ML20042G916

Toledo Edison Co 1989 Annual Rept.

ML20042G916
Person / Time
Site:	Beaver Valley
Issue date:	12/31/1989
From:	Rogers J TOLEDO EDISON CO.
To:
Shared Package
ML20042G908	List: ML20042G907 ML20042G910 ML20042G913 ML20042G916 ML20043A651 ML20043A662
References
NUDOCS 9005160279
Download: ML20042G916 (28)

Text

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i THE TOLEDO EDISON r

C O M P AN Y l.

1989

.A N N U A L L

REPORT l

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A Subsicliary of Centerior Energy Corporation l

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72 Report ofIndependent Public _ .j

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3 Summary of Significant Acconnting Policies

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? 5 Managemenfs Financial Analysis,i j

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s > cFinancial Statements and Notes

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& a. n 22 Financial and Statistical Review :

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y f ABOUT TOLEDO EDISON DIRECTORS t

Afunay R. Edelman, President of the The Company. a wholly owned subsidiary of Centerior Energy Corporation, provides Company and Executh'e Vice President of Centerior Energy Corporation, l clectric service to about 760,000 people in i a 2,500 square mile area of northwestern Robertf Farl/ng. Chairman and Chief Executive y Ohio, including the City of Toledo The Officer of the Company and The Cleveland Company also provides electric energy at Electric illuminating Company and President and wholesale to 13 municipally-owned Chief Operating Officer of Centerior Energy distribution systems and one rural electric Corporation and Centerior Service Company.

cooperative distribution system in its service R/chardA. Af// leg Chairman and Chief Executive

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area. The Company's 2,800 employees serve l

Officer of Centerior Energy Corporation and about 283,000 customers.

Centerior Service Company.

Donald n. saunders, Vice President-EXECUTIVE OFFICES

! Administration & Governmental Affairs of the i The 'Ibledo Edison Company Company.

300 Madison Avenue "Ibledo, Oil 436$2 OFFICERS

- (419)249-5000 Chairman and Chief Executive Officer . . . . . . .RobertJ. Farling Vice Chaltman . . . . . . . . . . . Paul A1. Srnart '

i President . . . . . , . . . . . . . . Afurray R. Edeltnan '

Senior Vice President . . . . . .R/ chard R Crouse Vice President-Customer Operations . . . .Dae/dL. Afonscan Vice President-Marketing . . Thomas Af. Qu/nn Vice President- .

Administration &

Governmental Affairs . . . . Donald n. Saunders Vice President-Nucleat . . Donald C. Shelton Controller and 'lteasurer . . .Jarnes R Afartin a Secretary . . . . . . . . . . . . . . E. Lyle Pep /n l

l 1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ARTHUR To ihe share Owners or ANDERSEN

- The Toledo Edison Company:

De have audited the accompanying balance sheet in our opinion, the financial statements referred cnd statement of cumulative preferred and to above present fairly, in all material respects, the preference stock of The Toledo Edison Company (a financial position of The Toledo Edison Company cholly. owned subsidiary of Centerior Energy as of December 31,1989 and 1988, and the results of Corporation) as of December 31,1989 and 1988, its operations and its cash flows for each of the three and the related statements of income, retained years in the period ended December 31,1989, in earnings and cash flows for each of the three years in conformity with generally accepted accounting the period ended December 31,1989. These principles.

financial statements are the responsibility of the As discussed further in the Summary of y Company's management. Our responsibility is to Significant Accounting Policies and Notes 7 and 12, a L express an opinion on these financial statements change was made in the methods of accounting for based on our audits. income taxes and unbilled revenues in 1988, We conducted.our audits in accordance with rettoactive to January 1,1988.

generally accepted ' auditing standards. Those As discussed further in Note 3f c), the future of standards require that we plan and perform the audit Perry Unit 2 is undecided. Construction has been to obtain reasonable assurance about whether the suspended since July 1985. Various alternatives are financial statements- are free of material being considered, including resuming misstatement. An audit includes examinmg, on a test construction, mothballing or cancellrut the Unit.

basis, evidence supporting the amounts and Management can give no assurance when, if ever, disclosures in the financial statements. An audit also Perry Unit 2 will go in-serdce or whether its includes assessing the accounting principle 3 used investment and a return thereon will ultima'ely be and significant estimates made by management, as recovered.

well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion, h

Cleveland, Ohio February 12,1990 Arthur Andersen & Co.

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F L n SUMM^RY OF SENIFICANT ACCOUNTIND POUCIES E L GeneralL Estimated future nuclear fuel disposal costs are Thi Toledo Edison Company (Company) is an being recovded through the base rates, (el:ctric utility and a wholly owned subsidiary of The Company defers the differences between

' Centerior Energy Corporation (Centerior Energy). actual fuel costs and estimated fuel costs currently ,

%;fThe ' Company follows the Uniform System of being recovered from customers through the fuel 1

" Accounts prescribed by the Federal Energy factor. This matches fuel expenses with fuel related e Regulatory Commission (l'ERC) and adopted by revenues.

,6 lThe PubHc Utilities Commission of Ohio (PUCO). '

h L The Company is a mernber of the Central Area Pre Phase In Deferrols of Operating Power Cc.ardination Group -(CAPCO), Other Expenses and Corrying Charges ,

members - include The ' Cleveland Electric The PUCO authorized the Company to record as

- Illuminating Company (Cleveland - Electric), deferred charges interest carrying costs and Duquesne Light ' Company.- (Duquesne),l Ohio ~

operating expenses (including least payments,  !

' Edisor Company and Pennsylvania Power Company. depreciation and taxes) for Beaver VaP ry Unit 2 =

The: members have constructed and operate - from its commercial in service date of N wember 17, - l generation and transmission facilities for the use of 1987 through December 31, 1988. The UUCO

. the CAPCO companies. Cleveland Electric is also a determined that Perry Unit I was considered "used

? wholly owned s bsidiary of Centerior Energy' and useful" on May 31, 1987 for regulatory ,'

purposes. Consequently, the PUCO authorized the

. Related Party Transactions ~ Company to defer operating expenses for Perry Unit

LOperating' expenses inclinde those= amounts for 1 fromJune 1,1987 through December 22,1987, transactions with affdiated companies in the ordinary the date when these costs began to be recovered in course of business operations. rates. The PUCO authorized the deferral of interest -

and equity carrying costs, exclusive of> those

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The Company's transactions with Cleveland ,

, Electric are primarily for firm power, interchange associated with operating expenses, for Perry Unit 1 power, transmission line rentals and jointly. owned from June 1,1987 through December 31,1987 and

' power plant operations and contruction. See Notes 1 deferral of interest carrying costs from January l, ,

and 2< 1988 through December 31, 1988. The amounts

'Centerior Service Company (Service Company), deferred for Perry Unit I pursuant to the PUCO-the third wholly owned' subsidiary of Centerior accounting orders were included in property, plar,t  ;

1 Energy,- ~ providet management; - financial, and equipment through the November 18, 1987-lidministrative, engineering, legal and other services commercial in-service date. Subsequent to that date,

, to the Company and other alliliated companies at amounts deferred for Perry Unit I were recorded as cost. The Service Company billed the Company deferred charges. Amortization of the Beaver Valley

' $40,000,000, $43,000,000 and $21,000,000 in 1989, Unit 2 and Perry Unit I deferrals began on January 1, 1988 and 1987, respectively, for such services.

rate order discussed in Note 6). The amortizations1989

. Revenues will continue over the lives of the related property. >

• !ols\p1n hjfe*n rf by the.PUCO.

e i Prior to 1988, Phase In Deferrals of Operating Expenses andthesehd les Carrying Charges authorize revenues were recorded in the accounting period As discussed in Note 6, the January 1989 PUCO rate . .

during which meters were read, except for the order for the Company included an approved rate portion of revenues which was deferred under the phase in plan for the Company's investments and y mirror construction work in progress (CWIP) law leasehold interests in Perry Unit 1 and Beaver Valley f discussed below. Utility service rendered after Unit 2. On January 1,1989, the Company began W monthly meter reading dates through the end of a recording the deferrals of operating expenses and calendar month (unbilled revenues) bccame a part interest and equity carrying charges on deferred rate-of operating revenues in the following month based investment pursuant to the phase.in plan.-

L when the meters were read. Effective January 1, These deferrals will be recovered by December 31,,

11988, the Company changed its method _of 1998.

l accounting to ' accrue the estimated amount of

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revenues for sales unbilled at the end of each Depreciation and Amortization

month. See Note 12.

A fuel factor is added to die base rates for electric The cost of property, plant and equipment, except service. This factor is designed to recover fuel and for the nuclear generating units, is depreciated over their estimated useful lives on a straight.line basis, most purchased power costs from customers, it is The annual straight line depreciation provision chan ed semiannually after a hearing before the '

expressed as a percent of average depreciable utility plant in service was 3.6% in 1987,1988 and 1989.

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Depreciation expense for the nuclear units is based

Fu,ll Expense on the units of production method.

The cost of fossil fuel is charged to fuel expense Effective July 1988, the Company began the based on inventory usage. The cost of nuclear fuel, external funding of future decommissioning costs s including an interest component, is charged to fuel for its operating nuclear units pursuant to a PUCO- i expense based on the rate of consumption. order. Cash contributions are made to the funds on a w

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_ straight line basis over the remaining licensing- investment tax credits is reported as a reduction of -

" period for each unit. Amounts currently in rates are depreciation expense. See Note 7.

U ^; based on past estimates of decommissioning costs for the Company of $59,000,000 in 1986 dollars for Interest Charges the Davis Besse Nuclear Power Station (Davis-Besse) and $28,000,000 each for Perry Unit 1 and Debt hterest reported in the income Statement does

. Beaver . Valley Unit 2 in 1987 dollars. Actual not irslude interest on nuclear fuel obligations, decommissioning costs are expected to exceed these Interest on nuclear fuel obligations for fuel under estimates, it is expected that increases in the cost c nstruction is capitalized. See Note 5.

estimates will be recoverable in rates resulting from 1.osses and galns realized upon the reacquisition future rate proceedings. The current level of r redemption of long term debt are deferred,

.s; accruals being funded and recovered - from c nsistent with the regulatory rate treatment. Such.

