ML20073D775

Centerior Energy Annual Rept 1990

ML20073D775
Person / Time
Site:	Perry
Issue date:	12/31/1990
From:	Farling R, Miller R CENTERIOR ENERGY
To:
Shared Package
ML20073D774	List: ML20073D775 ML20073D778 ML20073D783 PY-CEI-NRR-1347, Forwards Sec Form 10-K, Centerior Energy Annual Rept 1990, Cleveland Electric Illuminating Co 1990 Annual Rept & Toledo Edison Co 1990 Annual Rept
References
NUDOCS 9104290219
Download: ML20073D775 (40)

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SERVICE 1990 AREAS HIGilLIGilTS

• A comprehensive management audit completed in

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April identified the potential fm nearly $100 million in

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• A corporate. wide restructuring and dow nsizing resulted "IMA! hw=

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in a 9% reduction in employees through early retire-

{yy gynw ment and voluntary severance and a 27% reduction in cos m n 1 n=]j top management.

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• The second of three scheduled rate increases under

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a January 19f9 rate, agreement w ent into effect on

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a Februcry 1,1990M he third rate increase became effective on l'ebruary 1,1991.

Centerior Energy Corporation was formedin April

• Perry Unit I set a reecrd for nuclest reactors ofits type 1986 upon the affiliation of The Cleveland Electric during a second fuel cycle w hen it reached 232 days of Illuminating Company and The 'Ibledo Edison continuous generation prior to starting a refueling and Company. With assets of nearly $12 billion, maintenance outage on September 7. The unit returned Centerior Energy is one of the largest electric utility to service on lanuary 4,1991.

systems in the nation.'he Centerior operating

• Ileaver Valley Unit 2 completed 354 days of consecutive companics serve 2.0 million people in a combined operation in July. The unit started a refueling and semce area of l,200 square rnsles m Northern maintenance outage on September 4 and was back in Ohio. Centerior Energy is on equal opportunity senice on November 22.

employer.

• Except for a two day interruption, through mid.

February 1991 the Davis.llesse Nuclear Power Station has run continuously since retuming to service on July 5 from a refueling and mnintenance outage, CONTENTS [w. W Letter to Share Owners. 2 ir As this Annual Report was in Finance & Administration: p . puparadon, the Unualmata and in alhes were at war u tth Iraq. Rebuilding Our Strength.. 4 This conflict ' $'$#]#;d . Power Generation: Our Power llase...... 6 f, Customer Operations: The Competitive Edge. S eralemployees of w- ~ hlanagement's Statement of %!A'[",'[L Responsibility for Financial Statements. .12 . ofinany ofour share 4 Report ofIndependent Public Accountants .12 ))'g'y',,}[," "\\\\ Summary of Significant Accounting Iblicies .13 Those mvinen this war hlanagement's Financial Analysis, hd ""' 'hd"b l ' 8 h'i' priceless contribution and . Financial Statements and Notes .15 our pra>crs for a safe return. Executives of Centerior Energy Corporation and Centerior Service Company. .33 Financial and Statistical Review.. . 34 lloard of Directors. .36 - Share Owner Information .37 Pnnted on kended Paper _ _ _ _ - _ _ - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _ _ _ _ _ _ - _ _ _ _ _ _ = _ _ - - _ _ _ _ _ _. _ _ - _ _ _ - _ _ _ _ _ _ _ _ - _ _ _ - _ _ -

FINANCIAL

SUMMARY

I l 1990 1989 Change Earnings Per Share of Common Stock...., 1.90 1.90 Dividends Declared Per Share of Common Stock 1.60 1.60 Book Wlue Per Share of Common Stock at Year End 20.30 19.99 1.6 Closing Ccmmon Stock Price at Year End 18 20% (12.7) Common Stock Share Owners at Year End 183,723 194,016 (5.3) Common Stock Shares Outstanding at Year End(000) 138,401 139,792 (1.0) Operating Reve lues (000)...... $2,367,675 $2,302,436 2.8 Operating Expenses (000)..... $1,863,099 $1,870,505 (0.4) Net income (000). $ 264,459 $ 266,886 (0.9) Return on Average Common Stock Equity.. 9A% 9.6% (2.1) Kilowatt hour Sales (Millions of Kilowatt hours) 6,666 6,8% (2.1) P.esidential..... Commercial. 6,848 6,830 0.3 Industrial., 12,168 12,520 (2.8) Other.. 1,107 1,M (22.3) Total. 26,789 27,581 (2.9) Employees at Year End.,. 8,517 9,062 (6.0) QUARTERIX RANGE OF COMMON STOCK PRICES $ 1%r Share 25,00 - 20 % 21 % 20.00 - 19 % ]O 19 % 19 % g 3 i

M H

16 % M-17 h 18 L d: 7 h, h i 17 %. 17 h 15.00 - [1; 15 % 16 % 16 % JO 13h 10.00 - 5.00 - 0 ht 2nd 3rd 4th ht 2nd 3rd 4th '89 '90 i 1

DEAR ] ,,Y,. w 0 SilARE i g_ a Me a j OWNER: , y.. --p ' 3 p 7. b 1 ~ u--. .a Robert 1. Farling Richard A. Aliller 2

Nineteen ninety was a year of exceptional change rates more competitive in the lbledo Edison area, for us as u e worked to place the Company in a stronger thus mitigating local interest in municipalization of position to achieve long term enhancement of electric service, We are developing demand side your investment, management programs to help customers of Cleve. A management audit completed in 1990 helped land Electric and Toledo Edison attain greater us achieve a major restructuring and downsizing of control over energy usage and costs and,in turn, our organization and a system wide consolidation afford us better use of existing facilities, of our operations. We took a long, hard look at The current recession has had some impact on ourselves through this audit, with the goal of the Northern Ohio economy which limits our becoming a more cost effective organization, expectations for sales and revenue gains in the better attuned to compete successfully in the short term. Ilowever, this recession bears little evolving energy market. resemblance to the far more severe recession of the Improvement of our financial position irmains the eady 1980s which caused many factory closings, primary focus of our energies. We still are recovering, severe unemployment and otber economic hardships as are many utilities, from a demanding nuclear throughout the nation's industrial heartland. That construction program carried out during years of recession prompted many localindustries to s' ream-soaring inflation in the latter part of the 1970s and line operations and become more efficient. 7 he much of the 1980s.We made progress toward end result is a much stronger industrial base w financial improvement in 1990 and the dividend Northern Ohio today. Large capital investments remained secure. In 1990, as in 1989, the quality of by our business and industrial customers demonstrate earnings remained well above that of several prior their continuing confidence in the region we ocu years when noncash accounting credits were higher. The text of this Report parallels the three sectors We are dedicated to improving the value of of our restructured corporate organization--Finance your investment. We expect inflation to put upward & Administration,Ibwer Generation and Customer pressures on operating expenses during the next Operations. All three sectors are firmly committed to several years, llowever, we must keep our electricity on;;oing cost control, quality service to customers prices reasonable in today's increasingly competitive and improved retum for investors, energy market. 'Ib achieve satisfactory earnings per share under these conditions, we have made cost Sincerely, control our top priority. The management audit helped us identify the potential for nearly $100 million in annual savings / in expenses. We already have implemented many of the recommendations and expect to have most of the rest in place this year. We are firmly committed Richard A. Miller, Chairman to realizing-and ultimately exceeding-the full savings goal. Our nuclear and coal fired units performed wellin 1990. About 44% of our generation in 1991 3 is expected to come from nuclear energy, which has a lower fuel cost than co d fired generation. The Clean Air Act of 1990 contains much of the flexi-Robert J. Farling. bility we long had urged, thus permitting us to meet P knt the new emission standards prescribed for coal fired units with minimal impact on electric rates. We are determined to meet changing customer needs and to maintain high quality service-and to do so at lower cost. We are working to make our February 18,1991 3

g pv ; wegyp yry p k y ~ FINANCE q ,W ,.y ADMINISTRATION: REBUILDING f T OUR MG .ts=== STRENGTil A' >. w. -hQ Edgar Il. Maugans, Ehecutive Vice Presidmt RATEINCREASE EFFECT1vE As discussed later in this Report, we did not apply On February 1,1991, we implemented the last of the 2.74% rate increase to many residential and three annual rate increases authori7ed in the rate small commercial customers in the 'Ibledo Edison agreement negotiated with customer representatives service area. Additionally, these same residential customers will have their rates reduced 4% by year and approved by The Public Utilities Commission of Ohio (PUCO)in January 1989. The rate increases end. 'Ibledo Edison's rates generally are higher than those of Cleveland Electric and those available were part of a 10 year phase.in plan designed to provide us the opportunity to earn a fair retum on from the competition. We concluded that a rate our allowable investment in two nuclear units, Unit I reduction was appropnate to levelize rates through. of our Perry Nuclear Power Plant and Unit 2 of the out the Centerior Energy system, consistent with Beaver Valley Power Station. our efforts to operate increasingly as one company, and to retain and increase our sales and load. As a result of the agreement, Cleveland Electric and Toledo Edison had general rate increases of 9% TIIE FINANCIAL CllALLENGE ' effective February 1,1989 and 7% effective February 1,1990. The 1991 increase was nominally The 1989 rate agieement and the resulting rate set at 6%, subject to adjustment based on the increases helped improve our cash flow and the outcome of a comprehensive management audit quality of earnings. As a consequence, the agreement completed in 1990. put us on more solid footing with the investment We agreed to share equally with customers and communitv. share owners the savings expected to result from The agreement includes a complex set of pro. the audit. Consequently, the rate increase effective visions regarding recovery of deferrals and carrying February 1,1991 was reduced to 435% for Cleveland charges that will tend to constrain our reported Electric customers and 2.74% for'lbledo Edison earnings through much of this decade. Competitive customers. This reduction from the nominal 6% pressures limiting rate increases and inflationary amount reflects half of the projected audit.related pressures on costs make it all the more challenging savings, nearly $50 million. The rate impact is dif. to achieve satisfactory earnings. ferent for customers of our two operating companies We intend to meet that challenge. Aiding our because much of the savings will be achieved in areas efforts are about 5100 million in cost savings expected such as nuclear operations in which 'Ioledo Edison to be realized from the management audit. Customers stands to achieve greater savint;s relatise to its size. already have been guaranteed their half of the sav-4

ings through the reduction in the 1991 rate increase. whic h we are currently using has penalized us by Share owners will benefit as the remaining savings requiring a greater depreciation charge than we are help to offset increases in costs and rate reductions allowed to collect from customers. Straight.line in the Tbledo Edison service area. We are committed depreciation for nuclear units is more traditionalin to achieving the full cost reduction and to realizing the utility industry, and we believe it is now additional savings through ongoing cost control. ' appropriate for us. If we are not allowed to use the accounting treatment sought in this request,1991 AUDIT IMPLEMEN'lXMON PROGRESSING earnings would be reduced by as much as $55 The management audit resulted in some 325 separate million, or 42 cents per share, depending on the recommendations, many of w hich alreadv are in performance of the units. effect. Mest of the remaining reconunen' ations Approval of the other request would allow us to d are to be implemented in 1991, defer depreciation on new facilities in service but The audit called for reducing our number of not yet in rate base and to record carrying charges employee positions by nearly 800 from the early on this investment. Assets placed in service after 19S9 b'ase of about 9,200. Most of this reductio'n February 1985 currently earn no return and will not until the PUCO allows them in rate base. This was accomplished through attrition and through early retirement and voluntary sevenmee programs request,if granted, would give us an " LOU" for completed in 1990. Additionally, we are eliminating future cash recosery in exchange for our delaying about 1,200, or 80% of our contractor positions. rate increase requests. If we are not allowed to use We have consolidated our operatine units, Cleveland this proposed accounting treat ment, earnin gs would Electric and Tbledo Edison, and Centerior Service be reduced by up to $36 million.or 26 cents a share, Company into a single, tightly knit organization. in 1991, and even more in subsequent years. This allowed us to reduce the number of top Refinancing activities also are contributing to management positions from 85 to 62. cost reductions and earnings. In 1990, we We closed four service centers after determining refinanced $167 million of high. cost debt and this would not negatively impact customer service. preferred stock for a net annual savings of more We centralized our materials management system than $3.6 million in interest costs and preferred for greater cost control. We are working to simplify dividends. Additionally, under a forward refunding operating procedures and centralize responsibilities agreement, we wdl reduce reported interest in every area of the Company. expense some $3 million a year in 1991 and 1992. Corporate management audits and restructurings Potential refinancings in 1991 through mandatory are not unusualin today's demanding business and optional redemption provisions represent climate. But ours was exceptionally comprehensive, about $5 million in savings a year. Our audit included participation from customer representatives and other intenening parties rather than remaining completely under management control, as is customary for corporate audits. Integral to the audit process was our insistence that audit recommendations do nothing to lessen EMimoDED Cosn of LONGTERM DEsr the reliability of our service or compromise the safety AND PREl'ERIED S' LOCK of our employees or the public. These conditions are being met. Our employees continue their tradi. r, tionally solid job performance and dedication to nn customer service despite tight cost controls and a reduced workforce. They are making the audit implementation work. STEMMING EARNINGS EROSION Earnings are being eroded by two factors, one of m which relates to depreciation of nuclear plant and the other to accounting for facilities placed in service since February 1955. 'Ib stem this erosion, we are requesting two accounting orders from the PUCO. 3 = R rm v_ Approvalof the first request would enable us to accrue depreciation on a straight-line basis and in an amount which more closely aligns with the e~ amount recosered in i;tes. Because of the good M r performance of our nuclear units oser the last several years, the units of-production method 5

L POWER '\\\\ 6l GENERNMON: f e OUR POWER BASE 1 b Murray R. Edeltnan, Executive Vice President PLANT PERFORM ANCE OUTSTANDING All three nuclear units received favorable reports Our nuclear capabilities, combined with our fossil in the rigorous Systematic Assessment of Licensee strength, give us adequate generating capacity to Perfonnance evaluations carried out by the Nuclear meet current demand and expected modest kiad Regulatory Commission. We are pleased with the growth through most of this decade. performance of our units in 1990, but we are not Perry Unit 1,in which we have a 51% ownership, satisfied. We continue making every effort to ensure achieved a 97% availability rating over the 13-month the best operating practices and highest achievable period preceding a refueling and maintenance degree of safety. outage which started September 7,1990. Perry The performance of our coal units in 1990 also was resumed operations on January 4,1991 and has run impressive. They achieved a combined availability well since. rating above 80% Unit 9 at the Avon Lake Plant, a The Davis Besse Nuclear Power Station, owned 5SO,000-kilowatt unit, achieved a 170-day continuous 100% by us, underwent a refueling and maintenance run, the longest in its 20 year history. The Bay Shore outage starting January 29,1990. During this Station continued its traditionally strong perfonnance, outage, we completed thelast of the series of exten. The 215,000. kilowatt Unit 4 topped its 1989 sive upgrades started in 1955. The plant returned efficiency performance which had ranked it among to service on July 5,1990 and has since generated the top 20 coal fired units in the nation. electricity continuously,except for a two day inter. In 1990, control of all generating units operated ruption, for a 9S.7% availability record, by Cleveland Electric and Toledo Edison was con-Beaver Valley Unit 2,in which we have a 44% solidated in a single facility, the Centerior System interest, achieved a 93% availability rating during Operations Center. This censolidation translates the 13 month period preceding a refueling and into optimum efficiencies and cost savings in the maintenance outage which started September 4, economic dispatch of electric power. The consoli-1990. During that period, the unit completed a dation also facilitates power transactions with other record breaking 354 day continuous run. Beaver utilities. In 1990, such transactions added about %lley 2 was back in service on November 22,1990 $25 million in excess revenues over costs. We are and has continued its good performance, working to do as well, or better, in 1991. 6

CIwrEIUOR L We endcawr to use nature's reswrces cffi-ENvInoNh1 ENTAL POI. Icv 'i'"tlY "i' *"k ""Y" '" '"Kl c'lectn!"i"l' ""d l '"" reduce waste. By products o c energy

1. Allforms ofenergy comersion and utili:a-N'*I"'00"""0."0Ii*"h n are handled safely tion, including the generation, transmission

""0 0550*'0 "l '"A""*'bIY' and use of electncity, have some impact on 6, nimerk cooperatively with customers, with the environment. Centerior Energy wiks to community groups and with local, state and balance its stewardship of natural resources fi'deral authorities to analyze emironmental with society's need for a reliable supply of needs on a scientific basis and to develop bal-electric power at reasonable cost to maintain anced responses. Mi communicate clearly and health, safety anda desirable standard ofliving. promptly on environmentalissues ofwncem.

