutting measures. Federal income taxes pense deferrals for Perry Unit 1 and Beaver Valley decreased because of the Rate Stabilization Pro-Unit 2 pursuant to the January 1989 rate orders. t gram's amortization of certain tax benefits and the effects of adopting SFAS 109 in 1992. These de-Credits for carrying charges recorded in creases were partially offset by higher depreciation nonoperating income decreased in 1991 because a j and amortization, caused primarily by the adop-greater share of our investments and leasehold tion of SFAS 109, and by higher taxes, other than interests in Perry Unit 1 and Beaver Valley. Unit 2 federal income taxes, caused by increased Ohio were recovered in rates. The federal income tax i property and gross receipts taxes. Deierred operat-provision for nonoperating income increased ~ ing expenses increased as a result of the deferrals mainly because the 1990 provision was reduced 538 under the Rate Stabilization Program as mentioned million for unamortized investment tax credits on - ? in Note 6. the 1988 write-off of nuclear plant investments.- i s

l i I f CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES 'I income Statement For the years ended December 31, j 1992 1991 1990 l L (millions of dollars, r except per share amounts) - o . Operating Revenues $2A38 $2,560 $2A27 l Operating Expenses { 473 500 472-Fuel and purchased power. Other operation and maintenanm 784 801 -863-Total operation and maintenance 1.257 1,301 1,335 l 256 243 242 l Depreciation and amortization. Taxes, other than federal income taxes. 318 305 283 } Deferred operating expenses, net. (52) (6) .(34)- 1 122 138 96 l Federal income taxes. 1.901 1,981 1,922 I Operating income 537 579 505 Nonoperating income Allowance for equity funds used during construction 2 9 8 { Other income and deductions, net. 9 6 (1) i 100 110 205 ) Deferred carrying charges. Federal income taxes - credit (expense). (7) (30) (13) 104 95 199 income Before interest Charges and Preferred Dividends.. 641 674 704 .j -Interest Charges and Preferred Dividends 365 381 384 Debt interest Allowance for borrowed funds used during construction... (1) (5) (6) i Preferred dividend requirements of subsidiaries.. 65 61 62 429 437 '440 ~ .f $ 212 $ 237 $ 1264 Net Income. Average Number of Common Shares Outstanding (millions) 141.7 139.1 138.9 l i Earnings Per Common Share $ 1.50 $ 1.71 $ 1.90 Dividends Declared Per Common Share,.. ....... $ 1.60 $ 1.60 ' $ 1.60 Retained Earnings For the years ended December 31, 1992 1991 1990 (millions of dollan) f Balance at Beginning of Year.. $ 664 $ 655- $ 614 1 Additions -1 212 237 264 Net income Deductions Common stock dividends.. (226) (222) (222) Other, primarily preferred stock redemption expenses of subsidiaries. (3) (1) -(1) Net Increase (Decrease)... .(17) 14 41 Balance at End of Year $ 652 $ 669 5 655 The accompanying notes and summary of significant accounting policies are an integral part of these statements.

t ~ i Management's Financial Analysis CAPITAL RESOURCES AND LIQUIDITY material adverse effect on our liquidity. See Note We need cash for normal corporate operations, the 3(d)- -i f mandatory retirement of securities and an ongoing We expect to be able to raise cash as needed. The program of constructing new facilitics and modi-availability and cost of capital to meet our external fying existing facilities. The construction program financing needs, however, depends upon such l is needed to meet anticipated demand for electne factors as financial market conditions and our credit j service, comply with governmental regulations ratings. Apparently, the market perceives the Op-i and protect the environment. Over the three-year erating Companies as having a greater risk than + period of 1990-1992, these construction and their credit ratings would indicate. Therefore, in mandatory retirement needs totaled approximately 1992, the Operating Companies had to offer interest $1.3 billion. In addition, we exercised various op-and dividend rates on certain of their new debt ' -l tions to redeem and purchase approximately $1 and preferred stock securities which were signifi. billion of our securities. cantly higher than those that would be expected l We raised $2.1 billion through security issues and for securities having the credit ratings of the Oper-term bank loans during the 1990-1992 period as ating Companies. Current securities ratings for } shown in the Cash Flows statement. During the the Operating Companies are as follows: l three-year period, the Operating Companies also Sundard Moody's l utilized their short-term bonowing arrangements & Poor's hers i (explained in Note 11) to help meet their cash corporation Smiice j needs. The Operating Companies had $50 million Cleveland Electnc j of short-term borrowings outstanding at December 31,1992. First mortgage bonds BBB-Baa3 i' Unsecured notes BB+ Bal Estimated cash requirements for 1993-1995 for Preferred stock. BB+ bal l Cleveland Electric and Toledo Edison, respectively, are $658 million and $203 million for their con-Toledo Edison g-struction programs and $627 million and $154 mil-First mortgage bends BBB-Baa3 { lion for the mandatory redemption of debt and Unsecured notes DB+ Ba1 preferred stock. Cleveland Electric and Toledo Preferred stock... BB+. ba2 Edison expect to fmance externally about 75% of their total 1993 cash requirements of approximately The ratings of Moody's Investors Service, Inc. for I $530 million and $118 million, respectively. About Cleveland Electric set forth above reflect a down-l 50-60% of the Operating Companies' 1994 and grade in February 1993. S i 1995 requirements are expected to be financed ex-ternally. If economical, additional securities may be Barring unforeseen circumstances, we believe that redeemed under optional redemption provisions. the 1989 rate agreement and the 1992 Rate Stabili-J 1 See Notes 10(d) and (e) for information concern-zation Program afford us a reasonable opportunity. ing limitations on the issuance of preferred stock to take the significant actions necessary to achieve and debt. financial results which should permit Centerior Energy to continue the current quarterly common Our capital requirements after 1993 wd. l depend on stock dividend of 5.40 per share. Nevertheless, our implementation strategy to achieve comph-dividend action by our Board of Directors will ance with the Clean Air Act Amendments of 1990 continue to be decided on a quarter-to-quarter basis (Clean Air Act). Expenditures for our optimal after the evaluation of financial results, potential plan are estimated to be approximately $208 mil-earning capacity and cash flow. A write-off of our lion over the 1993-2002 period. See Note 3(b). nvestment in Perry Unit 2, as discussed in Note The Operating Companies are aware of their po-3(c), would not reduce our retained earnings suffi-

I tential involvement in the cleanup of nine hazard-ciently to impair our ability to declare common

-) ous waste sites. However, we believe that the stock dividends and would not affect our cash ultimate outcome of there matters will not have a flow. I -i l 1

CENTERIOR ENTRGY CORPORATION AND SUBSIDIARIE.S For the years ended December 31, 1942 1991 1990 u (mdlions of dollars) Cash Tiows from Operating Activities (1) Net income. $ 212 $ 237 $ 264 Adjustments to Reconcile Net income to Cash from Operating Activities: 256 243 242-Depreciation and amortization. Deferred federal income taxes 95 85 142 (14) 43 (34) Investment tax credits, net Deferred and unbilled revenues. (6) (51) (61) Deferred fuel I 18 (12) Deferred carrying charges. (100) (110) (205)' 126 123 84 Leased nuclear fuel amortization. Defeaed operating expenses, net. (52) (6) (34) A!!owance for equity funds used during construction. (2) (9) (8) _41) ( Pension settlement gain. Changes in amounts due from customers and others, net. 7 14 (26) Changes in inventones.. (10) (22) (29) (5) (49) 46 Change 3 in accounts payable. Changes in working capital affecting operations 8 19 (25) Other noncash items 3 1 7 Total Adjustments. 307 299 46-Net Cash from Operating Activities. 519 536 310 Cash Flowsfrom Tinancing Activities (2) Bank loans, commercial paper and other short-term debt 50 (110) 110 Debt issues: First mortgage bonds 600 167 h 138 285 338 Secured medium-term notes.. Term bank loans and other long-term debt.. 135 108 31 74 125 Preferred stock issues. Common stock issues.. 53 32 (3) -(26) Reacquired common stock.. (1,013) (312) (395) Maturities, redemptions and sinking funds. Nuclear fuellease obligations. (117) (116) (99) Common stock dividends paid. (22.6) (222) (222) Premiums, discounts and expenses. (14) (7) (7) Net Cash from Financing Activities (323) (217) (103) Cash Tiows from investing Activities (2) (200) (189) (237) Cash applied to construction Interest capitalized as allowance for borrowed funds used during construction. (1) (5) (6) (43) Sale and leaseback restructuring fees. (36) (1) (14) Other cash applied. (280) (195) (257) Net Cash from investing Activities. Net Change in Cash and Temporary Cash investments.. (84) 124 (50) Cash and Temporary Cash investments at Beginning of Year 177 53 103 $ 93 $ 177 $53 i Cash and Temporary Cash investments at End of Year. (1) Interest paid (net of amounts capitalized) was $299 million,5339 million and $297 million in 1992,1991 and 1990, respectively. Income taxes paid were $32 million, $57 million and $21 million in 1992,1991'and 1990, respectively. (2) Increases in Nuclear Fuel and Nuclear Fuel Lease Obligations in the Balance Sheet resulting from the noncash capitalizations under nuclear fuel agreements are excluded from this statement. The accompanying notes and summary of significant accounting policies are an integral part of this statement.