I sses and gains are either amortized over the customers over the remaining licensing periods of the Units is approximately $4,000,000 annually. The remainder of the original life of the debt issue present funding requirements for Beaver Valley retired or amortized over the life of the new debt Unit 2 also satisfy a similar commitment made as issue when the proceeds of a new issue are used for part of the sale and leaseback transaction discussed the debt redemption. 'Ihe amortizations are in Note 2. included in debt interest expense.

Property, Plant and Equipment Deferred Gain and Loss from Sales of

- Utility Plant P' PCY cost PI "' amounts less'any ""d #4"'P*""' "'" S' to ordered '#dbe

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' The Company is amortizing the applicable deferred included in the cost of construction are items such 'I gain and loss (net of tax) associated with the sales as related payroll taxes, pensions, fringe benefits, of utility plant in 1987 over the terms of leases management and general overheads and AFUDC.

under sale and leaseback agreements. See Note 2. AFUDC represents the estimated composite debt The amortization and lease expense amounts are and equity cost of funds used to finance recorded as operation expense. construction. This noncash allowance is credited to income, except for AFUDC for Perry Unit 2.

Federal Income Taxes Begianing in July 1985, Perry Unit 2 AFUDC was  ;

The 1988 and 1989 linancial statements reflect the credited to a deferred incom account until January j

liabilit method af accounting for income taxes as a ' P" "*" " E i Perry Unit 2 was discontinued. See Note 3(c). The i y result f adopting a new standard for accounting for gross AFUDC rates were 11 A5% and 11.62% in-income taxes in 1988. Prior to 1988, income taxes 1989 and 1988, respectively. The net.of income-tax were accounted for by the deferred method. Under the deferred method, deferred taxes and deferred AFUDC rate was 10.97% in 1987. q hiaintenance and repairs are charged to expense i tax credits were not adjusted for subsequent as incurred. Certain maintenance and repair

- changes in federal tax rates. Also, under the deferred method, the Company did not record deferred taxes expenses for Perry Unit I and Beaver Valley Unit 2 on the temporary differences between book and tax have been deferred pursuant to the PUCO }r accounting orders discussed above. The cost of income that the PUCO used to reduce allowable replacing plant and equipment is charged to the costs for ratemaking purposes. This ractice was utility plant accounts. The cost of property retired

. premised on regulatory treatment w ilch permits plus removal costs, after deducting any salvage recovery of such deferred income taxes in future revenues.

value, is charged to the accumulated provision for A major difference under the liability method is d"P " CI"" "' '

(' :that deferred tax liabilities are adjusted for -

subsequent tax rate changes. Also, the Company Mirror Construction Work in Progress must now record deferred taxes for all temporary The Ohio mirror CWIP law requires that revenues  !

differences between the book and tax bases of assets authorized by the PUCO and collected as a result of and. liabilities. Application of the accounting including CWIP in rate base be refunded in a  !

standard in 1988 and 1989 did not impact results of subsequent period after the project is included in operations as the additional deferred taxes were offset by a regulatory asset on the balance sheet rate base, For accounting purposes, such revenues are deferred and recorded as refund obligations to j

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. because of the regulatory treatment described in the customers. During the period when such revenues preceding paragraph. Additionally, allowance for are being collected, AFUDC (through the in-r: funds used during construction (AFUDC) and sevice date of the project) and carrying charges carrying charges that were previously accounted for (during the remainder of the collection period) in the income Statement on a net.of tax or an after- continue to be capitalized. The deferred revenues tax basis are nov' stated on a pretax basis, are then recognized as operating revenues in the -

Consequently, the 1988 and 1989 federal income tax Income Statement over the period of the refund. i provisions are equally higher. Amounts collected through January 31,1989 under For certain property, the Company received the mirror CWIP law are being refunded pursuant investment tax credits which have been accounted to the January 1989 PUCO rate order discussed in for as deferred credits. Prior to 1988, tax credits Note 6. After February 1,1989, no revenues were utilized were reflected as reductions to tax expense being collected under the mirror CWfP law. All over the life of the related property. Under the new mirror CWIP revenues will be refunded to customers

, method of accounting, the amortization of by February 1990.

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f' iMANAGEMENTS FINANCIAL ANALYSIS b Results of'Operoflons PUCO for certain replacement fuel and purchased p wer costs collected from customers during a 1985i 11989 vs.~ 1988 1986 Davis.Besse outage. Total kilowatt. hour sales The January 1989 PUCO rate order for the Company increased 2 A% in 1989. Commercial sales increased i (as discussed in Note 6) contributed to a' 2.7% as a result of continuing growth from new substantial improvement in cash flow in 1989, but ollice buildings and retail outlets. The comparatively had significantly less effect on our earnings. The moderate summer weather in 1989 lowered sales

[( gain in reported revenues from higher rates was because of reduced air conditioning usage.

h offset by a corresponding reduction in nuclear phnt Residential sales decreased 2.5%. Industrial sales related cost deferrals, as such costs are phased in decreased 1.1% as modest growth in industrial sales and recovered in rates, activity in 1989 was offset entirely by the impact of The 1990 and 1991 rate increases included in the the loss of a large industrial customer to a

{g  : rate order will continue to improve operating municipal power system in Clyde, Ohio, which rcvenues in those years although further reductions began operating in April 1989. That customer f in deferred costs and the earnings caps contained

[p accounted for 1.1% of the company's total electric p( in the Company's and Cleveland Electric's rate sales in 1988 orders will limit increases in earnings. Revenue Operating expenses increased 18.9% in 1989. -

gains may be limited somewhat by the eilects of a I.ower deferrals of nuclear operating expense for sluggish economy and customer conservation efforts. Perry Unit I and Beaver Valley Unit 2 resulted in a Sales growth is expected to be flat for 1990 and less $65,000,000 increase in expense. Fuel and than 2% annually for several years thereafter. This purchased power expense increased largely because makes our cost reduction efforts extremely of the matching of expense with higher fuel cost

Important. Future operational changes and cost recovery revenues discussed in the preceding- i reductions resulting from the PUCO mandated paragraph. Improved nuclear unit availability b . management audit should make the Company more enabled the Company to sell power to other utilities competitive in an environment of inflation and other than Cleveland Electric. The excess revenues increasing competition with other energy providers, over cost is treated as a reduction in purchased

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. including municipal electric systems and power expense. Depreciation expense increased, cogeneration projects. reflective of the increased generation from the Factors contributing to the 31.7% increase in Company's nuclear units since their depreciation is a 1989 operating revenues are as follows: recorded based on units-of production. ,, .

Increase Total AFUDC and carrying charges decreased in 'i .i Clunge in operating Revenues (necrease) 1989 as a result of recovering a greater share of the

' Electric Revenues: Company's investment in its nucicar units currently b;s sales of Capacity to Cleveland Electric. $ 72.000,000 in rates pursuant to the rate order. Interest expense M Dase Rates and Miscellaneous. . 63,000.000 and preferred dividend requirements decreased in Deferred CwtP Revenues. 4 t000.000 1989 because of retirements and refinancings by the -

Fuel Cost Recovery Revenues . . 21,000,000 Company. 'i sales volume and Mix. .. . (2.000.000) s m.0m.0m 1988 vs.1987 1

Factors contributing to the 3.8% increase in 1988 -

The primary factor for the increase in operating perating rewnues are as foHows:

revenues was a net increase in 1989 hi the total sales to Cleveland Electric of a portion of the Company's increase

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leased capacity entitlements in Beaver Valley Unit 2 and Bruce Mansfield Plant (Mansfield Plant). The Electric Rewnues:

- sales from Beaver Valley Unit 2 commenced in sales of Capacity to Clewland Electdc. , $ 32.000,000 November 1988 as discussed in Note 2. The sales sales volume and Mix. 27.000.000 from Mansfield Plant were only for a three month Defer'ed CWIP "evenue8- 70 0000

= period in 1988. The rate order for the Company was F""I C "#C"*'Y ""V"""e5 ' (U U" 0 )

"" " '** ""d mswuaneous . . (2mm primarily responsible for the two other major factors impacting the increase in revenues. The PUCO at s2 mom granted the Company a 9% rate increase effective February 1,1989. Also, revenues which were In 1988, the Company sold to Cleveland Electric f

collected and deferred through January 31,1989 a portion of its leased capacity entitlement in 4 under the Ohio mirror CWIP law are being refunded Mansfield Plant and Beaver Valley Unit 2 for three

- pursuant to the rate order. Such deferred CWIP and two-month periods, respectively, as discussed in revenues are recognized as operating revenues over the 1989 vs.1988 analysis. Total kilowatt hour sales the period of the refund. Fuel cost recoverv increased 11.8% in 1988. sales growth of 5.3% in revenues increased in 1989 because of a signliicant the industrial sector reflected broad-based strength

rise in the fuel cost recovery factors compared to in the economy, particularly among automobile 1988. The lower 1988 factors recognized a greater manufacturers. Residential sales increased hack certain interests in three generating units as I II *8 Jdiscussed in Note 2J In 1988 and 1989, the

' Company issued $50,700,000 and $56,100,000,

$"[r1 corporauon Nrs service W respectively, of first mortgage bonds. Proceeds from non-

.these financings were used to repay portions of m min w bonds. naa3 f short-term debt incurred to fmance the construction unsecured notes . nn+ nal

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. program, to reitre and redeem outstanding ercrerrea siocu. . nu+ ba2 -

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securities, to pay our construction program costs and A write-off of the Company's investment in Perry for general corporate purposes. Unit 2, depending upon the magnitude and timing The Company has been granted rate increases of such a write olT, could reduce retained earnings effective in 1989,1990 and 1991 pursuant to a sufficiently to impair the Company's ability to

. January 1989 PUCO. rate order. See Ncte 6 for - declare dividends. See Note 3(c).

discussion of the Company's and Cleveland The Tax Reform Act of 1986 provided for a 40%

Electric's rate orders which provide for specific average income tax rate in 1987 and a 34% income

, levels of rate increases and earnings limitations for tax rate in 1988 and thereafter, the repeal of the -

Centerior Energy through .1991. Although the investment ux credit, scheduled reductions in

. Company's rate order required it to write off certain investment tax credit carryforwards, less favorable assets in 1988 which lowered its earnings base, depreciation rates, a new alternative minimum tax current cash flow was not impaired. (AMT) and other items. The changes resulted in Although the Company's cash requirements for increased tax payments and a reduction in cash flow construction - ($230,000,000) . and mandatory during 1987 principally because the AMT reduced redemption of debt and preferred stock the amount of investment tax credits allowed as an

( $351,000,000 ) during the 1990 1992 period in the offset to federal income tax payable. These changes ,

aggregate will exceed the total for the 1987 1989 had no significant cash flow impact in 1988 because period, internally generated cash is expected to the Company had a net operating loss for tax increase substantially as a result of the annual rate purposes; The changes in the tax law resulted in increases. Nearly all of the Company's construction. decreased tax payments and an increase in cash flow e and ' redemption- requirements in 1990 of during 1989 because the tax savings resulting from approximately $ 190,000,000 will be met with available tax deductions were utilized on the

, internal cash generation and current cash resources. consolidated tax return in determining the AMT.