2. Among our prime corporate objectives is

7. We employ integrated resource planning conformance with alllaws and regulations and demand side management to improve the relating to our irnpact on the air, the water, efficiency with which we jmxluce electric the land and their inhabitants.

power and with which our customers use it in

3. We inaintain corporate inanitoring programs N'E' l""""' he environmen tal impact of 0"S5""" ""U""

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moderating t to ensure that we meet our own standards and those ef regulatory agencies. Employees electric lxmyr production. %i inform customers are encouraged to bring envirornnental th mugh inany min nnuncahon chan nels abwt concerns to management's attention. When ways to conserve electne energy. environmentalincidents occur, we more 8, gi, support the research and development quickly to take remedialaction. ofgenerating tech nologies and energvsflicient

4. Environinental considerations are an sy&ms which pwmise enhanced safekeeping integral part of all of our planning and of the environinent while inaintaining our decision making.

'" "0"" ""Y " N ENVIRONNIENTAL CONINIITNIENT scrubbers at one or more generating units. Scrubbers Centerior takes pride in its historie commitment to are large scale chemical treatment facilities that the environment. We installed pollution control cleanse sulfur dioxide from plant stack enussions. devices at our power plants as early as the 1920s, We estimate that achieving the required sulfur long before such devices were mandated by the dioxide reductions could cost $400 $700 million in government. In the past two decades, we have capital spending over the next 10 years. This capital spent approximately $1 billion on environmental cost could be recovered through a one time rate improvement. A significant portion of customer increase in the range of 2 4% in the late 1990s and bill payments today represents a contribution to a another after 2000 for a totalincrease of 7 8%. cleaner environment. Overall, these increases, spread over a 10 year Late last year, Congress passed the Clean Air Act period, would average less than 1% a year. of 1990. For more than a year before enactment of the legislation, we had been exploring possible strat-pm m egies to further reduce sulfur dioxide emissions at w m..mu.,m our coal fired power plants at the lowest possible i cost. We are favorably positioned to meet the new l l emission standards with minimalimpact on the rates we charge customers. i m l -Between 1977 and 1989, we reduced sulfur dioxide emissions by 50%, from about 600,000 tons a year l to 300.000 tons a year. The new legislation requires l y,. a further cut of 150,000 tons by the year 2000. i % achieve that reduc tion, we are preparing a l balanced strategy that includes several possibihties, l 2' such as increased use aflow sulfur coal and repower. l ing of some units with clean coal technologies or A gas co-firing. Another possibility is installation of Om ms,

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Og /p; M e j j+ D n, m~ CUSTOMER 5 6-7 8 OPERATIONS: e i THE i-COMPETITIVE EDGE Lyman C, Phillips, hecutin %ce President Tile COMPETITION supply. We expect municipal systems to lose much We value our customers and take very seriously out of their competitive advantage as wholesale power responsibility to provide them reliable electric service supplies dwindle and the price climbs. at reasonable cost. We are always working to improve In the meantime, we are working with customers our relations with customers and increase their and municipalities to become more competitive in satisfaction. As we work to make our electric rates Northwest Ohio. more competitive, we also are helping customers RKfE REDUCTION NEGOTIATIONS achieve better energy value. We compete with natural gas suppliers, other elec. In 1990,we began negotiating ordinances with tric utilities and independent power producers. Our individual municipalities in the Tbledo Edison most serious competitive concern today is the risk of service area. Under these municipal ordinances, new municipal systems taking away our customers. 1bledo Edison is retained as sole electricity supplier Interest in municipalization is particularly strong in for a five year period. In retum, residential and small the Tbledo Edison service area in Northwest Ohio, commercial customers in those municipalities avoided Tbledo Edison's electric rates at this time are the 2.74% rate increase that went into effect on significantly higher than those in surrounding com-February 1,1991. Additionally,residentialcustomers munities served by other power sources, including receive a 3% rate reduction on March 1,1991 and a municipal utilities. Most of these municipal systems 1% reduction on September 1,1991, import lower cost power currently available in the Further, residential and small commercial cus. wholesale market and distribute it to their customers. tomers in those municipalities are assured of no rate Municipal systems have a further price adv;mtage increases before 1996 unless high inflation or because they pay no federal, state or local taxes. emergency conditions necessitate a rate adjustment. The supply oflower cost power is expected to As an added incentive, we are making economic diminish as compliance with the Clean Air Act of assistance funds available to these municipalities.The 1990 reduces available capacity and as the growing levelof assistance is tailored to meet individual demand for electricity reduces available excess community needs to promote economic development. 8

At this writing, we have achieved sole supplier DEh1 AND. SIDE h1 ANAGEMENT contracts with all of the 48 incorporated municipal-In 1989 the PUCO issued guidelines for Integrated ities served exclusively by Tbledo Edison except for Resource Planning, requiring electric utilities through-the largest, the City of1bledo. out the state to investigate both supply side and On January 31,1991, we announced our intent to demand side measures in planning the most cost-seek PUCO approval to roll back the 2.74% rate effective means to meet future electricity needs. increase for all residential and small commercial The traditional supplv side response to growth customers in the City of 7bledo and the rest of in electricity consumptio'n is to build new power Toledo Edison's service area and to apply the plants. In contrast, demand side measures are additional 4% rate reduction to these residential designed to encourage customers to conserve and customers by year end. This action would extend to shift some of their energy consumption from -our rate reduction benefits throughout the Toledo high use to low use periods. This would slow peak Edison service area, thus ensuring that lbledo area demand growth and delay the need for new facilities, customers are treated uniformly. We launched several successful demand side We estimate that, with the entire Tbledo Edison management programs in 1990. We anticipate service area participating, these rate reductions spending about $85 million through the year 2000 would reduce our annual revenues by about $1/ for further initiatives, million, which represents 0.75% of 1990 revenues. Demand. side management programs permit We have concluded that it is in our share owners' customers to achieve greater control over their best long term interests to accept this modest electricity usage and realize price advantages. Utilities reduction in revenues in order to maintain our and their inve'stors,in turn, benefit from the more Toledo Edison customer base. efficient and cost effective use of existing in the Cleveland Electric service area, Cleveland generation and transmission facilities. We estimate Public Power (CPP) continues its $50 million the demand. side programs we have planned for expansion into the castern part of Cleveland. C PP's the 1990s will enable us to defer for several years kilowatt hour sales equalabout 2.5% of Centerior's. capital outlays of up to $1 billion for new facilities. The expansion, as now planned, coukt take away As we attempt to change customer usage patterns, about 20,000 of our customers, primarily residential we are focused on three applications-voucy users, over the next several years. This could reduce Shng, encouraging new off peak load such as revenues by about $10 million although there would be partially offsetting reductions in operation expenses and taxes. We have retained large commer-cial and industrial customers in Cleveland despite CPP's expansion efforts, primarily because of our higher level of reliability. In January 1991, we announced plans for a new, $28 million substation complex to provide service needed for downtown Clewland business expansion, further evidence of our AVERACE RETAIL PRICE PER commitment to service reliability and economic KWH COMPAREIMO DIE development.. CONSUMER PRICE INDEX* In November 1990, Cleveland voters approved a

• • *nma " A charter amendment allowing transfer of tax monies in a l

to support municipal utility departments, including l CPP. Such transfers in years past, without legal i-authorization, led to our taxpayers' lawsuit against - l ""~ the City of Cleveland and a court decision in 1990 l ordering the City to make repayment with interest to q l its general fund. The City has submitted a 10-year uo-i payment plan totaling (47 million, but the payment ~~ l issue is still under appeal by both parties. l E E 1 x s w hm ru 3 CPI fm l'PC ovi to Med FM 9

security lighting; strategie consen'ation, exemplified more information about their electricity usage to by high.cfficiency industrial motors and energy-help them practice wise energy management. The efficient lighting; and peabhaving, which includes redesigned bill will become available to lbledo Edison various energy management systems such as cooling customers this spring. Customer surveys and a variety and heating storage systems. of targeted customer communications are additional Our goalis to reduce system peak by 300,000 means through which we are determining and kilowatts from what it otherwise would be by the responding to customer needs, year 2000. Correspondingly, we hope to increase off peak sales by 400 million kilowatt hours by the ECONOMIC OUTLOOK IN NORTilERN 01110 year 2000. That would give us a modest sales increase Our projections for the next several years indicate while delaying the need for new generating capacity annual kilowatt hout sales growth will average about that easS could cost 10 times our demand side 2%. Achieving this increase assumes normaiweather mvestment. and depends on the economy and other factors. Through the rest of this decade, we expect more Tile CUS10MER CONNECTION moderate sales increases, averaging about 1.5% a year. In 1990, we launched a system wide Tbtal Quality Our diversified industrial base includes steel, process to help us better identify and meet customer au tos, plastics, chemicals, polymers, gla ss, petroleum needs. The Total Quality concept will instill contin. refining and other manufacturing. We have felt uous improvement as a prime component of our the nationwide decline in auto and steel production, corporate culture. This valuable tool has been applied but many of the other industries we serve continue successfully at many top corporations in the nation. to do well. Several industrial expansions are planned The Tbtal Quality approach represents a more or in the works, which will help offset the sales losses focused effort than our past emphasis on quality anticipated from other industrial customers. work. A major component will be emphasis on in the Cleveland Electric area, UfV Steel's new better communications, especially from employees continuous annealing line and an electric metallurgy to management. Our service crews, plant operators, station should be operationalin the first half of customer representatives and other people on the 1991. This means 45,000 kilowatts in new load and line know best what needs to be done to improve $8 million in additional revenue a year, helping to customer service and make operations safer and more offset some kilowatt hour sales losses from the cost effective. We are listening to our employees. temporary shutdown of UT\\"s electric are furnaces. Our three Consumer Advisory Panels established in the auto sector, Ford hiotor,in a joint venture in 1989 meet regularly and keep us attuned to a with Nissan, will complete the addition of a new broad range of customer views. hjembers include van production facility in 1992 at its plant west of senior citizens, business people, industrial workers, Cleveland, for an additional 17,000 kilowatts and $5 homemakers and teachers. Also providing perspec-million in annual revenue. tive is the additionalinput from the Cleveland in the Toledo Edison area, our economic develop-Electric and lbledo Edison management advisory ment electric rates established late in 19S9 have councils, composed of business and community helped encourage 34 industrial customers of various leaders. We are listening to our customers. sizes to make $61 million of capitalinvestment, retain Through a Centerior program, customers con. or create 1,400 jobs and add 18,000 kilowatts of new tributed $175,000 in 1990 to assist low income load. Chrysler has signed labor agreements pennitting customers with bill payments, appliance repair and its Jeep Assembly Plant, the largest emplover in weatherization. We matched that amount. In Tbledo, to remain viable at least through 1996.The addition, we made further contributions, including firm plans to move its Jeep Wrangler YJ production one time grants, which raised our total donation to from Canada to Toledo starting in 1992. NIanville more than 5600,000. These customer assistance Corporation has invested $65 million in new fiber. programs have raised community awareness of glass manufacturing equipment which will become Cleveland Electric and Toledo Edison as caring operational in the first half of 1991. General corporate citizens, and we are gratified by the Slotors is spending $225 million to update its Ilydra-outstanding level of contributions from customers, hlatic transmission production line in lbledo. A redesigned, comprehensive billing statement is now providing Cleveland Electric customers with 10

In the Cleveland Electric commercial sector, retail those of neighboring utilities, thus strengthening and office expansions have contributed to solid our competitive position. sales growth in the past several years, and more growth We are responsible to the more than 150,000 is on the horizon. As the downtown Cleveland build. share owners who make it possible for us to produce ing boom continued in 1990, major new all electric and deliver electric service. We are pledged to customers included the completed Tbw er City Center, increasing the value of share owner investment and the adjacent Ritz Carlton llotel and the Western enhancing the financialintegrity of the company. Reserve Building. In total, we began serving some The management audit and the corporate 2 A million square feet of new, all-electric office re<tructuring have given us new vigor. We beliese space in Cleveland and its suburbs in 1990, these measures, coupled with our Tbtal Quality Commercial sales growth has not been as uni. commitment, give us a solid foundation for meeting formly strong in the lbledo Edison area. Portside, the challenges of today and of the years to come, the large shopping and dining complex on 1bledo's riverfront, was closed in 1990. Efforts are under way to revive the complex, possibly as a museum of scie nce and industry. Planned commercial expansions include the Franklin Park Mall, another of the city's prime shopping sites. In addition, Budington Air Express' new international cargo center is due for completion this year at lbledo Express Airport, underscoringlbledo's reputation as a transportation WEAM ER llEVMON hub m the Midwest. FROM NORuAl? in the residential sector, the moderate weather grevailing in both the summer and winter led to a .% decline in kilowatt. hour sales in 1990. Assuming normal temperatures in 1991, sales are expected to n e - en rebound. Use of electric heating and cooling in new em e men m home construction is on the rise,largely through our marketing efforts. In the lbledo Edison area, for example, some 40% of new multi family dwellings in 1990 were all electric, in the Cleveland Electric area, the add.on heat / cool pump represented 36% a-of all cooling units in new home construction, a big ~ gain over the 9% market share of 19S9. OUR CORPORATE CONIN11TN1ENTS h-W We sene more than one million customers and we 5 ralue each one of them. We are dedicated to pro-El viding them with high quality and reliable energv services while maintaining responsible stewardship c- ~~o of the environment. m=-m We count on our S,500 emplayees to help us carry out this mission. As always, they are this company's most important resource, Aided by their commit? C "~ ment to cost control, we expect to keep future price increases below the rate of inflation and below W-umae, l1

