ML20073J722

Annual Financial Rept 1982

ML20073J722
Person / Time
Site:	Beaver Valley, Perry, 05000000
Issue date:	03/01/1983
From:	OHIO EDISON CO.
To:
Shared Package
ML20073J705	List: ML20073J700 ML20073J716 ML20073J722
References
NUDOCS 8304190386
Download: ML20073J722 (42)

Text

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l l O OHIOEDISON AnnualReport

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Ohio Edison Cy: tem The Ohio Edison System is the 17th largest investor-owned electric system in the United States, based on total kilowatt-hour sales, and consists of Ohio Edison Company and its wholly owned subsidiary, Pennsylvania Power Company. Ohio Edison, headquarteredin Akron, Ohio, provides electric service to about 840,000 customers. Penn Power, in New Castle, Pennsylvania, serves about 125,000 customers. The System's service area covers approximately 9,000 square miles and in-cludes several of the most highly industrialized cities and agriculturally productive regions in Ohio and Pennsylvania. Ohio Edison has a second wholly owned subsidiary, Ohio Edison Finance N.V, a Netherlands Antilles (West Indies) corporation which was established in 1981 to expand the Company's capital market access to foreign investors.

Servica Area Onro Edison Company and Pennsylvania Power Company li i

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5Iji t Financial Highlighta .

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For the Years Ended December 31 1982 1981 Change

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I (In mdnors. excect per sharo ecu r e KHowatt-Hour Sales 24,025.5 24.662 2 -2.6% 1 Operating Revenues $1,429.6 $1.2 79 6 + 117 c o j Fue E< pense 432.7 413 7 +460, Operating locome 269.6 252 4 + 6 8 c'c Allowance for Funds Used Dunng Construction Net 160.3 127 8 + 25 4 %

Interest and Other Charges 310.4 267 5 e 16 Oc o ~

income Before Extraordinary items 195.6 183 0 +69%

Net locome 215.7 197 1 +95%

Earnings on Common Stock 181.5 163.9 + 10 7 o o Earnings Per Common Share: -i----

Before Extraordinary items $1.89 $2.10 - 10 D o c Earninas on Common Stock 2.13 2 30 -74%

DAnos por Common Share * $1.76 $176 -

Divicends on Capital Stock $185.8 $159.2 + 16 7 o c Construction Expenditures:

Construction of Facd! ties 649.9 549.1 124.3 18.9

]Juciear Fuel Tota! $774.2 $568.0 + 36.3 o o Net hnancing Activities 683.5 385 6 + 77 3%

Return on Average Common Equity 13.5% 14.6 %

• The quarterly druidend was increased to 45 cents per share tSt.80 on an annual basis) effective with the March 31,1983, dividend.

N Source N of1982 Income ***"***'"**** '

Sales to Utilities 0*1 Distribution of 1982 Income fuel lis pense 27%

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i n he year 1982 will be rememheced as a i difficult one for Ohio Edison, its stock-  !

holders and customers.

f4 4 For the Company, it meant taking j I advantage of every opportunity that i

y would help offset the effects of a

' continuing business slump that gnpped gh the entire nation. With the economy shrinking our customers' demand for y electricity, for example, we increased '

th our efforts to sell available generating g capacity to other utilities. Despite intense competition from many com-panies faced with the same need to sell power, our efforts met with consider-able success. Kilowatt-hour sales to other utikties were up 36.3 percent over 1981.

While these record sales of bulk power added $101.7 milkon to total revenues, they didn't make up for a 6.9 percent decrease in kilowatt-hour sales to our own customers. This drop in sales, combined with an increase in the num-I k ber of shares of common stock dunng i

tne year, were the principal reasons i

s common stock earnings were down 17 l cents from 1981, to $2.13 per share.

, We did, however, receive favorable treatment on several rate issues, which carried with them an improvement in our financial outlook. The Public Utilities Commission of Ohio (PUCO) in July provided us with a means to begin re-covenng $71 milhon in fuel expenses which had previously been deferred. In our most recent rate case, the 13.02 percent rate of return granted by the Commission was designed to permit amorttzation of $54 milhon in after-tax costs for four nuclear units canceled in 1980. In a related developrnent, the

, Pennsylvania Public Utikty Commission ruled that our subsidiary. Pennsylvania Power, will be able to recover its $10 l milhon after-tax share of the costs of Justin T. Rogers, Jr. those Units through rates over a ten-President year penod.

The Ohio Commission also approved our accounting treatment of an equity-for-debt exchange that took place in ,

May when we acquired several series of our discounted first mortgage bonds in exchange for 2.7 million shares of common stock. This exchange is partic-utarly significant because it added an 2

cxtraordinary gain of 24 cents per share.

• We witnessed some major changes in sharp drop in inflation and the steady or $20.2 million, to 1982 earnings; and utility regulation in 1982. The most signif- decline in interest rates to more reason-it climinated $53.4 million in long-term icant was a new Ohio law that changes able levels. For a capital intensive in-debt, thereby reducing future interest the process of selecting PUCO com- dustry like ours, these current trends charges and strengthening our capital missioners and establishes specific will help us hold down operating and structure. qualifications for commissioners. Also, a financing costs and will ultimately new law in Pennsylvania prevents utili- benefit our stockholders and customers.

The Companies also were granted new ties such as Penn Power from including rates dunng the year that should add plant construction costs in rates until With respect to long-term economic about $135 million to annual revenues. a project is complete. The result will growth, we are encouraged by the 65 However, this amount is 27.3 percent be higher and sharper customer rate new or expanding commercial and less than the $185.8 million we needed increases when a plant is placed into industnal projects underway in our to meet our increasing costs and provide service. We cannot yet fully assess how service area that will eventually result a fair return on stockholder investment. these and other change 3 will affect our in more jobs and sales of electacity.

future earnings, but we will adjust our Industry continues to benefit from the As you may recall, the PUCO late in strateg!es to deal with these changes. area's many important assets, includ-1981 ordered an independent manage- ing skilled labor, geographic location, ment study of Ohio Edison. On January Fortunately, we won't have to deal with transportation and others-not least of 11,1982, the Commission-appointed the politics of elected PUCO commis- which is a reliable supply of reasonably consultants undertook a five-month sioners because Ohio voters overwhelm- pnced electricity.

review of the Company's management ingly defeated such a proposal on the and operations. In their final report to ballot last fall. We are deeply indebted Like our service area, we, too, have the the PUCO, the consultants found the to our many Ohio stockholders and assets that can help assure our success Company to be a "well-managed utility employees who heiped defeat this and growth. We have a solid manage-enterprise." They noted that while the proposal, which would have eventually ment team, an efficient operation and Company " confronts an unusually com- resulted in higher costs to consumers. much-appreciated stockholder support.

plex array of strategic challenges. These strengths. combined with the con-management has recognized the dimen-

• Completing our plant and environmental tinuing ded: cation of employees, will not sions of these challenges and has construction program will require us to only enable us to continue providing cus-developed appropnate strategic ap- raise about $1.4 billion over the next six tomers with high-quaiety electnc service, proaches to them." The consultants years. Acquiring these funds wiil be a but also to protect and improve your in-very demanding task, especially in the vestment in the Company.

also offered some recomrnendations they felt could further strengthen opera- current economic and regulatory climate tions. These ham either already been -but if is achievable, We will continue implemented or are undergoing further to develop the necessary methods to finance these projects as economically study to determine whether they are .

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practical and cost-effective, as possible.

We are proud of our achievements and Even though our current environmental Justin T. Rogers, Jr.

confident in our proven ability to con- program will be completed in 1984, at President tinue moving the Company forward. As a total cost of more than $511 million, March 1,1983 we look ahead, we see four areas that new federal legislation already being cou'd have important effects on our considered could cost coal-burning utifi-Company's future and will require our ties billions of dollars more to comply.

Concentrated attention: changes in utility with so-called " acid rain" standards. We regulation; financing to complete con- must in good conscience oppose any struction projects; new and more costly " quick-fix" legislation directed at cor-environmental regulations; and the recting an environmental phenomenon general economy of our service area. about which too little is known. Sufficient research must be conducted to identify the true causes of acidic precipitation and the most cost-effective remedies.

Again, we gratefully acknowledge the support we've received from our stock-holders and employees in bringing our concerns about this matter to the at-tention of lawmakers in Washington.

• The national economy will continue to impede our financial performance in 1983, but we do see some early signs that the economy is headed toward improvement. Two of the most impor-tant signs, especially for us, are the 3

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fn l ant Rslisbility Rsinains High be masntained and available in the l l C Power plant reliability is important to us future when they are needed.

M because our customers and stock- I holders benefit from the most effscient Record Year in Bulk Power Sales l g use of our facilities. For the third The combination of high plant perform-l g consecutive year, an average of more ance and aggressive sales efforts re-Q than 70 percent of our fossil-fired sulted in more bulk sales of power in

, generating capacity was available to 1982 than ever before. In a highly O produce electricity. This relatively high competitive market for electric power, g equivalent availability was possible System sales to other utilities were 3.4 i e because of a major availability improve- million megawatt-hours,36.3 percent l l 3 ment program begun in 1978, plus more than in 1981. The highest month-O thorough and timely maintenance, long record was 575.832 megawatt-

% hours in August, when sales more than With high plant availabiiity and low cus- doubled from the same month in 1981.

tomer demand, we took extra measures Representing 14 percent of our total to improve the cost-effectiveness of kilowatt-hour sales, these bulk sales

! operations. For example, by extending contnbuted $101.7 million to our l l some of our normal maintenance out- revenue and he! ped offset reduced )

ages, we were able to reduce costly sales to our own customers.

overtime work. And even though our maintenance actuvities were intensified Beaver Valley Unit Perfortns Well to further assure the reliability of equip- From July through December, the ment for years to come, maintenance Beaver Valley Power Station's 810-l costs were held to below the authorized megawatt nuclear Unit 1 achieved operating budgets. In addition, five 86.8 percent operating availability. As a generat:ng units a' the Mad RNet and result, it reduced our need for more i West Lorain power plants were taken expensive coal-fired generation dunng out of service in December 1982 and that penod by approximately 12 percent.

January 1983 because of reduced Pnor to those six months, the unit electric sales. However, the units wi!I underwent a scheduled refueling dunng which various systems were modified to further improve its performance.

g Additional safety requirements weie g ,w 7 also fulfilled as specified by the Nuclear Regulatory Commission (NRC) for all 7 nuclear plants. The Companies own d

52.5 percent of this unit, operated by

m the Duquesne Light Company of

, Pittsburgh, Pennsylvania.

> Quarto Fuel Cost Recovery

, in July, The Public Utilities Commission 4s-*

of Ohio (PUCO) resolved a major issue

, , ' ; . concerning Ohio Edison's recovery of w the cost of contract coal delivered to the Bruce Mansfield Plant from the Quarto Mining Company. Previously, we 4f,.*p were permitted to recover through the

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fuel component of our rates only a portion of the coal's cost. The unrecovered costs were deferred and, as of July 31,1982. had accumulated to A With the help of micro. approximately $71 million. After computers, meter readers Comprehensive studies, we concluded ,

are improving the way that the best method of reducing the meter iniormation is average cost of coal to the Mansfield l l,##**

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,, y ",#' Plant was to work with the coal com-maner use or these elec. pany to improve production efficiency fronic Porta Processors and to purchase more lower-cost will become System wide Coal from other sources. The PUCO in ass.

agreed with our approach and provided us with a method that should help re-cover the Quarto coal costs and ti;e 4

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l deferred coa! costs, depending on future market prices of coal. As a result of the PUCO decision, the Company

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milhon by December 31,1982.

Ccet-Effective Environmental -

e Centrol We have the responsibility of producing l 8

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reasonably priced electricity in an ervi- 7

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ronmentally acceptable manner, and we ^

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seek the most cost-effective ways of _ );j

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doing so. For example, while we added -

large dust collection facihties at a num-ber of generating units, we were also able to comply with current air quality regulations at some units without adding major new equipment. By improving the combustion efficiency of these units, l modernizing system controls and using .

l cleaner burning coal, we were able to b 4

avoid the need to install nearly $150 mi!! ion in air quakty control equipment.

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Enstronmental Research i in anticipation of ever-changing regula- p tions, the Companies spent $2.9 miikon in 1982 for air and water quahty re- i search. For example, to promote deeper investigation of the so-called " acid rain" l

theory, several major research projects c- ,

are being conducted or supported by the Companies. These studies include A An employee checks monitoring of rainfall and attempts to equipment at an " acid '

track the sources of acidic rainfall. ' sin" monitoring station l Studies on the local impact of emissions #

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, dr p s's are underway, such as a project begun trom the air, samples in 1982 at the Sammis Plant that incor- are analyzed regularly porates data frorn sound waves, weather to determine changes in aCIddy luels of rainla#,

balloons, a network of monitoring stations and aircraft to follow the flow p 7, c ,,, ,, , ,,, ,, ,,f, j of emissions from the Plant's chimneys. where sludge from the l These and other efforts are directed at sruce Mansfield Plant's finding a way to comply with emission 8 4"8'dr C'"tr i s ys-regulations and yet fuel power plants ' "'IsYe' dep ts est with less-expensive, high-sulfur coal earth- and rock-fill j from local markets embankment cram in ,

the easteres ll.S. was built about seven Kilzwatt Hour Sales in Elllione QResidential E Industrial Q Commercial E other i

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-l: .-T i. +. test samples of coal from l$1, _[

$ our generating plants to accurately determone coal qualoty. Movong thus work from the plants to a a yg.y psy;t u w a w

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(4 c w Rate] Granted its $10 mdlion after tax share of costs of j Unkke most industries, the prices we the units through electric rates. The g charge are subject to regu!atory ap-proval We must, therefoie, continually recovery will take place over a ten-year penod beginning with the effective date g

y assess our needs and request new of Penn Power's next rate increase.

q rates as necessary to meet the

% increasing costs we face in producing PUCO Structure Revised 3 ine eiectricity customers need Dunng A new Ohio law which affects several the year. the Companies were granted aspects of state utility regulation was q $135 million in rate increases, either on enacted during the summer and be-a permanent basis or an intenm basis, came effective January 11,1983.The (C by federal and state regulatory commis-sions. Ohio Edison has also fded for an PUCO commissioners wdl now be appointed by the Governor from a kst of g increase which should become effective candidates nominated by a 12-member g

4 in the early fall of 1983 and, if granted councd representing consumers, regu-g in the full amount requested, would add lated utilities, senior citizens. business.

g $171.3 mdhon to annual revenues. labor and other groups. The law also

e. expands the Commission from three to M In our most recent rate case, the PUCO five members. prohibits the use of a 3 granted a 13.02 percent rate of return, fully projected test year for rate making purposes; and imposes time kmits, in g

h which included an allowance intended to provide Ohio Edison with a basis for certain circumstances, on filing rate amortizing the expenses associated with increase requests.

four nuclear units that were terminated in January 1980. (See Note 2 to the Diverse Sources of Capital Consokdated Financial Statements.) The Whde raising the necessary funds for Company's after-tax share of those ex- construction. we have been very suc-penses was approximately $"4 mdhon. cessful in diversifying sources of funding Also, in January 1983, the Pennsylvania and thus lowering overall financing Pubhc Utility Commission said that costs. The July sale of Eurobonds to Penn Power wdl be permitted to recover foreign investors through our Ohio Edison Finance NV subsidiary tapped an alternative capital market when domestic market conditions were less s'

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. favorable. Also, when two issues of pollution control revenue bonds were 4 ,

) - 7 mew - m , yg,j ,,: ' more 1 sold in Apnl and September, arrange-h88883 M8hde SIAIee gaag.ahmaga Moserfly.a _ presseule dj ments were made to secure each issue CTEEiSDstisirigigTe8sideQWirEFeCPC , C[i99C$fE4 5856T] with a bank letter of credit. In doing so.

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7 Standard and Poor's Corporation gave L i nr L, _ Development Authestll$ st f MS% imoreatsm , m ,__<_

gg 734g 9"mmion"d those issues its highest rating (AAA), en m.

' OPReso usenidrief fieI ~esiniioW~"" ~M7820.2 mdisonC abling us to save mdhons of dollars in

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E .'enchange for .7 mimen? interest charges over the hfe of those bm u eneros os common stock;a _ u; m._;- <

_ mJ secunties. And at the end of 1981 and

' 7MS " 7 Gueranteed hoten theough dfio FbiesnP "'"l987

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- 71731milhoriO in 1982, arrangements were made to i . a .Pinense NXailF,36%1eleuestua. . ,_ m,, _,a , m,e < ^ reduce the financing costs of nuclear MCAiss'5% K6 6miseri shaves gOieminenTetocGZCCHZESC8738imih66T] "

fuel through the formation of two special K 7 8ept.22 7 Pendon~eimwei rennue miside g)his ~ Air Quanty '2012M S49.2 'menionU corporations, unrelated to the Com-d ' . .J . ;2 0evelopment. Authority) at 8.tfSW,thieree _ _ am _ _ . . - - -- panies. These corporations will finance a

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EdOctl13722EmilhonfeheireiRS3M predesenoeMZGJCMC$52:9 r@ hon 1[] portion of the Companies' nuclear fuel EDesE 7 #ninieriendofeenesion?sse&ML TTEZE "

8582 rniuonH] recuirements and lease the fuel to us p"E F T4 WeherWMWMW 1 a Dec; 3.1C the Dmdend Asinvestnient and $leest Purchese PlanL . m a.~*C. $59 4 mdieon? ] in addshon pm --w mmmmwe-mmm W mdhon shares of common stock. 2.7

~k ; bras "" mdhon shares were exchanged for CM.Ed142 -

d 6 E n mortgagehende t i M ; .Ma19807$15 al3&}54tnsoreeti ,

, M.^ o#Widt meniond $53.4 mdlion pnncipal amount of out- '

' ' 7siy 2F 780.606 steiies ofl$QMcNed elociklwith entunI" C T$"8.07nen.orI 1 standing Ohio Edison first mortgage mm m . 2 undf provisions to feelte me tesse ey 3012) , . ,,_ i , . ~

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$20.2 mdhon bonds in The Development Aoineviti$at 13.79%Jmovest . J - .

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g fant Construction Progressas doubled in 1982 from the previous year.

gg Three nuclear generating units are Although Duquesne Light Company is b being built and financed by the building the unit for CAPCO, Ohio h

b companies in the Central Area Power Coordination Group (CAPCO): Ohio Edison is he! ping to keep costs and construction schedules on target by

'  % Edison, Penn Power, The Cleveland p'nviding personnel to assist in project C E:ectric illuminat:ng Company (CEI). management, engineenng, construction M Duquesne Light Company and The and licensing. The Company will own D Toledo Edison Company. 41.88 percent (349 megawatts) of the ll3 unit, which is scheduled for commercial D For unit 1 of the Perry Nuclear Plant, operation in 1986.

y under construction for the CAPCO o Group by CEl,1982 was a partic ilarly , Alternative Generation Studied i Q good year in licensing progress. Early in The three generating units under l

the year, an NRC licensing study found construct:on should provide needed g that the unit poses no adverse effects capacity with adequate reserve margins g

• = on the environment. In July. !he NRC's through the 1990s But because of long j ft)

( Advisory Committee on Reactor Safe-guards recommended that the 1.205-lead times to build new power plants, the Companies continue to investigate, megawatt unit be licensed to operate at in addition to conventional technologies,

! full capacity. At the end of the year. the alternative techno!ogies for potential unit was 89.1 percent complete and generation beyond the 1990s.

On schedule for operation in 1984. The reactor of the 1.205-megawatt unit 2 Regarding alternative technologies. Ohio was fully enclosed dunng the summer Edison studied the potential for three when its dome was placed Scheduled smali hydroelectnc plants at existing  ;

i for operation in 1988, the unit was 47.5 locks and dams along the Ohio River l percent complete by December 31. througn pccrnits granted in 1980 by the l

, Ohio Edison and Penn Power will own Federal Energy Regulatory Commission l 35.24 percent. or 850 megawatts, of (FERC). Our study showed that the plants j total generation from both units. would not be economically attractive to j us and the Company relsnquished those Unit 2 of the Beaver Valley Power permits in 1982, Station was 58.1 percent complete at the end of the year. The 833-megawatt unit's rate of construction progress w

g 3.-

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AThe unique $440 construction to cone-million W. H. Sammis ply with esisting regu-Plant Air Quality Con- lations. This project trol Project, most of is scheduled for com-which spans a four. pletion in 1984.

lane highway, is our last remaining environ.

mental facility under ff

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nuclear generator Valle y 's buolde r anel l

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l We are part!cipating in a $155 mnhon &Tourcss of Genuratirn Coooerat:ye project at HIinois Power's n cois a nueser c on Wood River Station to determine ine feastbnity of converting nigh-su:'ur coal , ,,, .. ? ~ ? .* ? : l' '.'. . . . E . '. i :

SuCh as that found tn Ohio to a c!ean- ~~

e' , - v c .a p< ; >*o burn og gaseous fuel Construction is ^ .s" s

seas * . . v~ ^ a' -

weh underway with test'ng and demon stration to be completeo by mid-1984 ,

in addttion we are monitorina and ..

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1982m ,-A-_.- . *. ... .. -. -... ..,x.-y

.4 eva!uating new technologies resulting from the researcn and development ,, ,,,, ,, ,, ,,,

efforts o' o'ne's !nc!uding the E:ectric Power Research Institute Air Quality Control Program Nurs Completion Our current $511 m!ihon environmenta-construc oon program to replace existing cust cohectors with more eftc,ent systems for meeting clean air standards i

is steadily moving toward completion i Five rew electrostatic precic.tatou that remove part,cdates <f!y ash) from power plant emissions ar d one new chimrey vCo"v'"e* "a" were corapleted between July 1981 ana Marcr 1982 at the R E Burger. u <1hr s tr onornen Edgewater. and Ndes p: ants Througt , , , . , . , , , ,n ,,,g ef'ective project management. we budt g s n ,ou r,< n net w or 6 or *""m' ' " "

them at $4 mnnon uncer budget by completing them on or aheac of sched- , w ac m "'w,'a r i p ules ,mposed by the U S Environmental m o g , ,,, a c s y n ,, c s Protection Acency (EPAL <.e also m m, , co r s , s eem avoidea costly pena't'es p_ __

Our onN rema:ntog env:ronmenta  :. . . g M[

Construction is the 3440 mdhon W H $ '. '.'_ "df. ' "

O l

Sammis Piant Project anere to Cate au

-n [g l U. 2 l **

i EPA mHestones have been met FaOnc fdte's. also known as oagrouses were I

l comc eted in 1982 for U"its 2. 3 and 4

~/'1 l I

ana undement test;ng for comphance l

wth environmental standa*ds Unit 1 wrn a'so nase a facric futer whna Units 5 '

througn 7 Wii! JtihZe e!ectrostat:C prec'p- -W .-

itators Oseran consrucDon was 65 j '~

Dercer'! comp;ete o> December 3, w.

1982. and project compienon ic sched-u:ed fo. Decemoer 1984 Continuing System improvements Numerous other projects are anderwas to maintain the rehabihty c' our service l to customers The Compans s $9 9 mNon SSstem D4spatching Center schecded 'c' operation in Aoru '983 l WW evedde the response o' ge^erating pla"ts to customm aemand 'or eier-tooty and 'mprove tne ove an opera' ng ef hC!PnCV of our transmisE'On network

!" add tion a number of t'a"smissior protects were comp,etec or , prog, esc in 1982 to serve the grow,ng p! pctC

odds of several Indostria: Custorne's n Ohc and PennsvNania and to S"e"gtnen our 'rans%ssion syste m l 13

. . - - -~ . - -- - - - _

y eyeloping Futura Sales Company and government assistance o Ohio Edison and Penn Power provide programs that are designed especially E extensive training and support to nein to nein customers facing financiai or g communities be more competitive in medical difficulties. These programs

$($ attracting industrial growth. Through our

" Minutemen" program, workshops are include a budget payment plan, third party notification and the public Home b used for teaching communities how to Energy Assistance Program (HEAP). The persuade new industries to locate in the Companies also continued their Resi-area and to encourage existing indus- dential Conservation Service programs, lhi tries to remain and expand their opera-tions. While boosting tne vitality of a which are available to all residential heating customers. At the customer's S community, this growth is also a source request, a'1 energy auptor inspects the home, recommends conservation mea-

% of additional electric sales.

' 6 sures and estimates energy savings.

hl With existing commercial and industrial

, g customers, we promote energy effi- We have many communications pro-C ciency through more cost-effective uses grams to meet the information needs of

% of electricity. We reached more than our customers. From special messages f4 2.800 large customers dunng the year included in monthly bills to advisory through Energy Teamwork Conferences panels made up of consumer represen-i h

'g to discuss, among other things, how tatives, these programs contnoute to l

Jo they can substitute electricity for gas better customer management of their and oil to reduce their overall energy electnc use and to their understanding

% costs. In addition, our load management of utility and energy issues.

b program offers customers the option to H shift a portion of their consumption to Dunng the year Speakers Bureau more economical off-peak hours, which members and Customer Services

e. also allows us to better utilize power employees gave presentations to y plants. Since the program began in 122,356 people. Audiences included i l

g 1977, our peak demand has been service clubs, senior citizens, schools '

reduced by 166 megawatts-55 and builders. with topics covering load percent of our goal to date. and energy management, home insula- ,

tion and weathenzation, applications of l Customer Assistance and energy-efficient equ'pmer,t, electric l Information Programs rates, environmental protection and i other energy-related issues.