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t CASH FLOWS THE TOLEDO EDISON COMPANY For the years ended December 31, f 1988 1987 1989 (tnousands or dottors)

-C:sh Flows from Operating Activilles (1)  ;

Net income (Loss) . . . . .. .... .. . . . ,. .. .... .. . $ 9.7 67,8 $(145,452) $ 165,171. l Adjustments to Reconcile Net income (Loss) to Cash from

' Operating Activitiest Depreciation and amortization . .... ...... .. .. 87,639 75,093 65,503 Deferred federal income taxes . ... . . .. .. 79,199 (62,598) (150,717)

Investment tax credits, net.- ... ....... . ... .. 1,237 6,920 79,332 Write off of nuclear costs . . . . . . . . . ..... ..... .

- 276,955 -

Deferred and unbilled revenues .. .... .... .. .. (42,624) 14,642 20,185 ,

Deferred fuel . , . . . . . . . . . . . . . . . .. .. ...... .

16,259 (20,693) 15,848 Carrying charges capitalized . . . . . . . .. . ..... .. , (82,308) (129,632) (14,989)

Leased nuclear fuel amortization . . .. . .... . . 46,408 32,285 22,603 Deferred operating expenses, net . ........ . . ... . (18,491) (83,813) (39,797)-

Allowance for equity funds used during construction . . . . . (8,568) (5,452) (122,138) .

Amortization of reserve for Davis Besse refund obligations to

- customers . . . . . . . . . ..... .. . . (12,655) (20,777) -

Cumulative effect of an accounting change . . . . . . .

- (6,279) -

Changes in amounts due from customers and others, net. .. (4,406) 13,472 (12,138)

Changes in inventories . . . ,. .. . .. ..... . 1,890 904 (11,856)

Changes in accounts payable . . . . . . . .. .. . .. 8,896 19,472 17,490 Changes in working capital affecting operations , . .. . . (30,713) 11,766 35,788 ,

Other noncash items . .. .. .. .... ..... 5,896 9,358 44,190 Total Adjustments. . , . . ... . 47A59 131,623 (50,696)

Net Cash from Ope 4ating Activities . .. . .. 140,337 16,171 114.475 Cash Flows from Financing Activities (2)

Bank loans, commercial paper and other short term debt. .

- - (15,000)

-Notes payable to affiliates. , . . . .

- (68,000) 61,700 Debt issues: '

First mortgage bonds. . . . . . 56,100 50,700 41,000 Unsecured debt ... . . . .. . . . ..

- - 250,000 Preferred stock issue . . . ... .. . . .

- - 50,000 liquity contributions from parent . .. .. .... .. .

- - 30,000 Maturines, redemptions and sinking funds . . . .. . . (65,006) (222,166) (550,075)

Nuclear fuel lease and trust obligations. . . . . . .. (39,015) (32,285) (20,954)

Dividends paid . . . . . . . . .. . ..... . . (88,743) (89,054) (155,515)

Premiums, discounts and expenses . . . . . . (925) 1.489 (2,731)

Net Cash from Financing Activities . . . .. (137,589) _(359,316) (311.575)

Cash Flows from investing Activilles (2)

Cash applied to construction ....... .. . . .. ... (65,296) (113,174) (177,019)

Interest capitalized as allowance for borrowed funda ta,ed during ~ construction . . ... . . . . .. . (5,479) (4,833) (54,272)

- Loans to affiliates . . . . . .... .. .. . . . . . (114,000) - -

Cash received from sale and leaseback transactions, net . . . .

- - 1,075,988 Cash withdrawn from (deposited in) sale and leaseback trust - 109,976 (109,976) -

Other cash received (applied) . . . . . . 831 3,947 (17,478)- l Net Cash from investing Activities. . (183,944) (1,084) 717,243 N:t Change in Cash and Temporary Cash Investments. (181,196) (344,229) 520,143 Cash and Temporary Cash Investments at Beginning of Year................... .. . .. .. .... ... .

254,888 599.147 78,974 Cash and Temporary Cash investments at End of Year . . S 73,692 S 254,888 S 599,117

(!) Interest paid was $141,000.000 $150.000,000 and $183.000,000 in 1989,1988 and 1987, respectively. Income taxes paid were $24,980.000 in 1987. No income taxes were paid in 1989 and 1988.

(2) Increases in Nuclear Fuel and Nuclear Fuel Lease and Trust Obligations 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.

9

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y3 BALANCE-SHEET 4 . -

December 31, 1989 1988- l (th0VSonds of dollars)

Assets '-

. Property, Plant and Equipment Utility plant in service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,532,291 $2,438,927:

1.ess: accumulated depreclation and amortization. . . . . . . . . . . 567,197 487,546 1,965,094 1,951,381 Construction work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,586 115,978 Pe rry U n i t 2 . . . . . . . . . . . . . , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345,754- 343,126 2,395,434 2,410,485

. Nuclear fuel, net of amortization . . . . . . . . . . . . . . . . .. ... 235,193 260.362

, Other property, less accumulated depreciation . . . . . .. . . 2,126 2,152

2.632,752 2,672,999

Current Assets.

ti  : Cash and temporary cash investments . . . . . . . . . . . . . . . . . . . . 73,692' 254,888 Amounts due from customers and others, net . . . . . . .... . 53,800 49,394 Accounts receivable from afrillates . . . . . . . . .... . ..... . 35,114 31,050  ;

Notes receivable from affiliates . . . . . . . . . . . . . . . . . . . .. 114,000- -

U nbilled reven u es . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,525 13,415 Materials and supplies, at average cost , , .............. 26,841 24,424 Fossil fuel inventory, at average cost . . .. . ... . .. 14,882 , 19,189 Taxes applicable to succeeding years . . .... ...... . . 61,967 53,752 Other . ....., .. . ... .... .. . .. .. ... .. . ... 4,815 1.947-- ->

408,636 448,059 Deferred Charges

- Amounts due from customers for future federal income taxes

. 519,469 519,238- l Unamortized loss from Beaver Valley Unit 2 sale. . . . . . . . . 122,911 127,367 Unamortized loss on reacquired debt . . . . .. . .. ....... 28,528 30.809 Carrying charges and operating expenses, pre-phase in , , ... 257,709 259,978 Carrying charges and operating expenses, phase-in . . . . . . . . . . 104,843 -

Other ... ......, . ... .. ... .. .. .. .... ....... 63,998 -

76,222 1.097,458 1.013,614-

'i

' Total Assets . . , .... . . .. . ,. $4,138,846 S4.134,672 The accompanying notes;tud Liumnary of significant accounting policies are an integral part of this statement.

10

THE TOLEDO EDISON COMPANY m

December 31, 1989 1988 (thovsonds of dollors) lCopitalization and Llobilitles

Capitalization -

. Common shares, $5 par value; 60,000,000 authorized;

~ 39,134,000 outstanding in 1989 and 1988 . . . . . . . . . . . . . . . . . $ 195,687 $ 195,687 Premiu m on capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 481,082 481,082 Other paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,059 121,059.

R e t a i n e d ear n i n gs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,965 89,614 Common stock equity . . . . . . . . . . . . . . . . . . . . . . ......... 897,793 887,442

- Preferred stock -

- With mandatory redemption provisions . . . . . . . . . . . . . . . . . . . . 68,990 71,155 Without mandatory redemption provisions. . . . .. .. ... 210,000 210,000 1.ong term debt . . . . . . .. ... ........ ........ .. .. .. 1.197,277 4,294,444 2,374.060 2.460,041

- Other Noncurrent Liabilities Refund obligations to customers. . . ......... .. ... . 23,780 47,719 Other, primarily nuclear fuel lease and trust obligations . . . . . 252,460 269.345.

276,240 317,064 Current Oobilities Current portion of long-term debt and preferred stock. . . . . . 114,870 26.932 Current portion of lease obligations. . . . ............ 44,480 38,499 Accounts payable . . . . . . . . . . . .. .. . .. . .. ... . 108,338 99A42 Accounts payable to nftillates . . . . . . . . . . . .. . ... 8,311 16,059 Accrued taxes . . . . . . . . . . . . . . . . . . . ...,.. . ...... .. . 94.990 102,811-Accrued interest. . .. .... ... . . . . .... 39,075 39,807-Dividends declared . . . . . . . . . . . . . . . . . .. . .. ..

6A23 ~

Accrued payroll and vacations . . . . . . . . .. . . . 6.885 7,728 Current portion of refund obligations to customers . . . . . . . . . . 26,125 '34,700 Other ............ ... .. ....... .... . . ... .. 10,749 11,156 453,823 383,557 I Deferred Credits .

