ML20081F157

Toledo Edison Co 1990 Annual Rept

ML20081F157
Person / Time
Site:	Beaver Valley
Issue date:	12/31/1990
From:	TOLEDO EDISON CO.
To:
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ML20081F108	List: ML20081F103 ML20081F111 ML20081F157 ML20081F163 ML20081F167 ML20081F172
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T"IE TOLEDO 3DISON COK?ANY 1990 ANNUAL REPORT A

Subsidiary of Centerior Energy Corporation i

• 1 t iI

, i i<34

1. em J

CONTENTS 1 About Toledo Edison 1 Directors 1 Officers 2 Report ofIndependent Public Accountants

' 3 Summary of Significant Accounting Policies 5 hianagement's Financial Analysis, Financial Statements and Notes 22 Financial and Statistical Review

' 24 investor Information

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$1)OUTTOLEDO En1 SON DIREC' lot <S The Company, a wholly owned subsidiary llohert 1. Farling. President and Chief of Centerior Energy Corporation, provides Operating Officer of Centenor Energy electric service to about 760,000 people in Corporation and Centerior Service Company, '

a 2.500. square mile area of northwestern hichard A. Afiller, Chainnan and Chief

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Ohio, including the City of '1bledo. The Company also provides elect rie energy at Exceutive Officer of Centerior Energy wholesale to 13 municipally owned Corporation and Centerior Service Company.

distribution systems and one rural electri .

operative distribution system in its service Lyman C. Phillips, Chainnan and Chief area. The Company's 2,500 employees sene Executise Officer of the Company, President about 254,000 customers.

and Chief Executise Officer of The Cleseland Electric illuminating Company EXECUTIVE OFFICES and Executise Viec hesident of Centerior The 'Ibledo Edison Company Energy Corporation.

300.\ladison Avenue .

'Ibledo,01143652 0001 Donald 11. S.aunders, President of the (419)249 5000 Company and Vice President of Centerior Service Company.

OFFICERS Chainuan and Chief Executisc Officer. . . . Lyman C. Phillips President . . . . . . .. .. . Donald ll. Saunders Vice President & Chief Finaccial officer . . . . . . Edgar ll. Alangans Vice Prc sident . . . . Fred l. Lange, fr.

Controller . . . . . . . . Paul G. flushy Treasurer . , .. . . Gary Al. flawkinson Seuetary . .... .. .E. Lyle Pepin 1

s ARTHUR . .

REPCRT OF INDEPENDENT PusuC ACCOUNTANTS ANDERSEN To the Share Owners of The Toledo Edison Company; We have audited the accompanying balance sheet and in our opinion, the financial statements referred to

. statement of cumulative preferred and preference above present f airly, in all malenal respects, the stock of The Toledo Edison Company (a wholly owned financial position of The Tntedo Edison Company as of subsidiary of Centenor Energy Corporation) as of December 31.1990 and 1989, and the results of its December 31, 1990 and 1989, and the related operations and its cash flows for each of the three statements of income, retained earnings and cash years in the period ended December 31,1990, in a flows for each of the three years in the penod ended conforte with generally accepted accounting ,

December 31,1990 These financial statements are pnnciples the responsibility of the Company's rnanagement Our As discussed further in the Summary of Significant responsibility is to express an opinion on these Accounting Policies and Notes 7 and 12, a change financial statements based on our audits was made in the methods of accounting for income t We conducted our audits in accordance with taxes and unbilied revenues in 1988. retroactive to generally accepted auditing standards Those January 1,1988 standards require that we plan and perform the audit to As discussed further in Note 3(c), the future of obtain reasonable assurance about whether the Perry Unit 2 is undecided Construction has been financial statements are free of material misstatement. suspended since July 1985 vanous options are being An audit includes examining, on a test basis, evidence considered, including resuming construction or supporting the amounts and disclosures in the financial canceling the unit. Management can give no statements. An audit also includes assessing the assurance when, if ever, Perry Unit 2 wilt go in service accounting principles used and significant estimates or whether the Company's investment in that unit and made by management, as well as evaluating the overall a return thereon will ultimately be recovered 4 financial statement presentation. We believe that our audits povide a reasonable basis for our opinion

]

Cleveland, Ohio February 12,1991 Arthur Andersen & Co 2

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SUMMARY

m- SIGNIFICANT ACCOUNTING POLICIES GENERAL factor. This (natches fuel expenses with fuel related The Toledo Edison Company (Company) is an electnc uhhty and a wholly owned subsidiary of Centenor Energy Corporabon (Centenor Energy) . The Company PRE-PHASE IN DEFERRALS OF OPERATING fo!!ows the Uniform System of Accounts prescobed by EXPENSES AND CARRYING CHARGES the Federal Energy Regulatory Commission (FERC) The PUCO authorized the Company to record, as and adapted by 1ho Pubic Uhhties Commission of Ohio deferred charges, operating expenses (including lease (PUCO) payments. deprecianon and taxes) and interest The Company is a member of the Central Area carrying charges for Beavet Vahey Power Stahon Unit Power Coordinahon Group (CAPCO) Other members 2 (Beaver Valley Unit 2) from its commercialin-include The Cleveland Electnc luuminating Company service date in November 1987 through December (Cleveland Electoc). Duquesne Ught Company 1988 Af ter the PUCO determmed that Perry Nuclear (Duquesne), Ohio Edison Company and Pennsylvania Power Plant Unit 1 (Perry Unit t ) was considered Power Company The members have constructed and "used and useful" in May 1987 for regulatory operate generation and transmission facihties for the purposes, the PUCO authonzed the Company to defer use of the CAPCO companies Cleveland Electoc is depreciation and also a wholly owned subsidiary of Centenor Energy operahng expenses tees) for Perry (including' June 1987 through Unit 1 from December 1997, when these costs began to be RELATED PARTY TRANSACTIONS recovered in rates The PUCO also authorized the Operating revenues, operating expenses and interest deferral of interest and equity carrying charges, charges include those amounts for transachons with exclusive of those associated with operating expenses, afhhated companies in the ordinary course of business for Perry Unit 1 from June 1987 through December 1987 and the deferral of only interest carrying charges operahons The Company's transachons with Cleveland Electnc hom January 1988 through December 1988. The are primanly for firm power, interchange power. aniounts deferred for Perry Un11 pursuant to these transmission kne rentals and jointly owned power plant PUCO accounhng orders were included in property, operahons and construction See Notes 1 and 2_ plant and equipment through the commercial in service Centenor Service Company (Service Company), date in November 1987. Subsequent to that date, the third wholly owned subsidiary of Centenor Energ' y, m unts deferred for Perry Unit I were recorded as provides. al cost, management, hnancial, deferred charges Amortization of these Beaver Valley administiative, engineenng legal and other services to Unit 2 and Perry Unit I deferrals (called pre-phaseln the Company and other affihated companies The deferrals) began in January 1989 in accordance with Service Company billed the Company $49,000,000, the January 1989 PUCO rate order discussed in Note

$40.000.000 and $43.000.000 in 1990,1989 and 6 The amorhzahons wiH contmue over the hves of the 1988, respechvely, for such services. related property.

REVENUES PHASE-IN DEFERRALS OF OPERATING Customers are billed on a monthly cycle basis for their energy consumphon based on rate schedules or As discussed in Note 6. the January 1989 PUCO rate contracts authonzed by the PUCO or on ordinances order for the Company included an cpproved rate with individual municipahties Effective January 1, phasein plan for the Company's investments and 1988, the Company changed its method of accounting leasehold interests in Perry Unit 1 and Beaver Valley to accrue the estimated amount of unbilled revenues Unit 2 On January 1,1989, the Company began (as dehned in Note 12) at the end of each month recording the deferrals of operating expenses and A fuel factor is added to the base rates for electnc interest and equity carrying charges on deferred rate-service This factor is designed to recover from based investment pursuant to the phase-in plan customers the costs of fuel and most purchased These deferrals (called phase in deferrals) will be power it is reviewed semiannually in a hearing before recovered by December 31.1998 the PUCO DEPRECIATION AND AMORTIZATION FUEL EXPENSE The cost of property, plant and equipment, except for The cost of fossi! fuelis charged to fuel expense based the nuclear generahng enits is depreciated over their on inventory usage The cost of nuclear fuel, including eshmated useful hves on a straight hne basis The an interest component, a charged to fuel expense annual straight kne depreciation provision expressed based on the rate of consumption Estimated future as a percent of average depreciable ubhty plant in nuclear fuel disposa! costs are being recoverad through service was 3.3% in 1990 and 3 6% in 1989 and 1988.

the base rates The 1990 rate dechned because of a change in The Company defers the differences betweca depreciation rates attributable to longer eshmated actual fuel costs and eshmated fuel costs currently hves for nonnuclear property The PUCO apt.oved this being recovered from customers through the fuel change in depreciation rates effechve January 1,1990 3

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which reduced depreciation expense for 1990 by DEFERRED GAIN AND LOSS FROM

$3,930,000 and incrsased earnings $2,500,000. SALES OF UTILITY PLANT Depreciation expense for the nuclear units is based on the units of-production method in 1990. the The Company entered into sale and leaseback Nuclear Regulatory Commission (NRC) approved a transactions in 1987 for the coabfired Bruce Mansfield six year extension of the operating license for the Generating Plant (Mansfield Plant) and Beaver Valley Davis Besso Nuclear Power Station (Davis Besse) Unit 2 as discussed in Note 2 These transactions The PUCO approved a change in the units-of- resulted in a net gain for the sale of Mansfield Plant production depreciation rato for Davis Beste effective and a net loss for the sale of Beaver Valley Unit 2, both January 1,1990 which recognized the life extension of which were deferred The Company is amortizing This change reduced depreciation expense for 1990 by the apphcable deferred gain and loss over the terms of

$3.830.000 and increased earnings $2.500,000. leases under sale and leaseback agreements lhe Effective July 1988, the Company oegan the amortizations along with the lease expense amounts extemal funding of future decommissioning costs for its are recorood as other operation and maintenance operating nuclear units pursuant to a PUCO order expense Cash contnbutions are made to the funds on a straight-kne basis over the remaining bcensing penod for each unit. Amounts currently in rates are based on INTEREST CHARGES past estimates of decomm:ssioning costs for the Company of $59,000,000 in 1986 dollars for Davis- Debt interest reported in the Income Statement does Besse and $28,000,000 in 1987 dollars each for Perry not include interest on nuclear fuel obhgations. Interest Unit I and Beaver Valley Unit 2. Actual on nuclear fuel obhgations for fuel under construction decommissioning costs are expected to exceed these is capitahzed See Note 5 estimates 11 is expected that increases in the cost losses and gains reahzed upon the reacquisition or estimates will be recoverable in rates resulting from redemption of long-term debt are deferred, consistent future rate proceedings. The current level of expense with the regulatory rate treatment Such losses and being funded and recovered from customers over the gains are either amortized over the remainder of the remaining hcensing penods of the units is original hfe of the debt issue retired or amortized over approumately $4,000,000 annually. The present the hfe of the new debt issue when the proceeds of a funding requirements for Beaver Valley Unit 2 also new issue are used for the debt redemption The satisfy a similar commitment made as part of the sale amcrtizations are included in debt interest expense and leaseback transaction discussed in Note 2.