I in November, we sent a'l residential customers a brochure outlining various Favorable Customer

(

Attitudes ntaintained Favorable attitudes among customers [

..,7-.

s .c - .-

. y4 w-- about their electric service results in a l

. -.M ; , . 1., m y , 3 '; - ' J "., ; ;i'*f.; ,

~ #. better operating environment for the rpC .. P* . , i fi . .kfA  :.i -- 4 < Companies. In a December survey of t "i '

"+ 500 Ohio Edison customers,89 percent

3. c ; . .m  ; j y.2 '.- # . A i :af;* A +;%yN~

. ji-s;* .. . of the respondents considered electricity >

s,.,.'.' r.1 n - 2 L ' ./ ,pl -  ; ;$ ?. < average to above average in value and j

. ., , , . %...ye. pmm Q. - Q, . J ~ ,'J 94 percent indicated that service was 4 y. ; q c

, , 4, ,.q t{-.$A. 3: satisfactory.

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A vanety of information programs help g M. 7s

1. - :7 7 m -

" l reinforce those attitudes, but the least

}.3  ; . 7.,

4 g 7 o Yi w. *!..~".  ; vxi ~ D  : .t

. . . . expensive is through advertising in local

., ; . . . O u...

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% T; media. The Companies' present cam-

%g . .

g" ., f' - - 4 for the past 12 years,

Ohio Edison has cospon.

.y M y'? , . 4

[> sored a locally televised g quiz prugram that pro.

motes academsc achieve-ment among high school students in the Com. l pany's service area.

It is representative of our many youth educa- l tional and energy awas e- ,

r,ess activities. >

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paign centers on the award-winning

" Energy Makers ~' series which g;ves #

credit to individua! employee effort in he! ping to provide customers depend- _ _ _

able e!ectncity around the clock - ---

7 Employee Training and Cafety Programs _ _ _

Enhancing learning ooportunities and

~ ~ ~ ~ ~

improving our training facihties are importaol parts of the Company's eo canding employee deveicoment pro-gram in 1982. more than 450 emp'ayees - - - - -

received classroom instruct!on that pre.

pa'ed them to more effectively respond _

to customer inauiries in addition. 213 manacement group employees parttcc cated m business management and - = == ==

suoervtsory seminars and conferences .I / l' J. g"' '

[l dcsigned to improve their sknis in these areas

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At our employee training cente the a.

, t

~'

t,rst phase of the $700.000 skms training #$ - y ,

ounding has Deer' completec it inciudes 1% RIM

• O -

a large indoor area where pole c!,mbing skms can be tauant Another area is

.'70hf' N , , _ _

spec any suitec 'or ma,ntenance tr aining ' ff 'h,f. .* t . . [ 4 '. ' O Y* ;

~~ ~

on large electrical equiornent Additional classroom faci' ties are included in the p

second onase of the project which 's scheduied for comoietion by mid-1983 The Company worked closely with union representatives from the P E Burgen Edgewater W H Sammis and Toronto plants to produce an Accident Preven-  !.

t+on Handbook It estaDieshed guidehnes #J T

tor safe work procedures for approx' 3 mate:v t700 power plant employees -

This "andbook. along with out otner safety awareness programs. inciuding ,

oefensive daving courses. fire safety training resci e training and first aid.

he ped us to acmeve a 6 percen. . ,- p reduct;on in System-w,de accidents iM14 ,92

.A

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m 9 ,

$? ,4 w .

5 --*

f: $b u- sf

j. -

4

j, i- ..[j .3-l 2%

> loter national Mar v e ster Comoany r ec ently con s o!nta tect i t s () S tr uc k manu f a< tur soq opera tsan s at a mor e muttern _ p and ef f or ren t plant m Sor mq trela. Oh a Thus a s sem bly plan t is our lia r qc s t o rtdu s tt rai c u s tomer : t he spr onqireid Do v r s oon 16

Financial Review

. . c .

Page Management's Discuselon 18 Management Report 10 SelectedFinancialDeta 20 Consolidated Financial Statemente 21 Notes to Consolidated Financialstatemente 27 Auditore* Report 37 Consolidated Financial Statistics 38 Consolidated Operating Statistics 39 l

I l

l l

17

Li :; r: it's Discussion arni Analysis cf Results of Operations arniFinancial Condition Results of Operations The scheduled outage of Beaver Valley Unit No.1 during the Results of operations in 1982 continued to improve from the first half of 1982 for refueling and certain modifications was prior year with the Company experiencing increases of 6.9%, responsible for approximately tw'> fifths of the increase in 1982 9.5% and 10.7% in income before extraordinary items, net maintenance expenses. However, in 1981, substantially all of income and eamings on common stock, respectrvely. the decrease in maintenance expense was attributable to However, due to the increased number of shares of common that unit.

stock outstanding during the year, earnings per share fell by 10.0% and 7.4% before and after extraordinary items, Interest costs continued to rise in 1982, although at a much respectively. The Company achieved a rate of retum on slower pace than in recent years. The Companies issued cverage common equity in 1982 of 13.5% compared to 1981's $320,500,000 principal amount of new long-term debt in 1982, 14.6%. Excluding the effect of extraordinary gains in both which have interest rates ranging from 8%% to 17 % %, while years and the settlement of a claimed Pennsylvania tax liability $59,237,000 principal amount of first mortgage bonds with rates in 1981, the rate of retum on average common equity would of 3% % to 9% % were retired. In addition, long-term obliga-have been 12.3% and 12.9% in 1982 and 1981, respectively, tions rose by approximately $209,200,000 at an average cost compared to 9.7% for 1980. of 14.3% in 1982, compared with 18.5% in 1981 (see below and Note 5 of Notes to Consolidated Pnancial Statements). In Rats increasec received by the Companies in 1982, amounting contrast to the rising long-term borrowings, average short-term to $135,000,000 on an annual basis, accounted for approxi- debt outstanding during the year decreased from approximately mately 90% of the increase in operating revenues for the year. $133,100,000 in 1981 to $45,400,000 in 1982; the average cost increased fuel-related revenues and short-term power sales of that debt showed a significant decline from 18.0% to 14.9%.

to other utilities contributed the remainder of the increase.

Adversely affecting 1982 revenues was a decline of approxi- Information with respect to the estimated effects of inflation mately 18% in kilowatt-hour sales to industrid customers, upon the Companies is given in Note 10 of Notes to r;flecting the depressed economic conditions in the Compames' Consolidated Financial Statements.

service territories. In 1981, as in 1982, increased rates were the major factor in the increase in operating revenues, account- Capital Resources and Liquidity ing for approximately two-thirds of the total increase. The Over the last five years, the cost of the Companies

remainder was due primarily to increased sales of short-term construction programs was approximately $2,700,000,000, of power to other utilities. which $1,600,000,000 was raised through permanent financing (net of debt and preferred stock redemptions), in addition to Thxffect of deferral accounting, which matches fuel expense $656,700,000 financed through the incurrence of long-term with the amount recovered in revenues, was the prime factor in obligations. Approximately $2,700,000,000 is currently budgeted the reported fuel expense increase for 1982. Substantially off- to be spent from 1983 through 1987; the issuance of additional setting this increase were decreased quantities of fuel con- securities will be necessary to fund a significant portion of this sumed and decreased coal prices. The increase in fue' expense new construction, including additional amounts of common for 1981 was primarily due to greater quantities of fuel con- stock. During this five-year period, the Companies uill have sumed, but also was affected by fuel price increases, in that additional cash outflows of approximately $457,600,000 for year, the effect of the Companies' deferral accounting served debt maturities and preferred and preference stock sinking to reduce tntal fuel costs, fund requirements.

Power purchases which were made in order to sell short-term power to other utilities accounted for a substantial portion of the increases in purchased and interchanged puer, net, in 1982 and 1981. Increased purchases of low-cost power resulting from the Companies' contractual obligations to Ohio Valley Electric Corporation were also responsible for the 1982 increase. Combining short-term sales to other utilities (which ara reported in operating revenues as described above) with net purchased and interchanged power, resulted in net power deliveries of approximately $49,100,000 and $44,600,000 in 1982 and 1981, respectively.

13

Consolidated FinancialIn ormation

. . ~ _ . . ,

The Company continued to strengthen its common equity base Management Report in 1982. During the second quarter of 1982, the Company ex- The consolidated financial statements were prepared by the changed 2,650,600 shares of its common stock for $53,432,000 management of Ohio Edison Company, who takes responsibility principal amount of its outstanding first mortgage bonds which for their integnty and objectivity. The statements were prepared wers subsequently retired. This exchange played a significant in conformity with generally accepted accounting principles role toward increasing the common equity ratio to 372% at and are consistent with other financial information appearing the end of 1982 from 35.7% at the end of 1981. elsewhere in this report. Arthur Andersen & Co., independent public accountants, have expressed an opinion on the Com-The Companies had $61,500,000 of temporary cash invest- pany's financial statements, as shown on page 37.

ments at the end of 1982, primarily due to the sale of 4,000,000 shares of common stock in December 1982. This financing was The Company's intemal auditors, who are responsible to the planned for early 1983, but was accelerated due to existing Audit Committee of the Board of Directors, review the results favorable market conditions. Proceeds from that common stock and performance of operating units within the Company for sale will be used to fund a portion of the Company's 1983 adequacy, effectiveness and reliability of accounting and report-construction program. ing systems, as well as managerial and operating controls.

The Companies continued to pursue non-traditional forms of The Audit Committee consists of four non-employee directors financing during 1982. The Company tapped altemative capital 'whose duties include: consideration of the adequacy cf the mark;ts by issuing debt through its foreign subsidiary, Ohio intemal controls of the Company and the objectivity of financial Edison Finance N.V. In addition, the Companies began reporting: inquiry into the number, extent, adequacy and validity participating in arrangements with the other CAPCO companies of regular and special audits conducted by independent public to finance the acquisition of nuclear fuel through the Central accountants and the internal auditors; the recommendation of Area Energy Trust. (See Note 5 of Notes to Consolidated independant accountants to conduct the normal annual audit Financial Statements for a more complete description of this and special purpose audits as may be required; and reporting arrangement.) The Company also received $10,480,000 from to the Board of Directors the Committefs findings and any the sale of tax benefits associated with property placed in recommendation for changes in scope, methods, or procedures service during 1982, in accordance with a provision of the of the auditing functions. The Audit Committee held three Economic Recovery Tax Act of 1981. The Tax Equity and Fiscal meetings during 1982.

Responsibility Act of 1982 now denies utilities from taking advantage of this mechanism for accelerated capital recovery. ,

in July 1982, The Public Utilities Commission of Ohio modified - M the method for recovering the costs of Ouarto coal, as discus- g4,,,,,,,

sed in Note 1 of Notes to Consolidated Financial Statements. ,u  % we. Presw.ne

,.cerive comptroiser During the last five months of 1982, the Company's balance of cm.t rin.ncies ottic.r deferred Quarto coa! costs was reduced by approximately

$7,300,000, indicating recovery of a greater portion of these costs from its customers.

The Company has a rate casa pending with The Public Utilities Commission of Ohio which, if granted in fu!!, would produce additional annual revenues of approximately $171.300,000. A decision is expected in this case during the second half of 1983.

19

SelectedFinancialData onio esison 1982 1981 1980 1979 1978 (In tnousands. excepr per snare amounts)

Oper; ting Revenues $1,429,626 $1.279.649 $1.080,869 $ 994.585 $ 862.956 -

Oper1 ting income 269,640 252.381 169.383 163.744 123.945 .

Income Before Extraordinary items 195,571 183.020 135.150 134,807 86.030 Net income 215,729 197.062 135.150 134.807 86.030 Eamings on Common Stock - 181,496 163.892 101.403 105.120 61.259

. Earnings per Share cf Common Stock (based on weghted average number of shares outstanding dunng the year):

Before Extraordinary !! ems 1.89 2.10 1.52 1.80 1.19 Earnings on Common Stock 2.13 2.30 1.52 1.80 1.19 Drvidends Declared per Share of Common Stock 1.76 1.76 1.76 1.76 1.76 Total Assets at December 31 - 5,247,138 4.460.274 3.979.965 3,446.454 3.010.914 Pr?.f;rred and Preference Stock Subject to Mandatory Redemp; ion 152,560 151.141 156,450 150.850 98.000 Long-Term Debt 2,005,436 1.759.771 1.594.384 1.410.782 1.343,195 Construction Energy Trust and Nuclear Fuel Obhgatons 656,655 447.484 265.000 - -

Common Stock Data The Company's Common Stock is listed on the New York and Mdwest Stock Exchanges and is traded on other registered exchanges.

m..~u..... . . _ .. . m . c - , - ~ . . . m~ .

.x .

Price Range of Common Stock 1982 1981 First Ouarter Hgh Low 13 118 11 318 13 11 3/4 Second Ouarter High-Low 14 118 1 2-318 13-1/2 11 7/8 Third Quarter High-Low 1 4-318 12 114 12-7/8 11 Fourth Quarter Hgh-Low 15 118 13 114 13 11 Yearly Hgh-Low 15 118 11 318 13 11 Pr:ces are as quoted on the New York Stock Exchange Composite Transactons.

Classification of Holders of Common Stock as of December 31,1982

. . . + . . : ~ ~ nw . . . . ~~ . ;.. ' .. . . .

Holders of Record Shares Iield Number  % Number  %

Indvduals 172.878 88.7 48.279.403 50 2 e'duciaries 17.924 9.2 3.987.788 42 Brokers 70 -

727.927 08 Nominees 765 0.4 40.387.291 42.0 Banks & Financial Institutons 39 -

69.252 0.1 Insurance Companies & Other Corporatons 1.558 0.8 1.648.846 1.7 Chantable. Reigous & Educatenal Institutons 547 0.3 375.138 0.4 Pens:ons. Profit Sharing & Other investment Trusts 1.096 0.6 606.199 0.6 Total 194.877 100.0 96.081.844 100 0 As of January 31,1983. there were 195.443 holders of 96.259.665 Ouarterly drvdends of 44c per share were paid on the Company's shares of the Company's Common Stock. Common Stock dunng 1982 and 1981. Information regarding retained eamings avaiable l for payment of cash divdends is given in Note 4b.

20 l 1

ono ed, son CtatementsofConsolidatedIncome For the Years Ended December 31 1982 1981 1980 (in thousands. except per share amounts)

Operating Revenues $1,429,626 $1.279.649 $1.080.869 Operating Expenses and Taxes:

Operation-Cost of fuel 432,749 413.698 364.894 Purchased and interchanged power net 52,607 29.321 26.089 Other operation expenses 221,129 195.075 170.351 Total operaton 706,485 638,094 561.334 139,615 124.213 127,935 Maintenance Provision for depreciaton 103,206 95.830 85.455 Amortization of terminated constructon prqect costs (Note 2) 1,866 3.995 -

114,569 84,316 85.143 General taxes Income taxes 94,245 80.820 51.619 Total operating expenses and taxes 1,159,986 1.027.268 911.486 Operating income 269,640 252.381 169.383 Other income and Deductions:

Allowance for equity funds used during constructon 84,210 60.421 57.715 Misceilaneous, net 16,871 17.021 2.104 income taxes-credit 59,166 53.360 37.017 Total other income and deductons 160,247 130.802 96.836 Total Income 429,887 383.183 266.219 Not Interest and Other Charges:

Interest on long-term debt 211,765 166.378 147.290 Interest on long-term obligatons 80,092 69.183 5.057 Allowance for t;orrowed funds used during constructon, net of deferred income taxes (76,088) (67.381) (48.814)

Other interest expense 12,449 26.378 22.304 Subsdiary's preferred stock dividend requirements 6,098 5.605 5.232 Net interest and other charges 234,316 200.163 131.069 Income Before Extraordinary items 195,571 183.020 135.150 Extraordinary items (Note 8):

Gain on reacquisiten of first mortgage bonas. net of related income taxes - 14.042 -

Gain on exchange of common stock for first mortgage bonds 20,158 - -

Net income 215,729 197.062 135.150 Preferred and Preference Stock Dividend Requirements 34,233 33.170 33.747 Earnings on Common Stock $ 181,496 $ 163.892 $ 101.403 t

l Weighted Avera9e Number of Sharer. of Common

! Etock Outstanding 85,241 71,180 66.633

~ -

1 Earnings Per Share of Common Stock (based on weighted averago number of shares outstanding dunng the year):

Before extraordinary items (after preferred and preference stock divdend requirements) $1.89 $2.10 $1.52 Extraordinary items .24 .20 -

Earnings on common stock $2.13 $2.30 $1.52 Dividends Declared Per Share of Common Stock $1.76 $1.76 $1.76 l

l The accompanying Notes to Consohcated Financial Staiements are an ertegral part of these statements 21 l

ConsolidatedBalance Sheets onad, son At December 31 - 1982 1981 Ameets (In Thousands)

Utility Mant:

In semce, at original cost S3,417,669 $3.160.271 Less-Accumulated provison for depreciaton 953,541 871.740 2,464,128 2.288.531 Construction work in progress 1,344,161 1.112.810 Construction work in progress-energy trust (Note 5) 558,149 434.412 Nuc!aar fuelin process (Note 5) 156,295 32.004 4,522,733 3.867.757 Other Property and investments 69,626 43.338 Ourrent Assets:

Cash 2,812 11.746 Temporary cash investments, at cost, which approximates market value 61,500 4,300 '

Reedvables-Customers (less accumulated provision of $1.844,000 and

$1,863.000 respectively, for uncollectible accounts) 116,054 105.037 Other 24,855 26.609

. Materials and supphes, at average cost-Fu 4 92,664 84.503 Other 44,466 40.602 Prepayments and other 35,966 18. % 2 378,337 291.959 Deferred Charges:

Deferred Quarto coal costs (Nota 7) 71,346 63.363 Deferred energy costs -

2.318 Property taxes 50,527 41.450 Unamortized costs of terminated construction projects (Note 2) 103,835  %.489 Other 50,734 53.600 276,442 257.220

$5,247,138 $4.460.274 Capitalization and Liabilities Capitalization (See Statements of Consolidated Capitahzaton):

Common stockholders' equity 31,488,371 91.229.044 Preferred stock-Not subject to mandatory redempton 262,335 262.335 Subject to mandatory redempton 64,000 68.000 Preference stock-Not subject to mandatory redempton 50,000 -

Subject to mandatory redemption 55,165 56.843 Preferred stock of consolidated subsidiary-Not subject to mandatory redemption 41,905 41.905 Subject to mandatory redemption 33,395 26.298 Lcog-term debt 2,005,436 1.759.771 4,000,607 3,444.196 Long Term Obligations (Note 5):

Constructon energy trust 500,000 432.500 Nuclear fuel 156,655 14.984 656,655 447.484 Current Liabilities:

Current matunties of long-term debt and preferred stock 22,383 7.581 Notes payable to banks (Note 6) -

74.400 Accounts payable 133,776 142.718 Accrued taxes 51,115 47.074 Accrued interest 57,736 39.982 Other 26,390 25.468 291,400 337.223 l

Deferred Credits:

Accumulated deferred income taxes 152,890 124.279 Accumulated deferred investment tax credits 53,727 40.646 Preparty taxes 50,527 41.450 Ensrgy costs recovered in advance 14,418 4.144 Other 26,914 20.852 l

298,476 231.371 )

Commitments, Guarantees and Contingencies (Notes 2,3 and 7)

Th3 accompanying Notes to Conschdated Financial Staternents are an integral part of these balance sheets.

, C3 l l

Statements of Consolidated Capitalization onrosenson At December 31 1982 1981 (In Thousands)

Common Stockholders' Esguity:

Common stock. 39 par value, authorized 125.000,000 shares-96 081.844 and 78.675.703 shares ovr standing. respectively (Note da: S 864,737 $ 708.081 Other paid in capital 423,195 349.772 Retiined earnings (Note Ab) 200,439 171.191 Total common stockholders' eounty 1,484,371 1.229.044 Optenal Redemption Pnce Number of Shares Outstandin0 Aggrega'e 1982 1981 Per Share (In Thousands)

Preferred Stock (Note do):

Cumuative. $100 par value- Authonzed 6.000.000 shares No Subject to Mandatory Redempton.

2 90 % - 7.24 % 973.350 973.350 $103 38108 00 $102.034 97,335 97.335 136% -820% 800.000 . 800.000 $106 52-107.40 85.612 80,000 80.000 864% -912% 850.000 850 000 $106 48-10912 91.696 85,000 85.000 Total not subsect to mandatory redempton 2.623.350 2.623.350 $279.342 282,335 262.335 Subiect to Mandatory Redempton(Note 4d) 10 48 % - 10 76 % 659.630 692.760 $107 86-111.87

• 72.430 65,963 69.276 Redempton within one year (1,943) (1.276)

Total subiect to mandatory redemption 84,000 68.000 Preference Stock (Note 4c):

Cumulative, no par value- Authorized 4.000,000 shares Not Subt?ct to Mandatory Pedempton.

$3 92 Seres 2.000.000 - $3142 $ 62.840 50,000 -

Subie:t to Mandatory Redempton (Note de):

$95 00-$102 50 Seres 27.000 27.000 $1.095 001.102.50 $ 29.700 2 F,000 27.000

$180 Seres 1.862.181 1.973.100 $16 03 29.841 28,185 29 843 Total subject to mandatory redempton 1.889.181 2,000.100 $ 59.541 55,185 56.843 Pr:ferred Stock of Consolidated Subeldiery (Note 4e):

Cumulative $100 par value- Authonzed 950.000 shares Not Subiect to Mandatory Redempton.

424% -916% 419.049 419.049 $102 98-107.32 $ 44.238 41.905 41.905 Sublect to Mandatory Redempton (Note ad).

8 24 % - 15.00 % 338.951 267.984 $108 24115 00 $ 37.630 33,895 26.798 Redempton within one year (500) 1500)

Total subiect to mandatory redempton 33,395 26 298 Long.7erm Debt (Note 4f):

First mortgage bonds Ohio Ed6on Company-9 63% weight;3 average interest rate, due 1983-1987 113,791 113.791 13 37 % weignted average mterest rate. due 1988 1992 256,616 208 250 10 46% weigh'ed average interest rate, due 1993-1997 77,715 78.250 8 87% weignted average mierest rate. due 1998-2002 187,198 191.701 10 20% weighted average mierest rate. due 2003-2010 485,918 507.678 1,121,238 1.099 670 Pennsylvania Power Corrpany-10 08% weignted average mterest rate. due 1983 2008 239,000 214.805 Total first mortgage bonds 1,380,238 1.314.475 Secured notes and obligatons-One Edison Company-8.03% weighted average eterest rate. due 1983 2010 230,914 230.914 Oho Edison Finance N V-17 38% weighted average mterest rate, due 1987 1988 150,000 75.000 Pent'syt,ania Power Company-8 83% weghted average mterest rate, due1983-2007 68.10e 53 606 Amount held by Trustee (5,327l -

62.779 53 606 Total secured notes and obligatons 443,693 359 520 Unsecured notes of Oho Edison Company.10 42% weighted average interest rate, due 1984-2012 302,000 t 76.000 Amount held by Trustee (69,026) (75 666)

Total unsecured notes of Oho Edison Company 232,974 100.314 l11,549) 18 733)

Net unamortized discount on debt (19,920) 15 805)

Lcng term debt due within one year 2,005,438 1.759 771 Total long term debt Total Depitalisation (Note 7l

$4,000,607 $3.444196 The accompanying Notes to Consolidated hnancial Statements are an integra part of these statements 23

Statements of Consolidated Retained Earnings onio edison For the Years Ended December 31 1982 1981 1980 (In InoUSands)

Balance at beginning of period $171,191 $133.592 $150.552 Net incorne 215,729 197.062 135.150

~

386,920 330.654 285.702 Deduct.