MANAGEMENT's STATEMENT OF RESPONSIBILITV FOR l FINANCIAL STATEMENTS The management of Centerior Energy Corporation is responsibilities The Board is also responsible for responsible for the consolidated financial statements in making changes in management or independent this Annual Report The statements were prepared in accountants it needed accordance with generally accepted accounting The Board has appointed an Audit Committee, principles Under these pnnciples, some of the comprised entirely of outside directors, which met recorded amounts are based on estimates which are, in three times in 1990 The Committee recommends turn, based on an analysis of the best information annual!y to the Board the firm of independent available accountants to be retained for the ensuing year and We maintain a system of internal accounting reviews the audit approach used by the accountants controls which is designed to assure that the financial plus the results of their audits it also oversees the records are substantially complete and accurate, The adequacy and effectiveness of our internal accounting controls also are designed to hcIp protect the assets controls and ensures that our accounting system and their related records. We try to ensure that the produces financial statements which present fairly our costs of our control procedures do not exceed their financial position. benefits Our intemal audit program monitors the internal [h W accounhng controls. This program gives us the opportunity to assess the adequacy and effectiveness E H MAuGANs of existing controls and to identify and institute Executive Vice President and changes where needed. In addition, an examination of Chief Financial O!bcer our financial statements is conducted by Arthur m Andersen & Co, independent accountants, whose report appears below. k u4/u/ Our Board of Directors is responsible for PAut G Busev / determining whether management and the Controller and independent accountants are carrying out their Chiel Accounting Othcer ARTHUR REPORT OF lNDEPENDENT PUBuC ACCOUNTANTS MNDERSEN To the Sharc Owners and Board of Directors of g3 Centenor Energy Corporation: We have audited the accompanying consolidated in our opinion, the financial statements referred to balance sheet and consolidateo statement of above present fairty, in all matenal respects, the cumulative preferred and preference stock of Centerior financial position of Centenor Energy Corporation and Energy Corporation (an Ohio corporation) and subsidiaries as of December 31,1990 and 1989, and subsidiaries as of December 31,1990 and 1989, and the results of their operations and their cash flows for the related consohdated statements of income, each of the three years in the period ended December retained earnings and cash flows for each of the three 31, 1990, in conformity with generally accepted years in the penod ended December 31.1990. These accounting ponciples financial statements are the responsibility of the As discussed further in the Summary of Significant Company's management Our responsibility is to Accounting Pokcies and Notes 7 and 12, a change express an opinion on these financial statements based was made in the methods of accountino for income on our audits. taxes and unbi!!ed revenues in 1988, retroactive to We conducted our audits in accordance with January 1,1988. generally accepted auditing standards. Those As discussed further in Note 3(c), the future of standards require that we plan and perform the audit to Perry Unit 2 is undecided Construction has been obtain reasonable assurance about whether the suspended since July 1985 Various options are being financial statements are free of material misstatement. considered, including resuming construction or An audit includes examining, on a test basis, evidence cancehng the unit. Management can give no supporting the amounts and disclosures in the financial assurance when if ever, Perry Unit 2 will go in service statements An audit also includes assessing the or whether the Company's investment in that unit and accounting principles used and significant estimates a return thereon wili ultimately be recovered made by management, as well as evaluating the overall financial statement presentation. We beheve that our audits provide a reasonable basis for our opinion. Cleveland, Ohio February 12,1991 Arthur Andersen & Co 12

SUMMARY

OF SIGNIFICANT ACCOUNTING Policies GENERAL nuclear fuel disposal costs are being recovered through the base rates Centerior Energy Corporation (Centerior Energy) is a The Operating Companies defer the differences holding company with two electnc utilities as between actual fuel costs and estimated fuel costs subsidiaries The Cleveland Electric liluminating currently being recovered from customers through the Company (Cleveland Electric) and The Toledo Edison fuel f actor, This matches fuel expenses with fuel-Company (Toledo Edison). The consolidated financial related revenues statements also include the accounts of Centerior Energy's other wholly owned subsidiary, Centerior PRE PHASE IN DEFERRALS OF OPERATING Service Company (Service Company), and Cleveland EXPENSES AND CARRYING CHARGES Electric's wholly owned subsidianes The Service Company provides, at cost, management, financial, The PUCO authorized the Operating Companies to administrative, engineering, legal and other services to record, as deferred charges, operating expenses Centerior Energy Cleveland Electric and Toledo (including lease payments. depreciation and taxes) Edison Cleveland Electric and Toledo Edison and interest carrying charges for Beaver Valley Power (Operating Companies) operate as separate Station Unit 2 (Beaver Valley Unit 2) from its companies, each serving the customers in its service commercial in service date in November 1987 through area The first mortgage bonds, other debt obhgations December 1988 Af ter the PUCO determined that Perry and preferred stock of the Operating Companies Nuclear Power Plant Unit 1 (Perry Unit 1) was continue to be outstanding securities of the issuing considered "used and useful" in May 1987 for utility. All significant intercompany items have been regulatory purposes, the PUCO authorized the ehminated in consohdation. Operating Companies to defer operating expenses Centerior Energy and the Operating Companies (including depreciation and taxes) for Perry Unit 1 follow the Uniform System of Accounts presenbod by from June 1987 through December 1987, when these the Federal Energy Regulatory Commission (FERC) costs began to be recovered in lates The PUCO also and adopted by The Pubhc Utikties Commission of Ohio authorized the deferral of interest and equity carrying (PUCO). The Service Company follows the Uniform charges, exclusive of those associated with operating System of Accounts for Mutual Service Companies expenses, for Perry Unit I from June 1987 through prescribed by the Seconties and Exchange December 1987 and the deferral of only interest Commission (SEC) under the Pubhc Utihty Holding carrying charges from January 1988 through December Company Act of 1935. 1988. The amounts deferred for Perry Unit 1 pursuant The Operating Companies are members of the to these PUCO accounting orders were included in Central Area Power Coordination Group (CAPCO). property, plant, and equipment through the Other members include Duquesne Light Company commercial in-service date in November 1987 (Duquesne), Ohio Edison Company (Ohio Edison) Subsequent to that date, amounts deferred for Perry and Pennsylvania Power Company (Pennsylvania Unit 1 were recorded as deferred charges. Power), The members have constructed and operate Amortization of these Beaver Valley Unit 2 and Perry generation and transmission f acilities for the use of the Unit I deferrals (called pre phase in deferrals) began CAPCO companies. in January 1989 in accordance with the January 1989 PUCO rate orders discussed in Note 6. The amomations will continue over the hves of the related REVENUES

property, Customers are billed on a monthly cycle basis for their PHASE lN DEFERRALS OF OPERATING energy consumption based on rate schedules or contracts autnorized by the PUCO or on ordinances EXPENSES AND CARRYING CHARGES with individual municipahties Effective January 1, As discussed in Note 6, the January 1989 PUCO rate 1988, the Operating Companies changed their method orders for the Operating Companies included of accounting to accrue the estimated amount of approved rate phase in plans for their investments in unbilled revenues (as defined in Note 12) at the end Perry Unit 1 and Beaver Valley Unit 2 On January 1, of each month.

1989, the Operating Companies began recording the A fuel factor is added to the base rates for electnc deferrals of operating expenses and interest and service. This factor is designed to recover from equity carrying charges on deferred rate based customers the costs of fuel and most purchased investment pursuant to the phase in plans. These power. It is reviewed semiannually in a hearing before deferrals (cahed phase in deferrals) will be recovered the PUCO. by December 31,1998 FUEL EXPENSE DEPRECIATION AND AMORTIZATION The cost of fossil fuelis charged to fuel expense based The cost of property, plant and equipment, except for on inventory usage The cost of nuclear fuel, including the nuclear generating units, is depreciated over their an interest component, is charged to fuel expense estimated usef al hves on a straight-kne basis The based on the rate of consumption. Estimated future annual straight kne depreciation provision expressed 13

as a percent of average depreciable utility plant in accounted for as deferred cred ts. The amortization of service was 3 3% in 1990 and 3.8% in 1969 and 1988. these investment tax credits is reported as a reduction The 1990 rate declined because of a change in of depreciation expense under the liability method. depreciation rates attributable to longer estimated See Note 7. ' lives for fossil fueled electric generating units. The - PUCO approved this change in depreciation rates DEFERRED GAIN AND LOSS FROM effective January 1; 1990 which reduced depreciation SALES OF UTILITY PLANT expense for 1990 by $16,000,000 and increased earnings por share $ 08. The Operating Companies entered into sale and Depreciation expense for the nuclear units is based leaseback transactions in 1987 for the coal fired Bruce - on the units of production method. In 1990, the Mansfield Generating Plant (Mansfield Plant) and Nuclear Regulatory Commission (NRC) approved a Beaver Valley Unit 2 as discussed in Note 2 These six year extension of the operating license for the transactions resulted in a nel gain for the sale of Davis,Besso Nuclear Power Station (Davis Besse). Mansfield Plant and a nelloss for the sale of Beaver The PUCO approved a change in the units-of' Valley Unit 2, both of which were deferred The production depreciation rate for Davis Besse effective Operating Companies are amortizing the applicable January 1,1990 which recognized the life extension. deferred gain and loss over the terms of leases under This change reduced depreciation expense for 1990 by sale and leaseback agreements The amortizations $9,790,000 and increased camings per share $.04-along with the lease expense amounts are recorded as Effective July 1988, the Operating Companies other operation and maintenance expense. began the external funding of future decommissioning costs for their operating nuclear units pursuant to a INTEREST CHARGES PUCO order. Cash contributions are made to the funds on a straight line basis over the remaining licensing Debt interest reported in the income Statement does period for each unit Amounts currently in rates are not include interest on nuclear fuel obligations Interest based on past estimates of decommissioning costs for on nuclear fuel obligations for fuel under construction - the Operating Companies of $122,000,000 in 1986 is capitalized. See Note 5 dollars for Davis Besse and $72,000,000 and Losses and gains realized upon the reacquisition or $63,000,000 in 1987 dollars for Perry Unit 1 and redemption of long term debt are deferred, consistent Beaver Valley Unit 2, respectively. Actual w th the regulatory rate treatment. Such losses and decommissioning costs are expected to exceed these gains are either amortized over the remainder of the . estimates. It is expected that increases in the cost original life of the debt issue retired or amortized over estimates will be recoverable in rates resulting from the life of the new debt issue when the proceeds of a future rate proceedings. The current level of expense new issue are used for the debt redemption. The being funded and recovered from customers over the amortizations are included in debt interest expense remaining licensing periods of the units is approximately $8,000,000 annually. The present funding requirements for Beaver Valley Unit 2 also PROPERTY, PLANT AND EQUIPMEN1 satisfy a similar commitment made as part of the sale and leaseback transaction discussed in Note 2 Property, plant and equ:pment are stated at original cost less any amounts ordered by the PUCO to be written off. Included in the cost of construction are FEDERAL INCOME TAXES items such as related payroll taxes, pensions, fringe benefits, management and general overheads and The financial statements reflect the liability method of allowance for funds used during construction accounting for income taxes as a result of adopting a ( AFUDC). AFUDC represents the estimated new standard for accounting for income taxes in 1988. composite debt and equity cost of funds used to The liability method requires that our def arred tax finance construction. This noncash allowance is liabilities be adjusted for subsequent tax rate changes credited to income, except for certain AFUDC for Perry and that we record deferred taxes for all temporary Nuclear Power Plant Unit 2 (Perry Uryt 2). See Note differences between the book and tax bases of assets 3(c). The gross AFUDC rates averaged 10.8% in and liabilities. A portion of these temporary differences 1990,11.2% in 1989 and 11.4% in 1988. relate to timing differences that the PUCO used to Maintenance and repairs are charged to expense as reduce prior years' tax expense for ratemaking incurred, Certain maintenance and repair expenses for purposes whereby no deferred taxes were recorded. Perry Unit 1 and Beaver Valley Unit 2 are being Since the PUCO practice permits recovery of such deferred pursuant to the PUCO accounting orders taxes from customers when they become payable, the discussed above. The cost of replacing plant and net amount due from customers has been recorded as equipment is charged to the utility plant accounts. The a regulatory asset in deferred charges _ cost of property retired plus removal costs, after For certain property, the Operating Companies deducting any salvage value. is charged to the received investment tax credits which have been accumulated provision for depreciation. 14

MANAGEMENT's FINANCIAL ANALYSIS earnings by as much as $58,000.000, or $ 42 per share, in 1991, and more or less in subsequent years, RESULTS OF OPERATIONS depending on the performance of the units Inabikty to i Overview obtain approval of the second request would reduce The January 1989 PUCO f ate orders which provided for earnings by as Inuch as $36,000,000, or 5 26 per three rate increases for the Operating Companies, as share, in 1991, and even more in subsequent years discussed in Note 6, were designed to enable us to The Operating Companies have agreed to use their begin recovenng in rates the cost of, and earn a fair best efforts, such as these two requests for return on, our allowed investment in Beaver Valley Unit accounting orders, to avoid rate increases in the years 2 and Perry Unit 1. The rate orders improved revenues immed,ately following 1991. Eventually, rate increases and cash flow in 1989 and 1990 and are expected to will be necessary to recognize the cost of our new continue to improve them in 1991. However, as capital investment and the effect of inflation discussed more fully in the fourth and fif th paragraphs Annual saies growth is expected to average about of Note 6, the phasein plans were not designed to 2% for the next several years contingent on future improve earnings significantly because gains in economic events. Recognizing the hmitations imposed revenues from the higher rates and assumed sales by these sales projections and competitive constraints, growth are initially offset by a corresponding reduction we will utthze our best efforts to minimize future rate in the deferral of nuclear plant operating expenses and increases through maumizing our cost reduction and carrying charges and are subsequently offset by the quahty of service efforts and explonng other innovative amortization of such cost deferrals and carrying options We will concentrate our efforts on retaining charges. customers and adding new ones through innovative Despite the positive effect the new rates have on marketing and service initiatives revenues and cash flow and the relatively neutral 1990 vs.1989 impact they have on camings, we face a number of other f actors which will exert a negative influence on Factors contobuling to the 2 8% increase in 1990 earnings in 1991 and beyond These include inflation. operating revenues are as follows NNs?e) the economic recession and competitive forces The Chanoe in Operaun0 Hewnues latter, coupled with a desire to encourage economic 3$I Rates and uscetiancous, $151000 000 growth, has prompted the Operahng Companies in saies voiume and un. t 5 i.000.000) recent years to enter into contracts having reduced Sams to ONo Edmon and PennsAama Powen (32 000.000) rates with certain largo customers Competitive forces i es ooo ooo