w ~ Balance Sheet' December 31, 1992 1991 (millions of dollm) j ASSETS Property, Plant and Equipment i 5 9,449 $ 8,888 'l Utility plant in service........ Less: accumulated depreciation and amortization. 2,488 2,274 6,961 6,614 Construction work in progress.. 167 215 i 614 638 l Perry Unit 2. 7,74 2 7,467 Nuclear fuel, net of amortization.. 385 458 39 45 Other property,less accumulated depreciation 8.166 7.970 '] Current Assets 93 177_ l Cash and temporary cash investments. Amounts due from customers and others, net. 222 229 Unbilled revenues 114 108 .( Materials and supplies, at average cost. 129 126 .l Fossil fuel inventory, at average cost. . 58 65 Taxes applicable to succeeding years. 247 234 7 9 j Other. 877 941 P Deferred Charges and Other Assets Amounts due from customers for future federal income taxes.. 975 1,146 j g Unamortized loss from Beaver Valley Unit 2 sale. 110 114 101 75 Unamortized loss on reacquired debt....... 846 762 ' Carrying charges and operating expenses, phase-in.. 687 613 Carrying charges and operating expenses, other.. 42 . 32 - 3 - Nuclear plant decemrnissioning trusts.. 267 176 Other.. 3,028 2.918 ) i i Total Assets. $12,071 511,829 The accompanying notes and summary of signincant accounting policies are an integral part of this statement. I i l a I 1 i l 4

.r i I CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES i 6 December 31, i 1992 1991 i (milhons of dollars) CAPITALIZATION AND 1. LABILITIES Capitalization l Common shares, without par value (stated value of $274 million and $221 million for 1992 and 1991, respectively): 180.0 million authorized; 142.9 million (excluding 2.7 i million shares in Treasury) and 140.2 million (excluding 2.5 million shares in j $ 2,237 $ 2,186 l Treasury) outstanding in 1992 and 1991, respectively.. Retained earnings..... 652 669 2,889 2,855 Common stock equity.. Preferred stock l 364 332 With mandatory redemption provisions... 354 427 Without mandatory redemption provisions 3.694 3,841 Long-terrn debt. 7,301 7A55 l Other Noncurrent Liabilities j Nuclear fuel lease obligations 303-341 Other. 119 83 422 424 i Current Liabilities i Current portion of long-term debt and preferred stock.. 368 216 i 118 145 Current portion of nuclear fuel lease obligations 50 Notes payable to banks and others g-;i 143 148 Accounts payable. 368 351 Accrued taxes Accrued interest 84 84 i 59 58 Other... 3 1.190 1,002 Deferred Credits i 353 366 Unamortized investment tax credits.. 2,035 1,785 Accumulated deferred federal income taxes... 578 602 Unamortized gain from Bruce Mansfield Plant sale. Accumulated deferred rents for Bruce Mans 6 eld Plant and Beaver Valley Unit 2... 116 131 i Other. 76 64 3,158 2.948 j 512.071 511,829 l Total Capitalization and Liabilities. i I i i i f 1 i

=- 'f I " ""' " " "" ' " "^ * "^* S " "^"*S Statement of Preferred Stock' Current e 1992 Shares Call Price December 31, Outstanding Per Share 1992 1991 j CLEVELAND ELECTRIC (million5 of dollar 5) i Without par value,4,000,000 preferred shares authorized [ Subject to mandatory redemption: ) $ 7.35 Series C. 160,000 10120 $ 16 $-17 88.00 Series E. 24,000 1,026.78 24 27 l Adjustable Series M.,. 300,000 101.00 30 39 9.125 Series N.. 750,000 104.06 74 74 9150 Series Q 75.000 75 75 88.00 Series R. 50,000 50 50 l 90.00 Series S. 75,000 74 343 282 Less: Current maturities 29 14 l 314 268 l Not subject to mandatory redemption: l $ 7.40 Series A 500,000 101.00 50 50 7.56 Series B. 450,000 102.26 45 45 i Adjustable Series L. 500,000 103.00 49 49 i Remarketed Series P. 97 100,000.00 9 73 l 153 217 Less: Current maturities 9 l 144 217 { l'OLEDO EDISON $100 par value. 3,000,000 preferred shares authorized and $25 par value, O 12,000,000 pererrea shares authorized i Subject to mandatory redemption: $100 par $11.00 3 l 9.375 116,800 102.96 12 - 13 25 par 2.81 2,000,000 26.25 50 50 62 66 Less: Current maturities 12 2 50 64 Not subject to mandatory redemption: $100 par $ 4.25 160,000 104.625 16 16 l 50,000-101.00 5 5 l 4.56 4.25 100,000 102.00 10 10 i 8.32 100,000 102.46 10-10 i 150,000 102.437 15 15 7.76 7.80 150,000 101.65 15 15 i 10.00 190,000 101.00 19 19 l 25 par 2.21 1,000,000 25.25 25 25 2.365. 1,400,000 27.75 35 35 j Series A Adjustable 1,200,000 25.75 30 30 i Series B Adjustable.. 1,200,000 25.75 30 30 j 210 210 CENTERIOR ENERGY l Without par value,5,000,000 preferred shares authorized, none outstanding. Total Preferred Stock, with Mandatory Redemption Provisions $364 $332 Total Preferred Stock, without Mandatory Redemption Provisions $354 $427 The accompanying notes and summary of significant accounting policies are an integral part of this statement. 1

t i Notes to the Financi. Statements -i 4 (1) PROPERTY OWNED WITH OTilER UTILITIES AND INVESTORS o The Operating Companies own, as tenants in common with other utilities and those investors who are owner-participants in various sale and leaseback transactions (Lessors), certain generating units as listed below. Each owner owns an undivided share in the entire unit. Each owner has the right to a percentage of the generating capability of each unit equal to its ownership share. Each utility owner is obligated to pay for only its respective l share of the constmetion and operating costs. Each Lessor has leased its capacity rights to a utility which is obligated to pay for such Lessor's share of the construction and operating costs. The Operating Companies' share of the operating costs of these generating units is included in the Income Statement. Property, plant and i equipment at December 31,1992 includes the following facilities owned by the Operating Companies as tenants { in common with other utilities and Lessors: i Construction .} Owner-Wort in T in-Owner-ship Plant Progress Service ship Mrya-Power in and Accumulated Generatine Unit Date Share watts Source Sertwe Suspended Deprecianon } (millions of dollan) i in Semce: -l Seneca Pumped Storage, 1970 801KN 351 Hydro $ 62 5 1 5 20 l Eastlake Unit 5. 1972 68.80 411 Coal 155 1 Terry Unit 1 and Common Facihtws. 1987 51 02 609 Nuclear 2E17 7 407 Braver Valley Unit 2 and Common f acilit es (Note 2) 1987 26.12 214 Nuclear 1.480 4 215 Construction Suspended: l Perry Umt 2 (Note 3(c)). Uncertam 64.76 780 Nuclear 614 54.514 5627 5642 I 2 Depreciation for Eastlake Unit 5 has been accumulated with all other nonnuclear depreciable property rather than h,[ by specific units of depreciable property. l (2) UTILITY PLANT SALE AND LEASEBACK TRANSACTIONS { 1 The Operating Companies are co-lessees of 18.26% Unit 2 were refmanced through a tender offer for { (150 megawatts) of Beaver Valley Unit 2 and 6 5% the outstanding SLOBS and the sale by.another (51 megawatts), 45.9 % (358 megawatts) and special purpose corporation of new bonds having a 44.38% (355 megawatts) of Units 1,2 and 3 of thc lower interest rate. As part of the refinancing trans-Mansfield Plant, respectively, all for terms of about action, Toledo Edison paid 543 million as supple-i 29W years. These leases are the result of sale and mental rent to fund transaction expenses and part j leaseback transactions completed in 1987, of the tender premium. This amount has been i a e na n ans eu r pon b for p ing a 11 x s n r nce e - straight-line annual rental expense for the Beaver ums, operation and maintenance costs and all other similar costs for their interests in the units \\ alley Unit 2 lease by 59 million. i sold and leased back. The Operating Companies Future minimum lease payments under the operat-i may incur additional costs in connection with capi-ing leases at December 31,1992 are summariz.ed as tal improvements to the units. The Operating follows: Companies have options to buy the interests back at the end of the leases for the fair market value at h*I A "0""' i that time or to renew the leases. Additional lease (mill'ons l provisions provide other purchase options along

