ML20073F030

Annual Financial Rept 1982

ML20073F030
Person / Time
Site:	Davis Besse
Issue date:	02/23/1983
From:	Ginn R, Miller R, Williams H CLEVELAND ELECTRIC ILLUMINATING CO.
To:
Shared Package
ML20073F018	List: ML20073F010 ML20073F030
References
NUDOCS 8304150410
Download: ML20073F030 (46)

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l Contents Highhghts i

Financial Summary and Quarterly Stock Prices 1

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Financial Performance in 1982 ti

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Product Reliability and Service _

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Responsibihties to Communities l ti 4

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Financial contents 20

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- 7 Directors and ( ltYicers 42

, [.,. " N' Committees of the Board of Directors _43 General Information 44 l

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renwnsible for the maintenance

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mission line which runs from

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1982 Highlights Fin'a'ncial Summary and Quartedy Stock Prices o Earnings per share reached a calendar year record of $3.01, up Percent 19% from 1981.

1982 1981 Change o Common Stock quarterly dividend Eamings Per Share per share was increased twice in 1982 of Common Stock 3.01 $

2.52 19.4 I)ividends P id Per Share

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effective in November. Total payment ik>ok Value Per Share of $2.19 represents a 5.3% growth of Common Stock 19.86 $

19.63 1.2 over 1981.

Common Stock Share Owners 111,688 103,242 8.2 o A $107.8 million (10%) rate increase Operating Revenues (000)

$ 1,108.571 $ 1,012,930 9.4 became effective for retail customers Operating Expenses ((XX))

$ 879f>i4 $ 820,226 7.2 in 31 arch 1982; another increase of Net income (000)

$ 208,9C>i $ 155,734 34.2

$89.4 million (7.4%) became effective Eamings Available for in January 1983.

Common Stock ((XX))

$ 170,669 $ 120,817 41.3 o The Dividend Reinvestment Plan Kilowatthour Sales raised $23.4 million, an increase of (blillions of Kilowatthours) 67% from 1981. Over 30% of our Residential 4.336 4,376 (0.9)

Commercial 4.194 4,178 c.4 share owners are taking advantage Industri 1 7,082 8.280 (14.5) of the special tax treatment of Other 414 399 3.8 dividends available through the Plan.

Sub-total 16.026 17,233 (7.0)

• On November 2, Ohio voters over-Sales to Utilities 139 275 (49.5) whelmingly defeated the proposed Total 16.165 17,508 (7.7) amendment to the Ohio Constitution to elect the members of The Public Utilities Commission of Ohio.

Quarterly Ifigh and low Prices o In 1982, nine million shares of of common stock (do/ Airs >

common stock were sold through two public offerings. We do not expect to l row i

make a public common stock offering 17% l 4th 20 in 1981.

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1981

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Letter to Share Owners

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Decr Share Owner:

as a time of change and challenge. For resulted in lower kilowatthour sales, is It is human nature to look back with

""..rganization with high standards a tribute to all the men and women of pride on past accomplishments and to this is natural. The Company has always the Ccmpany We are particularly draw confidence from them in facing recognized that the achievements and proud of our management team and the challenges which lie ahead.

lessons of the past are only prologues are fortunate in having a Board of for the future.

Directors uncommonly strongin in almost every one of the 20 years

' leadership and breadth of experience.

that the three of us have been officers The year 1982 was no exception.

Our Board was strengthened early of The Illuminating Company, our The Company achieved higher reve-in 1983 by the addition of William J.

predecessors have reported to you in nues and higher earnings per share.

Williams, President and Chief this space on the outstanding results of The dividend was increased twice, mak-Operating Officer of Republic Steel the prior year, but looked to the future ing the annual rate $2.28 per share.

Corporation. In addition to his leader-This progress, achieved in the face of ship of one of the nation's largest adverse economic conditions which industrial corporations, Mr. Williams f

brings to the Board utility experience

/# 49 as a result of his previous law practice.

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The accomplishments of the past year

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J-k are described in detail in this Annual q ' ^7 y'2 j Report. The significance of the past is je the foundation it lays for the future.

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We are a strong company in a strong

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geographical area.This does not mean, q

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There is particular cause for concern in

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three major areas-acid rain legislation, 4,

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the regulatory environment in Ohio and nuclear energy.

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emotion,largely because the true facts f

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are not yet known. Under our system of h,

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a laws, people and corporatians are pre-

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has not been the case with acid rain.

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Fd Robert M.Ginn (top)

Richard A. Miller (left) liarold LWilliams (right) 2

Midwestem utilities, including the While inclusion of CWIP slightly Efforts to provide reassurance to the Company, have been singled out as the increases rates prior to the in-service public through regulation have proved cause of this phenomenon. Congress is date of the plant, it provides rates costly in both time and money.

now being urged to mandate solutions lower than they would otherwise be.

The industry must find a way to provide by passing legislation which would cost over the life of the plant.This practic accurate information about nuclear our indust and ultimately our cus-also helps case the " rate shock' which energy. It is safe and efficient and that tomers biluons of dollars. Yet there is occurs whenever a new plant goes must be understood. Nuclear energy must be a part of our industry's future no scientific ev,dence that the proposed m service.

reduction of sulfur emissions from utili-Another provision of the proposed if we are to meet our customers' electric ties in the Midwest would significantly legislation would require retroactive energy needs.

reduce acid rain in the northeastem adjustments of rates if the Ohio

,e re indeed fac. g challenges. the in in states and Canada.

Supreme Court reversed a PUCO years ahead. But we have confidence in The C,ompany believes the environment decision. Under th.is proposal, a the Company and in the economic should be protected.The first step, company,s camings would not b vitality of our service area. When however,is to diagnose the problem-precisely known until the Court had recovery comes, our factories and to determme the causes and effects of ruled on the decision as much as a year businesses will participate. New indus-later. Th,s would add a layer of acid rain-before prescribing a cure.

i tries in the senice segment-uncertainty to utility investment which Responsible research already begun paiticularly in the medical field-and incre ses the nsk to investors. That must be completed.This region has in high technology are growing here.

nsk would raise our financing costs already suffered too many economic which ultimately must be paid by The political leaders,n our city and in i

setbacks to burden utility ratepayers our state are dedicated to making th,s ur customers.

i with billions of dollars of additional area a good place to do business.

spending which may prove unnecessary It is evident that this proposed Through such organizations as the or ineffectual.

legislation is a reaction to the rate Great Lakes Economic Policies Council.

increases whicn all utilities have been The second major area of concem is business and govemment are working f rced t seek in recent yee Ohio's regulatory climate. Regulatory to bring economic progress to the law underwent legislative changes dur-This is unfortunate because higner entire Great Lakes region.

ing 1982 and more have been proposed rates could result in the long run. Such The history of this Company has been for 1983.

short-term expediency is not the ne f change and challenge. It has answer if utilities are to have the As this is wntten, the Ohio Legislature 1so been one of considerable accom-financial stability required to serve our is considering a bill which would impose plishment. As we resolve the challenges economy in the future

• several changes m rate regulations. In of1983 and beyond,we are confident the short run, those changes might Our third area of concern is nuclear that we will again provide history with a hok! down utility rates but would sub.

energy.

new record of achievements.

stantially increase rates in the long run.

Nuclear generating plants have a safety Sincerely, The proposed changes would tend t record unparalleled in industry. No lower the quality and amount of cam-member of the public has ever been ings which utilities are allowed. In turn, injured by a nuclear plant. Yet they are k

this would increase the risk of utility perceived as an uncommon danger.

Robert M.Ginn. President investment and increase financing costs.

The public's view of nuclear energy One change would stringently limit the contrasts sharply with the view amount of Construction Work in of scientists.

Richard A. Miller. Executive Vice President Pmgress (CWiP) allowed in rate base.

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ict s incl d were the m st confident ofits safety.

Ilarold L. Williams, Executive Vice President ing Ohio-permits construction co3ts for projects nearing completion to be Mmhn W, ggulaf rs mom often resp nd to pubhc perceptions than February 23,1983 included in rate base. This does not scientific realities.

mean consumers are paying for the plant before it renders senice-it only means they are paying " interest" costs on part of the money borrowed to build the plant.

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s (lur Avon lake Plant t hat karoundi and downtown Cleveland IforegroundL some 20 miles apart, are brought together m a summer sunset hv a 1.(M Mimm telephoto lens.

The photo was taken by Reserend E. St. Carreira. 5. J l

of John Carroll l'nnersity

agencies and those from whom We also improved the availability and Our contributions to the communitics we borrow.

efficiency of our generating plants we serve include efforts to improve the through an extensive Plant Availability social as well as the economic vitality of in 1982,we substantially improved and Efficiency improvement Program.

our service area. We are concemed our financial position. Our record A skilled team of engineers and opera-with the effect our operations have on earnings for the year supported two tions specialists was formed to study the quality of air and water, and we have increases in our quarterly dividend our power supply 8yatem. Recommen-worked hard to comply with environ-rate. Our return on common equity dations from the team to upgrade the mental regulations. We are the largest mereased. Our lesel of short-term system through specific maintenance property taxpayer in most of the com-borrowing was significantly reduced.

and capital improvement projects munities we serve. We are financial External financing reached a peak in resulted in reduced fuel costs. These supporters of health and social agen-1982 when we raised $434 million.

cost savings ultimately are passed along cies, education, the arts and sciences in This amount included the sales of nine to our customers.

Northeastem Ohio.

million common shares. We expect We provide electricity to an area of There are over 5,000 men and women about half of our future cash needs t" 1l700 square miles. This service area in The Cleveland Electric illuminating he generated intemally. thus contains approximately 1.9 million Company family-people who work sigmlicantly reducing our reb.ance on people, about 650,000 households and and live here in Northeastern Ohio.

external financing.

thousands of industrial and commercial They are a strong resource to their As in the past, we will continue to businesses. The dectric energy needs communities.They, too, want a better request rate increases as needed to of the people and industries in North-quality of life for themselves and their provide quality electric service to castem Ohio are growing and, in fact, families, their friends and neighbors Northeastern Ohio and to assure our are expected to increase by nearly and their fellow citizens.

share owners a fair return. With 45 percent by the end of the century.

Comorately and individually, the inflation abating and cost pressures he are committed to meeting our Company and its people are helping moderating, we are hopeful that future customers needs by insunng that we make their communities better places rate requests will be smaller and less have the capacity required to provide to work...better places to live and raise frequent than in the recent past.

electricity at the lowest possible cost.

families...better places for personal development and enjoyment.

Product Reliability and Service Community Involvement Our record of product reliability and The economic and social vitality of our We believe that again in 1982 we have service area affects the success of our passed the three tests of our steward-service is the standard by which we are judged by our customers. They depend business and the well-being of our ship: good financial performance, on us to provide a constant, instant employees and their families. Thus, the excellent product reliability and service supply of electric power for their third measure of our stewardship is our and dedicated community involvement.

c ntribution to the communities to The rest of this Annual Report supports homes, offices and factories.

which we provide electric energy.

that belief.

In 1982, sersice reliability was nearly perfect. Interruptions were held to a One of the ways we meet this responsi-low level and restoration of service was bility is through our area development achieved more quickly than during the efforts. Our programs are designed to retain and expand existing businesses previous year, and to attract new ones by promoting the advantages of Northeastem Ohio.

Through participation in the Great I.akes Economic Policies Council, our devel-opment efforts have now been expanded to include the Great I,akes region.

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We are firmly comnutted to our sharc Financial Performance in 1982 o_, ama hm

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good stewards of their investment. ()ur first prii >nty tii < iin inve.stors is to pri s vide them with a fair return on their unestment. Miunt;uning mye.stiir ain-tidence in the filmpan) is il Cntical

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per share up 19 percent from 1981. We F

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sh.uc owner ret ord m. tem we imHemented m FN to po nidc hetter and f mter wn k t to our msestors l }chbic hLt.

m k fransfer Ocrk. s n llet t( d m t ht w reci;

~. _ __

l Quarterly Earnings and Ibidends Per Share The Act provides a means for share of Common Stock Mdlars) owners to shelter all or a significant

.s i ac e portion of dividends reinvested in our Ch M Common stoCh.

E I

The balance of funds obtained in 1982,

'"d approximately $3.3 million, was raised l

through employee stock plans.

i 2 m

l Extemal financing activity will be lower 32 ""**

in 1983 than in prior years. Our financ-l Ch E

ing plans include the sale of $100 mil-

'd lion of first mortgage bonds in the first 2.a M

half of the year and additional sales of

'd E

notes to the bond funds during the year.

i Capital will also be raised through our employee stock purchase plans and the 50

/to

.40 m

m im iso Dividend Reinvestment Plan. Finally, we are considering an additional pre-

. improved our ratio of earnings to fixed 30-year first mortgage bonds as col-ferred stock sale and we may borrow charges to 3.0 times m 1982 from 2.4 lateral security for these notes. Under funds to finance constmction of t,mes in 1981. At year end, our capital the agreement, we can sell $60 million additional pollution control facilities.

i structure consisted of approximately 4,.

of the notes by November 1984.

e For the first time since 1974, the i

percent debt,13 percent preferred and Th.is new agreement replaces a s..lar Company does not expect to make a imi preference stock and 40 percent ne which expired in April 1982. Th advantage of this financing program?

public common stock offering, largely t

common equity is because of the high level of share owner its flexibility. We can average our inter-participation in our Dividend Reinvest-Financings in 1982 est costs over a period of time or decline ment Plan.

Equity and debt financing activity 8*

extremely high."Last year, we ra."'"

totaled $434 million in 1982. Through ised Rates j

two public offerings of common stock,

$6.1 milhon m this manner.

The rates our customers pay for the j

totaling nine million shares, we raised

$150.4 million. We also raised $171.9 Through our Dividend Reinvestment services we provide are an ongoing and i

million through the public sale of Plan, in 1982 we raised $17 million critical concern of the Company. Our 30-year first mortgage bonds in March from reinvested dividends, up 79 per-rates must cover our costs and provide and November. In addition, through cent from 1981, and an additional $6.4 a fair return on our share owners' I

the Ohio Air Quality Development million in optional cash contributions, investment. Yet, we are mindful of the Authority, we raised $76.7 million of up 42 percent from 1981. Participation impact of our rates on household 30-year tax-exempt bonds to refinance in the Plan increased 60 percent in budgets and the operations of area l

tax-exempt pollution control revenue 1982 from the previous year, mainly businesses.

l bonds which mature in April 1983. We due to incentives provided by The The Company operates, as do all I

issued 30-year first mortgage bonds as Economic Recovery Tax Act of1981.

investor-owned electric utilities, under collateral security for the Authority's government regulation. When increased bonds.

costs force us to seek a higher price for in November 1982, we agreed to sell our products, we must request rate increases. In 1982, we received rate i

notes, periodically and in varying amounts, to a major financial institu-increases in three segments of our tion for inclusion in its publicly-offered business-retail electric, steam and wholesale electric.

bond funds. We issued $60 million of 4

Effective %rch 19.1982. The Pubhc million of the increase allows for earn-million. or 12 percent, increase in l'tihties Commission of Ohio (Pl'C( h ings on part of the construction costs steam rates.

granted the Company a 10 percent, of l' nit yl of the Perry Nuclear Power Early in 1983. the Company signaled its

$107 8 milhon retail electric rate Plant. For the first time since con-continuing commitment to this segment mcrease. l'his order. and the one struction began in 1974 customers of ts business by announcing a $1.5 discussed below, dealt with the recovery will be wntributing toward the costs of million capital improvement program through rates as an operating expense the i. it.

n M w 11 reduce operating costs. To of the wsts of four nuclear unit proj-Th Conm h e Am Mr he nnt mmudon from alternate fuels, ects terminated in 1980. This matter is ing and coohng to more than 300 the Company also offered a rate explained in detail in Note E of " Notes commercial customers in downtown reduction to those customers who to (,onsohdated F,inancial Statements..