"

have also prompted Toledo Edison to ofier a rate reduction package to residential and small commercial The major f actor accounting for the increase in customers as discussed in the eighth and ninth operating revenues was related to the January 1989 paragraphs of Note 6 Two other factors are havmg a Inte orders for the Operating Companies. The PUCO negahve influence on camings. First, the Operating approved annual rate increases for the Operating Companies are currently recording depreciation on Companies of 9% eticctive in February 1989 and 7% nuclear units at a higher level than that which is effective in February 1990 The associated revenue reflected in rates because of the good performance of increase in 1990 was partially offset by reduced the units over the last several years Second, with revenues resulting from a 2 9% decrease in total respect to facilities placed in service af ter February kilowatt hour sales industnal sales decreased 2.8% 1988 and not included in rate base, the Operating because of the recession beginning in 1990. Companies are currently required to record interest Residential sales decreased 2.1% as seasonal char 0es and depreciation as current expenses even temperatures were more moderate in companson to though such items are not yet reflected in rates the pnor year's temperatures, resulting in reduced We are taking several steps to counter the adverse customer heating and cooling related demand effects of the factors discussed above We are Commercia! sales increased 0 3% as increased implementing the management audit demanc from new albelectric othce and retail space recommendations discussed in the sixth paragraph of was offset by the effects of mild weather. Other sales Note 6 which are expected to reduce operating activity decreased 22 3% pnmanly as a result of expenses by about $100,000,000 annually. We have Toledo Edison's municipal util:ty customers sabstying aircady shared 50% of the expected savings with a greater portion of their power needs from other customers by reducing the 1991 rate increases sources The increase in revenues was also partially granted under the 1989 rate orders However, offset by the loss of re.,nues related to the May 1989 continuing cost reduction efforts will be necessary to expiration of Cleveland Electnc's agreement to sell a help offset the effect of inflation Also. the Operahng portion of its share of Perry Unit I capacity to Ohio Companies are seeking PUCO approval to accrue Edison and Pennsylvania Power nuclear plant depreciation at a level which is more Operating expenses decreased 0 A% in 1990. Closely abgned with the amount currently being Deprectahon and amortization expense decreased recovered in rates by switching to the straight line primanly because of lower depreciation rates used in method We also will seek approval to accrue post in-1990 for nonnuclear property and Davis-Besse service interest carrying charges and defer attributable to longer estimated hves and because of depreciahon charges for facihties that are in service longer nuclear generating unit refuehng and but not yet recognized in rates inabikty to obtain maintenance outages in 1990 than in 1989 Federal approval of the first accounhng request would reduce income taxes decreased primanly because of a 15

decrease in pretax operating income, These decreases Commercia! sales increased 3 9% as a result of in operating expenses were partially offset by an continuing growth from new office buildings and retail increase in taxes, other than federal income taxes, outlets Industnal sales decreased 21% pnneipally resulting from higher property and gross receipts because of a 7% reduction in sales to large steel and taxes, and by lower nuclear operating expense automotive customers Sales to other industrial deferrals for Perry Unit 1 and Beaver Valley Unit 2 customers increased 0 5% The decrease in revenues pursuant to the January 1989 PUCO rate orders from sales to Ohio Edison and Pennsylvania Power was Credits for carrying charges recorded in the result of the May 1989 expiration of Cleveland nonoperating income decreased in 1990 because a Electoc's agreement to sell a portion of its share of greater share of our investments and leasehold Perry Unit 1 capacity. interests in Perry Unit 1 and Beaver Valley Unit 2 were Operating expenses increased 8 4% in 1989 Lower recovered in rates The decrease in the federalincome deferrals of nuclear operating expense for Perry Unit 1 tax provision related to nonoperating income was the and Beaver Valley Unit 2 resulted in a $122.000,000 result of a decrease in protax nonoperating income and increase in expense Fuel and purchased power federal income tax adjustments of $37,522,000 expense increased largely because of the matching of associated with previously deferred investment tax expense with higher fuel cost recovery revenues credits relating to the 1988 write off of nuclear plant discussed in the preceding paragraph improved Other income and deductions, net decreased pnmarily nuclear unit availability enabled the Operating because of less interest income in 1990 Companies to sel! power to other utilities The excess of revenues over cost is treated as a reduction in 1989 vs.1988 purchased power expense which cushioned the Factors contnbuting to the 13% increase in 1989 increase in fuel and purchased power expense for the operating revenues are as follows-year. Depreciation expense increased, reflective of the Change in Operating Revenues ($rIaYe) increased generation from our nuclear units since Base Rates and Miscellaneous. $ 173 000.000 their depreciation is recordeo based on units of. 88.000 000 production. Deterred CWIP Revenues... (s2 000.000) Nonoperating income credits for AFUDC and Gales to Ohio Edison and Fennsyivania Powen urNEM f"" carrying charges decreased in 1989 as a result of s $265 000 000 piacing investment in rate base pursuant to the rate orders. Interest expense and preferred and preference The January 1989 rate orders for the Operating dividend requirements decreased in 1989 because of Companies were primarily responsible for two malcr retirements and refinancings by the Operating factors impacting the increase in revenues The P'JCO Companies. granted both companies 9% rate increases effective in February 1989. The increase in revenues attnbutable EFFECT OF INFLATION to deferred construction work in progress (CWlP) revenues in 1989 resulted from the reduction in the Although the rate of inflation has eased in recent years. amcunt of deferred credits for the mirror CWIP refund we are still affected by even modest inflation since the obligations to customers Fuel cost recovery revenus regulatory process introduces a time lag donng which increased in 1989 because of a significant nse in t ~ increased costs of our labor, matenals and services are fuel cost recovery factors compared to 1988. The not reflected in rates and fully recovered Moreover, lower 1986 factors recognized a greater amount of regulation allows only the recovery of histoncal costs refunds to our customers ordered by the PUCO for of plant assets through depreciation even though the certain replacement fuel and purchased power costs costs to replace these assets would substantially collected from customers dunng a 19851986 Davis-exceed their histoncal costs in an inflationary economy. Besse outage Total kilowatt hour sales decreased Changes in fuel costs do not affect our results of I 8% in 1989. The comparatively moderate summer operations since those costs are deferred until weather in 1989 lowered sales because of reduced air reflected in the fuel cost recovery factor included in conditioning usage Residential sales decreased 16% customers' bills. RETAINED EARNINGS CENTERiOR ENERGY CORPORATnON AND SUBSIDIARIES For the years ended December 31. _ 1990 1989 1988 (thousands of doilars) Balance at Beginning of Year $ 613,774 $ 571.882 $ 908.611 Additions Not income (loss). 264,459 266.886 (73.960) Deductions Common stock dividends...... (222,482) (224.947) (259.022) Other, pomanly preferred stock redemption expenses of subsidiaries. (91_5 ) (47) d3.747 ) Net increase (Decrease) 41,062 41.892 j336,729) Balance at End of Year. $ 6 4,836 $ 613 774 $ 5_71_882 The accompanying notes and summary of significant accounting policies are an integral part of this statenient 16

lNCOME STATEMENT c[NTPIOR LNERGY CORPORATION AND SUBSDARllS For tfie patsyndpd Dqc_gn1yer 31, t 1900 1989 1988 onoosanas ei nonaa, e= cept por snare amounts) Operating Revenuus $2.367 675 $2.302,436 $2,037,560 Operating Expenses Fuct and purchased power 412,531 413.816 391.401 Other operation and maintenance 862,738 860, t 38 865.632 Depreciation and amortaation 251,640 280,918 264,824 Taxes, other than federal income taxes 283,425 259,871 268,550 Phase in deferred operating expenses (50,940) (74,555) Pre-phase-in deferred operating expenses. 7,629 7,932 (188,209) Federal income taxes. 96,076 122.385 123,697 1,863,099 1,870,505 1,725,895 Operating income, 504,576 431,931 311,665 Nonoperating income Allowance for equity funds used during construction. 7,883 16,930 13,504 Other income and deductions, net (11) 14,212 45,308 (534,355) Wnto off of nuclear costs. Phase in carrying charges,,,, 205,085 299,159 372,155 Pre phase in carrying charges Federalincome taxes - credit (expense) _ (12,948) _ (73,177) 131,254 200,009 257,124 27,866 income Before Interest Charges 704,585 689.055 339,531 Interest Charges Debt interest 384,278 369,481 378,292 Allowance for borrowed funds used dunng construction. J 5j93) (12,929) (6,137) 378,285 356.552 372,155 income (Loss) After Interest Charges 326,300 332,503 (32,624) Preferred and preference dividend requirements of subsidiaries 61,841 65.617 69,489 income (Loss) Before Cumulative Effect of an Accounting Change, 264,459 266,886 (102,113) Cumulative Effect on Prior Years (to December 31,1987) of an Accounting Change for Unbilled Rewnuen (Not of Income Taxes of $18,729,000) _ 28,153 Net income (Loss) $_264459 $_2_66,886 $_L73,960) Average Number of Common Shares Outstanding (thousands). 138,685 140 468 140,778 Earnings (Loss) Per Common Share Before cumulative effect of an accounting change, 1.90 1.90 (.73) Cumulahve eticct of an accounting change. .20 Total $_ _ 1.,90 $ _190 $ _ L53) Dividends Declared Per Common Share. , 1,60 1 60 18;1 The accompanying notes and summa y of significant accounting policies are an integral part of this statement. 17

MANAGEMENT'S FINANCIAL ANALYSIS CAPITAL RESOURCES AND LIQUIDITY additional secunties under optional redemption We continue to need cash for an ongoing program of provisions. See Notes 10(d) and (e) for information constructing new facilities and modifying costing concoming limitations on the issuance of preferred and facilities to meet anticipated demand for electnc preference stock and debt. service, to comply with govemmental regulations and Our capital requirements will increase af ter 1994 as tc improve the environment. Cash is also needed for a result of the Clean Air Act of 1990 (Clean Air Act). mandatory retirement of securities. Over the three. Our future capital spend ng will depend on the year penod of 1988 1990, these construction and implementation strategy we choose to achieve mandatory retirement needs totaled approomately compliance with the new lan Our preliminary $ 1,210,000,000 In addition, we exercised vanous eshmates for capital expenditures to comply with the options to redeem and purchase approximately Clean Air Act are in the rango of $400.000,000 to $720,000,000 of our secunties. $700,000,000 See Note 3(b) During the 1988 1990 penod, Cleveland Electnc We expect to be able to raise cash as needed The and Toledo Edison issued $356,430,000 and availability of capital to meet our external financing $174,100,000, respectively, of first mortgage bonds, needs, however, depends upon such fectors as and obtained $56,000,000 and $15,000,000, financial niarket conditions and our credit ratings respectively, of term bank loans. In 1989 and 1990. Current secunties ratings for the Operating Companies re as fonows-Cleveland Electric also issued $550,000,000 of secured medium 4 term notes. The Operating h@,d $8, Companies utilized their short term borrowing Comoration service arrangements (explained in Note 11) which resulted in Cleveland Electric Cleveland Electric and Toledo Edison having rust mortgage bonds eBa-Baa2 $87,110,000 and $23,200,000, respectively, of Pretened stock est baa2 commercial paper outstanding at December 31,1990 wao go, son Proceeds from these financings were used to pay our First mortgage bonds BBB-Baa3 construction program costs, to repay portions of unsecured notes. Ba+ Bat short term debt incurred to finance the construction Preferred stock. BB+ ba2 program, to retire, redeem and purchase outstanding secunties, and for general corporate purposes The Operating Companies were granted rate We believe that the rate orders, coupled with increases effective in 1989,1990 and 1991 pursuant to stnngent cost control, have given us a reasonable January 1989 PUCO rate orders. See Note 6 for a opportunity to achieve financial results which should discussion of those rate orders which provide for permit Centerior Energy to continue the current specific levels of rate increases through 1991. quarterly common stock dividend of $ 40 per share Although the rate orders required us to wnte off certain Nevertheless, dividend action by our Board of Directors assets in 1988 which lowered our earnings base, our will continue to be decided on a quarter to-quarter current cash flow was not impaired. Internally basis af ter the evaluation of financial results, potential generated cash increased in 1989 and 1990 from the eaming capacity and cash flow. A wnto off of our 1988 level as a result of the rate increases investment in Perry Unit 2, as discussed in Note 3(c), Estimated cash requirements for our construction would not reduce our retained eamings sufficiently to program for 1991 1993 are $605,000,000 for impaa our ability to declare dividends and would not Cleveland Electric and $235,000,000 for Toledo affect our cash flow. Edison. In addition, Cleveland Electnc and Toledo The Tax Reform Act of 1986 (1986 Tax Act) Edison will require $515,000,000 and $297,000,000, orovided for a 34% income tax rate in 1988 and respectively, for the mandatory redemption of debt and thereaf ter, the repeal of the investment tax credit, preferred stock during this penod Cleveland Electric scheduled reductions in investment tax credit expects to finance extemally about 33% of its 1991 carryforwards, less favorable depreciation rates, a new construction and mandatory redemption requirements alternative minimum tax ( AMT) and other items of approximately $267,000,000. About 75% of Toledo These changes had no signi!! cant cash flow impact in Edison's requirements of approximately $177,000,000 1988 because we had a net operating loss for tax in 1991 will be financed externally, We expect to purposes However, the changes resulted in increased finance externally about 60% of our 1992 and 1993 tax payments and a reduction in cash flow dunn0 requirements. If economical, we may also redeem 1989 and 1990 because we were subject to the AMT. 18

CASH Ft.ows CENTEROR ENERGY CORPORATON AND SUBSIDIARIES For the years ended December 31, 1990 1989 1988 (tnousands of doliars) Cash Flows from Operating Activities (1) . Net locome (Loss). ' $ 264,459 $ 266,886 $ (73,960) Adjustments to Reconcile Net income (Loss) to Cash from Operating Activities: Depreciation and amortization 251,640 280,918 264,824 Deferred federal income taxes. 142,190 181,240 (37,422) Investment tax credits, net (34,287) 1,179 (3,687) 534,355 Write off of nuclear costs... Deferred and unbilled revenues. (60,792) (74.792) 23,842 Deferred fuel..,,,.,,. (11,843) 25,086 (54,601) Carrying charges capitahzed. (205,085) (299,159) (372.155) Leased nuclear fuel amortization 84,150 102,120 77,196 Deferred operating expenses, net.. (43,311) (66,623) (188.209) Allowance for equity funds esed dunng construction., (7,883) (16,930) (13,504) Amortization of reserve for Davis Besse refund obhgations to (24,817) (41,118) customers, Pension settlement gain., (40,966) (28,153) Cenulative effect of an accounting change... Changes in amounts due from customers and ottiers, not. (26,445) (13,486) 5,384 Changes in inventones...... (29,015) (3,029) 10,283 Changes in accounts payable, 63,610 (10,732) 73,765 Changes in working capital affecting operations.. (24,913) 17,120 17,058 Other noncash items (10,772) (10,319) (8,510) Total Adjustments., 46,278 87,776 259,348 Not Cash from Operating Activities. 310,737 354,662 185,388 Cash Flows from Financing Activities (2) Bank loans, commercial paper and other short term debt 109,888 29 (36,555) Debt issues: First mortgage t'onds. 167,300 123,800 239,430 Secured medium term notes. 337,500 212,500 Term bank loans. 31,000 40,000 Common stock issues., 740 1,539 (25,601) (19,804) Reacquired common stock Maturities, redemptions and sinking funds. (395,287) (370,747) (384.178) Nuclear fuellease and trust obligations (99,076) (86,589) (77,196) Common stock dividends paid.. (222,482) (224,947) (259,022) Premiums, discounts and expenses, (7,360) (2,622) 1,176 Net Cash from Financing Activities (104,118) (327,640) (514,806) Cash Flows from investing Activities (2) Cash apphed to constructico (237,436) (223.881) (313,157) Interest capitahzed as allowance for borrowed funds used during construction... (5,993) (12,929) (6,137) 374,085 Cash withdrawn from sale and leaseback and other trusts Other cash applied,. (13,055) (17,866) (7,351) Net Cash from investing Activities.,,...... (256,484) (254,676) 47,440 ~ Net Change in Cash and Temporary Cash investments. (49,865) (227,654) (281,978)- Cash and Temporary Cash investments at Beginning of Year., 103,143 330.797 612,775 Cash and Temporary Cash investments at End of Year $ 53,278 $ 103.143 $ 330,797 (1) Interest paid was $375,000,000, $367,000,000 and $373,000,000 in 1990,1989 and 1988, respective!y. Income taxes paid were $21,185,000, $9,058,000 and $76,534,000 in 1990,1989 and 1988, respectively, (2) increases in nuclear fuel and nuclear fuel lease and trust obhgatons in the Balance Sheet resulting from the noncash capitalizations urMer nuclear fuel agreements are excluded from this statement. The accompanying notes and summary of significant accounting policies are an integral part of this statement. 19