• / #8I'*)

tw3. 5 166 4 . with conditions for mandatory termination of the $[' f 3gg leases (and possible repurcha'se of the leasehold interests) for events of default. These events in-399 clude noncompliance with several fmancial cove-1997.. jos nants discussed in Note 10(e). 1.ater Years. 3.576 l In April 1992, nearly all of the outstandin'g Secured Total tutuw Mmimum tease Paymem. 54A26 Lease Obligation Bonds (SLOBS) issued by a spe-l cial purpose corporation in connection with ft-Rental expense is accrued on a straight-line basis nancing the sale and leaseback of Beaver Valley over the terms of the leases. The amount recorded t 1

t in 1992,1991 and 1990 as annual rental expense for cantly higher capital expenditures could be re-1 . the Mansfield Plant leases was $115 million. The quired during the 1993-2002 period. We believe amounts recorded in 1992 and both 1991 and 1990 Ohio law permits the recovery of compliance costs as annual rental expense for the Beaver Valley from customers in rates. Unit 2 lease were $66 million and $72 million, -t respectively. Amounts charged to expense in excess (c) PERRY UNIT 2 l of the lease payments are classified as Accumu-Perry Unit 2, including its share of the common -{ lated Deferred Rents in the Balance Sheet. facilities, is approximately 50% complete. Construc-l ti n f Perry Unit 2 was suspended in 1985 pend-l Toledo Edison is selling 150 megawatts of its Bea-ver Valley Unit 2 leased capacity entitlement to ing future e nsideration of various options. These t Cleveland Electric. We anticipate that this sale will options include resumption of full construction j with a revised estimated cost, conversion to a non-continue at least until 1998. nuclear design, sale of all or part of our ownership (3) CONSTRUCTION AND CONTINGENCIES mented without the unam. P'i*"

• Y b' i"P

l 1 mous approval of the 3 (a) CONSTRUCTION PROGRAAf wners. A request by Cleveland Electric, the com-pany responsible for the construction of Perry -i The estimated cost of our construction program for Unit 2, for an extension of the construction license the 1993-1995 period is $910 million, including is pending with the Nuclear Regulatory Commis-AFUDC of $49 million and excluding nuclear fuel-sion (NRC). l t (b) CLEAN AIR LEGISL4 TION in February 1992, Cleveland Electric purchased Du-i The Clean Air Act will require, among other things, quesne's 13.74% ownership share of Perry Unit 2 j significant reductions in the emission of sulfur and all Perry real property for $3.3 million. This - j dioxide in two phases over a ten-year period and purchase increased the Operatmg Companies' nitrogen oxides by fossil-fueled generating units. "".ership share of the unit to 64.76%. The remain-der is owned by Ohio Edison and Pennsylvania i We developed a compliance strategy which was Power. .{ submitted to the PUCO in 1992 for review. We subsequently reached agreement with intervening The license extension request and the purchase of parties and are awaiting formal PUCO approval. Duquesne's share do not mdicate any plans to h We also are seeking United States Environmental msmne c nstruction of Perry Unit 2. They were - Protection Agency approval of our Phase 1 plans. made to keep our options open. The compliance plan which results in the least If we canceled Perry Unit 2, the net-of-tax invest-I cost and the greatest flexibility provides for compli-ment would have to be written off. Such a write-off - ~i ~ ance with both phases through at least 2005. The (based on our investment as of the end of 1992) plan calls for greater use of low-sulfur coal at some would be about $434 million. Note 10(e) discusses of our units and the banking of emission al-more about the effects of a write-off. lowances. The plan would require capital expendi-tures over the 1993-2002 period of approximately if we decide to convert Perry Unit 2 to a nonnuclear t $208 million for nitrogen oxide control equipment, design, we would expect to write-off a portion of emission monitoring equipment and plant modi. our investment for nuclear plant construction costs i fications. In addition, higher fuel and other opera. not transferable to the nonnuclear construction tion and maintenance expenses would be incurred. pmject. { The least cost plan also calls for Cleveland Electric Perry Unit 2 AFUDC was credited to a deferred J to place a scrubber or other sulfur emission control income account from July 1985 until January 1, technology in service at one of its generating 1988, when the accrual was discontinued. The total ~I plants sometime after 2004 with expenditures be-deferred AFUDC amount of $213 million is re-

l ginning in 2001. The antiapated rate increase asso-flected in the Balance Sheet as a reduction in the i

i ciated with the capital expenditures and higher Perry Unit 2 investment.

j expenses would be about 1-2% m the late 1990s.

Another increase would be needed after the year (d) SUPERTUND SITES i 2000, for an aggregate rate increase in the range of 3-6%. Cleveland Electric would incur substantially The Comprehensive Environmental Response,- more of these costs than Toledo Edison. Compensation and Liability Act of 1980 as_ amended (Superfund) established programs ad-Our compliance plan will depend upon future envi-dressing the cleanup of hazardous waste disposal ronmental regulations and input from the PUCO, sites, emergency preparedness and other issues, j other regulatory bodies and other concemed enti- .The Operating Companies are aware of their po-ties. In addition, we are continuing to monitor. tentialinvolvement in the cleanup of nine hazard-i developments in new technologies that may be ous waste sites. The Operating Companies have incorporated into our compliance strategy. lf a plan ~ recorded reserves based on estimates of their pro- . other than the least cost plan is required, signifi-. portionate responsibility for these sites. We be-l I i -i

lieve that the ultimate outcome of these matters week period starting 21 weeks after an accident and will not have a material adverse effect on our 67% of such estimate per week for the next 104 financial condition or results of operations, weeks. The amount and duration of extra expense could substantially exceed the insurance coverage. (6) NUCLEAR OPERATIONS AND CONTINGENCIES (c) NUCLEAR DECONTAMINATION AND (a) OPERATING NUCLEAR UNITS DECOMMISSlONING ASSESSMENT Our interests in nudear units may be impacted by The Energy Act permits special assessments on activities or events beyond our control. Operating investor-owned electric utilities which own nudear nuclear generating units have experienced un-generating plants for the decontamination and planned outages or extensions of scheduled out-decommissioning of nuclear enrichment facilities ages because of equipment problems or new operated by the Department of Enemy. The assess-regulatory requirements. A major accident at a ments to individual util; ties are based upon the i nudear facility anywhere in the world could cause amount of enrichment services used in prior years the NRC to hmit or prohibit the operation, con-and cannot be imposed for more than 15 years. At - struction or licensing of any nudear unit. If one of December 31,1992, the Operating Companies ac-our nudear units is taken out of service for an crued a liability of $34 million for their share of extended period of time for any reason, induding the total assessments. These costs are recorded as an accident at such unit or any other nudear deferred charges since, based on the legislation, we facility, we cannot predict whether regulatory au-believe the PUCO will allow the Operating Com-thorities would impose unfavorable rate treat-panies to recover the assessments through their -I ment. Such treatment could include taking our fuel cost factors. affected unit out of rate base or disallowing certain construction or maintenance costs. An extended (5) NUCLEAR TUEL outage of one of our nudear units coupled with unfavorable rate treatment could have a material The Operating Companies have inventories for nu-adverse effect on our hnancial condition and resuhs dear fuel which should provide an adequate sup-of operations. ply into the mid-1990s. Substantial additional nudear fuel must be obtained to supply fuel for the (b) NUCLEAR 1NSURANCE remaining useful lives of their nudear generating g! The Price Anderson Act limits the liability of the units. owners of a nudear power plant to the amount Nudear fuel is hnanced for the Operating Compa-pmvided by private insurance and an industry nies through leases with a special-purpose corpo-l assessment plan. In the event of a nudear meident ration. The total amount of financing currently at any unit in the United States resulting in losses available under these lease arrangements is $509 : in excess of the level of private insurance (cur-million ($309 million from intermediate-term notes rently $200 million), our maximum potential as' and $200 million from bank credit arrangements). sessment under that plan would be $129 million F nancing in an amount up to $900 million is j (plus any inflation adjustment) per incident. The permitted. The intermediate-term notes mature in assessment is limited to $20 million per year for the period 1993-1997, with $77 million maturing in - each nuclear incident. These assessment limits as-September 1993. The bank credit arrangements sume the other CAPCO companies contribute terminate in October 1993 at which time the corpo-their proportionate share of any assessment. ration will obtain alternate financing. As of De-l The CAPCO companies have insurance coverage cember 31,1992, $425 million of nudear fuel was j for damage to property at the Davis-11 esse, Perry financed. The Operating Companies severally lease and Beaver Valley sites (induding leased fud and their respective portions of the nudear fue,1 and dean-up costs). Coverage amounted to $2.625 are obligated to pay for the fuel as it is consumed billion for each site as of January 1,1993. Damage in a reactor. The lease rates are based on various to property could exceed the insurance coverage intermediate-term note rates, bank rates and com-by a substantial amount. If it does, our share of mercial paper rates. such excess amount could have a material adverse The amounts financed indude nuclear fuel in the effect on our hnancial condition and results of Davis-Besse, Perry Unit 1 and Beaver Valley Unit 2 operations-reactors with remaining lease payments of $88 We also have extra expense insurance coverage. It million, $103 million and $41 million, respectively,- j includes the incremental cost of any replacement as of December 31,1992. The nudear fuel amounts power purchased (over the costs which would fmanced and capitalized also induded interest have been incurred had the units been operating) charges incurred by the lessors amounting to $15 and other incidental expenses after the occurrence million in 1992,$21 million in 1991 and $33 mil-of certain types of accidents at our nudear units. lion in 1990. The estimated future lease amortiza-The amounts of the coverage are 100% of the tion payments based on projected consumption are estimated extra expense per week during the 52J $103 million in 1993, $105 million in 1994,$99 l

