ML20084A504

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Annual Rept 1994 for Penn Power
ML20084A504
Person / Time
Site: Beaver Valley
Issue date: 12/31/1994
From:
PENNSYLVANIA POWER & LIGHT CO.
To:
Shared Package
ML20084A425 List:
References
NUDOCS 9505300367
Download: ML20084A504 (20)
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ANNUAL REPORT 1994 Oma-l PDR AD CK 0 00 34 I PDR

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- CONTENTS COMPANY PROFILE  !

Selected Financial Data .............. 1 Pennsylvania Power Company provides electric  !

Management's Discussion service to more than 141,000 customers in western -

and Analysis . . . . . . . . . . . . . . . . . . . . 2 Pennsylvania. The Company furnishes electric Operating Statistics . . . . . . . . . . . . . . . . . 5 service in 139 communities, as well as rural areas,  :

Statements of Income . . . . . . . . . . . . . . . . 6 and also sells electric energy at wholesale to five Balance Sheets . . . . . . . . . . . . . . . . . . . . 7 municipalities. Its service area has an estimated  :

Statements of Capitalization . . . . . . . . . . . . 8 population of 340,000. The Company, with l Statements of Retained Earnings . . . . . . . . . 9 3 L headquarters in New Castle, Pennsylvania, is a  ;

Statements of Capital Stock 4::d i wholly owned subsidiary of Ohio Edison Other Paid-in Capital . . . . . . . . . . . . . . . 9 Company.

Statements of Cash Flows . . . . . . . . . . . . . 10 '

Statements cf Taxes . . . . . . . . . . . . . . . . 11

. In August, we were saddened by the passing of Notes to Financial Statements . . . . . . . . 12 Company President Robert L. Kensinger. -

Report of Independent Public Mr. Kensinger,59, served as president since 1991 Accountants ...................19 and served the Ohio Edison System since 1960. '

Directors and Officers . . . . . . . . . . . . . . 20 .' We will long remember his contribution to the i Companies, the utility industry, and the l communities we serve.

The Board named H. Peter Burg president, on an g interim basis. Mr. Burg continues serving as senior vice president and chief financial officer of ,

Ohio Edison and a member of the boards of l directors of both Companies, i

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SELECTED FINANCIAL DATA Pennulvania Power Compara 1994 1993 1992 1991 1990 (Ikillars in thousands) 4 Operating Revenues . . . ..... . . . . ... $ 30I.%5 $ 292.084 $ 315.458 $ 321.845 5 318.056 Operating income . . . ,,,.,,, ,...... $ 63.668 $ 62.777 $ 66.525 $ 81.102 $ 65.992 Net income . . . . . . .. ... , ,,.. $ 31.260 $ 21.317 $ 30.956 $ 40.197 .$ 25.519 Earnings on Common Stock . . .. ..... $ 25.N% $ 15.454 5 24.457 5 32.475 $ 15.537 [

Return on Average Common Equity . . . . , g% g% 92% 12.2 % M%

Cash Dividends on Common Stock ........ L$Q,gg $ 21.386 $ 27.676 $ 27.676 $ 27.676-i Total Aucts .. .... .. .... ,, . $1.193,19R $ 1.180.983 $ 986.158 $ 1.022.099 $ 1.091.090 CAPITAI.17.ATION:

Common Stockholder's Equity .. .... ,, $ 258.973 $ 254,782 $ 261,518 $ 266,058 $ 262,059  ;

Preferred Stock- [

Not Subject to Mandatory Redemption . ... 50.905 50.905 41,905 41,905 41,905 Subject to Mandatory Redemption . ... 15.000 20,500 30,362 34,282 38,722 '

Long-Term Debt . .. . 424.457 440.555 398.630 408.443 431.146 Total Capitall:.ation . . .... .. . $ 749.335 $ 766,742 5 732.415 $ ?$0.688 $ 773.832 CAPITAL.17.ATION RATIOS:

Common Stockholder's Equity . . . . . . . . 34.6 % 33.2% 35.7 % 35.4 % 33.9 %

Preferred Stock-Not Subject to Mandatory Redemption . . 6.8 6.6 5.7 5.6 5.4  :

Subject to Mandatory Redemption ... . 2.0 2.7 4.2 4.6 5.0 l Long Term Debt . ..... .. .. E E 54.4 54 4 55.7  ;

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Total Capitalitation , , . . 3% g4 g4 g%.