BALANCE SHEET I December 31, 1990 1989 (thousands of dollars) ASSETS PROPERTY, PLANT AND EQUIPMENT Utility plant in service. $ 8,648,888 $ 8,411.116 Less: accumulated depreciation and amortization 2,056,244 1,831,767 6,592,644 6,579,349 Construction work in progress 268,386 288,225 Perry Unit 2 855,149 869,048 7,726,179 7,736.622 Nuclear fuel, net of amortization. 522,672 544,375 Other property, less accumulated depreciation. 45,452 47,317 8,294 303 8,328,314 CURRENT ASSETS Cash and temporary cash investments. 53,278 103,143 Amounts due from customers and others, net 242,761 216,316 Unbilled revenues 80,866 78,718 Materials and supplies, at average cost. 108,758 83,322 Fossil fuel inventory, at average cost 52,578 48,999 Taxes applicable to succeeding years 218,444 207,635 Othet. 9,922 14.819 766,607 752,952 DEFERRED CHARGES Amounts due from customers for future federalincome taxes. 1,165,904 1,201,278 Unamortized loss from Beaver Valley Unit 2 sale. 119,623 122,911 Unamortized loss on reacquired debt,, 80,564 75.988 Carrying charges and operating expenses, pre phaseJn 634,595 641,236 Carrying charges and operating expenses, phase in. 629,744 373,714 Other, 202,895 170.154 2,833,325 2.585,281 Total Assets. $11,894 235 $ 11,666,547 t The accompanying notes and summary of significant accounting policies are an integral part of this statement. 20

i. _m _ -. _... _.. -. _. ~ _ - CENTERiOR ENERGY CORPORATION AND SUBSIDIARIES December 31, 1990-1989 (thousands of dedlars) - CAPITALIZATION AND LIABILITIES - CAPITALIZATION Common shares, without par value (stated value of $189.460.000 and $191,710,000 for 1990 and 1989, respectively): 180,000.000 authorized, 138.401,000 (excluding 2,511,000 shares in Treasury) and 139,792.000 (excluding 1,120,000 shares in Treasury) outstanding in 1990 and 1989, respectively $ 2,155,197 $ 2,180.798 Retained eamings............ 654,836 613.774 Common stock equity,, 2,810,033 2,794.572 - Preferred stock With mandatory redemption provisions,, 237,490-281,352 Without mandatory redemption provisions...,,,.,. 427,334 427,334 Longiterm debt., 3,729,237 3,533,656 7,204,094 7,036.914 OTHER'NONCURRENT LIABILITIES ,23,779 Refund' obligations to customers.... Other, primarily nuclear fuel lease obligationc..,, 508,694-557,789 i 508,694 581,568 CURRENT LIABILITIES Current portion of long term debt and preferred stock.. 214,138 217.706 Current portion of lease obligations.. 114,943 -101,057 Notes payable to banks and others.............. 110,094 206 ~ . Accounts payable. 311,713 248,103 Accrued taxes,.....,,,. 323,716 329,440 Accrued interest....., 84,778 84,232 Dividends declared. 13,972 13,893 Accrued payroll and vacations. 28,555 27.692 Current portion of refund obligations to customers.. 23,888 58,752 Other. 7,386 22,072 -1,233,183 1,103.153 DEFERRED CREDITS 336,136 381,925 Unamortized investment tax credits,.,,, Accumulated deferred federalincome taxes 1,730,954 1,622,458 Reserve for Perry Unit 2 allowance for funds used during construction,.... 212,693 212.693 Unamortized gain from Bruce Mansfield Plant safe. '626,493- ' 655,573 ~ Other............., 41,988 72,263 l-2,948,264 2,944,912 l-Total Capitalization aad Liabilities $11,894,235 $ 11.666.547 o l.. J l l= 21

STATEMENT OF CUMULATIVE PREFERRED CENTERICR ENERGY CORPORATION AND SUBSOARIES - ' AND PREFERENCE STOCK 1990 EMres Current December 31 Oute.anding Cat!_ Price 1990 1989 = CLEVELAND ELECTRIC ~

• • • ""*'d Without par value,4,000.000 preferred shares authorized; and without par value, i

3,000,000 preference shares authorized, none outstanding Preferred, subject to mandatory redemption; $ 7.35 Series C. 180,000 101.00 $ 18,000 $ 19.000 88.00 Series E 30,000 1.034.43 30,000 33.000 75.00 Series F..... 2,384 1,000.00 2,384 2,384 80.00 Series G. 800 145.00 Series H 14,244 145.00 Series I.... 13,779 13,779 17,717 113.50. Series K 10.000 10,000 10.000 ' Adjustable Series M,,...,, 500,000 103.00 49,000 49,000 9.125 Series N.....,.. 750,000 106 08 73,968 73.968 197,131 220.113 Less: Current maturities 25,969 7,751 -171,162 212,362 Preferrec., not subject to mandatory redemption: $ 7.40 Series A... 500.000 101.00 50,000 50.000 7.56 Series B.... 450.000 102.26 45,071 45.071 Adjustable Series L..... 500.000 103.00 48,950 48,950 Remarketed Series P 750 100.000.00 73,313 73.313 -

TOLEDO EDISON

$100 par valuei 3,000,000 preferred shares authorized; $25 par value, 12.000,000 preferred shares authorized; and $25 par value,. 5,000,000 preference shares authorized, none outstanding Preferred, subject to mandatory redemption: $100 pa $ 1 1,00,........ 34,825 101.00 3,483 4,480 9.37 5...,,,, 150.100 103.95 15,010 16.675 - 25 par. 2. 81............ 2,000,000 26.87 50,000 50,000 68,493: 71,155- --Less: Current maturities 2,165-2.165 ~ 66,328 68,990 PrAferred, not subject to mandatory redemption: $100 par $ 4.25. 160,000 104.625 16,000-16,000-4.56.............. 50,000-101.00 5,000 5,000 4.2 5.............. 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 25.75 30,000 30,000 Series B Adjustable 1.200,000 30,000 '30.000 'CENTERIOR ENERGt - Without par value. 5,000.000 preferred shares authorized. Total Preferred Stock, with Mandatory Redemption Provisions $237,490 $281,352 Total Preferred Stock, without Mandatory Redemption Provisions $427,334 $427,334 The accompanying notes and summary of significant accountn.J policies are an integral part of this statement. 22

NOTES TO THE FINANCIAL STATEMENTS (1) PROPERTY OWNED WITH OTHER UTILITIES AND INVESTORS lhe Operating Companies own, as lenants in common with o,ner utihties and those investors who are owner-participants in vanous sale and leaseback transactions (Lessors), certain generating units as ksted below Each owner owns an undivided share in the entire unit Each owner has the oght to a percentage of the generating capabihty of each unit equal to its ownership share Each utihty owner is obhgated to pay for only its respective share of the construction and operating costs Each Lessor has leased its capacity rights to a utihty which is obhgated to pay for such lessor's snare of the construction and operating costs The Operating Companies' share of the operating expense of these generating un.ts is included in the income Statement Property. plant and equipmert at December 31,1990 includes the f ollowing f acihties owned by the Operating Companies as tenants in common with other uhhties and Lessors-Owneo in - Owner sNp Piant Construction Serece sNp Moga Powet in Wofk Accumuiated Generatina Unit Date Share watts Source Sernce inProgress Deprecaaton (thousands of dollars) in Sm.ce Hr o $ 58 344 1 554 $ 19 527 Geneca Pumped Siarage. 1970 60 00% 305 m Eastlake Unit 5. t972 68 80 411 Coa; 154 589 1699 Perry Unit I and Common Facilities 1987 51 02 609 Nuclear 2.524 249 10 902 257 825 Beaver Valley Unit 2 ana Common Faaht es (Note 2) 1987 26 12 214 Nacicar 1 350 451 8797 139 075 Constructen Suspoox1 (Note 3(c)) Perry Unit 2. Uncertain 51 02 615 Nuclear _865.149 $4 087.633 $887,101 $416 427 Depreciation for Eastlake Unit 5 has been accumulated with depreciable property for all generating units rather than by specific generating units. Ohio Edison and Pennsylvanta Power purchased 80 megawatts of Cleveland Electric's capacity entitlement in Perry Unit 1 from November 1987 through May 1989. Revenues from this transaction were $31,831.000 and $84,068.000 in 1989 and 1988. respectively. (2) UTILITY PLANT SALE AND LEASEBACK TRANSACTIONS As a result of sale and leaseback transactions $70.300.000 in 1988 was recorded in a deferred completed in 1987, the Operating Companies are co. charge account pursuant to PUCO accounting orders. lessees of 18.26% (150 megawatts) of Beaver Valley This deferred amount is being amortized to expense Unit 2 and 6 5% (51 megawatts), 45 9% (358 over the hfe of the lease beginning in 1989. Additional megawatts) and 44.38% (355 megawatts) of Units 1, rental expense amounts, which were not deferred but 2 and 3 of the Mansfield Plant, respectively, all for were charged to expense in 1988, were not significant. terms of about 29W years. The Operating Companies are responsible under Future minimum lease payments under these these leases for paying all taxes, insurance premiums, operating leases at December 31, 1990 are operation and maintenance costs and all other similar summarized as follows: costs for their interests in the units sold and leased back The Operating Companies may incur additional ^ * " " 1" ' costs in connection with capital improvements to the nnousanm o' om s > units. The Operating Companies have options to buy 1991. $ 170.000 the interests back at the end of the leases for the fair f7 market value at that time or to renew the leases _ Additional lease provisions provide other purchase 3994. 374 000 1995 174 000 options along with conditions for mandatory Later ' rears 4 171 000 termination of the leases (and possible repurchase of Total Future Mnimum the leasehold interests) for events of default These Lease Pafments. $5 036 000 events of default include noncompliance with several financial covenants affecting Centenor Energy and the Smiannual lease payments conform with the payment Operating Companies contained in an agreement schedule for each lease relating to a letter of credit issued in connection with Rental expense is accrued on a straight kne basis the sale and leaseback of Beaver Valley Unit 2, as over the terms of the leasea The amounts recorded as amended in 1989 See Note 10(e) rental expense for the Mansfield Plant leases were Toledo Edison is selhng 150 megawatts of its $114.564,000 in both 1990 and 1989 and Beaver Valley Unit 2 leased capacity entitlement to $111,105,000 in 1988 Rental expense for the Beaver Cleveland Electnc This sale commenced in November Valley Unit 2 lease was $72,276.000 in both 1990 and 1988 and we anticipate that it will continue at least 1989 Rental expense for Beaver Valley Unit 2 of unhl1998 23

(3) CONSTRUCTION AND CONTINGENCIES (d) SUPERFUND SITES The Comprehensive Environmental Response, (a) CONSTRUCTION PROGRAM Compensation and Liability Act of 1980 as amended The estimated cost of our construction program for the (Superfund) established programs addressing the 1991 1993 penod is $900.000,000, including AFUDC cleanup of hazardous waste disposal sites, emergency of $60,000,000 and excluc ng nuclear fuel preparedness and other issues The Operating Companies are aware of their potential involvement in (b) CLEAN AIR LEGISLATION the cleanup of nine hazardous waste sites We beheve The Clean Air Act will require, among other things, that the ultimate outcome of these matters will not have significant reductions in the emission of sulfur dioxide a matenal adverse effect on our financial condition or and nitrogen exioes by fossil fueled electric results of operations. generating units The Clean Air Act will require that sulfur dioxide emissions be reduced in two phases over (4) NUCLEAR OPERATIONS AND a ten year period. Our preliminary analysis indicates CONTINGENCIES that compliance with the Clean Air Act may reqtiire additional aggregate capital expenditures in the range (a) OPERATING NUCLEAR UNITS of $400,000,000 to $700,000,000 by the Operatin9 Our interests in nuclear units may be impacted by Companics and is expected to result in higher fuel activities or events beyond our control. Operating and operation and maintenance expenses. nuclear generating units have experienced unplanned The aggregate rate increases needed to fund outages or extensions of scheduled outages because compliance with the first of the two phases could be in of equipment problems or new regulatory the range of 2% to 4% by the year 1999. Total requirements. A major accident at a nuclear facility compliance costs of the Clean Air Act for both phases anywhere in the world could cause the NRC to limit or could result in aggregate rate increases in the range prohibit the operation, construction or licensing of any of 7% to 8% by the year 2004. Capital expenditures will nuciear unit. If one cf ouc nuclear units is taken out of be incurred after 1994 The financial impact is service for an extended pencd of time for any reason, expected to be substantially greate* on Cleveland including an accident at such unit or any other nuclear Electric than on Toledo Ed' son. A r,1 ore specific facility, we cannot predict whether regulatory compiiatice cost estimate w:ll becoine available when authorities would impose unfavorable rate treatment our compliance strategy is further developed. such as taking our affected unit out of rate base. An We believe that Ohio law would permit the recovery extended outage of one of our nuclear units coupled of compl;ance costs from customers in rate 3 with unfavorable rate treatment could have a matenal a ese eM on our financial position and results of (c) PERRY UNIT 2 operations. Perry Unit 2, including its share of the common facilities, is over 50% complete Construction of Perry () Unit 2 was suspended in 1985 by the CAPCO The Price-Anderson Act limits the liability of the owners companies pending future consideration of vanous of a nuclear power plant to the amount provided by options, including resumption of full construction with a private insurance and an industry assessment plan. In revised estimated cost and completion date or the event of a nuclear incident at any unit in the cancellation No option may be implemented without United States resulting in losses in excess of the level the approval of each of the CAPCO companies, of pnvate insurance (currently $200,000,000), our Duquesne, a 13 74% owner of Perry Unit 2, has maximum potential assessment under that plan advised the PennsylvMia Public Util:ty Commission (assuming the other CAPCO companies were to that it will not agree to resumption of construction of contribute their proportionate share of any Perry Unit 2. The NRC construction permit for Perry assessment) would be $129,257,000 rplus any Unit 2 expires in November 1991. Cleveland Electnc, inflation adjustment) per incident, but is limited to the company responsible for the construction of Perry $ 19,540,000 per year for each nuclear incident. Unit 2, plans to apply for an extension of the The CAPCO compantes have insurance coverage construction permit prior to the expiration date Under for damage to property at Davis Besse, Perry and NRC regulations, this action will cause the Beaver Valley (including leased fuel and clean up construction permit to remain in effect while the costs). Coverage amounted to $2,325,000,000 for application is pendmg. each site as of January 1,1991. Damage to property if Perry Unit 2 were to be canceled, then our not could exceed the insurance coverage by a substantial investment in Perry Unit 2 (less any tax saving) would amount. If it does, our share of such excess amount have to be written off. We estimate that such a wnte-could have a material adverse effect on our financial off, based on our inves; ment in this unit as of condition and results of operations December 31, 1990, would have been about We also have insurance coverage for the $441,000.000, after taxes. See Notes 10(d) and (e) incremental cost of any replacement power purchased for a discussion of other potential consequences of (over the costs which would have been incurred had such a wnte off, the units been operating) af ter the occurrence of Beginning in July 1985, Perry Unit 2 AFUDC was certain types of accidents at our nuclear units. The credited to a deferred income account until January 1, amounts of the coverage are 100% of the estimated 1988, when the practice was d:scontinued incremental cost per week dunng the 52 week penod 24