PROPERTY, PLANT AND EQUIPMENT FEDERAL INCOME TAXES The financial statements reflect the habihty method of Property, plant and equipment are stated at onginal accounting for income taxes as a result of adopting a cost less any amounts ordered by the PUCO to be new standard for accounting for income taxes in 1988 wntten off. Included in the cost of construction are The liabikty method requires that the Company s items such as related payroll taxes, pensions, fringe deferred tax habihties be adjusted for subsequent tax benefits, management and general overheads and rate changes and that the Company record deferred allowance for funds used dunng construction taxes for all temporary differences between the book ( AFUDC). AFUDC represents the estimated and tax bases of assets and habihties. A portion of composite debt and equity cost of funds used to ,

these temporary differences relate to timing finance construction. This noncash allowance is differences that the PUCO used to reduce pnor years' credited to income, except for certain AFUDC for Perry tax expense for ratemaking purposes whereby no Nuclear Power Plant Unit 2 (Perry Unit 2). See Note deferred taxes were recorded. Since the PUCO 3(c) The gross AFUDC rate was 11 17 % 11.45 %

practice permits recovery of such taxes from and 11.62% in 1990,1989 and 1988, respectnely.

customers when they become payable, the net amount Maintenance and repairs are charged to expense as due from customers has been recorded as a regulatory incurred Certain maintenance and repair expenses for asset in deferred charges. Perry Unit 1 and Beaver Valley Unit 2 are being For certain property, the Company received deferred pursuant to the PUCO accounting orders investment tax credits which have been accounted for discussed above The cost of replacing plant and as deferred credits. The amortization of these equipment is charged to the ulikty plant accounts The investment tax credits is reported as a reduction of cost of property retired plus removal costs, af ter depreciation expense under the habihty method. See deducting any salvage value. is charged to the Note 7 accumulated provision for depreciation 4

IANAGEMENT'S FINANCIAL ANALYSIS $23.000.000 in 199L and mme e less in subsequent RESULTS OF OPERATIONS

1. 1. " "9 " P""*"" """S

, Inability to obtain approval of the second request Overview would reduce camings by as much as $15.000.000 in The January 1989 PUCO rate order which provided for i991, and even more in subsequent years three rate increases for the Company. as discussed in lhe Company has agreed to use its best efforts.

Note 6. Was designed to enable us to begin such as these two requests for accounting orders. to recovering in rates the cost of, and earn a fair return avoid rate increases in the years immediately following on, our allowed investment in Beaver Valley Unit 2 and 1991 fa tumly. rate increases wdl be necessary to Perry Unit 1. The rate order improvoo revenues and recognite the cost of our new capitalinvestment and cash flow in 1989 and 1990 over 1988 teeek the effect of inflation Revenues and cash flow in 1991 are expected to Annual sales growth is cipected to average a, 'ut enceed the 1988 levels However as dscussed more  ?% for the next several years conungent on future fu!!y in the fourth and fif th paragraphs of Note 6, the economic events Recognaing the hmitahons imposed phase in plan was not designed to improve earnings by these sales projections and compehtive constraints, signihcantly because gains in revenues from the we will ubhze our best efforts to menemize future rate higher rates and assumed sales growth are initially increases through maumizing our cost reduchon and offset by a corresponding reduchon in the deferral of quality of service ettorts and emplonng other innovative nuclear plant operating empenses and carrying charges optcqs We wdl concentrate our efforts on retaining and are subsequently offset by the amortization of customers and adding new ones through innovative such cost deferrals and carrying charges. rnarket ng and service inihatives Despite the posihve effect the new rates have on revenues and cash flow and the relatively neutral 1990 vs.1989 impact they have on earnings. we face a number of f actors contnbuting to the shght increase in 1990 other factors which will ciert a negative influence on operating revenues are as follows camings in 1991 and beyond These include inflahon, enanae m operann3 pynnes g$Sr$sh the current economic recession and compehhve forces The latter, coupled eth a desire to encourage ElsAd i %0 No sus wome anu W . 9 9 400 000) economic growth. has prompted the Company in Sws or nesme E00 000) recent years to ente

• into contracts having reduced 1 300 000 rates with certain large customers Competitive forces have also prompted the Company to offer a rate The major factor accounting for the increase in reduction package to residenhal and small commercial operating revenues was related to the January 1989 customers as discussed ir the eighth and ninth rate order The PUCO approved annual rate increases paragraphs of Note 6 Two other factors are having a for the Company of 9% effechve in February 1989 and negat ve influence on earnir gs First, the Company is 7% effechvo in February 1990 The associated currently recording depreciation on nuclear units at a revenue increase in 1990 was parbally offset by h,gher level than that which is reflected in rates reduced revenues resuthng from a 4 9% decrease in because of the good performance of the units over the total kdowaRhour sales Industnal sales decreased last several years Second, with respect to facihties 3 3% because of the recession beg nning in 1990 placed in service af ter February 1988 and not included Nsident al and commercial sales decreased 3 3 4 and in rate base, the Company is currently required to 04 respechvely, as seasonal temperatures were more moderate in companson to the pnor year s record interest char expenses even gh thot[ges and mps tumE msulhng in reduced customer heating such items aredepreciahon not yet reflectedas current and coohng related demand Other sales achvity in rates decreased 14 5% pnmae as a result of the We are taking several steps to counter the adverse Company's municipal ut hty customers Sahsfying a effects of the factnrs discussed above We are greater portion of their power needs from other implementing the management audit sources recommendahons discussed in the suth paragraph of Operating expenses decreasnd 14% in 1990.

Note 6 which am expected to reduce operatin0 Depreciation and amortization expense decreased expenses by about $44,000.000 annually We have pomanly because of lower depreciahon rates used in already shared 50% of the expected savings with 1990 for nonnuclear property and Davis Besse customers by reducing the 1991 rate increase granted attnbutable to Ionger eshmated hves ad because of under the 1989 rate order However. cont nuing cost longer nuclear generating unit refuehog and reduchon efforts will be necessary to help offset the maintenance outages in 1990 than in 1989 Federal effect of inflation Also, the Company is seeking income taxes decreased pnmanly because of a PUCO approval to accrue nuclear plant depreciahon at decrease in preta< operahng income These decreases a level which is more closely ahgned with the amount in operahng expenses were partially offset by an currently being recovered in rates by switching to the increase in taxes, other than federal income taxes, straight-kne method The Company also wd! seek resulkng from higher property and gross receipts approval to accrue post in-service interest carrying taxes, and by lower nuclear operating expense charges and defer depreciat on charges for facihties deferrals for Perry Unit 1 and Beaver Valley Unit 2 that are in service but not yet recogneed in rates pursuant to the January 1989 PUCO rate order inabikty to obtain approval of the first accounting Credits for carrying charges recorded in request would reduce earnings by as much as nonoperating income decreased in 1990 Decause a i

greater share of our investments and leasehold 2 7% as a result of continu:ng growth from new off$ce interests in Perry Unit 1 and Beaver Valley Unit 2 were hu,ldings and re tail outlets The comparatively i

recovered in rates Other income and deductions net. moderate summer weather in 1989 lowered sales decreased pomanly because of less interest income because of reduced au condmoning usage Residential in 1990 sales decreased 2 5% todustna! sales decreased These decreases were partially offset by an 1 1% as modest growth in industrial sales activity in increase in federal income tax credits related to 1989 was offset entneli by the impact of the loss of a nonoperating income resulting from a decrease in large industna! customer to a municipal power tystem pretan nonoperating income and federal incon e tax in Clyde, Ohio. which began operating in Apol 1989 adjustments of $18.810.000 associated with previously That customer accounted for 1 1% of the Company's defened investrnent tas crcJits relating to the 1988 total electnc sales in 1988 write off of nuclear plant intorest expense decreased Operating espenses increased 18 9% in 1989 in 1990 because of refinancings by the Company and Lower deferra!s of nuclear operating expense for Perry a lower level of debt outstanding Unit 1 and Beaver Valley Unit 2 resulted in a E 00a000 increase in e= pense het and purchased 1989 vs.1988 power expense increased largely because of the Factors contobuting to the 3,17% increase in 1989 matching of expense with higher fuel cost recovery operating resenues are as follows revenues discussed in the preceding paragraph Cnamp in omnna newnues ( Denease ) Improved nuclear unit availabihty enabled the Company Smes of Capaoti m Ciewland E W he . 5 7? 000 000 to sell pewer to other utihties other than Cleveland fuse Haies and menawa c3 000 000 Electne lhe excess of revenues over cost n treated as Defer i:d CW:e Haen*s 4h 000 000 r uel COM necowry Revenues ?i 000 0n0 a reduction in purchased power espense which

'.Mes Vaiorv and W r 2 000 000 ) cushioned the increase in fuel and purchased power 11 H 000 000 cupense for the year Depreciation empense increased, reflective of the increased generation from the

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A pomary factor for the increase in operating Company s nuclear units since then depieciation is revenues was a net increase in 1989 in the total sales recorded based on units-of-production to Cleveland Electoc of a portion of the Company's Nonoperating income credits for AFUDC and leased capacity entitlements in Beaver Valley Unit 2 carry:ng charges decreased in 1989 as a result of and the Mansfield Plant. The sales from Beaver Valley placing investment in rate base pursuant to the rate Unit 2 commenced in November 1988 as d:scussed in order Interest expense and prefened dividend Note 2 The sales from the Mansfield Plant were only requirements decreased in 1989 because of for a three month penod in 1988 The January 1989 retnements and refinancings by the Company rate order for the Company was pomanlv responsible for two major f actors impacting the increase in EFFECT OF INFLATION revenues. The PUCO gtanted the Company a 9% rate increase effective in February 19B9 The increase in Although the rate of inflation has eased in recent years revenues attnbutable to deferred construction work in we are still affected by even modest snflation since the p ogress (CW;P) revenues in 1989 resulted from the regulatory process introduces a time-lag donng which reduction in the amount of deferred cred.ts for the increased costs of our labor, matenals and services are maror CWIP refund chligations to customers Fuel cost not reflected in rates and fumy recovered Moreover.

recowry revenues increased in 1989 because of a regulation allows only the recovery of historical costs sigriificant nse in the fuel cost recovery factors of plant assets through depreciation even though the compared to 1988 The lower 1988 factors recognized costs to replace these assets would substantially a greater amount of refunds to customers ordered by exceed then histoncal costs in an inflationary economy the PUCO for certain replacement fuel and purchased Changes in fuel costs do not affec' our results of wer costs collected from customers donng a 1985- operations since those costs are deferred until 86 Davis Besse outage Total Miowatt hour sales reflected in the fuel cost recovery factor included in