C eveland While our steam business is make a long-term commitment to An additional electric rate increase of relatively small, steam sales totaled receive steam service.

$89.4 milhon. or 7.4 percent, went into more than $17 million in 1982. In Wholesale rates for electricity we sell to effect on Januarv 7.19KL Some $58

()ctober, the Pl'C() granted us a $2.4 other utilities are set by the Federal I

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s The conhng tower or Pern umts. of w hich the Compant i nit a l stands ompleted m the 11 percent. will help t he s

owns ha keround as the l'ern I'mt Compans keep pace with future n2 whng tower is built The energs needs tto 1.2n5-megaw at t nut lear 5

Energy Regulatory Commission (FERC).

Coverage Ratios

<1nother type of coverage ratio ichich in July 1981, we filed a request for a is imparant to the Osmpany but is not Coverage ratim are Gnandal

$2.3 million rate increase covering measun ments af a company's ability used by the credit rating agencies is the sales to the City of Cleveland s to pay intenst charges. The higher ihe 0"I *""9"9'.bondintaest on aage municipal electne system. Althaugh the raths ofinanne to sitaest chdyes. tk, ratio. Tins ratio is one of tiro tests request ns still pending with the FERL, g,y,,g, amq>any's marghdsd'ty achich must be nfet before the Company we began collecting under the new in paying huaestlThis m'easurement may i sue addkronalSrst mongage rates sn September 1981, subject to is simihir to the comparison ofincome bonds unda Hs Monyage. Thh test refund depending on the final FERC

,9 pg,imads achich is used by banks wquires that the C<nnpany's earnings, order. In November 1982, we filed for irhen approving mortgage bians for

" d'0"'.'d bi the Nortgage, must be at least tuice the amount offirst mort-an additional wholesale rate increase of hulickluah. TS an dage ratio is one gage hond interest charges. This cal-

$716,000, which ns also pending. We og,ge gcy ;gy;(g,o,,g,cy gy g oog,y,

culatu, m is less restrictive than the one wnll be allowed to begnn collecting g,7c,,u,, Sc,7;(c, S,,gganjg y,gy.,

under these new rates nn June 1983, usedby credit rating agencies prin-andother credit rating agencies.

again subject to refund depending cipally because only first mortgage upon the final decision.

Comparing coverage ratios for bond interest is considered and, thae-diffen>nt thne periods helps indicate fore, results in a higher ratio. The uhetha a annpany s Onanaalsitua-chart behnt shoirs'that the Company's Regulatory Climate Ifm is impnn n#. uva

"# o " ta#-

an aage rados for the last #re years Regulation of Ohio's public utilities m# e Sam na um. anwa#c have bwn substantially abore the tiro underwent considerable legislative ratio comparbons of companies trith-thnes requirement. The high ratios change, although Oh.lo voters rejected in a specific industry are one measure mean that the Company ias the a proposal for direct electnon of PUCO ofrelative financialstrength.

capability to issue a large amount af members by a margin of two to one.

Under the new regulatory law, which There are a number of trays to first mortgage bomb-our hntest cost went into effeet in January 1983, the calculate coverage ratios. One of the security This flexibility, ichich not all membership of the PUCO was in.

more armmonly used calculatitms is utilities have. is vitalto continue creased to five members from three Eamings Hefore hiterest Charges plus financing expansion at the kneest cost.

and terms were reduced to five years FederalIncome 7 axes plus the from six. The Governor is now required et/Antance for Horrmred Funds Used First %rtgage Ibnd Interest to fill PUCO vacancies from a list of During C<mstruction divided by Coverage Ratio candidates submitted by a 12-member hiterest on Short andI.ong-Term Debt.

ranel which makes selections based on The Company's coverage ratios for specific education and experience qual.

the last fire years based on this calcu.

ifications. In addition, the new law lati<m are sh<nen in the chart behnr.

disallows use of the " matching test year", which based rates on current Interest Charges Coverage Ratio costs rather than historical costs and o

i 2

3 e

5 thereby recognized the effects of infla-

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w2 ima%w tion on our financial results. A further no k=g as a= rage si provision of the new legislation i','j'i'",','O w

prohibits a utility from seeking a rate 3

increase ifit already has a rate case 3

pending before the PUCO.

There are indications that Ohio's

"'ma = d' 7

regulatory climate may become even more difficult for utilities. Any unfavor-able shift would affect the financial health of the utilities on which business is depending to meet its future energy needs. Ohio's economy depends on the l

vitality of its businesses. But, economic growth will not be possible without an adequate supply of energy.

9 l

l

Product Reliability anc Service

""r:T,"Otl'121""'

continuous senice at the lowest possible l

co.st. Ilow well we are meeting this objective is measured largely by our records of senice reliability and equipment availability and efficiency.

Service Reliability To our a N mers. our rehability record-tnat is, how well we supply adequate energy on demand-is of primary impodance. In 1982, as in prior years, we had a nearly perfect i

reliabihty record. 99 98 percent. This is typical of investor-owned utilities in the l'nited States where we have the best reliability in the world.

Our favorable record is partly the result of programs to maintain and improve system reliability. %st potential problems at our transmission and dis-tribution facilities are discovered and remedied without senice interruptions because of our preventive maintenance

{

program. This program includes many manhours spent in visual inspection and electrical testing.

The improvements resulting from

=

maintenance programs aided by less severe weather conditions, enabled us to hold the number of customer oatages to a low level.The average restoration times for those customers who experi-enced serv ce interruptions was reduced to about 57 minutes per outage, well below the 67-minute average of 1981.

Plant Availability and Efficiency

()verall. both availability and efficiency of our fossil fuel units improved during 1982. Availability. the percentage of time umts are available to provide elec-tricity. increased to 77 percent. up fiom 75 percent in 1981 Efficiency.

measured hs our abihty to generate more electncity with less fuel. also improsed. resulting in savings of 53 million in fuel expenses m 1982 from the previ<ius scar.

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Our maintenance planning and nuclear power plants-Perry, of which Peak Demandand Capacity scheduling program is one of the we own approximately 31 percent, and Sysicm peak donandoccurs in our factors responsible for our improved Beaver Valley Unit #2, of which we scrrice area most o/ tar during the j

availability and efficiency record. By own approximately 25 percent. Beaver summer months n hen electricity programming pertinent datainto our Valley is being built by Duquesne a

danandis pushed higher by heary air computers, we are better able to Light Company.

conditirmer usage. Thepcak r(presents schedule and manage equipment main-Some $48 million was spent on the marimum requironent for chytricity l

tenance at regularintervals. The improvements at the Davis-Besse and by our customers for any one. hour '

Company's ongoing program to mod-Bruce Mansfield Plants and for addi.

periodin a gircn ucar.

ernize existing plants through capital tional facilities at the Beaver Valley site.

In 1966, our peak tras 1,9h-improvements is another factor affecting our record of availability An investment of some $61 million was mcyarcatts. Orcrthe follorcing 15 and efficiency made to upgrade our transmission and years, it grew 13 percent to the record t

distribution iacilities.

3,362 megarratts set in 1981.

The prolonged outage of the Davis-jjou.cra; the1982 peak of3.078 Besse Nuclear Power Station during We spent $9 million to upgrade our 1982 for refueling and maintenance c al-fired generating units, several of mcyawatts, which occurred un fuly 16' meant that our coal fired generating which are more than 30 years old.

/c# short v//he 1981 rcairdprimarily units were in greater use. Our mainte.

Additional environmental equipment becatse o/the sharp decline in indus.

nance and modernization programs required to meet State and Federal trialactivity during theyear.

assured that our most efficient water and air standards was installed at Obviously, capacity planning cannot fossil-fueled units would be available a cost of $21 million.

be basedon peak danand for any when needed.

An expenditure of $"I million was made single year. As the economy recovers Although Davis-Besse experienced a for trucks and work equipment, data

/mm the current recession, peak i

lengthy shutdown last summer, its processing equipment and other items danand ui# resume #sgmirth. The operating statistics since returning to for day-to-day operations, all necessary C###### ### ### # "l####

l service in September show the to maintain the reliable, economical capacity to mccithe future demands o/its scrrice area. Our construction Station's potential as one of the best in senice our customers expect and our system. During the last quarter of deserve from us.

pmyram is destgrredto phasein new generating /acilitics atplanned t

i the year, Davis-Besse averaged 97 In 1983, our capital expenditures are intervals to meet that danand.

percent availability, with an average expected to total some $500 million.

capacity factor of 91 percent. The The largest allocations in the budget Peak Demami capacity factor measures actual output are for Perry and Beaver Valley tmitti<ms orkitowatts) j against maximum possible output.

construction. Other items are for Davis-Besse's electricity is the lowest additional improvement of our existing I

cost energy available to our system. Its coal-fired units and for transmission u

fuel cost is about 0.5 cents per and distribution facilities.

kilowatthour compared with 1.8 cents 25 l

for ourlowest cost coal units.

Growth Forecasts l

The need for current construction and 23 Expenditures for Plant and planning for new generation is pred-

~

Equipment icated on our growth forecasts for i.3 During 1982, capital expenditures Northeastern Ohio over the next 10 to j

for our power plants and equipment 20 years. By the year 2000, our resi-u, i

totaled $422 million.

dential, commercial and industrial cus-tomers will require nearly 45 percent o's j

The largest outlay m. 1982 was $276 more electric energy than they are million for new construction at two presently using, a compound growth o

l rate of a manageable two percent a year.

'*2 Clearly, that increased need, coupled l

with the need to replace aging units, will l

require additional generating capacity.

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Jack Schultz. owner or electnc geothermal heat pump Springbrook Gardens Nursen Str. Schultz savs that the heat in Slentor. inspect.s his plants pump has increased productivity w hich a c thri'.ing in the ideal at a sers reas<inable cost greenhouse environment of operation.

prosided bs his newh in<talled 13 l

l

l Present Construction toward ensuring that all construction is step t > ward full licensing. We believe The two 1.26 megawatt nuclear umts bei:ig donc properiv.

the Committee's action is indicative ot under construelion at l'erry will help us the overall Quality of the l'erry I'lant

(.

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.,n,,ng inasnmch it. the Committee's first rec-to keep pace with tho.se proiccted nulestone in 1982 In.luk. the Advisorv mendation of ten is for only a five needs.,I he Pern Plant, the largest o

lb ir Wuar-dx Ci, construction loh currently in ()luo with pert ent, low-power st:tdup. The next l

h pidt's mdtn ndt nt (uluw g

nts hi th N'RC.

step in the hcensing process is a series over 4.(W WI workers on site, is progress-ing satisf actorily. I he effods of our own of public hearings hetore the Atomic r 'onn ndt d a H H ) n rct nt n ewt r l'erry staff and the Nuclear Regulatorv Safety and 1.icensing lloard, which are t ommission INRC) have been directed

,g,,

t.M#LTb nse-scheduled to Ngin in May 19R nn ndation is an important intt rmediate 1

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Future Construction eventual savings in the tens or EPRiidentifies specific industry R&D Ilecause of the 10 to 15-year lead times hundreds of millions of dollars.

pmjects and then assigns many of the required to build a new unit, planning The Company continuously investigates F".>jats, ahnig trith funding, to unircr-s#ia andindgiantent racarch lab-for the additional generating capacity the potential application of new tech-

"*#""'" """'7*'*#"*S EENIS ##Ch' which will be needed in the 1990s must nology to all aspects of its operations.

nicalstaff, ichich has 144 PhDs he done now. The Company is investi-One way in which we carry on our among #s more than 200 members, gating various new technologies to fmd research is through active participation orasws, coon # nata and reports the most efficient, cost-effective by a number of Company specialists in extensively and regularly on the pmy-appn,ach to supplying the power needs the industry advisory structure of the mss of each pmject.

of the future consistent with the needs Electric Power Research Institute. You of the environment.

may read more about this activity in the Since 1972. more than 1,700 research We are studying three methods which story below.

projects hare been initiatedichich would reduce sulfur emissions from resultedin a comparable number of coal-buming plants: fluidized bed CEl, EPRIand R&D published reportt There are currently combustion which introduces limestone about 1,400 ac#w pmjwts unda g, gf

,P er Research histitute mto the coal-buming process; a EPRImanagement. The EPRIfunding (gppy g,

,,,,.,,,yy.qg gasifler system which converts coal to connlinate am'lintensifti the research

"""*U*""I"'0'"'P"5".#

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gas for use as a fuel; and fTue-gas 1982 thmugh 1986 totals $2 6 biHitm, scrubbers which remove substantially and da.cloinnent etfons ofdie including co-funding and cost sharing

'""'0 ""0 0

all of the sulfur dioxide from stack

, [7 by over'490 contractors and other ~

emissions. Successful applicatson of organi:ations. hi 1981. EPRTs total these methods would allow the The industry has many R&D goals in budact triH reach $326 million, up Company to bum more of the lower-common ineviving concentional fossil about eight percent fmm 1982.

cost, high-sulfur coal mined and nuc/ car funcer plants, alternate Harefus of EPRImscawh am swn in Ohio.

and advanced energy sources such as throughout the n_ adustry m the form of solar and fusion, p<nrer transmission, A fourth technology under investigation commenial dwims. daign spea& a-

,souwes and protection n/the ns a compressed air storage system nn H<nt, amtmls, te ting devices, data a imnmM Thu a cadralR&D which air would be pumped and com-and opaa#ng pmwdura. Fody one organi:ation has pmred to be eco-pressed m underground cavems. Such nNmicalandproductive.

commeraalproducts andservices a system would allow us to build a less resulting from EPRI research are non' costly unit to be used for peaking h assure that EPRIinvestments are available to the utility industry. Many capacity.

keyed to industry needs, the EPRI more trill be available in the next tu'a pmgnun 8 guidalby industni years. h: addition, such speciali:cd These altematives will be given equal advison/ annmutea and tasUowa services as the Coal Cleaning Test consideration until one emerges as a annposalof sailor wpmuntatives Facility and the Electric Poirer Data clear choice. We believe it is vital to I~* *""b" "UIU'_"' U"*, impany Hase have resulted fmm the organi:a-explore all of the options offered by curmHy has 10 sau'or technical tion's research.

new teehnoh>gies to provide the most apats uning in adenon/ m/a.

cost effective means of generating electricity. While this approach EPRTs fimding comes from nearly increases planning costs, it will provide 600 utilities acmss the countn/. rgw resenting about 70 percent of the nation's electric energy service. Our Company's contribution to EPRTs total 1982 budget of $302 minion tras

)

about $3.3 million, ichich makes pos-sible the Company's participation in research invoicing nuclear reactor ann-l ponents. reactor trater chanistry and Ruidi:cd bed combustiori, among others.

15 I

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l Judy Gaumer. word processor an adult Sunday School class.

at the Perry Nuclear Power h Gaumer works closely Plant has been a volunteer with retarded children at the worker with retarded children Happy Hearts School and with and adults for more than 12 retarded adults at the Ash l

vears. She is shown teachmg Cnft Industnes Erkshop.