Preferred and preference stock dividends 34,488 33.160 33.724 Common stock drvidends 151,289 126.030 118.137 Capital stock issuance expense 704 273 249 188,481 159.463 152.110 Balance at end of perod (Note 4b) $200,439 $171,191 $133.592 Statements of Consolidated Capital Stock and Other Pald in Capital Preferred and Preference Stock Not Subject to Subject to Common Stock Mandatory Redempton Mandatory Redempton Number Par Other Paid- Number Par or Number Par or of Shares Value in Capital of Shares Stated Value of Shares Stated Value (Dollars in Thousands)

Balance. January 1.1980 59.622.369 $536.602 $282.956 3.069.049 $306.905 2.987.000 $153.250 Sa'eof Common Stock 6.500.000 58.500 25.805 - - - -

DMdend Reinvestment Plan 2.403.803 21.634 7.979 - - - -

Sata of 10.50% Senes of Preferred Stock - - - - -

100.000 10.000 Preferred Stock Sinking Fund Redemptons-10.48% Seres - -

260 - -

(20.000) (2.000) 10.76% Senes - -

175 - -

(20.000) (2.000) 11.00% Seres - -

21 - -

(8.000) (800)

Ba!ance. December 31.1980 68.526.172 616.736 317.196 3.069.049 306.905 3.039.000 158.450

, Sale of Common Stock 7.000.000 63.000 21.875 - - - -

Drv dend Reinvestment Plan 3.122.631 28,103 7.751 - - - -

Converson of $1.80 Preference otock 26.900 242 147 - -

(26.900) (407)

Preferred Stock Sinking Fund Redemptons-1048% Seres - -

585 - -

(27.240) (2.724) 10.76% Seres - -

361 - -

(20.000) (2.000) 11.00% Seres - -

53 - -

(4.016) (402)

Other Preferred Stock Redemptons-390% Senes - -

271 (3.790) (379) - -

4.40% Seres - -

251 (3.720) (372) - --

4 44% Seres - -

896 (13.440) (1.344) - -

4.56% Seres - -

386 (5.700) (570) - -

Balance. December 31.1981 78.675.703 708.081 349.772 3.042.399 304.240 2.960.844 152.917 Sale of Common Stock 10.000.000 90.000 42.000 - - - -

Drvdend Reinvestment Plan 4.644.622 41.802 17.647 - - - -

Exchange of Commo i Stock for First Mortgage Bonds 2,650 600 23.855 9.463 - - - -

Conversion of $1.80 Preference Stock 110.919 999 610 - -

(110.919) (1.678)

Sa'e of $3.92 Series of Preference Stock - -

2.940 2.000.000 50.000 - -

Sale of 15% Seres of Preferred Stock - - - - -

80.000 8.000 Preferred Stock Sinking Fund Redemptons-8 24% Seres - - - - -

(5 000) s.500) 10 48% Seres - -

284 - -

(13.130) (1.313) 10.76% Seres - -

435 - -

(20.000) (2.000) 11.00% Seres - -

44 - -

(4 033) (403)

Balance. December 31,1982 96.081.844 $864.737 $423.195 5.042.399 $354.240 2.887.762 5155 023

- , . ~ .n.- = ~ . . . , - _ . - , . - - - ,.

The accompanying Notes to Consohdated Financial Statements are an integral part of these statements

[4

Ctatements c f Consolidated Sources of on,oes, son Funds for Property Additions For the Years Ended December 31 1982 1981 1980 (In Thousands)

Interna 9y generated funds-Income before extraordinary items $195,571 $183.020 $135,150 Poncipal nun-cash items-Depreciaton and amort:2aton-Chargsf to provison for depreciaton 103,206 95.830 85.455 Charged to other accounts 1,953 1.318 1,282 Amortizaton of terminated constructon project costs 1,866 3.995 -

Deferred income taxes, net 91,832 99.179 83.536 Investment tax credits, net 7,312 (772) (27.201)

Allowance for equity funds used during constructon (84,210) (60.421) (57.715)

Deferred fuel and energy costs, net 4,609 (49.393) (9,114) 322,139 272,756 211.393 Less-Dividends on common stock 151,289 126.030 118.137 Dividends on preferred and preference stock 34,488 33.160 33.724 Net funds from operatons 136,362 113.566 59.532 Income from extraordinary items 20,158 14,042 -

! Non-cash items-Gain on reacquisiten of first mortgage bonds - (26.276) -

Gain on exchange of common stock for first mortgage bonds (20,158) - -

136,362 101.332 59.532 Financing activities-Common stock 224,767 120,729 113.918 Preferred stock 8,000 -

10.000 Preference stock 52,940 - -

First mortgage bonds 105,000 95.000 322.000 Secured notes, net 84,173 94,920 50.000 Unsecured lono-term notes, nel 106,660 24.314 -

Construction energy trust and nuclear fuel obhgatons 209,171 182,484 265.000 Retirement of long term debt and preferred stock (43,295) (202.336) (95.800)

Increase (decrease) in notes payable to banks (74,400) 32.918 (150.517)

Sale of tax benefits 10,480 37.531 -

683,496 385.560 514.601 Net enange in current assets and current habikties excluding notes payable to banks and current maturities of iong-term debt and preferred stock-Temporary cash investments (57,200) (4,300) -

Receivables (9,063) 2.715 g29.171)

Matenals and supphes (12,045) 3.149 (33.843)

Accounts payable (8,942) 39,193 1,474 Accrued taxes 4,041 (12.085) (1,186)

Accrued interest 17,754 285 10.722 Miscellaneous, net (7.148) 112 1.601 (72,603) 29.069 (50.403)

Other, net-Constructon funds held in escrow. Including accrued interest 711 39.847 (20.938)

Aflowance for equity funds used during constructon 84,210 60.421 57.715 Sab of utihty property 13,568 - -

Deferred income taxes on anowance for borrowed funds used dunng constructon (67,127) (59.530) (38.690)

Miscellaneous, net (4,384) 11.345 (6.797) 26,978 52.083 (8.710)

Property Additions $774,233 $568.044 $515.020 The accompanying Notes to Consol' dated Financial Statements are an integral part of these statements 25

Statementsof ConsolMated Taxes on,o ed, son For the Years Ended Decernber 31 1982 1981 1980 (In Thousands)

Ooneral Taxes:

State gross recects (i) S Se,80s $ 34,144 $ 38,753 Real and personal property 45,028 39.193 37,183 Sccial securrty and unemoloyrnent 8,940 8,010 6,408 Miscellaneous 3,743 2.969 2.799 Total general taxes S114,569 ~ $ 84.316 $ 85.143 Prowlsion for Income Taxes:

Currently payable-Federal S 324 $ 80 $ (3.043)

State 2,532 678 -

Foreign 206 59 -

3,082 817 (3.043)

Deferred, net (see below)-

Federal 88,866 96.218 81,105 State 3,16e 2,%1 2.431 91,832 99,179 83.536 )

Investment tax credits, net of arnortization (ii) 7,312 (772) (27.201) l Total provision for income taxes $102,206 $ 99,224 $ 53.292 l Income Statement Classification of Provision for income Taxes: 1 Operating expenses S 94,245 $ 80,820 $ 51.619  !

Other income (59,146) (53,360) (37.017)

Allowance for borrowed funds used during construction 67,127 59,530 38.690 Extraordinary items - 12,234 -

Total provision for income taxes $102,206 5 99,224 $ 53.292

)

Sources of Deferred Tax Expense Al!owance for borrowed funds used during construction, which is credited to plant S 67,127 $ 59.530 $ 38,690 Deferred fuel and energy costs, net 7,000 12,308 4.210 Excess of tax over book depreciation, nel 17,387 13,669 9.334 Cost of terminated construction projects, net 384 5,197 33,181 Property taxes applcable to subsequent penods, net 4,177 1,233 475 Deferred interest on leased nuclear fuel, net (2,840) 9.567 -

Other, net (1,403) (2.325) (2.354)

Total deferred tax expense, net S 91,832 $ 99,179 $ 83.536 Reconciliation of FederalIncome Tax Expense at Statutory Rate to Total Prowlsion for income Taxes:

Bcck income before provision for income taxes $317,93i8 $296.286 $188.442 Federal income tax expense at statutory rate $146,250 $136.292 $ 86.683 Increases (reductions) in taxes resu!!irg from:

Allowance for equity funds used dunng construction, which does not constitute taxable income (38,737) (27,794) (26.549)

Difference between tax and book depreciation 4,026 (2.422) (5.874)

Gain on exchange of common stock for first mortgage bonds, l which does not constitute taxaole income (ti,273) - -

l Other, net (60) (6.852) (968)

Total provision for income taxes $102,206 $ 99.224 5 53.292 (t) Amount for 1981 includes a credit of $14,352.000 resultong from a (tt) Amount for 1980 reflects the reversal of previously recorded December 1981 setHement applicable to Pennsylvania Excise Tax on onvestment tax credits and related amortization due to the carryback Gross Recerpts accrued in prior years. of tax net operating losses.

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

CG

Notes To Consolidated Financial Statements On July 30,1982 the PUCO, following the Company's regular 1 Summary of Significant Accounting Policies semiannual fuel hearing, modified its prior order with respect to recovery of the costs of coal purchased from Quarto Mining Company (Quarto). Taking account of +e fact that Quarto coal The consolidated financial statements include Ohio Edison is bumed exclusively at the Bruce Me asfield Plant, but does not Company (Company) and its wholly owned subsidiaries, constitute the sole source of coal for that plant, the PUCO's Pennsylvania Power Company (Penn Power) and Ohio Edison order permits the Company to reduce the deferred cost of Finance N V. (Finance). All signficant intercompany transactions Quarto coal by recovering such costs over time as an have been eliminated. The Company and Penn Power (Com- additional cost of fuel for purposes of its EFC to the extent that panies) follow the accounting policies and practices prescribed the overall cost of coal at the Bruce Mansfield Plant is less by The Public Utilities Commission of Ohio (PUCO), the than 115% of the generally prevailing market price of Pennsylvania Public Utility Commission (PPUC) and the Federal comparable coal. In calculating the cost of coal at the Bruce Energy Regulatory Commission (FERC). Mansfield Plant, the PUCO ordered the Company not to include but to defer (unless the costs proposed to be deferred are Revenues found to be unreasonable) the cost of Ouarto coal to the extent The Companies' residential and commercial customers are it exceeds 125% of the generally prevailing market price of metered on a cycle basis. Revenue is recognized for efectric comparable coal. The July 30,1982 PUCO order has been service based on meters read through the end of the month. appealed by the Ohio Office of Consumers' Counsel. Although management cannot predict the outcome of this appeal, it The Companies collected $11,987,000 and $8,905,000 dunng believes the PUCO order is both lawful and reasonable and 1982 and 1981, respectively, in revenues attributable to whole- therefore believes the order should be allowed to stand.

safe rate increases which are subject to possible refund. The effect on retained earnings has been an increase of Penn Power recovers fuel and energy costs from its customers

$11,082,000, of which $6.327,000 ($.07 per share of common through an annual "levelized" energy cost rate (ECR). The ECR, stock) is applicable to 1982 and $4,755,000 ($.07 per share of which includes adjustment for any over or under collection common stock)is applicable to 1981. Management believes from customers, is recalculated each year. Accordingly, Penn that any refunds which may be required in these cases wouU Power defers the difference between actual energy costs and not have a material effect on the Company's consolidated the amounts currently recovered from its customers.

results of operations.

In January 1981, the PPUC ordered that Penn Power not in-Deterred fuel And Energy Costs clude the cost of Quarto coal in its ECR at more than generally The Companies record the cost of fuel when it is consumed, prevailing market prices pending completion of a PPUC investi-except as discussed below. gation to determine the reasonab!eness of the costs of Quarto coal. Accordingly, Penn Power defers the Ouarto coal costs in The Company recovers fuel-related costs from its retail cus- excess of generally prevailing market prices.

tomers through an electric fuel component (EFC), in accord-ance with a PUCO order. The EFC is an est; mated fixed rate Reference is made to Note 7 for a further discussion of the p r kilowatt-hour included on customer bills for a six-month Quarto project.

pericd and is based upon fuel-related costs for the preceding six month period. Any over or under collection resulting from Utility Plant and Deoreciation the operation of the EFC is included as an adjustment to the Utility plant reflects the original cost of construction, including new EFC rate in a subsequent six-month period. Accordingly, payroll and related costs such as taxes, pensions and other the Company defers the difference between actual fuel-related fringe benefits, administrative and general costs and allowance costs incurred and the amounts currently recovered from for funds used during construction (see AFUDC).

its customers.

The Companies provide for depreciation on a straight-line basis at various rates over the estimated lives of property included in plant in service. The effective composite rate for electric plant was 3.3% in 1982,1981 and 1980. The Company's oeprecia-tion raies include provisions for the estimated decommissioning costs for its only nuclear generating unit in service. Penn Power provides for the cost of decommissioning radioactive components only, in accordance with a PPUC rate order.

27

NoteeicontI#mem Common Ownership of Generating Facihties Income Taxes The Companies and other Central Area Power Coordination Details of the total provision for income taxes are shown on Group (CAPCO) companies own, as tenants in common, the Statements of Consolidated Taxes. Deferred tax expense various power generating facilities. Each of the companies is results from timir'g differences in the recognition of revenues obligated to pay a share of the construction costs of any jointly and expenses for tax and accounting purposes.

owned facility in the same proportion as its ownership interest.

The Companies' portions of operating expenses associated The Companies allocate the income tax credit resulting from with these jointly owned facilities are included in the interest expense related primarily to utility plant under con-corresponding operating expenses on the Statements of struction, to income taxes-credit included under other incoma Consohdated income. The amounts reflected on the and deductions on the Statements of Consolidated Income.

Consohdated Balance Sheet under utility plant at December 31, 1982 include the following: For income tax purposes, the Companies claim liberalized de-precialbn and, consistent with the rate treatment, generally follow " normalization" accounting. The Companies expect that vmm.,, Og T C0 deferred taxes which are not provided will be collected from cenerateo units m s.nac. o.m.c ion con.w.on ins.*n their customers when the taxes become payable, based upon [

en thousands) the established rate making practices of the PUCO. the PPUC C H. samtms #7 $ 128.084 5 26.430 $ 62.355 68 80 % and the FERC.

Bruce Mansfieid #1, #2 and #3 685.659 92.938 12.215 50 68 %

Beaver Valley #1 427.0160) 67.219 60.068M 52 50 %

Beaver vaney #2 (Note 5) - - 583.417 41 88 % The Company received St0,480.000 in 1982 and $37,531,000 Perry #1 and #2 968.384 35 24 %

in 1981 resulting from the sales of tax benefits applicable to Tot 3 $1.240.759 5186 587 51.686 439 property placed in service during those years in accordance o)inciudes cornmon faciin,es appiicase io Beaver vaney #2. with provisions of the Economic Recovery Tax Act of 1981. Of the total, $5,823,000 and $12,675,000, respectively, were re-All nuclear fuel in process reiates to the CAPCO units but is not corded as additiona! deferred investment tax credits on the segregated among them. Company's Consolidated Balance Sheet and are being amor-tized over the life of the related property. The remaining Nuclear Fuel $4.657,000 and $24,856,000, respectively, were recorded as The Companies charge the cost of nuclear fuel to fuel expense reductions to utility plant in service and serve to reduce the based on the rate of consumption. The Companies also include total provision for depreciation over the life of the property.

in fuel expense the estimated spent nuclear fuel disposal costs which are being recovered from customers. The storage of

• The Companies defer investment tax credits utihzed and spent nuclear fuel is necessary until the manner of ils disposal amortize these credits to income over the estimated life of is determined, which is currently under study by the the related property. At December 31,1982, approximately Department of Energy. $99,000,000 of unused investment tax credits were available to offset future Federal income taxes payable. These credits A!Iowance for Funds Used During Construction (AFUDC) expire at the end of the following years:

AFUDC, a non-cash item charged to utihty plant under con-struction during the construction period, represents the net cost 1991 $11,000.000 of borrowed funds and equity funds used for construction 1992 16,000.000 purposes. AFUDC varies according to changes in the level of 1993 9,000.000 utshty plant under construction and in the cost of capital. The 1994 7,000,000 Companies compute AFUDC utilizing a net of tax rate, which is 1995 33,000.000 consistent with the rate treatment. AFUDC related to assets 1996 5,000.000 financed only through the incurrence of long-term obhgations 1997 17.000.000 (see Note 5)is based on actual interest accrued on the obliga- $98.000.000 tions during the period. The rates used by the Company for all other construction projects were 10.32%,9.84% and 10.14%

dunng 1982,1981 and 1980, respectively. Penn Power used Pensions rates of 9.2G%,8.50% and 8.00% during 1982,1981 and The Companies' trusteed, noncontnbutory pension plans cover 1980, respectively, applicable to such projects. almost all full-time employees. Upon retirement, employees receive a monthly pension based on length of service and compensation. Pension costs for 1982,1981 and 1980 were se

$15,448.000, $15.311,000 and $14.931,000, respectively. Of those amounts, $10.350.000, $9.237,000 and $9,259,000, 2 Terminated Construction Profects respectively, were charged to operating expenses The balances were charged pnmanly to construction. Such costs _

include the amortization of unfunded past service costs on an in January 1980, the Companies and all other CAPCO actuarial basis over 30 years. The Companies fund pension companies terminated plans to construct the following costs accrued. A comparison of accumulated plan benefits . four nuclear generating units-Davis-Besse No. 2 and and plan net assets from the two latest actuarial reports is No. 3, and Ene No.1 and No. 2. Costs, including settle-as fol'ows: ment of all asserted claims resulting from termination, unrecovered by the Company and Penn Power as of December 31,1982 applicable to these units amounted a June 30 1982 1981 approximately $87,751,000 and $16,084,000, respectively.

Actuanat present value of accumuiated pian benefits: The PUCO had authe R 4 recovery of the applicable

$' portion of the Company s then known share of the con-N nvested O ,

struction costs from its PUCO Junsdictional customers

$169.876.000 $155.994.000 over a ten-year period beginning in February 1981, On Net assets available for benefits $224.641.000 $213.749.000 July 15,1981, however, the Supreme Court of Ohio ruled Assumed rate of retum for actuanal in a Case involving another Ohio utility, also a co-owner present value of accumulated of the terminated units, that under existing statutes the plan benefits 8% 8% PUCO had exceeded its authority in allowing these costs as service related costs in that company's rate case, even though the decisions to construct and terminate The tove total actuarial present value of accumulated plan were both, when made, prudent and reasonable. Subse-benehts reflects pension benefits applicable to eligible quent appeals to the U.S. Supreme Court by that company employees based upon present salary levels and past years of have been denied because of the lack of a properly pre-service accumulated through the valuation date. This is the sented Federal question. The utility has taken further generally accepted reporting procedure currently set forth by action before the Ohio Supreme Court which may still have the Financial Accounting Standards Board. The Companies' a oearing on the matter. As a result of the July 1981 Ohio annual contnbutions to the plans, however, consider estimated Supreme Court decision, the PUCO disallowed the Com ultimate salary increases due to inflation and other factors and pany's recovery, as service-related costs, of the costs of the estimated total service expected to be aCCumu!ated by the terminated units. effective August 1,1981. Accordingly, employees. This is a widely recognized funding technique and the Company discontinued amortization of such costs on is consistent with the recommendation of the Companies' that date.

actuary In addition, the actuary recommended, and the Companies utikzed. discount rates of 7% and 6% dunng the On November 3,1982, the PUCO decided in the Com-twelve months ended June 30,1982 and 1981, respectively, for pany's then pending rate case to allow a rate of return funding purposes Differences between funding bases and above that which it otherwise would have allowed were it reporting requirements can have a significant effect on the not for the July 1981 Ohio Supreme Court decision. Based compansons above. on that order, the Company has resumed amortization of the costs of the terminated units applicable to PUCO juns-dictional customers over a ten-year period. Consumers' Counsel has appealed a similar decision in another util-ity's rate case to the Ohio Supreme Court. Whether the November 3,1982 PUCO order will ultimately be appealed and sustained cannot be determined at this time.

29

Notee(Continued)

In January 1983, the other Ohio utility referred to above -

rzcrived a rate order in a subsequent rate case which the 4 Capitalizaffen utility has concluded does not provide a sufficient basis under generally accepted accounting principles for its continued amortization of the costs of the terminated (a) Common Stock units. Were the Company to receive a similar order and Through the Dividend Reinvestment and Stock Purchase Plan, reach a similar conclusion in connection with the PUCO holders of common, preferred and preference stock and most order in its current or some succeeding rate case, and no of the Companies' full-time employees can acquire additional other basis for amortization could be found or anticipated, new shares of the Company's common stock by automatically the Company would be required to write off that portion of reinvesting all or a portion of their dividends cod by making the then unrecovered costs applicable to its PUCO juris- optional cash payments. Purchases made with reinvested dictional customers. Such costs at December 31,1982 common stock dividends are made at a price equal to 95%

approximated $83,559.000 ($53.613,000 net of income of the average of the high and low market prices on the invest-tax elfect). ment dates, and purchases made with optional cash payments are made at a price equal to 97% of such average. The pur-The Companies are currently seeking approval from the chase of common stock made with reinvested cash dividends FERC to recover these costs from FERC jurisdictional on preferred and preference stock are made at a price equal customers to the extent they are allocable to those cus- to 100% of the average market price. At December 31,1982, tomers. The Companies are currently collecting interim the Company had 3,031,794 shares reserved for issuance rates from FERC jurisdictional customers which are under this plan and 1,862,181 shares of common stock re-intended to provide for such recovery and, accordingly, served for possible conversion of the $1.80 Preference Stock. I those costs applicable to FERC jurisdictional customers are being amortized over ten years. The Companies (b) Retained Eamings believe that the construction costs were prudently incurred Under the Company's indenture, the Company's consolidated and have no reason to believe that the FERC will not act retained earnings unrestricted for payment of cash dividends favorably upon their requests. The PPUC has indicated on the Company's common stock were $128,392.000 at that it will allow Penn Power to begin recovering its share December 31,1982. Under Penn Power's Charter, $30.089,000 of the costs allocable to PPUC jurisdictional customers of retained eamings at December 31,1982 were unrestricted over a ten-year period beginning with the effective date for payment of cash dividends to the Company.

of its next change in base rates.

(c) Preferred and Preference Stock The Company has 4.000,000 authorized and unissued shares of cumulative $25 par value Class A Preferred Stock.

3 Leases At the Companies' option, all preferred and preference stock may be redeemed in whole, or in par 1, at any time upon not The Companies iease nuclear fuel, certain transmission less than 30 nor mnre than 60 days notice, unless otherwise facil: ties, computer equipment, office space and other incidental property and equipment under cancelable and noncancelable leases. Total rent expenses included on the Statements of Consolidated income for 1982,1981 and 1980 were $20,766,000, $20,731,000 and $9,373,000, respectively.

The future minimum rental commitments as of December 31, 1982 for all noncancelable leases are:

1983 $ 23,299,000 1984 22,765,000 1985 20,488,000 1986 16,525,000 1987 14,030,000 Years thereafter 348,404,000 If all noncapitalized financing leases had been capitalized, the effect on tota! assets, total liabilities and expenses would not be material.

l O

r-1 noted. Redemption of all preferred and preference stock issued Based on the amount of bonds authenticated by the Trustees within the past five years is subject to certain restrictions through December 31,1982, the Companies' annual sinking regarding refunding operations. The optional redemption prices and improvement fund requirements amount to $22,504,000.

shown on the Statements of Consolidated Capitalization will The Company expects to deposit funds in 1983 which will be

- decline to eventual minimums per share according to the withdrawn upon the surrender for cancellation of a like prin-

. Charter provisions that establish each series.: cipa' amount of bonds, which are specifically authenticated for

. . Such purposes against unfunded property additions or against (d) Preferred Stock Subject to Mandatory Redemption previously retired bonds. This method can result in minor The Company's 10.48% Series and 10.76% Series each in- increases in the amount of the annual sinking fund require-'.

Clude provisions for a mandatory sinking fund to retire a ments. Penn Power expects to satisfy its requirements in 1983 minimum of 20,000 shares every year on December 1 and by certifying unfunded property additions of 166-2/3% of the January 1, respectively, at $100 per share plus accruad divi- required amount.

dends. Penn. Power ls 8.24% Series and 11% Series each -

include provisions for a mandatory sinking fund to retire a As of December 31,1982, the Companies' sinking and im-minimum of 5,000 shares and 4,000 shares, respectively, every provement fund requirements and maturing long-term debt for year on December 1 and January 1, respectively, at $100 per the next five years are:

share plus accrued dividends, and its 15% Series includes a provision for a mandatory sinking fund to retire a minimum 1983 $ 42,424,000

. of 3.200 shares on July 15 of each year beginning in 1988, 1984 149,330,000 at $100 per share plus accrued dividends. Penn Power's 1985 75,647,000 10.50% Series includes a provision for mandatory redemption 1986 58,582,000 of the entire series on April 1,2040 at $100 per share plus 1987 183,582,000 accrued dividends.

The weighted average interest rates shown on the Statements The sinking fund requirements are $2.463.000 for 1983 and of Consolidated Capitalization relate to long-term debt outstand-

$4,EDO,000 for each of the years 1984 through 1987. ing at December 31,1982.

-(e) Preference Stock Subject to Mandatory Redemption Total secured and unsecured notes outstanding at December The $102.50 Series and $95.00 Series each include provisions 31,1982 and 1981 exclude $74,353,000 and $75,686,000, for a mandatory sinking fund to retire a minimum of 900 and respectively, of pollution control notes, the proceeds of which 1,800 shares, respectively, on July 1 in each year beginning in were then in escrow pending their disbursement for con-1984 and 1985, respectively, at $1,000 per share plus accrued struction of certain pollution control facilities. Penn Power's dividends. The $1.80 Series includes a provision for a manda- obligation to repay the pollution control revenue bonds is tory sinking fund to retire a minimum of 100,000 shares on secured by a series of Penn Power first mortgage bonds. The -

Octot:3r 1 in each year beginning in 1985, at $15.125 per share pollution control revenue bonds to which the unsecured notes

^!

plus accrued dividends. relate are entitled to the benefit of irrevocable bank letters of credit of $159.802,000. To the extent that drawings are made The sinking fund requirements will begin on July 1,1984 and under those letters of credit to pay pnncipal of, or interest on, Will amount to $900,000 for 1984 and $4.213,000 for each of the pollution control revenue bonds, the Company is entitleo the years 1985 through 1987,- to a credit on the notes. The Company pays an annual fee of 1/2%-7/8% of the amounts of the letters of credit to the The $1.80 Series is convertible at any time into common stock issuing banks and is obligated to reimburse the banks for at a price of $15.125 per share. Ho!ders will receive one share any drawings thereunder.

of common stock for each share of $1.80 Preference Stock converted, subject to adjustment under certain conditions.

