ML20043A662
| ML20043A662 | |
| Person / Time | |
|---|---|
| Site: | Beaver Valley |
| Issue date: | 12/31/1989 |
| From: | Farling R, Miller R CENTERIOR ENERGY |
| To: | |
| Shared Package | |
| ML20042G908 | List: |
| References | |
| NUDOCS 9005220373 | |
| Download: ML20043A662 (40) | |
Text
, - - . - - - . _ _ - .- .. .-
4 1 CENTERIOR ;
,. s EXERGY l i
<l CLO R P O R A T I O N 1989 '
A X X E ALL L
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9005220373 900501 :
PDR ADOCK 05000334.
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CONTENTS 1989 HIGHLIGHTS c
Letter to Share Owners . . ,, 2
- TheJanuary 1989 rate settlement enabled us to Operating More Efficiently. . 4 begin recovering our investment in new nuclear Meeting Competition . . . .. 5 units. The second of three scheduled rate increases Acid Rain impact . . ..... . 7 became effective February 1.1990.
Providing a Reliable Supply of Electricity . . 8
- The performance of our Davis-liesse Nuclear Service Area Economy . . . . .9 Power Station was among the best in the U.S. nuclear Foundation for Progress . . . ... . .I1 industry.110th Perry I and fleaver Valley 2 operated Management's Statement of well after their 1989 refuelings.
Responsibility for Financial Statements . .12
- In 1989, the total return (price appreciation Report ofIndependent Public Accountants .12 plus dividends) on Centerior common stock was Summary of Significant Accounting Policies .13 65 %, the highest in the electric utility industry.
Management's FWncial Analysis, Financial Statements and Notes . . .15
- We bought back nearly 1.1 million shares of Executives . . . . .33 our conunon stock under a pmgram implemented Financial and Statistical Review . 34 in 1989. Up to three million shares may be Board of Directors . . . . . .. 36 purchased through the program, which has been Sharc Owner Information . . .37 extended into 1991.
- Our cash flow showed significant improvement in 1989. i
- A nearly completed comprehensive cost-control study will help us design a more efficient organization.
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m ArEn The Toledo the Cleveland i Edison Electric i Company Illurnincting Compony I
i Centerior Energy Corporation trasformed in April 1986 upon the affiliation of The Clevelanci Electric illuminating Company ancl 7'he 7bledo l Edison Ccnnpany \t"ith assets of more than $11 h billion, Centerior Energy is one of the largest l electric niility systems in the nation. The Centerior operating companies sert e 2.6 million people in l a combined service area Of 4,200 square miles in Northern Ohio.
A
. w
i FINANCIAL
SUMMARY
- % 1 1989 1988 .Chango
- i.
. Earnings (Loss) Per Share of Common Stock . .. . .. . .. . .. $ 1.90 S- (.53) 358.5 Write-offs of Nuclear Plant Related Costs (Per Share) . . . .. . . $ -
S 2.48 - (100.0)
Earnings Per Share of Common Stock Excluding Write-offs . . $ 1.90 S 1.95. -(2.6)
Dividends Declared Per Sharc of Common Stock . . . . . . $ 1.60 $ 1.84 (13.0)
'!!ook V.alue Per Share of Common Stock at Year End . . . $ 19.99. $ 19.68 i.6
, Closing Common Stock Price at Year End . $ .20% $ -13% 52.8 a
4 - Common Stock Share Owners at Year End . .. , . 167,321-- 183,053- (8.6)
Common Stock Shares Outstanding at Year End (000) . . 139,791 140,820-' (0.7)
' operating Revenues (000) . . . . . .. . . . . ,.. $2,302,436 - $2,037,560 - 13.0-Operating Expenses (000) . . . .. . . . ...... $1,870,505 S1,725,895, .
8.4 - ';
Net income (Loss)(000) ,,, . . . S 266,886 S 1(73,960)' 360.9 Return on Average Common Equity . . .. . 9.6% (2.5)% 384.0 ;
' Return on Average Common Equity Exc!uding Write offs . . . , . 9.6% 8.8% 9.1 ,
1410 watt hour Sales (Millions of Kilowatt hours)
Residential . . ., . .. .. . . . .. 6,806 6,920 ~ (1,6) -
Commercial . . . .. , . . . 6,830 6,577 3.8 -
Industrial . . , , .. . ... . . . . 12,520- ;12,793 (2.1) ,
Other m.. . . . ..... .. 1.425 1,809 (21.2) 1
= 'Ibtal . . .. ... . . , . . 27,581 :28,099 (1.8) .
- Employees at Year End . . . . . . . 9,062' 9,103 (0.5)-
i QUARTERLY BOOK val.UE i PER SHARE AND RANGE OF .
COMMON STOCK PRICES '
$ PerShore
. 25 -
4 i
'I 2te2 - l .
- l 220 l 20 . 1 2t41 l l 19 es 'l p g3, , y e52 l ' e so - 7. ses ,, .
ny ; .qn
.c < ' 177/8-207/8-155/8-18 4 IS I 18 E
.14 3/8-16 L7 ;
M:41 - " .
, 12 3/4-16 L?
12 M -
'10 1 t
15 -
0 l 1st 2nd 3rd 4tn 1st 2nd 3rd 4tn
'88 '89
' Book ValuePerShore M Range of Common StockPnces
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DEAR SHARE OWNER:
l
%c uinchhled last vcar s lettet to yuu h) statuig.
We arc (iptinustic that we will enhant c thc value of uiur investnient in Centerior" The basis tot I ,,
s that optinusni was the rate settlenient agreement i j , .
j we reat hed in Januars 1989 w ith representatn cs
~
m iit < iur customers the events of 1989 show thai 1
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the rate settlement is working well
' As l< ing-nme sharc < >wners know. the luMos
- i .4 . '.
4 ,. . - were a troublesome period for mant electric i utthties A great many of Centerioi 1.ncrg) s human
(
m' e' - T -
and finant ial resources w crc dedicated to the com-
, b
,f. 1 pleuon of two nut lear unas The wnstruction 3
ods sses ended in late 198 u hen the units were s
- .- pl. iced in commert ial servk r Then we experienced I <. dith< olt3 in getung tair rate treatment on our
- insestment \\c tuullv reached a rate settlement
~
4 . . < . . . . .
Ru hard A .lli//cr thu enabled us hi begin recowrmg inost of otu insestment in the new units in late 198% the
( 1 hit i 5upreme (.ourt Lud to rest the last possible challenge to the rate rttlement We are now on solhl l'inancul ground. f acing less regulator) unt erlaults t hall nn(ht invest (Ir-()Wned litilities The rate settlement led to an insestment 7 - . - ;- - .. c, immunity reassessment of out prihpects that
, . , '. h(k htetl(>ur t t ininion sl()ck price The nital return
"'~
g,
% - ' _1 (l)rit e a@rct i.ithin plus dividends)(in .in un csl-nient in Lenterior was o% m 1989. the lughest J m the elet tric utiluv industrv ()ur stock price y c, e
.g
- . ;;pj - .
reached a 42 month lugh of $21-1-H in carh
.- -- 1.inuars 1000 At a ret ent price of about 519 l'l per
- ,. . LQ - x
' ' ,o - P. share. our stot k h.is rcms cred mut h of the value
_g
,. $+
0'. -
1.)st in lux ~ and 1988 w hen it suttered severc
^ '
7 -
market losses 3
.. t ; - A cont ributing tactor to the stock pnce rebound was the sn n k hu) hack pr< igram we announced in
" ^ - *
.q.p ,
.\l.ilt h 1989 We sahl We wiillid repurdiase tip n >
. .. ? ' h, . -- 4 (it H U R H ) shares in ihr a ipen nl.ir ket th the cild E ? ... . .
of 1989 u c had repurchased 1.092 n00 shares ti >r Rohertj /arlinK about S2n million
( )ui 1989 ormngs werc $ 190 per sh.u c As l part < >t the lanuary luxo iate settlement we had l
an arter tax w rac- >rt < >t 5 4 W million in not le n .
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related costs in the fourth quarter of 1988. That expenses despite a 4 6% rate of inflation. Our led to our first-ever reported earnings loss (53C budgeted expenses for 1990 are 4 % lower than
- per share) for Centerior, Cleveland Electric or out 1989 expenses, before factoring in additional
'Ibledo Edison Except for the write off, our 1988 recommendations from the cost control study earnings would have been $1.95 per share. expected to be completed in late April 1990.
Earnings for the next few years wili be relatively Our nuclear program showed the results of stable as we operate under the terms of the rate efforts to improve operationi. The performance settlement. of our Davis Besse Nuclear Power Station in 1989 -
More importantly, the qual /ty of our carnings was among the very best in the nuclear industry.
is shorr ing a signtficant imprrnwnent. In recent The successes of 1989 validate our confidence years, all or most of our carnings conalsted of that Centerior Energy represents a sound,long-
" paper profits',' noncash accounting credits called term investment. The ultimate sou'idness of such
" allowance for funds used during construction" an investment depends to a large degre upon our ,
and " carrying charges" These are noncash income ability to meet severa; major challenges:
credits for the equity and d;bt costs incurred to e improving the efficiency of operations;
. finance new plant.
- Meeting competitive threats; Now that our large construction program
- Dealing with new environmentallegislation; is finished, the noncash component of carnings is and declining. For the first time in several years, we
- Meeting the increasingdemand for electricity were able to generate from operations more than in the most cost. effective way.
the cash needed to pay our common stock The remainder of this Report to you is devoted to dividends. This increases the securh/ of the discussing how we intend to meet those challenges.
dividend, now at an indicated annual rate of $160 per share. We foresee further significant improve- Sincerely, ment in ou/ cash flow, an important measure of financiai performance. .
Our 1989 revenue was 1% n;#,ci than in 198H, largely as a result of a ' % rate increase in early 1989. We project steady growth in revenues Richard A. Miller even though we forecast an economic slowdown Chairman and, therefore, relatively flat sales in the near term. This growth will result from the 7% rate ,
increase of February 1,1990 and a third scheduled -
- ncrease next February. ,
Our long-term financial strength anc com- RobertJ. Farling petitive poshion will be enhanced by a major President restructuring of our entire organization in 1990.
The foundation for the restructuring is a com-prehensive cost control study that began in 1989.
In the meantime, we slightly lowered our 1989 February 16,1990 operation and maintenance expenses from 1988 3
OPERATING MORE EFFICIENTLY Our foremost challenge is to shift our corporate s reduction of contract personnel a* a consultants.
focus from a construction orientation to one of The next vps will be voluntary early retirement operational ef ficiency. As part of theJanuary 1989 .md severance programs. Only af ter these steps rate settlement, we agreed that two cost control have been taken will we resort to involuntary i l studies would be conducted-an analysis of severance. Employees will be treated fairly and I operations at Davis-ficsse and a comprehensive equitably.
review of all other Company activities. Efforts to reduce costs are continuing in
- The consultant for the Davis-llesse study, other ways. too Over the past three years we have
! Duke Engineering & Services. Inc., estimated that refinanced more than 51.2 billion of high-cost the annual cost of operating and maintaining the debt and preferred stock for a net annual savings l plant could be reduced by about $33 million in 1991. of over $3 i million in interest costs and pre-Those projected savings would give us a head start ferred dividends. ]
toward the greater goal of the comprehensive in 1989 we refinanced our 5600 million arrange- ,
review-reducing our controllable 1991 operation ment for financing fuel for our nuclear power l and maintenance costs by $ i0 million to $100 plants. We expect to save about $10 million a year l million from the 1988 level of $676 million. We through lower financing costs and less paper i
! must achieve this goal without a negative impact work. As the fuel financed by these arrangements l on our service to customers or on the safe operation is consumed. customers will benefit through a '
of all Comr'any facilities. reduction in the fuel component of their bills.
Achieving a twtuct/on of that tuagnitude-from ,
l 6 to 15%-would be a significant accomplishment over a period when the Increase in prices of l )'
I materials and services due to inflation could approach ISE The savings will not be cosmetic.
Failure to achieve the targeted savings will reduce EMBEDDED COSTS OF LONG-ou- future carnings since rates will be set as if the TERM DEBT AND PREFERRED savings recre achieved. We will strive to attain AND PREFERENCE STOCK (Year End Annuchzed) additional cost reductions as we pursue and fully Percent realize the benefits of the Cleveland Electric- n
'Ibledo Edison affiliation.
The need to be a leaner, more competitive organization is the driving force behind the com- 10 prehensive review. The study, conducted in 9 ,
conjunction with the management consulting 8
firm of Cresap, began in April 1989 and will conclude in April 1990. Then the tough job 7 starts-implementing the recommendation ( e While specifics are not final, the directkm is 6
clear: the recommendations willlead to a significant reshaping of our organization. Activities will be 4 centralized as much as possible. Some positions 3 will be eliminated. The end result will be a more j! _-
,. qy tightly knit company better able to compete in d N the highly competitive energy business of today I I
and ton.orrow o A current restrictive hiring policy and attrition 85 '86 '87 '88 '89 '
7 are reducing our work force. Another method of . LongJerrn Debt cutting costs will be better tontrol of overtime and Cd PreferredandPreferenceStock 4
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Power Plant Performance Perry I and Heaver Valley 2 were both out of i TheJanuary 1989 rate settlement included service for refuelingoutages in 1989. Nonetheless, l performance standards for our power plants. The Perry I was available 55% of the time and produced availability factors of our nuclear plants will be $2% of the electricity possible during the year.
calculated on a three-year rolling average basis Ileaver Wiley 2 was available 71% of the time and beginning in 1991. If our nuclear plants are avail. produced 62% of the electricity possible.
able less than the average for plants of similar All three units recenrd favorable report cards ;
design, we will not charge customers for the extra from the II.S. Nuclear Regulatory Commission in cost of replacement power. (We can reserve the NRC's most recent periodic Systematic Assess- ,
above average performance results for future ment of 1.icensee Performance evaluations of ,
credit in a period when the perfortnance is below their operations. ;
verage.) Also, the parties who signed the rate
,,, ttlement agreed not to raise coal. fired unit per-formance as an issue in rate cases prior to 1994 as MEETING COMPETITION ;
long as these units are available at least 65% of the We will compete in the 1990s, as in the past, ;
time. Our coal Dred plants performed well during wi:h natural gas suppliers, independent power 1989. They were available 79% of the time. producers, other electric utilities and businesses We were willing to agree to these standards that elect to produce their own electricity.
because of our confidence in the people who Our most immediate and significant com- [
operate our power plants That confidence petition comes from municipalities' efforts to was not misplaced; our people are making the expand their power systems or to create new ones.
settlement work! The impetus stems from the price advantage that i Davis Ilesse has had a troubled history throughout much ofits 12 year operation. Ilowever, when the plant went out obervice for a refueling ;
and maintenance outage on January 26,1990, it TOTAL REVENUES completed 241 consecutive days of generation, s(8 cons) % increase far bettering the plant's previous record of 81 days 25 15 0 of uninterrupted service set in 1987. In 1989 '
Davis llcane set half a dozen plant performance records, including monthly and yearly gross 20 12 0 generation records. The plant was available to generate electricity 97% of the time in 1989 and produced 96% of the electricity it would have 15 90 generated if operated all year at full power 24 hours2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br /> per day. In a nuclear industry trade journal's compilation of 1989 operating statistics, Davis Hesse's capacity factor ranked 6th in the Q 6D llS. and 12th in the woric This outstanding performance showed that y our extensive modification program to turn Davis. 0.5 J < 30 Ilesse into a state of the-art plant has paid off. Our H5' total investment in Davis-llesse is now $ 1.2 billion, or about $1,400 per kilowatt of capacity. This is 0 l 0 far below the $2,400 per-kilowatt average for 30 '85 '86 '87 '88 '89 nuclear plants that went into service between en roto / Revenues (leftScale) 1984 and 1987. U % Annuallocrease(Right$ cole) 1 5
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municipal systems now enjoy Much of thb sorne operations to off peak periods. Many j advantage results from the fact that irrestor owned manufanu1ers have sufficient 11exibility to modify utilities pay taxes while municipal systems do not, their operations to take advantage of rate incen-In 1989 we pala lic out of every revenue dollar for tives. About 60% of lbledo Edison's industrial ,
taxes An additional advantage the municipalities sales are under special incentive contracts, as are i have is the dentiful supply of iomcost power avail- about 40% of Cleveland Electriciindustrial sales.
able inthe wholesale market where most of them Toledo Edison also is helping groups of resi-obtain power. Suppks in this market wii! tighten dendal customert, conse rve energy and lowenheir in the 1990s because demand will grow and only electric bilh. In cady 19901oledo Edisun launched !
a handful of power plants are now on utility draw- a pilot program that includes providiog frec ,
ing boards. Tighter supplies will force municipals encigy efficient light bulbs, water heater insulation !