, creased 2 4% in 1989 Commercial sales increased customers bi:Is - . _ . - - -

RETAINED EARNINGS rHL rondo mGON COMPANY For the years ended December 31 1990 1989 1988 onoumas of aaws)

Balance at Beginning of Year $ 99,965 $ 89 614 $ 297 221 Additions Net income (loss) . B1,424 92,678 (115 452)

Deductions Dividends declared Common stock (73,283) (63 285) (61.711)

Preferred stock . (25,145) (19.036) (26 269)

Other, pnmanly preferred stock redemption expenses . _ _@ ) (6) ( M S)

Not increase (Decrease) J17,009) _10.351 J297 Q07) l Balance at End of Year . S__82,956 1 99.965 1_. 89 614 The accompanying notes and summary of significant accounting poncies are an integral part of this statement 6

lN60ME STATEMENT int lon oo t DisoN cawwn for the years ended Decemter 31, 1990 1909 1988 onouw,a or oain.,o Operating Revenues (1) $8_27 2 086 $826 803 $ 627.997 Operating Exp9nses fuel and purchased power , . 138,222 133.400 116.101 Other operation and maintenance . . . 373,374 372.530 358.823 Depreciation and amortization .. . 75,986 87.639 75.093 Taxes. Other than federalincome taxes , 79,320 72.123 80.138 Phase in deferred operating cupenses . (16,980) (22.535) -

Pro phase in deferred operating expenses. . 3,681 4.044 (83.813)

Federal income tares . . , . _ 21,041 37,285 29 242 674,644 684.486 575.644 Oper, ting income . . , . . 1  ;,442 142.317 52,353 Nonoperating income (Loss)

Allowance for equity funds used dunng construction. . 3,352 8.568 5,452 Other income and deductions, not . .. 6,149 20.361 30.233 Write off of nuclea, costs. .. . . . . - -

(276,955)

Phase ni carrying charges . . . .. . .. 43,487 82.308 -

Pre phaseqn carrying charges ... . ..

- - 129,632 Federal incorne taxes - credit (expense) . 8,664 J21,563) 86.244 61,652 89.674 (25.394)

Income Before interest Charges . 214,094 231.991 26.959 Interest Charges Debt interest ....... . , . . . 135,344 144,792 150.523 Allowance for borrowed funds used donng construction. . j2,674) J5.479) (1,833) 132,670 139.313 148.690 income (Loss) Before Cumulative Effect of an Accounting Change . . .. . . , .. 8;,424 92.678 (121,731)

Cumulative Effect on Prior Years (to December 31,1987) of an Accounting Change for Unbilled Revenu9s (Net of income Taxes of $4,177,000) , . . . , - -

6.279 Net income (Loss) .. ..... . . ... .. 81,424 92,678 (115.452)

Preferred Dividend Requiroments . . . , , 25,159 25,390 26,9@3 Earnings (Loss) Available for Comreon Stock . ... $_56,265 $_67.28@ $1142,435)

(1) includes revenues from capacity sales to Cieveland Electric of $102,773,000 $104,127,000 and $31,774.000 in 1990,1989 and 1988. respectively.

The accompanying notes and summary of significant accounting policies are an integral part of this statement.

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I MANAGEMENT'S FINANCIAL ANALYSIS i CAPITAL RESOURCES AND LIQUIDITY et onou x al ne nw a'so redeem addacnal secunbes We conhnue to need r ash for an ongoing ptograin of uni r opbAal n'Jemption provioons See Notes

' (c) and (O M inbunabon onwoog hodaNne, constro bog new f aal bes and tuod<f,* rig erstag ph UN and prdence stock and f aohbes to rm et aropated demand fo* electnc un W uuanN seruc e to tump4 Adn go.ernmental regulabons and to ingdog e trie engronHCnt Cash is afso tieedPd f af Mut D0 0N ON to M Nh,00 m a tsuH of the nundaturv lehmment of wcunlics 0,er the three.

year pt nod of 1988 1990. thete construc0an and an Air Act of 1990 (CR an An Act) We beheve that mandatory tetaem(nt needs tota!ed approomately no further sigshcant cap tal eq enditures Adl be requaed to comply with the new law dee Note 3(b) 1435.000 000 In ad3boi ne enerosed various We Md to be aW to Mw tash as nW@d The options to redeem and purchne approximatch adam of opdal to mm our mmat hnanong

$276 000 000 of our secunbes nwh howw depends upon such f actors as punna the 1968 1990 penod, the Company issued

$174106 000 of hrst mortcpge bonds and obtained a hnanaal mand womons and og creM rahngs Cunent secunties tabngs for the Company are as

$15 000.000 term bank loan The Company utdited U^5 its short term borrowing arrangements (empla!ned in gygg ,g g ,

Note 11) Ahich resulted in the Company haung &ec$ twiy s 323 200.000 of commercial paper and 116 000 000 in r r' a'"n *^e notes payable to athhates oute,tanding at December l ast r utage tu m FHn- Haal 31.1990 Proceeds from these financings were u;,ed U w'Mn*s Dhi B41 Fu*"M W DB' ba2 to pay our construchon picgram costs, to repay porbons of short term debt incurred to hnance the constructen program to retae redeem and purchase A wote oti of the Company s investment in Perry outstanding secutibn and for general corporate Unit 2, as discussed in Note 3(c ), depend.ng upon the purposes magnitude and timing of such a wnte-ott. could reduce lhe Company was granted rete increases efter Le retained eamings suthoently to impair the Company s in 1989.1990 and 1991 pursuant to the January 1989 abihty to declare dwidends, but would not affect cash PUCO f ate order See Note 6 tot a discussion o the flow rate order which proades for speahe levels of ra'e The Tai Retorm Act of 1980 (1986 Tai Act) increases through 1991 Although the rate order prooded for a 34% income tan r ate in 1988 and requo(d us to wnte off certain assets in 1988 which thereaf ter, the repeal of the investment tax credit, lower ed our carrungs base, our current cash flow was scheduled reduchons in insestment tax credit not impaired Interna!Q gcnerated cash increased in carryforwards less favorable depreciation rates. a new 1989 ae.d 1990 from th? 1988 level as a result of the attemati.-e mnimum tas ( AM1) and other items rate increases These changes had no significant cash flow impact in Ethmated cash requirements for 19911993 ate 1988 because we had a net operating loss for tan 1235 000 000 for our construcbon program and purposes The changes resutted in decreased tax 1297.000 000 for the mandatory redempton of debt payments and an incream in cash flow dunng 1989 arid pref erred stock We espect to hnance enternally because the tan saengs resntting from avadable tan i about 7fA of out 1991 construcbon and mandatory deduchons were ubhied on the consolidated :ax return redemption requirements of appioximately in determining the AMT in 1990. the changes resulted 1177 000.000 We espect to hnance entemally about in increased tax payments and a reduction in cash 1 60% to 70% of our 1992 and 1993 reaunements it fion because we were subject to the AMT i

1 s

CASH Flows m tou vo wwnow =

fpr thga)s, endedjkcem.ber_3 L

-~

sliwg

~

p.,c,5 Cash Flows from Operating Activities (1)

Net locome (Loss) . $ _81,424 $_ 9_2 678 $1115 452)

Adjustments to Reconcilo Net income (Loss) to Cash from Operating Achvities:

Depreciation and amorheation 75,986 87.039 75.093 Deferred federal income taxes 30,642 79.199 (62.598)

Investment tax credits. riet . (17,063) 1.237 6920 Wnte off of nuclear costs. .

276 955 Deferred and unbilled revenues (22,658) (42.624) 14.642 Deterred fuel . (433) 16 259 (20.693)

Carrying charges capitahzed. . (43,487) (82.308) (129 9 2)

Leased nuclear fuel amortiration 37,122 46.408 32.285 Deferred operatmg e=penses not (13,299) (18.491) (83.813)

Allowanco for equity funds used during construction. (3,$52) (8 568) (5.452)

Amortilation of resef ve for Davis Besse refund obligations to customers. . .

(12 655) (20.777)

Pension settlement gain. . (6,449) - -

Cumulative offect of an accounting change , ,

- - (6,279)

Changes in amounts due from customers and others. net . (9,433) (4.406) 13.472 Changes in inventories. . (6,521) 1.890 904 Changes in accounts pa/able . 17,464 8.896 19.472 Changes in working capital affecting operabons. 1,528 (30,713) 11,766 Other noncash items . 5,503 5.896 9.358 Total Adjustments . . _ 45,550 47 659 131.623_

Net Cash from Operating Activities . 126,974 140.337 16.171 Cash Flows from Financing Activities (2)

Bank loans commercal paper and other short term dent 23,200 - -

Notes payable to athhates . . , , . 16,000 -

(68,000)

Debt issues' First mortgago bonds. . , 67,300 56.100 50,700 Term bank loan . .. 15,000 - -

Matunbes. redemphons and sinking funds. (183,477) (65.000) (222.166)

Nuclear fuellease and trust obhgahons (42,947) (39.015) (32.285)

Dividends paid, , , . . . . (98,427) (88.743) (89.054)

Premiums, discounts and expenses _ (1 2845) _ _ (925) 1,.489 Net Cash from Financing Achvibes .

_120h196) J137.589) _1359.316)

Cash Flows from Investing Activities (2)

Cash apphed to construction .. .. . . . (80,667) (65.296) (113;174)

Internst capitalized as allowar,ce for borrowed funds used dunng construction. ,, .. , (2,674) (5.479) (1,833)

Loans to afhhates .. , , , 114,000 (114.000) --

Cash withdrawn from sale and leaseback trust. - -

109.976 Other cash received (apphed) . J ,022) _

831 3.947 Net Cash ftom investing Activihes. ,

26437 J183,944 ) J0_84 )

Net Change in Cash and Temporary Cash investments. _ {51,585) J181,196) (344.229)

Cash and Temporary Cash Investments at Beginning of Year. 73,692 .

254 B88s 599,117 Cash and Temporary Cash Investments at End of Year $ 22f07 ( 7,3 g692 $ y g 88 (1) Interest paid was $138.000,000, $141,000.000 and $150,000.000 in 1990,1989 and 1988, respechvely.

Income taxes paid were $2.272,000 in 1990. No income taxes were paid in 1989 and 1938 (2) increases in nuclear fuel and nuclear fuel lease and trust obhgations in the Balance Sheet resulting from the noncash capitahzations under nuclear fuel agreements are cicluded from this stalement.

The accompanying notes and summary of significant accounhng pohcies are arf integral part of this statement.