f million in 1995, $94 million in 1996 and $86 million the unwcovered investments, and the amortization in 1997, of the deferred operating expenses and carrying charges recorded during the hrst five years of the P ans. The phase-in deferrals relating to these two l (6) REGULATORY MATTERS units will total $838 million after 1993 and are On January 31,1989, the PUCO issued orders scheduled to be amortized and recovered as fol-which provided for three annual rate increases for lows: $27 million in 1994, $91 million in 1995, $162 the Operating Companies of approximately 9%. million in 1996, $240 million in 1997 and $318 7% and 6% effective with bills rendered on and million in 1998. Additional carrying charges total-after February 1,1989,1990 and 1991, respectively. ing $39 million deferred for 1990 and 1991 pursu-The 6% increase effective February 1,1991 was ant to certain provisions of the phase-in plans will reduced to 4.35% for Cleveland Electric and 2.74% also be amortized and recovered by December 31, for Toledo Edison as 50% of the savings identined 1998. These amortizations can be accelerated at j by a management audit were used to reduce the 6% the option of the Operating Companies. rate increase for each of the Operating Companies. i Toledo Edison waived its 2.74% rate increase for On October 22,1992, the PUCO approved a Rate residential and small commercial customers and Stabilization Program as set forth in a joint recom-l reduced its residential rate by 3% effective in March mendation filed by the Operating Companies and 1991 and by an additional 1% effective in Septem-certain customer representative gmups involved ber 1991 to' improve its competitive position in its in the 1989 rate case settlement. Under the Rate service area. The resulting annualized revenue Stabilization Program, the Operating Companies increases in 1990 and 1991 associated with the rate agreed to freeze base rates until 1996 and limit 3 orders were $106 million and $71 million, respec. subsequent rate increases for Cleveland Electric - I and Toledo Edison to no more than $93 million and 1 tively, for Cleveland Electric and $44 million and $2 million, respectively, for Toledo Edison. Toledo $38 million, respectively, in 1996; $69 million and - Edison's increase in 1991 reflects the net of $19 $28 million, respectively, in 1997; and $54 million i million of annualized revenues authorized for the and $23 million, respectively, in 1998. For purposes 2.74% increase less $17 million for the waiver and of any rate increase proceeding in the 1996-1998 rate reductions. period, we agreed to cap operation and mainte-nance expenses (other than fuel and purchased ~- Under the January 1989 rate orders, phase-in plans power) at $784 million, subject to adjustment for l were designed so that the three rate increases, inflation and other specified expenses During the ' coupled with then-projected sales growth, would 1996-1998 period, PUCO approval of any base rate l provide revenues over the ten years beginning increases and any additional regulatory account-- [ January 1,1989 sufficient to recover all operating ing measures would be dependent upon our suc-1 _ expenses and provide a fair rate of return on the cess in implementing cost-reduction and revenue-Operating Compames' allowed mvestments in enhancement initiatives. We agreed to seek author-I Perry Unit I and Beaver Valley Unit 2. Revenues ization for acceleration of the post-1998 Mansfield in the first five years of the plans were expected t Plant unamortized gain in any rate increase pro-be less than that required to recover operatmg ceeding for the Operating Companies in the 1996-expenses and provide a fair return on mvestment. 1998 period. See Summary of SigniScant Account ~ Therefore, the amounts of operating expenses and ing Policies. i return on investment not currently recovered are deferred and capitalized as deferred charges. The As part of the Rate Stabilization Program, the Op-unrecovered investment will decline over the pe-erating Companies are allowed to defer and subse-riod of the phase-in plans because of depreciation quently recover certain costs not currently and deferred federal income taxes that result from recovered in rates and to accelerate amortization of the use of accelerated tax depreciation. Therefore, certain benefits. Such regulatory accounting mea-1 the amount of revenues required to provide a fair sures provide for rate stabilization by reschedul-return also declines. This results in decreasing ing the timing of rate recovery of certain costs and i amounts of annual deferrals in the early years of the amortization of certain benehts, thereby the plans and then increasing amounts of amortiza-preventing what otherwise would be an erosion in tion and recovery in the later years of the plans. earnings during the 1992-1995 period; The contin- .l The Operating Companies deferred $84 million, ued use of these regulatory accounting measures-j $132 million and $256 million in 1992,1991 and during this period will be dependent upon a con-1990, respectively, of operating expenses and carry-tinuing assessment and determination that there 1 ing charges pursuant to such phase-in plans. The-will be probable recovery of such deferrals and 1 amount of deferrals scheduled to be recorded in carrying charges in future rates. The aggregate ef-1993 total $31 million. Beginning in the sixth year - fect of these measures over this period could be as - -l (1994) and continuing through the tenth year, the much as $495 million on an after-tax basis depen-i revenue levels authorized pursuant to the phase-in dent upon our success in implementing cost-redoc- ] plans were designed to be sufficient to recover tion and other revenue-enhanament initiatives, that period's operating expenses, a fair retum on among other factors. Such regulatory accounting q a.

t ? t measures which are eligible to be recorded through 1992 mi n9a i December 31,1995 on an after-tax basis are as (md!kms of dollars) follows: Deferred Operstmg Expenses. Net: . Deferral of up to $327 million of accrued post-in-f,'*l'ft,"t,'ihzation.... i service interest carrying charges, depreciation Amortization of Pre Phase-in i expense and property taxes on assets placed in Deferrals. 16 16 - 17 service after February 29,1988. The deferrals 1011. g) -g) g) i recorded in 1992 were retroactive to January 1, j 1992. Deferrals are based on actual capital ex-Deferred Carrying Charges. j penditures relating to assets placed in service I$'7 5 25 5 31 5 73 within the 1988-1995 period. Consequently, the Equity. 42 79 n2 deferrals will be lower than $327 million if we Total Phase-in 67 110 205 continue to reduce capital expenditures. Amorti-Rate Stabilization (Debt). 33 i zation and recovery of these deferrals will occur Total. sux) 5110 s20s I over the average life of the assets and will { commence with future rate recognition. + W DNL INCOME TAX l + Deferral of up to $19 million of Toledo Edison operating expenses equivalent to an accumulated Federal income tax, computed by multiplying the excess rent reserve for Beaver Valley Unit 2 income before taxes and preferred dividend re-which resulted from the April 1992 refinancing quirements of subsidiaries by the statutory rates, is l of SLOBS as discussed in Note 2. The deferral reconciled to the amount of federal income tax commenced October 1,1992. Amortization of this recorded on the books as follows: i defenal will occur over the remaining term of I n92 n91 mo the unit's lease beginning in 1996. (milhons of dollars) . Acceleration of the amortizations of an estimated Ikok Income Before reuerat income $89 million in unrestricted excess deferred taxes 7,,, 5403 5436 543s - 1 and $34 million in unrestricted investment tax credits available after 1998. The amortizations I'*l[Bwk income at Statutory commenced October 1,1992. The amortization of increase (Decrease) in 1at investment tax credits is reported as a reduction Depreciation. (9) 1 6 $l of depreciation expense. Investrnent tax credits on disallowed nudear plant. (35) . Amortization of up to $26 million in intenm Rate Stabihzaten....... (7) spent fuel storage accrual balances for Davis-Taxes, other than federal income Besse. The amortization commenced October 1, taxe5 - 1 (2) (12) Other items. j J j j 1992. The Operating Companies also are allowed to defer and subsequently recover the incremental ex-i penses associated with adoption of the accounting Federal income tax expense is recorded m. the In-c me Statement as follows: standard for postretirement benefits other than m2 mi mo pensions. See Note 8(b). (millions of dollars) The Rate Stabilization Program provides for PUCO Operating Expenses: l regulatory approval of certain corporate transaC-Current Tax Provision.. 5 71 5 SR - - 5 43 .I tions, including major asset sales, after an evalua-Changes in Accumulated Deferred tion of the customer benefit of these transactions. rederal income Tax: The Rate Stabilization Program may be renegoti- ^$""'",d d'P'"ii " *"d l i 39 17 42 - ated under certam force majeure and other Altemative minimum tax credit. (31) (46) (24) i events. Sale and leaseback transactions and amortization. B 4 9-i Deferred Operating Expenses, Net, and Deferred Property tax expense. 19 (15) Carrying Charges shown in the Income Statement Rate Stabilization. 4 l consist of the following: Reacquired debt costs.. 10 22 1 1 Deferred omstruction work in progress revenues. 7 20 Deferred fuel costs. (1) (9) .I j Other items.. 3 16 16 } Investment Tas Credits. 39 3 Total Charged to Operatmg i Expenses. 122 138 96