E that don't generate Iheir own power to pay more wraps and energy saving kits to various test groups for electricity and c.;se their rates. Acid rainlaw of customers, with special emphasis on senior compliarwe costs will mitigate further the current citizens.1bledo Edison is conducting free energy :
conservation workshops that can help residential I rate differentials with u.ilities not able to benefit from a large nuclear pmver commitmes t. customers reduce their annual electric bills by as The kilowatt hout sales of Clestland public much as f100.
Rm er (CPP) equal about 2 % of Centerior's, but Other programs assist low income customers.
the municipal does sent 50,000 City of Cleveland Cleveland Electric's " Customer outreach Oppor-residents. CPP is beginning a 350 million t ynity Program" and Tbledo Edison)" Neighbors expansion into the castern part of Cleveland with ,
the intention to convert about 3% of Centerior's :
customers to CPP However, CPPi ability to expand is cjouded by an Ohio $upterne Court ruhng that requires CPP to sepay to the general AVERAGE RETAllPRICE PER operaung fund of the City of Cleveland s30 KWH COMPARED TO million plus interest accrued over the last decade. THE CONSUMER PRICE INDEX*
The City of1bledo accounts for nearly 15 % of Centeriori retall business. Empowered by a city ordinance, a commhtee is investigating alternatives ,
to the service 1bledo Edison provides. Under present Ohio law, the only feasible alternative is to establish a municipal system. A committee report is due in late 1990. A Gallup lbil found that only :
5% of Toledo's residents favor the municipal H5 option. Half of those suntyed prefer negotiating l' with Toledo Edison for lower electric rates. And that's what we're doing. 11 0 1
- Lower Prices, Better Service -
i Our major responses to competitive pressures h ve been, and will continue to be, offering lower prices 10 5 4
hk Y, for incremental electricity usage or load shif ting A @ he
']
and providing better service. Incentive rates joo /
encourage our present and future industrial 84 '85 '86 '87 '88 '89 customers to expand their production or shift K3 ConsumerPricelndex .
(1982-19S4 = 100)
Q Centenor(1982-1984 = 100)
'Ptvitmina?y C?Ifor 1989 6
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t 9' !
p I
- liciping Neighboth" program could provide up to technologies or trading emission-reduction ,
l $3 mi!! ion to low income consumers over a five- credits with other companies. l year period, depending on customer contributions. We have urged legislators to strike a balance ,
. The programs are administered by social service between the desire for a clean environment and ;
ag-ncles The assistance includes help with paying the nation's need for an economy that can compete ;
bills, repairing or seplacing electric appliances in the global maActplace. In particular, we beheve j and repairing electric components of furnaces. the nation cannot afford to unduly penalize the i lietter communications also help improve use of coal, a domestic resouice that is vital to cmtomer nelations. Therefore, another positive America's long term energy security. The U.S. now aspect of the rate settlement is the creation of imports a higher percentage of oil than before the Consumet Advisory panels in the Cleveland and first oil embargo in 197.4. The U.S. Department Tbledo areas. These panels, composed of customers of 1:nergy estimates that clean coal technologies j
- . and public of 0ctals, meet with company officials could reduce sulfur dioxide emissions from existing
, u learst four times a year. The panels keep us power plants by 29 to 48% by the yer.r 2010. At informed about consumer viewpoints and offer the very least the timetable for compliance by using recommendations on improving cmtomer service. clean coal technologies should be expanded.
We have competed successfully throughout These promising technologies offer the potential this century by of fering a higher quality and broader to achieve clean air goals at comparatively low spectrum of service than that offered by other costs, but the proposed timetable does not allow
[ ene gy supplicts. % are confident we will enjoy enough time to develop them.
- similar success in meeting the challenges facing us.
ACID RAIN IMPACT At this writing, it appears likely that the U.S. ACTUAL AND Congress will sooa pass legislation to curtail the FORECAST FUEL MIX p,,,,n, emissions alleged to cause acid rain. Our nuclear joo units and previous expenditures of some $500 g million for pollution-control equipment on coal-fired units limit our exposure to further capital l
l expenditures to a level described as "n.oderate" 75 I
by a leading utility analyst who has studied the i
' issue. This will make us more competitive with I utilities that have not taken such steps.
I We have worked with our industry for 50 -
legislative provisions that would enable utilities
[ )
. to attain compliance in the most flexible and cost- '
ef fective way possible. Some proposals would require many power plants to install " scrubbers",
large chernical devices that remove the suhur 25 4
{U _ ,
dioxide caused by burning coal. Scrubbers cost betwcon $100 million and $200 million each. .,_
Utilities prefer a wider range of options that 0 would achieve the same clean air goals at less '85 '86 '87 '88 '89 l '90 '91 '92
. expense. Such options include switching to lower sulfur coal, adopting suitable clean coal Coolh C"1 Nuclear 7 )
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PROVIDING A RELIABLE
- SUPPLY OF ELECTRICITY A major challenge facing utlhties since the mid- Completion of new nuclear powered generating ,
1970s has been planning to provide electricity to units may again become viable in the 1990s if acid I meet customer demands. For many years, demand rain legislation forces older coal fired units out of for electricity grew at an amazingly consistent 6 to service. liigher than expected economic growth 7% a year. Ilowever, in the aftermath of the first in the Midwest may also increase the demand for oil embargo and subsequent energy price escala- electricity, exhausting the current reserves and tions, the patterns of growth became lower and making Perry 2 an increasingly viable option to more chanucable. The planning chauenge is all provide future capacity. It's unlikely that the utilities the more dif ficult because it takes many years to which own Ittry, including Centerior, will proceed build new gracrating units and the cost per kilo- with construction on their own. Ilowever, other watt of many options is now 20 times the 1960 cost. investors may find it feasible to fund completion The goal of achieving the lowest long term of the unit.
cost of service mylst be achieved in a manner In the 1990s. u r teillplacc increasing emphasis l consistent with Ihe goal of minimizing investor on demand-side alternath vs to rninimizef enh load l tisk, A resource strategy intended to maintain a grvirth We will promote programs to encourage high level of flexibility is in the best interests of a shif t in kilowatt hout consumption to times customers and share owners. In the past we used when our load is low. For example, residential both supply side and demand side methods to customers who are wi!!ing to use their appliances meet the ever. increasing demand for c!cctricity in when our load is low can take advantage of a
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Northern Ohio, but we have tended to favor supply- special " load management" rate.
side optfbns.
The basic supply side alternatives are to build new generating capacity or to refurbish existing units. Our demand side alternatives encourage a i I
change in consumption patterns to allow better use of existing power facilities while delaying the need for adding new capactiy. ACTUAL AND FORECAST An integral part or our resource plan is a CONSTRUCTION program designed to improve the avaliadiiity or EXPENDITURES l (including AFUDC) some of our coal 11 red units even when aging i l
$ (thlhons) equipmem normally means faltering performance. t250 ,
I Also, we will consider a variety of other supply side j j options to provide any additional capacity that I I
may be tweded. These options include new clean-1000 l coal technology, such as a combined cycle system. .
Clean coal technologies lend themselves to rapid, l modular ins'.allation and make it possible to use I 750 I high sulfur Ohio coal in a cost-effcctive way. ,
Another option is compressed air energy storage, I i
which involves compressing air in an underground i cavern during periods of low demand for energy. 500 1 Then electricity is needed at peak periods, com- i pressed air is withdrawn, heated with gas or oil ..
I and run through turbines to drive a generator and !
250 k N , W h" "
m-produce electricity. . .g ? I
< l Still anot her option is to complete construction 4
[
of Unit 2 of the Perry Nuclear Power ilant. Con. o l ~
struction on that unit wa suspended four years ago 85 '86 '87 '88 '89 1 '90 '91 '92 l
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t lleiping customers hold down their electricity the early 1980s can be measured by our kilowatt- :
. consumption and electric bills is a key part of our hour sales growth. After moderate growth in the [
overall competitive strategy. Such an en,phasis mid 1980s, our 1987 retail sales were 3% higher not only can reduce our need to build additional than in 1986, while our 1988 retail sales were 5%
generating capacity in the 1990s, it will also help higher than in 1987. As a result of an overall r keep our generators humming--shutting down a sc f tening in the economy and generally moderate unit when demand is low and then restarting it weather that reduced our heating and cooling often results in higher costs than if the unit were loads from 1988 levels, our 1989 retail sales were !
n operated constantly. It: deed, most of our rate slightly below the record set in 1988. !
6tructures are designed 'o encourage improved However, a temporary slowdown is a normal customer load factors so we can snake more part of the swings in an economic cycle. Our sales efficient and economical use of our facilities and are expected to remain levelin 1990, but the ,
keep customers' costs down, outlook for the long term remains promising. We expect our total sales to increase by an average of Construction Costs Will Decline 1.5% a year over the next 20 years. compounded
'Our construction expenditures peaked at $1.1 this would amount to aggregate growth of 35%
billion in 1986 in the final stages of our nuclear e construction program. In 1989 we spent $260 Dynamic Industrial and Commerclol Sectors ;
million for construction. About half of the 19H9 Our expectation for sales is based on the long-term {.
expendhures went to upgrade our transmission commitments of some of our major customers, and dhtribution system to ensure continued reliable !!!T Steelis investing $1 billion to expand and :
service; most of the rest was for modifications of upgrade its Cleveland facilities. The modernization -
generating units. We plan $800 million in will enable I.TV to improve quality and efficiency construction expenditures for the 1990 92 and to make a new generation of special, ultra low period, of which $250 million is for 1990. The carbon steel for applications in the automotive -
three-year forecast is about half of what we spent from 1987-89 and $200 million less than antici-pated in our year ago projection.
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The reduced spending-part of our cost-l control program-was made possible primarily DIVERSIFICATION OF through the dicious &ferral or reduction in scope 1989 INDUSTRIAL SALES of certain coal-fired plant projects. Our engineers h also developed innovative, c< .st effective alternathrs 14 6% Chemicals g - ;
for completing various projects, if demand side 101$ Other ,k initiatives are successful, we could save up to $1 g W 51% Glass, Concrete Products billion in the late 1990s by reducing the need .
to build additional generating capacity, We will continue to pursue every economy ,
77% petroleum Refining that can be achieved without sacrificing , , , ,
safety or reliability.
15 0% Trcnsportation
- e Equipment
. SERVICE AREA ECONOMY l The prosperity of an electric utility ultimately U % I'8 "O*
ecpene, up p, ,,y m_i_ ,,, _e. g"'#58"# l Northern Ohids rebound from the recession of 985 fobocored Metals Q neznoruetoisx 9 l 1
.-~ , - . . - ~ . _'
and appliance markets. This will result in 65 Overall, however, the 1bledo area economy megawatts of new load for Cleveland Electric and continues to grow. Office construction and new
$16 million in addi%nal annual revenue. light industrial complexes continue to appear on Ford Motor Company and Nissan Motor the city's penphery. lotal employment in the Corporation are proceeding with a $900 million 1bledo metropolitan area reached an all time high joint venture to build new minivans at aa expanded of 295,000 during 1989.
Ford plant west of Cleveland. This will add 17 One catalyst for growth is the city's reputation megawatts of new load and about ! 5 nd!! ion in as a premier transpartation center. This reputation additional annual revenue. will be enhanced by the plans of Burlington Air The worlds first commercial plasma torch Express to build an international cargo hub at technolog) was placed in operation in 1989 at the 1bledo Express Airport. A new Ohiolbrnpike General Motors foundry in Defiance, southwest of interchange will improve access to the airport and lbledo. An incentive rate offered by 1bledo Edison spur economic development.
helped bring the technology to Northwest Ohio. Core strengths of the Northwest Ohio economy When the plasma cupola operates at full capacity, continue to be automobile production and related the added usage of electricity will increase 1bledo parts manufacturing Jeep, the crea's largest Edison's load by nine megawatts and revenues by employer, en}oyed record production during the
$2 million a year. 19H9 model year. General Motors is investing $132 The Cleveland skyline testifies to the city's million in a new Ilydra Matic transmission pro-dynamic commercial economy.1\vo skyscrapers duction line at its Toledo facility.
that will be taller than the tallest existing buildings Another vote of confidence in the area in Ohio will be completed within the next several economy is a $65 million investment by Manville years. Five international hotel chains plan to build Corporation in new fiber glass manufacturing 1,600 new rooms in downtown Cleveland. Our equipment. This is the largest investment Manville marketing efforts have helped make the downtown plans to make over the next few years in any city.
building boom predominantly all electric. The General Mills is investing $ 30 million in c new apple-result of this increased economic activity will be cinnamon Cheerios cereal line at its ibledo plant.
higher kilowatt hour sales to our commercial customers.
The suburbs also have been flourishing.
Indeed, over the past five years, Clevelands suburbs have added 3 A million square feet of office spaca compared to one n'illion square feet in downtown C:eveland. These new office buildings cater to the kind of small businesses that WHERE EACH 1989 REVENUE $ CAME FROM have been responsible for most of the net job creation in the nation during the 1960s. 35c TPe picture isn't as br ght in downtown Toledo 30 despite the addition in recent years of a n"w con-25 vention center and luxury hotel, The City of Toledo 20 is now evaluating various options for the Portside Festival Marketplace, a financially ailing, five year. 15
. old, rivnside development of shops and restaurants. 10 Efforts are under way to achieve the kind of '
5' renaissance Cleveland has engineered in its down- ~
town area. 0 ,
Y h p/ f 'i' f*"b *Y 10
The conventional development wisdom used environmentallegislation in a cost effective way; to be that more jobs make a better city. We believe and to reduce costs. ,
that making a better city will attract more companies The results of the cost control studies willlay and more jobs. That is especially true of Cleveland, a solid foundation for further progress. Our leaner which has been cited by various news media as a company will be better positioned to compete model of urban redevelopment. in today's rapidly changing energy business.
Completion of our nuclear construction pro-gram assures that economic growth in Northern hio wiu not be stunted by a lack of elenricky
. FOUNDATION FOR PROGRESS ,
in contrast, electric supply problems in TheJanuary 1989 rate settlement is working Massachusetts cost that state's es onomy almost as expected, with the quality of our earnings $100 million in lost revenuo m 1988, according improving as our cash flow grows. We have met to the Greater Boston Chamber of Commerce.
the challenges of completing a major construction The diversity of the Northern Ohio economy, ;
program and resolving regulatory and legal un- including an increasing emphasis on such high certainties. Our nuclear operations continue to technology ventures as polymer plastics and show good results Another strength is a talented biomedical instrumentation, supports our tonfi-work force that continues to be instrumental in dence in the long-term growth prospects of our making the Cleveland Electric 40ledo Edison service area. Large capital investments by our affiliation a success. Cost control studie.s in 1989 industrial and con mercial customers provide a increased the workload of employees, but their solk! base for our futurr kilowatt hour sales growth.
high quality, caring service carned hundreds When business historians of the 21st century of letters of praise from customers. look back at the history of Centerior Energy, they Our major goals are: to continue to rebuild may well deem 1989 the turning poir.: rhe our financial strength; to build upon past customer Company's fortunes. One thing is certam- w e will service successes: H nerease our share of Ihe move into the 19Ws as a more eflicient, more flexible, Northern Ohio energy market; to comply witt. new more competitive and more successful utility.
WHERE EACH 1989 REVENUE S WENT 36c 30 26 20 4
lb i B L ._
emew "
l
n.
h s MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL STATEMENTS
, - The management of Centerior Energy Corporation is Andersen & Co., independent accountants, whose
! responsible for the consulidated financial report appears below.
f~ statements in this Annual Report. The statements Our Board of Directors is responsible for
- were prepared in accordance with generally determining whether management and the
, accepted accounting principles. Under these independent accountants are carrying out their
' responsibilities. The Board is also responsible for principles, some of the recorded amounts are based on estimates. Such estimates are based on an making changes in management or independent L analysis of the best information available. accountants if needed.
l .ie maintain a system of internal accounting The Board has appointed an Audit Committee controls. The controls are designed to assure that the comprised entirely of outside directors. The
- ' financial records are reasonably complete and Committee held three meetings in 1989. It accurate. They also are designed to help protect the recommends annually to the Board the firm of
[' assets and their related records. We try to ensure independent accountants to be retained for the that the costs of our control procedures do not ensuing year, it reviews the audit apr' roach exceed the benefits, used by the accountants and the resuas of their our internal audit program monitors the internal examination. It oversees the adequacy and accounting controls. This program gives us the effectiveness of our internal accounting controls, opportunity to assess the adequacy and effecthenese The Committee also ascertains that our accounting of existing controls and to identify and institute system produces financial statements which present changes vihere needed. Also, an examination of our fairly our financial position.
financial statements is conducted by Arthur
-REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS RTHUR To the Share Owners and Board of L)irectors of NDERSEN Centerior Energy Corporation:
We have audited the accompanying consolidated in our opinion, the financial statements referred balance sheet and consolidated statement of to above present fairly, in all material respects, the cumulative preferred and preference stock of financial position of Centerior Energy Corporation !