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MANAGEMENTcS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION summarizes the sources of changes in operating RESULTS OF OPERATIONS revenues for 1994 and 1993 as compared to the previous year:

We accomplished a great deal in 1994 as we continued preparing for the significant changes

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expected to take place in the electric utility {

industry. Change in sharon sieet revenu. s- 5(20.5)

Change in retail kilowatt-hour sales 15.7 9.4 Our net income increased significantly in 1994 compared to the prior year, which was down [i,'"8,* '";[;,*"#*'*""*'** $5 N by almost $10,000,000 from 1992. The 1993 rnher os n .si resuhs included a $17,029,000 after-tax write-off *'I = " * "*=> so sm o for the termination of Perry Unit 2 and the j expected resolution of fuel cost recovery issues. An improving local economy helped us The effect of the write-off was partially offset by a achieve 1994's higher operating revenues, which 1

$5,653,000 after-tax credit from the cumulative occurred despite milder weather during the second half of the year, compared with 1993. The

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effect of a change in accounting to accrue metered shutdown of Sharon Steel in November 1992 but unbilled revenue (see Note 2).

Our ongoing commitment to cost control is substantially reduced our operating revenues in producing good results. Total operation and 1993 compared with the previous year. We added maintenance expenses in 1994 were lower than any more than 2,000 new retail customers in 1994 year since 1988. Through Performance after gaining nearly 1,700 customers the previous Initiatives - an ongoing effort to control costs and year. Our retail kilowatt-hour sales were up 6.8%

encourage continuous improvement throughout our in 1994, following a 10.2% drop in 1993.

Company - we identified cost-saving Residential sales rose 6.6% in 1994, following a opportunities. As a result of this review, operating 5.2% gain the previous year. Commercial sales efficiencies were identified and the workforce has followed the same trend, increasing 7.2% and been reduced by more than 7 percent since the 6.2% in 1994 and 1993, respectively. Industrial beginning of 1994 through voluntary retirements, sales posted a healthy 6.7% increase in 1994 layoffs and normal attrition. By the end of 1994, because of strong demand in the primary metals we were serving about 14,000 more customers industry. This result came after a slight increase in l than at the end of 1984, with approximately 600 1993, excluding the effects of Sharon Steel. Lower I fewer employees, in 1984, our customer-employee demand for bulk power and generating capacity ratio was 70 to 1. That ratio has improved to 113 constraints reduced our opportunity sales to other customers per employee at the end of 1994. In utilities in 1994 and 1993, falling 23.2% and  ;

February 1993, our Board of Directors reduced 28.1%, respectively. As a result of these factors,  !

the quarterly common stock dividend to $.85 per total kilowatt-hour sales were down 1.3%

share from the previous level of $1.10 per share. compared with 1993 sales, which were 15.6%

These arejust a few cost-cutting efforts we've lower than the prior year, taken to strengthen our operations, financial results Because of lower kilowatt-hour sales, we and cash position. spent less on fuel and purchased power in 1994, Despite lower total kilowatt-hour sales, compared with the prior year. The 1993 amount operating revenues increased 3.4% from 1993 also included a $4,950,000 charge for the expected levels, which were 7.4% lower than 1992. Higher resolution of fuel cost recovery issues (see revenues in 1994 were attributable to higher sales Note 1).

volume in the retail sector. The following table We experienced higher nuclear expenses in i 1994 and 1993, mainly due to corrective l maintenance work at the Perry Plant. Due to {'

mechanical failures and an extended refueling outage in 1994, Perry's availability was below expected levels during both years. The plant's  !

operator developed a comprehensive plan that is i expected to improve Perry's performance. A major 2 I

portion of the corrective action plan was completed $29,400,000 during the year. All of our financing during the 1994 outage, and the remainder will be activities during the year were for refunding  ;

implemented during Perry's next refueling, which purposes. )

is scheduled for early 1996. The plant returned to We had about $42,000,000 of cash and i service on August 14, 1994, and ran continuously temporary investments and no short-term for the remainder of the year. indebtedness on December 31,1994. We also had Our other operating costs were up in 1994 $5,000,000 of unused short-term bank lines of because of an $8,400,000 charge for a voluntary credit, and $32,000,000 of bank facilities that l retirement program offered to eligible employees provide for borrowings on a short-term basis at the in connection with the Performance Initiatives banks' discretion.

program. We also recognized a $4,300,000 charge At the end of 1994, we had the capability to in 1993 for a similar program. Both 1994 and issue $79,000,000 principal amount of first '

1993 results include higher expenses associated mortgage bonds and $46,000,000 of preferred with the January 1,1993, adoption of Statement of stock. However, our projections indicate no need  !

Financial Accounting Standards (SFAS) No.106, to issue new long-term securities in 1995.