Unamortized investment tax credits . .. ... . .. .. 103,349 105,551 Accumulated deferred federal income taxes .. ... . 565,266 484,913 Ileserve for Perry Unit 2 allowance for funds used during construction . ... .. . . . . .. .. . . . 88,295 88,295 Unaniottized gain from Bruce Mansfield Plant sale . . . . . . 247,305 255,973 Other . . . . . . ..... ....... ... .. .. . . .. 30,508 39.278 1.034,723 974,010-Total Capitalization and Liabilities . . .. . .. . . $4,138,846 S4,134.672 11

,s (STATEMENT OF CUMULATIVE PREFERRED . THE TOLEDO EDISON COMPANY

~ AND PREFERENCE STOCK December 31,-

1989 Shores Current Outstanding Call Price 1989 1988 ,

I (thousands of dollars)

. 5100 par value preferred, 3,000,000 shares authorized: $25 par value preferred.

12,000.000 shares authorized; and $25 par value preference, 5,000,000 shares authorized, none outstanding subject to mandatory redemption (less current maturities):

$ 100 par $ 11.00. . . . . .... .... . 39,800 S iO3.50 $ 3,980 S 4,480 9.375 . ... . ... .. 150,i00 104.45- 15.010 16,675

. 25 par 2.81. . . . . . . . . .

2,000,000 27.19 50,000 50.000

$ 68.990 $ 7 1,155'-

Kot subject to mandatory redemptiom 100 par - .l.25..... ..... .... .. 160,000 104.625- $ 16,000 $ 16,000 '  !

a.56... . .. ... 50,000 101.00 5,000 5,000-1.2 5 . . .... . . .... 100.000 102.00 10,000 10,000

8. 3 2 . . . . . . . , , . ... 100,000 102.46 10,000 10,000 1 7.7 6 . . . . . . . . .... 150,000 102.437 15,000 15,000

- 7.80 . . . .... . .... 150,000 101.65 15,000 15,000 10.00.. . .. . .. 190,000 101.00 19,000 19,000 j 25 par 2.21 . ... . . ..... 1,000,000 25.90 25,000 25,000 )

2.365. . . . ... . .. 1,400.000 28.45 35,000 35,000 j.

Series A Adjustable . 1,200,000 - 30,000 30,000-  !

Series a Adjustable . . 1.200.000 - 30,000 30,000

$210,000 $210,000 l

The accompanying notes and summary of significant a unting policies are an integral part of this statement.  !

I i

I 12

pw i

p NOTES TO THE FINANCIAL STATEMENTS (1) Property Owned with Other Utilities and investors The Company owns,.as a tenant 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 g equal to its ownership share. Each utility owner is obligated to pay for only its respectivt share of the construction .

and operating costs. Each lessee is obligated to pay for the related lessor's share of those costs. The Company's share 1 of the operating expense of these generating units is included in the Income Statement. Property, plant and equipment at December 31,1989 includes the following facilities owned by the Company as a tenant in common with other utilities and lessors:

Owner.

In- Owner- rihip Plant Construction service ship Mega. Power in Work Accumulated g- . Gen:' rating Umi Date share wans source service in Progress Depreciation in fervice: (thousands of dollars)

Davis besse, ... . .. ... . .. .. . 1977 48.62 % 428 Nuclear $ $85.234 $ 39,891 - $ 103,363 -

' Perry Unit 1 & Commor, Facilities ; .. 1987 19.91 238 Nuclear 915,659 2,625 72,317 Ileaver valley Unit 2 & Common Facilities (Note 2) . . .. . . , 1987 1.65 14 Nuclear 182,244 2,3 $7 13,166' Cons"uction suspended (Note 3(c)h Perry Unit 2 . , ,. . Uncertain 19.91 240 Nuclear -

345.754 -

$ 1,683.137 $390.627 $ 188.846

_ (2) Utility Plant Sale and Leaseback Transactions As a result of sale and leaseback transactions over the terms of the leases. The amounts recorded completed in 1987, the Company and Cleveland by the Company as rental expense for the Alansfield Electric are co lessees of 18.26% (152 megawatts) of Plant leases were $44,556,000, $43.095,000 and Beaver Valley Unit 2 and 6.5% (51 megawatts). $12,600,000 in 1989,1988 and 1987, respectively.

( 45.990 (358 megawatts) and 44.38% (355 Rental expense for the beaver Valley Unit 2 lease megawatts) of Units 1,2 and 3, respectively, of the was $72,276,000, $71,810,000 and $18,300,000 in

- coal fired Mansfield Plant for terms of about 29M 1989,1988 and 19874 respectively. Of these rental

, years. The Company sold a substantial portion of its expense amounts for Beaver Valley Unit 2,.

undivided tenant in common interest in Beaver $58,254,000 and $18,300,000 in 1988 and 1987, dalley Unit 2 and essentiall all of its mterests in respectively, were recorded in a deferred charge Units 2 and 3 of the Stansfie d Plant. The Company,s account pursuant to PUCO accounting orders. Such -

$111, 0, o Cl lan 1 i i al d deferred amounts are being amortized to expense essentially all of its interests in the three units of the ver the life of the lease beginning in 1989.

Stansfield Plant. The Company and Cleveland Electric are As co. lessee with Cleveland Electric, the responsible under the leases for paying all taxes, Company is also obligated for Cleveland Electric's insurance premiums, operation and main;enance lease payments. If Cleveland Electric is unable to costs and'all other similar costs for their interests in make its payments under the Mansfield Plant leases, the Units sold and leased back.-The Company and the Company would be obligated to make such Cleveland Electric may incur additional costs in

. payments.- No payments have been made on behalf connection with capital improvements to the Units.

of Cleveland Electric to date. The Company and Cleveland Electric have options Futtire minimum lease payments under these to buy the interests back at the end of the leases for-operating leases at December 31, 1989 are the fair market value at that time or to renew the sucmarized as follows: leases. Additional lease provisions _ provide other For purchase options along with conditions for for the Cleveland mandatory termination of the leases (and possible veg company acetric repurchase of the leasehold interests) for events of Ohouunds or dolbrs) default. These events of default include 1990. $ 106.000 $ 63,000 noncompliance with several financial Covenants 1991. . .. . 107,000 63,000 affecting the Company, Cleveland Electric and 1992. 110.000 63.000 Centerior Energy contained in an agreement relating

'1993.. . '111,000 63,000 to a letter of credir issued in connection with the 1994. . . 111,000 63.000 sale and leueback of Beaver Valley Unit 2, as Later yeart.. 2.703.000 i nu.ooo amended in 1989. See Note 10(d).

Total Future Minimum The Company is selling 150 megawatts of its Lase Paymems . . 33.248.000 $ 1.957.000 Beaver Valley Unit 2 leased capacity entitlement to Cleveland Electnc. This sale commenced in ,

Semiannual lease payments conform with the November 1988 and we anticipate that it will payment schedule for each lease. continue at least through 1998. Revenues recorded

. Rental expense is accrued on a straight-line basis for this transaction were $ 104,127,000 and j >

13 l:

b" e ,

6

$18,533,000 'in 1989 and 1988, respectively. The of maintaining Perry Unit 2 while construction is C - future minimum lease payments associated with suspended.

-Beaver Valley Unit 2 aggregate $2,002,000,000.

(d) Superfund Sites u (3) Construction and Contingencies The Comprehensive Environmental Response, _

Compensation and Liability Act of 1980 as amended (o_); Construction Program (Superfund) established programs addressing the The estimated cost of the Company's construction - clean up of hazardous waste disposal sites, program for the 1990 1992 period is $250,000,000, emergency preparedness and other issues. Pursuant including AFUDC and excluding nuclear fuel, to Superfund, the Company has been notified of its

' Should more stringent environmental regulations be potential involvement in the clean up of three adopted, particular'y in the area of acid rain hazardous waste sites. We believe that the ultimate

-pollution control, future construction program costs outcome of these matters will be immaterial.

would increase substantially.

(4) Nuclear Operollons and l

.(b) Proposed Acid Rain I.egislation Contingencies M LThere are several bills being considered in the United States Congress which would require (a) Operating Nuclear Units .i 1

significant reductions in the emission of sulfur The Company's interests in nuclear units may be

~

dioxide and nitrogen oxides by fossil fueled electric impacted,by activities or events beyond the -

- generating units. Centerior Energy's preliminary Company s control. Operating nuclear gerverating  ;

. analysis indicates that compliance with these bills units have experienced unplanned outages or c could require additional capital expenditures in the extensions of scheduled outages because of range of $900,000,000 to $1,200,000,000 by the equipment problems or new regulatory ,

Company and Cleveland Electric and would result requirements. A major accident at a nuclear facility j in higher fuel and operation and maintenance anywhere in the world could cause the Nuclear expenses; The resulting aggregate rate increases Regulatorv Commission to limit or prohibit the could be in the range of 9 to 15% by the year 2000. operation, construction or licensing of any nuclear One bill contains an additional proposal to unit. If one of the Company's nuclear units is taken regulate certain types-of toxic pollutants. This out of service for an extended period of time for. ,

. proposal could increase the cost of compliance any reason, including an accident at such unit or any i significantly over the estimates : stated in the other nuclear facility, we cannot predict whether .j preceding paragraph. regulatory authorities would impose unfavorable p Under the proposed bills, capital expenditures rate treatment such as taking the Company's affected  ;

and rate increases would be incurred predominantly unit out of rate base. '

cin the 1994 2000 period. The nnancial impact on i the Company is expected to be less than on (b) Nuclear Insurance Cleveland Electric. We cannot predict the outcome

, of. the. legislative process or be certain that The Price Anderson Act limits the liability of the l

Ccnterior Energy 8 compliance cost estimates will owners of a nuclear power plant to the amount not change significantly. We believe that Ohio law provided by private insurance and an industry

. would permit the recovery of compliance costs from assessment plan. In the event of a nuclear incident at- <

customers in rates. any unit in the United States resulting in losses in excess of the level of private insurance (currently (c) Perry Unit 2 $ 200,000,000), the Company's maximum potential ,

assessment under that plan (assuming the other j Perry Unit 2, including its share of the common CAPCO comnanies were to contribute their  ;

facilities, ls about 58% complete. Construction of proportionate share of any assessment) would be Perry Unit 2 was suspended in 1985 by the CAPCO $58,503,000 (plus any inflation adjustment) per  ;

companies pending future consideration of several incident, but is limited to $8,844,000 per year for alternatives which include resumption of full each nuclear incident. N construction with a revised estimated cost and The CAPCO companies have insurance coverage 3 nompletion date, mothballing or cancellation. None for damage to property at Davis Besse, Perry and l of these alternatives may be implemented without Beaver Valley (including leased fuel and clean-up  :}

Jthe approval of each cf the CAPCO companies. costs). Coverage amounted to $2,035,000,000 for  !