Centerior Energy Corporation (an Ohio and subsidiaries as of December 31,1989 and 1988, corporation) and subsidiaries as of December 31, and the results of their operations and their cash 1989 and 1988, and the related consolidated flows for each of the three years in the period ended statements of income, retained earnings and cash December 31,1989, in conformity with generally flows for each of the three years in the period ended accepted accounting principles.
December 31,1989. These financial statements are As dis ssed further in the Summary of the responsibility of the Company's manvement, Significant Accounting Policies and Notes 7 and 12, a Our responsibility is to express an opiri . ' on these change was made in the methods of accounting for financial statements based on our audits. income taxes and unbilled revenues i1 1988, We conducted our audits in accordance with retroact ve to January 1,1988.
8 generally accepted audit ing standards. Those As discussed further in Note 3(c), the future of standards require that we plan and perforca 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 examining, on a test construction, mothballing or canceling the Unit.
basis, evidence supporting the amounts and Management can give no ass trance when, if ever,
' disclosures in the financial statements. An audit also Perry Unit 2 will go in service or whether its
" includes assessing the accounting principles used investment and a return thereon will ultimately 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 out opinion.
Cleveland, Ohio February 12.1990 Arthur Andersen & Co. ;j l'
b_
SUMMARY
OF SIGNIFICANT ACCOUNTIN3 POLICIES General Estimated future nuclear fuel dism .I costs are Centerior Energy Corporation (Centerior Energy) being recovered through the base rates.
is a holding company with two electric utilities as The Operating Companies defer the differences subsidiaries, The Cleveland Electric illuminating' between actual fuel costs and estimated fuel costs Company (Cleveland Electric) and The Toledo currently being recovered from customers through Edison Company (Toledo Edison). The the fuel factor, This matches fuel expenses with consolidated hnancial statements also include the fuel related revenues.
ucounts of Cleveland Electric's wholly owned subsidiaries and Centerior Energy's other wholly- Pre Phase In Delstrals of Operating owned subsidiary, Centerior Service Company Expenses and Carrying Charges (Service Company). The Service Company provides, at cost, management, financial, - The PUCO authorized the Operating Companies to administrative, engineering, legal and other record as deferred charges interest carrying costs services to Centerior Energy, Cleveland Electric and operating expenses (including lease payments, and Toledo Edison. Cleveland Electric and Toledo depreciation and taxes) for Beaver Valley tinit 2 fr m its commercial in service date of November 17, Edison (Operating Companies) operate as separate companies, each serving the customers in its 1987 through December 31, 1988. The PUCO service area. The first mortgage bonds, other debt determined that Perry Unit I was considered "used -
obligations and preferred stock of the Operating and useful" on May 31, 1987 for regulatory Companies continue to be outstanding securities of purposes. Consequently, the PUCO authorized the the respective utility. All signihcant intercompany Operating Companies to defer perating expenses items have been eliminated in consolidation. foi Perry Unit 1 from June 1,1987 through Centerior Energy and the Operating Companies December 22,1987, the date when these costs follow the Uniform' System of Accounts prescribed began to be recovered in rates. The PUCO by the Federal Energv Regulatory Commission authorized the deferral of interest and equity (l'ERC) and adopted by The l i ublic Utilities carrying costs, exclusive of those associated wit'h Commission of Ohio iWCO) The Service erating expenses, for Perry Unit 1 from June 1, 1p)87 through December 31,1987 and deferral of Company follows the Undorm System of Accounts for Mutual Service Companies li rescribed by the interest carrying costs from January 1,1988 throu,th Securities and Exchange Commission (SEC) under December 31,1988. The amounts deferred for Per y the Public Utility llolding Company Act of 1935. Unit 1 pursuant to the PUCO accounting orders The Operatitig Companies are members of the were included in property, plant and equipment Central Area Power Coordination Group (CAPCO). through the November 18,1987 commercial.in-Other members include Duquesne Light Company senfa clate. Subsequent to that date, amounts (Duquesne), Ohio Edison Ccmpany (Ohio Edison) deferred for Perry Unit 1 were recorded as deferred and Pennsylvania Power Company (Pennsyhania charges. Amortization of the Beaver Valley Unit 2 Pov.er). The members have constructed and operate and Perry Unit I deferrals began on Januarv !,1989 generation and transmission facilities for the use of in accordance with the January 1989 PUCD rate the CAPCO companies, orders discussed in Note 6. The amortizations will continue over the lives of tha elated property.
Revenues Customers are billed on a monthly cycle basis for Phase In Deferrals of Operating Expenses their energy consumption, based on ' rate schedules and Carrying Charges authorized by the PUCO. Prior to 1988, these As discussed in Note 6, the Januaiy 1989 PUCO rate revenues were recorded in the accounting period orders for the Operating Companies included during which meters were read, except fer the approved rate phase in plans for our investments in portion of revenues which was deferred under the Perry Unit 1 and Beaver Valley Unit 2. On January 1, mirror construction work in-progress (CTIP) law 1989, the Operating Compaeles began recording the discussed below. Utility service rendered after deferrals of operating expenses and interest and monthly meter reading dates through the end of a equity carrying charges on deferred rate. based calendar month (unbilled revenues) became a part investment pursuant to the phase in plans. These of operating revenues in the following momh deferrals will be recovered by December 31,1998, when the meters were read. Effective January 1, 1988, the Operating Companies changed their Depreciation and Arnortization method of accounting to accrue the estimated amount of revenues for sales unbilled at the end of The cost of property, plant and equipment, except each month. See Note 12. for the nuclear generating units, is depreciated over A fuel factor is added to the base rates iv electric their estimated useful lives on a straight.line basis, service. This factor is designed to recover fuel and The annual straight.line depreciation provision most purchased power costs from customers. It is expressed as a percent of average depreciable utility changed semiannually after a hearing before the plant in service was 3.8% in 1987,1988 and 1989.
PUCO. Depreciation expense for the nuclear units is based on the units-of production method.
Effective July 1988, the Operating Companies Fuel Expense began the exteinal funding of future decom-The cost of fossil fuel is charged to fuel expense missioning costs for their operating nuclear units based on Inventory usage. The cost of nuclear fuel, pursuant to a PUCO order. Cash tontributions are including an interest component, is charged to fuel made to the funds on a straight line basis over the ;
expense based on the rate of consumption. remaining licensing period for e,tch unit. 1 13-
y e
~
m u
I- - Amounts currently in rato ne based on past Interest Charges estimates of decommissioning costs for the Debt interest report 'd in the Income Statement does Operating Compames of $122,000,000 in 1986 not include interest en nuclear fuel obligations.
dollars for the Davis.Besse Nuclear Power Station interest on nuclear fuel obligations for fuel under (Davisfesse) and $72,000,000 for Perry Unit I and construction is capitalized. See Note 5.
$63,000,000 for tieaver Vallev Unit 2, both in 1987 Losses and gains realized upon the reacquisition 7
dallars. Actual decommissioning costs are or redemption of long term debt are deferred,
( . expected to exceed these estimates. It is expected
-that increases in the cost estimates will be consistent with the regulatory raw treatment. Such losses and gains are either amortized over the recoverable in rates resulting from future rate remainder of the original life of the debt issue proceedings. The current level of accruals bemg retired or amortized over the life of the new debt
- funded and recovered from customers over the issue when the proceeds of a new issue are used for
! remaining licensing perids of the Units is the debt redemption. The amortizations are l . approximately $8,000,000 annually. The present included in debt interest expense.
i fundmg requirements for Beaver Valley Unit 2 also satisfy a similar commitment made as part of the sale and leaseback transaction oiscussed in Note 2. Property, Plant and Equipment Property, plant and equipment are stated at original Deferred Goin and Loss from Sales of cost less any amounts ordered to be written off.
Utility Plant included in the cost of construction are items such as related payroll taxes, pensions, frita benefits, The Operating Companies are amortizing the management' and general overheads and AFUDC.
applicable deferred gain and loss (net of tax) AFUDC represents the estimated composite debt associated with the sales of utility plant in 1987 over and equity cost of funds used to finance the terms of leases under sale and leaseback construction. This noncash allowance is credited to agreements. See Note 2. The amortizat!on and lease income, except for AFUDC for Perry' Unit 2.
expense amounts are recorded as > operation Beginning in July 1985, Perry Unit 2 AFUDC was expense + credited to a deferred income account until Janucry 1,1988, when the practice of accruing AFUDC on tdetal Income Taxes Perry Unit 2 was discontinued. See Note 3(ch The The 1%8 and 1989 linancial statements reflect the gross AFUDC rates averaged 11.2% in 1989 and liabliin method of accounting for income taxes as a 11 A% in 1988. The net.of income tax AFUDC rate tcsult of adopting a new standard for accounting for averaged 10.7% in 1987, income taxes in 1988. Prior to 1988, income taxes Maintenance and repairs are charged to expense were accounted for by the deferred method. Under as incurred. Certain maintenance and re the deferred method, deferred taxes and defeued expenses for Perry Unit 1 and Beaver Valle) Unit 2 pair tax credits-were not adjusted for subsequent have been deferred pursuant to the PUCO changes in federal tax rates. Also, under the deferred accounting orders discussed above. The cost of
' method, we did not record deferred taxes on the replacing plant and equipment is charged to the temporary differencen between book and tax income utility plant accounts. The cost of property retired that the PUCO used to reduce allowable costs for plus remo, d costs, after deducting any salvage ,
ratemaking purposes. This practice was premised on value, is charged to the accumulated provision for >
regulatory treatment which permits recovery of such depreciation, deferred income taxes in future revenues.
Mirror Construction We n Progress A malcr difference under the Nbility method is ,
that deferred tax liabilities are adjusted for The Ohio mirror CWIP ' iequires that revenues subsequent tax rate changes. Also, we must now authorized by the PUCO and collected as a result of record deferred taxes W all temporan ditlerences including CW1P in rate base be refunded in a between the book ane jax bases of assets and - subsequent period after the project is included in liabilities. Application m the accounting standard in rate base. For accounting purposes, such revenues 1988 and 1989 did not impact results of, operations are deferred and recorded as refund obligations to a3 the additional defe; red taxes were offset by a customers, l'uring the period when such revenues rcgulatory asset on the balance sheet because of the are being collected, AFUDC (through the in.
regulatory treatment described in the precedin8 service date of the project) and carq1ng charges paragraph. Additionally, allowance for funds used (during the remainder of the collection period) during construction ( AFUDC) and carrving charges continae to be capitalized. The deferred revenues that were previousiv accounted for in the income are then recognized as operating revenues in the Statement on a nethf-tax or an after tax basis are income Statement over the period of the refund.
U. now stated on a pretax basis. Consequently, our Amounts collected through January 31,1989 under 1988 and 1989 federal income tax provisions at the mirror CWIP law are being refunded pursuant equally higher. to the January 1989 PUCO rate orders discussed in For certain property, the Operating Compar les Note 6. After Februatv 1,1989, no revenues were r(ceived investment tax c.edus which have been being collected unde'r the micror CWIP law. All accounted for as deferred credits. Prior to 1988, tax mirror CWIP revenues will be refunded to credits utilized were reflected as reductions to tax customers by November 1990.
expense over the life of the related property. Under the new method of accounting, the amortization of investment tax credits is reported as a reduction of l depreciation expense. See Note 7.
[14:
V MANAGEMENT'S FINANCIAL ANALYSIS Results of Operations Industrial sale
- decreased 21% principally because
-1939 yg71988 of a 7% reduct.on in sales to large steel and r -
stomotive customers. Sales to other mdustrial
- The January 1989 PUCO rate orders for the customers increased o,$E The decrease in revenues
' Operating Compam,es (as discussed in Note 6) from sales to Ohio Edison and Pennsylvania Power }
g
- coritributed to a substantial improvement in cash ;s the result of the May 1989 expiration of flow in 1989, but had significantly less effect on our Cleveland Electric's agreement to sell a portion of earnings per share. The gain in reported revenues its share of Perry Unit 1 capacity, p from higher rates was offset tyy a corresponding Operating expenses increased 8.4% in 1989.
reductian in nuclear plant related cost deferrals, as Lower deferrals of nuclear operating expense for such costs are phased in and recovered in rates, Pern Unit 1 and Beaver Valley Unit 2 resulted in a The 1990 and 1991 rate ircreases included in the $ 122,000,000 increase in expense, fuel and
> rate orders will continue to improve operating purchased power expense increased largely because uvenues in those years although further reductions of the matching of expense with higher fuel cost in deferred costs and the earnings caps contained recovery revenues discussed the preceding in the rate orders will limit increaser in earnings, paragraph. Improved nuclear unit availability Revenue gains may be limited somewhat by the enabled the Operating Companies to sell power to -
effects of. a sluggish economy and customer other utilities. The excess revenues over cost is conservation efforts. Sales growth is expected to be treated as a reduction in purchased power expense.
flat for 1990 and less than 2% annually for sevraal Depreciation expense increased, reflective of the
- years thereafter. This makes our cost reduction increased generation from our nuclear units since efforts extremely'important, future operational their depreciation is recorded based on units of-changes and cost reductions resulting from the production.
PUCO mandated management audit should make Total Al'UDC and carrying charges decreased in the operating Companies more competitive in an 1989 as a result of placing investment in rate base
-. environment of inflation and increasing compe:ltion pursuant to the rate orders. Interest expense and with other energy providers, including municipal preferred and preference dividend requirements electric systems and cogeneration projects. decreased in 1989 bccause of retirements and Factors contributing to the 13% increase in 1989 refinancings by the Operating Companies.
operating rewnues are as tollows:
change in operaong Revenues Inaease 1988 vs.1987 t oecrease)
Factors contributing to the 5.8% increase in 1988 E1cetric Revenue
- operating revenues are as follows:
Base Rates and Mucellaneous., ., .., f 173.000.000 Deferred CWtP Revenues. .. . 88.000,000 Inc ea e ruel Cost Recovery Revenues .. . 42,000,000 sales Volume and Mix - . 14,000.000 Electric Revenues.
sales to Ohio Edison and Penrfylvania Power (52.000.000) Base Rates and Miscellaneous. ,, . $ 40,000.000
$ 26s,000.000 Sles Volume and Mix. . . 60,000.000
. des to Ohio Edison and Pennsylvania Power 75.000,000 Defer ~d Cw1P Revenues. . 39,000,000
,the rate orders for the Operating Companies ruel Cost Recovery Revenues , , l H9.000.000) were primarily responsible for two majot factors impacting the increase in revenues. The PUCO
.rd m m00m0 granted both companies 9% rate increases effective steam Heating Revenues . , (13.000.000)
February 1,1989. Also, revenues which were Total. '
s ii 2.000.000 collected and deferred through January A 1989 under the Ohio mirror CWIP !aw are bemg refunded Rete increases granted to the Operating pursuant to the rate orders. Such deferred CTIP Companies in 1987 accounted for about two-thirds revenues are recognized as operating revenues over of the increase in base rates and miscellaneous the periods of the refunds, ruel cost recovery revenues, The remainder of the increase resulted revenues increased in 1989 because of a significant from several minor f,ctors, including an increa3e in rise in the fuel cost recovery factors compared to the amount of unbilled revenues. Total kilowatt-198K The lower 1988 factors recogr! zed a greater hour sales increased 6.7% in 1988. Sales growth of amount of refunds to our customers ordered by the 6.7% in the industrial sector reflected broad based PUCO for certain replacement fuel and purchased strenath in the economy, particularly among power costs collected from customers during a automobile, steel and chemical producers.
1985 1986 Davis Besse outege. Total kilowatt hour Residential sales increased 3.9% in 1988 largely sales decreased 1.8% in 1989, The comparatively because of a substantially warmer summer. The hot moderate summer weather in 1989 lowered sales summer also contributed to a 3.6% gain in because of reduced air conditioning usage. commercial sales as did high occupancy rates in Residential sales decreased 1.7% Commercial sales Cleveland oflice buildings, a continued office increased 3.9% as a result of continuing growth building boom in suburban areas and new retail from new office buildings and retail outlets. outlets. The increase in revenues from sales to Ohio 15 i
a
b '
I ' Edison and Pennsykania Pooer was the result of base. These carrying charges in 1988 ' vere' f3r Cleveland Electric a sale of a portion of its share of interest costs only and not equity costs. However,
. Perry Unit 1 capacity for all 12 months in 1988 AFUDC and carrying charges that were p.tviously compared to only six weeks in 1987. The increase in accounted for on a net of tax or an after tax basis revenues auributable to deferred CWIP revenues were stated on a pretax basis in 1988.
i resuhed from a redection in the level of revenues Part of the proceeds from the 1987 sale ano deferred under the mirror CTIP law. Lower fuel cost leaseback transactions was used to redeem f recovery revenues resulted principally from the outstanding high cost securities which reduced p ,
greater use of lower cost nuclear fuel and the interest expense and preferred dividends in 1988.