16 L~________________________

The Company's success and the well-The benefits continue. Seventeen of l'olces o/ Reason: Our Speakers being of its employees and their families the nation's largest 500 firms are head-Hureau, Films, Ads and Executires is dependent on the economic and quartered in the Greater Cleveland Are Communicating social vitality of Northeastern Ohio, area. These companies require the ser-hr 1983, the Company's emphiyec-vices of a w! e range of other businesses ga/Od Speakers Bureau icill ce/chrate d

Thus, our commitment to the area goes beyond providing dependable electnc and professions, and they, m turn, its 30th anniversary li'hile it is impos-serace and touches the lives of the grow, prosper and create still others.

sible to knoir hou' mam/ people have 1.9 million people of the area m myn,ad Today, the technology and service been reached by the Bureau in all other ways.

industries are becommg an important tha> years, u e do knme that in 1982 For the more than 100 years ofits part of the area s economy.

g,,.7,q,g,., yy,,e ahnos 400 pie-enistence, the Company has invested Signs of vitality are clear in downtown sentations to groups ranging in size time, talent and money in environ-Cleveland, which is alive with new

/ rom 2;ito 300, a totalaudience of 4

mental projects, area economic devel-office building construction for such about 12J/00 people.

opment, health and social services, firms as Standard Oil Company of In addition, the Compam/ received higher education, the arts and culture Ohio, Eaton torporation, Medical, 7 !00 s /m mm k;4m our and other activities which have helped Mutual and Ohio Bell. TRW, Inc. is fihn librart/, schich trere ricu'ed by an improve the quality oflife m building a new headquarters, a m

'"N##".*"I S" I""##'

Northeastern Ohio.

Cleveland suburb. The Cleveland Clinic, P'C*I#' *edical facility and largest In Nay, n'e held a series o/ meetings Our sizeable investment in land, plants and equipment has made us the largest employer in the City of Cleveland, is icith share meners in our service area.

beginning a $200 million expansion.

As an adjunct to the regular annual property taxpayer in most of the com-Ily the mid.1980s, the Clinic's present meeting, Company executives took the munities we serve.

employment of 7,000 is expected to annualmeeting message to six Community / Area Development increase to some 10,000.

additionallocations, increasing the During the period following World War Community and area development b ib t 1'

i II, the Company mitiated an extens,ve work was, and is, an important effort of i

area development program.The cam-the Company. To help sell all prospec.

It' hen the total communicathms e// ort paign soon was adopted as a pattem tive employers on the advantages of by the Company is taken into account, for other major industrial areas. Our our area, the Company's activities are the audience includesjust about ercry industrial development campaign closely coordinated with those of the man, uwnan and chihlin Northeastern slogan "Best location in the Nation" Greater Cleveland Crowth Association, Ohio. Our mass communicathms became known worldwide.

the Cleveland Tomorrow committee Program-nercspapers, telerision and While the Company fostered growth and other development groups. These radio-reachedinto cren/ home many from expansion within, the need also efforts have now been expanded to times during the year. Our evecutires was seen to expand the base by attract.

encompass the Great Lakes region.

appeared on television and radio pro-ing new companies to the area. The We.ioined with other members of

1. rams throughout 1982. It'e also result has been new business, new jobs Cleveland's private sector to lead the ansu'cred nmre than 300,000 cus-and a larger, stronger and more diversi.

formation of the Great Lakes tomer mqumes through telephone fled economic base to benefit the Economic Policies Council. This calls ando// ice risits. A computerized Company and those who work and billprinting system mstal/cd last year reside here.

permus mclu wn ofbrie/ messages, enabling us to reach all of our 612,000 residentialcustomers each month.

The men andicomen of The Clercland Electricilluminating Company are taking the Company's message directly to the people they serve. Il'c are a dedicated team tchose only business pmposeis to pmride electric service to the homes. /actorles and businesses ofNortheastern Ohio-at the hnrest possible cost.

17

l organization of representatives from support to health and social services, the maior industrial cities on the Gre.it education. the ads and cultural 1.akes is working with public sector activities. Each dollar contnbuted is leaders to promote economic progress intended m some way to improve tht thniughout the region.

quahty of hfe in Northeastern (1hio.

j These activities have become even l

()ne of the area's greatest advantagt s is j

more important considering the reduc-abundant fresh water. a precious tions made in Federal spendmg for

< a

4. w. cx resource that is becoming scarce m social and civic proiects. I,hus. we other parts of the country. N.ortheastern 4 - ; i.

connnue to mak donahons ewn

'7

.(

-..$ 4

()hio. with its 1(H)-mile I.ake Erie

%.$ ;.. W+,-j

1. V. P though the t ompany has been denied s

shorchne. has access to !O percent of

i.... p-t

<e recovery through rates of its chantable

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. ff-M.

.g V s w-the world.3 suppl). In f act. the l.acat l

3 1,akes region has the largest supply of b,;i. 4 -(;.

y. V-l

, u' fresh water in the world.

The Company's donations arc made

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largelv through The Cleveland Electric

, 0' '4. -

In this time of economic uncertainty.

Illuminating b.oundallim. l'he b.( punda-l n.--

we recognize that many of our cus-e tion was established over.?O years ago l

w

• %k tomer prospects are engaged in coping l

n managenwnt mcognM Ow

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/

with the immediate problems of the w

i h

recession. However. wv are sowing nu dunng more profitable years. to

).,

inwst contributions for future use.

7 M

seeds for the future. The promotion of

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[' 'W' location to key markets, dependable In this way. the b oundation enables the 8

our area s advantages-Its central

, in}pany to maintain a consistent level e. ^* ) ;

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of giving in both good and lean years.

i -

t. 1 :,. e energy supplics, abundant supplies of Its contnbutions place us among the y

tresh water and a skilled labor force.

,.a leaders of()hio electric utilities in

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()ur efforts to foster economic growth Employee Involvement u-x

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in our service area extend to our own We are particularly proud of the degree

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A purchasing. To the extent possible. we to which our employees contnbute to

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buy equipment and other supplies from the well-being of their communities.

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our customers. For example. in 1982.

For example. our employees' United

'/

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we ordered almost 150 replacement Way giving in 1982 amounted to over

.g.,,.

passenger cars and light truckf-

$1 million which was augmented by an

. y.

,e vehicles made by American workers.

additional $300.00() from the Company

q..' '

including Clevelanders. ()ur purchasing Foundation.

e-

, 4 7,. - ' '..b c ' ' ;.., '. ",. -

pohey affects a wide vaety of local T- %'

.t Y [.- 'rh '

businesses including machine shops.

Financial contnbutions are only one x

part of the community involvement of

?N.'77 combustion control manufacturers.

e." ;

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safety glasses suppliers. construction our employws. h Company consis-

'md mamtenance contractors and tently seeks to hire people who display j

f4 s,

. -r leadership ability. That we have been

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countless others.

successful in this effort is evidenced by

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Financial Support t(ie number of our employees who truly y V v g,.,

n y,.h.

Beyond the economic contribution giw of Nmselves as they provide j

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- ddb made by our business activities. the volunteer leadership to community l

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Company has long recognized a PI"iects and governmental bodies.

responsibihty to provide direct financial l

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• a serv ce engineer holds free tax J -:.-

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.L semmars for senior citizens and i

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church gr<>ups l

Gul twunon. Enemccong bJc. b onc ist the l/-memIYT Nc% llc.henh UI5nJcis I fus lughh ice.udcJ gospel mush gioup jX tti fills M1 (hillihes 8 Pl all Jciliimniati.uis.

hi tmo fill t he (ldcih alld pibe dls in t b'

( h scLmd nca E.u h scar the eniup tours the 5outh and he standme mutatiom f t'l.H1nual JplMit alh es In heh I' 4 k i its 18

\\tlanta and Chu ago

• a bilhng clerk works with voung black women, involving them in community social service projects

• a Tele-Communications Unit supervisor and a Company telephone operator are hospital volunteers

• itn electric serYice installer was selected ".N1an of the Year" by the

()ptimists Club tiir his wiirk in sct 411ing

• a l'ersonnel clerk volunteers for the American lleat1 Association a word processor at the l'erry Plant a

teaches mentally retarded children

• more than 30 emplovees serve as

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bp

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i

• the number of scout leaders. l.ittle I eague coaches. sernce club officers Mg and church and social agency workers runs well into the hundreds e in the area of community y

development. Company employees 3

are serving with organizations such 4

as the Ashtabula County Citizens Committee and the City of Rocky 9

River I)egn and Construction Board

.,ae o professional group members total more than 500 in organizations as N

D%

diverse as the American Institute of

'W Architects and the l'urchasing I

.\\lanagement Association

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This sampling indicates the diversity of interest and depth of commitment of our employee volunteers. We are proud that thev give to these activities the same dethcation they give to their jobs.

()ur respon.sibility to the communities we setxe goes beyond meeting the energv needs of the area. The Company and its employees are invest-ing their time. talent and money to contribute to the social and economic needs of Northeastern ()hio and its

/

people.

Chff Ilissell. Senior Community president of the Consodium, a Development Representative group of six maior educational lleft L reviews a report by the mstitutions formed to tram Western Reserve Consortium people to meet the needs of with Paul A. Reichert. Dean existmg and new industnes of Kent State l'niversity's in the castern pad or our Ashtabula campus. Mr. Hissell service area.

was an organizer and first 19 j

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Management's Discussion anc Analysis of Financial Concition anc. Results of Operations Capital Resources and Liquidity increase effective January 7,1983. We also secured various increases in steam, wholesale power and street Our capital requirements stem from our ongoing lighting rates in the three-year period. These rate program of constructing facilities needed to meet nereases, coupled with effective cost control and higher anticipated demand for electric service, to replace AFUDC, offset effects of inflation on operating expenses, worn-out facilities and to comply with pollution control higher interest expense, stock sales and the delay regulations. Over the years 1980-1982, we spent between the time our costs go up and the time we approximately $1.2 bilhon on the construction program.

receive a rate increase to cover those increased costs.

This amount included an allowance for funds used Consequently, earnings per share rose in 1981 and during construction ( AFUDC) which ts explained in Note 1982, reaching a calendar year record level of $3.01 in A of" Notes to Consolidated Fmancial Statements.' At 1982. Also, the ratio of earnings to fixed charges rose December 31,1982, our purchase commitments totaled in 1981 and 1982 (2.3. 2.4 and 3.0 in 1980,1981 and

$447,000,000, of which $236,000,000 pn,ncipally related 1982, respectively).

to the construction program with the balance applicable to the cost of acquiring nuclear material and processing it into fuel' Rate of Return on Comnmn Equity Authorized vs. Achiewd After paying our expenses, taxes, interest and dividends, Orrcent) our business currently does not generate all of the funds needed for our construction program. Therefore, we

,y hdMmy j,,j I

li7.3o must supplement our internally generated funds with "QQ j-lis.22 n[.cw((u_gesj lml y" additional money raised from mvestors. In the past three

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years, about 70% of the money used for construction g

was raised from sales of securities, such as notes, first 7

i mortgage bonds and preferred and common stocks, w Q Q=cwgM and from bank borrowmgs.The cost of these funds has 12 3 es-by m

been high and the common stock was sold at various f

prices below book value. We also raised funds from two os 4

x i2 is 2o sales of the Federal income tax benefits related to equipment placed in service in 1981. These sales were l Auth-iwiyirco made possible by changes in the tax treatment of equip-y a,3,,mf ment leasing rules contained in The Economic Recovery Tax Act of 1981. Construction program expenditures in 1981, ratings on our first mortgage bonds were over the next several years are expected to be funded I wered to "A" by both Moody's Investors Service and about equally from internal and external sources.

Standard & Poor's Corporation. Previously, the bonds In order to be able to attract money from investors on were rated "Aa" by Moody's and "AA " by Standard &

the best terms, we must receive sufficient and timely Poor's. Our preferred stock rating was maintained at rate increases to enable us to pay investors the return "a" by Moody's, but was dropped to "BBB" from "A "

on investment they demand in the form of interest, by Standard & Poor's.

dividends and increased net worth. We have vigorously sought rate increases over the last three years. As a result. The Public Utilities Commission of Ohio (PUCO) granted us the following rate increases in the last three years-9.0% (1980),17% (1981) and 10% (1982). In addition, the PUCO granted us a 7.4% electric rate 21

We will continue to seek fair rate levels in order to revolving loan commitments. In accordance with maintain as strong a financial position as possible.

customary industry practice, part of these lines is held Without adequate rates it would be impossible to earn in reserve to ensure that we will be able to pay off a fair return for our common stock share owners in an commercial paper when it is due. Our commercial paper inflationary economy. Inadequate returns could also has the highest rating given by Moody's. Standard &

result in further lowering of our securities ratings, Poor's rates our commercial paper in its second highest thereby increasing the cost of raising money from category. Note K of" Notes to Consolidated Fr..ancial outside sources. Our rate increase requests and future Statements" gives the details of our credit arrangements.

financing plans are designed to prevent further lowering of our ratings. We aim to maintain a balanced capital Results of Operations structure of 40-42% common equity,10-12% preferred The chart below shows the factors which have affected and preference stock and a maximum of 48% debt. At our electric revenues in each of the last five years.

year end 1982, our capitalization structure was 40%

common equity,13% preferred and preference stock surces of Electric Revenue increases and 47% debt. Specific financing plans are discussed Imillions o/Jdlars>

elsewhere in this Annual Report.

l l

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Over the 1983-1987 period, we must refinance

>2 :

-50 ut 2

$339,320,0(X) of maturing debt and preferred stock I

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-21 us which was outstanding at December 31,1982. In addition, hea 3

we are required to offer to purchase $19,400,000 of g~ :5 37 w

preferred and preference stock in both 1984 and 1985 L

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low interest rates. Refinancing of this debt will probably be done at much higher rates, thereby increasing our

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no average cost of capital.

The amount of first mortgage bonds the Company can b2 #"#""""#

issue is limited by our Mortgage and Deed of Trust. The "a!< /m=5 amount fluctuates depending upon the remaining amount

.ves wume nany, of bondable property and upon eamings and interest rates. At December 31,1982, we would have been permitted to issue approximately $694,000.000 of In the last two years, the most significant factor affecting kilowatthour sales was the recession which additm, nal first mortgage bonds. There are no restrictions began in 1980. In 1982, industrial sales declined 14.5%,

on issuing additional authonzed preferred stock and rimarily among our machinery and steel manufacturers.

preference stock.

n 1981, industrial sales increased 2.7%. The weak We use short-term financing, such as bank lines of economy as well as milder weather were the major credit and the sale of commercial paper, to give us factors affecting sales to commercial customers in 1982 flexibility in timing our long-term financings. Money and 1981. As a result, commercial sales increased only raised through these short-term arrangements is 0.4% in 1982 and 0.7% in 1981. Residential sales were primarily used to finance temporarily our construction down 0.9% in 1982 compared with a 2.0% decline in program. We have a total short-term borrowing capability 1981. The decreases were primarily attributable to of $200.0(X),000 in the form of bank lines of credit and milder weather. There also was a slight decline in the number of residential customers in 1982 as new housing starts were depressed. Overall, sales declined 7.7% in 1982 and 3.6% in 1981.

22

I 1

l Fuel and purchased power expense is the largest part Other significant items affecting earnings per share in of our operating expenses. The amount of purchased 1982 and 1981 were increased preferred stock dividends power varies from year to year depending upon the and a greater number of outstanding common shares

]

availability of our power plants, the energy demands of resulting from additional external financing and higher our costomers and the price of electricity available from preferred dividend rates. In 1981, interest payments other utilities. !n 1982, purchased power expense was also increased significantly. The impact of the increases i

eliminated because of lower kilowatthour sales, improved in these items was partially offset by related increases availability of our plants and power sales to other in the amount of AFUDC.

utilities. In 1981, purchased power expense was sharply For a discussion of how we are affected by inflation, reduced from 1980 primarily because of the greater see " Supplementary Information Concerning the Effects availability of the Davis-llesse Nuclear Power Station.

ofInflation:'

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Total fuel and purchased power expense declined in 1982 because of the decrease in kilowatthour sales and a slight decline in the unit cost of fuel. This expense also declined in 1981 from 1980 despite sharply higher prices of coal and oil because of lower kilowatthour sales and greater use oflow-cost nuclear generation.