- -. _ _ ~ - I h i t 1992 199r 19 9 of service. Under certain circumstances, benefits (mulim of dor!ars) can begin as early as age 55. The plans also provide Nonoperating income: certain death, medical and disability benefits. Our Ch*"8 i "tated Deferred . (46) (42) funding policy is to comply with the Employee 1 current Tax Provision. (38) Retirement In'come Security Act of 1974 guidelines. { ,d a Ta Write-off of nuclear costs. 14 (22) In 1990, we offered a Voluntary Early Retirement g g Opportunity Program (VEROP). Operating ex-A ad ing charges. Net operating loss carryforward. 35 penses for 1990 included $15 million of pension Other items. (4) 3 plan accruals to cover enhanced VEROP benefits l Total Expense Charged to and an additional $28 million of pension costs for l Nonoperating Income. 7 30 13 VEROP benefits paid to retirees from corporate ) Total Federal Income Tas Expense. $129 $168 $109 funds. The $28 million is not included in the pen-4 - sion data reported below. A credit of $41 million In 1990, adjustments for unamortized investment resulting from a settlement of pension obligations tax credits on the 1988 write-off of nuclear plant through lump sum payments to a substantial num- ) investments decreased the federal income tax pro _ ber of VEROP retirees partially offset the VEROP j vision for nonoperating income $38 million and expenses. increased earnings per share $.27. Also in 1990, Net pension and VEROP costs (credits) for 1990 the resolution of a property tax deduction issue through 1992 were comprised of the following resulted in a reduction in federal income tax ex-J components: pense of $14 million, thereby increasing earnings 1992 1991 1990 per share by $.10. ggg The adoption of SFAS 109 in 1992 affected certain Pension costs (credits); Serv >ce cost for benehts earned Balance Sheet accounts. The most significant im-L pact was an increase in Utility Plant In Service and go,,jc[,,7pjgctedbeneht d an offsetting increase in Accumulated Deferred obligation. 38 36 37 l I Federal Income Taxes. Adual eturn on plan assets.. (24) (129) 5

• ** "#"d""'"dd""

' E) SI I Under SFAS 109, temporary differences and car-syforwards gave rise to deferred tax assets of $563 VEROP c g~ million and deferred tax liabilities of $2.598 billion settlement s'ain (41) at December 31,1992. These are summarized as 5(34 6 Net costs (credits). .5(16) 5 (14) -) l follows-N',d The following table presents a reconciliation of the funded status of the plans at December 31,1992 rroperty, plant and equipment - 52,125 and 1991. Deferred carrying charges and operatmg expenses. 368 Durmber 31. 1 Net operarmg loss carryforwards. (137) Investment tax credits. (190) 1992 1991 Other. (131) g,ffgj,,,,f Net deferred tax liability. $2,035 dollars) ' Vested benehts. $ 310 $ 301 For tax purposes, net operating loss (NOL) car-Nonvested benchts.. 40 33 l-ryforwards of approximately $404 million are avail-Accumulated benent obligation 350 334 able to reduce future taxable income and will Effect of futum compensation levels.. 121 113 expire in 2003 through 2005. The 34% tax effect of Total projected benent obligation. 471 447 the NOLs is $137 million. Plan assets at fair market value. 754 757 The Tax Reform Act of 1986 provides for an alter-surplus of plan assets over projected beneht native minimum tax (AMT) credit to be used t gNnet gain irom vinanw Unr l reduce the regular tax to the AMT level should the between assumptions and expenence. (140)- (177) regular tax exceed the AMT. AMT credits of $114 Unrecognized prior service cost.... 12 13 million are available to offset future regular tax. Transition esset at January 1.1987 being

• • "iz'd *" 19 '"..

(99) (106) Y . The credits may be carried forward indefinitely. Net prepaid pension cost included in other deferred charges in the B*\\*"" Sh"'-

• 56 (8) RETIREMENT AND POSTEMPLOYMENT BENETITS At December 31,1992 and 1991, the settlement (a) RETIREMENT INCOME PLANS (discount) rate and long-term rate of return on We sponsor noncontributing pension plans which plan assets assumptions were 8.5% and the long-cover all employee groups. The amount of retire-term rate of annual compensation increase assump-ment benefits generally depends upon the length tion was 5%.

t i Plan assets consist primarily of investments in com-(c) POSTEMPLOYMENT BENETITS I mon stock, bonds, guaranteed investment con-tracts, cash equivalent securities and real estate. In November 1992, the FASB issued a new account-ing standard for postemployment benents (SFAS (b) OTHER POSTRETIREMENT BENEFITS 112), such as severance pay, disability, worker's compensation and supplemental unemployment The FASB accounting standard for postretirement benehts. We are required to adopt the new stan-benefits other than pensions (SFAS 106) requires dard no later than 1994. We have not completed an the accrual of the expected cost of such benehts analysis to determine the effect of adopting the ~ during the employees' years of service. The as-new standard. sumptions and calculations involved in determin-ing the accrual closely parallel pension accounting (9) GUARANTEES requirements. We currently provide certain postretirement health Cleveland Electric has guaranteed certain loan and care, death and other benehts and expense such lease obligations of two mining companies under i costs as these benehts are paid, which is consistent two long-term coal purchase arrangements. Toledo ~; with current ratemaking practices. Such costs to-Edison is also a party to one of these guarantee taled 59 million in 1992,510 million in 1991 and $8 arrangements. This arrangement requires pay-million in 1990, which included medical benehts of ments to the mining company for any actual out-58 million in 1992,59 million in 1991 and 57 of-pocket idle mine expenses (as advance pay-million in 1940. ments for coal) when the mines are idle for reasons oeyond the control of the mining company. At We w.ll adopt the standard effective January 1, December 31,1992, the principal amount of the i 1993. We plan to amortize the present value of the mining companies' loan and lease obligations guar- - 5 accumulated postretirement beneht obligation i nteed by the Operating Companies was 593 expense over a 20-year period. Based on our actua-million' ries' review of 1992 data, the accumulated postre-tirement benefit obligation as of December 31,1992 is estimated to be in the range of $200 million to (70) CAPITAElZATION f 5250 million (pretax). Had the standard been adopted in 1992, the additional 1992 postretirement (a) CAPITAL STOCK TRANSACTIONS benefit cost would have been in the range of $20 Shares sold, retired and purchased for treasury h* million to 527 million (pretax). We believe the during the three years ended December 31,1992 are 'I 1993 effect of actual adoption may be similar, al-listed in the following table. though it could be significantly different because of changes in health care costs, the assumed health 1992 1997 1990 care cost trend rate, work force demographics, plan (thousands of 36ces) - provisions or interest rates. Like the retirement Centerior Energy Common stock income plans, these estimates reflect a discount rate Enj$Re n ntment and stock assumption of 8% per year. The annual health Employee savings Plan. 322 348 care cost trend assumption is 12% in 1992, reducing Total common stock sales. 2.892 1,770 gradually to an ultimate annual rate of 6% in 1996 Treasury shares. (172) (11) (1391) and later years Net change. 2.720 1559 0 291) The PUCO authorized us to defer for subsequent Preferred stock of subsidiaries reco"e'y postretirement benefit costs that exceed sutiert to Mandato7alesRedemption: our accal payments for the period 1993-1997. This cleg df c_ 75 provision was part of the Ibte Stabilization Pro-8800 series R. 50 gram discussed in Note 6. The amount we can 90.00 senes s.... 75 cleveland Electric Retirements defer will be determined by the extent to which we are successful in reducing the added obligation by I d[cj" E $$l $ j 537 million or 25% of the incremental costs ex-75.00 senes F.. (2) pected when we got the order. We have unt j 80.00 senes c. (1) December 31,1997 to make the reductions. $ N "[ - [ g ] 113.50 series K...... (10) Adjustable series M. (100) (100) Toledo Edimn Retirements $100 par $11.00.. (25) (10) (10) 9375. (17) (17) (17) Preferred stock of Subsidiaries Not subject to Mandatory Redernption. i Cleveland Electric Retirements Remarketed series P (1) Net Change. 181) (41) f59) i

b I ~ Shares of common stock required for our stock The annual mandatory redemption provisions are j plans in 1992 were either acquired in the open as follows: '} market, issued as new shares or issued from shares price i To Be Beginning Per i treasury. Redeemed un Share i The Board of Directors has authorized the purchase oeveland riectne Preferred: in the open market of up to 1,500,000 shares of ott 5 735 series c. 10,000 1984 5 100 I common stock until June 30,1994. As of Decem-88.00 Senes E. 3,000 1981 1,000 J ber 31,1992,225,500 shares had been purchased at Adiustable senes M. 100a00 1991 100 9,125 Series N.. 150,000 1993 100 tion,2,510,000 shares were purchased between N $'.'f; ]; a total cost of $4 million. Under a prior authoriza, March 1989 and March 1991 at a cost of $46 million. 93.00 series s. - 18,750 1999 1,000 ll Such shares are being held as treasury shares. Toledo Edison Preh rred: $100 par $9.375. 16,650 1985 100 i 5 P"' 15' * '993 25 'l (b) COMMON SHARES RESERVED TOR ISSUE Common shares reserved for issue under the Em

• An outstandmg shares to te redeemed on December 1,2001.