PUCO ordered refund discussed in the 1989 vs. Results for 1988 also included a one time net 1988 analysis Cleveland Electric sold its steam after tax increase of $28,000,000 related to a change system in December 1987, in accounting for unbilled revenues. See Note 12, f Operating expenses increased 11.1% in 1988.
f fuel and purchased power expense decreased Effect of Inflation largely because of the matching of expense with inflation adversely affected our results of operations lower fuel cost recovery revenues discussed in the in 1987 and 1988 as increases in base rates were less preceding paragraph. The increase in other than the rate of inflation in the costs of our labor, operation and maintenance expense and
[ depreciation expense mainly resuhed from a full materials and nrvices.
- year of operation of Perry Unit I and Beaver \ alley The January 1989 PUCO rate orders were Unit 2 and a full year of lease expense for Beaver arily designed to recaver all operating and ,
i M our ner nuclear investments, e- Valley Unit 2 and the Bruce Mansfield !lant However, in 1989, total costs of labor, materials and j (Mansfield Ilant). The increase in deferrec. services showed a slight 1ecline as a result of our gerating expenses in 1988 was largely attributable to the deferral of Beaver \ alley Unit 2 operating cost reduction program, thereby mitigatit'g the effect of inflation on our results of operations, expenses for a full year because they were not being Changes in fuel costs do not affect our results of recovered in rates. In 1987, Perry Unit I and Beaver
\ alley Unit 2 operating expenses were deferred for operations since those costs are deferred until only about seven and two months, respecthel). reflected in the fuel cost recovery factor included in As discussed in Note 6, f SM,000,000 of nuclear '
costs were written off in 1988 as a consequence of C"]at on i l have a negative impact on our future results of operations. As stated above, the rate the rate order.s.
orders were primarily designed to recover costs
't he total amount of MUDC and carrying charges decreased in 1988. 'Ihe change in status from related to our new nuclear investments and will not construction to operation of Perry Unit I and Beaver aflord protection ag.%st future inflation. Our cost
\, alley Unit 2 in 1987 resuhed in the cessation of reduction efforts since the 1986 affiliation of the Operating Companies have been substantial and will
- AITDC on those Units. Instead, an accrual of post.
c niinue t be important.
in service carrying charges pursuant to PUCO orders began on such investments no included in rate RETAINED EARNINGS CENTERIOR ENERGY CORPORATON AND SUBSDIARIES For the years ended December 34 _
1989 1988 1987 (th005.t d5 Of dollOrl)
Bolonce of Beginning of Yect.... ... ...... ...... .. . S 571.882 S 908.611 S 893.616 Addillors Net income (loss) . . . . . . . . . . . . . ... .... ... . .... . .... . 266,886 (73,960) 390,353 Deducilons Common stock dividends . . . . . . . . . . ... . .. . ... . (224,947) (259,022) (352.715)
Other, primarily preferred stock redemption expenses of subsidiaries . . . . . . ....... . ...... ... .. . .. . .. (47) (3.747) (22,643)
Net increase (Decrease) . . . . ... . .. . ... 44,892 (336,729) 14.995 Bolonce of End of Year . . . . . . . . . ... . .. ...... .. .. S 613,774 S 571.882 S 908.611 The ace (mpanying notes and summary of significant accoiinting policies are an integral part of this statement.
16
INCOME STATEMENT OMMoR ENERGY CoRPoRAftoN AND SUBsOlARLES For the yaors ended Decernber 31, _
1989 1988 1987 (thoutonds of donors. except per snore omounts)
Operating Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S2,302.436 $2.037,560 S i,925,356 Operating Expenses ruel and purchased power . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413.816 391,401 470,466
' Other operation and maintenance . . . .. .... . .......... 860,138 865,632 642.594 Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280.918 264,824. 214,424
' axes, other than federal income taxes . . . . . . . . . . . . .
.... 259,871 268,550 207,521 cliase-in deferred operating expenses . . . . . . . . . . . . . . . . . . . . . . . (74,555) - -
Pre phase in deferred operating expenses . . . . . . . . . . . . . . . . . . 7.932 (188,209) (87.623) red eral i ncom e tax es . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,385 123.697 105,912 1,870,505 1,725.895 1,553,291 Opera ting Inc ome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431.931 311,665 372,065 ,
- N::noperating income Allowance for equity funds used during construction . . . . . . . . 16,930 13,504 299,308 other income and deductions, net . . . . . . . . . . . . . . . . . . . . . . . . . . 14,212 45,308 (30,665)
Write-off of nuclear cost s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
(534,355) -
Loss on steam system sale. . . . . . . . . . . . . . . . . . . . ............ - -
(27.160)
Phase in carrying charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299,159 - -
Pre-phase in curying charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
372.155 39,599
~ Federal income taxes - credit (expense) . . .... ..... . (73,177) 131,254 121,122 257,124 27.866 402.208 Income Before Interest Chorges . . . . . . . . . . . . . . . . . . . . . 689,055 339,531 774,273 Interest Charges Debt interest . . . ................ ......... .. . ......... 369,481 378,292 435,042 Allowance for borcowed funds used during construction.. ... . (12,929) (6,137) (137,257) 356.552 372,155 297,785 Income (Loss) After interest Charges ..... ..... .. .. . 332,503 (32.624) 476,488 Preferred and preference dividend requirements of subsidiaries . . . . . . . . . . . . . . . . . . . . ...................... 65.617 69.489 86 135 income (Loss) Before Cumulative Ufect of an Accounting Chorige . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266.886 (102,113) 390,353 Cumulative Effect on Prior Years (to December 31, 1987) of an Accounting Change for Unbilled Revenues (Net of income Taxes of $18,729,000) .... - 28,153 -
Net income (Loss) . . . . . . . . . . . . . ......... ............. S 266,886 $ (73,960) S 390.353 Average Number of Common Shoret Outstanding (thousands) .... ... . .. ..... ........... .. .. 140.468 140,778 138,395 Earnings (Loss) Per Common Shore 13efore cumulative effect of an accounting change. ... .... $ 1.90 $ (.73) $ 2.82 Cumulative effect of an accounting chyge . . . . . . . . . . . . . . . . - .20 -
. Total........................................... $ 1.90 S
(.53) $ 2.82 Divide :ds Declared Per Common Shore.. ... .. ..... < i.60 S 1.84 S 2.56 The accompanying notes and summary of significant accounting policies are an integral part of this statement.
17 1
MANAGEMENT'S FINANCIAL ANALYSIS
' Capitol Resources cnd Liquidity our 1991 and 1992 requirements. See Notes 10(d) and (e) for information concerning limitatio e on we carry on a continuous program of constructing the issuance of preferred and preference stock . ..d new facilities and mo6 tying existing facilities t debt. Our thort term borrowing arrangements are meet anticipated demand for electric service, t explained in Note 11. Also, we will 'stionally comply with governmental regulations and t redeem additional securities if economical.
Improve the environment. Casn is also needed for Our capital requirements will probably increase manc'atory retirement of securities. Over the three' substantially after 1992 if acid rain legislation is year period 1987 1989, these needs totaled
- approximately $1,350,000,000. In addition, we enacted. See Note 3(b).
The availability of capital to meet our external exercised various options to redeem and purchased financing needs depends upon such factors as approximately $1,400,000,000 d our securities, fmancial market conditions and our credit ratings.
In 1987, the capital required to finance our construction program and to retire and redeem We expect to be able to raise cash as needed.
securities was obtained primarily from external Current securities ratings for the Operating sources. Also, in 1987, we sold and leased back Companies are as follows:
W:,dard Moody's certain interests in four generating ut.its as discussed a Poors investors in Note 2. In 1988, Cleveland Electric and Toledo corporauon senice Edison issued $188,730,000 and $50,700,000, cleveland Electric respectively, of first mortgage bonds, in 1989, rirst mongage bonds . . BBB- Baa2 Cleveland Electric issued $67,700,000 of first Preferred su>ck. BB+ baa2 mortgage bonds and $212,500,000 of secured Toledo Edison medium term notes. Also, Cleveland Electric First rnongage bonds . BBB- Baa3 obtained a $40,000,000 term bank loan. Toledo tJnsecured notes . . . . . BB+ Bal Edison issued $56,100,000 of first mortgage bonds. Preferred stock. . . BB+ ba2 Proceeds from these financings were used to repay Tc believe that the rate orders, coupled with portions of short-term debt incurred to finance the stringent cost control, give us a reasonable construction program, to tetire, redeem and opportunity to achieve fmancial results which would purchase outstanding securi#s, to pay our permit Centerior Energy to continue the current
. construction program costs and for general corporate quarterly common stock dividend of f.40 per share.
purposes. Nevertheless, dividend action by our Board of The Operating Companies have been granted Direcms will continue to be decided on a quarter-rate increases effective in 1989,1990 and 1991 to quarter basis after evaluation of financial results, pursuant toJanuary 1989 PUCO rate orders. See Note potential earning capacity and cash flow. A write-off 6 for discussion of those rate orders which provide of our investment in Perry Unit 2, as discussed in for specific levels of rate increases and earnings Note 3(c), would not reduce our retained earnings limitations through 1991. Although the rate orders ;ufficiently to impair our ability to declare required us to write off certain assets in 1988 which dividends.
lowered our earnings base, our current cash flow TFe Tax Reform Act of '%6 provided for a 40%
was not impaired. average income tax rate in 1987 and a 34% income
. Although the Operating companies' cash tax rate in 1988 and thereafter. (he repeal of the requirements for construction ($510,000,000 for in estment tax credit, schedned reductions in Cleveland Electric and $230,000,000 tor Toledo investment tax credit carr>brwards, less favorable Edison) and mandatory redemption of debt and depreciation rates, a nev alternative minimum tax preferred stock ($315,000,000 for Cleveland Electric (AMT) and other ite.as. The changes resulted in and $351,000,000 for Toledo Edison) during the increased tax paymtats and a reduction in cash flow 1990 1992 period in the aggregate will be during 1987 principally because the AMT reduced approximately the same as for the 19871989 period, the amount of investment tax credits allowed as an internally generated cash is expected to increase offset to federal income tax payable. These changes substantially as a result of the rate increases. had no significant cash flow impact in 1988 because Cleveland Electric expects to finance externally we had a net operating loss for tax purposes. The about two-thirds of its 1990 constructic, and changes in the tax law resulted in increased tax
. redemption requirements. Nearly all of Toledo payments and a reduction in cash flow during 1989 Edison's requirements in 1990 will be met with because we were subject to the AMT.
laternal cash generation and current cash resources.
We expect to finance externally about 40 to 50% of i
(
18 -
. .. . ~ . _ .. .. . .. . . . . . . . . . . . . . . . .
l CASH FLOWS CENTER OR ENERGY CORPORenON AND sUttSO!ARlEs For the years ended December 31, 1989 1988 1987 4 Onousanos of oono o CEsh Flows from Operat!ng Activilles (1)
Net income (Low .. . ..... .. .... . . . . $ 266.886 S (73.960) S 390.353 Adjustments to 1 - , o Net income (Loss) to Cash from Operating Actiw w Depreciation aad amortization . . . . . . . . . .... ... . 280,918 264,824 214,421 Deferred federal income taxes . . . . .... . ... . .. . 181,240 (37,422) (279.814)
Investment tax credits, net. . . . . .... . .. . . ... 1,179 (3.687) 132,699 write off of nuclear costs .. . . . .. .. .. . .. . . .
- 534,355 -
Deferred and unbilled revenues . . . . .... . . . (74,792) 23.842 66,185 Deferred fuel . . . .. ...... . .... . ... .. .. . .. 25,086 (54.601) 32,957 Carrying charges capitalized . . . . . . . . . . . . .. ... . (299,159) (372,155) (39,599).
Leased nuclear fuel amortization . . . ... . . . . ... . 102,120 77.196 49,330 Deferred operating expenses, net . .... . .. . . .. . (66,623) (188,209) (87.623)
Allcwance for equity funds used during construction ... . (16,930) (13,504) (299.308)
Loss on steam system sale . . . . . . . . . .. ... . .
- - 27,156 Amortization of' reserve f0r Davis Besse refund obligations to customers . . . . . . . . ...... ..... ... .. ... . (24,817) (41,118) -
Cumulative effect of an accounting change . . .. .... . ..
- (28,153) -
Changes in amounts due frcm customers nd others, net . . . . (13,486) 5,384 (15,483)
Changes in inventories . . . . . . . . . . . . .. . . .. (3,029) 10,283 (32.617)
Changes in accoc ats payable . . . . . . . . . . . . . . . . (10,732) 73,765 4,182 Changes in working capital affecting operations . .. 17,120 17.058 150,837 Oth~r noncash items . . . . . . . . . . . . . . . . .. . . (8.510) 84.237 Total Adjustments. . .. . .... .. . ... .. .
(10,319) 87,776 _ _ _ _ _259.3467,560 Net Cash from Operating Activities . . . .., . .. 354,662 185.388 397.913 Cosh Hows from Financing Activities (2)
. Bank loans. comme.cial paper and other short term debt. . . ... 29 (36,555) (9,197)
Debt !ssues:
Firs: mortgage bonds. . . . . . . , . . . ... . . . . .. . . 123,800 239.430 411,500 Secured medium term notes . .. . ... .... .. .... 212,500 - -
Term bank loan . .... ... .. . . .. .... . ... 40,000 - -
Unsecured debt . . ... .. . . ,. . . .. . ..... .
- - 250,000 Preferred stock issue > . . . . . . .. . .... . .. . ..... ....
- - 123,313 Common stock issues . ....... ... . . . . .. . . . ........ 740 1.539 102,724 Reacquired common stock . . . . . . . . . . . . . . ...... . . . . .. (19,804)
Maturities, redemptions and sinking funds . . . . . . . ..... .. . (370,747) (384.178) (i,026.934)
Nuclear fuel lease and trust obligations. . . . ...... . . . (86,589) (77,196) (39,808)
Common stock dividends paid . . . .. ..... .. . . .. (224,947) (259,022) (352,715)
Premiums, discounts and expenses . . . . . . . . . . .. . . . (2,622) 1,176 (5.209)
Net Cash from Financing Activities . . . . . . . . . . . . . . . (327.640) (514,806) (546,326)
. Cash Flows from Investing Activltles (2)
Cash applie d to construction . . . . . . . . . . . . . . . . . . . . . . . . .. (223,881) (313,157) (514.059)
Interest capitalized as allowance for borrowed funds used e during construction . . . . . . ... .... . ... .... . (12,929) (6,137) (137,257)
Cash received from sale and leaseback transactions, net. . . . . .
- - i.690,816 Cash withdrawn from (deposited in) sale and leaseback and other trusts . . . . . . .
374.085 (374,085)
Other c9sh applied . ..... .. ...... . ... . . (17,866) (7.351) (11.021)
Net Cash from investing Activities. .. . ., . (254.676) 47.440 _654,394 Net Change in Cash and Temporary Cash Investments.. (227,654) (281.978) 505.981 Cash and Temporary Cash investments at Beginning of Year.................................................. 330,797 612,7'S 406.794
, Cosh and Temporary Cash Investments at End of Year .. $ 103,143 S 330,/9) S 6i2,775
- (1) Interest paid was $367,000.000, $373,000,000 and $427,000,000 in 1989,1988 and 1987, respectively. Income taxes paid were $9,058,000, $76,534,000 and f 52,040,000 in 1989,1988 and 1987, respectively.
(2) Increases in Nuclear Fuel and Nuclear Fuel Lease and Trust obligations resulting from the noncash capitalizations under ..uclear fuel agreements are excluded from this statement.