If Perry Unit.2 were to be canceled, then the each site as of Janunty 1,1990. Damage to property i Company's net investment in Perry Unit 2 (less any could exceed the insurance coverage by a

. tax saving) would have to be written off. We substantial amount. If it does, the Corrpany's share . {*

estimate that such a write off, based on the of such amount could have a material adverse effect  ?

Company's investment in this Unit as of December on the Company's financial condition and results of

. 31,1989, would have been about $ 172.000,000, after operations.

taxes. See Notes 10(b), (c) and (d) for a The Company also has insurance coverage for the discussion of other potential consequences of such incremental cost of any replacement power a write off. purchased (over the costs which would have been Duquesne has advised the Pennsylvania Public incurred had the units been operating) after the Utilities Commission that it will not agree to occurrence of certain types of accidents at the resumption of construction -of Perry Unit 2. Company's nuclear units. The amounts of the Duquesne is continuing to pay for its 13.74% share coverage are 100% of the estimated incremental cost

.i 3  !

e  !

. per week during the 52 week period starting 21_ cases. The orders endorsed agreements which l . weeks after an accident,67% of such estimate per - reached beyond the issues in such cases and week for the next 52 weeks and 33% of such rescived, with respect to the participants, other estimate per week for the next 52 weeks. The cost issues which had been contested. All pending.

- .and duration of replacement power could - prudence investigations before the PUCO and substantially exceed the insurance coverage. pending litigation before the Ohio Supreme Court brought by the parties to the settlement involving -

(5) Nuclear Fuel the Company's nuclear investment and other rate

The Company has inventories for nuclear fuel which matters have been terminated.

- should provide an adequate supply.into the mid. The orders provided for three annual rate 1990s, substantial additional nuclear fuel must be increases for the Company and Cleveland Electric of.

obtained to supply fuel for the remaining useful approximately 9%,7% and 6% effective with bills

- lives of Davis Desse, Perry Unit I and Beaver Valley rendered on and after February 1,1989,1990 and ,

Unit 2. More nuclear fuel would be required if Perry 1991, respectively. The revenues associated with the' Unit 2 were completed. Company's increases are as follows:

In '1969, existing nuclear fuel fmancing Larrangements for the Company and Cleveland ^"""Y im Electric were refinanced through leases from a (munons or special purpose corporation. The maximum amount dottars) -

- of financing currently available under these lease $ 50.7 1989. .. . . .. , ..

arrangements is $609,000,000 ($309,000,000 from intermediate term notes and $300,000,000 from $; ' '

• jos v bank credit arrangements), although financing in an g' amount up to- $900,000,000 is permitted. The Company and Cleveland Electric severally lease their respective portions of the nuclear fuel and are These revenue increases are net increases after obligated to pay for the fuel as it is burned in a including adjustments required under the mirror

? reactor.'The lease rates are based on various CWIP law and the refunding of revenues collected

' intermediate term note rates,- bank rates and by the Company in 1985 through 1987 pursuant to a commercial paper rates. The intermediate term February 1985 rate order. - The refunding -

notes mature in the period 1993 1997. Beginning in requirement had no impact on net income because

~ 1991, the bank credit arrangements are cancelable reserves had been provided in those years. All

=on two years notice by the lenders. As of December amounts related to the refunding requirement will

31," 1989, $250,000,000 of nuclear fuel was be refunded to customers by November 1991, financed for the Company. This includes nuclear- The orders provided for the permanent exclusion fuel in the Davis Besse, Perry Unit I and Beaver - from rate base of a portion of the Company's and t Valley Unit-2 reactors with remaining payments of Cleveland Electric's combined investment in Perry

$37,000,000, $ 36,000,000 and $ 17,000,000, Unit 1 and Beaver Valley Unit 2. The exclusion

respectively, as of December 31,1989. resulted in a write off by the Company of The _ Company's nuclear fuel amounts financed $ 24 2,000,000' ( $ 160,000,000 after tax) in 1988.

and capitalized included interest charges incurred Since the orden, effectively eliminated the.

by the lessors amounting to $19,000,000 in 1989, possibility of the Company and Cleveland Electric

$ 18,000.000 in 1988 and $ 17,000,000 in 1987. The recovering their remaining investment in four estimated future lease amortization payments based nuclear construction projects canceled in 1980 and on projected burn are $44,000,000 in 1990, recovering certain deferred expenses for Davis-

$50,000,000 in ' 1991, $ 51,000,000 in- 1992, Besse, additional write offs totaling $35,000,000

. $46,000,000 in 1993 and $51,000,000 in 1994. As ( $21,000,000 after tax) were recorded by the these payments are made, the amount of credit Company in 1988, bringing the total write off of available to the lessor becomes available to finance nuclear costs emanating from the Company's order additional nuclear fuel, assuming the lessor's to $277,000,000 ($181,000,000 after tax).

Intermediate term notes and bank credit The phase in plan ordered by the PUCO was arrangements continue to be outstanding. designed so that the 9% 7% .md 6% rate increases, compounded by sales growth, will be sufficient to recover all operating expenses and provide a fair (6)~ Regulatory Matters rate of return on the Company s unrecovered

-In 1987, the PUCO granted increases in electric rates investments in Perry Unit 1 and' Beaver Valley Unit 2 to the Company as follows: for ten years beginningJanuary 1,1989. In the early.

Annuali/ed years of the plan, the operating expenses and Dae Amount return requirements exceed the revenue increases.

(muuons or Therefore, the amounts of operating expenses and donaro return on investment not ct'rrently recovered are

. May 19c. suo deferred or capitalized as carrying charges. The Decemtwr 19c . o5 PUCO authorized the Company to record a full net-of tax carrying charge of 9.2% on deferred rate-On January 31,1989, the PUCO issued orders for based investment commencing January 1,1989.

the Company and Cleveland Electric which adopted Since the unrecovered investments will decline over a settlement reached between the companies and the period of the phase in plans because of the majonty of the intervenors in then pending rate depreciation and federal income tax benefits that 15

[wre-k 1 p result from the use of accelerated tax d?preciation, savings are maximized. Until the management audit p the amount of revenucs required to provide a fair is completed in the spring of 1990, an annual return also declines. Beginning in the sixth year, the savings target range has been set for Centerior

(( revenue levels authorized pursuant to the phase in Energy of $40,000,000 to $100,000,000 from the

[, plan were designed to be sufficient to recover 1988 normalized level of other operation and y curr~nt operating expenses, a fair return on the maintenance expense (excluding lease expense b unrecovered investments and amortization of arising from the sale and leaseback of assets) of b deferred operating expenses and capitalized $676,300,000, as determined by an audit advisory

[ carrying charges recorded during the earlier years of panel and approved by the PUCO. Also, in p the plan. All phase in deferrals after December 31, connection with the orders, a nuclear management b '1988 relating to these two Units will be recovered expert completed a cost reduction study at Davis.

[ . by December 31,1998; Pursuant to such phase in

' plan, the Company deferred operating expenses of Besse. The study concluded that Centerior Energy

[ could reduce annual operation and maintenance l $22,535,000 and debt and equity carrying costs of expenses at Davis Besse: by approximately

( $30,617,000 and $51,691,000, respectively, in 1989.

. Under the orders, the Company and Cleveland

$33,000,000 in 1991. The management audit will consider the Davis-Besse study results in the

[ Electric may not seek any further permanent rate determination of overall savings.

increases to be effective before February 1,1992 The orders provide that 50% of the net after tax -

unless Centerior Energy's earnings available for savings in 1989 and 1990 resulting from the cost common equity, prior to extraordinary items, are reduction effort or identified by the management

i. forecasted either to fall below $210,000,000 over audit and approved by the PUCO are to be used to

[ - four consecutive quarters or to tall below reduce cost deferrals recorded under the phase In

[ $4 35,000,000 over eight - consecutive quarters. plans for the Company and Cleveland Electric, t -During this period, Cet ir Energy's earnings Based on 1989 results, no change was made in the f' available for connuon equay, prior to extraordinary cost deferrals for 1989. Fifty percent of the net

' items and excluding changes in expenses relating - annualized savings achieved or identified and to any future sale and leaseback of assets, are limited approved for a period to be detennined will be used

. 1 to the following amounts for any four consecutive to reduce the 6% rate increase scheduled for k quarters ending on or before the date indicated: February 1,1991. As an incentive to achieve the -

[ savings, the remaining 50% of savings in each of the

[ $ 275,000,000 March 31,1990 periods will be retained- by the Company and -

l $ 295,000,000 March 31,1991 Cleveland Electric, subject to the earnings-cap

[ $310,000,000 December 31,1991 described in this Note. Net savings would be '

p adjusted for changes in capital and operating costs ir any of the earnings caps described above were arising from certain events, such as changes in tax exceeded, an adjustment would be made to the laws or environmental laws. There were no such amount of the deferrals recorded under the phase-in adjustments for 1989. If the Company and Cleveland-plan to prevent any excess earnings. The Electric do not achieve at least one-half of the.

adjustment would be applied proportionately savings identified by the management audit and between the Company and Cleveland Electric based approved by the PUCO, earnings would be reduced on the earned returns of the two companies. by the amount of the shortfall, subject to the ability

, The orders provide that any permanent rate of the Company and Cleveland Electric to request increase sought to be effective during the period additional rate relief if Centerior Energy's forecasted l'ebruary 1,1992 to February 1,1994 may only be earnings fall below the minimum levels discussed based upon costs associated with net new in this Note, investment placed in service after February 29, The orders also provide for possible decreases or 1988 and necessary changes in operation and increases in the cost deferrals if actual revenues are

-maintenance expenses (other than fuel and higher or lower, respectively, as compared to ,'

purchased power) and other necessary cost projected amounts in the orders. No change was increases from the levels identified in the made in the cost deferrals for 1989.

management audit discussed in the next paragraph. The orders set nuclear performance standards '

Also, if. Centerior Energy's return on average through 1998. Beginning in 1991, the Company common stock equity is below the benchmark rate could be required to reiund incremental established quarterly by FERC for rate cases subject replacement power costs if the standards are not

, to its jurisdiction, the Company and Cleveland met. Fossil fueled power plant performance may not Electric could seek rate increases to improve the be raised as an issue in any rate proceeding before return under certain specified conditions. February 1994 as long as the Company and The Company, Cleveland Electrie and the Service Cleveland Electric achieve a system wide availability L' -Company are undergoing a management audit to factor of at least 65% annually. This standard was +

assure that operation and maintenance expense exceeded in 1989.