(f) Long Term Debt The mortgages and their supplements, which secure all of the Companies' first mortgage bonds, serve as a direct first mortgage lien on substantially all property and franchises, other than specifically excepted property, owned by the respective Companies.

31

Noteeicontinued) -

such time and in such amounts as wi!I coincide with the burn-5 Long Term 06#petions up of the nuclear fuel. Financing on behalf of the Companies of up to $135.000.000 and $30,000.000 is available through the Ohio Edison Fuel Corporation and Pennsylvania Power Fuel Ohio Edison Energy Trust (OEET) Corporation, respectively, either through revolving credit in November 1980 OEET was created for financing part of the arrangements or the issuance of commercial paper, which is Company's investment in Beaver Valley Unit No. 2. OEET has supported by bank letters of credit. or a combination of both.

two lines of revolving credit available to it for $400.000.000 and

$100.000,000. The latter credit also serves as a stand-by facihty in November 1982, the Compan:es also began participating in in connection with OEET commercial paper sales: total borrcw- arrangements wherein the Central Area Energy Trust (CAET) ings under that credit and commercial paper outstanding may finances the acquisition of nuclear matenal that will ultimately not exceed $100.000,000 at any time. be used to fuel various CAPCO generating units. As part of these arrangements, the Companies have entered into pur-The Company has transferred its interest in Beaver Valley Unit chase agreements whereby the Companies are unconditionally No. 2 (exclusive of common facihties and transmission facihties) obligated to purchase their share of the nuclear material that to OEET, where the assets are used to secure OEET borrow- has been financed from CAET in not less than two nor more ings. All OEET obligations will be assumed by the Company than three years from the date of the agreement, unless the when they become due, but not later than December 31.1986. nuclear material reaches the point of fabrication, at which time At the Company's option, all obhgations outstanding under the the purchase Commitment will then be due. Financing of up to

$400.000,000 revolving credit arrangement may be converted $137,000.000 is available to CAET on behalf of the Companies.

into a four-year term loan to the Company. Of the increase in the Companies' nuclear fuel obligations I dunng 1982, approximately $58,000.000 was the result of a The Company accrues interest apohcable to OEET which is transfer to CAET of nuclear matenal which was previously subsequently capitahzed, net of income tax effect. Interest on hnanced by a lessor under lease arrangements with the borrowings under the $400,000.000 line of credit is computed CAPCO companies.

at the applicable prevailing pnme interest rate plus 1/4%, plus a commitment fee of 1/2% on the unused portion of this hne The Companies accrue interest apphcable to the nuclear fuel No direct borrowings have been or are expected to be made obhgations which is subsequently capitahzed, net of income tax against the $100.000.000 kne of credit. but OEET has issued effect Interest on the fuel corporations' bank borrowings is and has outstanding commercial paper supported by this computed at 110% of the apphcable prevaihng pnme interest facihty. To the extent that borrowings are less than the rate, plus a commitment fee of 1/8% on the available portions

$100.000,000 available under this kne of credit, the Company of the knes of credit. The fuel corporations also pay a 5/8%

must pay a commitment fee of 1/2%. Under the stand-by letter of credit fee on the aggregate amount of outstanding support, an irrevocable bank letter of credit has been issued commercial paper. Interest on CAET purchase commitments upon which OEET pays a fee of 1/8% of the amount of com- are at rates which vary from 1-1/8% to 1-1/2% over the interest mercial paper notes outstanding. The effective average interest rate apokcable to certain dealer placed commercial paper. The rates on OEET borrowings were 14.8%,18.7% and 21.4% effective average interest rates apphcable to nuclear fuel obh-dunng 1982,1981 and 1980. respectively. Of the total OEET gatons were 12.6% and 13.9% in 1982 and 1981. respective!y.

obkgations outstanding at December 31,1982 and 1981

$100.000.000 relates to outstanding commercial paper and the balance to borrowings under the $400.000.000 line of credit.

Nuclear Fuel Financing in December 1981. Ohio Edison Fuel Corporation and Pennsylvania Power Fuel Corporahon (corporations in which the Companies have no ownership interest) were created to provide funds for the procurement of nuclear fuel. The fuel corporations will lease the fuel to the Companies under separate fuel leases which require lease payments sufficient to permit the fuel corporations to repay the obligations. Under ordinary circumstances, the lease payments will be made at C

Quarto Project O Notes Payable To Banks and Lines of Credit Tre Companies together with the other CAPCO companies, have made long-term coal supply arrangements with Ouarto.

The CAPCO companies have agreed to severally, and not The Companies have lines of credit with domestic banks that jointly, guarantee their porportionate shares of Quarto's debt provide for borrowings of up to $235.000.000 at rates that vary and lease obhgations incurred while developing and equipping from prime up to 105% of the prevaihng prime interest rates. the mines. The guarantees will temain even if environmental Short-term borrowings may be made under these knes of credit regulations prohibit the use of this coal. As of December 31, on the Companies' unsecured notes. All of the current lines 1982, the Companies' share of the guarantee was $235.414.000 expire December 31,1983; however, all unused hnes may be ($121,878.000-long-term debt; $79.190.000-lease obligations; cancelled by the banks. and $34.346,000-short-tum bank credit).

The Companies maintain cash balances on deposit with banks Under the terms of the coal supply contracts, which expire to provide operating funds. to assure availabihty of $90.127,500 December 31,1999, the Companies must reimburse Quarto for of the knes of credit and for other banking arrangements. Such their shares of tne costs of operating the Quarto mines. includ-compensating balances, net of " float." are expected to be ing those costs associated with mine construction, whether or maintained at an average of approximately $3.000.000 and are not they receive coal from Ouarto. The Companies' total pay-not subject to any contractual restnction against withdrawal. ments under these contracts amounted to $80,709.000 and The Companies are required to pay commitment fees that vary $94.379.000 during 1982 and 1981, respectively. The Com-from a flat rate of 1/2% to a vanable rate of 5% of the apph- panies' future minimum payments under the coal supply con-cable pnme interest rate to assure the availabikty of $99.000.000 tracts related to mine cmstruction costs are:

of the knes of credit.

1983 $ 26.538.000 1984 25.920.000 1985 25.302.000 7 Commitments, Guarantees and Contingencies 1986 24.684.000 1987 24.066.000 Years thereatter 245.245.000 Construction Program The Companies' current budget forecasts reflect expenditures Based on recent studies conceming the economics of the of approximately $2.700.000.000 for property add:tions and Ouarto project and the various alternatives available to provide improvements from 1983-1987, of which approximately the long-term fuel requirements of the Bruce Mansfield Plant.

$637.000.000 is apphcable to 1983. in addition. the Companies the coal supply contracts were amended and changes were expect to incur add:tional nuclear fuel obkgations of approxi- made in the mode of operation of the Quarto mines which mately $145,000.000 in 1983. The major portion of the Com- have the effect of reducing the annual tonnage production of panies' construction activities during this hve-year period these mines. Additional coal reouirements for the Bruce relates to the CAPCO companies' program for the joint devel- Mansheid Plant are currently being procured in the open opment of posuer generation and transmission facihties, and to market and the Company is presently continuing to evaluate bong the Companies' existing generating units into compkance the alternatives for making additional arrangements to fulfill, with environmental regulations. The CAPCO companies have together with the use of coal from the Quarto project. the long-entered into other commitments (the Companies' share being term fuel requirements of the Bruce Mansfield Phnt. These

$295.000.000, of which approximately $200.000.000 is apph- changes are part of a fuel procurement strategy designed to cable to the 1983-1987 period) for the supply of nuclear fuel reduce the weighted average pnce of coal used at the Bruce in connection with the future commercial operation of nuclear Mansfield Plant. The Company will continue to monitor the generating units.

The Companies' financing programs dunng 1983 through 1987 will include the sale or issuance. from time to time, of appro-pnate additional amounts of first mortgage bonds. secured or unsecured pollution control and environmental notes and obk-gations, unsecured long-term notes preferred stock, pref-erence stock, common stock and proceeds from other long-term financing arrangements (see Note 5). The Companies are hmited by their respective indentures and Charters as to the amount of additional first mortgage bonds and preferred stock they may issue.

33

Notes (Continued)

~

a Ouarto project and conduct such additional studies of the pollution source as a result of failure to comply with pollution economics of the project as are deemed warranted by the control laws and regulations after January 1,1981. The

- circumstances. Any action by the Company affecting the Companies filed Petitions for Review of these regulations. On Quarto project as a result of such studies will now have to take January 7.1983, the U.S. Court of Appeals for the District of into account the principles expressed in the Ohio Supreme Columbia upheld the validity of most of these regulations. The Court decision referred to in Note 2. Companies did not achieve compliance with all such regula-tions by January 1,1981 so that such penalties could be sought The current price of Ouarto coa l to the Companies is based on, against them, but the Companies cannot determine at this time among other things, the actual production costs plus amortiza- whether they will be or, if they are, the amount of economic tion of certain production expenses which were not included in benefit that could be established. If sought and imposed, such the price of coal to the Cempanies during the development penalties could be significant. However, the Federal Environ-panod, which ended on May 31,1980. The current pnce of mental Protection Agency (EPA) has acknowledged in earlier Quarto coal exceeds the current general!y prevailing market settlements of proceedings involving the Companies' Ohio pnce of coal. Reference is made to Note 1 for a discussion of plants that its policy is to assign a low enforcement priority to PUCO and PPUC orders with respect to the cost of Quarto coal companies in compliance with outstanding consent orders such currently being recovered from customers. The Company be- as embodied in those settlements. Also, approval of a Pennsyl-lieves that the PUCO method for recovery of the costs of vania State implementation Plan revision, which was effective t Quarto coal, including recovery of the deferred costs, is appro- January 15,1982, brings Penn Power's New Castle Plant into priate under the reduced mode of operation of the mines comp liance with sulfur dioxide (SO,) emission standards.

i because this method is consistent with the fuel procurement On December 19,1980, the Commonwealth of Pennsylvania strategy for reducing the overall cost of coal for the Bruce Mansf.ald Piant. Despite the delay in the final resolution of this petitioned the EPA to make findings under Section 126 of the i matter by the PPUC, management beheves that its ultimate Clean Air Act. Section 126 provides a remedy for a downwind disposition by the PPUC will not have a material adverse effect State that can show adverse impact because air pollution in upon the Company's consohdated results of operations. an upwind State causes nonattainment of air quality standards

[ in the dcwnwind State. Pennsylvania's petition complains of r An issue has been raised in the Companies' most recent rate excessive particulate and SO, emissions from a number of f cases before the FERC conceming the amount of the cost of sources in Ohio and other states. including potentially all of the

[ Ouarto coal that may be included in the Companies' charges Companies' Ohio plants. The States of New York and Maine

for electric service to their wholesale customers. have filed similar petitions which have subsequently been e consolidated with the Pennsylvania petitiori The Section 126

[ EnvironmentalMatters proceeding could ultimately result in the revision of the partic-

! Various Federal, state and local authorities regulate the Com- ulate and SO, e nission limitations for these plants, to make 5 panies with regard to air and water quality and other environ- them more stringent. The Company is unable to predict the I mental matters. The Companies estimate that compliance outcome of this proceeding.

. requires capital expenditures of approximately $488,000,000 for i projects remaining to be completed. Of this amount, approxi- As a part of the reauthorization of the Clean Air Act, legislation

[ mately $237,000,000 was spent prior to 1983, and $242,000,000 has been introduced in Congress to address the so-called " acid is included in the construction estimate given above under rain problem." Various bills introduced thus far would require

" Construction Program" for 1983 through 1987. If Penn Power reductions in SO, emissions from utility power plants and other is required to install off-stream cooling in connection with the sources located in several states, including Ohio and Pennsyl-operation of the New Castle Plant, costs estimated between vania. The Company is unable to predict whether the proposed

$13,800,000 and $31,500.000, depending on the required ther- bills will be enacted and, if so, to what extent, if any, the SO, mal limitations, would be incurred. In addition, annual operating emission limits at the Companies' plants would be affected.

l' costs would increase substantially. Penn Power expects that Substantial changes in the SO, emission limits could result in the impact of any such capital and operating expenditures the need for changes in coal supply or significant capital invest-L- would eventually be reflected in its rate schedules. ments in flue gas desulfurization equipment to assure compli-ance. If flue gas desulfurization equipment were to be installed g Final regulations implementing certain provisions of the Clean on all of their generating units to achieve compliance, a cir-

, Air Act Amendments of 1977 have now been promulgated cumstance that may be physically impossible because of space i which provide for the imposition of noncompliance penalties limitations at certain of their plants, the Companies estimate y based on any economic benefit realized by the operator of a that the capital costs associated with such installation could exceed $1,000,000,000. The Companies expect that any such g capital costs, as well as any iricreased operating costs asso-R ciated with such equipment, would ultimately be recovered from their customers.

i F

b u

Other Legal Actions and Complaints in 1977, the Boroughs of Ellwood City and Grove City, 9 Summary of Guarterly FinancialData -

Pennsylvania, filed a complaint against Penn Pcwer, alleging that Penn Power, individually and in conspiracy with the Company and other CAPCO companies, has violated Sections The following summarizes certain consolidated operating 4 and 16 of the Clayton Act by restraining and monopolizing results for the four Quarters of 1982 and 1981.

trade and commerce in alleged markets for electric power.

Damages of $7,000,000 (to be trebled) and injunctions against tha alleged unlawful acts are sought. In 1979, the Court granted 3 1982 Three Months Ended 3 .1982 30 1982 . 8 summa'y judgment in favor of Penn Power as to certain allega- gy ,, ,,,,,,,,,,3,,,,

tions of the complaint. On February 14,1983. Penn Power filed . op,,,,,n9 Revenues ' $36U90 $328.834 $374.328 $365.274 a Motion for Summary Judgment on the claims not dismissed operatog Expenses and Taxes 286.837 258.311 315.272 299.566 by the Court's 1979 Order. On February 11,1983, the Boroughs operatog income . 74.353 70.523 59.056 65.708 asked the Court to al low them to amend their complaint. Man- Othe' income and Deductions 35 819 30.505  % 212 43.711 Na Wmst anmher Charges 56.335 - 58S37 59120 59 224 agement is unable to predict the ultimate outcome of this action.

- incof7e Before Extraordinary items 53.837 . d2 091 49.448 50,195 Extraordinary items - -

20.158 - -

The PPUC is investigating an outage of Beaver Valley Unit No. Net income $ 53.837 $ 62.249 $ 49.448 5 50.195 1 which occurred during the period March-August 1979. The Eanungs on conrnon stock $ 4E644 $ 54.095 $ 41.326 $ 40.431 outage had been ordered by the Nuclear Regulatory Commis-sion to analyze possible seismic deficiencies of safety related Weighted Average Number of shares enrn n stock oumanong 7e3i 8 U 22 88421 92.688 piping and pipe supports in the Unit. The PPUC has ordered Earn nos per share of Common Stock:

that the operating company of the Unit make refunds to that Before Extraordinary items company's customers based upon that company's expenditures (after preferred and preference for purchased replacement power during the outage. The stock dividend requirements) $ 58 $ 42 $ 47 $ 44 Expamenant nems - .25 - -

PPUC is currently investigating Penn Power's liability, if any, Eanungs on conirnon stock 5 58 $ 67 5 47 $ 44 for the outage and whether refunds are due to Penn Power's customers for purchased replacement power expenses in-curred during the outage which were included in iis energy clause. If Penn Power is required at some future time to make such a refund, it is not expected that the amount would be March June september December matenal to the Company's consolidated results of operations. Th'ee Months Ended 31.1981 30.1981 30.1981 31.1981 (In Inousands, except per share amounts) operating Revenues $308.837 $293.500 $337.249 $340.063 operaung Expenses and Taxes 254.891 237.668 270.449 264.260 operatmg income M 53.946 55.832 66.800 75.803 O Cxfraordinary Income oine, income and Deductions 27.994 29.212 35.860 37.736 Net Interest and other Charges 44.729 49.225 51.049 55.160 income Before Extrauenary items 37.211 35.819 51.611 58.379 Extraorenary items 9.516 4.526 - -

Dunng 1982, the Company exchanged 2,650,600 shares of its common stock for $53.432.000 principal amount of its out- NeHncome $ 46.727 $ 40.345 $ 51.6 M $ 58.379 standing first mortgage bonds which were subsequently retired. Eamings on Common Stock $ 38.354 5 32.042 f 43.369 $ 50.127 The exchange resu%d in a nontaxable gain of $20.158,000, we,ghted Average Number of shares which is included as an extraordinary item on the 1982 of common stock outstanong 68.844 69.585 70.410 75.881 Statement of Consoudated Income. During 1981, the Company - Eamings per snare of common stack.

purchased and subsequently retirea $65,821,000 principal Before Extraord nary items d *'

amount nf its outstanding first mortgage bonds for cash. This (*$ ',o',"*,*,"uire le sit

, 5 42 $ 40 $ 62 $ 66 resulted in a gain of $26.276,000, which is included as an Extraord nary items .14 .06 - -

extraordinary item, net of related incomes taxes of Earnings on Common stock $ 56 $ 46 5 62 5 66

$12.234.000, on the 1981 Statement of Consolidated income.

(o nesuits for rne inree montas ended oecemoer 3 t. r9s r mciude a creet or appronmately 57,012.000($ 09 per snare of common stork). net of mcome taxes, apphCable to Ine reversal of prevsously accrued Pennsylvama Excise Tax on Gross Receipts (see Statements of Consoln1aren raxes) 35

Notes (Continued) provides for the preparation of supplementary financial fi Supplementary Financial Date-Financial information to disclose the estimated effects of inflation and Reporting and Changing Prices (Unauditedh changes in prices on property, plant and equipment. This data is presented in acccidance with SFAS No. 33, however.

Statement of Financial Accounting Standards No. 33, it is not intended as a substitute for earnings reported on a

" Financial Reporting and Changing Prices" (SFAS No. 33), historical cost basis.

As Reported Ad;usted for on the Pnmary Adjusted Changein Adjusted for the Effects of Changing Prices Consahdated for General Specific Prices For the Year Ended December 31.1982 (In Thousands) Statements inflation (Current Cost)

(Average 1982 Dollars)

Operating Revenues $1.429.626 $1.429.626 $1.429.626 Operating Expenses and Taxes:

Operation and maintenance 846.100 846.100 846.100 Provision for depreciatron and amortization 105.072 219.966 253.304 General taxes 114.569 114.569 114.569 incorne taxes 94.245 94.245 94.245 Total operating expenses and taxes 1.159.986 1.274.880 1.308.218 Operating fricome ~

269.640 154.746 121.408 Other income and Deductions 160.247 160.247 160.247 Nei Interest and Other Charges 234.316 234.316 234.316 Preferred and Preference Stock Dividend Requirements 34.233 34.233 34.233 l Income from Continuing Operations (excluding reducuon to net recoverable cost) $ 161.338 5 46.444(i) $ 13.106 increase in specific prices (current cost)of property, plant and equipment held during the year (ii) $ 633.048 Reduction to net recoverable cost $ (41.669) (342.314)

Effect of increase in the general price level on property, plant and equipment (299.065)

Excess of increase in the general pnce level over increase in specific prices of property. plant and equipment af ter reduction to net recoverable cost (8.331)

Advantage resulting from the decrease in purchasing power of net monetary habihties 106.804 106.804 Net $ 65.135 $ 98.473 (1) Including the reduction to net recoverable cost. Income (11) At December 31,1982. property, plant and equipment net of from continuing operations adjusted for generalinflation would accumulated depreciation. adtusted for changes in specific prices have been $4.775.000. (current cost) was $8.6t5.953.000, white historical cost (nel recoveraole cost) was $4.529.489.000.

Five Year Comparison of Selected Supplementary Financial Data _

Adjusted for the Effects of Changing Prices Year Ended December 31, 1982 1981 1980 1979 1978 iperating Revenues (Dollars in thousands, except per share amounts)

As reported on the primary consohdated statements $1.429.626 $1.279.6 49 $1.080.869 $ 994.585 $ 862 956 Adjusted to average 1982 dollars $1.429.626 $1.358.100 $1.266.123 $1.322.606 $1.276. 769 Hl:torical Cost Information Adjusted for General inflation (In Average 1982 Dollars) income from continuing operations (excluding reduction to net recoverable cost) $ 46.444 $ 52.161 $ 24.478 $ 55.618 income from continuing operations per common share (excluding reduction to net recoverable cost) $ .54 $ .73 $.37 $.95 Current Cost Information (in Average 1982 Dottars) income (loss) from continuing operations (excluding reduction to net recoverable cost) $ 13.106 $ 25.925 $ (14.436) $ 18.822 income (loss) from continuing operations per common share

(:sclud ng . eduction to net recoverable cost) $.15 $ .36 $( 22) $ 32 i Excess of increase in the general price level over increase f in specific puces of property. plant and equipment after l reduction to net recoverable cost $ (8.331) $ (197.439) $ (308.443) $ (355.655)

Other Information Common stockholders' equity at December 31 at net recoverable cost (Average 1982 Dollars) $1.471.796 $1.263.081 $1.188.228 $1.222.290 Advantage resulting from the decrease in purchasing power of net monetary liabihties (Average 1982 Dollars) $ 106.804 , $ 228.464 $ 296.627 $ 328.800 Cash dividends declared per common share-As reported $1.76 $' 76 $176 $ 176 $ 1 76 Adjusted to average 1982 dollars $1.76 $186 $2 04 $2 33 $2 58 Market price per common share at December 31-As reported $14 00 $11625 $11875 $13 375 $14 875 Adjusted to average 1982 dollars $13.84 $1194 $13 29 $16 82 521 20 Average consumer price index 289 1 272 4 246 8 2174 195 4 36

Auditors' Report

. The Consumer Price Index for All Urban Consumers (CPI-U) was used for converting actual dollars spent for property, plant gg gg ar:d equipmer t into average 1982 dollars. This adjustment 1345 Avenue of the Americas illustrates the estrnated effect that inflation has had upon the New York, N.Y.10105 Companies principalassets.

Tha Handy-Whitman Index of Public Utility Construction Costs for the North Central Division and the Bureau of Labor and To the Stockholders and Board of Directors of Ohio Edison Statistics engineenng indices were used to calculate the Company:

current cost of property, plant and equipment, excluding land.

These indices were applied to actual dollars spent on large We have examined the consolidated balance sheets and construction projects according to the year of expenditure. statements of consolidated capitalization of Ohio Edison Current cost of all other construction projects was based upon Company (an Ohio corporation) and its subsidiary companies onginal cost in the year of its transfer to plant in service. The as of December 31,1982, and 1981, and the related state-current cost of land is the same as the computed amount ments of consolidated income, retained earnings, capital adjusted for general inflation. The current cost adjustment stock and other paid-in capital, sources of funds for property reflects the approximate dollars that would have to be spen _t additions and taxes for each of the three years in the period tcday to acquire property, plant and equipment identical to ended December 31,1982. Our exarninations were made in assets currently owned. accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and Depreciation expense was determined using the same rates such other auditing procedures as we considered necessary in and methods under general inflation and changing prices as the circumstances.

the provision for depreciation reported on the pnmary con-solidated financial statements. The accumulated provision - As discussed in Note 2 to the consolidated financial statements, for depreciation was estimated by using the Handy-Whitman the Company has incurred costs related to four nuclear units Ir:dex. A theoretical reserve balance was estimated for each which were terminated in early 1980. Pursuant to a Public Ut9i-class of property by year that the property was placed in ties Commission of Ohio (PUCO) order, the Company had been service. The index was then applied to each reserve balance recovenng applicable construction costs from its customers for the respective year to determine the composite current over a ten-year period. In light of a 1981 Ohio Supreme Court cost accumulated provision for deprec'ation. ruling, the PUCO did not allow these costs as service-related costs in the Company's most recent rate case. but did permit The total provision for income taxes has not been adjusted an increment to be added to the allowed rate of return to re-for general inflation or changing prices, in conformity with cover these costs. In 1982, another Ohio utility was granted a the reporting requirements of SFAS No. 33. similar increment in the allowed rate of return, but that decision has been appealed to the Ohio Supreme Court by Consumers' The reduction to net recoveraofe cost arises because the cur- Counsel. How this appeal will ultimately affect the Company's rent rate making policies to which the Companies are subject recovery of these costs from its retail customers is uncertain allow recovery through revenues of only the histvical cost of at this time.

utility property. Dunng inflationary periods, however, the invest-ment necessary to replace that property will be more than its la our opinion, subject to the effect of such adjustments, if any, original cost. In order to property reflect property, plant and that might have been required had the outcome of the matter equipment at its economic value to the Companies, the adjust- referred to in the preceding paragraph been known, the finan-ment for reduction to net recoverable cost must be made due cial statements referred to above present fairly the financial to the addihonal constraints present in the rate making process. position of Ohio Edison Company and its subsidiary companies as of December 31,1982, and 1981, and the results of their Consolidated net monetary liabilities consist pnmanly of long- operations and the sources of funds for property additions for term debt and preferred stock. During inflationary penods, net each of the three years in the period ended December 31, monetary liabilities will be repaid with dollars having less 1982, in cor.formity with generally accepted accounting prin-purchasing power than do!!ars had when the liabilities were ciples applied on a consistent basis.

onginally incurred. Adjustment for the advantage resulting from the decrease in purchasng power of net monetary liabifities is necessary to adequately reflect these differences and serves to offset the adverse inflationary effects of replacing the Com- p -

panies' property, plant and equipment.