Nuclear generation accounted for 7%.13% and 10%

of our total electric generation in 1980,1981 and 1982, respectively.

4 23

Management's Statement of Responsibility for Financial Statements The management of The Cleveland Electric illuminating Company is responsible for the consolidated fmancial statements which appear in this Annual Report. The statements were prepared in accordance with generally accepted accounting principles which are appropriate in the circumstances. These principles require that certain amounts must be recorded based on estimates. Such estimates are based on an analysis of the best information available regarding the amounts to be estimated.

We maintain a system of internal accounting controls. The control procedures are designed to assure that the financial records are reasonably complete and accurate. They also are designed to help protect the assets and their related records.

We make an effort to ensure that the costs of our control procedures do not exceed the benefits.

We have an internal audit program which monitors the internal accounting controls. This program is designed to examine whether the controls are adequate and effective. Also, an examination of the financial statements is conducted by Price Waterhouse, independent accountants, whose opinion appears below.

The lloard of Directors of the Company is responsible for determining whether management and the independent accountants are carrying out their responsibilities. The Board has appointed an Audit Committee, comprised entirely of outside directors.The responsibilities of the Audit Committee are described elsewhere in this Annual Report.

1 I.

Report ofIndepencent Accountants 11 '

1*

1900 CENTAAL NATIONAL BANK BUILDING CLEVELAND. OH 44114 ater10USC 2,e rei.3700 f

To the lloard of Directors and the Share Owners of The Cleveland Electric illuminating Company:

In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, capitalization, retained earnings, and changes in financial position present fairly the financial position of The Cleveland Electric illuminating Company and its subsidiaries at December 31.1982 and 1981, and the results of their operations and the changes in their financial position for each of the three years in the period ended December 31,1982,in conformity with generally accepted accounting principles consistently applied. Our examinations of these statements were made in accordance with generally f

accepted auditing standards and accordingly included such tests of the accounting records and such other auditing l

procedures as we considered necessary in the circumstances.

February 4,1981 Price Waterhouse l

24

~ _ _ _ _ _ _ _ _ _ - _ _ _ _ _ _ _ _ _

1

Income Statement The Cleveland Electric illuminating Company and Subsidiaries For the Year Ended December 31, 1982 1981 1980 OPERATING REVENUES Electric

$1.091.034 $1,000,734

$878,501 Steam 17.517 12,196 15.065 Total Operating Revenues 1.108.571 1,012,930 893,566 OPERATING EXPENSES Operation Fuel 330.674 322,154 268,096 Purchased power (1.393) 29,256 91,292 Other 168.802 149,374 128,782 498.081 500,784 188,170 31aintenance 81.789 74,925 67,058 Depreciation and amortization 86.588 85,294 64,619 hxes,other than Federalincome tax 106.XO4 91,f>t8 81,630 Federalincome tax 106.382 67,575 41,574 Total Operating Expenses 879.f>t4 820,226 743.051 NET OPERATING INCOblE 228.927 192,704 150,515 NONOPERATING INCO31E Alk>wance for equity funds used during construction 76.896 48,970 40,873 Other income and deductions, net (2.181) 10,617 7,605 Federalincome tax-credit 22.234 16.125 13.962 Total Nonorerating Income 96.fe9 75.712 62.440 INC051E IlEFORE INTEREST CllARCES 325.596 268,416 212,955 INTEREST CilARGES Long-term debt 134.250 121,040 95,085 Short-term bank loans, commercial paper and other 9.822 25,672 17.538 Allowance for borrowed funds used during construction (27.440) i34,030)

(25.051)

TotalInterest Charges 116.f02 112.682 87,572 NETINCOb1E 208.904 155,734 125,383 Dividend requirements on preferred and preference stock 38.293 34.917 27.711 EARNINGS AVAILABLE FOR C051510N STOCK

$ 170.669 $ 120.817

$ 97.672 EARNINGS PER CO31310N SilARE 3.01 2.52 2.26 DIVIDENDS DECLARED PER CO31>10N SilARE 2.19 $

2.08 2.00 eba.nec Earnings Statement For the Year Ended December 31, 1982 1981 1980 (Thousands of Dollan)

IIALANCE ATllEGINNING OF YEAR S 280.285 $ 258,432

$245,716 ADDITIONS Net income 208.904 155,734 125,383 DEDUCTIONS Dividends declared Preferred stock 33.900 29,762 22,949 Preference stock 4.418 4.417 4,417 Common stock 124.841 99.134 85,2 %

Costs ofissuing equity e :curities 627 568 5

Total D< ductions 1fa.786 133,881 112.667 IIALANCE AT END OF YEAR

$ 325.463 $ 280.285

$258.432 The aconnpunymg notes are an integralpart of these financialstatements.

25

Balance Sheet at December 31 TheCleveland ElectricilluminatingCompanyandSubsidiaries eb 1982 1981 (Thousands of Dollars)

PROPERTY AND PLANT Utility plant Electric in service

$2.684.629 $2,585,892 Steam in service 40.172 38.546 2.724.801 2,624,438 Less accumulated depreciation and amortization 679.890 621353 2.011.911 2,003,085 Construction work in progress 1.283.731 986.457 3,330.M2 2,989.542 Nuclear fuelin trust 52.731 Other property,less accumulated depreciation i1.463 23.870 3.394.838 3,013,412 POLLUTION CONTROL CONSTRUCTION FUNDS-unexpended 17.778 36,337 CURRENT ASSETS Cash 5.216 6,946 Temporary investments,at cost 54.101 17,750 Amounts due from customers and others, net 101.858 94.407 blaterials and supplies, at average cost 28.123 25,M0 Fossil fuel inventory, at average cost 75.403 68,773 Taxes applicable to succeeding years 87.130 63,610 6ther l.817 l.786 353UA8 278,912 DEFERRED CilARGES Unamortized costs of terminated proiects 52.383 49,598 Deferred fuel 5.761 11,M2 Other 18.844 16,174 76.990 77,414

$3.M3.29 ) $3.406.075 Capitalization anc Liabilities CAPITAllZATION (See statement of Capita 2zation)

Long-term debt

$1.441,822 $1,328,4M Serial preferred stock With mandatory redemption provisions 26JXX) 268,000 Without mandatory redemption provisions 93.071 95,071 Serial preference stock with mandatory redemption provisions 57.000 57,000 Common stock equity 1 227.093 1.002,206 3.0S5.988 2,750,681 CURRENT LIABILITIES Current portion oflong term debt and preferred stock 71.145 23,145 Notes payable to banks and others 19.100 94,963 Accounts payable 91.128 105302 Accrued payroll and vacations 15.407 13.353 Federalincome taxes 10,149 8.300 l

Other taxes 110.011 103,631 Interest 31.26S 27,491 Other 7328 5.286 DEFERRED CREDITS Unamortized investment tax credits 153.582 102.438 Accumulated deferred Federal income taxes 155.832 134,043 Unamortized tax benefits sold to others 24.226 25.101 Nuclear fuel trust obligations 32.751 Other 15379 12341 401.770 273,923 CO)1311TS1ENTS AND CONTINGENCIES-See Note L 1he acawnpanyrng m>tes are an integralpart af these finamialstaternents.

53 8AA 29% $3 A000I5 26

Capitalization at December 31 The Cleveland Electric illuminating Company and Subsidiaries 1982 1981 1982 1981 (Thousands of Dollars)

(Percent of Capitahzaten)

LONG-TERM DEBT (a)

First mortgage bonds-maturing through 2013 at rates of 2%% to 16%% (Less $50,000,000 in 1982 and $20,000,000 in 1981 classified as current)

$1,245,191

$1,092,291 Collateral pledge notes (b)- maturing in 2012 at semiannual equivalent rates of 12,79% to 13.07%

6,1(x) 23,900 Term bank loans (c)-maturing 1984-1988 at variable rates 134,000 134,000 Promissory notes-maturing in 1983 at a rate of 14%

(classified as current in Ir32) 20,000 Pollution control notes-maturing through 2012 at rates of 5.6% to 6.7% (Less $105,000 in 1982 and 1981 classified as current) 57.840 57,945 Other-net (1,309) 268 Total Long-term Debt 1,441.822

_1J28,404 47 48 SERIAL PREFERRED AND PREFERENCE STOCK-cumulative, without par value,4,000,000 and 3,000,000 authorized shares, respectively Preferred stock without mandatory redemption provisions Annual Dividend 1982 Series Rate Shares A

$7,40 500,000 50.000 50,000 B

$7.56 450,000 45.071 45,071 Preferred stock with mandatory redemption provisions less current portion 95.071 95,071 Annual Mandatory Dividend 1982 Redemption Series Rate Shares Price C

$ 7.35 250,000

$ 100 25.000 25,000 E

$ 88.00 51,000

$1,000 51.000 54,000 F

$ 75.00 50,000

$1,000 50.000 50,000 C

$ 80.00 40,000

$1,000 40.000 40,000 11

$145.00 28,500

$1,000 28.500 28,500 I

$145.00 31,500

$1,000 31,500 31,500 J

$113.50 29,000

$1,000 29,000 29,000 K

$113.50 10,000

$1,000 10,(M)0 10,000 265.00()

268,000 Preference stock with mandatory redemption provisions Annual Mandatory Dividend 1982 Redemption Series Rate Shares Price 1

$77,50 57,000

$1,000 57.000 57,000 Total Preferred and Preference Stock 417.071 420,071 13 15 COMMON STOCK EQUITY

(

Common shares, without par value-85,000,000 authorized; 61,774,582 and 51,054,503 outstanding in 1982 and 1981,respectively 901.632 721,921 Retained earnings (d) 325.463 280,285 Total Common Stock Equity 1,227.095 1,002,206 40 37 TOTAL CAPITALIZATION

$3.085.988

$2,750,681 100 100 (a) long-term debt matures dunng the next five years as follows: $68.105.000 in 1983 (classified as a current liability on the consolidated Balance Sheet);

$M2.210.000 in 1984; $70.501.000 in 1985; $57.210.000 in 1986; and $27,210.000 in 1987.

(b) The collateral pledge notes shown as outstanding in 1981 were exchanged for first mortgage bonds in September 1982.

(c) The term loan agreements were amended in 1982 to provide that, at the Company's option. interest payments will be based on either pnme, bank certificate of deposit or EuroJollar rates.

(d) As of December 31,1982 there was no restriction on the nght of the Company to pay dividends in any amount up to all the earnings retained in the business.

The accompanybg rwtes are an integralpart of these financialstatements.

27

i l

Changes in Financial Position TheClevelandElectricilluminatingCompanyandSubsidiaries For the Year Ended December 31, 1982 1981 1980 FINANCIAL RESOURCES PROVIDED Net income

$208.9M $155,734 $125.383 Items not affecting working capital Depreciation and amortization 86.622 85,325 M,M0 Deferred Federalincome tax 72.103 43,931 30,330 Allowance for equity funds used during construction (76,896)

(48,970)

(40,873)

Other 918 1,910 1,636 Total financial resources provided from operations 291.711 237,930 181,116 Sales of <ecurities First mortgage bonds 277,600 82,200 171,591 Preferred stock 70,500 28,500 Common stock 179.711 67,622 79.604 Total sales of securities 457.311 220,322 279,695 Term bank loans 50,000 Promissory notes 30,000 Collateral pledge notes 6,100 4,800 19,100 Nuclear fuelin trust 52,751 Sale of tax benefits to others 25,199 Pollution control funds expended 18.559 57,805 95,255 Deferred fuel costs 5.881 Increase in short term debt and other borrowings 80,431 Working capital decrease (a) 14.591 Other 126 1,451 Total Financial Resources Provided

$832.439 $612.098 $685,597 FINANCIAL RESOURCES USED Additions to utility plant

$422,170 $409,277 $398,088 Allowance for equity funds used during construction (76.896)

(48,970)

(40,873) 345.274 360,307 357,215 Retirement of first mortgage bonds 94,7m) 31,831 Retirement of preferred stock 3,000 3,000 Retirement of promissory notes 10,000 Retirement of collateral pledge notes 23.9(X)

Dividends 163.786 133,312 112,662 Pollution control construction funds deposited 22,200 123,300 Deferred fuel costs 11,642 Nuclear fuel trust obligations 52,751 Decrease in short-term debt and other borrowings 76.200 71,637 Working capital increase (a) 72,828 51,715 Other 8,874 Total Financial Resources Used

$832.439 $612,098 $685.597

SUMMARY

OF CilANGES IN WORKING CAPITAL (a)

Temporary investments

$ 36.351 $ 17,750 $ (4,300)

Amounts due from customers and others, net 7.451 (10,477) 26,572 Fossil fuelinventory 6.630 1,306 11,912 i

Taxes applicable to succeeding years 23.520 5,499 4,351 Accounts payable and accrued payroll and vacations 12.120 (16,108) 9,634 Federal income and other taxes payable (8.229)

(5,446) 120 Other (5.015)

(7,115) 3.426 Change in Working Capital (a)

$ 72,828 $ (14.591) $ 51,715 (a) Other than short-tenn borrowings and current portion oflong-term debt.

The accompanying notes are an integralpart of these financialstatenuests.

28

I I

Notes to ConsoLic ated Financial Statements Note A-Summary of Significant Accounting the unrecovered portion of these costs and amortize them Policies rather than write them ots as a loss. Our share of the un-i recovered costs is included in Deferred Charges on the We are required to follow the accounting principles or rules balance sheet as Unamortized Costs of Terminated Projects.

set by The Public Utilities Commissi(m of Ohio (PUCO) and the Federal Energy Regulatory Commission (FERC). The Allowance for Funds Used During Construction principles we follow are also substantially consistent with the We pay interest and dividends to our investors for the use requirements of the Financial Accounting Standards Board, of their money. This is called the cost of money. The PUCO as expressed in their Standard No. 71," Accounting For the and the FERC allow us to include as part of the total cost of Effects of Certain Types of Regulation." A description of our constructing new assets a portion of the cost of money paid j

significant accounting principles follows.

on funds which are tied up in construction projects. Such Consolidation cost of money is called Allowance for Funds Used During Our financial statements include the accounts of two minor Construction (AFUDC).

l subsidiaries. We own all of the stock in both. One subsidiary When a construction project is completed or, if the PUC0 i

is The CEICO Company which owns nonutility land and allows, at least 75% completed, the funds invested in it are performs certain nonutility services. The other is the CCO no longer considered tied up in construction and we stop Company which coordinates the operation of a five-company recording AFUDC.The cost of the project at that time, l

power pool (which includes the Company) called the Central including its AFUDC,is treated as a new asset and is used to l

Area Power Coordination Group (CAPCO). The costs of determine the rates we charge our customers for service.

CCO are shared by all the CAPCO companies.