I 16

(7) FedarolIncom') Tax .

Federal income tax, computed by multiplying income before taxes by the statutory rates, is reconciled to the amount

[;

of federal income tax recorded on the books as follows: -

For the years ended December 31, 1989 1988 1987 (thousands of collars)

Iwok income (Lms) Defore rederal Income Tax . . $ 151.526 f ( 168.277) $ 145,192

' Tax on Book Income (Loss) at Statutory Rate. , . .

$ 51,519 8 (57,214) $ 58,004 Increase (Decrease) in Tax:

, ArUDC and Carrying Charges .. ., ,

- - (76,464)

Accelerated Depreciation . . . .. . . 5,993 529 1,666

Organlaation Costs . . . . . . . , . . . . . . .. . . . . - 2,274 -

Taxes, Other Than rederal Income Taxes . . . (107) 4,292 3,015 Other items . . , , ... . .. . , , 1,443 (2,706) (6,200)

' Total Federal Income Tax F.xpense (Credit). , . . .

. $ 58.848 $ (52.825) $ (19.979)

Federal income tax expense is recorded in the income Statement as follows:

For the vears ended December 31, 1989- 1988 1987 (thousands of dollars)

Operating Expensco current Tax Provision . . . . _ . . . . . . . . . . . . .

$ (11,458) $ (3,132) $ 71,050

' Changes in Accumulated Deferred iederal Income Tax:

Accelerated Depreciation and Amortitation. ,, 8,764 1,723 46,815

- Alternative Mmimum Tax Credit Ofhet. ... . .

21,291 - -

sale and Leaseback Transacuans and Amortization . .. . 455 14,763 (179,555)

Property Tax Expeme , ,,

- (5,058) 5AS4 <

eferred CwlP Revenues . I1,726 (4,331) (7,681)

Unbilled Reveaues . , . ,

- - (1,184)

Deferred Fuel Costs . . . . .

(1,229) 4,698- (6,441)

System Development Costs. . . ,, 207 3,639 1,355

> Davh 1tesse Replacement Power. . . 5,055 8,375 -

. Federal Income Tax Return Adjustments . -

(272) 760-Reacquired Debt Costs . . . , , . (378) 4,646 -

Deferred Operating Expenses . . . , (1,268) 4,039 10,356 Net Operating Loss Carryforward . - (2,545) -

i Other items . . . . . . . .. 2,398 (4,223) (1,346) ,

investment Tax Credits - Net . .

1,722 6,920 83,164 '!

Total Charged to Operating Expenses, , , 37.285 29,242 22,747 Nonoperating Income:

Current Tax Provision . , _ . . . . . . . . , , (10,129) - (31,209)

Changes in Accumulated Deferred Federal income Tax:

Davis-Desse Replacement Power. , . . - 2,709 (10,114)

Write off of Nuclear Costs. . . - (97,277) -

AFUDC and Carrying Charges . _ . 32,930 46,543 -

i

' Net Operaung loss Carryforward . - (36,831) - j Other items . , (l.238) (1,388) (lA03)

Total Expense (Credit) to Nonoperating income . 21,563 (86.244) (42,726).

Federal incom'e Tax included in Cumulative Effect of an Accounting Change for Unbilled Revenues , - 4,17' Total Federal Income Tax Expense (Credit), 8 58,848 8 (52.825) $ (19,979)

The Company joins in the filing of a consolidated federal income tax return with its affiliated companies, The  !

method of tax allocation approximates a separate return result for each company.

As discussed in the Summary of Signliicant Accounting Policies, a change was made in 1988 in the method of ,

accounting for~ income taxes.

For tax purposes, net operating loss (NOL) carryfonvards of approximately $187,019,000 and $21,426,000 were

' generated in 1988 and 195% respectively, and are available to reduce future taxable income.The NOL carryforwards will expire in 2003 and 2004. Future utiliza' ion of these tax NOL carryforwards would result in recording the related deferred taxes. The 34% tax effect of the NOL generated in 1989 ($7,285,000) is included in the above

. table as a reduction to deferred federal income tax relating'to accelerated depreciation and amortization. The 34%

tax effect of the NOL generated in 1988 ($63,586,000) is included in the above table as reductions to deferred' federal income tax relating to accelerated depreciation and amortization ($24,210,000) and to other deferred -

federal incon'e tax charged to operating expenses ($2,545,000) and to nonoperating income ($36,831,000),

Approximately $23,038,000 of unused general business tax credits are available to reduce future tax obligations.

The unused credits expire in varying amounts in 2001 through 20n4. Utilization of these unused credits is limited

. by provisions of the Tax Reform Act of 1986 ai.d the level of future taxable income to which such credits may be applied, The Tax Reform Act of 1986 provides for an AhlT credit to be used to reduce the regular tax to the AhlT level should the regular tax exceed the AhlT. An AhlT credit offset for the consolidated tax return of $21,291,000 was generated in 1989.

17 J

[W y

(8): Retirement income Pl n and Other- Th'e cost of post retirement medical benefits-

' Post Retirement Benefits amounted to $1,500,000 in 1987, $1,600,000 in 1988 and $2,100,000 in 1989.

g > We sponsor a noncontributing pension plan which f covers all employee groups. The amount ' of retirement benefits generally depends upon the

'tngth of service. Under certain circumstances, (9) Guarantees l benefits can begin as early as age 55. The plan also Under a long term coal purchase arrangement, the

p. provides certain death, medical and disability Coinpany has guaranteed the loan and lease benefits. The Company's funding policy is to be in obligations of a mining company._ This arrangement -

compliance with the Employee Retirement income also requires payments to the. mining company for Security Act guidelines. any actual out of pocket idle mine expenses (as i

_ ;ln 1987, the Company offered a Voluntary Early advance ;)ayments for coal) when the mines are idle

< Retirelaent ' Opportunity Program (VEROP) which for reasons beyond the control of the mining i cc;t $6,300,000. Pension and early retirement company. At December 31,1989, the principal ,

, program costs for the years 1987 through 1989 amount of the mining company's loan and lease 2 were $5,700,000, $2,100,000 and $1,100,000, obligations guaranteed by the Company was respectively. Net pension and early retirement costs $24,000,000, for the three years were comprised of the following The Company has also guaranteed the debt components: obligation of an equipment supplier. At December 1989' 1988 1987 31, 1989, the principal amount of the debt

- . - (millions of dollars) obligation guaranteed by the . Company was

. Pension Costs: $9,000,000. .j

?- Service cmt for benefits earned ~

during the period . . . . . . .. .

$.4 $ 4 $4 l Interest cost on projected benefit obligation .. .. . . . ..... 10 9 8 (10) Capitalization i Actual return on plan assets . .. (17) (18) (8) g g 9 Net amortization and deferral . . . 4 5 (3)

Net pension cost . . , , , 1 -

Preferred stock shares sold and retired during the VEROP cost , , ... ...... ... - 2 4 three years ended December 31,1989 are listed I?

U O* 8 IU Net pension and VEROP costs. . $ I $ 2

'989 !9"* '9"7

- The following table presents a reconciliation of the funded status of the plan at December 31,1989 (th usmds fshares) and 1988. Cumulative Preferred stock December 31, subject to Mandatory 1989 1988 Redemption:

(millions of sales dodars) . $25 par $2.81. - - 2,000 Actuarial present value of benefit Retirements obligations: $100 par $ t 1.00. -(5) (5)

. . (5)

Vested benefus. , . $ 92 $ 82 9.375- . . (17) (17) (17)-

Nonvested benefits . .. . 7 9 13.25.. (121)

Accumulated benefit obligation 99 91 12.65.. .

(190)

Effect of future compensation levels 33 25 14 80. ,

(300)-

Total projected benefit obligation 132 116 25 par 335. . - -

( t,200) 312- - -

( t ,400)

Plan assets at fair market value . . .

3 152 Net Change.

Surplus of assets over projected (22) r22) (1.233) benefit obligadon . (42) (36)

Unrecognlied net gain due to Cumulative Preferred stock Not variance between assumpdons and subject to Mandatory expertence . . . . . . . .. . 35 20 Redemption:

Unrecognized prior service cost . . (5) 2 Retirements Transition asset at January 1,1987 $25 par $4.28. - -

( 800)

'being amortized over 19 years. ... 23 24 3A7. -

(1.200) -

Net accrued pension cost included Change. -

(1.200) (800)

'in other deferred credits on the natance Sheen $_11 $_10 Changes in premium on capital stock are Assumptions used for the actuarial calculations summarized as follows:

for 1988 and 1989 summarized in the table are: 1989 1988 1987  ;

. settlement (discount) rate - 8% long term rate of (thousands of dolk:rs) annual compensation increase - 5% and long term rate cf return on plan assets - 8A nalance at nemnning f yea: lun.082 $ 182,m $482.787 Premium, Net f Expense -

Plan assets consist primarily of investments in P dem Mock -

(1.688) (l')

common stock, bonds, guaranteed investment Balance t End of Year . $481.082 $481982 $4 82,770 _

contracts, cash equivalent securities and real estate. ,

18

qsF*1~% ~ .

15

• hRh s- . . .