9  ;

BALANCE SHEET * '

Dc cebcL3 1____

__1_990 _ _,,1989 _

on<.asr.au am,o ASSETS PROPERTY, PLANT AND EQUIPMENT Utility plant in servico . $2,607,010 12.532 291 Less accumulated depreciahon and amortization _ 6_46,193 _ 507,197 1,960,817 1.965.094 Construction work in progress 93,154 84.586 Perry Unit 2 343,685 345.754 2,397,656 2.395.434 Nuclear fuel, net of amortization. 221,848 235.193 Other property, less accumulated depreciation. 2.,024 2.125 2,621,528 2 632.752 CURRENT ASSETS Cash and temporary cash investments. 22,107 73,692 Amounts cluo from customers and others, net 63,233 5.5 800 AccouN, rec.eivable from affikates 29,999 35.114 Notes receivable from afhha'es. .

114.000 Unbilled revenues . . . 20,166 23,525 Matenals and supphes, at average cost . . 32,666 26,841 Fossil fucl mventory, at average cost 15,578 14,882 Tames applicable to succeeding years 63,375 61.967 other . . 2,473 _ 4 115 249,597 408.636 DEFEPRED CHt,RGES Amounts Ot"; from customers for future federal income taies . 494,454 519.469 Unamortired loss from Beaver Valley Unit 2 salo , 119,623 122,911 Unamortued Icsc on reacquired debt , , 27,40t, 28.528 Carrying charges and operating capenses, pre phase-in 25E,020 257,709 Carrying charges and operating caponses, phase in . 165,310 104.843 Cther . , , ,

6818_2 G3.998 1,130,393 1,097.4_58 Total Assets . . . .$4,001,518 $4,138&4_6 The accompanying notes and summary of significant accounting pohcies are an integral part of this statement, 10

. - no a>u1oitm,tiwem 1

! De( ett-tier 31 1990 1989 ou, g...u ei aa.m i CAPITAllZATIOld AND LIABILITIES CAPITAllZATION Cornmon chares.15 par vaine 60 000.000 authonted 39 134 000 outstanding in 1990 and 1989 $ 195,687 1 195(187 Prennom on can'tal stock 481,082 4810B?

Other paid in capital . 121,059 121.059 Hetained carrungs 82,956 __ ___ 99 965 Common stock equity 880,784 897.793 preferted stock With mandatory redemption provir. ions 66,328 68 990 Without mandatory redemphon provisioris 210,000 210,000 Long term debt 1,097,326 1.197 2/7 2,254,438 2 374 060 OTHER NONCURRENT LIADILITIES Refund obhgahons to customers -

23.780 Other, pomately nuclear fuel lease obhgatiom. 228_,844 . ?52 460

_228,844 276 240 CURRENT LIABILITIES Current portion of long torin debt arid preferred stock 116,150 114 870 Current portion of leasu obhgabons . 50,389 44.480 Notes payable to banks and others. 23,200 -

Accounts payable . 125,802 108 338 Accounts and notes payable to athhates 31,626 8.311 Accrued tains . 96,973 94 990 Accrued interest 31,665 39 075 Accrued payroll and vacahons 6,597 6 885 Current portian of refund obhgabons to customers 23,888 26.125 Other . _ __4,628 _ 10.749

_ 510,918 __453 B23 DEFERRED CREDITS Unamortized investment tax credits 83,377 103.349 Accumulated deterred federal incomo taxes 571,233 565.266 Reserve for Perry Unit 2 allowance for funds used dunng construction . 88,295 88 295 Unamortized gain from Bruce Mansheid Plant sato. 236,835 247.305 Other. 27,578 _ 30.508 1,00_7,318 _1,0_34 723 Total Capitahzation and liabibbes $4,001,518 14.138.846 11 1

. , l STATEMENT OF CUMULATIVE PREFERRED ini loi r po t tusoN eowlm '

AND PREFERENCE STOCK 1990 snmes cunent Down'b" 31 - l Outstancing Call hxe 1990 1989 l nhumaw of daart,

$100 par value. 3 000 000 pieferted shares authonted $ 25 par salue.

12.000 000 preferred shares authooted. and $25 par value.

5 000 000 pteterence shares authonzed, none outstanding Preferred, subject to rnandatory redernption

$100 par i11 00 34 825 1101 00 $ 3,48? 5 (480 9 375 150.100 103 95 15,01c 10 075 25 par 2 81 , . 2,000.000 20 87 _ 50,000 _.50_000 68,493 71.155 LLss Curren1 rnatunties _ 2,165 _ _2,105 Total Preferred Stock, with Mandatory Redemption Provisions y 66,328 1 08,990 Pretorted, not subject to mandatory redemption

$100 par 14 25 . . 100 000 104 625 $ 16,000 1 16.000 4 LG. . . 50.000 101 00 5,000 5.000 4 25. 100.000 102 00 10,000 10.000 8 32. , 100.000 102 46 10,000 10.000 7.76. . 150.000 102 437 15,000 15,000 7 80. , 150,000 101OS 15,000 15.000 10 00 . . 100.000 101 00 19,000 19.000 25 par 2 21 . . 1.000.000 25 90 25,000 25.000 2 365 . 1,400,000 28 45 35,000 35.000 Senes A Adjustable 1.200.000 25 75 30,000 30.000 Senes B Adjustable 1 200.000 - 30,000 30 000 Total Preferred Stock, without Mandatory Redemption Provisions $210,000 1210 000 1 The accompanying notes and summary of significant accounting pohcies are an integral part of this statement 12

= . .

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kOTES TO THE FlfW4CIAL STATEMEf4TS (1) PROPERTY OWNED WITH OTHER UTILITIES AND INVESTORS the Com;un, com as a teront in ( ommon mth othei otnes and those in,et tuis < to are onnet utu ipants in i,ar urlb sale ar H1 leMetMC f tran'.id flans (l er Sor b ). ( et ta n gener ald*q unit 5 a5 lim 1 ticlp A { aLh O Armi O arf, an urub +1 ttwe in the ente urut i m h o Ani i tw the in;ht to a pt ic enbqe of th" genetatlng ( a linhty of em h urut equal to its oorme.to;> sh;ue I at h u!My ut net v. oble yled to p iv tar onl, its alpK the stum of the ( onstruchon ami o;mratoq costs I m h ( e%of tus lemei ih. ( apably nuhts to a ubhty Atm h is othpted to hiy for su: h l Ot snt s sn.ee of the construc ton and operahrq (mts lhe Compe s Wre of the operataq esperu of these

(;er wrabrq urnis m intimlHl in the tru < >me Statement Profier t, plint ami equi;Jnent at Decernfiet 31.1990 itu ludet the t Amnq tm d<te oorni ty the Com;uny as a terunt in ( o nmon r mth othe r ut Ahm and l e'soe,

< w ,m NI L tAtMi i f)ll t h ig' d ( '8t*!fs0 t! 18 q

'orao @ gi tA. y IL p' in &ak At .Oh,haea ne'aLo I( hl la f A er ae nme '.i r in l'o u rs u ( Wi se .ah m m<4 ,g,. i W . s n t' i d r t te. )

( O c . l o w. 197/ MtJ' 4. H N L ne j sd 744 1 C //3 1119 lo?

iw, (pot ) wi f., nm a r e s h 1%/ '

i 41 , in U n is m 9) ? 4St 8, K / 1 N i"4 l ks t) h l I ) ght ' y k b bl 6 WE ' IU!I N' io dihes iN 4 /) 1M7 'tJ )4 V n is # 'h1 m a '. A) 1P FW

! a m.Pu 4 A Veen 1W1 i 4,ie 1i r ) i li "g on ( ; (in H M 19 41 3) N,uc 14 7 W, 11 13 4h 1 1 W4(ns $ 24 9 7 til (2) UTILITY PLANT SALE AND LEASEDACK TRANSACTIONS As a result of saie and leasetut k transac hans lhuver Vahey Un<t i lese was t7P 270 000 in both completed in 1987. the Company and Cleselarui 1930 and 1989 mv1171810 000 in 1988 Of the 1988 l.lectoc are co le< wes of 18 2D (150 merp Aatts) ut rental empense amount for (WaScr Valley Un;t ? a Bea,er Vahey Unit ? aral G 5" (51 mecp Aatts) puttiun (158 254 000) was recorded in a deferred 45 9N (358 nu rp6atts) arul 44 38% (355 charge an uunt pornuant to PUCO account ng orders rnapwatts) of Units 1 ? and 3 of the Mmsheld Plant 1tus defened amount is inng amodged to esponse respectwel/ all for letms of atjout 29% yours owt the hie of the lease tugnning in 1989 As to lewee with Clevelarul Electne the Company The Company and Cleveland (~lectoc are is ah,o othyded for Clewland l.lecinc \ leaw responuble urnier thete leases for paying all taies pairnents if Cleveland i tectoc is unable to make its insurante prennums Operahon and mwntenance costs payments under the Vansheid Plant leases the and all other simur costs for their interests in the units Company would be othpted to make such payments sohi and leased luc k The Compani and Cleveland No payments hase t een inade on behdf of Cle5 eland Llectoc may incur additional costs in connechan with

( lectoc to date c.apitalimprovements to the units lha Company and f uture nunimum lease pa,ments under these Cleveland llecinc have ophons to buy the intereds operahng leases at December 31. 1990 are back at the end of the leases for the f air matket value at summanted as fohows that hmo or to renew the leases Additional lease It" provisions provide other purchase ophons along w1th i m vie new w Whons for mandatory temonahon of the kres Yeaf (1909 i b in (and possible repurchaw of the leasehold interests) eo w + of a mm g g gg ggg ,

nonwmphanw w@ weal hnanaal wvenanh me 1

em m uoo ahechna ine Compano Cieveiand necinc and int i11onn u nno Centenor f nergy contained in an agreement relahng to em t ii oou o nN a letter of cred;lissued in connection mth the sale and t ater vows J ' 9? nno 1 M u000 leaneback of Beaver VaUey Unit 2. as amended in 1(M t ot m e ** "" 1989 See nmo 10(d)

( he hy n.H A 1114? 00u 114 e4 Uc K) Ihe Compan/ is sclhnq 150 rnegawatts of its Beaver Vaney Unit 2 leased capacity enhtlement to Semannua!lene payments conicam mth the payment Cleveland Elecinc This sale comtnenced in Nosember schedule for each lease 1988 and we anhapale that it mil continue at least hental e= pense is accrued on a straight hoe tusis unht 1998 Revenues recorded for this tf ansachon owi the terms of the teases lhe amounts ret onied b/ were 11021773 000 1104.127.000 and $18 533 000 the Company as rental expense for the Mansheid in 1990.1989 and 1988 respectnely 1he future Plant leastm wena 144 55E000 in both 1990 and InB9 mirumum lease pairnents associated mth Beaver and 143 045 000 in 1988 Henta! e= pense im the VaHey Unit 2 amf egate $1.936 000 000 n