February 8,1983.

t 37

Consolidated Financial Statistics 1982 15 1980 1979 1978 1977 1972 Ceneral Financial information (w sars tr> thousands. except per share amounts)

Total Operating Revenues $ 1,429,526 $1.279.649 $1.080.869 $ 9'44.585 $ 862.956 $ 796.289 $ 343.204 Operating income S 269,640 $ 252.381 $ 169.383 $ 163.744 5 123.945 $ 146.508 $ 76.155 Earnings on Common Stock S 181.496 $ 163.892 $ 101.403 $ 105.120 $ 61.259 $ 87.863 $ 49.130 Ratio of Earnings on Common Stock to Operating Revenues 12.7% 12.8 % 94% 10 6 % 7.1% 11.0 % 14 3 %

Times interest Earned Before income Tax 2.02 m 2.11 x 2 05x 2.31 x 1.67x 2.38x 3 01 x Net Utihty Plant at December 31 S4.522,733 $3.867.757 $3.435.267 $3.012.197 $2.717.820 $2.403.810 $1.173.233 Property Additions S 774,233 $ 568.044 5 515.020 $ 476.746 $ 395.162 $ 358.105 $ 166.035 Capitahzation at December 31.

Common Stockholders' Equity $ 1.488,371 $1.229.044 $1.06' 524 $ 970.110 $ 851.686 $ 867.292 5 360.011 Preferred and Preference Stock Not Subject to Mandatory Redemption 354,240 304.240 306.905 306.905 306.905 261,905 119.905 Preferred and Preference Stock Subject to Mandatory Redemption 152.560 151.141 156.450 150.850 98.000 98.000 -

Long-Term Debt 2.005,436 1.759.771 1.594.384 1.410.782 1.343.195 1.189.821 629.140 Total Capitahration $4,0CO,607 $3.444.196 $3.125.263 $2.838.647 $2.599.786 $2.417.018 $1.109.056 Capitahzation Ratios at December 31:

Common Stockholders' Equity 37.2% 35.7 % 34 2 % 34.2 % 32.7 % 35.9 % 32 5 %

Preferred and Preference Stock Not Subject to Mandatory Redemption 8.9 8.8 98 10.8 11.8 10 8 10 8 Preferred and Preterence Stock Subl ect to Mandatory Redemption 3.8 4.4 5.0 5.3 38 4.1 -

Long. Term Debt 50.1 51.1 51.0 49 7 51.7 49 2 56 7 Total Capitalization 100.0% 100 0 % 100.0 % 100.0 % 100 0 % 100 0 % 100 0 %

Long Term Obhgations at Cecember 31 S656,655 $447.484 $265.000 - - - -

Cost of Preferred & Preference Stock Outstanding at December 31 9.17% 8 37 % 8 38 % 833% 7.99 % 7.85 % 5 40 %

Cost of Long-Term Debt Outstanding at December 31 10.69% 9 99 % 9.1C % 8.13 % 7.71 % 7 45 % 5.92 %

Common Stock Data Earnings per Average Common Share S2.13 $2.30 $1.52 $1.80 $1.19 $1.97 $1.91 Return on Average Common Equity 13.5% 14 6 % 97% 11.2 % 7.1% 11.7 % 13 8 %

Dividends Paid Per Share $1.76 $1.76 $1.76 $1.76 $1.76 $1.715 $1.54 Common Stock Dividend Payout Ratio 83% 77 % 116 % 98 % 148 % 87 % 81 %

Common Stock Dividend Yield at December 31 12.6% 15.1 % 14 8 % 13 2 % 11 8 % 90% 67%

Price / Earnings Ratio at December 31 6.6 5.1 7.8 7.4 12 5 9.9 12.1 Shares of Common Stock  ;

Outstanding a1 December 31 (000) 96,082 78.676 68.526 59.622 52.120 51.207 25.695 Book Value per Common Share at December 31 S15.49 $15 62 515 58 $16.27 $16.34 $16 94 $14 01 Market Price per Common Share at December 31 S14.00 $11625 $11.875 $13 375 $14 875 $19 50 $23.125 Ratio of Market Price to Book Value per Share at December 31 90% 74 % 76 % 82 % 91 % 115 % 1E5%

D

Consolidated Operating Statistics c , - - .

1982 1981 1980 1979 1978 1977 1972 Revenue From Electric Sales- (Thousands)

Residential S 497,941 $ 442,267 $ 398.832 $360.273 $314.867 $284.512 $124.930 Commercial 366,325 308.599 268.788 240.458 205.901 191,381 87.844 Industnal 383,535 381.162 330.717 315.185 258.767 236.434 102.207 OtDer C 7,828 53,993 50.420 42,607 46.471 31.744 14.785 Sub-lotal 1,505,629 1,186.021 1.048,757 958,523 826.006 744.071 329.766 Salas to Utilitts 101,888 73.966 12.381 10.185 9.346 7,825 2.598 Total $1,407,317 $1.259.987 $1.061,138 $%8,708 $835.352 $751,896 $332.464 Revenue From Electne Sales-%:

Residential 35.4% 35.1 % 37.6 % 37.2 % 37.7 % 37 8 % 37.6 %

Commercial 25.3 24.5 25 3 24 8 24 6 25 5 26 4 Ir4ustrial 27.3 30.2 31 2 32.5 31.0 31.5 30.7 Other 4.8 4.3 4.7 4.4 56 42 45 Sub total 92.8 94.1 98 8 98 9 98.9 99 0 99 2 Sales to Utihties 7.2 5.9 1.2 1.1 1.1 1.0 08 Total 100.0 % 100 0 % 100.0 % 100.0 % 100 0 % 100 0 % 100 0 %

Kilowatt Hour Salet.. (Milhons)

Residential 6,733 6.747 6.801 6.650 6.501 6,334 5.023 Commercial 4,996 4.917 4.812 4.693 4,470 4.549 3.692 In<!ustrial 7,708 9.352 8.909 9.830 9.600 9.671 9.250 Other 1,227 1,181 1.370 1.346 1.309 1.253 1.023 Sub total 20,664 22.197 21.892 22.519 21.880 21.807 18.988 Sales to Utihties 3.361 2.465 502 441 429 422 284 Total 24,025 24.662 22.394 22.960 22.309 22.229 19.272 Customers Served at December 31:

Residential 873,877 872.303 867.447 861.196 848.268 836.500 767.261 Commercial 89,706 89.231 88,505 87,425 86.410 85.002 80.219 Industrial 1,048 1.068 1.059 1,161 1,160 1.147 1.129 Other 724 711 704 693 689 682 557 Total 963,355 963.313 957.715 950.475 936,527 923,331 849.166 Average Annual Residential KWH Usage 7,723 7,760 7.870 7,780 7,724 7.637 6,668 Average Residential Poce Per KWH 7.40s 6 56c 5.86c 5.42c 4.84c 4 49c 2.49c Cost of Coal per Malion BTU S1.75 $181 $1.50 $126 $1.16 $ 96 5 36 Generating Capability at December 31:

(Megawatts)

Coal 4,858 4.907 4.899 4.861 4.861 4.861 3,939 Oil 354 354 364 423 423 423 132 Nuclear 425 425 425 425 420 420 -

Total 5,637 5.686 5.688 5,709 5.704 5.704 4.071 Sources of Electnc Generation:

Coal 93.8% 89 9 % 98 7 % 93 9 % 90 4 % 90 0 % 99 8 %

Oil 0.1 0.2 06 2.0 3.5 26 02 Nuclear 6.1 9.9 0.7 4.1 6.1 7.4 -

Total 100.0 % 100 0 % 100 0 % 100.0 % 100.0 % 100 0 % 100 0 %

Peah 1.oad-Megawetts 4,073 4,148 4,210 4.105 4.038 4.134 3.530 Number of Employees at December 31 7,885 7,669 7.503 7,157 6.765 6.609 6.040 30

Stockholder Information

~

Stockholder Profile As another stockholder benefit, the for a joint retum). On joint tax retums.

At the end of 1982.194,877 stockholders Economic Recovery Tax Act of 1981 the age qualification is met if either owned 96.1 million shares of our com- provides that from 1981 through 1985, spouse has reached the age of 65 at mon stock. Approximately 33 peicent of most participants of qualified dividend any time in the year which the exemp.

our stockholders are women,25 per- reinvestment plans such as Ohio Edison's tion certificate is filed, cent are men and 31 percent are joint may elect to exclude from their yearly

• For dividends paid to corporations, tax holders. The remaining 11 percent rep- income up to $750 per year ($1.500 exempt organizations, individual retire-resent trusts, corporations, institutions, on a jont return) of dividends that are ment accounts (IRAs), and other brokers and other investment groups. reinvested. However, regulations have - exempt recipients; and not yet been issued explaining how this

• For that portion of the Company's Nearly 75 percent of our stockholders exclusion applies to companies with dividends estimated to be a return own 300 shares or less. They live in all retum of capital dividends. We antici- of capital.

50 states and some foreign countries, pate that a portion of common stock but more stockholders reside in Ohio dividends paid during the next few years Except for participants in our Dividend than in any other state, followed by New will be designated as a retum of capital. Reinvestment and Stock Purchase Plan, York Florida, California and Pennsylvania. Therefore, participants should consult who are having all of their dividends their own tax advisers to determine the reinvested, all stockholders ehgible for Common Stock Dividend proper treatment of common stock an exemption must have an exemption i increased dividends on their federal tax return. certificate on file with the Company. I Effective the first quarter of 1983, the Exemption certificates will be sent Cnmpany's Board of Directors increased Additional information about the Plan, during the second quarter to all stock-the quarterly dividend on the common and a Prospectus, can be obtained by holders, except those reinvesting all of stock of Ohio Edison Company to 45 contacting Ohio Edison's Stockholder their diviQnds. A certificate must be cents per share from 44 cents. Services. filed for each account eligible for an exemption and must be received by the Dividends of 44 cents per share of com- Dividend income Tarability Company at least 45 days prior to the mon stock outstanding were declared by For 1982,75 percent of common stock record date for the dividends subject to the Board of Directors for each quarter dividends were designated as a retum withholding. Stockholders who have an of 1982. of capital, and therefore nontaxabie for exemption certificate on file with us, but federal income tax purposes. Preferred no longer meet the requirements for ex-Cividend Reinvestment and and preference stock dividends paid emption, must notify us so the certificate Crock Purchase Plan Grows during 1982 were totally taxable. These may be canceled.

The Company's Dividend Reinvestment figures are subject to final determination and Stock Purchase Plan continues to by the Intemal Revenue Service (IRS) Annual Ateeting of Stockholders be popular with stockholders. In 1982, and stockholders will be notified in the Stockholders are cordially invited to about 15,500 stockholders joined the event of a significant change. attend the 1983 Annual Meeting on Plan, raising the total number of partici- Thursday, April 28, at 10:00 a.m., local pants enrol:ed at the end of the year to Law Requires Withholding Taxes time, in the Company's General Office 52.807, or 27 percent of all stockholders. from Dividends auditorium in Akron, Ohio. Those unable By reinvesting $37.7 million in dividends With the passage of the Tax Equity and or choosing not to attend can vote on and making optional cash payments of Fiscal Responsibility Act of 1982, the the items of business presented at the

$217 milhon, they acquired more than IRS requires that 10 percent of most meeting by filling out and retuming the 4 6 milhon shares of common stock dur- dividend payments be withheld for tax proxy card that is mailed to each stock-ing the year. purposes, beginning with dividends paid holder approximately 30 days prior to after June 30,1983. The withholding the meeting.

The Plan was expanded in 1982 to and reporting of this tax will be similar include preferred and preference stock- to that of income taxes currently with. Additionallnformailon Available l hoiders. Participants may automatica!iy held from wages. For other items of interest and sources invest all or part of their quarterly divi- of additionalinformation, remove the dends to purchase shares of common Regulations issued on this withholding pull-out stockholder reference card stock at 95 percent of market value with provision (subject to change) cpecified opposite this page . Also attached is a j common stock dividends, or at full mar- that withholding will not be required duplicate mailing notice. To help us re-t ket value with preferred and preference under the following circumstances: duce expenses by eliminating unneces-stock dividends. They may also buy,

• Fcr dividends reinvested in com- sary duplicate mailings, please complcte directly through the Company, additional mon stock under the Company's and retum the postage-paid notice.

shares of common stock at 97 percent Dividend Reinvestment and Stock of market value through optional cash Purchase Plan; l

• For dividend recipients who during the j payments of up to $40.000 per year.

previous year did not pay more than

$600 in federal income tax ($1,000 on a joint return)

• For dividend ecipients age 65 or older who during the previous year did not e pay taxes of more than $1,500 ($2,500

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Contents t hghlights _ l Financial summars and Quarterl, Stock I' rices I l.etter to 5 hare ()wners _ 2 l'erspective 4 Finanual l'ertur mance in l'.882 h I'roduct l{chabihts and Nmce __ _10 L' Respotisihihtles til Ca iminunities 1O w

1 _ 20

, Financial Content 3 i,

• M( f7 pg '

I hrects irs and ( )t'ticers 42

.N' Committees < it the liiiard <it ihrect< >rs_ Li General Information 44 NrYlCe :\rea Map -b M

. a.

A fII

's

()ur hne mechanics are respin3ible tiir the m untenance

.,%%.wyg a- ' ~ " ' - -

and upgrading ier thous.inds of miles of transrmssion and Jistnbution knes 'I heir work ensures that our < ustomers hase rehable and sate electn; scrut e

~ =- --% - 4 m;..._,,

v (Over;l. int mechanlc5 place

(< >nductiirS ln final P isilliin i nD

.e k e y .47o. '}y . * *  ? *U ' -j M a tta mW)n ti ewer pal 1 I'I

+--

ML -

a new U mue. 343KV trans-missiiin het w hich runs t ri i m t he l'er n Nut lear l'i' wet f'lant to our Juniper substation The tint will make l'ern 's h iw < os clt ctncits avadabk tii isur entire sef \ is t .treit

1982 Highlights Financial Summary and o Earnings per share reached a Quarterly Stock Prices calendar year record of $3.01, up Percent 19% from 1981. 1982 1981 Change o Common Stock quarterly dividend Earnings Per Share per share was increased twice in 1982 of Common Stock $ 3.01 $ 2.52 19.4 '

-2* cffective in February and 3t Dividends Paid Per Share effective in November. Total payment , [','a"l I er re of $2.19 represents a 5.3% growth of Common Stock $ 19.86 $ 19A3 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 (000) $ 879.614 5 820.226 7.2 in >! arch 1982; ariother increase of Net income (000) $ 208.964 $ 155,734 34.2

$89.4 million (7.4%) became effective Earnings Available for in January 1983. Common Stock (000) $ 170.669 $ 120.817 413 o The Dividend Reinvestment Plan Kilowatthour Sales raised $23.4 million, an increase of (Millions of Kilowatthours) 67% from 1981. Over 30% of our Residential 4.336 4.376 (0.9)

Commercial 4.194 4,178 0.4 share owners are taking advantage Industrial 7,082 8,28u (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) o 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 Constitut. ion to elect the members of The Public Utilities Commission of Ohio. Quarterly liigh and low Prices o In 1982, nine million shares of '>f common stock (dollars >

common stock were sold through two public offerings. We do not expect to make a public common stock offering lih li- riival o

i7% 3 in 1983. .,,, ,3 gi3 o In July, the Advisory Committee on Reactor Safeguards recommended a 2,a mg i7s 100% powerlicense for Periy Unit #1. "\I '7 1982 4th 13%l l 16';

3rd Ifd 16 %

2nd 16 16 %

lst 15 16 19M1 l l

$1.1 il 13 16 17 IM 19 20 e

%04l5DWO ,

l

Letter to Sham Owners

Dear Share Owner:

as a time of change and challenge. For resulted in lower kilowatthour sales, is an organization with high standards a tribute to all the men and women of it is human nature to look back with ,,

this is natural. The Company has always the Company. We are particularly pride on past accomplishments and to 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.

The year 1982 was no exception.

that the three of us have been officers 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 carnings per share.

The dividend was increased twice, mak-Williams, President and Chief this space on the outstanding results of 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

,e _

brings to the Board utility experience

/ 7M. Qc as a result of his previous law practice.

ye k The accomplishments of the past year

,$'T

{I 3

j L

68*2 j

.h M are described in detail in this Annual Report. The significance of the past is the foundation it lays for the future.

I NIIW p ,, y We are a strong company in a strong geographical area.This does not mean, d5hk%#

e hi . 'd l(%,, t f

/

however, that we are overconfident.

( - ..i nb i ,9h '/

N There is particular cause for concern in I : Jl sy 't three major areas-acid rain legislation,

.4, Oa ' the regulatory environment in Ohio

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T4e ( and nuclear energy.

,/ i} ) 1 . 3. The issue of acid rain is fraught with Y F j *\; ' hl emotion,largely because the true facts

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about this environmental phenomenon are not yet known. Under our system of Y h, s

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laws, people and corporations are pre-sumed innocent until proven guilty. This

./ ' -;[ - 4 p / has not been the case with acid rain.

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• Hobat M.Ginn (top) d'

) Richard A. Miller (left) liarold L WilliamMrighu 2

Midwestem utilities, including the While inclusion of CWIP slightly Effoits 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 practice accurate information about nuclear our industry and ultimately our cus , also helps case the " rate shock which energy. It is safe and efficient and that tomers billions of dollars. Yet there is occurs whenever a new plant goes must be understood. Nuclear energy l no scientific evidence that the proposed m service. must be a part of our industry's future reduction of sulfur emissions from utili- Another provision of the proposed if we are to meet our customers' electric ties in the Midwest wou,d significantly legislation would require retroactive energy needs.

reduce acid ram in the northeastern adjustments of rates if the Ohio .

We are in . deed facing challengesin. the states and Canada. Supreme Court reversed a PUC0

.. years ahead. But we have confidence in The Company believes the emironment decision. Under th.is proposal, a the Company and in the economic should be protected.The first step, company's earnings would not be 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 part:cipate. New indus-acid rain-before prescribing a cure. later.Th,is would add alayer of tries in the senice segment-uncertainty to utility investment which particularly in the medical field-and Responsible research already begun increases the nsk to investors. That in high technology are growing here.

must be completed.This region has nsk would raise our financing costs already suffered too many economic which ultimately must be paid by The political leadersm, our c,ty i and ,n i

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

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, incre ses which all utilities have been business and government are working The second major area of concern is fond to seek in manycan.

Gnio's regulatory climate. Regulatory to bring economic progress to the law underwent legislative changes dur- This is unfortunate because higher 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 exped,encyi is not the one of change and challenge. It has As this is written, the Ohio Legislature answey if utilities are to have the also been one of considerable accom-financial stability required to serve our plishment. As we resolve the challenges is considering a bill which would impose economy in the future.

several changes in 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 hold 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 earn- member of the public has ever been -

ings which utilities are allowed. In turn, this would increase the nsk of utility injured by a nuclear plant Yet they are k perceived as an uncommon danger. Robert M.Cinn President mvestment and increase financing costs. *

• The public's view of nuclear energy contrasts sharply with the view One change would stringently limit the amount of Construction Work In of scientists. Richard A. Miller. Executive Vice President u Progress (CWIP) allowed in rate base.

b a mcent sumy,dndsts mom The CWIP inclusion-allowed presently ,

ci sely associated with nuclear energy in many regulatory jurisdictions includ-were the most confident ofits safety. Ilarold L Williams. Executwe Vice President ing Ohio-permits construction costs

{ unately, ugulamn mom den for projects nearing completion to be msp nd to pubhc perceptions than February 23,1983 included in rate base. This does not scientific realite.s.

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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20 miles apart. are brought together m a summer sunset bsa1 Doomm telephoto lens

, The photo we taken b5

• - Rescrend E M Carreira. S J

.[

] of John Larroll Fnnersts si. .

i agencies and those from whom We also improved the availability and Our contributions to the communities we borrow e#iciency 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 substantiallyimproved and ERiciency 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 cam ngs year suppoM two tions specialists was formed to study the quality of air and water, and we have ,

increases in our quarterly dividend worked hard to comply with environ-our power supply system. Recommen- J rate. Our return on common equity dations from the team to upgrade the mental regulations. We are the largest increased. Ourlevelo(short-term system through specific maintenance property taxpayerin most of the com-borrowing was significantly reduced. and capitalimprovement projects munities we serve. We are financial i Extemal 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 ,

l This amount included the sales of nine to our customers. Northeastem Ohio.

million common shares. We expect There are over 5,000 men and women We provide electricity to an area of about half of our future cash needs to 1,700 square miles. This service area in The Cleveland Electric illuminating be generated internally, thus. contains approximately 1.9 million Company family- people who work significantly reducing our reliance on people, about 650,000 households and and live here in Northeastem Ohio.

extemal fmancmg. They are a strong resource to their thousands of industrial and commercial ,

As in the past, we will continue to businesses. The electric energy needs communities.They, too, want a better request rateincreases as needed to of the people and industries in North- quality oflife for themselves and their i provide quality electric service to eastem Ohio are growing and,in fact, families, their friends and neighbors

. Northeastem Ohio and to assure our are expected to increase by nearly and their fellow citizens.

share owners a fair retum. With 45 percent by the end of the century. Corporately and individually the inflation abating and cost pressures We are committed to meeting our Company and its people are helping moderating, we are hopeful that future customers' needs by msunng 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 erSoyment.

Product ReHabuky and Senice Community Invohement The economic and social vitality of our We believe that again in 1982 we have Our record of product reliability and passed the three tests of our steward-service is the standard by which we are service area affects the success of our ,

business and the well-being of our ship: good financial performance, judged by our customers. They depend excellent product reliability and service employees and their families. Thus, the on us to provide a constant, instant and dedicated community mvolvement.

third measure of our stewardship is our supply of electric power for their The rest of this Annual Report supports -

homes, offices and factories. c ntribution to the communities to which we provide electric energy. that belief.

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

and to attract new ones by promoting the advantages of Northeastern Ohio.

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

[

5

Financial Performance in 1982 * "" ""1""t' n , n'",""' 2" g<w>d stewards <if their investmerit. ()ur first priority tu our investors is to pro-vide tiicm with a fair return on their investment. Maintaining investor con-fidence in the Company is a cntical V 'b conceni as we look to present

=

and future investors to provide us with needed capital in the years ahead.

Financial Objectives To guide us in meeting our ohhgation to investors, we have established specific long-range financial objectives: (1) to provide a fair return to our share owners; (2) to maintain earnings growth which will support dividends large enough to attract investors to our common stock; (3) to improve our credit ratings so that our securities can he sold in the future at reasonable costs; and ( %) to mamtain a balanced capital structure of 40 to 42 percent common equity a maximum of 48 percent debt and 10 to 12 percent preferred and preference stock.

In 1982, we made progress in meeting l these objectives. We achieved record earnings for a calendar year of $3 01 per share. up 19 percent from 1981 We increased our dividend rate twice dur-ing the year: dividends per share increased 5.3 percent over 1981. In ,

January, the quarterly rate was raised to 54 cents from 52 cents. and then in September it was raised to 57 cents.

This action provided dividend growth 1 more consistent with that of the lec-tric utility industrT.

1)uring the year, we significantly reduced the level of our short-term

" ,~ *.. . . . , ,

debt from a daily average of $139 million in 1981 to a $61 million daily m._o y < .: average in 1982.

We took a conservative approach in j our financing by lengthening the aver-age maturity of our long-term debt by three years. Average maturity was 19%

years at year end 1982 compared to 16% years at year end 1981. We also A new on-line tomputenxed share owner record system was implemented m 1982 to provide better and t' aster wrwe to our investors 1)chbie Msala, 5tock T.ansfer Clerk. is g; reflected in the screen

Quarterly Earnings aral !*iderals Per Share The Act provides a means for share of Crwnmtm Stock (dollars) owners to shelter all or a significant

.n iuacoa. portion of dividends reinvested in our '

ah common stock.

I I The balance of funds obtained in 1982, I '"d -

approximately $5.3 million, was raised through employee stock plans.

I External financing activity will be lower i 328* d'"d' in 1983 than in prior years. Our financ-

"" M E ing plans include the sale of $100 mil-3'd E lion of first mortgage bonds in the first ,

2a m half of the year and additional sales of

_y E notes to the bond funds during the war.

Capital will also be raised through our  ;

so .20 .40 m .m um i.2o employee stock purchase plans and the 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 in 1982 from 2.4 lateral security for these notes. Under funds to finance construction of l'

- times in 1981. At year end. our capital the agreement, we can sell $60 million additional pollution control facilities.

stnicture consisted of approximately 47 of the notes by November 1984.

percent debt,13 percent preferred and For the first time since 1974, the Th.is new agreement replaces a imi s. .lar Company does not expect to make a [

preference stock and 40 percent ne which expired in April 1982. Th public common stock offering, largely common equity advantage of this financing program? 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 dechne ment Plan. i Equity and debt financing activity to se:1 notes when mterest rates are totaled $434 million in 1982. Through extremely high. Last year, we raised two public offerings of common stock, Rates

$6.1 million in this manner. The rates our customers pay for the  !