The accompanying notes and summary of sigmficant accounting policies are an integral part of this statement.
i 19
BAL.ANCE SHEET CENTERCR WERGY CORPORATON AND sVBSIDARIEs -
December 31, 1989 1988 (thovsonds of dohors)
Assets Property, Plant and Equipment Utility plant in service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,411,116 S 8,143.673 Less: accumulated depreciation and amortization. . . . . . . . . . . . -1,831.767 1,569,304 6,579,349 6,574,369 C'onstruction work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288,225 355,821 Pe rry U n i t 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 869,048 866.911 7,736,622 7.797,101 Nuclear fuel, net of amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . 544,375 596.818 Other property, less accumulated depreciation . . . . . . . . .. ... 47,317 46,269 8,328,314 8,440,188 Cunent Assets Cash and temporary cash investments . . . . . . . . . . . . . . . . . . . . . . . 103,143 330,797 Amounts due from customers and others, net ... . ... . . . .. ... 216,316 202,830 U nbilled reve nu es . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,718 64,369 Materials and supplies, at average cost . . . . . . .... ......... .. 83,322 77,217 Fossil fuel inventory, at average cost . . . . . . . . . . .... . .. .. . ... 48,999 52,075 Taxes applicable to succeeding years . . . . . . . . . . . . . . . . . . . . . . . . 207,635 191,292 Other ....... ......................... .... .............. 14.819 6,971 752.952 925,55_1 Deferred Charges Amounts due from customers for futtire federal income taxes .. 1,201,278 1,209,075 Unamottired loss from Beaver Valley Unit 2 sale . . . . . . . . . . . . . 122,911 127,367 Unamortized loss on reacquired debt . . . . . . . . . ... . .. . . . . . . 75,988. 68,320 Carrying charges and operating expenses, pre phase in . . . . . . . , 641,236 669,050 Carrying charges and operating expenses, phase in . . . . . . . . . . 373,714 -
Other ............ ..................................... . 170,154 133.547 2.585.281 2.207,359 9
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . ... . . . ... .... $ 11.666.547 Sii.573,098 The accompanyi... notes and summary of significant accounting policies are an integral part of this statement.
s
=20
CENTE9 TOR ENERGY CORPORATION AND sVBSDIARIES December 31 1989 1988 (thousands o' dollots)
Capitalization and Uobillfles CapitalizatlOn Common shares, without par value (stated value of
$191,710,000 and $192,711,000 for 1989 and 1988, respectively); 180,000,000 authorized; 139,791,000 (excluding 1,120.000 shares in Treasury) and 140,820,000 (excluding 38,000 shares in Treasury) outstanding in 1989 and 1988, respectively' . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,180,798 $ 2,199,862 Retained earnings . . . , , . . . . . . . . . . . . . . . ......... ......... 613.774 571,882 Common stock equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,794,572 2.771,744 '
Preferred and preference stock '
With mandatory redemption provisions . . . . . . . . . . . . . . . . . . . 281,352 303,781 Without mandatory redemption provisions . . . . . . . . . . . . . . . . . 427.334 427,334 Long term debt . . . . . . . . . . . . .......................... ..... 3,533.656 3.551.614 7,036,914 7,054.473 Other NonCurrent'Uobilities Refund obligations to customers . . . . . . . . . . . . . . . . . . . . . . . . . . 23,779 74,290 Other, primarily nuclear fuel lease and trust obligations . . . . . . 557,789 597,876 581.568 672,466 Current Uobilities current portion of long term debt and prefer 4ed stock . . . . . . . . 217,706 159,868 Current ponion of lease obligations. . . . . . . . . . . . . . . . . . . . . . . . . 101,057 85,043 Accou nt s pa ya bl e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248,103- 258,835 Accrued taxes . . . . . . . . . . . . . . . . . ...................... .. 329,440 300,113 Accrued interest , , ................. ...... ......... ..... 84,232 90,453 Dividends declared . . . . . . . . ... ....... . .. .......... 13,893 14,518 Accrued payroll and vacations . . . ........ , . ............ 27,692 27,269 Current portion of refund oblig:tions to customers . . . . . . . . . . . . 58,752 68.684 other ............. ..... ...... ......... . ..... .... ... 22.278 21,082 1,103,153 1,025,865 Deferred Credits Unamortized inveament tax credits . .. .......... .... . 381,925 383,074 Accumulated deferred federal income taxes .. .............. 1,622,458 1,435,242 Reserve for Perry Unit 2 allowance for funds used during i construction . . . . . . . . . . . . . . . . . . . . ...... ........ ... . 212,693 212,693 f' Unamortized gain from Bruce Mansfield Plant sale .. ..... .. 655,573 688,669 other .... ........... . . ................ ........... 72,263 100,916 2,944,912 2.820,594 Total Capitalization and Liabilities . . ........ . .., . $11,666,547 $ 11,573,098 21
STATEMENT OF CUMULATIVE PREFERRED CENTERioR ENERGY CORPORATION ANO SUBSO! ARIES AND PREFERENCE STOCK 1989 $hores Current December 34.
Outstonding Coll Price 1989 1988 Cleveland Electric ("' "5 d' ' *" )
Without par value,4.000,000 preferred and 3,000,000 preference shares authorized subject to mandatory redemption (less current maturities):
Preferred:
f 7.3 5 series c . . . . . . . . . . . . . . . . . 180.000 S 101.00 $ 18,000 $ 19,000 88.00 series E . . . . . . . . . . . . . . . . 30,000 1,038.26 30,000 33,000 75.00 Series l' . . . . . . . . . . . . . . 2.384 1,000.00 2,384 2,884 80.00 series G . . . . . . . . . . . . . 800 1,000.00 800 2,686 14 5.00 series i1. . . . . . . . . . . . . . . . . 12.462 - 12,462 16,026 M S.00 series 1. . . . . . . . . . . . . . . 15,748 - 15,748 19,686 113.50 series K . . . . . . . . . . . . . . 10,000 - 10,000 10,000 Adjustable series M . . . . . . . . . . . . . . . . 500,000 104.25 49,000 49,000 9.12 5 series N . . . . . . . . . . . . . . . . . 750,000 107.10 73,968 73,968 ,
_212,362 226,250
[ l Preference:
77.50 series 1 . . . . . . . . . . . . . . - - - 6,376 Not subject to mandatory redemption:
Preferred:
7.40 series A . . ....... . . 500,000 101.00 50,000 50,000 7.56 3eries 11 . . ... ..... . 450,000 102.26 45,071 45,071 .
Adjustable series I.. . . . . . . . . . . . . . . 500,000 103.00 48,950 48,950 Remarketed series P . . . . . . . . . . . . . . . 750 100,500.00 73,313 73.313 217,334 217,334, -
TClodo Edison i
$100 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 i11.00. . . . . . . . .... . 39,800 103.50 3,980 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 74,155 Not subject to mandatcry redemption:
100 par 4.25 . . . . .... . ,. 160,000 104.625 16,000 16,000 4.56......... ..... 50,000 101.00 5.000 5,000.
4.25................. 100,000 102.00 10,000 10,000 8.32. .. . . .. . . . 100,000 102.46 10,000 10.000 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 25 par 2.21. . . . . . .. . .. 1,000,000 25.90 25,000 25,000 2.365 . . . . . . . . .. 1,400,000 28,45 35.000 35,000' '
series A Adjustable .. .. 1,200,000 - 30,000 30,000 series 11 Adjustable 1,200,000 - 30,000 30,000 C nterior Energy L With it par value, 5,000,000 preferred j- shares authorized .. . . ... ... . - - - -
L T foi Preferred and Preference Stock, with Mondatory Redernplion P r o vi si o n s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,$281,352 S303,781 Total Preferred Stock, without Mondolory Redemption Provlslons . . . . . $427.334 S427,334 .
' The accompanying notes and summary of significant accounting policies are an integral part of this statement.
22-
p NOTES T1 THE FINANCIAL STATEMENTS .
(1) Property Owned with Other Utilll2s and Inveht:rs 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 ows.er 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 share of the construction and operating costs. Each lessee is obligated to pay for the related lessor's share of those costs. The Operating Companies' share 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 Operating Companies as tenants in common with other utilities and lessors.
Owner.
In- Owner- ship Plant Construction service ship siega. Power in work Accumulated j oeneratir,g tinft Date share watts source service in Progress Depreciation in service: Ohousands of da!!ars) seneca Pumped storage . 1970 H0.00% 305 Hydro i 58.291 1 184 8 18,422 a 1:sstiske Unit 5 . .. , 1972 68 H0 411 Coal 152.808 1,618 l
it 1 & Common raculties . . ..
. 1987 51.02 610 Nuclear 2.514.059 13,001 179,361 Perry heaterAUr} alley Unit 2 & Common racihues (Note 2) . . . . .... . . 1987 26.12 218 Nuclear 1.346,914 15.331 100,617 Construction suspended (Note 3(c)b Perry, Unit 2 . . . . .. . . . Uncertain 51.02 615 Nuclear -
869.048 -
$ 4,072.072 $ H99.182 $ 298.400 D-precintion for Eastlake Unit 5 has been accumulated with all other depreciable property rather than by specific units of depreciable property. , ;
Ohio Edisor and Pennsylvania Power purchased 80 megawatts of Cleveland Electric's capacity entitlement in . i Petry Unit I from November 1987 through May'1989. Revenues for this transaction were $31,831,000, $84,068,000 and $9,251,000 in 1989,1988 and 1987, respectively.
(2) Utility Piont Sole and 1.ooseback Transactions As a result of sale and leaseback transactions beginning in 1989. Additional rental expense completed in 1987, the Operating Companies are amounts, which were not deferred but were charged co lessees of 18.26 % (152 megawatts) of Beaver to expense in 1988 and 1987, were not significar:t.
Valley Unit 2 and 6.5% (51 megawatts),45.9% (358 The Operating Companies are responsible under megawatts) and 44.38% (355 megawatts) of Units the laases for paying all taxes, insurance premiums, 1,2 and 3, respectively, of the coal fired Mansfield operation and maintenance costs and all other Plant for terms of about 296 years. Proceeds from similar costs for their interests in the Units sold and the transactions totaled $2,738,600,000. leased back. The Operating Companies may incur Future minimum lease payments under these additional costs in connection with capital operating leases at December 31, 1989 are improvements to the Units. The Operating summarized as follows: Companies have options to buy the interests back at year Amount the end of the leases for the fair paarket value at that time or to renew the leases. Additional lease (thouuruts of dollars) ovislons provide other purcnase options along 1990.... ,,.. . . I 169,000 with conditions for mandat ry termination of the i993 ,
'. d .. 1.'
.[
i 7, , -
leases (and possible repm nase of the leasehold interests) for events of default. These events of 1994.. . , . .. . ty . , default include noncompliance with several Later Years . . . . e4s . financial covenants affecting Centerior Energy and Total rutute stinimum the Operating Companies contained in an Lease Payments . s 5.20s 000 agreement relating to a letter of credit issued in connection with the sale and leaseback of Beaver Semiannual lease Valley Unit 2, as amended in 1989, See Note 10(e).
payment scheduler each bayments lease. conform with the T ledo Edison is selling 150 megawatts of its Rental expense is accrued on a straight line basis lleaver Valley Unit 2 leased capacity entitlement to wet the terms of the leases. The amounts recorded Cleveland Electric. This sale commenced in as rental expense for the Mansfield Plant leases November 1988 and we anticipate that it will were $114,564,000, $111,105,000 and $p.100,000 e ntinue at least until 1998.
In 1989,1988 and 1987, respectively. Rental expense for the ileaver Valley Unit 2 lease was (3) Construction and Contingencies
$72,276,000 in 1989. Rental expenses for Beaver Valley Unit 2 of $70,300,000 and $18,300,000 in (a) Construction Prograrn 1988 and 1987, respectively, were recorded in a The estimated cost of our construction program for deferred charge acceunt pursuant to PUCO the 19901992 period is $800,000,000, including cccounting orders. Such deferred amounts are being AFUDC and excluding nuclear fuel Should more ,
amortized to expense over the life of the lease stringent environmental regulations be adopted.
- 23
y s partic larly in the area of acid rain pollution control, ultimate outcome of these matters will be future construction program costs would increase immaterial.
substantially.
(4) Nuclear Operations and (b) Proposed Acid Rain Legistoiion Contingencies There are several bills being considered in the (o) Operating Nuclear Units -
United States Congress which. would require .
significant reductions in the emission of sulfur Our interests m nuclear units may be impacted by dioxide and nitrogen oxides by fossil fueled electric activities or events beyond our control. Operating gcnerating units. Our preliminary analysis indicates . nuclear generating units have experienced that compliance with these bills could require unplanned outages or extensions of scheduled _
additional capital expenditures in the range of utages because of equipment problems or new
( regulatory requirements. A major accident at a
$900,000,000 to $1,200,000,000 by the Operating Companies and would result in higher fuel and nuclear facility anywhere in the world could cause the Nuclear Regufatory Commission to limit or operation and maintenance expenses. The resulting
. aggregate rate increases could be in the range of 9 pr hibit the operation, construction or licensing of
. to 15% by the year 2000, any nuclear unit. If one of our nuclear units is taken One bill contalns an additional proposal to out of service for an extended period of time for any >
regulate certain types of toxic pollutants. This reas n, including an accident at such unit or any proposal could increase the cost of compliance ther nuclear facility, we cannot predict whether significantly over the estimates stated in the regulatory authorities would impose unfavorable preceding paragraph. rate treatment such as taking our affected unit out of rate base.
Under the proposed bills, capital expenditures and rate increases would be incurred predominantly in the 1994 2000 period. The financial impact on (b) Nuclear Insurance Cleveland Electric is expected to be greater than on The Price Anderson Act limits the liability of the Toledo Edison. We cannot predict the outcome of owners of a nuclear power plant to the amount the legislative process or be certam that our provided by private insurance and an industry compliance cost estimates will not change assessment plan. In the event of a nuclear incident at significantly. We beheve that Ohio law would permit any unit in the United States resulting in losses in the recovery of compliance costs from customers in excess of the level of private insurance (currently rates. $ 200,000,000), our maximum potential assessment ,
under that plan (assuming the other CAPCO (c) Perry Unit 2 companies were to contribute their proportionate Perry Unit 2, including its share of the common share of any assessment) would be $129,257,000 facilities, is about 58% complete. Construction of (plus any inflation adjustment) per incident, but is Perry Unit 2 was suspended in 1985 by the CAPCO limited to $19.540,000 per year for each nuclear companies pending future consideration of several incident.
ahernatives which include resumption of full The CAPCO companies have insurance coverage construction with a revised estimated cost and for damage to property at Davis Besse, Perry and completion date, mothballing or cancellation. None Beaver Valley (including leased fuel and clean up of these alternatives may be implemented without costs), Coverage amounted to $2,035,000,000 for the approval of each of the CAPCO companies, each site as of January 1,1990. Damage to property if Perry Unit 2 were to be canceled, then our net could exceed the insurance coverage by a investment in Perry Unit 2 (less any tax saving) substantial amount. If it does, our share of such would have to be written off. We estimate that such a amount could have a material adverse effect on our write off, based on our investment in this Unit as of fmancial condition and results of operations.
December 31, 1989, would have been about We also have insurance coverage for the
$438,000,000, after taxes. See Notes 10(d) and (e) incremental cost of any replacement power for a discussion of other potential consequences of purchased (over the costs which would have been such a write off. incurred had the units been operating) after the Duquesne has advised the Pennsyhania Public occurrence of certain types of accidents at our Utilities Commission that it will not agree to nuclear units. The amounts of the coverage are resumption of construction of Perry Unit 2. 100% of the estimated incremental cost per week Duquesne is continuing to pay for its 13.74% share during the 52 week period starting 21 weeks after of maintaining Perry Unit 2 while construction is an accident,67% of such estimate per week for the suspended, next 52 weeks and 33% of such estimate per week for the next 52 weeks. The cost and duration of
' replacement power could substantially exceed the (d) Superfund Sites """# N#'
The comprehensive Environmental Response, Compensation and Liability Act of 1980 as amended
- (Superfund) established programs addressing the (5) Nuclear Fuel-clean up of, hazardous . waste disposal sites, The Operating Companies have inventories for emergency preparedness and other issues. Pursuant nuclear fuel which should provide an adequate i to Superfund, the Operating Companies have been supply into the mid 1990s. Substantial additional notified of their potential involvement in the clean- nuclear fuel must be obtained to supply fuel for the up of nine hazardous waste sites. We believe that the remaining useful lives of Davis Besse, Perry Unit 1 24'
&, . . %, , . y e:
i 5 Jand Beaver Valley Unit 231 ore nuclear fuel would l1991, respectively; The annualized revenues be required if Perry Unit 2 were completed. - associated with these increases are as fedows: ;
sin e1989, existing nuclear: fuel financing
[
p arrangements for the operating Companies were
" refmanced through leases from a special purpose cgnd gigo- ,
E l corporation. The maximum amount of fmancing ' (Si'h "* ' d f* '
p ' currently available under these lease arrangements is 1989. . . ... .. .. . s120.7 s 50.7 - $171.4 h - $609,000,000 ($309,000,000 from intermediate. 1990. . . .. . . 105.7 44.3 150.0 .
h ; " term notes and $300,000,000 from bank credit 1991. . ... ....o 98 4 40.7 139.1 ;
c arrangements), although fmancing in an amount up s324.8 s155.7 s460.5
"-~ ~
/ - tog $900,000,000. Is ; permitted. The Operating .
Companies severally lea 3e their respective portions !*
U * ' 'of the nuclear fuel and are obligated to pay for the These revenue increases are net increases after
, fuel as it is burned in a reactor! The lease rates are including adjustments required under the mirror .
, based on various intermediate-term note rates, CWIP law and the refunding of revenues collected .j
^ by Toledo Edison in 1985 through 1987 pursuant to q bank ' rates and commercial paper ratesc The 'i E - intermediate term notes mature in the period 1993 a February 1985 rate order. The refunding
. ' 1997.1 Beginning: in 1991,' the : bank . credit requirement had no impact on net income because ~ Lj b : arrangements are cancelable on two years notice by reserves had been provided in those yearsi All- l b ~ " " the .' lenders < As' : of : December 31, 1989, amounts related to the refunding requirement will - l
' $579,000,000 of nuclear fuel was fmanced. This .be refunded to Toledo Edison's customers by .;
y includes nuclear fuel in the Davis Besse, Perry Unit November 1991. J M 1 and Beaver Valley Unit 2 reactors with remaining . The orders provided for the permanent exclusion 1 i payments of ' $75,000,000, $91,000,000 and from rate base of a portion of the Operating '
" Companies' combined investment in Petty Unit 1 -
L $39,000,000, respectively, as of December 31,1989. ;
and Beaver Valley Unit 2 which resulted in a write-The nuclear fuel amounts financed - and.