~7  ;

kDIy(b) Equity Distribution R'strictionsJ (d) long-T2rm Debt and Other Borrowing 3 k d At Ikcember 3k1989, ret'ained earnings were; ' Arrongements -

q MF ' l $99,965,000.i Substantially all . of the retained L < Long term debt, less_ current meturities; was as'  ;

M _ darnings were'available. for. the declaration tof' ' follows:

$ Ldividends'on the Company's preferred and common Actual -

or Average neceneer 31.

& m 5sharesi All of the' Company's common shares' are - _,

Year or Maturity Interest Rate -1989~ 1988-

$ R

• h;ld by Centerior; Energy.<A ~ write off of the-ff h ' Company's investment in Perry Unit.2, dependingupon First mongagethe bonds:

magnitude and 15.00%

(thousands or dollars) timing of such a' writ

$ 70,000 $ ,70,000..

3 j

$ k could reduceoretained earnings sufficiently to  ;

$ ' fimpair the Company's ability to. declare dividends. 199 I 'g... . y ,

. . . Q. .2j. . . .22. [850? 2 '

( ' y See, Note 3(c); 2000-2000. . . . . . . . . . . :8.22 96,0531 ,96,053 E M A ' A' loan ^or adfance by the. Company to any of its - 2005 2009 . . . . . . . . . . 9.64 - 101,900 ; 101,900? l y Jnonutility affiliates requires PUCO authorization - 2022 2023 :, , . . . . . . . . 91,7no a 1 93 '147.8001 ,

W ; tinless the loan or advance is made in connection I 644,603 e 625,8031 y cwith transact!ons in the ordinary; course of the : -Term bank loans .... -i ---

~ .. 19,500: i 4 1 Company's public utilities business operations in ' Notes due 1991 1997- t 11.00 t 261,715 _ ;354,006 which the Company acts on behalf f the affiliate. Debentures due 1997 = 11.25 125,000- '125,000 q

,A ' ~

Polhition control .

e if ' t > .. L - - -

~. . notes due 1991 2015 10.82 166,480 l /167,400 =

M f(c)LCumulative, Preferred ona Preference other - net . ....... -

(521F -(265),

Y StockL .

Total 1.ong Term - ]

[ Amounts to be paid for preferred stock which must Debt . . . . . . . . . ,. $1.197,277 $1,291,444 -  !

M ?lse._ redeemed \during the'next five years are- _

'g' $2,000,000 in each year 1990 through 1992 and 1.ongLt erm debt matures during the next five years 4

$ 12,000,000 in both 1993 and 1994, as followsi $113,000,000 in both 1990 and 1991,' ~

?The annual mandatory redemption provisions are _ $119,000,000 in 1992, $44,000,000 in 1993 and ' li g ras follows; $19,000,000 in 1994.  :

i Annual otandatory The Company's mortgage constitutes a direct first ; ,

s Redemption Prosision.s lien on substantially.all. property . owned and ,.

D shares - Begin. Price franchises held by the Company. Excluded from the 4 m g* . To ne ning Per liens,-among other things, are cash, securities,7 .

, Redeemed; in - share accounts reCeh'able, fuel, supplies and automotive) j

- P'r ererred , equipment. . .. .

1

' ' U #100 par $11.00c. . . . ... 5.000 1979 stoo- The issuance of additional.first mortgage bonds 1 s ' ? , 9.375 . . . . 16,650 1985. 100 by the Company is limited by provisions in its ,

L25 par c 2.si m . . . ,, m

~

400.000 1993 2s mortgage.- Under:the more restrictive of theses J provisions (currently, the earnings coverage test), d LThe annualized cumulative preferred dividend -the company would have been permitted to issue -

approximately $158,000,000_ of nonrefunding bonds : 4"

, t refluirement asi of December ; 31, .19891 is m p$25,000,000? based upon propery. additions at December 31, . i

.1989 The Company also would have -been

~

D The preferred ' dividend rates on the Company's 1

. , . Series A and B fluctuate based on prevailing interest - permitted 16 issue approximately $86,000,000:of f fratescwith the dividend rates for these issues _ refunding bonds based upon retired bonds' at

@veraging 9.06% and 9.91% respectively, in 1989.- December 31,1989, If Perry Unit:2Lhad;been ,

Under its articles of incorporation, the Company canceled and written off as of December 31i1989,2

. r cannot issue preferred stock unless curtain earnings 'the amount of nonrefunding and refunding bonds accoverage requirements are met Based on earnings which could have been issued by the Company:l t

' i for the"12' months ended December 31,1989, the would not have changed. .l .

y

, Company couldlnot issue additional preferred Certain unsecured loan agreements of?the ' l stock. A write off bpthe Company of its investment _ Company contain covenants limiting to 65% of totali i

_ gin Perry Unit 2 could adversely affect its ability to capitalization (as defined) the total ot its short; term s  :

L issue l additional preferred stock in the future. See debt in excess of $150,000.000 and funded debt,1  ;

Note:3(c), The issuance of additional preferred limiting secured financing other than through first' y ; stock in the future will depend on earnings for any mortgage bonds and certain other transactions and : .f

, jl2 consecutive months of the 15 months preceding requiring the Company.to maintain earnings (as. :y W. ' the date of issuancerthe interest 'on all long term delined) of at 'least 1.5 times interest on its first 1 m d6bt outstanding and the dividends on all preferred mortgage bonds. The earnings coverage ratio applies  !

D~

stock issues outstanding, to $344,500,000 of unsecured loans and wa's 2.8 at

There are no restrictions on the Company's-- December 31,1989. .

ability to issue preference stock. .

An agreement relating to a letter of credit issued

, With respect to dividend and liquidation rights, in connection wi;h the sale and leaseback of Beaver the Company's preferred : stock is . prior to its Valley Unit 2-(as amended in 1989) contains' ,

' ' Jpreferencc-stock and common stock, and its several fmancial covenants affecting the Company, s; preference stock is prior to'its common stock. Cleveland Electric and Centerior Energy. Among n

'd[> -

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~

G ~

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f' - these ; are Leoverske ' covenants. which . require Cleveland Electric and Centerior Energy to maintain Most borrowing arrangements under the short-term bank lines of credit require a fee ranging from earnings to-interest expense ratios above specific- ' 0.25% to 0.375% per year to be paid on any unused levels. This agreement also ~ contains. certain- portion of the lines of credit.: For those banks

. capitalization covenants which require the Company - without fee requirements, the average daily cash-  ;

and Cleveland Electric to maintain common stock balance in the bank accounts sarlsfied informal '

equity above specific levels and require Centerior compensating balance arrangements.

p; . '

. Energy to maintain the ratio of common stock equity At December 31,1989, the Company had no L

l to total capitalization and the ratio of total equity to commercial paper outstanding. If commercial paper

total capitalization above specific percentages. The were outeinding, it would be backed by at least an-p Company, Clevelana Electric and Centerior Energy- equal amount of unused bank lines of credit.

ll are in compliance with these covenant provisions.

J  ! Also, we believe the Company, Cleveland Electric (12) Change in Accounting for Unbilled

' and Centerior Energygvill continue to meet the Revenues L capitalization covenants in the event of a write off of Lthe : Company's and ' Cleveland ' Electric's _ In January 1988 the Company adopted a change in

-investments'in Perry Unit 2, barring unforeseen accounting for revenues in order to record unbilled .-

[h revenues as discussed in the Summary .of' circumstances. See Note 3(c).

t Sigmficant Accounting Policies, i

!. The adoption of this accounting method (ii) Short Term Borrowing Arrangements increased 1988 net income, before the cumulative The Company had $73,050,000 of bank nnes of - efTect on periods prior to January 1,1988, by credit arrangements at December 31,1989. There $218,000 (net of $112,000 of income taxes). The were no borrowings under these bank credit cumulative effect of the change onthe periods prior arrangements at December 31,1989. . to January 1, 1988 was $6,279,000 (net of Short term borrowing capacity authorized by the $4,177,000 of income taxes) and has been included

. PUCO is $150,000,000. The Company and in 1988 net income.

. Cleveland Electric have been authorized by the If this change in accounting method were -

PUCO to borrow fron each other on a short term applied retroactively,1987 pro forma net income basis. would have decreased by $1,005,000 20

y _ _ ~ _ - -

' m-g (13)lQuortirly Results 5f Operati:ns (Urtuditzd) g 1The following is a tabulation'of the unaudited quarterly results of operations for the two years ended December 31, 1 4 > 1989.'

Quarters Ended i~

- March 31, June 30. Sept. 30. -- Dec.31, g; ..

(thousands of dollars)

- 1989 I Operating Revenues . . . . ......... .... ............ $201,144 - $203,436 $ 219,762 $ - 202,461 Ope ating income . . . . . . . . . . . . . . . . . . . . . .

.. ........ 32,041 37.149 - 40,532 32,595

. N et i n com e . . . . . . . . . . . . ...... . ................... 24,280 30,284 34,501 3,613 Earnings (Loss) Available for Common Stock . . . . . . . . . . . 17,857 23,882 28.176 -(2,627)

"" .1988; Operating Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 156,689 $141,824 ' $170,102 $ 159,382 :

= O pe ra t i n g I n co m e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,000 16,481 17,655 1,217 Cumulative Effect of an Accounting Change (Note 12) . . 6,279 - - -

Nc t l ocome ( Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . , , . . . . . 26,803- 16,327 '19,764 (178,346).