Because the resulting rates include a factor for all these Property and Plant costs, we are being allowed to recover in cash all costs of the The property we own is stated in the financial statements at property, including AFUDC, over the useful life of the property.

its cost when it was first devoted to public utility service. The The amount of AFUDC for an accounting period is determined cost of making repairs is deducted from revenues in the by applying a rate of AFUDC to the funds tied up in con-income statement as maintenance expense. The cost of struction.The annual AFUDC percentage rate is determined replacing or improving property is added to Property and by a formula set by the FERC. The rate represents an average Plant after deducting (retiring) the cost of the replaced of the cost of uney paid on funds tied up in construction.

property. When we retire property, there is also a reduction The rate is compounded semiannually.The part of the rate in the depreciation reserve on the balance sheet (which is which represents interest is reduced to recognize that interest labeled Accumulated Depreciation and Amortization).

is tax deductible.

Depreciation The amount of AFUDC appears on our income statement We report depreciation expense on our income statement as in two parts: under Nonoperating Income as the Allowance a current cost of doing business to account for the normal for Equity Funds Used During Construction and under using-up of our property. Depreciation is deducted in equal Interest Charges as Allowance for Borrowed Funds Used amounts over the estimated useful life of the property. For During Construction. On the balance sheet, the AFUDC example, if we estimate that an item will be useful for 10 becomes part of Construction Work in Progress.

years, we charge one-tenth of its value to depreciation The amount of AFUDC recorded in each accounting period expense each year.

varies. The variation occurs because of(1) the number of However,in the case of the Davis-Besse Nuclear Power dollars spent on construction, (2) the length of the construction Station (Davis-Besse), we utilize the units of production period and (3) the rate used in computing AFUDC. In 1980, depreciation method described in Note C.

the rate was 8.75%; in 1981,it was 10.17%; and in 1982, it was 10.00%.

I Terminated Projects In January 1980, CAPCO terminated plans to build four FederalIncome 'Ihx nuclear generating units. Before that decision was made.

The depreciation expense we report on our income statement considerable planning, engineering and designing had been is different from the depreciation expense we use to calculate done for these units. As described ir. Note E, the Company Federal income tax. There are several reasons for this is continuing legal action to recover from customers in rates difference. First, AFUDC and certain overheads are excluded 29 c

f i

Notes to Consolicatec Financial Statements from the cost of assets which we depreciate for tax purposes.

rate continues to be based on what we paid for fuel in the flowever, these costs are included in the basis for the preceding n. ath, depreciation shown on our income statement. Second, the Fuel period of time over which the Internal Revenue Service When we make a payment for coal or oil,it is recorded on (IRS) allows the cost of assets to be depreciated is shorter the balance sheet as Fossil Fuel inventory.When we make than the period of time (useful life) we use. Finally, the IRS a!!ows some of the depreciation we are entitled to m future a lease payment for r'icinr fuel, we record it on the balance sheet ut Jer Deferru '-

es-Other. As the fossil and years to be used early. (This practice is called liberalized nuclear fuelis used, a.onsfer the cost to the income depreciation.) Beginning with October 19m property additions, statement as fuel expense. Nuclear fuel amortization also the tax reductions resulting from the use ofliberalized depreciation and accelerated amortizAon are not recognized ncludes a recovery through rates for the ultimate disposal gg g

m the income statement as reductions of tax expense in the periods we obtain them. They are deferred to the periods in Accounts Receivable which we normally would have obtained them.The deterred Amounts due from customers and others was reduced by amounts are allocated to income over the useful life of the allowance for uncollectable accounts of $1.741,000 and property through a pn>cedure called normalization.

$1,126,000 in 1982 and 1981, respectively.

When we filed our Federal income tax return for 1980, the costs of our terminated nuclear projects were deducted as an Note B-Deferred Fuel expense. Ilowever, for income statement purposes in order to match the costs with their related Federal income tax 3g3 effects. the tax savings were deferred.

our rates are adjusted every six months to reflect changes m.

fuel costs. The differences between the cost of fuel actually When we place new property in service during the year, the used and the costs included in the bills to customers are IRS allows us a credit against the tax due for up to 10% of the deferred.The deferred amount is taken into account to fix investment we have made in the new asset. This is called an the fuel factor for a subsequent six-month period. We were investment tax credit. We record Federal income tax on our not allowed to defer such costs (except for the cost of coal income statement as though it were not reduced by this credit.

purchased under one coal contract) under the previous We recognize the tax savings from this credit over the life of monthly fuel adjustment method, the property involved through the procedure of normalization.

On August 25,1982, the PUCO issued an order providing The Economic Recovery hx Act of 1981 allowed us to sell that starting August 1,1982 both actual and deferred costs to others the tax benefits related to property placed in senice of coal used at the blansfleid Plant can be recovered from on and after January 1,1981.The monics received from two customers through the Company's electric fuel component such sales relating to 1981 property are being recognized rate under a formula which is expected to permit gradual in the income statement as a reduction of taxes over the recovery of such accumulated deferred fuel costs.

estimated useful lives of the property involved. The Tax Equity and Fiscal Responsibility Act of 1982 prohibits tax Note C-Depreciation benefit transfers of public utility property placed in senice afler 1982.

We calculate depreciation for most of our ek ctn.c property by multiplying our depreciable property by a composite depre-Our Federal income taxes are lowered because we can c ation rate. The composite rate is one based on the average deduct our interest charges from income. This reduction of life of all ocr assets. The rate also includes a factor for the taxes is split between Operating income and Nonoperating money expected to be received when we dispose of the Income. The tax reductions resulting from interest actually property (salvage) and the cost of dismantling and removing paid on funds invested in property currently being con-t (removal cost). Prior to Starch 1982, the composite rate structed are charged to Nonoperating Income. The tax used was 3.4%. Since blarch 1982, the rate, as set by the reductions ofinterest paid on all other funds are charged PUCO, has been 3.5%.

to Operating income.

Dav.is.Ilesse depreciation is based on the ratio of the amount Revenues of electric energy it produces in the accounting period to its

}

Customer meters are read or estimated and billed on a monthly total estimated energy production over its useful life. When cycle basis. Operating revenues are recorded when billed.

a nuclear unit is retired from service, we will have additional Prior to September 1,1981, the rates we charged customers costs to shut it down. These costs are called decommissioning

{

for electricity were made up of two parts. These parts were a costs. From 1980 through 1982, the depreciation recorded 1

base rate and a fuel rate. Each month's electric fuel rate for Davis-Besse included a factor for decommissioning costs.

was based on what we paid for fuel one month earlier. Since The factor was determined in 1980 estimating that the September 1,1981 under a new Ohio law, a fuel factor is decommissioning costs would be $20,000,000 in current included in base rates. The fuel factor is changed every six dollars. The factor used in 1981 and 1982 was based on an months after a hearing before the PUCO. The steam fuel estimate of $27,000,000 in current dollars.

30

liydroelectric plant and propedy held for future use have We calculate depreciation for our steam property by multiplying their own depreciation rates. Itates ranging from 1.8% to our depreciable steam property by a depreciation rate for 8.33% are used for hydroelectric plant. A rate of 3.66% is each individual steam account. The depreciation rates used used for property held for future use.

range from 2.22% to 3.42%,

Note D-Federal Income 'lhx Federal income tax, computed by multiplying the income before taxes by the statutory rate of 46%,is reconciled to the amount recorded on our books as follows:

% of

% of

% of pre Tax Pre-Tax Pre-Tax 1982 Income 1981 Income 1980 Income lTtwiusands (Timusands (Ttumands d tuumi d thami aIkam>

lbok income before Federal income tax

$293.093

$207,184

$152,995 Tax on book income at statutory rate

$134.803 46.0

$ 95,285 46.0

$ 70,358 46.0 Decreases in tax due to:

Excess of tax depreciation over bmk depreciation (3.608)

(1.2)

(2,508)

(1.1) 4,201 2.8 Allowance for funds used during construction 47,994 16.4 38,180 18.4 30,325 19.8 Certain overheads capitalized on the books 2.491 0.8 2,526 1.2 2.267 1.5 Other items 3.798 13 5.637 2.7 5.953 3.9 50.675 17.3 43.835 21.2 42,746 28.0 Total Federalincome tax expense

_ $ 84,128 28.7

$ 51,450 24.8

$ 27.612 18.0 Federal income tax expense is shown in the income statement as follows:

1982 1981 1980 (Thousands (Tiumsands IThousands d Dollast d Donarsi d Dollm)

Openting Expenses Current tax provision

$ 34.279

$ 23,668

$ 11,244 Changes in accumulated deferred Federalincome tax:

Liberalized dspre.iation and accelerated amortization 19,498 19,747 16,106 Terminated projects -

1,700 (1,841) 21,944 Other items _

(239) 8,361 (254)

Investment tax credit deferred,less amounts amortized 51,144 17,640 (7,466)

Total charged to operating expenses 106,382 67,575 41,574 Nonoperating Income Current tax provision (22.254)

(16.125)

(13.962)

Total Federalincome tax expense

$ 84,128

$ 51.450

$ 27,612 f

in 1980, we had a loss for I ederal income tax purposes. This The income tax we paid in 1981 and 1982 was reduced by happened principally because we deducted from taxable investment tax credits of $22,094,000 and $56,582,000, income the costs of four nuclear projects which were respectively. Since we had a loss for tax purposes in 1980, terminated in January 1980. See Note E. The resulting loss we could not use any investn.ent tax credit in that year.

we had that year was applied against taxable income in Investment tax credits which are available to the Company j

prior years.

and have not been used vnount to f 41,971,000.These un-used credits may be used to reduce tax liability through 1997.

31

Notes to Consolicatec Financial Statements Note E-Terminated Projects should be made. As a result, under generally accepted In January 1980, the CAPCO companies terminated their accounting principles, as of February 1,1983 we stopped plans to construct four nuclear generating units which were amortizing the terminated unit costs. As of December 31, in various stages of construction startup. The amount spent 1982, the unamortized terminated unit costs were $52,385,000, by the Company on these projects through December 31, or $31,506.000 (51 cents per share). after adjustment for tne

]

1982 was $62,413,000 (terminated unit costs). For a period tax reduction resulting from the deduction of the termmated of time, the PUCO allowed us to recover these costs through unit costs on the Company's Federal income tax returns.

rates to be charged to customers over a 10-year period The Company believes, based on the opinion of its counsel, beginning late in July 1980. It also directed us to amortize that it should not be required to write off the unamortized these costs in the income statement as a cost of service over terminated unit costs as a loss. However, if it becomes the same 10-year period.

unlikely that any regulatory relief ultimately will be allowed In July 1981, the Ohio Supreme Court ruled that the PUCO to the Company, then all of the unamortized terminated did not have authority under Ohio law to authorize the unit costs after adjustment for the tax reduction would have Company to recover these costs through rates as a cost of to be written off as a loss at that time.

service. As a result,in October 1981, the PUCO ordered us to discontinue amortization of the terminated unit costs and Note F-First Mortgage Bonds to reduce our rates accordingly, but not to write off the The Company has fust mortgage bonds outstanding, as follows:

unamortized amount without further order. Therefore, for l

service provided on and after October 27,1981. the Company Series Interest At December 31.

reduced its rates about 0.7% resulting in an estimated Due issued Rate 1982 1981 l

$6,700,000 reduction in annual revenues. We also stopped at-anu Dollam l

amortizing the terminated unit costs. This did not result in 1982 1947 3%

$ 20,000 l

any change in net income or earnings per share.

1983 1975 8.85 %

50.000 50,000 1983-A 1980 9%%

74,700 The Company appealed the rate reduction to the Ohi 1984 1977 7.55 %

25.000 25,000 Supreme Court. The appeal was dismissed by the Court. We 1984-A 1980 12%%

30,000 30,000 appealed both the Ohio Supreme Court's original ruling and 1985 1950 2%%

25.000 25,000 its dismissal of the rate reduction appeal to the United States 1985-A 1980 11%%

18.291 18.291 Supreme Court. That Court has refused to hear both appeals 1986 1951 3%%

25,000 25,000 on procedural grounds, 1986-A and H 1976 5%%

5.000 5.000 1989 1954 3%

20,000 20,000 In the proceeding for the electnc rate increase granted t 1989-A 1981 15%%

40 40.000 the Company by the PUCO effective March 19,1982, the 60[000 1990 1969 7%%

000 60,000 Company tried again to obtain recovery of the terminated 1991 1969 8%%

35.000 35.000 unit costs in rates as a cost of service, but the PUCO refused 1992 1981 15%%

20,000 20,000 because of the Ohio Supreme Court's ruling. Ilowever, the 1E93 1958 3%%

30,000 30,000 PUCO increased the rate of return on common stock equity 1994 1959 4%%

25.000 25,000 in recognition of the added risk incurred by common stock 2005 1970 8%%

75.000 75.000 owners as the result of the disallowance of the terminated 2006-A 1976 7%

14,000 14.000 unit costs as a cost of service. The PUCO also authorized 2009 1974 9%%

50,000 50,000 the Company to amortize the unamortized terminated unit At C 1 9

000 000 costs over a period not to exceed 15 years. In April 1982, 2010-B to N 1982 12.10 4 15.75 %

23.900 the Company began 15-year amortization. In July 1982, an 2011 1976 8%%

125,000 125.000 opponent appealed the PUCO's decision on rate of return to 20ll-A 1980 (a) 48.600 48,600 the Ohio Supreme Court and the Company appealed the 2011 B 1981 (b) 22.200 22,200 PUCO's refusal to allow recovery of the terminated unit 2012 1977 8%%

75.000 75,000 costs in rates as a cost of service. These appeals are pending.

2012-A 1982 16%%

75,000 The Company plans to appeal this case to the United States 2012-B 1982 13%%

78,700 Supreme Court,if necessary, in its continuing effort to recover 2012-D 1982 12%%

100.000 the terminated unit costs in rates as a cost of service.

2013 1978 6.20 %

47,500 47.500 In its January 5,1983 rate order, the PUCO again denied 1'295'191 1'112 291 Less amounts classified as current 50.000 20 000 recovery of the termmated unit costs in rates as a cost of service. The PUCO also stated that the rate of return on

$1.245.191 51,092.291 common stock equity granted in this case recognized the (a) The interest paid on these bonds is at a vanable rate. That rate can be added risk resulting from the disallowance of such recovery no lower than 6% and nn higher than 12%. The average rates in 1981 and and, therefore, no additional increase in that rate of return 1982 were 9.99% and 927%. respectively.

(b) The interest paid on these bonds is at a variable rate. That rate can be no lower than 6% and no higher than 14%. The average rates in 1981 and 1982 were 10.40% and 10.26%. respectively.

32

The first mortgage bonds are issued under our Mortgage.

All the rental payments we make for nuclear fuel and unit The Mortgage puts a first lien on almost all the property trains are recorded in balance sheet fuel accounts. The costs we own and franchises we hold.

in these accounts are transferred to fuel expense on the The issuance of additional first moiigage bonds is limited income statement as the fuel is used. See Note A-Fuel. We by two provisions of our Mortgage. Under the more restrictive paid rent of $8,180,000 in 1982, $7,925,000 in 1981 and of these provisions, we would have been permitted at

$7,240,000 in 1980 for nuclear fuel and unit tram leases.

December 31,1982 to issue approximately $694,000,000 kase payments under all other leases were not material.

of additional first mortgage bonds. This amount fluctuates Some of our leases have noncancelable terms of more than depending upon the remaining amount of bondable property one year. We have to make the following payments for these and upon earnings and interest rates.

leases after December 31,1982:

The collateral pledge notes included in the statement Year Amount of Capitalization were issued under an agreement signed in crhousanas or oonno 1982. This agreement permits us to borrow additional 1983

$ 3.942 amounts from time to time up to $60,000,000 over a two-1984 3,706 year period. The interest rate on each borrowing will be fixed 1985 3.350 when it is made, but cannot be higher than 16%%. We have 1986 2,775 delivered $60,000.000 of our first mortgage bonds as 1987 2.259 security for our obligation to pay the collateral pledge notes later Years 2.260 issued under this agreement. Although these bonds are not Total

$13.292 shown as outstanding in the statement of Capitalization, they are outstanding under our Mortgage.