' capitalized included interest charges incurred by the off of $454,000,000 ($300,000,000 after tax) in
.." 1988. Since the orders effectively eliminated the=
lessors amounting to $44,000,000 in 1989,
. $41,000,000 in 1988 and $38,000,000 in 1987. The possibility of the Operating Companies recovering ,
estimated future lease amortization payments based their remaining investment ' in four - nuclear Ton projected burn are $101,000,000 in 1990, construction projects canceled in 1980 and 1 $115,000,000'in 1991, $117,000,000 in- 1992, recovering certain deferred expenses for Davis, j n - $106,000,000 in 1993 and $118,000,000 in 1994. As Besse, additional write offs totaling $80,000,000 !
"" these payments are made, the amount of ciedit ' ( $49,000,000 after tax) were recorded in 1988, !
available to the lessor becomes available to finance bringing-' the total write.off ~ of nuclear costs .
' additional < nuclear fuel, assuming the . lessor's. emanating' from the orders to - $534,000,000 ;
? intermediate term notes and bank credit ( $349,000,000 after tax). j arrangements continue to be outstanding. The phase in plans were designed so that the 9%, .
7% and 6% rate increases, compounded by sales growth, will be sufficient to recover all operating 'v
.(6) Regulatory Matters . expenses and provide a fair rate of return on the in 1987, the PUCO granted increases in electric rates Operating Companies' unrecovered investments in '
to the Operating Companies as follows: Perry Unit 1 and Beaver Valley Unit 2 for ten years r beginning January 1,1989. In the early years of the ,
Yn$d plans, the operating : expenses and return-D.ne ' company ;
4 , ,, ,, requirements exceed the revenue increases, j dollars) Therefore, the amounts of operating expenses and :
M' arch 1987 . . . . . . . . . . . . . Clewland Electric $39.6 return on itWestment not currently recovered are '
- May 19871, . o . . o .. . . ... Toledo Edbon 43.0 - deferred or capitalized as carrying charges. The -
c December 1987. . o . - . Cleveland Electrie 25.8 PUCO authorized the. Operating Companies to. t j i : December 1987. ..; . . ., Toledo Edson 0.5 record a full net of. tax carrying charge of 9.2% on i deferred rate based investment commencing January On Januay 31' 1989, the PUCO issued orders for '
, 1,1989. Since the unrecovered investment willi
, 1 thy Operating Companies which adopted a decline over the period of the phase-in plans settlement reached 1between the Operating because of depreciation and federal income tax -
' ' Companies and the majority of the intervenors in benefits that result from the use of accelerated tax .
.then pending rate cases. The orders endorsed depreciation, the amount of revenues required to !
< ; agreements which reached beyond the issues in provide a fair return also declines. Beginning in the 1 such cases and resolved,1with respect to the sixth year, the revenue levels authorized pursuant to participants, other issues which had been contested. the phase in plans were designed to be sufficient to :i All.pending prudence investigations before the recover current operating expenses, a fair return on .
- PUCO and pending litigation before the Ohio the unrecovered investments and amortization of .
> : Supreme Court brought by the parties to. the deferred operating expenses and capitalized settlemen;t involving our nuclear investment and carrying charges recorded during the earlier years of .,
L other rate matters have been terminated. the plans. All phase in deferrals after December 31, i nThe orders provided for' three annual rate 1988 relating to these two Units will be recovered -)
- i ncreases forn the L Operating: Companies of by December 31, 1998. Pursuant to such phase.tn .
. approximately 9%,7% and 6% effective with bills ' plans, the Operating Companies deferred operating !
3 rendered on and after February 1,1989,1990 and expenses of $74,555,000 and debt and equity 1 w . w j[ L , 25-
carrying costs of $111,714,000 and $187,445,000, arising from the sale and leaseback of assets) of respectively, in 1989 f 676,300,000, as determined by an audit advisory Under the orders, the Operating Companies may panel and approved by the PUCO. Also, in not seek any further permanent rate increases to be connection with the orders, a nuclear management effective before February 1,1992 unless Centerior expert completed a cost reduction study at Davis-Energy's earnings available for common equity, Besse. The study concluded that Centerior Energy prior to extraordinary items, are forecasted either to could reduce annual operation and maintenance fall below $210.000,000 over four consecutive expenses at Davis.Besse by approximately quarters or to fall below $435,000,000 over eight i33,000,000 in 1991. The management audit will consecutive quarters. During this period, Centerior consider the . Davis Besse study rcsults in the Energy's earnings available for common equity, prior determination of overall savings.
to extraordinary items and excluding changes in The orders provide that 50% of the net after tax expenses relating to any future sale and leaseback of savings in 1989 and 1990 resulting from the cost assets, are limited to the following amounts for any reduction effort or identified by the management four consecutive quarters ending on or before the audit and approved by the PUCO are to be used to date indicated: reduce cost deferrals recorded under the phase-in plans for the Operating Companies. Based on 1989
$ 275,000,000 March 31,1990 results, no change was made in the cost deferrals for
$ 295,000,000 March 31,1991 1989. Fifty percent of the net annualized savings
$ 310,000,000 December 31,1991 achieved or identified and approved for a period to be determined will be used to reduce the 6% rate If any of the earnings caps described above were increase scheduled for FebruaTy 1,1991. As an exceeded, an adjustment would be made to the incentive to achieve the savings, the remaining 50%
amount of the deferrals recorded under the phase in of savings in each of the periods will be retained by plans to prevent any excess earnings. The the Operating Companies, subject to the earnings adjustment would be applied proportionately cap described in this Note. Net savings would be between the Operating Companies based on the ad}usted for changes in capital and operating costs earned returns of the two companies, arising from certain events, such as changes in tax The orders provide that any permanent rate laws or environmental laws. There were no such increase sought to be effective during the period adjustments for 1989. If the Operating Companies rebruary 1,1992 to February 1,1994 may only be do not achieve at least one-half of the savings based upon costs associated with net new identified by the management audit and approved by investment placed in service after' February 29, the PUCO, earnings would be reduced by the 1988 and necessary changes in operation and amount of the shortfall, subject to the Operating maintenance expenses (other than fuel and Companies' ability to request additional rate relief if purchased power) and other necessary cost Cer'terior Energy's forecasted earnings fall below increases from the kvels identified in the the minimum levels discussed in this Note.
management audit discussed in the next paragraph. The orders also provide for possible decreases or Also, if our return on average common stock equity increases in the cost deferrals II actual revenues are is below the benchmark rate established quanerly higher or lower, respectively, as compared to by TERC for rate cases subject to its jurisdiction, projected amounts in the orders. No change was the Operating Compa,les could seek rate increases made in the cost deferrals for 1989.
to improve our return under certain specified The orders set nuclear performance stand 3rds conditions. through 1998. Beginning in 1991, the Opedng
. The Operating Companies and the Service Companies coulo be required to refund incremental Company are undergoing a management audit to replacement power costs if the standards are not assure that operation and maintenance expense met. Fossil fueled power plant performance may not savings are maximized. Until the management audit be raised as an issue in any rate proceeding before is completed in the spring of 1990, an annual February 1994 as long as the Operating Companies savmgs target range has been set for Centerior achieve a system-wide availability factor of at least Energy of f 40,000,000 to i100,000,000 from the 65% annuafly. This standard was' exceeded in 1989.
1988 normalized level of other operation and maintenance expense (excluding lease expense 4
26 -
p) Federalincome Tax rederal income tax, computed by multiplying the income before taxes and preferred and pt:ference dhidend requirements of subsidiaries 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 198H 1987 (thousands of dollars)
Inook income Before Federal Income Tax .. .. . . 452H.065 $ 6.701 $ 461.2?8 Tax on Book Income at statutory Rate . ..
. . . . . . 8179,542 - 8 2.278 8 184,281 Increase (Decrease) in Tax:
AFUDC and Cac.ying Charges .. .. .. .. . . , . - -
(190.228)
Accelerated Depreciation . . .. . . . .. 10.415 6.829 15.852 organintion Costs . . . . . . . . . . . .. . .. .. . ... - 5,617 -
Taxes. Other Than l'ederal lacome Taxes . . . . . .... (107) 2.090 (1,167)
Other items , , .. . .. .. . .. ,. . . . 5.712 (5.642) (23.948)
Total l ederal locome Tax Expense (Credit). , . ...... ... 8195.562 $_11.172 8 (15.210)
Federal income tax expense is recorded in the income Statement as follows:
ror the vrars ended December 31,
___1989 198H 1987 (thousands of dollars)
Tperating Expenses:
Current Tax Provision . . . . . . . . . . . . . . . . . . . . . . . . . 8 51,869 8 79,520 8 203.513 Changes in Accumulated Deferred federal Incomt Tax:
Accelerated Depreciation and Amortiration.. . .. 44,144 26,168 146,274 Alternauve Minimum Tax Credit.... .. . .... . . . . (12,874) - -
sale and Leaseback Transactions and Amortization . . . 4.348 13.5HH (356.584)
Propeny Tax Expense . ... .. .
- (12,127) 11.685 Deferred CWIP Revenues ,, . . . . . . . .... . 22.731 (8,453) (26,058)
Unbilled Revenues . . . . . . ,, . .
- - (19,706)
Deleued fuel Costs .. . . .. . .... . . . . (4.384) 16.227 (12,511) -
system Development Costs., ..... . . .. ... . . 555 9.157 5.573 Davis Besse Rtplacement Power. . . ... . . . . . 9,191 15,291 -
lederal Income Tax Return Adlustments .. .. . - (19,621) 2,117 kracquired Debt Costs . . . .., . . . (1,250) 3.774 4,152 Deferred Operating Expernes . .. . . , ... .. . 1,021 14.913 29,490 Net Operating L(w.s Carryforward .... . . . -
(2.545) -
Other items . . . . . . . , , . . . . .. .. .. 5.254 (8,508) (19.244)
Investment Tax Credits - Net . . . .. . ... . ., 1,7 RO (3.687) 137.211 Total Charged to Operating Expenses . . . . , . . . . . 122,385 123.697 105,912 Nonoperating income; Current Tax Provision . . . . . . . . . . . . . . . . .
. . . . (39,341) (46,432) (8H,934)
Changes in Accumulated Deferred lederal Income Tax:
Davis Desse Replacement Power. , , .
5.724 (26.154)
Write off of Nuclear Costs. .. .... .. .. . .. . .. - (188,920) -
AFUDC and Carrying Charges . . .. . .. ... 114.300 133.637 -
Taxes, Other Than lederal Income Taxes . . .. .. . - 5,520 -
Net Operatmg 1.oss Carryforward . . . . .. . .
- (36,831) -
Other items . . . . .. . . . . , ,, . (1.7H2) (3,952) (6.034)
Total Expease (Credit) to Nonoperating income , , .... . 73.177 (131,254) (121,122)
FederalIncome Tax included in Cumulative Effect of an Accounting Change for Unbilled Revenues ., .. .. . . - 18.729 -
Total Federal Income Tr s Expense (Credit). . . . .. .. .. . $195.562 8 11.172 $ (15.210)
As discussed in the Summary of Significant Accounting Policies, a change was made in 1988 in the method of accounting for income taxes.
For tax purposes, net operating loss (NOL) carr> forwards of approximately $327,852,000 and $71,532,000 were generated in 2988 and 1989, respectively, and are available to reduce future taxable income, The NOL carr> forwards will expire in 2003 and 2004. Future utilization of these tax NOL carryforwards would result in recording the -
related deferred taxes. The 34% tax effect of the NOL generated in 1989 ($24,321,000) 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 ($111,470,000) is included in the above table as reductions to deferred federal income tax relating to accelerated depreciation and amortization ($72,094,000) and to other deferred federal income tax charged to operating expenses ($2,545,000) and to nonon-rating income ($36,831,000).
Approximately $35,444,000 of unused general business tax credits are an ' e to reduce future tax obligations.
The unused credits expire in varying amounts in 2001 through 2004. Utilizate . of these unused credits is limited by provisions of the Tax Reform Act of 1986 and the level of future taxable income to which such credits may be applied.
The Tax Reform Act of 1986 provides for an AMT credit to be used to reduce the regular tax to the AMT level should the regular tax exceed the AMT. An AMT credit of f12,874,000 was generated in 1989, i
27.
p F (8) Retirement income Plans and Other Assumptions used for the actuarial calculations Post Retirement Benefits for 1988 and 1989 summarized in the table above are: settlement (discount) rate - 8%,long term rate e Ce spomor noncontributing pension plans which of annual compensation increase - 5% and long.
cover all employee groups. The amount of term rate of return on plan assets - 8%.
retirement benefits generally depends upon the ,
Plan assets consist pnmanly of investments in length of service. Under certain circumstances, c mmon stock, bonds, guaranteed investment
! benefits can begin as early as age 55. The plans also c ntracts, cash equivalent securities and real estate, I provide cenain death, medical and disability The cost of post retirement medical benefits benefits. Our funding policy is to be in compliance amounted to $3,700,000 in 1987, $3,800,000 in 1988
, with the Employee Retirement income Security Act and $5,000,000 in 1989.
- j. guidelines.
In 1987, we offered a Voluntary Early Retirement l Opportunity Program (VEROP) which cost (9) Guotantees
$ 31,800,000. Pension and early retirement program Under two long term coal purchase arrangements,
!q costs for the years 1987 through 1989 were Cleveland Electric has guaranteed the loan and lease
$23,300,000, ($5,700,000) and ($11,000,000), obligations of two mining companies. Toledo respectively. Net pension and early retirement costs Edison is also a party to one of these guarantee for the three years were comprised of the following arrangements, which requires payments to the e components: mining company for any actual out of. pocket idle 1989 198H 19H7 mine expenses (as advance payments for coal) when (millions of do:!ars) the mines are idle for reasons beyond the control of Pension costs: the mining company. At December 31,1989, the service cost for benehts earned principal amount of the mining companies' loan and during the period . . . .... .. I 14 $ 12 8 16 lease obligations stuaranteed by the Operating Companies was $113,000,000.
IIi a 6I . . .. . 35 33 32 The Operating Companies have also guaranteed Actual return on plan assets . . . . . . . . (73) (76) (37)
Net amortbation and deferral ... 13 19 (14) the debt obligation of an equipment supplier At December 31,1989, the principal amount of the Net pension cost . .... (11) (12) (3) 6 26 debt obligation guaranteed by the Operating VEuor cost . . . . . . .. . ... ... -
f 23 panh Was M,W,M Net pension and VERoP costs. . . ftil) $===
==
(6) ===
' The following table presents a reconciliation of the funded status of the plans at December 31,1989 and 1988.
December 31, 1989 MH (millions of dollars)
Actuarial present value of benefd obligations:
Vested benehts. . . . . . . . , .. .. $328 $309 Nonvested benefits . . . , . . 2H 29 Accumulated benefit obilgation , 356 338 Effect of future compensauon levels 117 ' 98
' Total projected beneht obligation 473 436 Plan assets at fair market value .. . . 761 y Surplus of assets over projected beneht obligation . . .. . (288) (225)
Unrecognued net gain due to variance between assumptions and experience . . . ... 163 83 Unrecognind prior service cost .. (8) 12 Transition asset at January 1,1987 -
being amortized over 19 years. 141 149 i
Net accrued pension cost included in other deferred credus on the nalance sheet. . ..
W $J 28
qy -- ,
M" ,
%"(C) Capitoll20 tion : Shares of common stock required for the.
- (t), Copital Stock Transactions Dividend Reinvestment and Stock Purchase Plan, the.
Employee Savings Plan and the Employee Purchase
- Shares sold, retired and purchased for treasury Plan are being acquired in the open market <
.during the three years ended December 31,1989 are - In 1989, Centerior Energy began a program to listed in the following table. purchase up to 3,000,000 shares of its common stock
- ' ws9 1988 1987 at prevailing prices in the open market in the period (thousands of shares) . betweeti March 28,1989 and March 31,1991. As of-5 Common stock: .
December 31,1989,1,092,000 shares had been -
Dividend Reinvestment and purchased at a total cost of $19,975,000. Such shares stock Purchase Plan . . .. . . . 1 4.591 are being held as treasury shares.1
~ Employee savings Plan . .. .... ' - , 7 816
+ Employee Purchase Plan i~. ... 36 82 61
< Key Employee incentive stock (b) Common Shores Reserved for issue r . Pla n . . ; . . . . . . . . , . . m . . .