.l ployee Savings Plan and the Employee Purchase Plan were 2,506,550 and 521,423 shares, respec-Cleveland Ekrtric has called for redemption the j i tively, at December 31,1992. remaining 97 outstanding shares of its Serial Pre-ferred Stock, Remarketed Series P, in August 1993 i Stock options to purchase unissued shares of com. at a redemption price of $100,000 per share. .l mon stock under the 1978 Key Employee Stock Option Plan were granted at an exercise price of The ancualized preferred dividend rectirement as l 100% of the fair market value at the date of the of December 31,1992 was $66 million. I grant. No additional options may be granted. The ( exercise prices of option shares purchased during The preferred dividend rates on Cleveland Elec-l the three years ended December 31,1992 ranged tric's Series I, M and P and Toledo Edison's Series E l from $14.04 to 517.41 per share. Shares and price A and B fluctuate based on prevailing interest rates i ranges of outstanding options held by employees and market conditions. The dividend rates for - [ were as follows: these issues averaged 7.59%, 7.04%, 6.73%, 8.24% - 1992 1991 1990 and 9.09%, respectively, in 1992. O [,'*37 ** *' Under its articles of incorporation, Toledo Edison-j d Shares. 93,312 129,798 168,655 cannot issue preferred stock unless certain earnings j opton rnces - $14.09 to 514.09 to 514 09 to coverage requirements are met. Based on earnings - { 52a73 52a73 52a73 for the 12 months ended December 31,1992, j Toledo Edison could not issue additional preferred 1 (c) EQUITY DISTRIBUTION RESTRICT 10NS stock. The issuance of additional preferred stock in l At December 31,1992, consolidated retained earn _ the future will depend on earnings for any 12 j c nsecutive months of the 15 months preceding the ings were comprised almost entirely of the undis, date of issuance, the mterest on all long. term debt j tributed retained earnings of the Operating utstanding and the dividends on all preferred Companies. Substantially all of their retained earn, stock issues outstanding. ] ings were available for the declaration of dividends on their respective preferred and common shares. Preference stock authorized for the Operating i All of their common shares are held by Centerior Companies are 3,000,000 shares without par value Energy. for Cleveland Electric and 5,000,000 shares with a l Any financing by an Operating Company of any of $25 par value for Toledo Edison. No preference, ]

its nonutility affiliates requires PUCO authoriza-shares. are currently outstanding for either

' tion unless the financing is made in connection company. j with transactions in the ordinary course of the 1 There are no restrictions on Cleveland Electric's companies' public utilities business operations in ability to issue preferred or preference stock or which one company acts on behalf of another. j Tolado Edison's ability to issue preference stockJ (4) PRETERRED AND PRETERENCE STOCK With respect to dividend and liquidation rights, j Amounts to be paid for preferred stock which must each Operating Company's preferred stock is prior be redeemed during the next five years are 550 to its preference stock and common stock, and ~

i

~' million in 1993, S41 million in 1994, $52 million in each Operating Company's preference stock is ~ 1995 and $42 million in both 1996 and 1997. prior to its common stock. ~ l

l l (c) LONG-TERM DEBT AND OTHER Additional first mortgage bonds may be issued by SORROWING ARRANGEMENTS Cleveland Electric under its mortgage on the basis. j Long-term debt, less current maturities, for the f bondable property additions, cash or substitution j f r refundable first mortgage bonds. The issuance of additional nrst mortgage bonds by Cleveland i; Operating Companies was as follows: actual Electric on the basis of property additions is limited i or Averasr by two provisions of its mortgage. One relates to j l'""r" the amount of bondable property available and the pM"[3t Deccmen 31. other to earnings coverage of interest on the bonds. J year of Maturrty 1992 1992 1991 Under the more restrictive of these provisions. 1 p,,,, g (currently, the amount of bondable property avail-1 dof!srs) able), Cleveland Electric would h, ve been permit-First mortgage bondo ted to issue approximately $329 million of bonds l 5 1Q. 37 5 7 based upon available bondable property at De-I 3993. 13.75 4 cember 31, 1992. Cleveland Electric also would j 1994 4375 25 25 have been permitted to issue approximately $432 IW - 1325 4 4 million of bonds based upon refundable bonds a+ j December 31,1992. If Perry Unit 2 had been can-Iwo. 13.75 4 4 celed and written off as of December 31,1992, 199t>. 7.00 1 1 Cleveland Electric would not have been permitted y; 3[ ~ to issue any bonds based upon available bondable 3 1997. 1375 4 4 property, but would have been permitted to issue i Iw7. 7 00 1 1 approximately $432 million of bonds based upon 1997... 6 125 31 31 refundable bonds ~ 1998-2002. 8.02 433 122 $2f yy The issuance of additional first mortgage bonds by i j 2013-2017 S uo 538 663 Toledo Edison also is limited by provisions in its i 2018 2022. 7.ss 445 445 mortgage similar to those in Cleveland Electric's i 2023. 6 34 211 211 mortgage. Under the more restrictive of these pro-I 2357 23 % visions (currently, the earnings coverage test), l $41N7I"'"" Toledo Edison would have been permitted to issue { 8.56 121 197 Medium term notes due approximately $173 million of bonds at an assumed gl iw4 -2021........ 8 92 860 835 interest rate of 9.5% based upon available bond-i De$n u"r l3$ also would have been permitted to issue approxi-d able pmperty at December 31,1992. Toledo Edison { d Debentures de tw7.... 125 Pollu6on control notes due mately $266 million of bonds based upon refund- [ iw4 2015. 10 10 158 190 able bonds at December 31,1992. If Perry Unit 2 i Other - net. 3 6 had been canceled and written off as of December Totai tong Term Debt. 53494 53 841 31, 1992, the amount of bonds which could have 'j been issued by Toledo Edison would not have Long-term debt matures during the next five years changed. I as follows: $318 million in 1993, $88 million in 1994, $232 million in 1995, $242 million in 1996 and Certain unsecured loan agreements of Toledo $139 million in 1997. Edison contain covenants relating to capitalization ratios, earnings coverage ratios and limitations on li; The Operating Companies issued $760 million ag-secured financing other than through 6rst mort-gregate principal amount of secured medium-tenn gage bonds or certain other transactions. An agree-l notes during the 1990-1992 period. The notes are ment relating to a letter of credit issued in i I secured by first mortgage bonds. At December 31, connection with the sale and leaseback of Beaver 1992, Cleveland Electnc and Toledo Edison had Valley Unit 2 contains several financial covenants $35 million and $93 million, respectively, aggre-affecting Centerior Energy and the Operating Com-gate principal amount of secured medium-term panies. Among these are covenants relating to i notes registered with the SEC and available for earnings coverage ratios and capitalization ratios. I5S"*"C*- Centerior Energy and the Operating Companies i The mortgages of the Operating Companies consti-are in compliance with these covenant provisions. I tute direct first liens on substantially all property We believe Centerior Energy and the Operating j owned and franchises held by them. Excluded Campanies will continue to meet these covenants l from the liens, among other things, are cash, secu-in the event of a write-off of the Operating Com-rities, accounts receivable, fuel, supplies and, in panies' investments in Perry Unit 2, barring un-the case of Toledo Edison, automotive equipment. foreseen circumstances. 1

_. - ~ - ~. e (H) SHORT-TERM BORROWING ARRANGEMENTJ The fair value of the nuclear plant decommission-ing trusts is esticated based on the quoted market Our bank credit arrangements at December 31,1992 prices for the investment securities. The fair value were as follows: of the Operating Companies' preferred stock with Cleveland To:rdo service mandatory redemption provisions and long-term trectnc Niwn company pral debt is estimated based on the quoted market { (miniens of hum) prices for the respective or similar issues or on the l Bank Lines of Credit. 5137 $70 58 $215 basis of the discounted value of future cash flows. The discounted value used current dividend or There were no borrowings under these bank credit interest rates (or other appropriate rates) for simi-arrangements at December 31,1992. An additional lar issues and loans with the same remaining 55 million line of credit is available to it e Service maturities. Company undn a $30 million Cleveland Electric The estimated fair values of all other fmancial line of credit, if unused by Cleveland Electric. The instruments approximate their carrying amounts in 55 million line of credit is included in the Cleve-the Balance Sheet at December 31,1992 because of land Electric total-their short-term nature. Short-term borrowing capacity authorized by the l PUCO annually is $300 million for Cleveland Elec-l tric and $150 m'illion for Toledo Edison. The Oper. (73) QUARTERLY RESULTS OF OPERATIONS ating Companies are authorized by the PUCO to (UNAUDITED) j The following is a tabulation of the unaudited f borrow from each other on a short-term basis. Most borrowing arrangements under the Operating quarterly results of operations for the two years Companies'short-term bank lines of credit require ended December 31,1992. a fee of 0.25% per year to be paid on any unused l Oumm Ended portion of the lines of credit. For those banks M'd 32 I" 3" S" 3" D" 3L without fee requirements, the average daily cash l balance in the Operating Companies' bank ac. (minions of enm, j rt en Asw smounn) counts satisfied informal compensating balances. 1992 At December 31,1992, Cleveland Electric and To. Opnatmg Revenues. $592 $581 5565 5600 ledo Edison had $10 million and $40 million, re-Opnating Inmme. $122 $H5 $191 5100 l Net income. $ 23 $ 20 $122 5 4,. I spectively, of short-term notes outstanding under Average Common an uncommitted financing facility. Each of the Op-Shares (milhons). 140.6 141.6 142.0 142.5 erating Companies can borrow up to 540 million Eamings Per Common l 5.16 5.14 s.86 ' s.33 l until the agreement is canceled by any party. [8] pg,, At December 31,1992, the Operating Companies Common Share. $.40 $.40 S,40 5.40 ' l had no commercial paper outstanding. If commer-1991 j cial paper were outstanding, it would be backed Operating Revenues. $609 St.45 $716 $590 by at least an equal amount of unused bank lines Operatmg Inmme. 5129 5146 5182 5123 l h Inanne. s 35 5 52 5 95 5 55 of credit-Average Common The fee for the Service Company's lines of credit is Shares (millions). 138.4 138 9 139.3 139.7 i Ea n Per Common 0.25% per year to be paid on any unused portion of its lines of credit. Dividends Paid Per l C mmon Share. 5.40 5 AD 5.40 5.40 j No formal short-term borrowing arrangements have been established for Centerior Energy, i Earnings for the quarter ended September 30,1992 ' were increased by 541 million, or $.29 per share, as ) (12) TENANCIAL INSTRUML~NTS' FAIR VALUE a result of the recording of deferred operating expenses and carrying charges for the first nine l I The estimated fair values at December 31,1992 of. rnonths of 1992 totaling $61 million under the Rate financial instruments that do not approximate Stabilization Program approved by the PUCO in j their carrying amounts are as follows: October 1992. See Note 6. Co rying Fair Earnings for the quarter ended December 31,1991 Amant Value were increased by 540 million, or 5.29 per share, as (minions of a result of year-end adjustments of $28 million to ene) reduce depreciation expense for the year for the Nudear Plant Decommissioning Trusts. 5 42 5 45 change in the nuclear plant straight-line deprecia-Preferred Stock, with Mandat'"7 tion rate to 2.5% (see Summary of Significant jg"((""' U"d"di"8 Acc unting Policies) and $28 million to increase 405 es P ase-in carrying charges for an adjustment to 1991 h tong-Term Debt (mduding current portinn). 4.017 s.107 tost deferrals (see Note 6). c l v n l