We did not include in the above table the payments we must make on our Davis-Besse nuclear fuel reload leases. Since the payments are made when fuel is used, we do not know j

Note G-Leases the timing or total amount of the rental payments. Ilowever, As part of our operations, we have entered into the following we do know that the lessor has invested $17,322.000 in leases:

those leases.

Type Remaining Terms Note H-Serial Preferred and Preference Stock Nuclear fuel in the reactor (a) with Mandatory Redemption Provisions l

Unit trains 4-8 years (b)

Some of the Serial Preferred Stock we have issued is subject Office space 5 years (c) to mandatory redemption. These provisions require us to Data processing and Mostly short-term buy back and retire outstanding shares on certain dates. The office equipment Construction and leases having a fixed table below lists those redemption obligations:

noncancelable term of maintenance equipment less than one year Shares to Redemption he Redeemed Beginning Price (a) We had a lease for the first core of fuel at Davis Hesse through the Series Annually On Per Share (a) i middle of 1981. The leases for the rekiad fuel currently m the reactor will j

last as long as it takes to burn the fuel. For the reked leases, we pay full C

10,000 8-1-84

$ 100 rent as the fuel is burned and we pay a reduced rent equivalent to an interest E

3,000 6-1 81

$1,000 charge when the fuel is not bemg burned.

11 1,782 6-1-85

$1,000 tbl Unit tram leases include renewal options through 2011.

I 1,969 6-1-86

$1,000 (c) The lease for office space can be renewed for two five. year periods.

(a) Plus dividends accrued to the redemption date.

When the PUCO determines what rates are to be charged to The total amount to be paid for these redeemed shares in our customers, it includes the rents on all the above leases each of the next five years is:

as an operating expense. Accordingly, we record those rents 1983

$3,000.000 1986

$ 7,751,000 as an operating expense on the income statement. Financial 19M

$4,000,000 1987

$13.551,000 Accounting Standards (FAS) No.13 and No. 71 require that t

2,000 not later than 1986 we treat our leased nuclear fuel and unit train coal delivery equipment as though we owned it This If for some reason we cannot buy back the shares, the will require us to record these leased properties on the unredeemed shares would be added to the next year's balance sheet as assets which will be depreciated. Also, we redemption obligation.This would continue to be done until will have to record a long-term debt for the promises to the total obligation to redeem is met.

make lease payments.

Some Serial Preferred and Preference Stock we have issued includes a provision which requires us to ask the share owners of that stock whether they want us to buy back their i

33

\\

Notes to Consolidated Financial Statements l

shares at $1,000 per share, as follows:

We can buy back Series E Preferred Stock before June 1,1986 only under certain conditions. Any borrowed money Shares Subject to we use to buy back the shares cannot be borrowed at an Purchase Offer effective interest cost ofless than 8.8%. Also, we may not Annually Beginning on use money from the sale of other preferred stock or stock ranking higher than Serial Preferred Stock if its effective Preferred Series F 16,667 11-1-85 dividend cost is less than 8.8%. Finally, we may not use Preferred Series G 8,000 8-1 84 Preference Series 1 11,400 4-1-84 money raised through the sale of stock which is junior to the Series E. A total of 3,000 shares of Series E Preferred if the share owners decide to sell, we must buy the shares Stock was bought back and retired in 1981 and in 1982 four months after the date we offered to buy. If they decide pursuant to its mandatory redemption provision.

to sell all the shares which we must offer to buy over the next five years, we would have to pay $19,400,000 in both 1984 Sales of Serial Preferred Stock with mandatory redemption and 1985 and $36,067,000 in both 1986 and 1987.

provisions during the three years ended December 31,1982 were as ws:

We have assured the owners of our Series F Preferred Stock a minimum return on their investment of 6.96% after Shares Sold deducting Federal income tax on the dividends received on Price Per the stock. If certain income tax laws are changed such that Year Series Share Shares their after tax return is lower, we would have the option to 1980 Preferred 11

$1,000 28.500 do one of two things: we could buy back the Series F at

$1,000 per share plus accrued dividends or we could exchange 1981 Preferred I

$1,000 31,500 Preferred J

$1,000 29,000 Series F for a new preferred stock.The new stock would Preferred K

$1,000 10,000 have a dividend rate high enough to provide a 6.96% after-tax return.

There are no restrictions on our right to issue and sell authorized shares of Serial Preferred or Preference Stock.

We have the right to buy back and retire shares of Serial Preferred and Preference Stock which have mandatory redemption provisions.The times when this may be done Note I-Serial Preferred Stock Without and the prices we would have to pay (plus dividends accrued Mandatory Redemption Provisions to the redemption dates) are as follows:

During the last three years, we did not sell or buy back any Redemption shares of our Serial Preferred Stock which did not have Series Date Price Per Share mandatory redemption provisions. All this Serial Preferred 58" ect to optional redemption. These provisions Preferred C Prior to August 1,1983

$110.00 give us the nght to buy back and retire the stock, The times August 1,1983 and thereafter

$103.00-5101.00 when this may be done and the redemption prices (plus dividends accrued to the redemption dates) are as follows:

Preferred E Prior to June 1,1986

$1.088.00 June 1,1986 and Redemption i

thereafter

$1,M9.74-$1,000.00 Prices Series Date Per Share Preferred F Prior to March 1,1984

$1,035.00 March 1,1984 and Preferred A Prior to December 1,1986

$102.50 thereafter

$1,015.00-$1.000.00 December 1,1986 and Preferred G December 1,1983 through November 30,1984

$1,035.56 Preferred B August 1,1982 through December 1,1984 and July 31,1987

$103.78 thereafter

$1,026.67-51,000.00 August 1,1987 and Preferred 11 June 1,1990 through

~

May 31,1991

$1,068.68 June 1,1991 and thereafter

$1,061.05-51,000.00 Preferred 1 June 1,1991 through May 31,1992

$1,068.68 June 1,1992 and thereafter

$1,061.05-$1,000.00 Preferred J June 1,1986 through May 31,1987

$1.050.44 June 1,1987 and thereafter

$1,037.83-51,000.00 Preference 1 Prior to August 1,1983

!!,032.29 August 1,1983 and thereafter

$1,025.83-$1,000.00 34

2 Note J-Common Shares Issued and The number of outstanding shares of Common Stock of the Reserved for Issue Company changes during the year. We calculate eamings per share based on the average number of shares outstanding Shares of Common Stock sold during the three years ended throughout the year. The weighted average shares outstanding December 31,1982 were as follows:

in each of the last three years were:

1982 1981 1980 1980 43 300,451 1981 48,004.081 Public Sale 9.000,000 3,500,000 4,000,000 Share Owner Dividend 1982 56,739,806 Heinvestment and Stock Purchase Plan 1,362.141 926.542 733,188 Note K-Short-Term Borrowing Arrangements Employee Savmgs Plan _

282,162 2M,605 218.902 i

Key Employee incentive._.

75,775 74,727 M,496 Notes payable to banks and others were as follows:

Employee Thrift Plan At December 31, l

Stock Plan 469 f

Total Shares 10.720.078 4.765,874 5.017.055 At December 31,1982, we had five stock purcha,e plans Bank loans

$19,100

$19,400 available for our employees and share owners.The common Commercial paper, net 75,563 shares which are set aside to be used for these plans

$19.100

$94.963 (including unexercised stock options) are as follows:

1. 1. 1. 1. "N#**"

Plan Shares At Decemkr 31.

Share Owner Dividend Reinvestment and Stock Purchase Plan 2,279,381 Type 1982 1981 Employee Savings Plan 2,833.819 rnmusands or nonarsi Employee Thrift Plan 528,327 Bank lines of credit (borrowings Key Employee Incentive Stock Plan 550,250 (a) at or near prime interest rate)

$170.300

$209,600 1978 Key Employee Stock Option Plan 600J)00 Eurodollar revolving credit agreement _

$30,000

$30.000 6.791.777 Variable interest note agreements

$20,000

$20,000 All borrowings under the Eurodollar agreement are made Stock options held by employees to purchase unissued and paid back in U.S. dollars. There are no requirements that minimum cash balances (compensating balances) be shares of Common Stock under the Key Employee incent.ive maintained at the banks involved. Ilowever, a fee of % to Stock Plan and the 1978 Key Employee Stock Option Plan 4

j are granted at 100% of the fair market value on the date of

%% per year is paid on any unused part of this borrowing the grant. The shares which were actually bought during the agreement. The interest rate on borrowings is %% to %%,

depending on usage. above the rate which specified banks three years ended December 31,1982 were sold at an option pay for Eurodollar deposits in the London interbank market.

price of $17.63. Shares under outstanding options held by 13orrowings under the van. le interest rate agreement must ab employees were as follows:

be paid back whenever the bank requests such repayment.

I Interest is based on the rate for high quality commercial Incen eS k I lan (a) paper in the 30-180 day maturity range.

1982 1981 1980 Commercial paper and variable interest notes outstanding Options outstanding are backed by at least an equal amount of unused bank lines hare 148.M2 150,095 IM,148 of credit to ensure the Company's ability to repay them.

4 Option Price

$17.63 to $17.63 to $17.63 to The unused portion of the above credit arrangements, after

$22.43

$22.43

$22.43 deducting bank lines held to cover outstanding commercial paper and variable interest notes, amounted to $181,200,000 1978 Key Employee at December 31,1982.

Stock Option Plan 1982 1981 1980 The average daily cash balance in bank accounts was

$6.500.000 in 1982 and $5,700,000 in 1981. This balance i

Options outstandmg satisfied informal compensating balance arrangements under re 374.705 244.425 251.375 which we maintain balances at banks of $3,000,000 to Option Price

$15.69 to $16.94 to $16.94 to

$6,000,000, depending on the amount we borrow.

$20.25

$20.25

$20.25 (a) Under the terms of the Key Empbyee incentne Stock Plan, no funher ortons may be granted. Accordmgly, only those shares relatmg to optons outstanding at December 31.1982 may be issued.

35

Notes to ConsoLic ated Financial Statements Note L-Commitments and Contingencies In January 1982, the PUCO allowed us to increase steam rates by 47% which amounts to approximately $7,000,000 Material and services needed to build new plant and annually. In October 1982, the PUCO approved another 12%

equipment must be ordered in advance so that it will be increase which will result m an annual increase in steam available when needed. At December 31,1982,such commit-rates of about $2,400,000.

ments amounted to:

In September 1981, the FERC granted a rate increase of Construction program

$236,000,000 Nuclear material acquisition and

$2.300,000 covering sales for resale to the Cleveland Municipal processinginto fuel

$211,000,000 Electric Light Plant. In November 1982, we filed an application with the FERC for an additional $716,000. Any increase Usually we can cancel advance orders but often we must pay granted will go into effect m, mid-1983.

the manufacturers for what they have already spent for labor and materials and sometimes a penalty.

d w'd Mu Mb The Company has lease and other arrangements to finance up to $220,000,000 of the cost of acquiring nuclear material, S me of the generating units which we own or are building processing it into fuel and leasing it while it is being burned are owned with other utilities. Each company owns an undivided share in the entire umt. All the owners are tenants in a reactor. At December 31,1982, under these arrangements, a trust established in 1982 invested $52,751,000 shown on in common. Each company has the nght to a percentage of the balance sheet, and lessors invested $M,000,000, in the generating capability of each unit equal to its ownership nuclear material and costs of processing it into fuel. Also share.We are obligated to pay for our share of the construc-under those arrangements, nuclear fuel costing the lessor tion and operating costs of each unit. We are not responsible

$17,322,000 is in the Davis-Besse reactor under operating for the other owners' shares.

leases. FAS No. 71 will require balance sheet treatment as Utility Plant at December 31,1982 includes the following described in Note G of all our existing nuclear fuel lease and facilities owned as tenants in common with other utilities:

other arrangements not later than 1986.

Company Ownership Unkr two long-term coal purchase arrangements, we have Construction agreed to guarantee the mining companies' loan and lease Electric Work obligations. At December 31,1982, the principal amount Facility Percent in Senice in Progress of the mining companies' loan and lease obligations was rn-tw om

$86,333,000. Under one of these arrangements, we are Davis.Besse 51.38

$421,912

$ 30,599 required to pay the mining company any actual out-of-Bruce Mansfield 1 6.50 25,039 M4 pocket idle-mine expenses, as advance payments for coal, Bruce Mansfield 2 28.60 112,920 2,823 when the mines are idle for reasons beyond the control of Bruce Mansfield 3 24.47 154,743 1,151 the mining company.

Beaver Valley 2 24.47 373,831 Several lawsuits and government actions are pending.

Perry 1 and c mm n facilities 31.11 513.202 included is the appeal by the City of Cleveland to the United States Court of Appeals for the Sixth Circuit of the City's

[tje5 11[562 6

antitrust suit against the Company. In the trial, the City had Seneca Pumped Storage claimed treble damages of $160,000,000.The jury had Ilydroelectric Plant 80.00 54,735 88 returned a unanimous verdict in favor of the Company. We 333o,933 33,3g,394 believe, based on the opinion of our counsel, that the ultimate disposition of these matters, including the antitrust suit, Separate depreciation records are kept for Davis-Besse should not have a material adverse effect on our financial property and Seneca property. The accumulated depreciation condition, although an adverse final decision m certain for Davis-Besse at December 31,1982 was $38,026,000.

instances could have a material adverse effect on income for The accumulated depreciation for Seneca at December 31, the period in which the decision becomes final.

1982 was $11,363.000. Depreciation on all other property owned with other utilities has been accumulated on a Note M-Rate Matters composite basis along with all other depreciable property l

The PUCO allowed us to raise electric rates by 9% on July rather than by specific units of depreciable property. Our 14,1980, by 17% on May 6,1981 and by 10% on March 19, share of the operating expense of properties owned with 1982. Because of these increases, we charged customers an others is included in our income statement.

additional $47,000,000 in 1980, $133,300,000 in 1981 and

$131,400,000 in 1982.

In 1982, we asked the PUCO for another $221,000,000 increase and, on January 5,1983, the PUCO granted us an increase of $89,400,000 which was placed into effect on January 7,1983. The PUCO included in our rate base

$278,065,000 related to construction work in progress for Perry Unit #1.

36

i Note 0-Pensions Statement of Financial Accounting Standards No.36 We pay the full cost of a pension plan for <>ur employees.

(FAS-36) requires us to disclose accumulated pension plan Under the plan, an employee who has worked at the Company liability without consideration of future increases in employees' earnings. Therefore, the disclosures below, required by at least 5,10 or 20 years (depending on his age when he leaves the Company) can begin receiving a pension benefit FAS-36, compare liability of the plan determmed on one between ages 55 and 70. The amount of his benefit depends basis with assets accumulated on a different basis. We and on his length of service and his earnings. The bene 6t is our pension consultants believe that FAS-36 disclosures are reduced by a portion of social security benefits. The benefit very misleading because they understate the amount which of an employee who retires after age 65 is determined as if the entry age normal method tells us should be m the fund he were age 65. If he retires before age 62, his benefit is now to provide pension benefits as they become payable reduced. The plan also pays benefits when an employee dies under a plan mtended to continue indefinitely. We are making the following disclosures only because we are required to do so.

or is disabled.