(Supe fund) estabhshed programs addressing tho' i (3) CONSTRUCTION AND CONTINGENCIES cleanup of hatardous v.aste d,sposat sites emergency I (a) CONSTRUCTION PROGRAM p,epmedness and other cues lhe Company is lhe eshmated cost of the Company s construchan aware of its potential involvement in the cleanup of 14c progra . or '

the 1991 1993 penod is $ 252 000 000 hazardaus Aaste sit (s We behese that the uthmate including AI UDC of 117.000.000 and excluding outcome of these matters mil not hase a matenal nuckJ r fuel ad.else Pfect on the Compant s hnancial condition or (b) CLEAN AIR LEGISLATION The Clean Air Act vott require. among other things (4) NUCLEAR OPERATIONS AND reduchons in the emission of sulfur dioude and CONTINGENCIES nitrogen oudes by the Company o fossil fueled electnc generabng units Centenor i nerg(s prehmina'V (a) OPERATING NUCLEAR UNITS nnalysis indicates that comphance with the Clean Air 1he Cunpan(s intmests in nudear units may be Act by the Company is es pected to resoft in somewhat unpacted by achvihes or events beyond the higher fuel and operation and maintenance expenses Company s control Operahng nuclear gene;ating units furthermore, comphance will require additional have empenenced unptanned outages or extensions of aggregate capital empenditures in the rang ~e of scheduled outages because of equipment problems

$30 000.000 to 135.000.000 af ter 1997 to meet the or new tcgulatory requirements A major Lccident at a nitrogen oude emisson htmtabon and for sulfur donde dem f aWy anywhme in the world could cause the and nitrogen code emission rnonitors We behove that NRC to hmit or prohibit the opetal on, construction or reductioriot sulfut dioude emissons will not require installation of scrubbers. A mora specibe comphance hC005'ng of any nuclear unit if one of the Company ~s nuclear units is taken out of service for an extended cott estimate will become available when Centuor renod of bme for any reasom includ:ng an accident at Energy's comphance strategy for the Company and such Unit of any other nuclear wcihty, we cannot Cleveland Electnc is further developed We beheve that pmsct Methe regulatory authonbes would impose Ohio law would pamit the recovery of comphance unfavorable rate treatment such as tahng the costs from customers in rates Any rate increase is Company's affected unit out of rate base An extended espected to be minima!

outage of one of the Company s nuclear units coupled (c) PERRY UNIT 2 with unf avorable rate treatment could have a matenal adverse eftect on the Company's financial positon and Perry Unit 2, including its share of the common facihties, is over 50% complete Construction of Perry results of opmatons Unit 2 was suspended in 1985 by the CAPCO companies pending future consideration of vanous (b) NUCLEAR INSURANCE optons, including resumption of full construction with a The Pnce Anderson Act hmits the habihty cf the owners revised eshmated cost and completon date or of a nuclear puwer plant to the amount provided by cancellation No option may be implemented without pnvate insurance and an industry assessment plan in the appfctal of each of the CAPCO companies the event of a nuclear incident at any unit in the Duquesne, a 13 74% .wner of Perry Unit 2, has United States resuthng in losses in e= cess of the level advised the Pennsylvania Pubhc Utihty Commisson of pnvate insurance (currently $200.000.000), the that it will not agree to resumphon of oonstruction of Company's manmum potential assessment under that Perry Unit 2 The NRC constructen permit for Perry plan (assuming the other CAPCO companies were to Unit 2 empires in November 1991 Cleveland Electoc, conthbute their proportionate share of any the company responsible for the construction of Perry assessment) would be 158.503 000 (plus any intiaton Unit 2, plans to apply for an extension of the adjustment) per incident, but is hmited to 18,844,000 construction permit poor to the expiraton date Under per year for cach nuclear incident NRC regulations, this achon will cause 'he The CAPCO companies have insurance covera;te construction permit to remain in effect wh;1e the for damage to property at Davis Besse, Perry and apphcahon is pending. Beaver Valley (including leased fuel and clean-up if Perry Unit 2 were to be canceled, then the costs) Coverage amounted to 12,325.000,000 for Company's not investment in Perry Unit 2 (less any tax each site as of January 1,1991 Damage to property saving) would have to be wntten off We estimate that could exceed the insurance coverage by a substantial such a wnte-off, based on the Compan{s investment amount If it does, the Compan{s share of such in this unit as of December 31,1990, would have been e: Cess amount could have a matenal adverse effect on about $173 000,000, af ter taxes See Notes 10(b), the Compan(s financial condition and results of (c) and (d) for a discussion of other potential operatons consequences of such a wnte-ofi ,

The Company also has insurance coverage for the Beginning in July 1985, Perry Unit 2 AFUDC was incrementalcost of any replacement power purchased credited to a deferred income account until January 1, (over the costs which would have been incurred had 1988, when the practice was discontinued. the units been operating) after the occurrence of certain types of accidents at the Company's nuclear (d) SUPERFUND SITES units The arr.ounts of the coverage are 100% of the The Comprehensive Environmental Response. estimated incrernental cost per week dunng the 52 Compensahon and Liabihty Act of 1980 as amended week penod starting 21 weeks af tei an accident,67%

H

l l

of dich eshmate pet week for the neat 52 weeks and giving effect to the rate reduction proposals discussed 33% of such estimate per week for the next 52 weeks. below The cost and durabon of replacement power could The January 1999 rate order provided for the substantially exceed the insurance coverage permanent exclusion from rate base of a portion of the Company's investment in Perry Uret i lhe esclusion resuhed in a wnteott bv the Company of (S) NUCLEAR FUEL $242,000 000 ($100.000 000 after tax) in 1988 The Company has inventones for nuclear fuel which Snce the order ettectively chminated the possiinkty of should provide an adequate supply into the mid 1990s the Company recovenng its remaining investment in Substantial addihonal nuclear f uel must be obtained to four nuclear construction projects canceted in 1980 bupply fuel for the rema:ning useful hves of Davis- and recovenng certain deferred expenses ior Davis.

Bene, Perry Unit 1 and Beaver Valley Unit 2. More Besse. additional woto otts totating $35.000,000 nuclear fuel would be required if Perry Unit 2 were ( $21,000.000 af ter tan) were recorded by the completed Company in 1988, bnnging the total write off of nuclear in 1989. existing nuclear fuel hnancing costs as a consequence of the order to $277,000,000 arrangements for the Company and Cleveland Electnc ( $181.000,000 af ter tax) were refinanced through leases from a special- The phase in plan under the January 1989 rate purpose (orporahon The total amount of finaricing order was designed so that the three rate increases, currently available under lhece lease arrangemonts is coupled with then projected sales growth, would

$609.000.000 ($309.000.000 from intermediate term provide revenues sufhcient to recover all operahng notes and $300.000.000 from bank credit empenses and provide a fair rate of return on the arrangements), although knancing in an amount up to Company's allowed investment in Perry Unit I and

$900,000,000 is permitted The intermediate term Beaver Valley Unit 2 for ten years beginning January 1 notes mature in the period 1993 1997. Beginning in 1989 In the early years of the plan, the revenues were 1991, the bank credit arrangements are cancelable on crpected to be less than that required to recover two years' nohce by the lenders As of December 31, operahng empenses and provide a fair retum on 1990, $233,000,000 of nuclear fuel was financed for investment. Therefore, the amounts of operating the Company The Company and Cleveland Elecinc expenses and retum on investment not currently severally lease their respective portions of the nuclear recovered are deferred and capitakzed as deferred fuel and are obhgated to pay for the fuel as it is charges Since the unrecovered investment will dochne consumed in a reactor The lease rates are based on over the penod of the phase in plan because of vanoua intermediate term note rates, bank rates and depreciation and federat income tax benefits that commercial paper rates. result from the use of accelerated tax depreciahon, the The amounts hnanced for the Company include amount of revenues required to provide a fair return nuclear fuel in the Davis Besse, Perry Unit 1 and also dechnes Beginning in the sixth year, the revenue Beaver Valley Unit 2 reactors with remaining lease levels authonzed pursuant to the phase in plan were payments of $62,000,000, $18,000,0()0 and designed to bo sufficient to recover that period's

$26.000.000, respectively, as of December 31,1990 operating c=penses, a fair return on the unrecovered The Company's nuclear fuel amounts financed and investment, and amortitahon of deferred operating capitalized also included interest charges incurred by cupenses and carrying charges recorded during the the lessors amounting to $14.000,000 in 1990. cather years of the plan All phase in delertals af ter

$19,000,000 in 1989 and $18,000,000 in 1988 The December 31,1988 relating to these two units will be estimated future lease amortization payments based recovered by December 31,1998 Pursuant to such on projected consumphon are $49,000.000 in both phasean plan, the Company deferred the following-1991 and 1992,150,000.000 in 1993, $48.000,000 in 1990 1999 1994 and $43.000,000 in 1995 As these payments _ g,m ,$ ,, mi %

are made, the amount of credit available to the lessor %ng og,eng Me . $1M80 t?2 635 -

becomes available to f nance additional nuclear fuel, ' ~ ~ ' ~ -~

can tws assuming the lessor's intermediate term notes and ,

$21,361 - $30 617 bank credit arrangements continue to be outstandin9 fM N 126 51 091

$43 487

~~

182 308 (6) REGULATORY MATTERS On January 31,1989, the PUCO lssued an order which Under the January 1989 rate order. the amount of

. provided for three annual rate increases for the delerted operahng expenses and 9arrying charges Company of approximately 9% 7% and 6% effective scheduled to be recorded in 1991 through 1993 total with bills rendered on ano af ter February 1,1989,1990 $24,000,000. $33.000.000 and $15,000,000, and 1991, respectively. The 6% mcrease effechve respectively. The phase in plan was designed so that February 1,1991 has been recuced to 2 74% as fluctuations in sales should not affect the level of discussed below. earnings ine oider accomphshes this by allowing the ,

The annuakted revenue increases in 1989 and Company to seek PUCO approval to adjust cost ~

1990 associated with the rate order were $50.700,000 deferrals if actual revenues are higher or lower than and $44.300.000, respectively. In 1991, the estimated amounts projected in the ordet The orrier also provides annuahred revenue increase resulting from the order, for the adjustment of deferrals ta reficct 50% of the not as adjusted. would have been $18.000.000 before af ter tax savings in 1989 and 1990 identified by the 15 l

management audit and approved by the PUCO as reduction in residential rates of 3% on March 1,1991 '

discussed in the following paragraphs No change was and a further residential f ate reduction of 1% on (nade in the cost defefrals for 1989 lhe Company September 1, 1991 Communities accepting the ,

reduced its deferral of carrying charges by package must agree to keep the Company as their sole '

$13 933,000 m 1990 and will request PUCO approva! suppher of electricity for a penod of five years The of the adjustment. package also perm:ts the Company to adjust rates in in connechon voth the Company s 1989 order and a those communities on February 1.1994 and February similar order for Cleveland Electoc. the Company. 1.1995 if inflation exceeds specified teSels or under Cleveland Electne and the Service Company have emergency conditions All eligible communihes in the undergone a manogement audit to assure that Company s service area. eicept the City of Toledo, operation and maintenance expense savings are have accepted the rate reduction packaar' maiumized The audit was conducted under the The Corrpany plans to request PUC0 approval to direction of an Audit Advisory Panel ( Audit Pane ) reduce rates to the samt levels for th( same customer comprised of representatives of Centenor Energy, the categories in the City of 1,ledo and 'ae rest of its Ohio Othee of Consumers' Counsel and the Industrial service area if all areas now w.ma by the Company Energy Consumers in Apol 1990, the Audit Panel receive the benefits of the lower rates, annuahted announced that it had identified potential annual revenues will be reduced b: about $17.000.000 The savings in operating cupenses in the amount of revenue reductions will not adversely attoct the phase-

$98,160.000 from Centenor Energy's 1989 budget in plan as the decrease in revenues will be mitigated level The amount of potential savings attributable to by the cost reductions discussed above.

the Company is 45% ($44,172.000) . The Compmy The Company has entered into an agreement with evpects to begin reakzing most of the saving other members of the Audit t' Mel in which the identified by the audit by the end of 1991, Company has agreed to use its best ettarts to avoid '

Fif ty percent of the savings identified by the Audit rate increates in the years immediately following 1991.