starting 21 weeks af ter an accident,67% of such Cleveland Electoc and $50.700,000 and $44,300,000, estimate per week for the next 52 weeks and 33% of respectively, for Toledo Edison. In 1991, the estiinated such estimate per week for the next 52 weeks. The annualized revenue increases resulting from the cost and duration of replacement power could orders, as adjusted, are $71,400,000 for Cleveland cubstant: ally exceed the insurance coverage. Electne and $18 600,000 for Toledo Ed: son before 9'ving effect to the rate reduction proposals discussed below. (5) NUCLEAR FUEL The January 1989 rate orders provided for the The Operating Companies have inventones for nuclear permanent exclusion from rate base of a portion of the fuel which should provide an adequate supply into the Operahng Companies' combined investment in Perry mid 1990s Substantial additional nuclear fuel must Unit 1 and Beaver Valley Unit 2 which resulted in a be obtained to supply fuel for the remaining usef ullives write ott of $454,000,000 ($300,000,000 atter tax) in of Davis Besse, Perry Unit 1 and Beaver Valley Unit 2 1988 Since the orders effectively eliminated the More nuclear fuel would be required if Perry Unit 2 possibility oi the Operating Companies recovenng were completed their remaining investment in four nuclear construction in 1989, existing nuclear fuel financing projects canceled in 1980 and recovering certain arrangements for the Operating Companies were deferred expenses for Davis Besse, additional wnte-refinanced through leases from a special purpose offs totaling $80,000,000 ($49.000,000 af ter tax) corporation The total amount of financing currently were recorded in 19B8, bringing the total write off of svailable under these lease arrangements is nuclear costs as a consequence of the orders to $609,000,000 ($309,000,000 from intermediate term $534,000,000 ($349,000,000 atter tax). notes and $300,000,000 from bank credit The phase in plans under the January 1989 rate arrangements), although financing in an amount up to orders were designed so that the three rate increases, $900,000,000 is permitted The intermediate term coupled with then projected sales growth, would notes mature in the period 1993-1997. Beginning in provide revenues sufficient to recover all operating 1991, the bank credit arrangements are cancelable on expenses and provido a fair rate of return on the two years' nohce by the lenders As of December 31, Operahng Companies' allowed investments in Perry 1990. $547,000,000 of nuclear fuel was financed Unit 1 and Beaver Valley Unit 2 for ten years beginning The Operating Companies severally Icase their January 1,1989. In the early years of the plans, the respect!ve portions of the nuclear fuel and are revenues were expected to be less than that required obligated to pay for the fuel as it is consumed in a to recover operating oxpenses and provide a fair reactor. The lease rates are based on vanous return on investment. Therefore, the amounts of intermediate-term note rates, bank rates and operating expenses and return on investment not commercial paper rates. currently recovered are deferred and capitalized as The amounts financed include nuclear fuel in the deferred charges Since the unrecovered investment Davis Besse, Perry Unit 1 and Beaver Valley Unit 2 will decline over the period of the phase-in plans reactors with remaining lease payments of because of depreciation and federat income tax $127,000,000, $46.000,000 and $59.000,000, benefits that result from the use of accelerated tax respectively, as of December 31,1990. The nuclear depreciation, the amount of revenues required to fuct amounts financed and capitalized also included provide a fair return also dechnos Beginning in the interest charges incurred by the lessoro amounting to sixth year, the revenue levels authonzed pursuant to $33,000,000 in 1990, $44,000,000 in 1989 and the phase in plans were designed to be sufficient to $41,000,000 in 1988. The estimated future lease recover that penod's operating expenses, a fair retum amortization payments based on projected on the unrecovered investments, and amortization of consumphon are $112,000,000 in both 1991 and deferred operating expenses and carrying charges 1992, $116,000,000 in 1993, $110,000,000 in 1994 recorded dunng the earker years of the plans. All and $99,000,000 in 1995 As these payments are phase in deferrais af ter December 31,1984 relahng to made, the amount of credit available to the lessor these two units will be recovered by December 31. becomes available to finance additional nuc! car fuel, 1998. Pursuant to such phase in plans, the Operating assuming the lessor's intermediate term notes and Companies deferred the folloung bank credit arrangements continue to be outstanding i990 togo (ih00mh of dollWS} (6) REGULATORY MATTERS Deterred Operating Emenses. $ 50 940 $ 74.555 Carry Charges On January 31,1989, the PUCO issued orders which provided for three annual rate increases for the Eqmty 132 303 187 445 Operahng Companies of approximately 9%,7% and $205 os $299E9 6% effechve with bills rendered on and af ter February =- 1,1989,1990 and 1991, respechvely. The 6% increase effective February 1,1991 has been reduced Under the January 1989 rate orders, the amount of to 4 35% for Cleveland Electnc and 2.74% for Toledo deferred operating expenses and carrying charges Edison as d'scussed below. scheduled to be recoided in 1991 through 1993 total The annuahzed revenue increases in 1989 and $104,000,000, $84.000,000 and $24,000,000, 1990 associated with the rate orders were respectively. The phase-in plans were designed so that $120,700,000 and $105.700,000, respechvely, for fluctuations in sales should not a!fect the level of 25

I eatungs lhe orders accomphsh this by allowing the pack age to all incorFiorated communities in Toledo Operating Companies to seek PUCO approval to Edison s service area which are sersed exclusively by adust cost deferrals if actual revenues are higher or Toledo Edison on a retail basis The package calls for lower than amounts projected in the orders The orders the ehmination of the 2 74% rate increase effectue also provide for the ad}us' ment of deferrals to f(fiect f ebruary 1.1991 for all residerbal and small 50% of the net af ter. tan savings in 1989 and 1990 comme.cial custome s a reduchen in residentialiates identified by the management aud<t and appryd by of 3% on March 1,1991 and a further residential rate the PUCO as discussed in the following paragraphs No reduction of 1% on September 1,1991 Commnties charige was made in the cost deferrals for 1989 lhe accepting the pa3 age must agree to keep Toledo Operating Companies deferred an additional Ed. son as their sole suppher of electocity for a penod of $10.169 000 of carrying charges in 1990 and Wdl hvo years The package also permits Toledo Edison to request PUCO approval of the deferral adjust rates in those communities on February 1 In connection with the 1989 orders, the Operating 1994 and February 1,1995 it inflation acceds Companies and the Servge Company have specihed levels or under emergency condibond All undergone a management audit to assure that ehg:ble communities in Toledo Edison's service area, operation and maintenance expense tavings are except the Ctty of Toledo, have accepted the rate manmized The audit was conducted under the reduction package direction of an Audi' Advisory Panel ( Audit Panet) Toledo Edison plans to request PUCO approval to compnsed of representatives of Centenor Energy, the reduce rates to the same levels for the same customer Ohio Othee of Consumers' Counsel and the industnal categones in the City of Toledo and the rest of its Energy Consumers in Apnl 1990, the Audd panel service area If all areas now served by Toledo Edison announced that it had idenhhed potentihl annual receive the benef ts of t.1e lower rates, annuakted savings in operating expenses in the amount of revenues will be reduced by about $17.000.000 The 198160.000 from 1989 budget levels The amount of revenue reductions will not adversely affect the phase-patentul savings attnbutable to Cleveland Electnc is in plans as the decrease in revenues will be mitigated 55% 1 $53.988.000) and the amount attnbutable to by the cost reductions discussed above Toledo Edtson is 45% ($44.172.000) The Operating lhe Operahng Companies have entered into an Companies crpect to begin reahzing most of the agreement with other members of the Audit Panelin ravings identihed by the audd by the end of 1991 which the Operating Companies have agreed to use Fif ty porter.t of the savings identihed by the Aud't their best efforts to avoid rate increases in the years Panel were used to reduce the 6% rate,ncrease immediately following 1991 scheduled to go into effect on February 4,1991 for The 1989 orders atso set nuclear performance each of the Operating Comoanies As discussed standards through 1998 Beginning in 1991, the previously. Cleveland Electnc rates increaseo 4 35% Operating Companies could be requned to refund and Tc!edo Edison rates increased 2 74% under this incremental replacement power costs if the standards provision as approved by the PUCO in January 1991 ere not met The Operating Companies do not beheve The rate impact is diff erent for the two comganies any refund will be requ; red for 1991 Fossil fueled because much of the savings wdl be achie,ed in areas power plant performance may not be raised as a5 ssue such as nuclear operations in which Toledo EdGon in any rate proceeding before February 1994 as long stands to achieve greater savings relative to its size as the Operahng Companies achieve a system wide in a move to become more compet'tse in Northwest avadabihty factor of at least 65% annually This Ohio, Toledo Edison has oroposed a rate reduction standard was exceeded ;n 1989 and 1990 (7) FEDERAL INCOME TAX Federal income tat computed by multiplying the income before taxes ana preferred and preference dtvidend requirements of subsidianes by the statutory rates. :s reconciled to the amount of federalincome tu recorded on the books as follows For 19 yeart, ended Decemtw 31, (th0%i19 i dNdr$) e _ h - e _ u. msm ms, m Tat on DaoA income al Statutary Rate $ 148 010 1179 54? $ 2 278 t3Cf 0dSe (UCCreMe) in I84 ACCelWaled deprMiabon. E 187 10 4i5 6 829 investment tav cfrets on dmallowed nuclem plant (37522) Orgawabon costs 5 617 lanes Othef than teueral income taws - ( 12.11 C ) (l07) 2 090 Other items 4 305 6 712 (5 642) Tota! F edera! hcome Tai Nense. [101ca it9s 602 1 11 172 26

Federalincome tax expense is recoraed in the income Statement as follows. For the yrars enae3 Decemte; 31 1993 1989 19S8 (thousands of daliars) Operating E apenses Current Tai Piovision.... $ 42 %5 1 51 809 $ 79 520 Changes in Accumulated Deterred F ederal income las Acceierated dep<cuahon and amortaation.

777 44 144 20,108 Attemative minimum tan credit.

(24 340) (12 B74) Sale and leasetiack trentactions and amortgaban 8 017 4 348 13,588 Proterty tan expense. (14 891) (12.127) Deterred CwiP revenues. 20 480 22.731 (8 453) Deterred fuci costs. 742 (4 384) 16.227 System development costs. 051 $55 9157 Dr.vis Besse rencement po*er. 9 191 15 291 Fede'alincome tan return a$ustments (19 021) Ficacquired dotat costs 1.355 (1 250) 3 774 ( Deterred operahng expenses. 2 454 1,021 14 913 t Net operahng ioss carryforward. (2,545) Other items... 13 889 5 254 (B SGd) innstment Tai Credits. 2 051 1 783 (3087) Total Charged to Operkhng C apenses. 90 070 122 385 123 097 Nanagerating income Current Tan Provmon, (42 250) (39.341) (40 432) Changes in Accumulated Deforted rederai income ta= Davis Destie replacement power. 5,724 Write-off of nuclear costs (22 143) (188 920) AFUDC and carrying charges 74 447 114.330 133 037 lanes, other than f tvJeral incorne taxes. s 520 Net operahng 60ss carryterward - (36 831) Other items 2.000 _ 1782) (3 952) ( Total Espense (Crecit) to r400-Operating income. 12 948 73 177 (131 254) Federal income las inciudod in Cumulative E ficci of an Accounting Change for Untwed Revenues. 18 729 Totai F edera' hcomo Tan I spense $109 024 Q';{} { _11.172 in 1988, a change was made in accounting for income taxes from the deferred to the liability method This change did not impact net income as the additional deferred taxes recorded were offset by a regulatory asset on the Balance Sheet. Federal income tax expense adjustments in 1990, associated with previously deferred investment tax credits relating to the 1988 write off of nuclear plant investments, decreased the net tax provision related to nonoperating income by $37,522,000 and increased earnings per share by $.27. The favorable resolution of an issue concerning the appropnate year to recognize a property tax deduction resulted in an adjustment which reduced federalincome tar expense in 1990 by $14,011,000 ($10,375,000 in the fourth quarter) and increased camings per share by 110 s$.07 in the fourth quarter). For tax purposes, not operating loss (NOL) carryforwards of approximately $74,627,000, $71,532,000 and j $327,852,000 were generated in 1990,1989 and 1988. respectively. The NOL carryforwards are available to reduce future taxable incomc and will expire in 2003 through 2005 The 34% tax effect of the NOLs generated in 1990 ($25.373,000) and 1989 ($24,321,000) is included in the above tab!O as a teriuction to deferred federal income tax relating to accelerM Pd depreciation and amortization The 34% tax effect of the NOL generated in 1988 ($111,470,000) is incluied in the above table as reductions to deferred federalincome tax relating to accelerated depreciation and amortization ($72.094,000) and to deferred federalincome tax charged to operating expenses ($2,545.000) and tu nc noperating income ($36,831,000) Future utilization of these tax NOL carryforwards would result in recording the related oeferred taxes Approximately $31,665,000 of unused General business tax credits aie available to reduce future tax obligations. The unused credits expire in varying amounts in 2001 through 2005. Utilization of these unused crodris is limited by provisions of the 1986 Tax Act and the level of future taxable income to which such credits may be applied The 1986 Tax Act providea foi an AMT credit to be used to reduce the regular la to the AMT level should the regular tax exceed the AMT. AMT credits of $24,340,000 and $12,874,000 were generated in 1990 and 1989, respectively. 27

(8) RETIREMENT INCOME PLANS AND OTHER The settlement (discount) rate assumption was POSTRETIREMENT BENEFITS 8 5% for December 31,1990 and 8% for December 31, 1989 The long term rate of annual compensation We sponsor noncontribuhng pension plans which cover increase assumption was 5% for both December 31. all employeo groups. The amount of febrement 1990 and December 31,1989 The long term rate of benefits generally depends upon the length of service return on plan assets atsumption was 8% in 1990 and Under certain circumstances, benefits can begin as 1989. carly ns age 55. The plans also provide certain death. Plan assets consist pnmanly of investments in modical and disability benchts. Our funding policy is to common stock, bonds, guaranteed investment comply with the Employee Retirement income contracts, cash equivalent securities and real estate. Secunty Act of 1974 guidehnes. The cost of postictirement medical benefits Dunng 1990, we offered our second Voluntary Early amounted to $6.500.000 in 1990. $5.000.000 in 1989 Retirement Opportunity Program (VEROP). Operating and $3,800,000 in 1988. Consistent with current expenses for 1990 included $15,000.000 of pension ratemaking practices. these costs are recorded when plan accruals to cover enhanced VEROP benefits paid. plus an additionat $28,000,000 of pension coste for in December 1990, a new accounting standard for VEROP benef:ts being paid to retirees from corporate postretirement benefits other than pensions was funds The $28,000,000 is not included in the pension issued This standard requires employers to accrue data reported below. Operating expenses for 1990 also the expected cost of such benefits dunng the included a credit of $41,000,000 resulting from a employees' years of service The standard also j settlement of pension obligations through lump sum requires the recording of a cumulative transition payments to a substantial number of VEROP retirees obligation adjustment which can be recognized Not pension and VEROP costs (credits) fo* i988 immediately, subject to certain kmitations, or amortized through 1990 were compnsed of the following over the longer of 20 years or the average remaining components: service period of active employees expected to roccive benefits We are required to adopt the new standard 1990 1989 1988 no later than 1993. Although we have not completed an (mahons of donars) Pent, ion Costa (Credits) analysis to determine the effect of adopting the new service cost for bonehts camed standard, we do not expect adoption to have a dunng the porod $ 16 $ 14 $ 12 matonal adverse effect on our financial condition of interest cost on pro #ocied tenefit results of operations because of expected future otegation. 37 36 33 regulatory treatment. Any liabilities recorded pursuant Actual retum on plan essets. (8) (73) (76) to the staedard may be essentially offset by regulatory Net amorttialnin and deferral. f) ,.,(3 3 assets to Icflect anticipated future revenues associated Net penson credits. (8) (11) (12) with recovery through rates VE nOP cost. 15 0 (9) GUARANTEES Settlement gain. (41) Nel credits.