We annually deposit money into the plan to fund the cost of

^' l'"" 'Y I '

benefits arising from employee service and earnings in the 1982 1981 current year. We also deposit money to fund each year a N=NlaN portion of the cost of benefits arising from past service and Actuarial present value of earnings because of amendments to the plan. In 1980, our accumulated plan benefits:

total payment to the fund was $9,300,000. We deposited Benefits which are vested

$132

$122 another $10,200,000 in 1981 and $12,100,000 in 1982.

Benefits which are n et vested 13 12 Of these amounts, we recorded on the income statement

$145

$134

$6,132,000 in 1980, $6,659,000 in 1981 and $8,014,000 in Value of assets held in the plan

$194

$193 1982. The remainder was recorded in the balance sheet, mostly as construction costs.

Under both methods of determining the plan's liability, the The amount we deposit into the pension plan is determined ne which we use and the FAS-36 method, we estimated in by a method known as the entry age normal method. It is 1980,1981 and 1982 that the earnings of the plan would used by many private pension plans. This method takes into average about 6%% per year over the life of the plan, account estimated increases in employees' future earnings in an effort to levelize the funding <>f pension benefits over their working lives. The liability of the plan as of January 1,1982 determined under this method was slightly more than the value of the assets in the plan on that date.

Note P-Quarterly Results of Operations (Unaudited)

The following is a tabulation of the unaudited quarterly results of operations for the two years ended December 31,1982.

Quarters Ended March 31 June 30 Sept. 30 Dec. 31 (Thesands. excegt per share amounts)

Total operatmg revenues

$229,625

$237,320

$297,783

$248.203 Net operating income

$ 38.930

$ 41,822 5 67,759

$ 44,189 Net income

$ 27.801

$ 32,117 5 56,872

$ 38,944 Earnmgs availaNe for common stock

$ 20,371

$ 23.682

$ 47,432

$ 29.332 Average common shares 46.445 46,777 47,959 50,914 Earnings per common share

.44

.51

.99

.58 1982 Total operating revenues

$273.038

$268,985

$299,224

$267,325 Net operatingincome

$ 52,774

$ 56,953

$ 70.253

$ 48,948 Net income

$ 48,019

$ 50,M 1

$ 66.849

$ 43,456 Earnings available for common stock 5 38,407

$ 41,051

$ 57,302

$ 33,909 Average common shares 54,257 55.679 56.088 60,304 Earnings per common share

.71

.74 1.02 5

.56 37

Financial and Statistical Review 1972-1982 1%2 1981 1980 TOTAL OPERATING REVENCES i im71 1.012 930 893.5n6 Residential ow?

310.409 2tw.787 Commercial 3n4 m1 263 608 220.677 Industrial W 7%

386 805 323.764 Nher Electnc (Includes Sales for Resale) t7t 39.912 65.273 h v.3 eating 17 ;17 12.146 15 065 TOTAL OPERATING EXPENSES 87mm 820.226 743.051 Fueland Purchased Power 33 m 351.410 360.347 Other Operating Expenses

.3G 1 224.299 194.881 Depreciation and Amortization we 85.294 M.619 Taxes Other Than Federal Income Taxes Im M 91.648 81.630 FederalIncome Taxes Im g 67.575 41.574 NET OPTRATING INCOME 22* n 192 304 150 515 NONOPERATING INCOME

+e 75.712 62.440 Allowance for Equity Funds Used Dunng Construction 7* %

48.970 40.873 income Statement Other income and Deductions n 7-26342 2i.567 r,>=

2M416 212.955 (Thousands of Dollars)

INCOME BEFORE INTEREST Cli ARCES INTEREST iin,

112.682 87.572 long and Short-term Interest i u o:2 i % 312 112.623 Allowance for Borrowed Funds Used During Construction _._

e7 um w4.030s (25.051)

INCOME dEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE swa 155334 125.383 Cumulative Effect of Change in Depreciation Method on Periods Pnor to January 1,1979 NET INCOME (a)

_- a4 155334 125.383 PREFERRED AND PREFERENCE DIVIDEND REQUIREMENTS h 2";

34 917 27311 EARNINGS AVAILABLE FOR COMMON STOCK 1m'm 120.817 97.672 EARNINGS PER SHARE BEFORE CUMULATIVE iel 5

2.52 2.26 EFFECT OF ACCOUNTING CHANGE CUMULATIVE EFFECT PRIOR TO JANUARY 1,1979 TOTAL EARNINGS PER SHARG (aHb) s

.! ol 5

2.52 5

2.26 DIVIDENDS PER SilARE lb) 5 2:*

2.08 5

2.00 TOTAL ASSETS u:.q 345075 3.o n 462 Utihty Plant-Total 4 olo.w 3.610.x95 3.215.339 Accumulated Utihty Plant Depreciation and Amortization m7 M t62L353)

(557.859)

Other Property

+4 21n 21.870 21.137 Current and Other Assets t.s Q 392 663 415.845 TOTALCAPITALIZATION ANDLIABILITIES o t : 2m 3.44075 3.044 462 Balance Sheet i,,ng-term Debt Luim t3x.tM i.2u.528,

Year end Preferred and Preference Stock:

(Thousands of L)ollars)

With Mandatory Redemption Provisions 322w 325.000 260.500

%.ithout Mandatory Redemption Provisions

• i o71 95 071 95.071 Common Stock Equity

1..J m; 1.002.206 912331,

Deferred Federalincome Taxes ru11 236.481 192.452 l Current Liabihties and Other Credits 117 *e 418.913 422.180 -

UTILITY PLANT ADDITIONS (c) 122.17o 409.277 398.088 UTILITY PLANT RETIREMENE 22Su 13.721 25A12 NUMBER OF COMMON SHARES (b) 6137 6 7m2 51.054.503 46.288.629 KWHR SALES (Thousands) luini137 17.507.M 18.159.754 Residential 4.L3 M 4.375332 4.463.147 Commercial 4.1 % 177 4.178.459 4.148.9 *)

Industrial 7.m2.2hl 8.2793U0 8J162.172 Other(indudes Sales for Resale) m 114 673.973 1.4R5.445 ELECTRIC CUSTOMERS-YEAR END 711 2.2 711.325 710.557 Residential

• al 703 M2.925 M2.843 Commercial 61.5n t 60.714 60.070 Industrial 7.23; 7.261 7.210 Other 121 425 439 RESIDENTIAL SALES DATA Average Kwbr per Customer 6tm 6 548 6.686 Average Revenue per Customer 5

~?i+U 5

466.55 405 C@

Operating StatistlCS Average Revenue per Kwbr

• ou 7.12c 6.0S ELECTRIC PRODUCTION Net Available for Service Area (Thousands) 17 v7 Mi 18.936.567 18J22.61@

Net Generation 17m27w 17.297.523 15.325.948 Net Received from Others W2 1 634 044 3.346Ju BTU per Kwbr of Net Output mm 10.582 10.633 Fuel Cost per Milhon HTU 17i 72 175.14 e 156 %

Coal Cost per Ton i

n 31 5

4630 5

39.3 B Annual Net G). Min. Max. lead-KW-Excl. lnterruptibles 30 %

3.362.000 3.3M JEI Net Sptem Capability-KW-Year End 4o-4.624.000 4.598.on STEAM HEATING Sales-Pounds (Thousands)

. H e, 1.612.151 1.979.39-Customers-Year End n2 337 35 EMPLOYEES-YEAR END i ui 5.189 4.12 eal The 1978 net income and earnmgs per share calculated on a pro forma basis to reflect the units-4productkm method of deprecuthm are $102.942.503 and $2 31, respectmly. The pro forma effect of the adoptam of this di preciation m=>thod on 1977 mas not vr.aterut.

38

The Cleveland Electric Illuminating Company and Subsidiaries 1979 1978 1977 1976 1975 1974 1973 1972 M24267 717 092 659.240 543 149 523.165 463 937 32MJ68 293 343 237.612 213.520 200.765 160.015 154.020 140.030 104 3 79 98,891 194.899 172.251 165.049 1292M6 121.653 109.185 80.756 74.992 322.909 278.405 251.181 197.189 190.890 177.246 119.964 99.926 55.799 42A31 31.611 45.730 55.679 29.946 17.M32 13.966 13 048 10 085 10.684 10.928 10.923 7.530 5 837 5.5M MM. 7MM 599 2M9 542.M71 441 401 433 614 375.159 255 276 224.473 3491127 307.429 265.771 234.107 246.984 199362 100.450 75.199 162.fa6 160.946 127330 102J94 94 539 Mil 22 72195 71.722 59.443 56.774 43307 31H74 33.046 31 632 30.965 27.336 79.455 MJ56 58.M07 51.925 48J35 43.653 40.906 36.203 38 227 25 134 47.65ti Ifi T01 10310 15340 10.160 14.013 135.479 117 803 116.419 101.747 M9 551 M J78 71492 6M,M70 47.621 42.226 49,484 26346 17 tim 1 M.472 7.642 1567 31432 29.M'aj 31265 24106 16.983 7.854 6363 5.958 14 199 12336 14.219 I 64a 698 618,,

1 279 091)

I M31t u) luur29 1654IG 12M 093 107.232 97.250 Mi l34 74.437 69 5Ni 610 lei 54.175 46.413 42.464 3tt509 31320 25365 M5?M 72.071 67.MM9-56350 50.511 44117 35 161 27.907

.' if3'll 111,0556 111 714 s10337)

(M.04D IM208i G 441)

(2.542) e 111534 99213 IIIJ28 81.6MO e4JtiM 60J41 49.414 49.072 4 123 117 659

• t013 111 128 M t.M0 ei4 Jhd 60341 89.414 49.072 25.5M7 23 5Ti 223ai7 IM au6 14tW6 10367 7KA 5.118 42 072 75.43M MM.M21 fti 675 50.072 50 674 41J56 43 954 5

231 1

23) 2.91 5

2 38 5

2 11 5

2.45 5

2.03 5

2.15

.11 5

2.42 5

2 20 5

2 91 5

23M 5

2.11 5

2.45 5

2AG S

2.15 5

1 92 5

1.84 5

IJ6 5

131 5

1 65 5

1.60 1.55 5

1.52 2.67MJM6 2 331.541 2.117.135 1.M42 999 1 513 247 1354 0h5 1.152 335 1.057ml 2.842.253 2.523.446 2.232.a ll 1.951 701 1.691 614 1.526.659 1 364.122 1229.M40 1521.175l 1476.983)

(429.150s G%339#

1373.851 G51841) 034 071)

G13109) 1950 11034 13J53 12.M9 9.942 7.4 13 5331 5340 33M36 264 494 3d ni421 270187 IKL542 175M14 116.953 136 020 2h78J86 2331.541 2.117.135 1.M42.499 1.513 247 1354065 1.152 335 1.057341 973,991 920.973 M5 M49 747392 673Juil 551144 502.N W) 491304 232Ju w) 232J0)

Ita.M) 1353 N o 75 f M U fi3M00 21084 95 071 95.071 95.071 95.071 91071 91071 95 071 95.071 820.411 70M.HM3 fG3.744 511 3 11 419 **)

34fi.736 326.947 314.542 162.122 140 677 119.299 7231M 632ti7 43343 34312 34.444 16191 231437 198 122 281.M'i 1k6 916 2523tM IM 205 121.730 329.Mei9 3tC765 2%T39 271524 181.673 173 N99 145 470 134.M93 11.612 MO 10329 11437 14318 11362 10.188 121GO 41.271.578 319 3

323MJ)55 28347.544 24351.499 20J48.110 20.6113G4 20.499.420 19 0S14'i3 14364.4..,

IM ohh 42M IM.070241 IM.133 M26 17tal 6H6 17.747 663 15.173D4A 4352.9M 4 2MM.Hh5 4 3NI.ll6 4041158 394 004 3.M30305 3.910.01 M 3330315 4.041.134 3.913.5M6 4.007.123 3.80K M97 3 6MiM78 3.5273M2 3.569 6M9 3 356.419 926R.Nio 8.*42.919 N34743%

8.475 9K1 7.822.419 8.819 2 05 9.103 173 724MJ00 1367336 1.144 Uh7 944 343 1740 ?u 2hil 525 14247')4 1.164JrG 7871A4 70M219 702.538 (N6.547 h41423 6M9.133 6M432M 67M.426 672.ltG e41.M5h td 7.N 9 632 340 tGO.5MI 627J19 ti219M 6182tn 612.M5 SMtop 57310 56.241 Sil7M 11765 51070 52.291 51.645 7.232 7.167 7.112 72ini 7.190 7.212 7.415 7.222 All 452 454 460 459 458 454 453 6.557 6.517 fi.412 6.147 6.116 5.914 6!68 5.8t4 357.86 5

324 91 5

307.11 5

24516 5

237.02 5

216 h4 5

162 69 5

155 45 5 4Mt 5 004 4 804 3 978 3 88(

1 674 2 678 2 654 14.645J uil 19 254.M57 19 04M 2.11 IN3313M4 17.271.169 17M175t0 IM.257155 16.101 5 } '

17.Hh9 914 16.882.hh9 18.123.52M 16.747.626 16213.012 18.040.100 1732ti.t40 15.404.233 k

2.575 0M7 2 3721MM 974fl0 154158 1,05M.157 (222 337) 930 515 647.456 10M4 10.536 10.401 10322 10.454 10.569 103M2 10.172 142.518 13t M04 117.50t 105.554 111.144 102 264 48 40<

42 86c l

35 20 5

30 73 5

25J2 5

23 98 5

24 93 5

21.53 5

11.05 5

9.94 3 0u7.000 3 249.000 3 350.000 3.065Ju n 2.937J u n) 2.934 000 3.119.000 2.822.000 4 562.000 4.5wilion 4 3 % 000 3.9iwi.000 3.6153 3 1 3J64JNio 3 769.000 3J71000 2.004 hMO 2.210 8M6 2 3 74.510 2359.677 2.261645 2.274.925 2.154340 2.450.656 3tn 369 372 385 399 406 416 427 4.4ed 4.Mi 4390 4.840 4.947 4.982 4 833 4.898 ib) Adjmted f.w the 34w.2 stak spht. effectne December 16.1977.

td Excludes 556J122.606 of termmated prvcts rettassified to Deferred Charges in 1979.

l 39

The Cleveland Electric illuminating Company and Subsidiaries l

Statement ofIncome from Continuing Operations Adjusted for Changing Prices for the Year Enc.ec December 31,1982 mm E

Conventional Constant Dollar Current Cost 11istorical Average Average Cost 1982 Dollars 1982 Dollars (Thousands of Dollars)

Revenue

$1,108,571

$1,108,571

$1,108,571 Operation expense 498,081 498,081 498,081 Maintenance expense 81,789 81,789 81,789 Depreciation and amortization 86,588 184,923 214,338 Taxes other than Federalincome tax 106,804 106,804 106,804 Federalincome tax 106,382 106,382 106,382 4

Nonoperating income (96,669)

(96,669)

(96,669)

Interest expense 116,632 116,632 116,632 899,607 997,942 1,027,357 Net income-continuing operations

$ 208,9M

$ 110,629 (a)

$ 81.214 (a) increase in specific prices of property and plant (b)

$ 172,658 Reduction to net recoverable cost

$ (17,199)

(92,282)

Increase in general prices (68,160) j Increase in general prices in excess of increase in specific prices after the reduction to net recoverable cost 12,216 j

Gain from decline in purchasing power of i

net amounts owed 77,395 77,395 l

Net price level adjustment

$ 60,1 %

$ 89,611 (a) Includmg the reducton to net recoverable cost. net income (kW for 1982 wouki have been $93.430.000 in constant dollars and $(11.068,000) in current cost dollars.