Panel were used to reduce the 6% rate anctease The 1989 order also rets nuclear performance scheduled to go into effect on February 1,1991 As standards ihtough 1998 Beginning in 1991, the discussed previously, the Company's rates reased Company could be required to refund incremental 2 74% under this provision as approved by nio PUCO replacement power costs it the standards are not met in January 1991. We do not believe any refund will be required for the in a move to becomo more competitive in Northwest Company for 1991. Fossil fueled power plant Ohio, the Company has proposed a rate reduction performance may not be raised as an issue in any rate package to all incorporated communihes in its service proceeding before February 1994 as long as the area which are served exclusively by the Company on Company and Cleveland Elecinc achieve a system-a retail basis The package calls for the elimination of wide availabihty factor of at least 65% annually This the 2 74% rate increase effechve February 1,1991 for standard was cxceeded in 1989 and 1990 all residential and small commercial customers, a (7) FEDERAL INCOME TAX Federalincome tax, computed by multiplying income before taxes by the statutory rates, is reconciled to the amount of federalincome tax recorded on the books as follows:

For the ) para ended December 31.

1990 1989 1968 (thousands of doha's)

Dd income (t.oss) Defee federalincome la= . S 93 801 $151526 $(10B 277)

Tat on pooii incorne (t cois) at statutory Rate. $ 31 tt92 _ . -$ 51,519 $ (57.214)

Increase (Decroisse) in Tai Ac:.elerated deprocean. (B53) 5.993 629 investment tan crests on dssallowed nucica' ptant . (18 B10) - -

Organeanon costs - - -

2.274 Tames, other than fedmai income taes . (2 647) (107) 4 292 Other items . 2.795 1.443 (2 706)

Total Fedmat income Tan Dpense (Credt) , $ 12 377 5 58 848 $ ($

-.2.826 )

f ederal income tax empense is leCorded in the income Statement as 10110 4 5

_ _ 9 'Fd'S_e'9fM"f *"_ 3 ! _ _ _ l j 1990 1W9 1988 (thousantis of uallar5)

(4mrphng I yter4es Cu' vent ins hoves.un i 17 045 $(11458) 1 (3 132)

Changes in An umulated Detene1 i ewa' iusne Tai A A eieraieti dep'enahon and aNobtabon . 190 8 704 1 723 A!!ernabve trunimum 1as t rodi . tL4HO) 21 291 -

Sole and leet,eba:s tranna huns and amo I-tahon . L 121 455 14 703 property tas eyiense , (4 011) -

(5 058)

Detened CwiP revenues 9 3D3 11 726 (4 331)

(ielened tool msts (4 021) (1229) 4 0')P System drvelopment c osts . 24H 207 3 039 Davs Des +,e replat ertent pu*er . - 5 0$t, 8 37L F eder at income tai retum a4ustments --

(272) th acquned debt costs (032) t378) 4 046

[*fened operabna eyensen . 996 ( 1.20H ) 4 039 Nei operahng loss carerforward . - -

(2 545)

Other items , . (400) 2 39B (4 223)

Investmen1 f an Crede 1102 1 722 0 920 Total Char 0ed to Operabog i spenws . 21 041 37 285 29,242 Nonoperabng income Cunerii las provmon (18 242) (10 129) -

Changes in Accumulated Deierred F edt rai income Tan Davm Desse replatenent power _ - 2,799 Wnte o'1 of nucleaf costs (10.157) -

(97.277)

Af UDC and (wrpng charges - 10 835 32 930 40643 Net operating loss carrytorward . - __

(30 831)

Other items _ ?900 11 238) j 1388)

Total Egense (Credit) to Nunoperabng inc ome - (8004) 21 003 (80 244)

Federal income las lociuded in Comuiative [ftett of an Accounting Change for Untulied nevenues - - 4 177 Totai f ederal income las [ yer6e (Credit ) . $ 12 377 i 68 846 1(52 825) a =

~=

The Company joins in the fihng of a consohdated federal income tax retum with its afhkated companies The method of tax allocation approximates a separate return resutt for each company in 1988, a change was made in accounting for income taxes from the deferred to the liabihty method This change did not impact not income as the additional deferred taxes recorded were offset by a regulatory asset on the Balance Sheet.

Federalincome tax expense adjustments in 1990, associated with previously deferred investment tax credits relating to the 1988 wnte off of nuclear plant investment. decreased the net tax ptovision related to nonoperating income by $18,810.000.

The favorable resolution of an issue concerning the appropnate year to recognite a property tax deduction resulted in an adjustment which reduced federal income tax expense in 1990 by $3.911.000 ($2,168.000 in the fourth quarter)

For tax purposes, net operahng loss (NOL) carryforwards of approiamately $28.101,000, $21,426,000 and

$187.019.000 were generated in 1990,1989 and 1988, respectively. The NOL carryforwards are available to reduce future taxable income and will expire in 2003 through 2005. The 34% tax offect of the NOLs generated in 1990

($9.554.000) and 1989 (57,285.000) is inc'uded in the above table as a reduction to deferred federalincome tax relating to accelerated depreciation and amortization The 34% tax effect of the NOL generated in 1988 (103.586.000) is included in the above table as reductions to deferred federal income tax relating to accelerated depreciation and amortization ($24.210,000) and to de(erred federal incomo tax charged to operating expenses

( $2,545,000) and to nonoperating income ($36 831.000). Fumre utihzation of these tax NOL carryforwards would result in recording the related deferred taxes Approximately $20.161,000 of unused general business tax credits are available to reduce future tax obhgations The unused credits expire in varying amounts in 2001 through 2005 Utikration of these unused credits is hmited by provisions of the 1986 Tax Act and the :evel of future taxable inctme to which such credits may be apphed The 1986 Tax Act provides for an AMT credit to be used to reduce the regular tax to the AMT level should the regular tax exceed the AMT An AMT credit of $5,480,000 was generated it,1990 An AMT credit oftset for the conschdated tax return of $21.291,000 was generated in 1989.

17

t he settlement (d+ count i rate assumption wa's (8) HETIREMEt4T INCOME Pi.AN AND OTHER 8 SN fu Decen:her 31.1990 and 8N for December 31, POSTRETIREMENT BENEFITS 19H9 The long term rate of annual compensabon We sponsor a nonconinbuhng pension p!an whh h increase assumphon was % for buth December 31, teser: aH en ployee groups lhe amount of retaement 1990 and Deu mter 31.1969 The long term rate of benehts genera!Q depends upon the length of ietvim return on plan anets assumpton Aas 8% in 1990 and Under c ettain cacumstances bmief.ts can begin as 1989 early as age SS The plan also proodes certain death pan assets consist prmanly of aiwestments in roed: cal and dtately benefits The Companfs common stod , bonds. gua' anteed inv estm( nt t fundog pohcy is to comp 4 with the f reployee contrac ts cash equ!vaient secunties and rcal estate Rohrement InCofnD Secunty Act of 1974 guidehnes lhe cost of pmuebrement medicat benefits Dunna 1990. .ae Compani offered its set ond amounted to 12 400 000 in 1990.12100 000 in 1P89 Voluntary [arli Retaement Opporturvty Program and $ 1600 000 in 19B8 Cowstent with current (VEROP) Operahng e>penses for 1990 included ratemaking prac tices these costs are recorded Ahen 17 000 000 of pension plan accruals to cover sad enhanced VEROP berichts plus an addihonal in December 1990 a new accouhhng standard for 18 000 000 of penst n costs for Vf ROP benehts being pastrehrement benetts other than penuons was paid to retaces from corporate funds The 18 000 000 issued This standard requaes employers to accrue is not included in the pension data reported below the capected cost of such tienehts dunng the Operahnq empenses for 1900 also included a credit of employees' years of servKe The standard also 15 000 000 resothng from a settlement of pension requaes the recording of a conwatse transition obhgabons through lump sum payments to a ot hgation adjuement AhKh can be recognized substanhal number of VEROP retaees Net penuon and immed:ately, subg rt to certain hmitahons of amortized VEROP costs for 1988 through 1990 Aere composed over the longer of 20 years or the average remaining of the fonomnq components service penod of achve emplo,ces capected to recewe 39m um no bermhts the Company is requaed to adopt the new puhOthc[ standard no later than 1993 Although Ae have not een3 nn c m, completed an analysis to deterrnine the effect of h ue m i W benetos<amed adophng the new standa'd. we do not espec1 adophon d inng tne p.m1 i s s 4 1 4 to have a matenal adverse effect on the Compaey s Ink"r:St r ust on p'ug ted benett hnancial Condition of results of operations becaJse of m yanon 11 10 9 e>pected future regulatory Heatment Any hab hties At tax reiam on pun auen, (2) (17) (My recorded pursuant to the standard may be essenha!N Net a%rtaanun ed driene f (11) 4 offset by regulatory assets to reflect anhcipated future 4t pension c om 3 1 revenues associated with recovery through rates VI n()e cost 7 .