.. - - - 1 Common shares reserved for issue under the '
( 11978 Key Empkiyee stock Employee Savings Plan and Purchase Plan were--
. option Plan . . . . . .% . ..... 17 27 59 3,176,727 and 21,448' shares, respectively, at 40:21 Common stock sales ' 53 . 116 5,52s Dccember 31,1989. -
. Treisury shares . . . . . . . . . .. . . - (1.n82) (2) (19)- Stock options to purchase unissued shares ofD s ' ~ \ Net Change . . . . . . . . . ; . (1,029) 114 5.s09 common stock under the 1978 Key Employee Stock Option Plan were granted at an exercise price of.
- Cumulative Preferred and 100% of the fair market value at the'date of the Preference stock of =
grant, No additional options may be granted. The
' ' subsidsaries suhice: '
Mandatory Redemption. exercise prices of option shares purchased during -
the three years ended December 31,1989 ranged
.$i,do Edison fr m'$14,09 to $18.25 per share. Shares and price ,
,. Preferred: ranges of outstanding options held by employees
, - $25 par $2.81. . , . . . . o . - - 2,000 were as followsf
- Reilrements 1978 Key Employee Cleveland Electric stock Option Plan
- Preicrred: -
3989 3988 1987 '
' $ f 7.35 series C . . , . . . . . 10) (10) (10) Options Outstanding M8.00 series E . . ... .. ' ((3) (3): (3) at December 31:
75.00 series r. . . . . . . u . . (1) (14)'
i (17) shares o , . . . , . . ..o .. 215.187 . 314,693 ' 392.935 '
.' 80.00 series G . . . . . . . . o , (2) (5) (H) Option Prices . ... ... $14.09 to 4 $14.09 to $14.09 to /
14 5.00 series 11; . . . . . . . . (4)- (4) (4) 820.73 820.73 $20.73 .
s ' 145.00 series 1. . . .. ... - (4) -(4) (4)
.113.50 series J . , . . . . . . . , ~ -(29)
(c) Equity Distribution Restrictions.'
Preference;
- 77.50 $eries 1 .n........ (6) (7). (9)
- At ' December 31,1989[ consolidated retained
~_
. Toledo Edison earnings were comprised almost entirely of the
- Preferred;
$ 100 par s 1 LOO . . . . . . . . . .
undistributed retained earnings of the Operating; (5) (5) (5) Companies; Substantially. all of their retained -
. 9.3 7 5 . . . . . . . (17) (17); (17) earnings were available' for the declaration of.
' 13.25. . . . . . .... (121) dividends on their respective preferred and common -
14 s C.,l -
0 - shares. All of their common shares are held by -
125 par ? 3.75.... .... . - - (1,200) Centerior Energy. .
i o . 3.72
~
- O,400) . A loan or advance by an Operating Company to -
- Net Change . . ... . . (s2) -- (69) . (1.317) any of.its nonutility affiliates requires PUCO ;
authorization unless the loan or advance is made in M : Cumulative Preferred Stock of connection with transactions in the ordinary course subsidiaries Not subject to of the companies' 'publlC utilities business :
Mandatory Redemption: operations in Wh'Ch one company acts on behalf of-sales: .
another.
- 4~ ~ Cleveland Electric YeNrNied seriesm..P... - -- -
1 (d) Cumulative Preferred and Preference:
Retirements i Stock Toledo Edison =
PI'"'d' Amounts to be paid for preferred stock which must '
$ 25 par $4 28. .~ . e.. . . -- -
-(800) be redeemed during the next five years are 3.47 m .o.o ,
0.200) -
$ 10,000,000 in 1990, $30,000,000 in 1991, Net Change . . .
$20,000,000 in 1992 and $45,000,000 in both 1993 7 .. ...o -
O.200)- (799) and 1994.
+
29
, w , ,,
i The annual mandatory redemption provisions are - (c) Long-Term D;bt and Othtr Borrowing-as follows: Arrangsm:nts ReN'ttIr"Dns Long term debt, less current maturities, for the share 3 Begin. Pnce Operating Companies was as follows:
To Be nmg Per Actual Redeemed - in sha!c or Average U"C##h O I' Year Matung Intercsr Rate m p Cleveland Electric Preferred: Ghousands of dollars)
$ 7.35 series C , . .. . 10.000 1984 8 100 I trst mortgage bonds:
88 00 senes t . .. 3lo00 1981 1,000 1990 ... .. . . .. 7.125% $ -
$ 60.000 1985 1.000 1991 . .. .. .. 8.375 35,000 35,000 75.00 series l' . . .. 2.384*
80 00 series G . . . . 800* 1984 1,000 1991 . .. .. ... 14.00 - 25,000 145,00 series II . . . .. 1,782 1985 1,000 1991 .... ... .. 15.00 70,000 70,000 1,969 1986 1,000 1991 ..... . . .... 13.75 4.334 4,334 145 00 series 1. ... ...
113:50 series K . , 10.000 1991 1,000 1992 . .. ... 15.25 20,000 20.000 Adjustable series M .
100,000 1991 100 1992 . ..,. . .. 10.58 40,000 -
150,000 1993 100 1992 . . .. .... 13.75 4,334 4,334 9125 series N .
1993 .. . . . 3 30,000 30,000 Toledo Edison R55 50,000 50,000 1993 .... ... .,
Preferred 4.334 4.334 5,000 1979 100 1993 . 13.75
$ 100 par $ 11.00. . ..
25,000 100 1994 ,,.. .. . . . 4.375 25.000 9.375 . .. . . 16.650 19H5 4,334 4.334 400,000 25 1994 .. ... , , 13.75 25 par 2.81 . . 1993 11.25 37,300 1994 . ...... -
- Represents remaining shares to be redeemed at holders' 1995 1999 ... . . 9.90 274,270 274.270 op*m. 2000 2004 ... ... 9 24 155,473 155,473 2005 2009 ... . 8.84 307,724 307,724 The annualized cumulative preferred dividend .
465,450 590,450 2010 2014 . 9.66 ret 1utrement as of December 31, 1989 is 2015-2019 . . . ,, 9.41 669,065 669,065
$64,000,000. 2020 2023 ... . 7.96 415,900 332,100 The preferred dividend rates on Cleveland Electric's Series L and M and Toledo Edison's Series Term bank loans due A and B fluctuate based on prevailing interest rates, 1991 1993 .... 9.11 130,000 143,300 with the dividend rates for these issues averaging Notes due 1991 1999 10.16 474,215 354,006 8.4%, 7.75%, 9.06% and 9.91%, respectively, in Debentures due 1997 11.25 125,000 125,000 1989. The dividend rate on Cleveland Electric's Pollution contml Remarketed Series P averaged 9.23% in 1989 notes due 1991 2015 9.75 221,250 222,680 Under its articles of incorporation, Toledo other - net . . . ,, - 7,973 7.710 Edison cannot issue preferred stock unless certain Total 1.ong-Term earnings coverage requirements are met, based on Debt . . . . . . . . , $3.533.656 $3,551,614 earnings for the I? months ended December 31, 1989, Toledo Edison could not issue additional Long term debt matures,during t' e next five years preferred stock. A write.off by Toledo Edison of its as follows: $208,000,000 in 1990, ha4,000,000 in investment ir Ntry Unit 2 could adversely alTect its 1991, $215,000,000 in 1992, $200,000,000 in 1993 ability to issu dditional preferred stock in the and $58,000,000 in 1994.
future. See Note 3(c). The issuance of additional in 1989, Cleveland Electric issued $212,500,000 preferred stock in the future will depend on million aggregate principal amount of secured earn!ngs for any 12 consecutive months of the 15 medium. term notes with 1995,1996 and 1999 months preceding the date of issuance, the interest maturities and annual interest rates ranging from
. on all long. term debt outstanding and the 8.95% to 9.3%. The notes are secured by first dividends on all preferred stock issues outstanding. mortgage bonds. At December 31,1989, an There are no restrictions on Cleveland Electric's additional $37,500,000 of such notes remained ability to issue preferred or preference stock or unissued. An additional $300,000,000 of secured Toledo Edison's ability to issue preference stock, medium. term notes have been registered with the with respect to dividend and liquidation rights. SEC and are available for issue in 1990, each company's preferred stock is prior to its The mortgages of Cleveland Electric and Toledo preference stock and common stock, and each Edison constitute direct first liens on substantia ly company's preference stock is prior to its common all property owned and franchises held by them, stock. Excluded from the liens, among other things, are cash, securities, accounts receivable, fuel, supplies and, in the case of Toledo Edison, automotive equipment.
Additional first mortgage bonds may be istued by Cleveland Elemric under its mortgage on the basis of bondahle pioperty additions, cash or substitution for refundable first mortgage bonds. The issuance of additional first mortgage bonds by Cleveland ;
Electric on the basis of property additions is liinited 30 1
en y
y 7 ll p<
h Lt[two provisions of its mortgage. One" elates to the ~ Centerior Energy rod the Operating Companics will
[ amount of bondablL property available and the continue to meet the capitalization covenants in the
'1C lother to earnings coverage of interest on the bonds. event of a write off of the Operating Companies' ,
l Under the more restrictive of there provisions investments in Perry Unit 2, barring unforeseen
, . '(currently,y the.. amount of bon ('able property circumstances. See Note 3(c).
W available), Cleveland Electric wvuld have been
. permitted to issue approximately $273,000,000 of (ii) Short4erm Borrowing Arrangements '
b(? nenrefunding bonds based upon property additions our bank credit arrangements at December 31,1989 ;
at December 31,1989, after giving effect to the were as follows:
- l $300,000,P00 of first mortgage bonds issued in cleveland Toledo service i
l connection with the secured medium term notes UccMc F.dison . Company Total
' discussed in this . Note and the January 1990 Ohousands of dollars) ,
Liedemption of $60,000,000 principal amount of First Bank unes of
' Mortgage Bonds 7,125% Series due 1990. Cleveland mdL m2.ooo mm stooo m3m
- Elcctric also would have been permitted to issue There were no borrowings under these bank
. approximately $252,000,000 of refunding bond 3 credit arrangements at December 31,1989.An
. based upon retired honos at Decemler 31,1989. If additional $5,000,000 line of credit is available to s Perry Unit 2 had been canceled and written off as of the Service Company under a $30,000,000 Cleveland h December 31,1989, Cleveland Electric would Electric line of credit, if unused by Cleveland
< have been permitted to issue only $252,00( M0 of Electric. The $30,000,M0 line of credit is included
< . refunding bonds at December 31,19894 in the Cleveland Electric total, The issuance of additional first mortgage bonds Short-term borrowing capacity authorized by the
, by Toledo Edison also is limited by provisions in its PUCO is $300,000,000 for Cleveland Electric and ;
mortgage similar to those in Cleveland Electric's $150,000,000 for Toledo Edison. The Operating mortgage. Under the incre restrictive of these companies have been authorized by the PUCO to Lprovisions (currently, the earnings coverage test), borrow from each other on a short term basis.
.. Toledo Edison would have been permitted to issue Most borrowing arrangements under the approximately $158,000,000 of nonrefunding Operating Companies'short term bank lines of bonds bascd upon propery additions at December credit require a fee ranging from 0.25% to 0.375%
31,1989. Toledo. Edison also would have been per year to be paid on any unused portion of the
- permitted to issue appmximately $86,000,000 of lines of credit. For those banks without fee -
, : refunding bonds based upon retired bonds at requitements, the average daily cash balance in the >
December 31, 1989, if Perry Unit 2 had been bank accounts satisfied informal ~ compensating
' canceled and written off as of December 31,1989, balance arrangements.
- the amount of nonrefunding and refunding bonds At December 31,1989, the Operating Companies
- which could have been issued by Toledo Edison had no commercial paper outstanding. If wuWd not have changed. commercial paper were outstanding, it would be Certain unsecured loan agreements of Toledo backed by at least an equal amount of unused bank Edison contain covenants limiting to 65% of total lines of credit.
capitalization (as defined) the total of its short term The fee for the Service Company's line of credit idebt in excess of $150,000,000 and funded debte is 0.375s
- limiting secured financing other than through first No formal short term borrowing arrangements d mortgage bonds and certain other transactions and were established for Centerint Encrgy in 1989 or requinng Toledo Edison to maintain earnings (as 1988.
defined).of at least l'.5 times interest on its first mortgage bonds, The earnings coverage ratio applies n 1344,500,000 of unsecured loans and was 2.8 at (12) Change in Accounting for UnblNd December 31,1989c Revenues An agreement relating to a letter of credit issued in January 1988, we adopted a change in accounting' in connection with the sale and leaseback of Beaver fv revenues in order to record unbilled revenues as
- Valley Unit 2 (as amended in 1989) contains disassed in the : Summary of Significant '
'several financial covenants affecting Centerior
^
Accos nting Policies.
' Energy and the Operating Companies. Among these The acioption of this accounting method
- are cce.yrage covenants which require Centerior increaseu 1988 net income and earnings per share, i!nergy and Cleveland Electric to maintain earnings. before the cumulative effect on periods prior to to interest expense ratios above specific levels. This January 1,1988, by $3,581,000 (net of $1,845,000 of
. agreement also contains certain capitalization income taxes) and ' $.03, respectively. The
' covenants which require the Operating Companies cumulative effect of the change on the periods prior >
to maintain common stock equity above specific to January 1,1988 was $28,153,000 (net of
- levels and require Centerior Energy to maintain the $18,729,000 ofincome taxes), or $.20 per share, and m ~ nitio of common stock equity to total capitalization has been inchided ir.1988 net income. -
and the ratio of total equity to total capitaliz? tion if this change in accounting method were
- aboveV
- ific percentages. Cemerior Energy and applied retroactively,1987 pro forma net income the: Operating Companies are in compliance with and earnings per common share would have
- these ,covedant provisions. Also, we believe de. reased by $781900 and $.01, respectively.
+ ,
31
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3,=
, , (13) Quart;?:y Results of Operations (Unoudited)-
The following is a tabulation of the unaudited quarterly results of operations for the two years ended December 31,
~
l 1989 Qgriers Ended March 51. June 30. sept. 30. Dec.51, (thounds of doHars, .except per share amounts) w ; 1989; Operating Reventies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5555,230 $577,303 $637,619 $ 532,284
- Operati ng i ncome . . . . . . . . . . . . . . . . . . . . . . . . ........ $ 12,968 $129,708 $152,796 8 36,459 Ne t i n com e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , . $ 67,690 $ 77,807 $108,857 8' 12,5'42 o Average Common Shares (thousands) . . . . . . . . . . . . . . . . . -140,829 140,752 140.391 139,990 Earnings Per Common Share . . . . . . . . . . . . . . . . . . . . . . . . . $ .48 $ .55 8 .7 8 . $ .09 .
i Dividends Paid Per Common Share . . . . . . .., , . . . . . . . . . $ A0 $ A0 $ A0 $ A0
-1988 Operating Revenues .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $506,579 $483,186 8586,510 $ 461,285
- Operating i ncome . . . . . . . . . . . . . . .. . . . . . , =. . . . ........ $ 69,300 $ 75,411 S118,838 $; 48,116 Cumulative Effect of an Accounting Change (Note 32) . $ 28,153 $- $ - $-
N e t i n co m e ( 1.oss ) . . . . . -, . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 85,188 5 57,565 f 110.911 $(327,624) ,
Average Common Shares (thousands) . . . . . . . , , . . . . . . . 140,740 140.776. 140,787 140,320 s Earnings (Loss) Per Common Shne -
Before cumulative effect of an accounting change. . . $ .41 $ Al $ .79 8' (2.33)
Cumulative effect of an accounting ch-mge .
( Not e 12 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 - - -
Tot a l . . . . . . . . . . . . . . . . . . . . . . , .. ...... $ .61 f Al $ .79 .$ (2.33) q
' Dividends Paid Per Common Share . . . . . . . . . . . . . . . . , ' $ .64 e AO $ A0 $ .A0 }
d I
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32
C EXE'CUTIVESOFTHE ECOMPANY AND SUBSIDIARIES r
. CENTERIOR ENERGYCORPORATION CENTERIOR SERVICE COMPANY Chairman and _ ,
Chairman and
. ; Chief Executhe Officer, . . Richard A. Miller Chief Executive Officer. . . Richard A. Miller l
, President and ' President and Chief Operating Officer . . Robert J. Forling Chief Operating Officer . . Robert J. Forling l Vice Chairman' . . ..... Paul M. Smart Senior Vice President- ;
. Executive Vice President . Murray R. Edelman Finance and Executive Vice President . . Lyman C. Phillips Chief Financial Offices . . . Edgar H. Mougans - 1 Senior Vlec President . Vice President-Finance and Fossil Engineering
- Chief Financial Officer . . . Edgar H. Mougcns & Operations . . ... . . Richard P. Crouse Vice President-Legal & - Vice President-Legal &
~ Governmental Affairs . . . Victor F. Greenslade Governmental Affairs . . Victor F. Greenslade Controller . . ... . . . . FoulG. Busby Vice President-
- Treasurer . . , . . . Gary M. Hawkinson Public Affairs & Rates . . . . John S. Levicki Secretary . .... .... . E, Lyle Pepin Vice President-System Engineering
& Operations .. .. . . William D. Masters Vice President-Administration . .. . . Stanley E. Wertheim Controller . . . , ibul G. Busby Treasurer .... ... . Gary M. Hawkinson.