! 13,295 (184,802)

Earnings (Loss) Available for Common Stock . . . . . . . . . . 19,150 9,922 j'

y i

1

)

4 i

21 l

(~

p FINANCIAL AND STATISTICAL REVIEW Operating Revenues (thousands of dollars)

Steam Total Total total Heating Operating Year Resdential Commerclot industdol Other Retail Whclesole tiectric & Gon Revenues 1989... ...... $215 932 $163 991 $226 680 . $99 451 $706 054 $120 749 $826 803 $- $826 803 1988... .... 200 916 442 696 199 521 34 961 578 094 49 903 627 997 -

627 997 1987. . . . . 200 877 412 385- -219 098 27 646 590 006 15 031 605 037 -

605 037' 1986. . ,... 189 292 133 841 244 274 23 886 561 293 11 189 572 482 - 572 482 1985. . ... 184 687 129 161 213 895 26 284 554 027 15 656 569 683 5 761 575 444 1979. ..... .. .113 464 72 354 128 931 25 119 339 868 18 839 358 707 6 414- 365 121 [

Operating Expenses (thousands of dollars) i other Phase-in &

Fuel & Operotton Depreclot600 Toxes. Pre-phose-In . Federal Total .  ;

Purchosed & & Other ihon Deterred. income . Operating Year Power Maintenance Amortization FIT Net Toxes Exosnses

'1989. . $133 400 $372 530 $87 639 $72123 $(18 491) $37 285 $684 486

-1988.. ... . 116 161 358 823 75 093 80 138 (83 813) 29 242' 575 644 1987. ... 140 176 223 307 65 503 59 658 (39 797) 22 747 471 594 1986 . . . 158 763 167 319 37 832 51 398 -

41 150 456 462 1985. ,, 158 990 141 608 44 338 47 772 -

52 873 445 581

'1979.... . 146 869 65 828 29 147 29 760 -

25 139 296 713

^

^

income (Loss) (th'ousands of dollars)

Federal Other income income income & Toxes- Before' Operating AFUDC- Deducions. Corrying Credit interest .

Yeor income Equity Net Charges (Expense) Chorges

.1989. . .. $142 317 $ 8 568 $ 20 361 $ 82 308 $(21563) . $234 991 1988., . . 52 353 5 452 (246 722)(a) 129 632 86 244 26.959 1987. . . 133 443 122 138 (16 904) 14 989 42 726 296 392 L

1986... . 416 020 129 578 (1 627) -

52 029 296 000 1985. . . . 429 863 105 094 10 669 -

38 167 283 703 i

1979. . .. . 68 408 23 512 8 251 -

1 017 101 188 Income (Loss) (thousands of dollars)

Income (Loss) Cumusotive Before Effect of on fornings Cumulative Accounting (Loss)

Effect of on Chance Net Preferred Available Debt AFUDC- Accounting for Unbihed Income Stock for Common

-- YCor interest Debt Change Revenues (Loss) Davidends Stock 1989. , $144 792 $ (5479) $ 92 678 $- $ 92 678 $25 390 $ 67 288 1988. 150 523 (1 833) (121 731) 6 279 (115 452) 26 983 (1'42 435) 4987. . . 185 493 (54 272) 165 171 -

165 171 42 749 122 422 1986. . 474 397 (55 314) 176 917 -

176 917 45 243 131 674 1985. .. 155 025 (44 745) 173 513 -

173 513 41 362 132 454-1979.. . . 52 584 (9 991) 58 595 -

58 595 13 894 44 701

.7 (a) includes write off of nuclear costs in the amount of $276,955,000 in 1988.

22

1. < :

THE TOLEDO EDlSON COMPANY Electric Sales (millions of KWH) Electric Customers (year end) Residentlol Usage Averoge Averege Average Price Revenue Industriot KWH Per Per . Per Year Residento! Commerclol industriol Wholesale other Total Residential Commerclol & Other Total Customer KWH Customer 1989.... 2 017 1622 3 740 1 175 495 9 049 253 234 25 803 4 434 - 283 471 7 989 10.71C $855.29 1988. . 2 068 .i579 3 780 938 474 8 839 251 590 25 526 4 102 281 216 8 264 9.72 802.87 1987... i977 i532 3 589 344 464 7 906 249 344 25 170 4 085 278 599 7 969 10.16 809.66 1986. . i941 4495 3 482 242 449 7 609 247 256 24 655 4 004 275 915 7 881 9.75 768.43

-4985. .. i 901 4436 3 429 330 454 7 547 245 485 24 264 3 942 273 688 7 770 932 755.00 1979. . i 934 1256 3 559 559 401 7 709 238 353 23 636 3 695 265 684 8 166 5.87 479.08 Load (MW & %) Energy (millions of KWH) Fuel Operable -

Copacity Net Efficiency-Copacity Company Generated Purchased Fuel Cost BTU Per of Time Peok Lood Lood Morgin Foctor Fossli Nuclear Total Power Total Per KWH KWH Ysor of Peak (b) 1989.. i 599 i526 4.6% 65.2% 5 206 5 552 10 758 (i 175) 9 583 1.42C . 10 293 1988.. i497 1 614 (7.8) 62.8 5820 3 325 9 145 385 0 530 1.59 40 174 1987. . i698 i484 12.6 64.9 5 916 3 218 9 134 (647) 8487 1.45 10 196 1986.. 1324 1423 (7.5) 64.8 6 462 12 6 474 4 689 8 163 1.82 9 860 1985. . 1338 1374 (23) 66.8 5 744 952 6 696 i402 8 098 1.90 10 124 1979.. . i825 1 395 23.6 66.8 5 349 i535 6 884 i348 8 232 1.33 10 P62 Investment (thousands of dollars)

Construction Work in Total Utility Accumulated Progress Nuclear Property. Utllity Plo9 in Depreciation & Net & Perry Fueland Plant and Piont Total YOor Servtce Amort 12oton Plant Unit 2 Other Equipment Additions Assets 1989.. $2 532 291 $567197 $1965 094 $ 430 340 $237 318 $2 632 752 $ 77 357 $4138 846 1988.. .. 2 438 927 487 546 i 951 381 459 104 262 514 2 672 909 132 083 4 134 672 1987 . ,. 2 600 Sii 419 149 2 181 362 374 274 267 069 2 822 705 380 974 4 277 587 1986. . 1 442 812 415 745 1 027 067 2 169 945 269 022 3 466 034 463 163 3 813 889 1985. . i 392 346 390 565 1 001 781 1 766 927 228 425 2 997 133 388 555 3 385 268 1979. . 201 895 777 246 512 199 20 735(c) i 310 180 ,239 010 1 467 512 979 141 ,

Capitalization (thousands of dollars & %)

Preferred Stock.

Preferred Stock, with without Mondotory Mondatory Year Corrmon Stock Equity Redempton Provisions Redemption Provisions Long-Term Debt Totot 1989. $ 897 793 38% $ 68 990 3% $210 000 9% $1197 277 50% $2 374 060 1988. 887 442 36 71 155 3 210 000 9 1 291 444 52 2 460 041 1987. i 096 737 39 73 340 3 240 000 8 4 400 292 50 2 810 369 1986. 1 074 663 36 148 797 5 260 000 9 i 480 947 50 2 964 407 1985. ., 949 881 36 153 639 6 230 000 8 1 339 268 50 2 672 788 1979.. 432 554 35 34 000 3 150 000 12 611 137 50 1 227 691 (b) Capacity was reduced because of extended generating unit outages for renovation and improvements in 1985 (-101 MW),1986 (416 MW) and 198M (416 MW).

(c) Restated for etTects of capitalintion of nuclear fuel lease and hnancing arrangements pursuant to Statement of l'inancial Accounting Standards "1 h

k, 4 . t . .

i INVESTOR INFORMATION:

- SHARE OWNER INFORMATION' -

Inquiries ( Dividend Reinvestment and Stock Purchase l Questions regarding the Company or stock Plan and Individual Retirement Account (IRA) accounts should be directed t.o Share Owner Centerior Energy Corporation has a :t Services at Centerior Energy Corporation at Dividend Reinvestment and Stock Purchase the address and telephone numbers indicated Plan which provides 'Ibledo Edison share below for the Stock Transfer Agent. owners of record and other investors a .

4 Please have your account number ready- convenient means of purchasing shares of when callingc Centerior common stock by investing a part - l or all of their quarterly dividends as well as making cash investments. In addition,

.' Stock Transfer Agent ndividuals may establish an Individual .

Centerior Energy Corporation Retirement Account (IRA) which invests in .

Share Owner Services Centerior common stock through the Plan,

~'

e ~ P.O. Box 94661 Information and a prospectus relating to the

, Cleveland,011-44101 -4661 Plan and the IRA may be obtained from -

In Cleveland area 642 6900or447-2400 Centerior Share Owner Services.

Outside Cleveland area 1-800-433-7794 Stock transfers may be presented at independent Accountants -

PNC Trust Company Arthur Andersen & Co. r 40 Broad Street, Fifth Floor 1717 East Ninth Street j New ibrk, NY 10004 Cleveland, Oil 44114 j Stock Registrar Form 10 K Ameritrust Company National Association The Company will furnish to share owners, . ,

Corporate Trust Division without charge. a copy ofits most recent - '

- P.O. Box 6477 annual report to the Securities and Exchange

Cleveland, OH 44101 Commission (Form 10 K)and, upon payment of a reasonable fee, a copy of each - .

Exchange Listings' exhibit to Form 10-K. Requests should be directed to the Secretary of Centerior Energy Pn>fbrn>ct-$25 par value-8.84%, $2.365 Corporation at the address of the Stock and $2.81 seriesi Adjustable Series A and Transfer Agent.

Adjustable Series B-New York Stock Exchange Pnybrrett-$100 par value-4 % %,8.32%,  !

7.76% and 10% series-American Stock Exchange, BOND AND DEBENTURE

-INFORMATION Bond Trustee and Paying Agent Debenture Trustee and Paying Agent The Chase Manhattan Bank, N. A.- National City Bank Corporate'lYust Administration Division 1900 East Ninth Street ,7 1 New York Plaza,14th Floor Cleveland, Ohio 44114 New York, NY 10018 (216)575 2503  :

(212)676-5850 i

i i

24 ',

. J:

i 1

Notice: The annual report and the financial statements herein are for general information and are not intended to be used in connection with any sale or purchase of .

securities.

The Company is an equal opportunity employer.

l

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7, ;, , ,.

.:  ; i- .

}n.-

- Tile TOLEDO EDISON COMi%NY ~. BULK RATE F .300 Madison Avenue

• lbledo, Ohio 43604 . U.S. POSTAGE '. -

PAID  ;

CLEVELAND, OHIO '!

PERMIT NO.409

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