(9) GUARANTEES te mement ga,n .p -

Net cusu, iS $ i i p Under a long term coal purchase anangement, t' o Company has guaranteed the loan and leasu obhgations of a mining company This arrangement The follomog table presents a reconcthahon of the also requires payments to the nuning company for any funded status of the plan at Decernher 31,1990 and actual out of pocket idle mine e>penses (as a*ance 1939 payments for coat) when the mines are idle for oewmeer :1 reasons beyond the control of the mining company. At W 79M December 31, 1990, the poncipal amount of the mining company's loan and lease obhgabons iam of dg kiaans ono nt, e ort w t guaranteed by the Company was 124 000.000 ot w ons Velled(One m $101 iW Nin vetted twnetos 6 7 Au: inntated renett onigwn . 107 N k Net I or f(ikfile ll)mpenSdItOfl Ie)fik c2 10ta! pfogted rswst ataghn 129 132 han Msiis at ter ma9 et s aiue 151 174 buf pid5 Di pix 13%el$ o,ef pf WiiV1 benett oldga%n u 42 U'if eC ( jf h/ed rCr q1n (1 W (D variaf K e tM Aevn agumpW6 and openence (20) {35)

Unrec oyiaed pf u su er e ( ost F s Tweten a%et M Janor,1.1% 7 bethg amortled met 19 ,eart (23) t23) 4t H~( fued (OnWh (.ust r WOM1 m ot%f $tenedtrt idt in i%

B'iW e bheet $(i() $(11)

Ih

' =

rates, with the dwidend rates for these ist.ues (10') CAPITAllZATION

"' aging n 06% and 9 84"m iet pectne'y, in 1990 l (a) CAPIT AL STOCK TRANSACllONS M i in ot p hm Hie Cornpany Preferred stock shareb retned donng the three yeats ended December 31,1990 are as follows

"" "* W " " N ^ # U'"""*'"UU 1999 19NJ 19hH g We en e me hated on eMnings for

~ ' A,m.anJM u,anh the 12 nonths ended December 31,1990, the cunuaise hetennt si ,a Company could issue at December 31. 1990 not e i u vai e tny apptonimately $7 500 000 of adahonal pieferred 51oc k hvoemeoan at an assumed dwidend rate of 11% If perry Und 2 1100 tw 11109 110) N N had been canceled and wntten off as of ()ecember 31, 9 375 3 17) (17) (i7) 1990 the Cornpany would not have been permitted to Icts (27) im (m issue any additional preferred stock See Note 3(c)

The eauance of adMional pretened stock in the future comow hi ewi t tsia ret WM depend on eamings im any 12 consecutive Suhr i h, t,%1atoy new mpion (nonths of the 15 months preceding Me date of

$25 paf 13 47 -

( t POD)

Issuance, the litterest on alllong term dellt outstariding and the dwtends on all pretened sto< k issues t ew . -

< i ?om outstanding Ih""' a'e no rest'ichons on the Company s abdity Changes m premium on capaal stock am to issue pteference stock summanled as follows 1990 1989 19h8 Companis pretened stock is poor to its preference pha.a nds et caan) stock and common stock, and its preference stock is Betwo at Begoning et , car $481082 $4 ROH? $4R/70 poor to its common stock I'f effliurn t@l Ol r a[6tinW heenea ma _- y r.sn >

(d) LONO. TERM DEDT AND OT HER twant e at i n11 of n m 143n oa? 1481 on? 1481 on? DORROWINO ARRANOEMENTS L ng#nn deM kw cunent nmtunha was as fo%ws (b) EQUITY DISTRIBUTION RESTRICTIONS At December 31, 1990, retmned camings wem A 'uai g ,,gn,"y 182.956 000 Substantially all of the retained earnings w, g, ,,.3 gn, ,

- '^ ~~

[][l"'"$p i g;,g gg were available for the declaration of dividends on the ggy;g{

Company's prefened and common chares All of the Company's common shares are held by Centenor I " U '" " W" b""#

IM "'00 % $ ~

$ 70200 Energy A wnte off of the Company's investment in 1995. 10 125 -

36 800 Peny Und 2, depending epon the magnitude and 199'i 11 25 60 000 00,000 timing of such a wnte.off, could reduce retained eamings suthciently to impair the Company's abil!y to 1996 2000. 8 69 160 378 100 378 declare dividends See Note 3(c) 2001-2005 / 79 61 725 61 725 Any hnancing by the Company of any of ds 2006 2010 3 64 101.900 101,900 nonutikty athkates f equnes PUCO authonnt on unless 2010 2020 . 8 00 67.300 -

the hnancing is made in connechon wdh transactions 2001 2023 . 7 93 147 600 147 B00 in the ordinary course of the Company's pubhc utddy 605 103 644.003 business operahons in which one company acts on behalf of another, Tenn hank loans due 1992-1996 . H B3 13.500 -

Notes due 199? 1997 10 64 219.430 261.715 (c) CUMULATIVE PREFERRED AND PREFERENCE STOCK Dehentures due 1997 1125 125.000 125 000 Amounts to be paid for prefened stock which must be M"h " C 0"Dd "*S redeemed dunng the next hve years are 12,000,000 in due 1992 2015. 11 03 136600 160.480 both 1991 and 1992 and $12,000.000 in each year other - net -

_ J2 307) _ (521) 1993 through 1995 totaitonq y e,m lhe annual mandatory redemption provi90ns are as Debt $1.097 326 $1,197 277 e= -

1ollows Ghares hae 10 he Beginning Per long term debt matutes during the next live years nearemed in snare as lotlows $114.000,000 in 1991,1121,000.000 m M2,14%00W in N $21 MOMO in 1%4 and Y$N, tit no s 000 nm $100 9 375 in cso 1985 i00 186.000.000 in 1995 25 pu 2 si . 400 000 19m 25 l he Csompany's (nortgage conshtutes a direct hrst The annuahzed cumulahve prefened dwidend hen on substanhally all property owned and franchises tequirement as of December 31,1990 is $25.000,000 held by the Company Fxcluded frorn the hen, among The preferred dwidend rates on the Company's other things, are cash, secunbes. accounts recewable.

Senes A and B fluctuate based on prevaihng interest fuel supphes and automohve equipment 19 1 I

I Adahonaliast trortgage tionds nuy be issued bi (11) SHORT TERM BORROWING the Company under its mortgage on the baus of ARRANOEMENTS bondable property add;hons ca'h or substitution 1,>r refundable fast mortgage bonds The istuance of The Company had $ 75 050 000 of ba . ,nes of credit add,tional f ast mortgage bonds by the Company on the anangements at De ember 31.1990 There were no basis of property add bons is hmited by two provipons bononings under these bank credit arrangements at of its mortgage One relates to the amount of Decert ber 31.1990 bondable property available and the other to eamings Short tHrn tonoMog capacity authonzed by the PUCO is $150 000 000 The Con > piny and Cicieund coverage of interest on the bonds Under the more flectnc have been authonzed by the PUCO to borrow restoctive of these promions (c.orrently. the earntnas~

coverage test), the Company would have been hem each other on a short tenn basis permitted to issue approomately $177.000 000 of Most bonow:ng arrangements under the short term bonds based upon available bondalje property at bank hnes of cred11 require a fee of () 25% per year to December 31,1990 The Company also would have be paid on any unused porhon of the hnes of credtt been permitted to issue approumately 556.000.000 09 i or those banks Mihout fee requaements, the aserage bonds based upon rotundab!c bonds at December 31. daly cash ba!ance in the bank accounts sabstied 1990 11 Peny Unit 2 had been canceled and antten infonnal compensahng balance anangements off as of December 31,1990. the amount of bonds At December 31, 1990, the Company had which could have been issued by the Company would 123 200 000 of commercial paper outstanding The commercial paper was haded by at least an equal not have changed Certain unsecured loan agreements of the amount of unused bank knes of credit Company contain covenants relating to capitahzabon ratios, earnings coverage rabos and limitations on (12) CHANGE IN ACCOUNTING FOR UNBILLED secured financing other than through first mortga9" REVENUES bonds or certain other transactions An agreement Prior to 1988, resenues were recorded in the relat ng to a letter of credit issued in connechon with the sale and leaseback of Beaver Valley Unit 2 (as accounhng penod dunng which meters were read Uhhty service rendered af ter monthly meter reading amended in 1989) contains several hnancial covenants affechng the Company, Cleveland Electnc and dates through the end et a calendar month (UnbNed Centenor Energy Among these are covenants relahng revenues) became a part of operahng resenues in the to earnings coverage ratios and capitahzabon tatios following month in January 1988, the Company The Company, Cleveland Electnc and Centenor adopted a change in accounting for revenues in order Energy are in comphance with these covenant to accrue the eshmated amount of unbilled revenues provisions We beheve the Company, Cleveland at the end of each month Electric and Centenor Energy will continue to meet The adophon of this accounhng method increased these covenants in the event of a Wnte off of the 1988 net income $218.000 (not of 1112 000 of Company s and Cleveland Electnc s investments in income taies) before the cumulahve effect on penods Perry Unit 2. barnng unforeseen circumstances poor to January 1,1988 The cumulahve effect of the change on the penods poor to January 1,1988 was 16 279 000 (net of 14177 000 of income ta es) and v as included in 1988 not income

n

(13) OUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a tabulation of the unaudited quarterly results of operations for the two years ended December 31, 1990.

ouane,atnxa

_Miamh 31 ame 30 fept 30 Dec 31.

(thour.arids of dollars) 1990 Operating Revenues. $203.841 $204.295 $223,201 $195,749 Operating income . , 38,771 28.298 39,472 45.901 Net tncome. , .. 21.604 26 971 19.420 13,429 Earnings Available for Common Stock 15.357 20,660 13,109 7,139 1989 Operating Revenues , 1201.144 $203,436 $M9,762 $202,461 Operating locome . . .. 32,041 37,149 40,532 32,695 Not income . , , ,,. . . . 24,280 30,284 34,501 3,613 Earnings (Loss) Available for Common Stock 17,857 23.882 28.176 (2.627)

Earnings for the quarter ended June 30,1990 were increased as a result of federal neome tax caper se adjustments associated with deferred investment tax credits relating to the 1988 writeett of nuclear plant investment, See Note 7. The adjustments increased quarterly earnings by $17.907,000 Earnings tot the quarter ended December 31,1990 were decreased as a result of yearvnd adjustments. A

$13,933,000 reduction in phase in carrying charges (sco Note 6) was partially offset by adjustmo.'m of $7.760,000 to reduce depreciation expense for the year (see Summary of Significant Accounting Pohcies) and $2.168.000 to reduce federalincome tax expense (see Note 7) The total of these adjustments decreased quarterly earnings by

$2,000.000 21

FINANCIAL AND STATISTICAL REVIEW Operating Flevenues (thousands of dollars) swam t ot a' low lus + +a wg On aug 11__ ___._._ _. .NP "fM _If'"'"'E"L __3h'""" D UCE_. Mya_y .9 9 ] gs, _

gggg 1990. 8223 920 $174 540 1235 578 $79 535 5713 573 $113 513 $827 086 8- $627 086 1989. 215 932 163 991 226 0SD 99 451 706 054 123 749 826 803 --