t Executives of Centerior Energy Corporation and Centerior Service Company [ F CENTERIOR ENERGY CORPORATION O Chairman, President and Scruor Vice President-trgal. I Chief Executive Officer.. ibbert]. Eatimg (56) Human & Corporate Affairs. Fred). 'ar.gc,Jr (43) { i Executive Vice President. Murray R. Earlman (53) Controller. . Paul G. Ady (44) j Executive Vice President.. Edgar H. Mauga n (58) Treasurer . Gary M Hantmson (44) i 4 Executive Vice President . Lyman C. Philhps (53) Secretary E lyle Pepin (SI) t I i CENTERIOR SERVICE COMPANY Chairman, President and Vice President-System i Chief Execut2ve Officer.. RobertJ Farhng(56) Engineering & Control . Alvin Kaplan (54) Executive Vice President-Vice President-1 i Power Generation. Manay R. EJciman (53) Heman Resources & [ Executive Vice President-Strategic Planning. . John S. Irvic ki (53) Fmante & Vice President-Irga! & l Administration. . Edgar H. Maugans (SS) General Counsel . Tenence G. Linnert (46) Executive Vice President-Vice President-

I; Customer Operations Transmission &

I (and Chairman & CEO Distribution Operations . David L Monscau (52) l of Toledo Edison and Vice President-Marketmg. . Thomas M. Qumn (53) ' 'I President & CEO of Vice President (and President Cleveland Electnc). . Lyman C Philhrs (53) of Toledo Edison) Donald H. Saunders (57) 5enior Vice President-Vice President-i i Irgal, Human & Nuclear-Davis-Besse . DonaM C. Shelton (59) l Corporate Affairs Fred]. Lange,Jr (43) Vice President-gl j Vice President-Nuclear-Perry . Pebert A Stratman (44) t Fossil Operations Richard P Crouse (53) Controller. . Paul G. Budy (44) l Vice President-Treasurer . Gary M Hawktnson (44) [ d Transmission and Secretary . E. Lyle Perm (51) Distnbution Engmeering j & Services GaryJ. Grcben (55) l l Vice President-I- Customer Service & Community Affairs. Jacqtata K Hauscrman (50) [ ll %, m mnann maa.,, j A I J h t i I

Financial and Statisticq) Review Operating Revenues (millions of dollars) o Steam Total ~ Total Total Heatmg Operstmg Tear Rewdential Commemal Industr.at Other Ketail Wholesale Elermc & Gas Revenues 1992. $732 706 766 143 2 347 91 2 438 $2 438 1991. 777 723 783 188 2 471 89 2 560 2 560 1990. 719 664 779 190 2 357 70 2 427 2 427 1989. 686 617 747 204 2 254 107 2 361 2 361 1988. 637 53S 676 84 1 935 120 2 055 2 055 1982. 502 407 553 74 1 536 47 1 583 26 1 609 Operating Expenses (millions of dollars) Other Deferred Tuel & Operatum Deprecianon Tases. Operstmg Federal Total Purcha<.ed Other Than E penses, income Operanng ) ear Power Mamtenance Amornzarum IIT Net Tases Expenses 1992. $473 784 256 318 (52) 122 $1901 1991. 500 801 243(a) 305 (6) 138 1 981 1990. 472 863 242 283 (34) 96 1922 1989. 473 860 2 73 260 (59) 122 1 929 1958. 408 866 265 268 (188) 124 1 743-1982. 474 367 130 148 152 1 271 Income (Loss) (millions of dollars) Federal Other income income Preferred & i income & Deferred Taxes-Before Preferenn Operanng AFUDC-Deductums. Carrymg Credit Interest Debt AFUDC-Stock iear innwne Iquoy Net Charges (hpense) Charges Interest Debt Davidends 1992. $537 2 9 100 (7) 641 365 (1) 65 1991. 579 9 6 110 (30) 674 381 (5) 61 1990. 505 8 (1) 205 (13) 704 384 (6) 62 1989. 432 17 14 299 (73) 689 369 (13) 66 1988. 312 14 (489)(b) 372 131 340 378 (6) 70 1982. 338 126 (2) 41 503 239 (50) 64 Income (Loss) (millions of dollars) Common Stock (dollars per share & %) Innene (loss) Before Return on Cumulatn e Cumulative Average Average Eftect of an Effect of an Net Shares Commtm Accountmg Arrountmg Innune Outstandmg Earnmp Simk Dmdends ikx4 Year Change Change (Imm.) (milhans) (less) Equity Declared Value 1492. $212 $212 141.7 5 1.50 7.4% $1.60. ~ $20.22 1991. 237 237 139.1 1.71 8.4 1.60 20.37 1990_ 264 264 138.9 1.90 9.4 1.60 20.30 1989. 26' 267 140.5 1.90 9.6 1.60 19.99

1988, (102) 28(c)

(74) 140.8 (0.53) _ (2.5) 1.S4 19.68 -1982. 250 250 87.8(d) 2.84(d) 14.8 2.09(d) 19.39(d) NOTI' 1982 data is the result of combirung and restatmg Clevela id Electric a-nd Tokdo Edison data. (a) In 1991, the Operating Companies adopted a change in anuunting for nuclear plant depreciation, changing from the umts.of-production method to the straight.line method at a 2.5% rate. (b) includes write-off of nuclear costs in the amount of $534 million in 1988. (c) In 1988. the Operatmg Companies adopted a change in the method of accounting for unbilled revenues.

i CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES I Electric Sales (millions of DVH) Electric Customers (year end) Residential Usage f Average Average Averaec Pnce Revenue I Indostnal Kwh I'er Per Per Year Residennal Commernal Industnal Wholesale O&wr Total Residential Commercial & Other Total Customer KhH Customer 1992. 6 666 7 086 11 551 2 814 1 011 29 128 925 099 % 813 12 741 1 034 653 7 227 10.98c $793.68 1991. 6 981 7 176 11 559 2 690 1 048 29 454 921 995 96 449 12 843 1 031 287 7 410 11.16 827.10 1990. 6 666 6 848 12 168 2 487 959 29 128 918 965 94 522 12 906 1 026 393 7 079 10.82 765.93 l 1989. 6 806 6 830 12 520 3 235 996 30 387 914 020 93 833 12 763 1 020 616 7 295 10.08 737.58 1988. 6 920 6 577 12 793 1 828 946 29 064 909 182 92 132 12 305 1 013 619 7 462 9.21 690.06 1 1982. 6 247 5 520 9 955 1526 827 24 075 883 197 85 356 11 471 980 024 6 884 8.04 55537 Load (MW & %) Energy (millions of DVH) Fuel l Operable i Capaaty Effinency- - t at Time Peak Capacity Lwd Company Generated Purthed Fuel Cost BTU Per Year of Peak load Margm Factor husd Nuclear Total Power Total Per KhH KWH 1992. 6 430 5 091 20.8 % 63.4 % 17 371 13 814 31 185 (122) 31 % 3 1.45c 10 395 i l 1991 6 453 5 361 16.9 62.9 IS 041 13 454 31 495 40 31 535 1.48 10 442 1990. 6 437 5 261 183 63.6 21 114 9 481 30 595 413 31 008 1.52 10 354 1989. 6 430 5 389 16.2 633 20 174 12 122 32 296 21 32 317 1.47 10 435 s [ 1988. 5 525(e) 5 673 (2.7) 60.8 21 576 7 805 29 381 1 885 31 266 1.59 10 410 1982. 6 546 4 296 34.4 66.5 20 882 3 219 24 101 1 720 25 821 1.80 10 404 j i investment (millions of dollars) { Construcnon i h! Wori in Total I Utihty Accumulated Progren Nuclear