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 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 -

4 and November. In addition, through cent from 1981, and an additional $6.4 a fair return on our share owners' million in optional cash contributions, investment. Yet, we are mindful of the the Ohio Air Quality Development 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 percentin budgets and the operations of area tax-exempt pollution control revenue 1982 from the previous year, mainly businesses.

, bonds which mature in April 1983. We due to incentives provided by The The Company operates, as do all issued 30-year first mortgage bonds as Economic Recovery Tax Act of1981. nvestor-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 notes, periodically and in varying increases. In 1982, we received rate 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.

p . bond funds. We issued $60 million of 1

I l 7 i

Effective March 19.1982. The Public million of the increase allows for cam- million, or 12 percent, increase in Utilities Commission of Ohio (PUCO) ings on part of the constmction costs steam rates.

granted the Company a 10 percent. of Unit #1 of the Perry Nuclear Power Early ;n 1983. the Company signaled its l

$107.8 million retail electric rate Plant. For the first time since con-continuing commitment to this segment increase. This order, and the one stmetion began in 1974 customers of its business by announcing a $1.5 discussed below, dealt with the recovery will be contributing toward the costs of million capital improvement program I

through rates as an operating expense the Unit.

which will reduce operating costs. To I of the costs of four nuclear unit proj-The Company also sells steam for heat- meet competition from alternate fuels, ects terminatei in 1980. This matter is ing and cooling 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 Lonsolidated Fm.ancial Statements.

Cleveland. 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 million. or 7.4 percent, went into more than $17 million in 1982. In Wholesale rates for electricity we sell to effect on Januan 7.1983. Some $58 October, the PL'CO granted us a $2.4 other utilities are set by the l hederal PTd*g ~.

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The conhng tower of I'tm unitx it which the t'ompam l'ntt a l stands c4impleted in the eiwn3 31 percent. wdl help the background as the Pim t 'ryt t ompant keer pair with tuture

1. 2 ciwihng tiewer b budt The energ. need3 two 1.203-mee twatt nudcar N

. Energy Regulatory Commission (FERC).' Coverage Ratios Another type of coverage ratio which .

In July 1981, we faled a request for isimportant to the Company but is not Coverage ratios are financial

$2.3 milhon rate mercase covenng u ed by the credit rating agencies is the measurements of a company's abilitit sales to the City of Cleveland's N' I **'#9"9". bond interest coverage

, to pay interest charges. The higher the mumespal electric system. Although the ratio ofincome to interest charges, the rado. This ratm is one of two tests request is still pending with the FERC, achich must be met before the Company g,,,c,,g,(o,pgg,,s margin ofsafety we began collecting under the new may is ue additionalfirst mortgage in paying interest. This measurement

. rates m September 1981, subject to

,,,,,77g,,g ,$e compg,y,on oyfgcome bonds underits Mortgage. This test refund depending on the final FERC reauires that the Company's earnings, to payments which is used by banks order. In November 1982, we fnled for . a defined in the Mortgage, must be at

u. hen appmring mortgageloans for an additional wholesale rate increase of - individuals. The coverage ratio is one least twice the amount offirst mort-

$716,000, which ns also pending. We gage bond interest charges. This cal-g,,gg g,y ggg,(g,g,, g,,g yg googy ,,

wall be allowed to beg;m collecting hvestors Service, Standard & Poor's culation is less restrictive than the one under these new rates sn June 1983, used by credit rating agencies prm-ag g g,ge ,( ,cy,, ,,,;ng agen(;c ,,

again subject to refund dependirig cipa#y because only first mortgage upon the final decision. Comparing coverage ratios for bond interest is considered and, there-different time periods helps indicate fore, results in a higher ratio. The whether a company's financialsitua- chart below shows that the Company's .

g don is impmeing, utakenmg orstay- coverage ratios for the last five years Regulation of Ohio's public utilities ing e same in aMw_ n, meerage have been substantially above the two undesvent considerable legislative change, although Ohio voters rejected 00 HP Ti ORS U HP ni K Hme rquirement. The high ratios in a specific industry cre one measure mean that the Company has the.

a proposal for direct electn.en of PUCO ofrelance financialstrength. capability to issue a large amount of members by a margin of two to one.

There are a number of ways to first mortgage bonds-ourlowest cost Under the new regulatory law, which calculate coverage ratios. One of the security This Rexibility which not all went into eifeet in January 1983, the more commonly used calculations is utilities hace, is vitalto continue

. membership of the PUCO was in.

Earnings Before Interest Charges plus financmg expansion at the (meest cost.

creased to fnve members from three and terms were reduced to five years Federa/ Income Taxes plus the from six. The Governor is now required Allowance for BorrowedIbnds Used First Mortgage Ikmd Interest Coverage Ratio to fill PUCO vacancies from a list of During Construction divided by candidates submitted by a 12-member Interest on Short and Long. Term Debt.

The Company's coverage ratios for 82 panel which makes selections based on the last fire years based on this calcu- wi specific education and experience qual.

ifications. In addition, the newlaw lation are shown in the chart belom w 79 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 4 s thereby recognized the effects of infla- nimen=* iu,a, g, is,,a .

32 tion on our financial results. A further = bag as == age

.y vovision of the new legislation w [',*N","$',,",',t],

..proUbits a utility from seeking a rate ,,

increas ifit already has a rate case 3 pending bJore the PUCO. , , , 3 There are indications that Ohio's "'*"""'*

regulatory climate may become even more difficult for utilities. Any unfavor-

, able shift would affect the fmancial health of the utilities on which business is depending to meet its future energy needs. Ohio's economy depends on the vitality of its businesses. But, economic growth will not be possible without an adequate supply of energy.

i l

9 l

Product Reliability and Service ""r,003C1n' " " '

continuous service at the lowest possible l cost. Ilow well we are meetmg this I objective is measured largely by our records of wrvice rehability and

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'-f a equipment availability and efficiency.

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A Service Reliability T- .

4 g(..$ .".c.$.,7,,;. 7. f X J ,. ,, ^ To our customers, our reliabilitv v

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adequate energy on demand-;s ot

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.j.y pnmary importance. In 1982, as in

'I'-f.,[". j l prior years. we had a nearly perfect reliability record,99.98 percent. This is

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typical of investor-owned utilities in the y g ; ..J . ' '

s 5 . ; y + 4 g., , 7.s United States where we have the best k

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.& system reliability. Most potential

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.-  ;:- because of our preventive maintenance

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program. This program includes many

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manhours spent in visual inspection

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'h %g{  ::(; '*'i ,

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, $* ' as The improvements resulting nom 4R'% N .

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. . . maintenance programs, aided by less

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to a low level. The average restoration times for those customers who experi-(

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l. Jome it.s senuannual mspn tior and mamtenance The pLmt 4 mar tenan, < mes hann s on t h.

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Our maintenance planning and nuclear power plants-Perry, of which Pcak Demand and Capacity sch(xiuling program is one of the we own approximately 31 percent, and Systern peak demandoaurs in our factors responsible for our improved Beaver Valley Unit #2, of which we own approximately 25 percent. Beaver sadm ama nuut o#cn during die availability and efficiency record. By programming pertinent data into our Valley is being built by Duquesne ###"* # """"" "*#"# "###"#

danand s pushedin'yha by heary air computers, we are better able to Light Company.

schedule and manage equipment main-

. Some $48 million was spent on the maximum requirerncnt &>r electricity tenance at regular intervals. The mprovements at the Davis-Besse and by our customers for any one-hour '

Company's ongoing prograra to mod-Bruce Mansfield Plants and for addi- periodin agiven year ernize existing plants through capital '

tional facilities at the Beaver Valley site.

nmprovements ns another factor in 1966, ourpeak tras 1,9h,,

affecting our record of availability An investment of some $61 million was megatcatts. Orcr the follotring15 and efficiency made to upgrade our transmission and years, it grew 73 percent to the record distribution facilities. 3,362 mcyatratts set in 1981.

The prolonged outage of the Davis- yyou.ever, the 1982 peak of 3.078 Besse Nuclear Power Station during We spent $9 million to upgrade our coal-fired generating units, several of inegaivatts, u hich occnn cd on July 16-1982 for refueling and maintenance ,.g jgg, . .

7 meant that our coal-fired generating which are more than 30 years old.

Additional environmental equipment because of the sharp decline in indus-units were in greater use. Our mainte-required to meet State and Federal triaj acth,ily during the year.

nance and modernization programs assured that our most efficient water and air standards was installed at Obriously, capacity planning cannot fossil-fueled units would be available a cost of $21 million. be based on peak demandfor anu when needed. An expenditure of $7 million was made Si"9 /C # car. As the economy rec >rer.

for trucks and work equipment, data trom the current rccessi<m, peak Although Davis Besse experienced a processing equipment and other items demand willresumeitsgnneth. The lengthy shutdown last summer, its for day-to-day operations, all necessary (mnpany must ham adequate operating statistics since rcturning to to maintain the reliable, economical capacity I meet the future dernands service in September show the service our customers expect and ofits service area. Our constructmn Station's potential as one of the best in deserve from us. program a designedto phcuein new our system. During the last quarter of

' generating facilities at planned the year, Dav.is-Besse averaged 97 in 1983, our capital expenditures are intervals to meet that demand.

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

capacity factor of 91 percent. The The largest allocations in the budget Peak Demand capacity factor measures actual output are for Perry and Beaver Valley (millions <>/kilouutts) against maximum possible output. construction. Other items are n>r Davis-Besse's electricity is the lowest additional improvement of our existing l l

cost energy available to our system. Its coal-fired units and for transmission 3 fuel cost is about 0.5 cents per and distribution facilities.

kilowatthour compared with 1.8 cents es for ourlowest cost coal units. Growth Forecasts The need for current construction and 2v 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 for our power plants and equipment 20 years. By the year 2000, our resi- in totaled $422 million. dential, commercial and industrial cus-tomers will require nearly 45 percent o, The largest outlay in 1982 was $276 more electric energy than they are million for new construction at tw presently using, a compound growth a rate of a manageable two percent a year.

• '" * * *2 Clearly, that increased need, coupled with the need to replace aging units, will require additional generating capacity.

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l.u k N hultz. ow ner of t h tinc Meintherniil be.it pump Spruigbrinik Gardens \ur.sen Mr N hult/ savs t hat the he.it in Mentor. mspt t ts tus plant.s pump he mt reitwd productivity whtt h are thrnine m the idea!

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E Present Construction toward ensuring that all construction is step toward full licensing. We beheve _

The two 1.205-megawatt nuclear units being donc properly. the Committee's action is indicative of -

l under construction at Perry will help us I >em t . -nit al passed a licensmg the overall quality of the Perry Plant T i""'much as the L,ommittee s first rec-to keep pace with those projected milestone m 1982. In July. the Ad isorv needs. The Perry Plant. the largest ommendation often is for only a live m L.ommittee on Reactor Safeguards. .

E construction job currently in Ohio with percent, low-power startup. l'he next e which provides mdependent evalua-step in the licensing process is a series over 4.(HM) workers on site. is progress- tions of nuclear plant safety to the NRC.

ing satisfactorily. I'he efforts of our own of public hearings before the Atomic -

recommended a 100 percent power EE Perry staff and the N,uclear Regulaton- Safety and I.icensing Board, which are -

license for I,erry i. nit #1. This recom-scheduled to begin in Slav 1981 Commission (NRC) have been directed mendation is an important intermediate -

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El

Future Construction eventual savings in the tens or EPRIidentifies specific industry R&D llecause of the 10 to 15-year lead times hundreds of millions of dollars. pmjects andthen assigns many ofthe required to build a new unit, planning pmjeds, along nWh fum#ng, to unhw-The Company continuously investigates for the additional generating capacity s#ics andin& pen &nt research lab-the potential application of new tech-which will be needed in the 1990s must ratories or corporathms. EPRTs tech-nology to all aspects ofits operations.

be done now The Companyis investi- nicalstaff, schich has 144 PhDs One way in which we carry on our gating vanous new technologies to find research is through active participation among its more than 200 members,

' the most efficient, cost-effective masas, mon # nates andn' pods by a number of Company specialists in approach to supplying the power needs the industry advisory structure of the atensively and regularly on the prog-of the future consistent with the needs ms o/cach project.

Electric Power Research Institute. You of the environment. may read more about this activity in the Since1972, more than 1,700 research We are studying three methods which story below. pmjects have been initiated n'hich would reduce sulfur emissions from resultedin a comparable number of coal-burning plants: fluidized bed CEl, EPRIand R&D published reports. There are cmrently combustion which introduces limestone about 1,400 activeprojects under  !

The Electric Potter Research Institute mto the coal-burnmg process: DWmanagement. The DWfunWng WM was organizedin 197? to gasi(ser system which converts coal to commitment for theseprojects from coordinate andintensify the research i gas for use as a fuel; and flue-gas 198!thmugh 1986 totals $2.6biUion, anddevelopment efforts of the scrubbers which remove substantially meluSng m4unding andcost shanny Electric Research Councilandthe all of the sulfur dnoxnde from stack by ora 490 mntmdon andothe Edison ElectricInstitute'

. emissions. Successful application of organizations. In 1983. EPRTs total these methods would allow the Theindustry has many R&Dgoals in budget willreach S326million, up Company to burn more of the lower- common involving c mrenticmal fossil about eight percent fmm 1982.

cost, high-sulfur coal mined and nuclearpowerplants, alternate g gy ,

m Ohno. andadvancedenergy sources such as

, throughout the industry in the form of A fourth technology under investigation "I"' "" I" "*' P""" ' " "."" "*' commercialdevices, ciesign specifica-is a compressed air storage system in which anr would be pumped and com-

]['n{[h a IbD organization has pmredto be eco-ticms, contm!s, testing devices, data and opaa#ng pmadum. Fody-one pressed in underground caverns. Such commeraalpmducts andsenices nomimiandpmdudu.'e.

a system would allow us to build a less resulting from EPRIresearch are now costly unit to be used for peaking To assure that EPRIinvestments are available to the utility industry Many capacity. keyedto industry needs, the EPRI more will be a:'ailable in the next two pmgmmisgui&d by industm years. In additi<m, such specialized These alternatives will be given equal  ;

adosom mmunuxs andtask forces services as the Coal Cleaning Test '

consideration until one emerges as a mmposedof eniorrepre entatives Facility andthe ElectricIbwer Data clear choice. We believe it is vital to fmm memha udl#ws. Our ompan#

Base have resulted/mm the organiza-explore all of the options offered by caren#y has 10senioMnimi #cm's mearch.

new technologies to provide the most apeds sur ng n addsom mles.

cost-effective means of generating electricity. While this approach EPRTs funding comes from nearly -

increases planning costs, it will provide ' 600 utilitics acmss the country rep-resenting about 70 percent of the 1- nation's electric energy service. Our Company's contribution to EPRrs total 1982 budget af$302 milli <m was '

about $3.3 million, which makes pos-sible the Company's participation in

- research involving nuclear reactor com-pcments, reactor water chemistry and i Ruidized ted combustion, among others.

L 15

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Judy Gaumer. word processor an adult Sunday School claw at the Perry Nuclear Power Ms Gaumer work.s closciv Plant. has been a volunteer with retarded children at the worker with retarded children ILpps llearb S(hool and with and adults for unir than 12 ri tarded adults at the Ashi vears She is shown teaching Gatt Industries Erkshop 16

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The Company's success arut the well- The benefits continue. Seventeen of Voices o/ Reason: Our Speakers being ofits employees and their families the nation's largest 500 firms are headt Bureau, Films, Ads and Executives is dependent on the economic and quartered in the Greater Cleveland Are Communicating social vitality of Northeastern Ohio. area. These companies require the ser-In 1983, the Company's employce-

- Thus, our commitment to the area goes vices of a w,de i range of other businesses sta//ed Speakers Bureau will cclebrate beyond providing dependable electric and professions, and they. m turn, its 30th anniversary li'hile it is impos-

- service and touches the lives of the grow, prosper and create still others.

sib /c to know how many people have c l.9 milhon people of the area in myriad Today, the technology and service been reached by the Bureau in all other ways. industries are becoming an important thoseyears, we do know thatin1982 part of the area's economy.

For the more than 100 years ofits Its 52mcmbers gave almost 400 pre-existcnce, 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 from 25to 300, a totalaudience of mental projects, area economic devel- - office building construction for such about 12,000 people, opment, health and social services, firms as Standard Oil Company of ~

In addition, the Company rcccived

higher education, the arts and culture Ohio, Eaton Corporation, Medical Mutual and Ohio Bell. TRW, Inc. is and other activities which have helped 3 ,

. d b an improve the quality oflife in - building a new headquarters in a Northeastern Ohio. Cleveland suburb. The Cleveland Clinic,

1. # "" ##'000 ### # "#'

premier medical facility and largest InMay weheldaserieso/ meetings '

Our sizeable investment in land, plants ,

employerin the City of Cleveland,is trith share oreners in our scrrice area.

and equipment has made us the largest -

beginning a $200 million expansion. As an adjunct to the regular annual property taxpayer in most of the com-By the mid-1980s, the Ch,nic s present meeting. Company crecutwes took the munities we serve.

employment of 7,000 is expected to annualmeetmg message to six Community / Area Development increase to some 10,000. additionallocations, increasing the

. During the period following World War Community and area development II, the Company initiated an extens,ive by ab ut , 00 work was, and is, an important effort of area development program.The cam- the Company. To help sell all prospec. Irhen the totalcommunications e// ort paign soon was adopted as a pattem tive employers on the advantages of by the Company is taken into account, for other mSor industrial areas. Our - our atea, the Company'c activities are the audience includesjust about crery industrial development campaign - closely coordinated with those of the - man, icoman and child in Northeastern

'sk>gan "Best Location in the Nation" Greater Cleveland Growth Association, Ohio. Our mass communications became known worldwide. the Cleveland Tomorrow committee program-newspapers. television and While the Company fostered growth and other development groups. These radio-reachedinto every home many efforts have now been expanded to times dunny theyear Our executives from expansion within, the need also encompass the Great Lakes region. appeared on Ic/crision and radio pro-

- was seen to expand the base by attract.

Wejoined with other members of grams throughout 1982. It'e also ing new companies to the area. The Cleveland's private sector to lead the answered more than 800,000 cus-result has been new business, new jobs and a larger, stronger and more diversi- formation of the Great Lakes tomer mquiries through tehrhone Economic Policies Council. This calls ando//lce risits. A computerized fied economic base to benefit the Company and those who work and bill printing system mstalled last year ;

pennH uwfusw_ n ofbriefmessages, reside here*

cnabling us to reach allofour 642,000 residentialcustomers cach month.

The men and tromen of The Cleveland ElectricIlluminating Company are taking the Company's message directly

~

to the people they serve. It'e are a dedicatedteam whose only business purpose is to provide electric service to the homes, factories and businesses ofNortheastem Ohio-at the lowest possible cost.

f 17

organization of representatives fnim suppon to health and social services.

the maior industnal cities on the Great education. the arts and cultural I akes is workmg with public sector activities. Each dollar contributed is leaders to promote economic progress intended m some way to improse the throughout the region. quality of life in Nodheastern ()hio.

One of the area's greatest advantages is se acuses haw bwome mn

• "re important considering the reduc-abundant fresh water, a precious resource that is becoming scarce in

• " "I "" "N other parts of the country. Northeastern 8"aal and & noms. Bus w Ohio, with its 100-mile llake Ene continue to make donations even though the tompany has been denied shoreline. has access to 20 percent of ruowiy duough rates of its charitable the world's supply. In fact. the Great contributions.

1.akes region has the largest supply of fresh water in the world. The Company's donations are made largely through The Cleveland Electric

. In this time of economit uncertainty, muminating F oundation. The Founda-we recognize that many of our cus_

tion was established over 20 years ago tomer prospects are engaged in coping when managenient recognized the with the immediate problems of the need. during more profitable years, to

, [ recession. However. we are sowing invest contnbutions for future use.

b. seeds for the future. The promotion of our area's advantages-its centra by this way. the Foundation enables the l"mpany to maintain a consistent level location to key markets, dependable of @ng in both good and lean years.

energy supplies, abundant supplies of "3 '"ntnbutions plact us among the fresh water and a skilled labor force. leaders of Ohio electnc utilities it, among others-will yield results as it total giving.

has in the past.

Our efforts to foster economic growth Employee Involvement in our service area extend to our own We are panicularly proud of the degree purchasing. To the extent possible. we to which our employees contribute to buy equipment and other supplies from the well being of their communities.

our customers. For example. in 1982. For example. our emplovees' United we ordered almost 150 replacement Way giving in 1982 amounted to over passenger cars and light trucks- 51 milhon which was augmented by an

, vehicles made by American workers, additional 5300.000 from the Company 3 including Clevelanders. ()ur purchasinM Foundation.

+ policy affects a wide varictv of local r 'O businesses including machine shops. Financial contributions are onb one pad of the community involvement of, combustion control manufacturers.

our emphiyees. The Lompany consis-

, . safety glasses suppliers. construction tently seeks to hire people who display and maintenance contractors and countless others. leadership ability. plat we have been successful in this ettort is evidenced by Financial Support the number of our employees who truly Beyond the economic contribution M'VC "t themselves as they provide made by our business activities. the volunteer leadership to community Company has long recognized a projects and governmental bodies.

responsibility to provide direct financial For example:

• a service engineer holds free tax seminars for semor citizens and

-hurch groups l oan mmon Engmeinne M n "ni m un*, w u_mmma thn highh rcearded gospel mush er< r in w it irms m c hun hes i a Mi ds n< >nunato ms t 'i ,mes h it t hC Cdilh af hI pf lu ' 't1 iht t b u land area Eath uardii co.up . urs the N uth and he cidme nu data e li st l'nual tpptitraf h s ili \ % b Ik ( II \

t b \t!anta and Chh as.

iiI lll h d 4

• a hilling clerk works with young black women, involving them in community social service projects e a Tele-Communications Unit supervisor and a Company telephone operator are hospital volunteers

• an electnc service installer was selected " Man of the Ye r" by the

()ptimists Club for his work in 5 scouting

• a Personnel clerk volunteers for the American lleart Association

• a word processor at the Perry Plant teaches mentally retarded children s.%g

• more than 30 employees sene as D;W jg ,

volunteer tiremen g ~

• the number of scout leaders. Little I.eague coaches, service club officers MQ]1 ,e and church and social agency workers }k~4 runs well into the hundreds e in the area of community "

I

~

development. Company employees -

are serving with organizations such , II as the Ashtabula County Citizens

^

Coinmittee and the City of Rocky I River I)esign and Construction IIoard .

• professional group members tot:d <

more than 500 in organizations as 4 g~-

diverse as the American institute of r k

i Architects and the Purchasing i l

Management Association , .

This sampling indicates the diversity of interest and depth of commitment of our employee volunteers. We are proud that they give to these activities the l

same dedication they give to their jobs.

()ur resp <msibility to the communities we serve goes beyond meeting the E energy needs of the area. The Company and its employees are invest-ing their time. talent and money to contnbute to the social and economic needs of Northeastern Ohio and its people.

I f

Chff Bissell. Senior Community president of the Consortium. a l)cvelopment Representatl*'e group of six major educational slett). reviews a report by the institutions formed to train Western Reserve Consortium people to meet the needs of with I'aul A. Reichert I)ean custing and new industnes of Kent State l'niversits s in the ca. stern part o. our Ashtabula campu3 Sir ikssell seruce area wa.. an firRahl/t'r and first

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Management's Discussion anc Analysis of Financia. Condition and ResuLts of Operations Capital Resources and Liquidity increase effective January 7,1983. We also secured vari us incre ses in steam, wholesale power and street Our capital requirements stem from our ongoing lighting rates m the three-year period. These rate program of constructing facilities needed to meet anticipated demand for electric service, to replace nereases, coudeM e%c con cond and @er AFUDC, offset effects of inflation on operating expenses, wom-out facilities and to comply with pollution control higher mterest 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 billion on the construction program. ,

receive a rate increase to cover those increased costs.

This amount included an allowance for funds used during construction (AFUDC) which is explained in Note Consequently, earnings per share rose in 1981 and ,

1982, reaching a calendar year record level of $3.01 in A of" Notes to Consolidated Financial 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 Rate of Return on Common Equity it into fuel ~

Authorized vs. Achieved After paying our expenses, taxes, interest and dividends, (percent) our business cunently does not generate all of the funds , 9 needed for our construction program. Therefore, we must supplement our internally generated funds with 82 NGhwEM 1 Wo t I m22 additional money raised from investors. In the past three 81 E%iMMWFMIME years. about 70% of the money used for construction 3, 'gfghg g'[

I was raised from sales of securit,Ts, such as notes, first i mortgage bonds and preferred and common stocks, 79 i

NNRMNbSR i

liu1 and from bank borrowings. The cost of these funds has 3 hjgyg 12.9 been high and the common stock was sold at van,ous l prices below book value. We also raised funds from two I l

• * *

• 2 sales of the Federal income tax benefits related to equipment placed in service in 1981. These sales were l Authorizaibyreco made possible by changes in the tax treatment of equip- g ac3,,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 lowered 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 Financia outside sources. Our rate increase requests and future Statements" gives the details of our credit arrangemer ts.