• $j 341 $(11 ) $ 16)

Under two long term Coal purchase arrangements, Cleveland Elecinc has guaranteed certain loan and lease obhgations of two mining companies. Toledo The following table presents a reconcihation of the Edison is also a party to one of these guarantee funded status of the plans at December 31,1990 and arrangements. This arrangement requires payments to 1989. the mining company for any actual out of pocket idle December 31, mine expenses (as advance payments for coal) when 3990 39gg the mines are idle for reasons beyond the control of (manons of doiiars) the mining company. At December 31,1990, the Actuanal present value of teneht poncipal amount of the mining companies' toan and obhgatons lease obhgations guaranteed by the Operating vested benehts. $ 330 $ 328 Companies was $109,000,000. s Nonvested tienehts 24 28 Accumuiated tenett otAgabon. 354 356 Effect of future, compensahon levels. 72 117 Total projected teneht otegahon 426 473 Plan assets at fait market value. 653 761 Surplus of plan assets over prorocted beneht obbgabon 227 288 Unrecogrvied net gain due to vanance between assumphons and experience (28) (163) Unrecognized poor service cost 13 8 Transihon asset at January 1.1987 bein0 amortied over 19 years. (126) (141) Net prepad (accrued) penston cost inckded in other deterred charges (credits) on the Balance Sheet. $_26 j3)8 28

(10) CAPITAllZAT10N outstanding options held by employees were as I "O*S (a) CAPITAL STOCK TRANSACTIONS 1978 Key Empinee Shares sold, retired and purchased for treasury dunng S'* OP"" N' the three years ended December 31,1990 are listed in the following table. o ions outstandng at 1990 19B9 1988 Daernbin 31 Shares 108 655 215,181 314.093 (thousands of shaf ts) Cornmon Stock Opton Pnces. $14 OD to $14 09 to $14 09 to Employee Savings Plan. 7 $20 73 $20 73 $?O73 (mployee Purchase Plan. 36 82 1978 Key [mployee Stock (c) EOUlTY DISTRIBUTION RESTRICTIONS Opton Pian. 17 27 M DmM M, M mWM %M m@ Total Common Stock Sales. 53 116 were composed almost e,'tirely of the undistributed Treasury Shares. (1 391) (1.082) (2) retained eamings of the Operating Companics. Net Change. 11J91) {0g IM Substantially all of their retained eamings were Cumuleha Prefened and available for the declaration of dividends on their Preference Stock of Sutsidianes respective preferred and common shares All of their Suotect to Mandatory common shares are held by Centenor Energy. Redempton Any financing by an Operating Company of any of Cleveland Electric Retirements its nonutility affiliates requires PUCO authorization P*"*d unless the financing is made in connection with 8 S E transactions in the ordinary course of the companies' 75 00 Senes F. (1) (14) public utilities business operations in which one 80 00 Senes G. (1) (2) (5) company acts on behalf of another. 145 00 Senes 4. (14) (4) (4) 145 00 Senes t. (4) (4) (4) (d) CUMULATIVE PREFERRED AND P*.50 Senes 1 (6) (1) "C' PREFERENCE STOCK $ 77 foiedo Ed son Retirements Amounts to be paid for preferred stock which must be p,,lened redeemed dunng the next five years are $28.000,000 $100 par $1100. (10) (5) (5) in 1991, $18,000,000 in 1992 and $43,000,000 in 9 375. (17) (17) (17) each year 1993 through 1995 --- ) The annual mandatory redemption provisions are as Total. (59) _[52) (69 er.=- to;;ows Cumulative Pretened Stock of Annual Mandatory Subsidianes Not Sutyect to Rodempton Provisions Mandatory Redemphon Shares Begin-Pnce Toicdo Edison Retirements ning g $25 par 3 47. (1 200) Cleveland E lectoc Total. g2(X)) preteneo Shares of common stock required for the Employee f' 8 00 8 i Savings Plan and the Employee Purchase Plan are 75 00 Seres F. 2.384' 1985 1.000 being acquired.n the open market-145 00 Senes I. 1.969 1986 1.000 Centerior Energy began a program in 1989 to 113 50 Senes x. 10 000 1991 " 1.000 purchase up to 3,000,000 shares of its common stock Adjustable Senes M, 100.000 1991 100 at prevailing prices in the open market in the penod 9.125 Scres N. 150.000 1993 100 between March 28,1989 and March 31,1991. As of Toicdo Edison December 31, 1990, 2,510.000 shares had been P'"'d purchased at a total cost of $46,198,000 Such shares $100 par $ 0 00 are being held as treasury shares' 25 par 2 81. 400.000 1993 25 '"'P'***""**"9'h" '* ****d M*h ' ' ' 8 8 ' (b) COMMON SHARES RESERVED FOR ISSUE " Ali outstanding shares to be redeemed June 1,1991. Common shares reserved for issue under the Employee Savings Plan and the Employee Purchase Plan were The annualaed cumulative preferred dividend 3,176,727 and 21,448 shares, respectively, at requirement as of December 31,1990 is $60,000.000. December 31,1990. The preferred dividend rates on Cleveland Electric's Stock options to purchase unissued shares of Series L and M and Toledo Edison's Series A and B common stock under the 1978 Key Employee Stock fluctuate based on prevaikng interest rates, with the Option Plan were granted at an exercise pnce of 100% dividend rates for these issues averaging 8 38%, of the fair market value at the date of the grant. No 7.71% 9.06% and 9 84% respectively, in 1990. The additional options may be granted. The exercise prices dividend rate on Cleveland Electnc's Remarketed of option shares purchased dunng the three years Senes P averaged 8 01% in 1990 ended December 31,1990 ranged from $14.09 to Under its articles of incorporation, Toledo Edison $ 17.41 por share Shares and price ranges of cannot issue preferred stock unless certain carnings 29

coverage requirements are met Based on camings for 1992, $317.000.000 in 1993 163.000,000 in 1994 the 12 months ended December 31,1990. Toledo and $292,000.000 in 1995 Edison could issue at December 31, 1990 in 1989 and 1990, Cleveland Electnc issued aporoumately $7.500.000 of additional pretened stock $550,000.000 aggregate poncipal amount of secured at an assumed dividend rate of 11% If Perry Unit 2 medium term notes with vanous matunties ranging had been canceled and wntten off as of December 31. from 1993 to 1999 and annual interest rates 'anging 1990. Toledo Edison would not have been permitted to from 8 95% to 9 8% The notes are secured by first issue any additional preferred stock See Note 3(c) mortgage bonds The issuance of additional preferred stock in the future Dunng 1990. Cleveland Electnc arranged to refund will depend on earnings for any 12 consecutive in 1992 $78.700 000 poncipal amount of its F rst i months of the 15 months preceding the date of Mortgage Bonds,134% Ser es duc 2012, which are issuance, the interest on all long-term debt outstanding collateral secunty for pollution control refunding bonds and the dividends on all preferred stock istues issued by a pubhc authonty. The authority's bonds will outstanding be refunded at the same time To effect the refund of There are no restrictions on Cleveland Electoc's its bonds, the authonty entered into a contract with two ability to issue preferred or preference stock or Toledo institutions to dekver in 1992 $/8,700.000 aggregate Edison s abikty to issue preference stock-poncipal amount of its tax enempt pollution control With respect to dividend and hquidation rights' bonds due December 1,2013 with an interest rate of each Operating Company's preferred stock is prior to 8% at a pnce of 97.496% for an effective interest cost its preference stock and common stock, and each of 8 25% The authonty's bonds will be secured by Operating Company's preference stock is pnor to its $78.700,000 poncipal amount of Cleveland Electoc's common stock-First Mortgage Bonds. 8% Senes due 2013-0 The proceeds will be used to redeem the authonty s (e) LONG TERM DEBT AND OTHER utstanding bonds and refund the 134% Senes First BORROWING ARRANGEMENTS Mortgage Bonds in July 1992 The PUCO authonzed Long term debt, less current matunties, for the Cleveland Electnc to record interest expense equal to Operating Companies was as follows-a blend of the higher rate on the outstanding bonds Actuai with the lower rate on the new bonds for an interest December 31 Yew of Wiunty Ir t e e 1990 19 9 expen$e reduClion of $1.000.000 in 1990 and approximately $6.000.000 total in 1991 and 1992 (thousands of oaiiam) First mortgage bonds The mortgages of Cleveland Electnc and Toledo 1991 8 375% $ $ 35.000 Edison constitute direct first hens on substantiaky all 1991 15 00 70.000 property owned and franchises held by them E cluded 1991 13 75 4,334 from the liens, among other things, are cash, 1992 15 25 20,000 20 000 secunhes, accounts receivable, fuel, supphes and, in 8 4 4 the case of Toledo Edison, automotive equipment 5 1993 3 875 30,000 30.000 Additional first mortgage bonds may be issued by 1993 8 55 50.000 50.000 Cleveland Electnc under its mortgage on the basis of 1993 13 75 4.334 4 334 bondable property additions, cash or substitution for 1994 4 375 25.000 25 000 refundable first mortgage bonds The issuance of 1994 13 75 4,334 4,334 additional first mortgage bonds by Cleveland Electnc 1995 10 125 36,800 on the basis of property additions is limited by two 1995 11.25 60.000 60.000 provisions of its mortgage. One relates to the amount 4 4 d f bondable property available and the other to 0 earnings coverage of interest on the bonds. Under the 1995 7 00 15 15 more restnctive of these provisions (currently, the 1995 7 00 15 15 1996 2000 9 35 219,798 219,798 amount of bondable property available), Cleveland 2001 2005 9 08 194,135 194.135 Electnc would have been permitted to issue 2006 2010. 9 08 323 650 323 650 approximately $369,000.000 of bonds based upon 2011-2015. 9 38 448 435 533.435 available bondable property at December 31, 1990. 2016 2020. 8 92 700,180 592,880 Cleveland Electnc also would have been permitted to 2021 2023 8 09 322 100 322,100 issue approumately $159 000.000 of bonds based 2,511.384 2.575 218 upon refundaDie bonds at December 31,1990 if Perry Term bank loans due Unit 2 had been canceled and wntten off as of 1992 1996.... 8 71 127,900 130.000 December 31,1990. Cleveland Electnc would have Notes duc 1992-1999. 0 70 769,430 474.215 been permitted to issue approumately $20,000.000 of Debentures duc 1997. 11 25 125 000 125 000 bonds based upon available bondable property and Pollution control notes a roximately $159.000.000 of bonds based upon duc 1992 2015 9 69 190,860 c21.250 refundable bonds at December 31, 1990 Other - net 4 663 7.973 The issuance of additional first mortgage bonds by Total Longlerm Debt. 13.729 237 13 533 656 Toledo Edison also is limited by procsions in its mortgage similar to those in Cleveland Electnc's m--

=

Long-term debt matures dunng the next five years mortgage Under the more restnctive of these as follows: $186,000,000 in 1991. $220,000,000 in proosions (currently, the eamings coverage test), 30 h.

i Toledo Edison would have been permitted to issue Short term borrowing capacity authonzod by the approumately $177,000.000 of bonds based upon PUCO is $300,000.000 for Cleveland Electnc and available bondable properly et December 31,1990 $150,000.000 for Toledo Edison The Operahno Toledo Edison also would have been permitted to issue Companies have been authonzod by the PUCO to approumately $56,000,000 of bonds based upon borrow from each other on a short term basis. refundable bonds at December 31,1990 If Perry Unit Most borrowing arrangements under the Operating 2 had been canceled and wntten off as of December Companies'short term bank knes of credit require a 3t,1990, the amount of bonds which could have been fee of 0 25% per year to be paid on any unused portion issued by Toledo Edison would not havo changed of the lines of credit For those banks without fee Certain unsecured loan agreements of Toicdo requirements, the average daily cash balance in the Edison contain covenants relahng to capitakzation bank accounts satisfied informal compensating rabos, camings coverage ratios and hmitations on balance arrangements secureti financing other than through first mortgage At December 31,1990. Cleveland Electne and bondt or certain other transactions An agreement Toledo Edison had $87,110.000 and $23.200,000, relating to a letter of credit issued in connechon with respectively, of commercial paper outstanding The the sale and leaseback of Beaver Valley Unit 2 (as commercial paper was backed by at least an eaual amended in 1989) contains several financial covenants amount of unused bank tines of credit for both affecting Centerior Energy and the Operahng Operahng Companies Companies. Among these are covenants relating to The fee for the Service Company's knes of c' edit is earnings coverage ratios and cap,tahzat on ratios. 0 25% per year to be paid on any unused portion of its Centenor Energy and the Operating Companies are in bnes of creait comphance with these covenant provisions. We No formal short term borrowing arrangements have beheve Centenor Energy and the Operating been estabhshed for Centerior Energy. Companies will conhnue to meet thet,e covenants in the event of a wnte off of the Operating Companies' investments in Perry Unit 2, barong unforescon (12) CHANGE IN ACCOUNTING FOR UNBILLED circumstances REVENUES (11) SHORT TERM BORROWING Poor to 1988, revenues were recorded in the ARRANGEMENTS accounting penod dunng which meters were read Our bank credit arran0ements at December 31,1990 Ut hty service rendered after monthly meter reading were as follows: dates through the end of a calendar month (unbilled revenues) becarne a part of operating revenues in the Clevelvid Toiedo Sofoce i lectre Edison Cornpary Tgl following month. In January 1988, we adopted a (thour,ams of dollars) change in accounting for revenues in order to accrue the estimated amount of unbilled revenues at the end g g, g Cret. $ t 52.000 175,$50 $8 000 $235.550 of each month. The adoption of this accounting method increased There were no borrowings under these barsk credit 1988 not income $3.581,000 (not of $1,845,000 of arrangements at December 31,1990. An additional income taxes) and earnings per share $ 03 before the $5,000,000 kne of credit is available to the Service cumulative effect on periods prior to January 1,1988 Company under a $30,000,000 Cleveland Electnc kne The cumulative effect of the change on the periods of credit, if unused by Cleveland Electoc. The pnor to January 1,1988 was $28,153,000 (not of $5,000,000 kne of credit is included in the Cleveland $18.729,000 of income taxes), or $ 20 per share, and Electne total was included in 1988 net income. 31

(13) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a tabulation of the unaudited quarterly results of operations for the two years ended December 31, 1990 ouarters t nded Ma'ch 31 June 30 Sept 30 twe 31. (thaor.an:ts of dallars. Nept per share amounts) 1990 Operating Revenues.. $560.594 $577.505 $673.015 $556,561 Operating income. $116,208 5 86.782 1171,723 $129,863 Net income, $ 50.509 $ 54.921 $ 99,749 5 59.280 Average Common Shares (thousands) 139.486 138.980 138.610 138,441 Earnings Per Common Share 36 .40 72 43 Dividends Paid Per Common Share. .40 .40 40 .40 1989 Operating Revenues. $555.230 $577,303 $637,619 $532,284 Operating income. $112,968 $129.708 $152,796 $ 36.459 Not income, 5 67.690 $ 77,807 $108,857 $ 12,532 Average Common Shares (thousands) 140,829 140,752 140.391 139.990 Earnings Por Common Share.... 48 5 55 .78 09 Dividends Paid Per Common Share. .40 40 40 .40 Earnings for the quarter ended June 30,1990 were increased as a result of federal income tax empense adjustments associated with deferred investment tax crodits relating to the 1988 wnte off of nuclear plant investments See Note 7. The adjustments increased quarterly earnings by $36,298.000, or 5 26 per share Earnings for the quarter ended December 31,1990 were increased as a result of year end adjustments of $25.790,000 to reduce depreciation expense for the year (see Summary of Significant Accounting Policies), $10,169,000 to increase phase in carrying charges (see Note 6) and $10.375.000 to reduce fedcral income tax expense (see Note 7). The total of these adjustments increased quarterly earnings by $35.000.000, or $ 25 per share 32

EXECUTIVES OF CENTERIOR ENERGY CORPORATION AND CENTERIOR SERVICE COMPANY CENTERIOR ENERGY CORPORATION Chairman and Executive Vice President... Lyman C. Phillips Chief Executive Officer.. Richard A. Miller Vice President-Legal & President and Corporate Affairs . Fred J. Lange, Jr. Chief Operating Officer.. Robert J. Farling Controller. Paul G. Busby Executive Vice President. Murray R. Edelman Treasurer. . Gary M. Hawkinson Executive Vice President.. Edgar H. Maugans Secretary.. E. Lyle Pepin CENTERIOR SERVICE COMPANY Chairman and Vice President-System Chief Executive Officer.. Richard A. Miller Engineering & Control. . Alvin Kaplan President and Vice President-Legal & Chiof Operating Officer.. Robert J. Farling Corporate Affairs.. Fred J. Lange, Jr. Executive Vice President-Vice President-Power Generation.. Murray R. Edelman Human Resources & Executive Vice President-Strategic Planning . John S. Levicki Finance & Vice President-Nuclear Perry. MichaelD.Lyster Administration. . Edgar H. Maugans Vice President-Executive Vice President-Transmission & Customer Operations Distribution Operations.... David L. Monseau (and Chairman & CEO Vice President-Marketing.... Thomas M. Oulnn of Toledo Edison and Vice President (and President President & CEO of of Toledo Edison)..... Donald H. Saunders Cleveland Electric)..... Lyman C. Phillips Vice President-Nuclear-Vice President-Davis Besse.. .. Donald C. Shelton FossilOperations.... Richard P.Crouse Controller. .. Paul G. Dusby Vice President-Treasurer . Gary M. Hawkinson Transmission and Secretary.. . E. Lyle Pepin Distribution Engineering & Services .......... Gary J. Greben Vice President-Customer Service & Community Affairs . Jacquita K. Hauserman 33

FINANCIAL AND STATISTICAL Review Operating Revenues (thousande of dollars) Steam t ota;

1. ital Tew Heshng Ogerating T ra' hes&nt@

Com' Yen ta! WirttrW Othe8 hetRil W'W h ale I e3tc & Gas heveques 1990. $719 074 $668 910 $779 391 $189 754 $2 357133 $ 10 642 $2 367 675 8 - $2 367 676 1989. 685 735 616 902 746 534 204 769 2 253 940 48 496 2 302 436 2 302 436 1988. 637 329 537 861 075 584 84 524 1 935 298 102 262 2 037 500 2 037 560

1987, 629 663 531 682 689 959 36 272 1 687 576 24 409 1 911 985 13 37 t i 925 356 1986.