Property, Dhhty Plant in DeprenatKm &

Net & Perry Fueland Plant and. Plant Total f ivar scrnce Amorttzanon Plant Umt 2 Other I.quipment Additions Assets 1992, 59 449 2 488 6 961 781 424 $8166 $200 $12 071 f i 1991. 8 888 2 274 6 614 853 503 7 970 204 11 829 l 1990. 8 636 2 039 6 597 921 568 8 086 251 11 681 6 19S9. 8 398 1 824 6 574 945 592 8 111 217 11 454 i 1988. 8 144 1 569 6 575 1 010 643 8 228 343 11 360 { 1982. 4 019 965 3 054 2 142 277(f) 5 473 671 6 152 l Capitalization (millions of dollars & %) Preferred & Preference Preferred Stock, mthout Stock, mth Mandatory Mandatory Redempnon Year Common Stock Equiry Redempton Provissons Provmons lenpTerm Debt Totat t 1992. 32 S89 39% 364 5% 354 5% 3 694 51 % $7 301 - i 1 1991 2 855 38 332 4 427 6 3 S41 52 7 455 f 1990. 2 810 39 237 3 427 6 '3 729 52 7.203 { 1989... 2 795 40 281 4 427 6 3 534 50 7 037 i 1988.. 2 772 39 304 4 427 6 3 552 51 7 055 i r 1982 m 1 838 38 418 9 265 5 2 318 48 4 839 j (d) Average s. hares outstanding and related per share computations refhrt the Cleveland Eh ctric 1.11-for~one exchange ratio and the Toledo Edison one-for-f one exchange ratio for Centenor Energy shares at the date of affiliation, April 29,1986. (e) Capacity data reflects extended generating unit outage for renovation and improvements. -(f) Restated for effects of capitahzation of nuclear fuel lease and f:nancing arrangements pursuant to Statement of Financial Accounting Standards 71. l f I i

f Board of Directors I; Richard P AnJctsen (63) President and Waync R Embry (55) Executive Vice Frar.h E Masier (62) Vice Chairman of Chief Execurite Officer of The President and General Manager of the Advisory Board of BP America o Andersons Management the Cleveland Cavahers,a profes-Inc., a producer and refiner of 3 Corporation, a grain, farm supply sional basketball team. Chairman petroleum products.1986 j and retailing hrm.1986 of Michael Alan Lewis Company, a SWer Mary Manhe Remhard, SND (63) [ Albert C.Dersmkcr (5S) President and fabricator of hardboard, fiberglass Director of Development for the l Chief Executive Officer of Ferro and carpetmg materials for the Sisters of Notre Dame of Cleveland, Corporation, a producer of automotive industry.1991 Ohio Former President of Notre speciahy chemical materials for RabenJ. Farhng (56) Chairman, Dame College of Ohio.1986 l manufactured products.1990 President and Chief Executive Robert C. Savage (55) President and Ifigh Carter f 67) Retired President Officer of the Company and Chief Executive Officer of Savage & l and Chief OperatmgOfficer of The Centerior Service Company,1988 Associates,Inc., an insurance, BFGoodrich Company, a producer George H. Kaull(61) Chairman of financial planning and estate of chemicals. plastics and acro-Premix,Inc, a developer, manu-planning firm.1990 space products. Retired Chairman facturer and fabricator of Pad M.5 mart (64) Attorney and retired of Tremco, incorporated. a manu-thermoset reinforced composite Vice Chairman of the Company and The Toledo Edison Company. .I facturer of specialty chemical materials.1987 products and a wholly owned Rkhard A.Mdicr(66) Renred Chairman 1986 I subsidia of The BFGoodrich and Chief Execuuve Officer of the WdliamJ Wdhams (64) Chairman of Company and Centerior Service Huntmgton National Bank.1986 Thomas A. Commes (50) President Company.1986 and Chief Operating Officer of l Rcherr M. Ginn Chairman Emeritus The Sherwm-Williams Company. l a manufacturer of paints and John P Wuhamson Chairman Emeritus paintingsupphes 1987 h nmber s,, psirenintcu s ini:i ates age va mswaynw m a c ccies so nwa l i Committees of the Board hmror, mental Capaal and Cnmum'r Humn 1 Aukt hpcnd:wra Responsthhty ' Execuine Fmance Rcwusccs Nmmatmg Nuticar T A.Commes, G H Kault, St M M Remhard, RJ Farlmg, R.A Miller, WJ.Wdhams. F E.Mosier. R P Anderson, l Charman Chairman Chairman Chairman Chairman Chairman Chairman Chairman i L Caner A C Bersticker WR Embry L Caner R P Anden.on L Carter R P Anderson AC bersticker -f W R Embry RJ Farlmg Rj farlmg T.A Commes T.A Commes G H Kaull AC Bersucker RJ Farhng. j Sr M M Remha:d R A Mdler R.A. Mdler R.A. Mdier - W.R Embry T E.Moster L Carter St M M Remhard j FE Mover i E Mosier WJ.Wdbams RJ. Farlmg Rf. Savage T.A Commes WJ Wdhams i PM Smart FM Sman RC Savage WR Embry i PM Smart RJ Fathng j G H. Kaull .J 1 R A Mdier 5t M.M Remhard. j RC. Savage j . PM.5 mart l WJ Williams i 1 1 N- = x..

Share Ownerinformation ~ .1 DivlDEND REINVESTMENT AND STOCN PURCITASE CX*1RA CUSTODIAN o PLAN AND INDIVIDUAL RETIREMENT ACCOUNT All communications about an existing CX*1RA should I (CX*1RA) be directed to the Custodian at the address or l The Company has a Dividend Remvestment and Stock telephone numbers hsted below: [ Purchase Plan which provides share wners of record Society Nanonal Bank and customers of the Company's subsidianes a Custodian. CX+1RA convenient means of purchasingshares of Company P O. Box 6477 i common stock by investing all or a part of their Cin eland, Jhio 44101 l quarterly dividends as well as making cash investments b develand area 737-5745 I In addinon, individuals may estabbsh an individual + retirement account (IRA) which mvests in Company Elsev here in Ohio l common stock through the Plan. Information iclating I 8,1-362-0697, Extension 5745 l to the Plan and the CXalRA may be obtained from Sharc Out te Ohio -{ Owner Services at the Company. I-800-321-1355. Extension 5745 SilARE OWNER SERVICES INDEPENDENTACCOUNTANTS Communicanons regardmg stock transfer requirements. Arthur Andersen & Co. lost ceruf cates. dividends and changes of address 1717 East Nmth Street 1 should be directed to Sharc Owner Services at the develand, Ohio 44114 l Company. To reach Share Owner Services by phone, call: COMMON STOCK In develand area 642-6900 or 447 2400 Listed on the New York, Midwest and hcific Stock -[ Exchanges Options are traded on The hcific Stock + Outside develand area 1-800-433-7794 Exchange. New York Stock Exchange symbol-CX. Please have your account number ready when ca!!ing. Newspaper abbreviation-CentEn or CentrEngy. ( INVESTOR RELATIONS ANNUAL MEETING Inquiries from secunty analysts and institutional The 1993 annual mecung of the share owners of the Gl investors should be directed to lcrrence R. Moran, Company will be held at 10 a.m. on April 27,1993 at j Manager-Investor Relations, at the Company's mail Executive Caterers at landerhaven in Mayfield Heights, address or by telephone at (216) 447-2882. Ohio. Owners of common stock as of February 26, m v te on maners brought up for share owners,Y'I O' """E'

• TRANSFER AGENT Cemerior Energy Corporanon

' "SId'I"" "' Share Owner Services f PO. Box 94661 ENYlRONMENTAL REPORT i Cleveland, Ohio 4e101 -4661 The Company will furnish to share owners, without .f Stock transfers may be presented at charge, a copy of a report on its environmental PNC Trust Company of New York performance. Requests should be directed to Share j 40 Broad Street, Fifth Floor Owner Services. New York, NY.10004 FORM 10-K REGISTRAR The Company will furnish to share owners, without Society National Bank charge, a copy ofits most recent annual report to the. Corporate Trust Division Securities and Exchange Commission. Requests should : PO. Box 6477 be directed to Share Owner Services. i develand, Ohio 44101 AUDIO CASSETTES i EXECUTIVE OITICES Share owners with impaired vision may obtain audio Centerior Energy Corporauon cassettes of the Company's Quarterly Repons and l 6200 Oak Tree Boulevard Annual Report. To obtain a cassette, simply write or i Independence, Ohm call 5 hare Owner Services. There is no charge for i Telephone:(216)447-3100 this service. l FAX: (216)447-3240 l Mall ADDRESS l Cemerior Energy Corporation E O. Box 94661 Cleveland. Ohio 44101-4661 i 1 +

Centerior Energy Corporation -avut uTE: US POSTAGE PO. Box 94661 . P A 'l D i Cleveland. OH 44101-4661 ctrvrtAxo,onio PmHT NO. 409 e 'f .I

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