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 wMch 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 Sources of Electric Revenue Increases and 47% debt Specific financing plans are discussed (maions o/ dollars) elsewhere in this Annual Report.

1 I Over the 1983-1987 period, we must refinance m2 [FMsol ui 1@

"'" ]

$339,320,000 of maturing debt and preferred stock ~l 'l which was outstanding at December 31,1982. In addition, w E2 us R we are required to offer to purchase $19,400,000 of p~2e ~4 preferred and preference stock in both 1984 and 1985 50

'T LM and $36,067,000 in both 1986 and 1987. A portion of " T.M" M the debt which matures in the five-year period has very m higggdl[

low interest rates. Refinancing of this debt will probably

[ l be done at much higher rates, thereby increasing our -sso o so too no average cost of capital.

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

issue is limited by our Mortgage and Deed of Trust. The 8*I" - 5 amount fluctuates depending upon the remaining amount 8 sates roimn,chane of bondable property and upon earnings and interest rates. At December 31,1982, we would have been

, In the last two years, the most significant factor permitted to issue approximately $694,000,000 of affecting kilowatthour sales was the recession which additional first mortgage bonds. There are no restrictions began in 1980. In 1982, industrial sales declined 14.5%,

on issumg additional authonzed preferred stock and primarily among our machinery and steel manufacturers.

preference stock.

In 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 $200,000,000 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

)' Fuel and purchased power expense is the largest part Other significant items affecting earrngs per share in .

of our operating expenses. The amount of purchased 1982 and 1981 were increased preferred stock dividends

power varies from 3 ear to year depending upon the - and a greater number of outstanding common shares availability of our power plants, the enchgy demands of" resulting from additional external financing and higher our customers and the price of electricity available from ' preferred dividend rates. In 1981, interest payments other utilities. In 1982, purchased power expense was also increased significantly. The impact of the increases

eliminated because of lower kilowatthour sales, improved in these items was partially offset by related increases c availability of our plants and power sales to other 1 -in the amount of AFUDC.

utilitiescIn 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.Besse Nuclear Power Station.

, - ofInflation!'

Fuel Costs :

- (< per minion BTU) am- 1l_.

/

/

.ca W 150 -

e 1(Kl -

t' ' 50 Nuckwr _

0 1 w' w 'w w w Total fuel and purchased power expense declined in 1982 because of the decrease in kilowatthour sales and .

La 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.

23 i

Management's Statement of Responsibility for Financial Statements The management of The Cleveland Electric illuminating Company is responsible for the consolidated financial 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 Board of Directors of the Company is responsible for determining whether management and the independent accountants are carrying out their responsibilities. The Board has appohded an Audit Committee, comprised entirely of outside directors. The responsibilities of the Audit Committee are described elsewhere in this Annual Report.

Report ofIncepenc.ent Accountants

' ice- 1 c < ~' < ~ ',e ~ < e ~

CLEVELAND. OH 44114 u,< .~c

{ 216 781-3700 To the Board of Directors and the Sharc 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 accepted auditing standards and accordingly included such tests of the accounting records and such other auditing ,

procedures as we considered necessary in the circumstances. i February 4,1983 Price Waterhouse 24

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

' "d' I OPERATING REVENUES Electric $1,091,054 $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 (1,395) 29,256 91,292 Other 168.802 149.374 128,782 498,081 500,784 488,170 Maintenance 81,789 74,925 67,058 Depreciation and amortization 86.588 85,294 61,619 Taxes,other than Federalincome tax 106.804 91,648 81,630 Federalincome tax 106.382 67.575 41,574 Total Operating Expenses 879.6%4 820.226 743,051 NET OPERATINGINCOME 228,927 192,704 150,515 NONOPERATING INCOME Allowance for equity funds used during construction 76,896 48,970 40,873 Other income and deductions, net (2,481) 10,617 7,605 Federalincome tax-credit 22.254 16.125 13,962 Total Nonoperating Income 96.669 75,712 62,440 INCOME BEFOREINTERESTClIARGES 325,596 268,416 212,955 hNTEREST Cl!ARGES 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) (34,030) (25,051)

Totalinterest Charges 116.632 112,682 87.572 NETINCOME 208,964 155,734 125,383 Dividend requirements on preferred and preference stock 38.295 34.917 27,711 EARNINGS AVAILABLE FOR COMMON STOCK $ 170.669 $ 120.817 $ 97,672 EARNINGS PER COMMON SIIARE $ 3.01 $ 2.52 $- 2.26 DIVIDENDS DECLARED PER COMMON SIIARE $ 2.19 $ 2.08 $ 2.00 Retained Earnings Statement For the Year Ended December 31, 1982 1981 1980 (Thousands of Donars)

BALANCE AT BEGINNING OF YEAR 5 280.285 $ 258.432 $245,716 ADDITIONS

- Net income 208.961 155,734 125,383 DEDUCTIONS Dividendsdeclared Preferred stock 33.900 29,762 22,949 Preference stock 4.118 4,417 4,417 Common stock 124.841 99.134 85,296 Costs ofissuing equity securities 627 568 5

. Total Deductions 163.786 133.881 112,667 BALANCE AT END OF YEAR $ 325.463 $ 280.285 $258,432

. The accormmnying notes are an antegralpart of these financialstatanents.

25

Ba ance Sheet at December 31 TheCleveland ElectricilluminatingCompanyandSubsidivies eb '1982 1981 (Thousands of Dollars)

PROPERTY AND PLANT

- Utility plant

. Electric in senice $2.684.629 $2,585,892 -

- Steam in senice 40,172 38.546 2,724.801 2,624,438 Less accumulated depreciation and amortization 679,890 621,353 2,044,911 2,003,085 Construction work in progress 1.285.731 986,457 3.330.642 2,989,542 Nuclear fuelin trust 52,751 -

~ Other property,less accumulated depreciation 11.465 23,870 3,394,858 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 Materials and supplies, at average cost 28,123 25,640 Fossil fuel inventory, at average cost 75,403 68,773

'thxes applicable to succeeding years 87,130 63,610 Other 1,837 1,786 353.ff>3 278,912 DEFERRED CHARGES Unamortized costs of terminated projects 52.385 49,598 Deferred fuel 5.761 '11,642 Other 18.844 16.174 76.990 77,414

$3.843.294 $3.406.075 Capitalization and Liabilities CAPITALIZATION (See statement of Capitalization)

' long-term debt $1,441.822 $1,328,404 Serial preferred stock With mandatory redemption provisions 265,000 268.000 Without mandatory redemption provisions 95.071 95,071 Serial preference stock with mandatory redemption provisions 57.000 57,000 Common stock equity 1.227.095 1,002,206 3,085.988 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 91,128 105,302 Accrued payroll and vacations 15,407 13,353

' Federalincome taxes 10,149 8,300 Other taxes 110.011 103,631 Interest 31,268 27.491 Other 7.328 5.286 4 355,536 381,471 DEFERRED CREDITS Unamortized investment tax credits 153.582 102,438 i Accumulated deferred Federal income taxes 155,832 134.043 Unamortized tax benefits sold to others 24.226 25,101 Nuclear fuel trust obligations 52.751 -

Other 15.379 12,341 401,770 273,923 COMMITMENTS AND CONTINGENCIES-See Note L T1w amunpanying rwtes are an integralpart of these nnancialstatements. S3 8A3 295 $3 A00075 26

m CapitalIZaliOn at December 31 TheCieveiand Eiectriciiiuminetin,CompanyandSessidia,ies 1982 1981 1982 1981 (Thousands of Dollars) (Percent of 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 of12.79% to 13.07% 6,100 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 currentin 1982) - 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 1,328.404 47 48 SERIAL PREFERRED AND PREFERENCE STOCK-cumulative, without par value,4,000,000 and 5,000,000 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 G $ 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 10.000 10,000 265,000 268,000 Preference stock with mandatory redemption prosisions 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 901,632 721,921 1981, respectively Retained earnings (d) 325.463 280.285 Total Common Stock Equity 1.227.095 1,002.206 40 37 TOTAL CAPITALIZATION $3.083.988 $2.750.681 100 100 (a) long-term debt matures during the next five years as follows: $68,105,000 in 1983 (classified as a current liability on the consolidated Balance Sheet);

$82,210.na 19M; $70.501,000 in 1985: $57,210.000 in 1986; and $27,210.000 in 1987, tb) 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 depirit or Eurodollar rates.

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

The accompanyng notes are an integralpart orthese financialstatements.

27

Changes in Financial Position TheCleveland ElectricllluminatingCompanyandSubsidiaries For the Year Ended December 31, 1982 1981 1980 I

FINANCIAL RESOURCES PROVIDED Net Income $208,9tM $155,734 $125,383 Items not affecting working capital Depreciation and amortization 86,622 85,325 64,640 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 1,6?S Total financial rcsources provided from operations 291,711 237,930 181,1T6 Sales of securities 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 l Collateral pledge notes 6.100 4,800 19,100 Nuclear fuelin tn.st 52,751 - -

Sale of tax benefits to others - 25,199 -

Pollution control funds expended 18,559 57,805 95,255 Daferred 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 $G85.597 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 94,700 - 31,831 hetirement of preferred stock 3.000 3,000 -

Retirement of promissory notes _

- 10,000 -

Retirement of collateral pledge notes 23,900 - -

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 capitalincrease(a) 72.828 - 51,715 Other - -

8.874 Total Financial Resources Used $832.439 $612.098 $685,597

SUMMARY

OF CIIANGES 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 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 00 Other than short term borrowings and current portion of long-term debt.

The accompanying notes are an integralpart of these financial statement .

1 l

28

Notes to Conso licatec. Financial Statements Note A-Summary of Significant Accounting the unrecovered portion of these costs and amortize them Pohcies rather than write them off as a loss. Our share of the un-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 Commission 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 'lypes of Regulation" A description of our constructing new assets a portion of the cost of money paid 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).

subsidiaries. We own all of the stock in both. One subsidiary When a construction project is completed or, if the PUCO is The CEICO Company which owns nonutility land and allows, at least 75% completed, the funds invested in it are performs certain nonutility senices. 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, power pool (which includes the Company) called the Central including its AFUDC, is treated as a new asset and is used to 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 acco(mting 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 money 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 ofits 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 flowever,in the case of the Davis.Besse Nuclear Power dollars spent on constmction, (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, Terminated Projects it was 10.00%.

In January 1980, CAPCO terminated plans to build four FederalIncome Tax 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 in 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 3

29

w L

r LNotes to ConsoLic ated 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 llowever, these costs are included in the basis for the preceding month.

1 depreciation shown on our income statement. Second, the p,,g period of tim 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 lease payment for nuclear fuel, we record it on the balance allows some of the depreciation we are entitled to in future -

sheet under Deferred Charges-Other. As the fossil and

years to be used early. (This practice is called liberalized

- nuclear fuel is used, we transfer the cost to the income depreciation.) Beginnmg with October 1976 property additions,

. statement as fuel expense. Nuclear fuel amortization also the tax reductions resulting from the use ofliberalized neludes a recovery through rates for the ultimate disposal depreciation and accelerated amortization are not recognized -

of spent nuclear fuel.

m the income statement as reductions of tax expense m 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 procedure called normalization. - $1,126,000 in 1982 and 1981, respectively.

When we filed our Federal income tax return for 1980, the i

(costs of our terminated nuclear projects were deducted as an Note B-Deferred Fuel i expense. Ilowever, for income statement purposes in order

' to match the costs with their related Federal income tax As described in Note A-Revenues, since September 1,1981, effects, the tax savings were deferred. ur rates are adjusted every six months to reflect changes in 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 wc

• ave 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 ciedit 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 L The Economic Recovery Tax Act of 1981 allowed us to sell that starting August 1,1982 both actual and deferred costs to othe.s the tax benefits related to property placed in service of coal used at the Mansfield Plant can be recovered from

. on and after January 1,1981; The monies 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 praperty placed in service after 1982. We calculate depreciation for most of our electric property by multiplying our depreciable property by a composite depre-Our Federal income taxes are lowered became we can c ation rate.The composite rate is one based on the average deduct our interest charges from income. Ti..s reduction of life of all our 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- it (removal cost). Prior to March 1982, the composite rate I structed are charged to Nonoperating income. The tax used was 3.4%. Since March 1982, the rate, as set by the reductions ofinterest paid on all other funds are charged PUCO, has been 3.5%

i to Operating Income.-

Davis-Besse depreciation is based on the ratio of the amount L Revenues - of electric energy it produces in the accounting period to its l Customer meters am read or estimated and billed on a monthly total estimated energy production over its useful life. When i

. cycle basis. Operating revenues are recorded when billed. a nuc! car 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 F

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

o was based on what we paid for fuel one month earlier. Since The factor was determined in 1980 estimating that the s 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

llydroelectric plant and property held for future use have We calculate depreciation for our steam property by multiplying their own depreciation rates. Rates 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-FederalIncome 'Ihx 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 ' pax Pre-Tax Pre-Tax 1982 Income 1981 Income 1980 Income (Thusands tTimunds (Thusands d Dollani of Ddlant d Dollars)

$293.093 $207,184 $152,995 Book income before Federalincome tax Tax on book income at statutory rate $134,803 46.0 $ 95.285 46.0 $ 70,358 46.0 Decreases in tax due to:

(3.608) (1.2) (2.508) (1.1) 4,201 2.8 Excess of tax depreciation over book depreciation Allowance for funds used during construction 47,994 16.4 38,180 18.4 30,325 19.8 2,491 0.8 2.526 1.2 2.267 1.5 Certain overheads capitalized on the books 3,798 1.3 5.637 2.7 5.953 3.9 Other items 50.675 17.3 43.835 21.2 42,746 28.0

$ M.128 28.7 $ 51.450 24.8 $ 27,612 18.0 Total Federalincome tax expense Federal income tax expense is shown in the income statement as follows:

1982 1981 1980 (Thusands (Timsands (Thusands d Dollant dIbilani d Dollan)

Operating Expenses 5 34.279 $ 23.668 $ 11,244 Current tax provision Changes in accumulated deferred Federalincome tax:

I.iberalized depreciation and 19,498 19,747 16,106 accelerated amortization 1,700 (1,M1) 21,944 Terminated projects (239) 8.361 (254)

Other items _

lovestment tax credit deferred,less 51.144 17,640 (7.466) amounts amortized Total charged to operating expenses 106.382 67,575 41.574 Nonoperating Income (22.254) (16.125) (13,962)

Current tax provision Total Federal income tax expense $ 84.128 $ 51.450 $ 27.612 in 1980, we had a loss for Federal 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 $56,582,0(X),

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 investment tax credit in that year.

we had that year was apphed against taxable income in investment tax credits which are available to the Company prior years. and have not been used amount to $41,971,000. These un-used credits may be used to reduce tax liability through 1997.

J l

31

O

. ' Notes to'Consolidatec 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 ur. amortized terminated unit costs were $52,385,000, i by the Company on these projects through December 31, . or $31,506.000 (51 cents per share), after adjustment for the .

1982 was $62,413,000 (terminated unit costs). For a period - tax reduction resulting from the deduction of the terminated

. 'of time, the PUCO allowed us to recover these costs through unit costs on the Company's Federal income tax returns.

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

the same 10-year period.- unlikely that any regulatory relief ultimately will be allowed Lin 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 aAer 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 I The Company has first mortgage bonds outstanding, as follows:

unamortized amount without further order. Therefore, for service provided on and aRer October 27,1981, the Company. Series At December 31,-- I Interest -

reduced its rates about 0.7% resulting in an estimated Due - Issued Rate 1982 1981

$6,700,000 reduction in annual revenues. We also stopped ahmsands <W!am amortizing the terminated unit costs. This did not result in 1982 1947 3% .$ - $ . 20,000 any change in net income or eamings per share. 1983 1975 8.85 % 50.000 50,000

. The Company appealed the rate reduction to the Ohio 1983.A 1980 9%% - 74,700 1984 1977 7.55 % 25,000 25.000 Supreme Court.The appeal was dismissed by the Court. We 19g.A 1980 12%% 30,000 30,000 appealed both the Ohio Supreme Court's original ruling and .1985~ 1950 2%% 25,000 25.000 l- 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.1 1986-A and B 1976 5%% 5,000 5,000 In th"e proceeding for the electn. crate m. crease granted to 1989~ 1954- 3% 20,000 20.000 -

L 1989-A 1981 - 15%% 40,000 ~

the Company by the PUCO effective March 19,1982, the 40.000 1990 1969 7%% 60,000 60.000 Company tried again to obtain recovery of the terminated 1991 1969 35,000 8%% 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 - 1993 1958 3%% 30,000 30.000 PUCO increased the rate of retum 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 2M6-A 1976 7% 14,000 14,000 2M9

~

unit costs as a cost of service.The PUCO also authorized

' the Company to amortize the unamortized termmated unit 2009-A to C . 1 9  % .000 000 2010 1975- 9.85 % 100,000 100,000 costs over a period not to exceed la years. In April 1982, 2010-B to N 1982 12.10 %-15 15 % 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 2011;A' 1980 (a) 48.600 48.600 the Ohio Supreme Court and the Company appealed the 2011-B 1981 th) 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 -

Supren'e 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 47.5(M 1,295,191 1'112 291 In its January 5,1983 rate order, the PUCO again denied Less amounts classified as current 50,000 20 000 recovery of the termmated unit costs in rates as a cost of -

$1.245,191 $1m2.291 service.The PUCO also stated that the rate of retum on 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 i added risk resulting from the disallowance of such recovery no lower than 6% and no higher than 12%. The average rates in 1981 and 1

and, therefore, no additional increase in that rate of retum 1982 were 9.99% and 9.37%. respectively. l l (b) The interest paid on these hands is at a variable rate. That rate can l be no lower than 6% and no hWher than 14%. The average rates in 1981 and 1982 were 10.40% and 10.26%. respectively.

i 7-32 I

J

x q

^

4 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 halance sheet fuel accounts. The costs we own and franchises we hold. in these accounts are transferred to fuel expense on the -

The issuance of additiond first mortgage 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 train leases.

December 31,1982 to issue approximately $694,000,000 - . I. ease 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 >eac 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 rniousanassoonarsi 1982. This agreement permits us to borrow additional . 1983 $ 3,942 amounts from time to time up to $60,000,000 over a two- 19M 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%E 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 LaterYears 2.260 issued under this agreement. Although these bonds are not Total $18.292 shown as outstanding in the statement of Capitalization, they a e outstanding under our Mortgage. We did not indude 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 -

Note C-Leases the timing or total amount of the rental payments. However,

- 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.

'lype Remaining Terms - Note H-Serial Preferred and Preference Stock -

Nuclear fuelin the reactor (a). with Mandatory Redemption Provisions

- 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 '

leases having a fixed table below lists those redemption obligations:

Construction and - noncancelable term of maintenance equipment less than one year be Red d Begnnmg Pnce

.(a) We had a lease for the first core of fuel at Davis-Besse thniugh the Series Annually On PerShare ia) rniddle of 1981. The leases for the reload fuel currently in the reactor will last as long as it takes to burn the fuel. For the reload leases, we pay full C 10,000 8-1 84 $ 100

- rent as the fuct is burned and we pay a reduced rent equivalent to an interest E- 3,00n 6-1-81 $1,000 charge when the fuel is not being burned. 11 .1,782 6-1 85 $1,000 (b) Linit train 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 redernption 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. rinancial 1984 $1000,m 1987 $13.551,m Accounting Standards (FAS) No.13 and No. 71 require that 1985 $5J82. m 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 w2 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 Icase payments. Some Serial Preferred and Preference Stock we have issued includes a provision which requires us to ask the share l owners of that stock whether they want us to buy back their 33 i

. Notes to Consolidated Financial Statements-shares at $1,000 per share, as follows: We can buy back Series E Preferred Stock before June Shares .

1,1986 only under certain conditions. Any borrowed money -

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 ~ Beginningon use money from the sale of other preferred stock or stock 16,667-ranking higher than Serial Preferred Stock ifits effective

- Preferred Series F 11-1-85~

8,000 . dividend cost is less than 8.8%. Finally, we may not use Preferred Series C 8-1.M -

Preference Series I 11,400 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 We have assured the owners of our Series F Preferred Stock a minimttm 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 lowes, we would have tie option to 28,500 1980 Preferred H $1.000 do one of two things: we could buy back the Senes F at

$1,000 per share plus accrued dividends or we could exchange 1981 Preferred I $1,000 31,500 Series F for a new preferred stock. The new stock would Preferred J $1,000 29,000 Preferred K $1,000 10,000 have a dividend rate high enough to provide a 6.%% after :

tax return. There are no restrictions on our right to issue and sell We have the right to buy back and retire shares of Serial authorized shares of Serial Preferred or Preference Stock. ,

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 Preferred C _ ' Prior to August 1,1983 $110.00 8 8" .ect to optional redemption.These provisions give us the right to buy back and r#re the stock.The times 1983 and

August therea 1[ter $103.00-$101.00 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 thereafter $1,M9.74-! 1,000.00 Prices Preferred F _ Prior to March 1,1984 $1,03.00 -

March 1,19M and Preferred A Prior to December 1,1986_._ $102.50 thereafter $1,015.00-$1,000.00 December 1,1986 and Preferred C December 1,1983 through November 30,1984 $1,035.56 Preferred B August 1,1982 through December 1,19M and July 31,1987 $103.78 thereafter $1,026.67-$1,000.00 August l,1987 and Preferred II June 1,1990 through May 31,1991 51,068.68 June 1,1991 and thereafter $1,061.05-$1,000.00 L

Preferred I 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 throus,h May 31,1987 $1,050.44 1 June 1,1987 and '

thereafter $1,037.83-51.000.00 Preference 1 Prior to August 1,1983 $1,032.29 August 1,1983 and thereafter - $1,025.83-$1,000.00

.~ 34 l

i

Note J-Common Shares Issued and The number of outstanding shares of Common Stock of the Reserved for Issue -

C mpany changes during the year. We calculate earnings 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 cach of the last three years were:

1982 1981 1980 1980 43,300,451 Public Sale ' . 9,000,000 1 3.500,000 4,000,000 - -

Share Owner Dividend ' 198f g3 '

- Reinvestment and .

Stock Purchase Plan _._ - 1,362.141' 926.542 733.188

' EmployeeSavings Plan _._ 282,162 2M,605 - 218,902 Note K-Short-Term Borrowing Arrangements

~ EmployeeThrift Phn _.__ 75,775 74,727 M,4% Notes payable to banks and others were as follows:

Key EmployeeIncentive At December 31.

Stock Plan - -

469 Type 1982 1981 TotalShares~ 10,720.078 4.765.874 5.017.055 (husands M Douars)

At December 31,1982, we had five stock purchase plans - 13ank 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:

Available bank credit arrangements are as follows:

- Plan Shares Share Owner Dividend Reinvestment and Stock Purchase Plan - 2,279.381 'Iype 1982 1981 Employee Savings Plan 2,833.819 mousands w Donaro

- Employee Thrift Plan 528,327. - Banklinesofcredit(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 600.000 . Eurodollarrevolvingcreditagreement _ $30,000 $30,000 6.791,777 Variableinterest note agreements $20,000 $20,000 All borrowings under the Eurodo'lar agreement are made and paid back in U.S. dollars. There are no requirements Stock options held by employees to purchase unissued that minimum cash balances (compensating balances) be shares of Common Stock under the Key Employee incentive maintained at the banks involved. However, a fee of L% to Stock Plan and the 1978 Key Employee Stock Option Plan

%% per year is paid on any unused part of this borrowing are granted at 100% of the fa,r i market value on the date of agreement. The interest rate on borrowings is %% to %%,

the grant. The shares which were actually bought dunng the 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 employees were as follows: Borrowings under the variable interest rate agreement must be paid back whenever the bank requests such repayment.

Incent e k n(a) erestis W on & rak kr %@ commercW 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 S 148 M2 150,095 154,148 f credit to ensure the Company's ability to repay them.

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 b_ 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

. Options Outstanding satisfied informal compensating balance arrangements under S 374,705 244,425 251,375 which we maintain balances at banks of $3,000,000 to h 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) L'nder the terms of the Key Employee incentive Stock Plan, no further options may be granted. Accontingly, only those shares relating to options

. outstanding at December 31,1982 may be issued.

35

Notes to Consolidated Financial Statements Note L-Commitments and Contingencies In January 1982, the PUCO allowed us to increase steam Material and services needed to build new plant and rates by 47% which amounts to approximately $7,000,000 equipment must be ordered in advance so th t it will be annually. In October 1982, the PUCO approved another 12%

available when needed. At December 31,19 2, such commit- increase which will result in an annual increase in steam rates of about $2,400,000.

ments amounted to:

Construction program $?36,000.000 In September 1981, the FERC granted a rate increase of Nuclear material acquisition and $2,300,000 covering sales for resale to the Cleveland Municipal processing into 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. .