599 445 516 614 075 692 70 716 t 871457 t 1 381 1 882 838 12 953 1 895 791 1980-394 872 301 513 461 624 53 633 1 211 642 36 966 124B 608 22 047 1 270 655 Operating Expenses (thousands of dollars) othm Ftet& C4eratKin Dep8eOAIKW1 Iases Ph0'ie in & f ederal T Otai PurcNareed 6 Other than Pre @ase m inc wie C4efatng Year Power Mamtenanc e Ammt;taban Fif Deterred 41 1 anes f uenses 1990. $412 631 $862 738 $251640 $283 425 $ (43 311) $ 96 076 $1863 099 1989. 413 816 860 138 280 918 259 871 (66 623) 122 3B5 1 870 605 1988. 391 401 865 632 264 824 268 550 (188 209) 123 007 1 725 895 1987. 470 466 642 594 214 421 207 521 (87 623) 105 912 1 553 291 1986 502 281 550 874 141 009 194 925 138 181 1 547 270 1980 490 659 280 722 90 621 112 832 64 950 1 039 784 income (Loss) (thousands of dollars) F ertmal income Othen incarne erwo% (toss) Incwie & la<es-Before Aher (gerahng AF UDC-Detxtions Carrying Crest interest Debt AI UDC-Interest l V ear errome Luaity Nat Chages (l uente) Chages interest Debt Charges 1990. 8504 576 8 7 883 (11) $205 085 $(12 948) $704 585 $384 278 8 (5 993) $326 300 1989. 431 931 16 930 14 212 299 159 (73 177) 689 055 369 481 (12 929) 332 (03 1988 311 665 13 504 (489 047)(a) 372 155 131 254 339 531 378 292 (6 137) (32 624) 1987. 372 065 299 308 (57 821) 39 599 121 122 774 273 435 042 (137 257) 476 488 1986. 348 521 308 405 (B 108) 116 422 765 240 406 465 (118 145) 476 920 1980. 230 871 69 316 8 4B4 27 180 335 851 183 489 (40 199) 192 561 income (Loss) (thousands of dollars) Common Stock (dollars por share & %) incmie (Loss) (wtare hetarn on Pretened & CunxMtr<e Comulatwe A erage A =erage Preference E fioci of an i fiect of an Net SNues common Stack Accounting Accountmg inc-ome outstandmg(C) f amnos Stack Dw*nda lbok Thar Dwiderxts Change Change (b) (Loss) (thousaNJs) floss)(C) [ Qwtv Declared { C ) Vake(C) $264 459 138 885 $ 1.90 9.4% $ 1.60 $20.30 1990. $81841 8 264 459 8 1989 65617 266 886 266 886 140 468 1 90 96 1 60 19 99 1998 69 489 (102 113) 2B 163 (73 960) 143 778 (0 53) (2 5) 1 84 19 68

1987, 86135 390 353 390 353 138 395 2 82 12 8 2 56 22 10 1986 85 027 391 893 391 893 128 927 3 04 13 7 2 49 22 13 1980.

45 732 146 829 146 829 67 185 2 19 11 2 1 92 19 37 NOTE 1980 data is the result of comtaning and restating Cleveland Enoctoc and Toindo Edison data (a) hciedes wnte off of nuclear costs in the amount of $534 355,000 in 1988 (b) m 1988, tne Operating Companies adopted a change in the method of a: counting for unbmed revenues (c) Outstanding shares for the penods prxy to Afini 29,1986 reflect the Cheland Liectnc 111 far.one exchange ratio and the Toledo Ed< son one for one exchange ratio for Centenor Energy shares 34

] CENTLRIOR ENERGY CO@ORAllON AND SUBSDAHliS Electric Sales (millions of KWH) Electric Customers (year end) Residential Usage Average Average Averap Pt K:e Revette pdott%al AWH Per Pet be Year Reukvitial Commefua! kdaginal WN# sag Ottet Tota! kende%al Commeroa! & Otw lota' Customer k.WH Customet 1990. 6 666 6 848 12 168 148 959 26 789 918 965 94 522 12 906 1 026 393 7 079 10.828 $765.93 4 89. 6806 6 830 12 520 429 990 27 581 914 020 93 833 12 763 1 020 616 7 295 10 08 737 58 1988. 6 920 6577 12 793 863 946 28 Dis 9 909 182 92 132 12 305 1 013 619 7 462 9 21 690 06 1987. 6 659 6 350 11 985 399 949 26 340 903 365 9014B 12 240 1 005 753 7 217 9 46 685 43 1986. 6 527 6 239 11 409 242 909 25 326 898 583 87 947 12 012 938 542 7 108 9 18 654 99 1980. 6 434 5 431 11 ?27 1630 626 25 548 882 9B7 B3 002 11 460 978 049 7 111 6 16 437 98 Load (MW & %) Energy (mil llons of KWH) Fuel opeintue I timice, can,ut, Not ai rin.c Nak careiy (oad C""P*^V G'" *'"' Pu* w* F ue Cost eru N o Peak t wt Margn i actor i osi.d %cien-Total Po* ee totai _Per k Mt VWH r Year 1990. G437 5 261 18 A 63.6% 21 114 9 481 30 695 (1 926) 28 669 1.628 10 354 1989. 6430 5 389 16 2 03 3 20 174 12 122 32 296 (? 785) 29 511 1 47 10 435 1988. 5525(d) 6 673 (2 7) 60 8 21 576 7 805 ?9 381 9?O 30 301 1 59 10 410 1987,, 5955 5 173 13 1 63 6 20 894 6 907 27 801 601 28 402 1 53 10 400 1986 5199(d) 5 021 34 63 0 22 739 24 22 763 4 552 27 315 1 79 10 292 1980. 6 113 4 635 24 2 64 3 20 015 2 114 2212d 5246 27 375 1 66 10 $19 Investment (thousands of dollars) c<mtr ct* u Work pi Total Ulinty Accumulated nt}6 erfy Pe%8 NW.ind' Pf 0perty Utahty Piant in Dopeciate A Net fueland Pwit ard hent fotal Year Servre _ _ Amattgalm Plant Urnt ? Ottw.r [ th#ipment Aht:0n2 Antel8, 1990; $8 648 888 $2 056 244 $6 592 644 Si 133 535 $568124 $8 294 503 $ 251312 $11894 235 1989 8 411 116 1 831 767 6 579 349 1 157 273 591 692 8 328 314 230 797 11 666 547 1988,.. 8 143 673 1 569 304 6 574 369 1 222 732 643 087 6 440 188 343 143 11 573 098 1987. 8 388 114 1 324 446 7 063 668 1 007 707 656 350 8 727 725 947 921 11 349 836 1986. 4 639 542 1 367 662 3 271 880 5 237 782 652 564 9 102 226 1 133 748 10 011 932

1980, 3 602 029 778 488 2 823 541 1 331 323 89 683(e) 4 244 547 633 999 4 827 944 Capitalization (thousands of dollars & %)

nerened a neivence prerened sm minout $10Ek. Wth Mandatoy MWHldl0ty Redemplen Year ComrYon $tcs.k f r)uity Redomf:Imn novmms Provisuma long Term Deti! Tolat 1990. $2 810 033 39% $237 490 3% $427 334 6% $3 729 237 52% $7 204 094 1989. 2 194 572 40 28I 352 4 427 334 6 3 533 650 50 7 036 914 1988. 2 771 744 39 303 781 4 427 334 6 3 551 614 51 7 054 473 1987. 3 109 060 41 343 985 4 457 334 6 3 718 249 49 7 628 628

1986, 2 991 341 39 48/ 814 7

404 021 5 3 792 402 49 - 7 675 578 1980. 1-385 229 36 327 000 8 245 071 6 1 925 934 50 3 883 234 (d) Capaoty data reflect tatonded generating unit outages for renovation and improvements (e) nestated for e*fects of capitah2ation of nuclear toellease and finanong arrangeroents psauant to Statement of Finanaal Accounting Standards 71 35

BOARD OF DIRECTORS Richard P. Anderson, President and Chief Executive Robert M. Ginn, Executive in Residence at John Officer of The Andersons Management Carroll University. Also Chairman Emeritus Corporation, a grain, farm supply and of the Company and retired Chairman and retailing firm. Chief Executive Officer of the Company. Albert C. Bersticker, President and Chief Operating Roy H. Holdt, Retired Chairman of White Officer of Ferro Corporation, a producer of Consolidated Industries, Inc., a manufacturer specialty chemical materials for manufactured of products for the home, principally major products. appliances, and machinery and equipment Leigh Carter, Retired President and Chief Operating for industry. Officer of The BFGoodrich Company, a George H. Kaull, Chairman and Chief Executive producer of chemicals, plastics and aero-Officer of Premix,Inc., a developer, manu. space products. Chairman of Tremco, facturerandfabricatorof thermosetreinforced Incorporated, a manufacturer of specialty composite materials. chemical products and a wholly owned Richard A. Miller, Chairman and Chief Executive subsidiary of The BFGoodrich Company. Off cer of the Company and Centerior Thomas A.Commes, President and Chief Operating Service Company. Officer of The Sherwin Williams Company, a Frank E. Mosier,Vice Chairman of BP America Inc., manufacturer of paints and painting supplies. a producer and refiner of petroleum products. Wayne R. Embry, Executive Vice President and Sister Mary Marthe Reinhard, SND, Director of General Manager of the Cleveland Cavaliers, Development for the Sisters of Notre Dame a professional basketball team. Chairman of of Cleveland, Ohio. Former President of Michael Alan Lewis Company, a fabricator Notre Dame College of Ohio, of hardboard, fiberglass and carpeting Robert C. Savage, President of Savage & Associates, materials for the automotive Industry, nc., an insurance, financial planning and Robert J. Farling, President and Chief Operating estate planning firm. Officer of the Company and Centerior Paul M. Smart, Retired Vice Chairman of the Service Company. Company and The Toledo Edison Company. William J. Williams, Chairman and Chief Executive Officer of Huntington National Bank. COMMITTEES OF lhE BOARD Capital Human Audit Expenditures Executive Finance Resources Nominating Nuclear T.A. Commes, G.H. Ksull, R.A. Miller, R. A. Miller, W.J. Williams, F.E. Mosier, R.R Anderson, Chairman Chairman Chairman Chairman Chairman Chairman Chairman L Carter A.C. Bersticker R.M. Ginn R.R Anderson L. Carter R.R Anderson A.C. B3rsticker Sr. M.M. Reinhard R.J. Farling R.H. Holdt T.A. Commes R.H. Holdt A.C, Bersticker H.J. Farling W.J. Williams R. M. Ginn W.J. Williams R.J. Farling G.H. Kaull L. Carter R.M. Ginn R.A. Miller R.H. Holdt F.E. Mosier T.A.Commes R.H. Holdt F.E. Mosier R.C. Savage W.R. Embry R.A. Miller Sr. M.M. Reinhard RM. Smart R.M. Ginn Sr. M.M. Reinhard R.H. Holdt G.H. Kaull R. A. Miller Sr. M.M. Reinhard R.C. Savage RM. Smart W.J. Williams 36 1

~ SHARE OWNER INFORMATION DIVIDEND REINVESTMENT AND STOCK PURCHASE REGISTRAR l PLAN ANDINDIVIDUAL RETIREMENT ACCOUNT Ameritrust Company National Association (CX +1R A) Corporate Trust Division 4 The Company has a Dividend Reinvestment P.O. Box 6477 and Stock Purchase Plan which provides Cleveland, Ohio 44101 share owners of record and customers of th CXelR A CUSTODIAN Company's subsidianes a convenient means of purchasing shares of Company common All communications about an existing CX*lRA stock by investing a part or all of their should be directed to the Custodian at the quarterly dividends as well as making cash address or telephone numbers listed below: investments, in addition, individuals may Ameritrust Company National Association establish an Individual retirement account Corporate Trust Division (IRA) which invests in Company common R O. Box 6477 stock through the Plan. Information relating Cl9veland, Ohio 44101 to the Plan and the CX lRA may be obtained in Cleveland area 737 5742 or 737 5744 from Share Owner Services at the Company. Elsewhere in Ohio SH ARE OWNER SERVICES 1800 362-0697, Extension 5742 Communications regarding stock transfer Outside Ohio requirements, lost certificates, dividends and 1800 3211355, Extension 5742 changes of address should be directed t INDEPENDENT ACCOUNTANTS Share Owner Services at the Company. To thu A ersen Co. reach Share Owner Services by phone, call: In Cleveland area 642 6900 or 447 2400 Cleveland, Ohio 44114 Outside Cleveland area 1 800 433-7794 g Please have your account number ready Listed on the New York, Midwest and Pacific when calling. Stock Exchange.s. Options are traded on INVESTOR RELATIONS The Pacific Stock Exchange New York Stock Inquiries from security anaYsts and institutional Exchange symbol-CX. Newspaper investors should be directed to Terrence R. abbreviation-CentEn or CentrEngy. Moran, Manager Investor Relations, at the ANNUAL MEETING Company's mail address or by telephone at The annual meeting of the share owners of (216)447 2882, the Company will be held April 23,1991. TRANSFER AGENT Owners of common stock as of February 26, Centerior Energy Corporation 1991, the record date for the meeting, will be Share Owner Services eligible to vote on matters brought up for RO. Box 94661 share owners' consideration. Cleveland, Ohio 44101 4661 FORM 10-K Stock transfers may be presented at The Company will furnish to share owners, PNC Trust Company of New York without charge, a copy of its most recent 40 Broad Street, Fifth Floor annual report to the Securities and New York, N.Y.10004 Exchange Commission (Form 10-K) and, EXECUTIVE OFFICES upon payment of a reasonable fee, a copy of Centerior Energy Corporation each exhibit to Form 10 K. Requests should 6200 Oak Tree Boulevard be directed to the Secretary of the Company. Independence. Ohio AUDIO CASSETTES AVAILABLE Telephone:(216) 447 3100 Share owners with impaired vision may obtain FAX: (216)447 3240 audio cassettes of the Company's Quarterly MAIL ADDRESS Reports and Annual Report. To obtain a - Centerior Energy Corporation cassette, simply write or call Share Owner RO. Box 94661 Services. There is no charge for this service. . Cleveland, Ohio 44101-4661 37

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