Secretary . .. . . . E. Lyle Pepin Operating Companies THE CLEVELAND ELECTRIC ILUJMINATING COMPANY THE TOLEDO EDISON COMPANY ;
, Chairman and Chief Chairmm and Chief Executive Officer . . . . RobertJ.Fortir30 Executive Officer .. . . . Robert J. Forling -
President ...< .,. . Lyman C Phillips Vice Chairman . . . .. . Paul M. Smart Vice President-Marketin'g. GaryJ.Greben President .. .. . . . , Murray R. Edelman Vice President . . . Victor F. Greenslade Senior Vice President . . . Richard P. Croase Vice President- . Vice President-Administration .. . . . . . . Jacquita K Houserman Customer Operations . . . David L Monteau Vice President-Nuclear . . Alvin Kopion Vice President-Marketing . Thomas M. Quinn Vice President- Vice Pmsident- !
t Distribution & Administration &
Services . . .,, . William K. McClung Governmental Affairs . Donald H. Sounders !
'.Vice President- Vice President-Nuclear . . Donald C Phelton 2 Power Supply . . . . Pichard A. FWerto Contioller and Treasurer . . . James P. Mortin Controller . . .. . John M. Borthwicu Secretary . . .. . E. Lyle Pepin Treasurer . . . Terrence R. Moran Secretary . . E. Lyle Noin 33
p2 U
H
. FINANCIAL AND STATISTICAL REV!EW Operating Revenues (thousands Cf dollirs) ,
steam Total Total Total Heatg Operating Residentof Comrnercial industrial Other Retou Whotosole Electnc & Gos Devenues-
- Year
. $685 735 $616 902 $746 534 $204 760 $2 253 940 $ 48 496 $2 302 436 $. - $2 302 436
' 1989'. . .
..3 675 584 84 524 1 935 298 102 262 2 037 560 - 2 037 560 1 1988..... ... 637 329 537 861 531 682 689 959 36 272 1 887 576 24 409 i 911 985 13 371 1 925 356 1987. . . .. 629 663 516 614 675 682 79 716 1 871 457 11 381 1 882 838 12 953 1 895 791 1986.... .,, 599 445 566 6661 485 269 667 450 73 221 1 792 606 46 036 i 808 642 18 866 i 827 508 198 5 . . . . .
-1979. .. . . 351 076 267 253 451840 47 318 1 117 487 52 173 i 169 660 19 462 i 189 422 Operating Expenses (thousands of dollars)
Other Phasee & l operation Deprecotion Taxes. Pre-phose-in Federal Total Fuel & Operating, Purchosed & & Other Thon Deferred. income ,
Amorttrohon Net Tones Expenses Year Power Morntenance FIT 1989. $413 816 $660138 $280 918 $259 871 $ (66 623) $122 385 $1870 505 394 401 865 632 264 824 268 550 (188 209) 123 697 1 725 895 1988. 4 470 466 642 594 214 421 207 521 (87 623) 105 912 1 553 291 198 7 ~. . . ..
141 009 194 925 - 138 181. -1 547 270, .
1986. . ' 522 foi 550 874 i
510 844 450 376 141 333 181 (20 - 154 823 1 438 496 1985. .
229 157 - 88 560 109 215 - 63 366 985 235 1979.. . 494 937 Income (Loss) (thousands of dollars)
Federol income Other income income (Loss)
Income & fox- Before After
. Operating AFUDC- Deductions. Corrying Credit Interest Debt AFUDC- Interest Equity Net Cnorges (Expense) Charges intereit Debt Chorges Yeor income 1989. ., . $431931 $ 16 930 $ 14 212 $299159 $(73177) ' $689 055 $369 481 $ (12 929) $332 503 1988. .. . 311 665 13 504 (489 047)(a) 372 155 131 254 339 531 370 292 (6 437) (32 624) 1987. ,. . 372 065 290 308 (57 821) 39 599 121 122 774 273 435 042 (137 257) 476 488 1986. . . 348 521 308 405 (8 108) - 116 422 765 240 406 465 (118 145) 476 920 1985.. 389 012 268 001 5 825 -
86 775 749 613 367 315 (101 918) 484 216 13 440 10 317 284 288 137 883 (25 724) 172 129 1979.. .. 203 887 56 944 -
income (Loss) (thousands of dollars) Common Stock (dollars per share 8t %)
Income (Loss)
Before .
Retum on Preferred & Cumulative Curnulohve Average Average Preference Effect of on Effect of on Net Shores Common Accounti income Outstonding(c) Eomings 3tock Dividends Book Stock Accounting
' Year Divdends Change Change (ti, (Lost) (thousands) (Loss)(c) Equity Dectored(c) Volue(c)
$ 266 886 $- $266 886 140 468 $ 1.90 9.6% $1.60 $ 19.99 1989. $65 617 28 153 (73 960) 140 778 (0.53 j (2.5) 1.84 - 19.68 49'88. . . . 69 489 (102113) 86 135 390 353 390 353 138 395 2.82 12.8 2.56 22.40 1987. . . .
'391 893 391 893 128 927 3.04 13.7 2.49 22.13 1986. . . 85 027 -
401 387 121 898 3.29 15.7 2.20 21.50 1985. . . 82 829 401 387 -
1979. . 39 481 132 648 4 125 136 773 59 195 2.31 ii.7 1.87 19.56 isOTE; Data for years prior to 1986 are the result or comMning and restating Cleveland Electric and Toledo Edison data.
. (a) includes write off or nuclear costs in the amount of $534,355,000 in 1988.
(b) in 1988, the Operating Companies adopted a change in the method or accounting for unbilled revenues. In 1979, Cleveland Electric adopted a change in the method of depreciation for its nus. lear generating unit.
(c) Outstanding shares for the perkids prior to April 29,1986 reflect the Cleveland Electric 1.11 for one exchange ratto and the Toledo Edison one;for.one exchange ratio for Centerior Energy shares.
I34'
, CENTEROR ENERGY CORPORATION AND SUBSlDIARIES-Electric Sales (millions of KWH) Electric Customers (year end) Residentlol Usoge .
Averoge Averope Averoge Pnce Revenue
. . . Industre . KWH Per Per Per
- Year -- Residente Cornmerciot industrW Whottsole Ctner Totot Devdentd Commered & Other Total Customer KWH Customer
.. '1989... 6 806 6 830 12 $20 429 996 27 581 914 020 93 833 12 763 1 020 616 7 295 10.08C $737.58 g
t?88..., 6 920 6 577 12 793 863 946 28 099 909 182 92 132 12 305 1 013 619 7 462 - 9.21 690.06 1987. .. 6 659 6 350 ii 985 399 949 26 342 903 365 90 148 12 240 1 005 753 7 217 9.46 - 685.43 1986-. . '6 527 6 239 11 40? 242 909 25 326 098 583 87 947 12 012 998 542 7 108 9.18' 654 99 c1985..! 6 309 5 v52 ii 410 331 865 24 867 892 727 87 442 12 023 992 192 6900 8.98 622.08 1979. 6 287 .5 297 12 828 -1 527 800 26 739 880 209 82 326 ii 368 973 903 6 008 5.58 390.98 ~ i Lood (MW & %) Energy (milllons of KWH) Fuel
. Operable Lood Company Generated Pure sed f uel Cost BWoI at Peak. Copacity
. Year of Peck (d) tood Morgin Foc for Fossil Nuclear Total Power Total Per KWH KWH j 1989.,, 5 599 5389 3.8% 63.3% 20 174 12 122 32 296 (2 785) 29 511 1.47C 10 404 4988. . 5525 5 673. (2.7) 60.8 21 576 7 805 29 381 920 30 301 1.59 40 410 1987.. . D955 5173 13 1 63.6 20 894 6 907 27 801 601 28 402 1.53 10 466 1986. . 5 199 5 021 . 3.4 63.0 2. 739 24 2279 4 552 27 315 4.79 10 292 1965. 4 539 4 512 0.6 69.1 24 610 1964 23 t,. - 3 283 26 857 i.85 10 343 1979. . 6 385 4 506 20 4 70.4 21 038 3 153 24 191 4 326 28 517 1.46 10 528 Investment (thousands of dollars)
Constructon Work in Toto, .
. Utility Accumulated Progress Nuclear Promrt- Utility :
PWnt in Depreclotion 6L Net & Perry Fueland Plant orw Phant Totol F
, Year Service Amort 20 ton Plant Unit 2 Other foutpment Additions Assets 1989.., . $8 411116 $1831767 $6 579 349 $1157 273 $591692 $8 328 314 $ 259 634 - $11666 547 1988.. 814J 673 4 569 304 6 574 369 i 222 732 643 087 8 440 188 343 143 ii 573 098 1987... .. 8 388 914 1 324 446 7 063 668 1 007 707 656 350 8 727 725 947 924 ii 349 836 1984. .. 4 639 542 1 367 662 3 271 880 5 237 782 652 M4 9 162 226 1 133 748 10 011 932 1905. 4 481 451 1 264 931 3 216 520 4 291 094 564.. o 071 890 994 260 9 022 094 1979. . . 3 076 422 723 070 2 353 352 1 257 171- 44> 3 654 895 568 879 4 148 759 Capitalization (thousands of dollars & %)
Preferred Stock.
Preferred & Preference without Stock. with Mondotory Mondatory Yoor Common Stock Equity Redemption Provisons Redempton Provisions tong-Term Debt Total -
'1989. . $2 794 572 40% $281352 4% $427 334 4% $3 533 656 50 % $7 036 914 -
1988. .. 2 771 744 39 303 781 4 427 334 6 3 551 644 Si 7 054 473 -
w87 . . . 3 109 060 41 343 985 4 457 334 6 3 718 249 49 7 628 628
- '1986. .. 2 991 341 39 487 814 7 404 021 5 3 792 402 49 7 675 578
[1985. . 2 710 098 30 468 306 7 374 021 5 3 438 928 49 6 991 353 '
1979.. . 1 246 116- 37 266 000 8 245 071 7 1 585 128 48 3 342 315 -l
~
(d) Cagucity was reduced because of extended generating unit outages for renomtion and improvements in 1985 (1 A90 MW).1986 (H56 MW)
- and 1988 (H% MW).
- (e) Restated for effects of cupitalization of nuclear fuel lease and financing arrangements pursuant to statement of Financial Accounting Standards 71.
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$5
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r
}s : BOARD OF DIRECTORS Richard P Andorson, President and Chief F.xecutive Robert M. Ginn, Chairman Emeritus of the Officer of The Andersons Management Company and retired Chairman and Chief
. Corporation, a grain, farm supply and Executive Officer of the Company.
F retailing fit m' Roy H. Holdt, Retired Chairman of White Consolidated Albert C. Bersticker, President and Chief Operating Industries, Inc., a manufacturer of products -
Officer of Ferro Corporation, a producer of for the home, principally major appliances, specialty chemical materials for manufactured and machinery and equipment for industry.
Pf0d"CIS*' George H. Kaull, Chairman and Chief Executive Leigh Carter, President and Chief Operating Officer Officer of Premix, Inc., a developer, manu-of The liFGoodrich Company, a producer of facturer and fabricator of thermoset reinforced chemicals, plastics and aerospace products. composite materials.
Also Chairman of Tremco, incorporated, a Richard A. Miller. Chairman and Chief Executive manufacturer of specialty chemical products. Officer ofIhe Company and Centerior a wholly owned subsidiary of The g.vice Company, llFGoodrich Company.
Frank E. Mosier, Vice Chairman of BP America Inc.,
Thomas A. Commes. President and Chief Operating a producer and refiner of petroleum products.
Officer of The Sherwin-Williams Company, a manufacturer of paints and painting supplies. Sister Mary Marthe Reinhard, SND. Former President of Notre Dame College of Ohio, i
' Robert J. Farling, President and Chief Operating Officer of the Company and Centerior Paul M. Smart, Vice Chairman of the Company and Service Company and Chairman and Chief The Toledo Edison Company.
Executive Officer of The Cleveland Electric William J. Williams, Chairman and Chief Executive i illuminating Company and The 'Ibledo Officer of fluntington National llank.
Edison Company.
John R Will;omson. Chairman Emeritus COMMITTEES OF THE BOARD Capital ;
Audit Expenditures Compensation Executive Finance Nominating juclear j T. A. Commes. G.fl. Kaull, W.J. Williams. R. A. Miller. R. A. Miller, E E. Mosier, R.l! Anderson. ?
Chairman Chairman Ch tirman Chairman Chairman Chairman Chairman h L Carter A.C. Hersticker I.. Carter R.M. Ginn R.!! Anderson R.P Anderson R.J. Farling ]
Sr M.M. Reinhard RJ. Farling R.it. Iloidt R.fl Ifoldt T. A. Commes L Carter R.M. Ginn WJ. Williams R. A. Mille'r G.ll. Kaull W.J. Williams RJ. Farling T. A. Commes G.ll. Kaull l EE. Mosier E E. Mosier R.M. Ginn R.M. Ginn R. A. Miller j Sr. M.M. Reinhard R.il.Iloldt R.ll.Iloldt Sr. M.M. Reinhard l G.II. Kaull P.M. Smart l R. A. Miller !
Sr. M.M. Reinhard !
WJ. Williams i
1 j6-c
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( SHARE' OWNER INFORMATION z (Dividend Reinvestment and Stock Purchase Plan : CX+1RA Custodian and Individual Retirenh .it Account (IRA) All communications about an existing CX*1RA The Company has a Dividend Reinvestment should be directed to the Custodian at the and Stock Purchase P' , which provides address or telephone numbers listed below:
U share owners of m - 4
- ustomers of the Ameritrust Company National Association Company's subsic . , sonvenient means Corporate TYust Division of purchasing shares m company common ~ P.O. Ilox 6477 p stock by investing a pan or all of their quarterly Cleveland, Ohio 44101 dividends as well as making cash investments.
in addition, individuals may establish an In Cleveland area 737-5742 or 737-5744 Individual Retirement Account (IRA) which Elsewhere in Ohio invests in Company common stock through 1-800 362 0697, Extension 5742
. the Plan. Information and a prospectus relating Outside Ohio to the Plan and the IRA may be obtained 1-800 321-1355, Extension 5742 from Share owner Services at the Company. Independent Accountants Shore Owner Services Arthur Andersen & Co.
Communications regarding stock transfer 1717 East Ninth Street requirements, lost certificates, dividends and Cleveland, Ohio 44114
~changes of address siiould be directed to Common Siock
- Share Owner Services at the Company. 'Ib reach Share Owner Sen ices by phone, calh Listed on the New York, Midwest and Pacific
- Stock Exchanges. New Wrk Stock Exchange In Cleveland area 042-6900 or 447-2400 symbol-CX. Options are traded on The Outside Cleveland area 1-800 433-7794 Pacific Stock Exchange.
Please have your accouin number ready Annual Meeting when calling.
The annual meeting of the share owners of Transfer Agent the Company will be held April 24,1990.
- Centerior Energy Corporation Gwners of common stock as of February 28, Share Owner Services 1990, the record date for the meeting, will 110. Ilox 94661 be eligible to vote on matters brought up for -
- Cleveland, Ohio 44101-4661 share owners' consideration.
Stock transfers may he presented at Form iC-K PNC Trust Company of New York The Company will furnish to share owners, 4013 road Street, Fifth Floor without charge, a copy ofits most recent New York, N.Y.10004 annual report to the Securities and Exchange Executive Offices Commission (Form 10-K)and, upon payment of a reasonable fee, a copy of each exhibit to Centerior Energy Corporation Form 10-K. Requests should be directed to 6200 Oak Tree 11oulevard the Secretary of the Company.
independence, Ohio ,
1 (216)447 3100 Audio Cassettes Avollable .j
- Mall Address share owners with impaired vision may obtain audio cassettes of the Company's Quarterly Centerior Energy Corporation Reports and Annual Report. To obtain a
- P.O. Ilox 94661 Cleveland, Ohio 41101-4661 cassette, simply write or call Share Owner Registrar Services. There is no charge for this service. j
- Anieritrust Compa..y Nat'ona! ,' '
Notice: The annual report and the finacial state- l ments herein are for the generalinformation of :
Corporate Trun Divt 'n the share owners of the Company and are not
!!O. Ilox 6477 l intended to be used in connection with any sale Cleveland, Ohio 441d or purchase of securities. '
The Company is an equal opportunity employer, i,
/3 ;
6; . , . -
Centerior Energp Corporatiori sutunATE.
P.O. Box 94661:s - U $. POSTAGE .-
. Cicycland, OH 441014661 - AIDOHlO etgy(tggg
~ PERMIT NO.409 ;-
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