Note N-Property Owned with Other Utilities The Company has lease and other arrangements to finance up to $220,000,000 of the cost of acquiring nuclear material, Some 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 in a reactor. At December 31,1982, under these arrangements, undivided share in the entire unit. All the owners are tenants a trust established in 1982 invested $52,75 000 shown on in common. Each company has the right to a percentage of the balance sheet, and lessors invested $84,000,000, 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 Under two long-term coal purchase arrangements, we have construction agreed to guarantee the mming companies' loan and lease Electric work obligations. At December 31,1982, the principal amount Facility Percent in Service in Progress of the mining companies' loan and lease obligations was gu e,nw

$86,333,000. Under one of these arrangements, we are Davis.Besse 51.38 $421,912 $ 30,599 required to pay the mmmg company any actual out-of- 644 Bruce Mansfield 1 6.50 25.039 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 I and included is the appeal by the City of Cleveland to the United c mm n facilities 31.11 -

513.202 States Court of Appeals for the Sixth Circuit of the City's e5 11 [ 562 4 antitrust suit against the Company. In the trial, the City had seneca Pumped storage claimed treble damages of $160,000,000.The jury had flydroelectric Plant 80.00 54.735 88 returned a unanimous verdict in favor of the Company. We $1,164,394

$880.911 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 in certain for Davis-Besse at December 3.,1982 was $38,026,000.

instances couhl have a material adverse effect on income for The accumulated depreciation fu 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 'uasis along with all other depreciable property 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. Betause 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

. Note 0-Pensions Statement of Financial Accounting Standards No. 36 We pay the full cost of a pension plan for our employees. (FAS-36) requires us to disclose accumulated pension plan Under the plan, an employee who ha< worked at the Company liability without consideration of future increases in employees' at least 5,10 or 20 years (depending on his age when he earnings. Therefore, the disclosures below, required by leaves the Company) c "i 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 benefit is ur 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 in the fund

' he were age 65. If he retires before age 62, his benefit is n w to provide pension benefits as they become payable reduced. The plan also pays benefits when an employee dies under a plan intended to contmue indefinitely. We are making or is disabled, the following disclosures only because we are required to do so.

We annually deposit money into the plan to fund the cost of At January 1.

benefits arising from employee service and earnings in the 1982 1981 current year. We also deposit money to fund each year a imii== a noliarsi 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 Benefitswhich are vested $132 $122 another $10,200,000 in 1981 and $12,100,000 in 1982. Benefits which are not 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 of pension benefits over their working lives. The liability of the plan as ofJanuary 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 masands.euert per share amounts Total operating revenues $229,625 $237,320 $297,783 $248.203 Net operating income $ 38,930 $ 41,822 $ 67,759 $ 44,189 Net income $ 27,801 $ 32,117 $ 56,872 5 38,944 Earnings available forcommon stock $ 20,371 5 23,682 $ 47,432 $ 29,332 Average common shares 46.445 46.777 47,959 50,914 Eamings per common share $ .44 $ .51 $ .99 $ .58

.1982

, Total operating revenues $273.038 $268,985 $299,224 $267,325 5

Net operating income $ 52,774 $ 56,953 5 70,253 $ 48,948

' Net income $ 48,019 $ 50.641 5 66.849 5 43.456 Eamings available for common stock $ 38.407 $ 41,051 5 57,302 $ 33,909 Average common shares 54.257 55.679 56,088 60,3M

. Earnings per commen share $ .71 $ .74 $ 1.02 $ .56 37

Financial anc Statistical Review 1972-1982 1982 IW1 19HO

~

TOTALOPERATING REVENCES 1.108 571 1.ol2,cno mase*i .

Residential 34x a7 310.409 2M J87 Commercial .to tM t 263 # 18 220.677 Industrial 39 f.7% 386305 323,764 Other Electric (Includes Sales for Hesale) 1.1302 39.912 65.273 Steam Heatmg 17317 12.1wi 15Juis TOTAL OPERATING EXPENSES xNM4 x20 226 Tu ost Fueland Purchased Powr 329 2N 351.41o 3eo347 Other Operating Expenses 2 W591 224 289 194.881 Depreciation and Amortization se sM 85.294 64.61D Taxcs Other Than Federal income Taxes tw, mt 91.648 81.630 Federatincome Taxes lotm2 67.57s 41.574 NET OPERATINGINCOME 22*"27 192Jo4 150.513 NONOPERATINGINCOME wwe 75.712 62.44e Allowance for Equity Funds Used Dunng Constructen ihm, 4x.970 40.sn Income Statement OtherIxome and Deductons v. U t m742 zi.se INCOME BEFOREINTEREST CilARGES ci w. 2** 416 212953 (Thousands of Dollars) _

INTEREST - lihnu 112.682 87.571 teng and Short-term interest lito72 146J12 112.6 3 Allowance for Borrowed Funds Used Dunng Construction _ a7 4 toi 04.030p c5 051{

INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CllANGE _ 2nRwa 155.734 125383 l Cumulative Effect of Change in Depreciaton Methnt.

r I on Periods Prior to January 1,1979 - - -

NET INCOME tal .

2m wa 155134 12530 PREFERRED AND PREFERENCE DIVIDEND REQUIREMEYl3 .m 2"i 34.917 27,714 EARNINGS AVAILABLE FOR COMMON STOCK 170 % " 120 817

,, 97 3 EARNINGS PER SIIARE liEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 5 3 ol 5 2.52 5 2R CUMULATIVE EFFECT PRIOR TO JANUARY 1.1979 - -

- l TOTAL EARNINGS PER SIIARE(a)(b) s 30! 5 2.52 s 23 DIVIDENDS PER SIIARE (b) s 2.19 s 2.08 5 24 l

) TOTAL ASSETS *i M3 29 4 3.4t wi.075 an44 462 Utahty Plant-Total 4 010.112 3.610.895 3.215339 Accumulated Utility Plant Depreciation and Amortizatun sNaw (621353> 4557.8 %

Other Property M21h 23.870 21.135 Current and Other Assets - 4M4% 392 M3 41s m TOTAL CAPITALIZATION AND LIABILITIES 3 84 i,29t 3 406 075 3 m4.46J Balance Sheet iong.1,,, o,3, i ,,i c2 i32s.4a4 i.2ii.521 Year end Preferred and Preterence stock: 1 With Mandatory Redem ' n Provisens 322 M 325.000 260J50 (Thousands of Ddlars) Without Mandatory R emption Provisions 93.071 95.071 95.071 Common Stock Equity 1227.o'6 1.002206 912.731 Deferred Federallncome Taxes 3m 414 236,481 192.45)

Current Liabihties and Other Credits t 67.w2 41R913 422.W UTILITY PLANT ADDITIONS (c) - 222.170 409.277 198.ov UTILITY PLANT RETIREMEN'IS ' 25t3 I 13J21 25.00 NUMBER OF COMMON SilARES tb) 61.U4.5x2 51.054.503 46.288.6%

KWHR SALES (Thousands) 161AT.157 17.507.x64 1R.ls9J5J Residential 4 3.D edi3 4.375.732 4.4M.101 Commercial 4.!'+t I U 4.17&459 4.148.9H Industrial 7.022hl 8.279.700 8.062.17l Other(includes Sales for Resale) si3iIt 673.973 1.4xs 4a ELECTRIC CUSTOMERS-YEAR END 711 712 711325 710.ssi Residential M1 Jos 642.925 64?.

Comrrercial 61NI 60J14 60.0 Industnal 7.2% 7,261 7.2' Other 121 425 4 RESIDENTIAL SALES DATA  !

Average Kwhr perCustomer 6im 6.548 6.

Average Revenue per Customer 5 324 M $ 466 55 5 405.

Operating Statistics Average Revenue per Kwbr - 8ou 7.12e 6.

ELECTRIC PROL)UCTION Net Available for Service Area tThousands) 7 hM3 h IR936367 IR722J Net Generation 17 o.u m 17.297.523 15325.00 Net Received from Others M3 072 lan44 33%Q BTU per Kwhr of Net Output io 473 10.582 10 FuelCost per Milhon BTU 174 71r 17514e 156 Coal Cost ptrTon i 13 M $ 46J0 $ 39 Annual Net fe. Min. Max. load.KW-Excl. interruptibles 3 o7+id ar 33623mn) 3.304.otr Net System Capabihty-KW-Year End _ tsi m 4.624Jioo 4.598. 1 STEAM HEATING Sales-Pounds (Thousands) 1 +&77 1.612.151 1.9793-Customers-Year End 337 EMPLOYEES-YEAR END ;oi 5.189 4.

f a) The 1978 net income and iareme per share calculated o.1 a pro forma hasis to reflect the uruts.of.prodtxtum method of depreciation .

are $102.942.503 and $231, respettwely. The pro forma effect of the adoptum of this depreciatam method un 1977 was not matenal. '

38 1

1 l

l The Cleveland Electric illuminating Company and Subsidiaries l l

19M 197M 1977 1976 1973 1974 197'l 1972 l M25 267 717 h;9 2'at 54 I I 44 521 lh5 461 917 32M 7te 29t343 l 237.612 213b.f pf2 200Jh3 160.015 154.020 140.030 lo4.1N 98 5 i l 144 NN 172231 ltdo49 129J86 121fal trN IM3 90336 74 492 1 322.CT4 27A. lo3 231.141 147.l*9 l*tN90 177246 119.<* 4 49 926 1 553r8 42M31 31.611 45J30 33 679 29.446 17A12 132*4 l 11(4M lo nxi 10 684 10 42M 10 921 7 110 5 M17 19A l hMJM VW :w4 342 M71 441 401 4 t3 614 371154 25327h 224 471 34 U27 307.429 265J71 236.107 2 46.9x4  !!nJh2 Im.4io 75. lto 162.fd6 140.Wi 127J30 102394 94.539 Mil 22 72143 71122 i 59.463 56 774 41307 33.M74 33.046 3]ht2 30.963 27336 1 79.413 (AJ36 5x Ni? 51 423 43 733 43.611 40 was 362fu TM 227 21 T!4 47K4. 16 701 10 310 11340 10 lio 14011 1114 N ll 7.Mo3 316.419 101 747 89 331 MJN 71492 hx.x70 47 h21 42 226 49.4x4 2h 346 17 hMI N472 7642 i %7 33 432 29 *Wi Ji.2t,3 28 706 16.9%I 7.M3 4 hJed 5.9;M i

14 l*# 12136 14 219 I him tax 61M i 279 a3'ali i 1%t.im lic o?# lh3 % G 124 m1 1072.12 M 250 M i . l i4 74.417 h4.5e S 61 nih 54 173 46 ll'1 42. St4 1h 504 317M 2" 1hi M32W 72.071 h7 M4 5hJ30 N).511 44 717 31ln! 27.407 (l; 71h (11039 111 714i tio T17 r< o4 7s 6 2mm (1 4411 #2 542>

113.531 tem 13 ll1J28 81.hno +4 7a* to.741 4S ill 49 072 4 121 - _ _ _ _

ll ?W,9  % al i 111 728 sitwo ta Th8 talt) 49 414 44 072 21 547 21s7; 22 4o7 lx ons 14 w6 lo in,7 7hw s ilu 92 072 Ti t ts xx x21 ed 673 5o 072 ;oh74 417;n 41 434 2J1 $ 2 20 $ 2.91 5 2 3M $ 2 11 5 2 41 5 2 03 $ 2 13 11 _ _ _ _ _ _ _

2 42 5 2 20 $ 2 91 5 2 38 5 2 11 $ 2 43 $ 2 03 $ 2 13 I 92 $ l kt $ 17h $  ! 71 $ 1 63 $ I fo $ 1.33 $ 1 32 2 67x356 2311541 1l 17.131 I M42 ira 1.513 247 1334 0n3 1.152 333 l o37 ml 2.M42.25a 2.31t?86 2.232.111 1933301 I h43 014 1.52mh39 13 4 122 1228.%%o 021,175) i 476.9Ku #429.130) 09h 3Di 073 xils 033541# 1334.071: fil3.lir.o 19 503 15.oll 11JII 12549 9 912 7.433 3331 3J40 UM 2'G 2h4 444 lm ill 270 7x7 143342 173 814  !)%411 11h020 2 h7x1x6 2 Til 3 tl 2 117 133 1 X12.vN I 311 247 i . til on3 1.152 Iti 1037 ml 973.991 920.973 K=3NN 747392 ti733 u u 331 144 3iC Xm 491 3 44 Z12.f r0 232 f n u I M3 t*'io 113.000 73Just 61 oin s 2i pini _

91071 93 071 91071 91u71 41071 91071 91 071 93 071 fl2e til 70nm1 tal74 4 3113 11 4191r.a s 346336 326.947 314.512 162.122 140 677 ll4?N 72J18 N1267 4334% 34.312 31.444 395141 211.417 lox 122 2Al k%3 186 916 232 766 lea 2m 121 710 329.869 Joo.DU 2N> 739 271326 IXIA 73 173RN 141470 118891 11.612 MMo loJ29 13.417 14J18 f lJh2 lo. lv 12 830 41271.574 13.9u3 363 32] M o3; 28317.384 25331.449 20 34(110 20.til l .014 20.449.420 19.o to 453 193t4 417 is 1*A 424 I M.070?il lx III m2h 17hulbXn 17 747 **a 13 17.1014 4J32.ox3 4 2sx.8n3 4200.116 4.o41138 394tml 3 x30.3iG 39100l* 3J3o363 4.041.134 3 u113*6 4 m 7.123 3. m x47 3 bx3 xN 1527Jx2 1:ws hx9 1 3 % 419 4 2fatdU M.tr G.919 8,M74316 8 4714x3 7 722 419 8.M19 203 4.103.173 7?w7m 1.367336 litut67 984 ~t91

_ 1340273 2 t4132.i l 12 % N 4 1.!h4 M1 7x7 ;ht 70M214 Dr2 3.tx un 347 69t421 689 111 hx 72x h N 626 h72. In3 I f41.X3h ed7Jd4 rd23 40 h!a 551 h27319 n2.1.9% hl%2nh bl1Nii 5x.64 37J10 3n24l 331N 313h3 51070 32 291 51 643 7232 7.167 7.112 7.2f 6 7 luo 7 212 7 413 7222

, 411 _

412 4;4 loo 4% 4V 414 til 1

N 537 N.il7 b t12 N,14 h IIN 5.9 ) 4 h frN ~4..%h4 337 N6 5 324 41 5 307 11 $ 26316 $ 237 02 5 21h n9 $ 162 h4 $ 13343 f 3 4*t 3 not 4 sot 3%e 3 He .I 67c 2 67c 2 63c W

lu htiool 19 25% C.7  ; a oox 231 1% 1313x t 17271th9 17 M17 7td 14Zi7lii Ih lot hx4 17.(m 914 16 M2t*>9 14.12.1.524 16J47.626 1h211012 15040 im 17.326.t40 13 104 211 s 2373087 2372 IM 974 703 1JA3 7% l o3x 137 a222317i ulo 513 h47 416 10.h.i t to 401 19322 10.4'4 lo..tx2

) n2 m 10.3.16 ui -se n:w io3 3st n uit l o.W4 nCs 4, -

to 172 m .t 33 20 $ 30 73 $ 23 72 $ 23 94 5 24 93 5 21 33 $ 1146 $ 9 96 3 f 97 tual 12 69.(u n) 3 .13n i n n s lon3 s = 4i 2.937J u ni 2 931 enan 3 1193a => 2.X22 noo 4.Sh2in o 4.3hn t m 43s6 a m 3 %onj m 361;im 3Jhl im :17h9 tu ni 3 773 imo 2.tottwo 2.210 m 2374310 2.J39 h77 2 2h3 +43 2274925 2134 Ni 2.410 639 3h3 Jh4 372 JM 3 r4 14 6 416 427 4 9tu 4 631 4.740 4 54h 4.917 4.482 4.Gt 4pm (to AJercJ for tbc 3 for-2 <,ta eht. chant !>cterrba 1% 167 id 1% Iud, s $3h 1C2.+*i6 of tenr"natcJ rrwcts recimfwd ta l)ciervd Charges m 19N 39

)

The Cleveland Electric illuminating Company and Subsidiaries Statement ofIncome from Continuing Operations Adjusted for Changing Prices for the Year Enc ed December 31,1982 -

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

Revenue $1,108,571 $1,168,571 $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 Nonoperatingincome (96,669) (96,669) (96 669) interest expense 116,632 116.632 116,632 899.607 997,942 1,027,357 Net income-centinuing operations $ 208,964 $ 110,629 (a) $ 81,214 (a)

Increase in specific prices of property and plant (b) $ 172,658 Reduction to net recovuable cost $ (17,199) (92,282)

Increase in general prices (68,160)

Increase in general prices in excess ofincrease in specific prices after the reduction to net recoverable cost 12,216 Gain in,m decline in purchasing power of net a aounts owed 77,395 77,395 Net prit e level adjustment $ 60,196 $ 89.611 (a) Includimt the reduction to net recoverable cost net income (Inss) for 1982 wouki have been $93,430,000 in constant dollars and $(11.068.(00) m 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 whde original (net recoverable) cost was $3.330,(>t2,0W).

Supplementary Information Conceming the Effects ofInflation As prescribed by Statement of Financial Accounting Standards Current cost data ditTer from constant dollar data mainly No. 33, we have prepared information on the effects of because the prices of assets have increased at rates different inflation on operations. The methods used to compute this from the rate of generalinflation.

data are experimer,tal and subject to change by the Financial Revenues and Expenses Accounting Standards Board. These data do not reflect the Revenues and expenses (except for depreciation) were

" current value" of our assets. They do not mesure all the assumed to accumulate evenly throughout the year. No adjust-effects ofinflation on our operations or predict our future ments were made to the figures reported in the primary cash requirements. The effects descn,bal herein are not financial statements. No adjustments were made to Federal recognized for income tax or ratemaking purposes income tax expense.

General Depreciation llistorical costs adjusted for general inflation are referred The constant dollar and current cost estimates of property to as " constant dollars?' The enginal cost of utility plant and and plant were determined by applying the indices noted to certain other items was converted to constant dollars by original cost. Restated depreciation reserves were used to 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 reficcts 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 applying current applying the llandy-Whitman Index of Public Utility Con- depreciation rates to the average of beginning and end-of.

stnxtion Costs to the original cost of structures and equipment. year estimated depreciable property.

Original cost ofland was trended using the Consumet Price Materials and Supplies Index for All Urban Consumers. Certain other property was trended to current cost using other mdustry mdices. BMm h h wh M M M WMM supplies were treated as cash type items. Fuel inventory is subject to rapid turnover. As such, we believe the original 40 cost of this item fairly represents its current cost.

_ _ _ _ _ _ _ _ _ _ \

The Cleveland Electric illuminating Company and Subsidiaries Five-Year Comparison of Se ected Supp ementary Financial Data Adjusted for Effects of Changing Prices -

unrase tw hero Year Ended December 31, 1982 1981 1980 1979 1978 (Thousands, except rer share amounts)

Revenue as reported $ 1,108,571 $ 1,012,930 $ 893,566 $ 824,267 $ 717,092 in1982constan dollars $ 1,108.571 $ 1,075,030 $ 1.046,718 $ 1,096,116 5 1,060,958 Net income as reported-continuing operations $ 208,964 $ 155,T'i $ 125,383 $ 113.534 in 1982 constant dollars $ 110,629 ' $ 73.579 $ 60,868 $ 76,608 in 1982 current cost dollars $ 81,214 $ 45,661- $ 28,452 $ 40,493 Income (Loss) per Common Shan e as reported-continuing operations $ 3.01 $ 2.52 $ 2.26 $ 231 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 $ 820,411 at net recoverable cost $ 1,213,246 $ 1,029,264 $ 1,021,171 $ 1,031,670 Ir. crease in general prices in excess of increasein specific prices after reaction to net recoverable cost $ (12,216) $ 130,524 $ 221,186 ! 252,262 Cain from 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 5 234 $ 2.55 $ 2.72 Mrrket 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 PriceIndex 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 cunent cost methods were reduced to Net income from operations increased in 1982 on both the lower ongmal mst amount. constant dollar and current cost bases. The differences Increase in Cencral 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 permitted 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 However, 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 Cain from Decline in Purchasing Power of Net replacement costs. If rate adjustments fail to compensate for l

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.

h 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 lorg-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 ofInflation on the Company our 1982 revenues increased despite the decline in unit sales of electricity, but revenues in constant dollars remained 41

LBoard of Directors Principal Officers ui. ca.r- and Executives

' Chairman and Chief Executive Officer of Tremco,Inc.,

manufacturer of r.pecialty chemical products and a wholly- - Robert M.Ginn President owned subsidiary of The BFGooorich Company Also, Richard A. Miller- Executive Vice President President-Engineered Products Group and Executive V ice -

President of The BFCoodrich Company Harold LWilliams Executive Vice President Robert M.Ginn Delwyn R.Davidson Senior Vice President

- President of the Company Murray R.Edelman Vice President-Nuclear Roy H.Holdt _

Robert J.Farling Vice President-Administrative Services Chairman and Chief Executive Officer of White Consolidated Industries. Inc., manufacturer of products for the home, John W.Fenker Vice President-Power Supply q principally major appliances, and machinery and equipment - Frank A.Kender Vice President-Marketing .' l forindustry Edgar H.Maugans Vice President Finance

" k"* "" * " " ***

in e la firm of Squire, Sanders & Dempsey .

Alan D. Wright Vice President-Public Affairs & legal Richard A. Miller

. Executive Vice President of the' Company Newton D. Flack Division Manager-Steam Power Division Karl H.Rudolph - .

Charles C.Chopp . Controller Chairman of the Executive Committee and retired Chairman Andrew R.Felmer Treasurer and Chief Executive Officer of the Company E.Lyle Pepin Secretary

. Craig R. Smith Chairman of the Industrial Group of Hendix Corporation, a . i wholly-owned subsidiary of Allied Corporation. Tie Industrial J Greup is a producer of machines and accessories for the

' metalworking industry .

Charles E.Spahr Director of several companies and retired Chairman and Chief Executive Officer of The Standard Oil Company -l (Ohio), manufacturer of petroleum products, chemicals .

and plastics and supplier of coal-Herbert E.Strawbridge .

' Chairman and Chief Executive Officer of The Higbee Company,a department store Richard B.Tullis Chairman of the Executive Committee and retired Chairman and Chief Executive Officer of Harris Corporation, man-ufacturer of communication and information processing equipment

~

~ Harold LWilliams Executive Vice President of the Company William J. Williams'

> President and Chief Operating Officer of Republic Steel Corporation, manufacturer of steel and steel products

' Elected effective February 1,1983.

1 Ralph M.Besse (

Chairman Emeritus of the Board of Directors

[

' Elmer L.Lindseth Chairman Emeritus of the Board of Directors 42-

Committees of tae 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 Co:nmittee 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), Presid(nt and all Vice Presidents.

R. H. Holdt (Chainnar:), 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 the issuance of first mortgage bonds.

K. H. Rudolph (Chairman), 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. Milkr (Chainnan), R. M. Ginn, R. H. Holdt, K. H. Rudolph, C. R. Smith, R. B. kilis 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 vacancies on the Board. When reviewing potential candidates, the Committee considers suggestions made by share owners.

C. E Spahr (Chainnan), L. Carta; R. H. Holdt,

. J. Lansdale, .fr, K. H. Rudolph, C. R. Smith, H. E Strawbridge, R.B. kilis 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 objectises and the strategies, manpower and overall corporate organization appropriate to meet those objectives.

R.M. Ginn (Chainnan), L. Carter R. A. Milla; R. B. Tullis, H.L. Ii'illiams 43

GeneralInformation Share owner dividend reinvestment and stock purchase Common Stock ..

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 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 ' Pax Act Registrars of 1981. In addition, dividends reinvested will not be subject For Common Stock andPrc/crredStock , e to the withholding tax on dividends which is expected to go AmeriTrust Company 900 Euclid Avenue

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into effect July 1,1983. Ir: formation and a prospectus relating Cleveland, Ohio 44114 to the Plan may be obtained from Share Owner Services at the Company. Transfer Agents Form 10-K The Company will furnish to share owners, for Common Stock andItc/crredStock without charge, a copy of its most recent annual report to The Cleveland Electric Illuminating Company

~*

the Securities and Exchange Comniission (Form 10-K) and, Share Owner Services P.O. Box 5000, Cleveland, Ohio 44101 upon payment of a reasonable fee, a copy of each exhibit to 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, NY.10004.

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 Ser ices at the Company. To reach Bond Trustee and Registrar Share Owner Services by phone, call the following numbers:

Morgan Guaranty Trust Company of New York for all series.

Local calls in Commun.ications 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, . Oh,o 1-800-362-123, m i NY.10015.

B(nd Paying Agent Please have your account number ready when calling.

Manufacturers lianover Trust Company,40 Wall Street, New York, NY.10015 and AmeriTrust Company.300 Euclid Executive Offices Mail Address .

Avenue, Cleveland, Ohio 44114-Co-paying agents for the Illuminating Building Post Office Box 5000 J.

2%% Series, Due 1985 3%% Series, Due 1993 55 Public Square Cleveland, Ohio 44101 3-%% Series Due 1986 4%% Series, Due 1994 Cleveland, Ohio 3% Series, Due 1989 Telephone Number (216) 622-9800 Morgan Guaranty Trust Company of New York,30 West The annua! meeting of the share owners of the Company Broadway, New York, NY.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 be 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 11%% Series, Due 1985-A 8%% Series, Due 2011 about March 14,1983.

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

8%% Series, Due 1991 12%% 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. (

Inquiries regarding interest payments should be directed to either Manufacturers llanover 'liust Company or Morgan Guaranty ' Dust Company of New York for the series of bonds ..

for which each acts as paying agent as noted above.

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