826 603 19S8 200 916 142 646 199 521 34 961 578 034 49 993 027 997 --

027 997 1987 200 877 142 385 219 09B 27 046 MO 000 15 031 605 037 -

605 037 1996 189 292 133 641 214 274 23 886 561 293 11 184 572 462 -

572 482 1980. 126 085 80 836 137 800 J8 458 373 239 21 647 394 896 6 982 401 869 Operating Expenses (thousands of dollars) ome, I ne! & Oper al..wi [ + pre < atain in es Phase m & f edew T ote Puouwd & & Other Itun PeLAasein hu,ne Oper a teg y, ro.or  % ,enwue A n ,hianan nt De'e"ea Ne' ta es I .teses 1990 $138 222 $373 374 $75 986 $79 320 $ (13,299) 121,041 6674 644 1989 133 400 372 b30 87 639 72 123 (18 491) 37 285 684 466 1988. 116 161 358 823 75 093 80 138 (B3 813) 29 242 575 044 1987. 140 176 223 307 65 503 59 65B (39 797) 22 747 471 594 1986 158 763 167 319 37 832 51 398 -~

41 150 456 462 1980 , 155 771 85 161 26002 31 202 -

23 376 321 512 Incorne (Loss) (thousands of dollars) nu,e Othe' loconic l'unie int one & faae r bet:ve Operahng M UDC - EMettes Lreeng C rett inimest Ye,# IfW ofne { Q ply Net C hWge$ (Ie[ e pe) Chargf s 1990. $152 442 5 3 3f 2 $ 6 149 $ 43 487 8 8 664 $214 094 1983 142 317 8 568 20 361 82 30B (21 563) 231 991 1988 . 52 353 5 452 (246 722)(a) 129 632 86 244 26 959 1987- 133 443 122 138 (16 904) 14 969 42 726 296 392 1986. 116 020 129 578 (1627; -

S2 029 296 000 1980. 80 356 28 443 879 -

13 218 122 896 income (Loss) (thoasands of dollars) inCurhe itc+5) iareogs t+tse Cunwiatne Cu mlabve _ssi Emwtofan [ thei of an Net Pretened Av.Mabic

[kbt M UDC - A&Ounbrg AG Our.hng intorne Styb ty Cornmori y ear interef.t Det>t Change Change nas) Dwdends Stx k 1990 5135 344 $ (2 674) 3 81 424 8- $ 81,424 $25159 5 56 265 1989. 144 792 (5 479) 92 678 -

92 678 25 390 67 288 1988. 150 523 (1 833) (121 731) 6 279(b) (115 452) 26 983 (142 435) 1987. 185 493 (54 272) 165 171 -

165 171 42 749 122 422 1986. 174 397 (55 314) 176 917 -

176 917 15 243 131 674 1980. 70 866 (15 148) 67 178 -

67 178 18 021 49 157 (a) Indudes *nte off of numar costs in the amoani of $276.955 000 in 1998 (b) In 1998 a change n the rnethod of accounbog for unDmed twenues wn actopted 22

b Int ton oc r060N cowANy Electric Sales (millions of KWH) Electric Customers (year end) Residential Usage Awr e;;c Aarage A we n .je. Pwe hew nse toma ttw p.mt for Per Per

-Ytw lie gs kht2d} Comrtenai W l Atual kW oe W OtNo T ota' hefatot% co"the-et .at & Othet TNas p,$mtef l F Mt Cub M er 1990 1 960 1 614 3 617 932 496 8609 263 966 25 822 4 666 284 342 7692 11.484 $882.99 r 19 Bit 2 017 1 622 3 740 1 175 495 9 049 253 234 25 803 4 434 283 411 7 989 10 11 855 29 1988 2 063 1 679 3 780 938 474 88D 251 590 25 526 4 102 281 218 8 264 9 72 802 87 1987. I 977 1 532 3 $K4 344 464 7 900 249 344 25 170 4 085 279 599 7 969 10 16 809 06 1986. 1941 1 495 3 4H2 242 449 7 609 247 256 24 655 4 004 275 915 7 881 9 75 768 43 1980. 19/1 12P2 3 16', 500 410 7 3881 240 142 23 532 3 818 267 492 8232 6 40 526 66 Load (MW & %) Energy (millions of KWH) Fuel opmat ae cantair vi i k iem y -

at line rosa Capr> 6fy l ua:t *"P"" Y ".' " " ' " ' ' Ptnisa wd Iie Cost HTU Per Year gef Pt ah 10a0 $ nt19t l opii itsi leaf 1 0181 Poe ps I tit W Pfti F M4 P M1 VN(Jul 1990 1 762 1 616 13.6% 63 0% 6 $36 4 219 9 764 (499) 9 266 1.604 10 220 1989, 1 F94 1 526 19 4 65 2 5 206 6 $$2 10 7bB (1175) C 083 1 42 10 293 1988 1057(c) 1 614 (52 7) 62 8 5 820 3 325 9 145 385 9 $30 1 69 10 174 1987. 1 698 1484 12 6 04 9 5 916 3 218 9 134 (647) b 467 1 45 10 190 1986. I740(c) 1423 18 2 64 8 6 462 12 6 474 1689 8 163 1 82 9 800 1980 I 760 1 310 25 6 68 3 $ $29 1 031 6 560 1352 7 912 1 65 10 245 Investment (thousands of dollars) c m.iaci,on Wud 6n  %!dl UtMy Ariumuidtid PHvyens Nocicar Propert y. UtMy Pl4r1l ln OclWp(lghon & Skt &ycef y F utal $NJ PlWil ahd Plahl l(4tal itsaf fef vW e AltKM filai+0n Ildfit Ohlt 7 Olbrtf r(J DpfhDf 81 AMl@$ A%Wll 1990, $2 607 010 $646193 $1960 817 $ 436 839 $223 872 $2 621628 8 86 693 $4 001618 1989 2 532 291 567 197 1 965 094 430 340 237 318 2 632 752 77 357 4 138 846 1988. 2 438 927 487 546 1 951 381 469 104 262 514 2 672 999 132 083 4 134 672 1987. 2 600 511 419 149 2 181 362 374 274 267 069 2 822 705 380 974 4 277 587 19A6 , 1 442 812 415 745 1 027 067 2 169 945 269 022 3 466 034 403 163 3 013 889-1980. 1 197 774 220 629 977 145 520 239 27 424(d) 1 524 808 235 911 1 701 443 Capitalization (thousands of dollars & %)

P,cierre<1 sion. ute Preted stack *itnout VarvidMry Redef11ptKm Vanddforp Redemption Year C&rmvi Stock r quity Provttma Ptovium iong lefm Debt total 1990 $ 880 784 39% $ 66 328 3% $210 000 9% $1097 326 49% $2 264 438 1989, 897 793 - 38 68 990 3 210 000 9 1 197 277 50 2 374 060 1988. 887 442 30 71 155 3 210 000 9 1 291 444 52 2 400 041 1987. 1 096 737 39 73 340 3 240 000 8 1 400 292 50 2 810 369 1986; I 074 663 36 148 797 5 260 000 9 1 480 947 50 2 964 407.

'1980. 478 993 34 66 600 5 150 000 11 714 406 50 1 409 899 (c) Capaaty data rehects entended generating unit outa0es for renovaton and improvements (d) Restated for effet ts of capitahtation of nuclear tuellease and financing arrangernents pursuant to Statement of Financial Accounting Standards 71 B

INVM'lOlt INI?OltNI ATION Sil AltE OWNlt.it INI OllNIXl lON INLil'IRll:S DIVIDI NU RI INVI S l \ll N'l AND h'IUCK

()uestions ice.uding ihe Comiuiw of stut L PUNCDAhh IIM ANU INIEUCTI' Iu ounts shonhl be diin ted to Sh ne ( hs ne, Ris!IRI \ll.NT ACCol'N I (IRA)

Senit es a. Centenor linerev Corpouhon at Ct ntenor i neiev Corpoution h n a l)nidend tile .hidleu and teleplH sne fluinlK 's indK aletl 1(e% estment md bit't k thnt h.nc 11an w bt b helow foi the Stot L Tunster Agent. pros ides bledo liinon sh.oe ou nen of

'noni and otha uneston a conu nknt I' lease h.nc yoni .ncount munber icad> means of puu hasmg shaies of L,entenor w hen callmg.

m M n um M m all of their qu.uterh dnidends as well,n malme S' LOCK I RANSIYil AGl:NT t.nh onestments. In athhtion,indaiduals may Centerior Encig) Corpoution estabhsh an Indnidual Retirement Auonnt Share Ow ner Sen it es (1R \) w hit h imests in Centeriot ( onnnon P.O. Ilox 94661 stot L tinough the I'lan. Infunnation relahne Cles cland, Oil 44101-4661 to the Plan and the liL\ may be obtained 342 6900 or 447-2400 fann Centenot Sh.ne On nei Senit es.

in Cles eland area

()utside Cleseland area 1 h(Hb433-7794 Stot L tunsfers may be presented at INDEPENDI.NT ACCOUN'l ANTS PNC Trust Company of New Yott Aithur Andersen & Co.

40 linud Street, Fif th Moor 1717 East Ninth Sucet New York, NY 10004 Cineland, ( )ll 44114 S' lock REGIS'l RAR l'ORN110 K i he Company w di furnish to shaic ou nen, Amcritnnt Countmv National Anoti.ition Corporate innt DiIision without tharge, a copy ofits most tetcut P.(). llos 6477 aninulicport to the Sn niities and Eulunge Clncland, UlI 44101 Conunission Worm 104) and, upon im ment of < reasoiuhle fee, a copy of cath esinhit to Fonn K Requpts poulti he (InnW to ENCil ANGE I.lSTINGS the Sn relaty of Lentenor Enciav Picferred-$25 par vahie h.h4%, $2,365 and Coiporation at the address of the Stod

$2.$1 series, Adjustable Series A and Tuinfer Agent.

Adiustable Series IL New York Stott Exchange Prefctrcd-;100 par s alue-4 % "+, S.32%,

7 76% and 10% series- American Stock Eu bange llOND AND DEllENTURE INI?Ol(NI Al'lON llDND TRUSTEE AND PAYING AGENT DElllCNTURE TRUSTEl? AND PAYING AGF.NT The Chase Nianluttan llank, N.A. National City llank Corporate Trust Admimstration Division 1000 East Ninth Ste:et 1 New York Plaza,14th Floor Clnelan<l, Ohio 44114 New York, NY 10015 (216)S75 252h (212)676 5h50 24

Tile 'lOLEDO EDISON CO.\lP.\NY BULK RAlf 3( Al Madison As enue e 'luledo, Ohio 44.Q U $ PO51 AGE PAID CLiV[L AND. OHIO P[RMil t40 409

. , , ,