(b) At December 31,1982, the current cost of property, plant and equipment net of accumulated depreciation was $5.551,884.000 while original (net recoverable) cost was $3.330,642.n00.

1 l

Supplementary Information Concerning tae Effects ofInflation i

As prescribed by Statement of Financial Accounting Standards Current cost data differ from constant dollar data mainly i

No. 33, we have prepared information on the effects of because the prices of assets have increased at rates different i

inflation on operations.The methods used to compute this from the rate of generalinflation.

]

data are experimental and subject to change by the Financial Revenues and Expenses j

Accounting Standards Board. These data do not reflect the Revenues and expenses (except for depreciation) were J

" current valuc* of our assets. They do not measure all the assumed to accumulate evenly throughout the year. No adjust-effects of inflation on our operations or predict our future ments were made to the figures reported in the primary cash requirements.The effects desenbed herein are not financial statements. No adjustments were made to Federal j.

recogmzed for income tax or ratemaking purposes.

income tax expense.

C'"*I Depreciation llistorical costs adjusted for general inflation are referred The constant dollar and current cost estimates of property j

to as " constant dollars." The ongmal cost of utility plant and and plant were determined by applying the indices noted to certam other items was converted to constant dollars by original cost. Restated depreciation reserves were used to j

applying the Consumer Pnce Index for All Urban Consumers compute property and plant net of depreciation. They were to the cost of these assets.

obtained by applying current depreciation rates by account Current cost data reflects the cost of current replacement of to restated property and plant figures by vintage year.The existing assets. The current cost of assets was estimated by depreciation provisions were obtained by appl >ing current applying the llandy-Whitman Index of Public Utility Con-depreciation rates to the average of beginning and end of-structi<m Costs to the original cost of structures and equipment.

year estimated depreciable property.

Original cost of land was trended using the Consumer Price Materials and Supplies Index for All Urban Consumers. Certam other property was Balance sheet items such as fuel in stock, materials and trended to current cost usm, g other mdustry mdices.

supplies were treated as cash type items. Fuel inventory is subject to rapid turnover. As such, we believe the original cost of this item fairly represents its current cost.

40

The Cleveland Electric illuminating Company and Subsidiaries Five-Year Comparison of Selected Supplementary Financial Data Acjustec for Effects of Changing Prices mm therau tw t x,Lrs>

Year Ended December 31, 1982 1981 1980 1979 1978 (Thousands, except per share amounts)

Revenue as reported

$ 1,108,571 $ 1,012,930 $ 893.566 $ 824,267 $ 717,092 in 1982 constant dollars

$ 1.108,571 $ 1,075,030 $ 1,046,718 $ 1,096,116 $ 1,060,958 Net Income as reported-continuing operations 5 208,9M $ 155,734 5 125,383 $ 113,534 in 1982 constant dollars

$ 110,629 $

73,579 $

60,868 $

76.608 in 1982 current cost do!!ars S

81,214 $

45.661 5 28.452 $

40.493 Income (Loss) per Common Share as reported-continuing operations 3.01 $

2.52 $

2.26 $

2.31 in 1982 constant dollars 1.27 $

0.76 $

0.66 $

1.12 in 1982 current cost dollars 0.76 $

0.18 $

(0.09) $

0.17 Net Assets at Year End as reported

$ 1,227,095 $ 1,002.206 $ 912,731 5 820,411 at net recoverable cost

$ 1,213,246 $ 1,029,2M $ 1,021,171 $ 1,031,670 Increase in general prices in excess of increase in specific prices after reduction to net recoverable cost

$ (12.216) $ 130,524 $ 221,186 $ 252,262 Gain fmm decline in purchasing power of net amounts owed 77,395 $ 168,509 $ 220,971 $ 235,670 Cash Dividends Declared per Common Share as reported 2.19 $

2.08 $

2.00 $

1.92 $

1.84 in 1982 constant dollars 2.19 $

2.21 $

2.34 $

2.55 $

2.72 Market Price per Common Share at Year End as reported 19.75 $

16.00 $

14.63 $

16.25 $

16.88 in 1982 constant dollars 19.53 $

16.43 $

16.36 $

20.43 $

24.04 Average Consumer Price Index 289.1 272.4 246.8 217.4 195.4 Reduction to Net Recoverable Cost about the same as in prior years. This shows that inflation Under Ohio law, we can recover only what we paid for plant reflected in rates by the increasing cost of service was mainly and equipment, so the values of these items under both responsible for revenue growth.

constant dollar and current cost methods were reduced to Net income fmm operations increased in 1982 on both the lower onginal cost amount.

constant dollar and current cost bases. The differences Increase in General Prices in Excess of Increase in between these measures and income as reported occurs Specific Prices After Reduction to Net Recoverable Cost because we are not pennitted to recover current cost measures The overall increase in prices of our property and plant of depreciation through rates. Ohio law restricts recovery of exceeded the increase in general prices as measured by the investment through depreciation charges to the original cost Consumer Price Index for All Urban Consumers during 1982.

of plant. The part of current cost we couldn't recover was (i

llowever, when the current cost of plant was reduced to the only partly offset by the gain from holding cash type liabilities.

lower original cost amount, this " gain" from specific price We have to raise new capital to meet growth needs at inflated increases was significantly reduced.

costs of construction and to replace worn-out items at higher Gain from Decline in Purchasing Power of Net replacement costs. If rate adjustments fail to compensate for Amounts Owed the cost of new capital, especially during times of high With inflation, holding cash type assets such as money and inflation, a regular erosion of the return on equity will occur.

receivables results in a loss in purchasing power. Iloiding As a result, there will be a regular need for rate relief.

cash type liabilities such as long. term debt results in a gain in We continue to seek proper and timely rate increases and purchasing power. Preferred stock and deferred tax balances a regulatory environment which is responsive to the effects were treated as cash type liabilities for this computation.

ofinflation on our investors.

Effects of Inflation on the Company Our 1982 revenues increased despite the decline in unit sales of electricity, but revenues in constant dollars remained 41

_a

Boarc of Directors Principal Officers and Executives teigh Ca,ier Chairman and Chief Executive Officer of Tremco. inc.,

manufacturer of specialty chemical products and a wholly-Robert M.Ginn President owned subsidiary of The BFGoodrich Company. Also.

Richard A. Miller Executive V.. ice Pres. dent i

President-Engineered Products Group and Executive Vice President of The BFCoodrich Company liarold L. Williams Executive Vice President Robert M.Ginn Dalwyn R.Davidson Senior Vice President i

President of the Company Murray R.Edelman Vice President-Nuclear Roy ll.lloidt Robert J.Farling Vice President-Administrative Sersices Chairman and Chief Executive Officer of White Consolidated John W.Fenker Vice President-Power Supply Industries, Inc., manufacturer of products for the home.

principally major appliances, and machinery and equipment Frank A.Kender Vice President-Marketing for industry Edgar II.Maugans Vice President-Finance John Lansdale,Jr.

John J.Misic Vice President-Distribution & Services Partner m the law firm of Squire Sanders & Dempse A an right We PrWenWuMc Mairs & Led Richard A. Miller l

Executive Vice President of the Company Newton D. Flack Division Manager-Steam Power Division Karl 11.Rudolph Charles C. Chopp Controller Chairman of the Executive Committee and retired Chairman Andrew R.Felmer Treasurer 4

and Chief Executive Officer of the Company E.Lyle Pepin Secretary Craig R. Smith Chairman of the Industrial Group of Bendix Corporation, a wholly-owned subsidiary of Allied Corporation.The Industrial Group is a producer of machines and accessories for the 4

metalworking industry Charles E.Spahr i

Director of several companies and retired Chairman and Chief Executive Officer of The Standard Oil Company (Ohio), manufacturer of petroleum products, chemicals and plastics and supplier of coal lierbert E.Strawbridge Chairman and Chief Executive Officer of The liigbee Company, a department store Richard B.'Ibilis Chairman of the Executive Committee and retired Chairman and Chief Executive Officer of liarris Corporation, man-ufacturer of communication and information processing equipment liarold L. Williams Executive Vice President of the Company William J. Williams' President and Chief Operating Officer of Republic Steel i

Corporation, manufacturer of steel and steel products

• Elected effective February 1.1983.

Ralph M.Besse Chairman Emeritus of the Board of Directors Elmer L.Lindseth Chairman Emeritus of the Board of Directors 42

1 1

Committees of the Boarc of Directors Audit Committee The Audit Committee recommends to the Board the firm ofindependent accountants to be retained for the ensuing year and reviews the results of their examination of the Company's financial statements and the audit practices employed by them and the Company.The Committee oversees the establishment and administration by management of effective internal accounting controls and an accounting system designed to produce financial statements which present fairly the financial position of the Company.

L. Carter (Chainnan), R. H. Holdt, C. R. Smith. C. E. Spahr Compensation Committee The Compensation Committee reviews and approves the Company's overall Compensation Plan, including the pension and employee stock plans and, in particular, recommends the remuneration of the Chairman (if any), President and all Vice Presidents.

R. H. Ih>ldt (Chainnan), C. R. Smith, C. E. Spahr, H. E.Strawbridge Executive Committee The Executive Committee acts on behalf of the Board at times other than regular Board meetings when it is impracticable to call together the entire Board. The Committee has the same authority as the Board, except that it may not elect officers (other than assistant secretaries and assistant treasurers), fill vacancies on the Board or on the Executive Committee or authorize We issuance of first mortgage bonds.

K. H. Rudolph (Chainnan), L. Carter, R. M. Ginn.

H. E.Strawbridge Finance Committee The Finance Committee reviews and recommends long-range financial policies and objectives and specific actions to achieve these objectives. The Committee, acting for the Company as administrator of the Company's Pension Plan and Investment Program of the Employee Savings Plan, also reviews the investment performance of the pension fund trustee, other pension fund investment managers and the Employee Savings Plan trustee and establishes objectives for the investment of Pension Plan and Employee Savings Plan assets.

R. A. Miller (Chainnan), R.M. Ginn, R. H. Holdt, K. H. Rudolph, C. R. Smith, R. H. kills Nominating Committee The Nominating Committee recommends to the Board candidates to be nominated for election as directors at the annual meeting and to fill any f

vacancies on the Board. When reviewing potential candidates, I

the Committee considers suggestions made by share owners.

C. E. Spahr (ChainnanJ. L. Carter: R. H. Holdt, 6

J. Lansdale, Jr, K. H. Rudolph, C. R. Smith, H. E. Strawbridge, l

R.H. Allis Planning Committee The Planning Committee advises and consults with management and the Board on long-range strategic planning. Responsibilities of the Committee include recommending long. range objectives and the strategies, manpower and overall corporate organization appropriate to meet those objectives.

R. M. Ginn (Chainnan). L. Carter: R. A. Miller: R. H. Allis.

H.L. Williams 43

i a

GeneralInformation A

Share owner dividend reinvestment and stock purchase Common Stock i

plan The Company has a Share Owner Dividend Reinvest-Listed on the New York, Midwest and Pacific Stock Exhanges; ment and Stock Purchase Plan which provides common stock unlisted trading on the Boston, Philadelphia-Baltimore-share owners of record a convenient means of purchasing Washington and Cincinnati Stock Exchanges. New York additional shares of Company common stock automatically Stock Exchange symbol-CVX.

at no additional cost by investing a part or all of their quarterly Preferred Stock j

dividends and additional cash payments. Dividends reinvested Listed on the New York Stock Exchange.

m Company common stock under the Plan qualify for the tax deferral provisions of The Economic Recovery 'lhx Act Registrars i

of 1981. In addition, dividends reinvested will not be subject for Common Stock and /Yc/crredStock to the withholding tax on dividends which is expected to go AmeriTrust Company into effect July 1,1933. Information and a prospectus relating 900 Euclid Avenue to the Plan may be obtained from Share Owner Services at Cleveland. Ohio 44114 the Company.

Transfer Agents Form 10-K The Company will furnish to share owners, For Common Stock andPrc/crredStock without charge, a copy ofits most recent annual report to The Cleveland Electric illuminating Company the Securities and Exchange Commission (Form 10-K) and, Share Owner Services upon payment of a reasonable fee,a copy of each exhibit to P.O. Box 5000, Cleveland, Ohio 44101 Form 10-K. Requests should be directed to the Secretary of Stock transfers may be presented at Wells Fargo Securities the Company.

Clearance Corporation,45 Broad Street, New York, N.Y.100%

independent Accountants Share Owner Inquiries Price Waterhouse,1900 Central National Bank Building.

Communications regarding stock transfer requirements, Cleveland. Ohio 44114 lost certificates, dividends and changes of address should be directed to Share Owner Services at the Company.To reach Bond'lYustee and Registrar Share Owner Semces by phone, call the followmg nu nbers:

i Morgan Guaranty 'Irust Company of New York for all series.

1 Local calls in Communications regarding bond registration requirements Cleveland area 622-9800, ext. 2325 and lost certificates should be directed to Morgan Guaranty Elsewhere Trust Company of New York,30 West Broadway, New York, in Ohio 1-800-362-1237 N.Y.10015.

Outside Ohio 1-800-321-3206 Bond Pay g Agent in Please have your account number ready when calling.

Manufacturers llanover Trust Company,40 Wall Street, j

New York, N.Y.10015 and AmeriTrust Company,900 Euclid Executive Offices Mail Address Avenue, Cleveland, Ohio 44114-Co-paying agents for the Illuminating Building Post Office Box 5000 l

2X% Series, Due 1985 3%% Series, Due 1993 55 Public Square Cleveland, Ohio 44101 3%% Series, Due 1986 4%% Series, Due 1994 Cleveland, Ohio j

3% Series, Due 1989 Telephone Number (216) 622-9800 Morgan Guaranty ht Company of New York,30 West The annual meeting of the share owners of the Company Broadway, New York, N.Y.10015-for the will be held on April 26,1983. Owners of common stock as 8.85% Series, Due 1983 8%% Series, Due 2005 of February 25,1983, the record date for the meeting, will 7.55% Series, Due 1984 9%% Series, Due 2009 he entitled to vote on the issues. The official notice, proxy 12%% Series, Due 1984-A 9.85% Series, Due 2010 statement and proxy will be mailed to share owners on or i

11%% Series, Due 1985-A 8%% Series, Due 2011 about March 14,1983.

l 15%% Series, Due 1989-A 8%% Series, Due 2012 Notice: The annual report and the financial statements 7%% Series. Due 1990 16%% Series, Due 2012-A herein are for the general information of the share owners of l

8%% Series, Due 1991 12X% Series, Due 2012-D the Company and are not intended to be used in connection 15%% Series, Due 1992 with any sale or purchase of securities.

i Inquiries regarding interest payments should be directed to either Manufacturers llanover 'IYust Company or Morgan Guaranty ht Company of New York for the series of bonds for which each acts as paying agent as noted above.

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- Daguesse Light Cesapeay ?.((1I hI'.

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GENERATING UNITS $ w.

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Tla! Company furnishes electric ;fft 2

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) ".1 1[.:. ; p:. O o

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'Y 4 service to an area approximately@' f Y'

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1.700 square miles, extending

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y 100 miles along the south shore ?

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Pennsylvania border on the east

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' th@ the City of Avon Lake on 6:

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1 the west.1btalpopulation served CT!

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. is apprmimately 1.900.000. pf.. f..(. A g. { M Q t,. 4 [,,M. (r..

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THE CLEVELAND ELECTRIC ILLUMINATING COMPANY P.O. Ik)x 5000

• Cleveland. Ohio 44101 USIPOSTA E

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PAID CLEVELAND, OHIO PERMIT NO. 409 4

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