" Employers' Accounting for Postretirement During 1994, we spent about $26,000,000 on Benefits Other Than Pensions." In 1992, we our construction program (excluding nuclear fuel).

recognized a $13,900,000 provision for We estimate our construction program and capital uncollectible accounts, which affects the lease requirements for the period 1995-1999 to be comparison with 1993 and 1994. about $138,000,000 (excluding nuclear fuel), of We also provided a reserve for deferred which approximately $28,000,000 applies to 1995.

postretirement benefit costs (see Note 1) in 1994, We also have cash requirements of approximately which was responsible for the change in net $69,000,000 for the 1995-1999 period to meet amortization of regulatory assets compared to maturities of, and sinking fund requirements for, 1993. The change between 1993 and 1992 was due long-term debt. Of that amount, approximately to the deferral of incremental costs resulting from $15,000,000 applies to 1995.

the adoption of SFAS No.106. Investments for additional nuclear fuel during Lower depreciation expense in 1994 and 1993 the 1995-1999 period are estimated to be reflects depreciation rates that were reduced in approximately $29,000,000, of which about 1993 as a result of an updated depreciation study $4,000,000 applies to 1995. During the same filed with the Pennsylvania Public Utility periods, our nuclear fuel investments are expected Commission. The study took into consideration to be reduced by approximately $39,000,000 and extended useful lives of certain generation and $9,000,000, respectively, as the nuclear fuel is distribution facilities, consumed.

The electric utility industry is subject to the The Central Area Power Coordination Group same inflationary pressures as those experienced (CAPCO) companies filed suit against by other industries. To the extent that we incur Westinghouse Electric Corporation in 1991, additional costs or receive benefits resulting from alleging that six steam generators supplied by the effects of inflation, those effects are generally Westinghouse for the Beaver Valley Plant are reflected in our electric rates through the defective and that replacement could be required traditional rate making process. earlier than the 40-year design life. A federal court rejected the claims of the CAPCO companies in CAPITAL RESOURCES AND LIQUIDITY December 1994, after a three-month trial. The CAPCO companies have appealed the verdict. The Because of higher revenues and aggressive plant's operator has no current plans to replace the cost controls, cash generated from operations was steam generators and is evaluating the feasibility of 75% higher in 1994 than it was ten years ago, in applying new technologies to repair the generators.

addition, capital expenditures have dropped if the generators need to be replaced and the dramatically during the ten-year period. companies decide to do so, the capital costs to the For the second straight year, we improved CAPCO companies could range from 1 our cash position compared to the end of the prior $100,000,000 to $150,000,000 per unit. That  :

year. All cash requirements for 1994 were met estimate is based upon costs other utilities have with internally generated funds, with cash and experienced. We have a 17.5% interest in Beaver i temporary investments increasing by nearly Valley Unit 1. l 3

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OUTLOOK future. In addition, the program ensures that an economic value added-based justification will be We will be facing many competitive required for capital expenditures. We are also challenges in the years ahead as the electric utility conducting studies to identify other opportunities industry becomes more deregulated and more to increase revenues and operating ef0ciency. The energy suppliers enter the marketplace. Retail focus of the entire organization is to improve our wheeling, which would allow retail customers to competitive position through these activities, purchase electricity from other energy producers, would be one of those challenges if legislators choose to move in th t direction. In any event, changing market forces make it imperative that we continue to find ways to reduce costs and increase revenues.

Effective operation of the nuclear facilities we jointly own will help meet these competitive challenges. Proper planning to eventually decommission those facilities is also important to our competitive position. Beginning in 1995, we plan to increase our annual funding of the decommissioning obligation. Also, the staff of the Securities and Exchange Commission (SEC) has raised questions regarding the recognition, measurement and classification of decommissioning costs in the financial statements of electric utilities. Any future SEC actions are uncertain at this time (see Note 1).

We currently serve Ove municipalities at wholesale. Four of them signed new service agreements in 1994. Two of the agreements expire in March 1997, and the other two will be in effect until September 1999. The fifth municipality has received bids from third parties for power and filed a request with the Federal Energy Regulatory Commission (FERC) in September 1994 to require us to provide transmission services. On January 25, 1995, FERC ordered us to provide transmission services to the municipality and directed both parties to resolve the pricing, terms and conditions of this service, if we cannot reach an agreement with the municipality on these issues by April 5,1995, FERC will establish the final terms. Sales to this municipality were approximately $1,468,000 in 1994.

The Clean Air Act Amendments of 1990, discussed in Note 7, require signincant reductions of sulfur dioxide and nitrogen oxides from our coal-fired generating units by 1995 and additional emission reductions by 2000. We are well-positioned to meet the 1995 requirements at minimal costs, and we are purning cost-effective compliance strategies for meeting the reduction requirements that begin in 2000.

Through the Performance Initiatives program, we have identified substantial savings that will better position us to successfully compete in the 4

OPERATING STATISTICS Pennnivar.la Power comoany

_1994 1993 1992 1991 1990 i

REVENUE FROM ELECTRIC SALES Ghousands).

' Residential ......... .... .. . . . .... $112,809 $107,593 $104,133 $103.009 $ 99.979 Commercial . . . . . . .... . .... . ... 69,263 65,332 62,554 61,172 58,646 ,

Industsial ... ... ..... . .. ... ... 64,512 61,7N) 82,145 87,908 88,407 Other.... .. ............. ........ . 9.024 8.751 8 633 8.645 8 169 Subtotal ..... . ........ ..... 255,608 243,436 257,465 260,734 255,301 Parent Company . . . . . . . . . ...... ... .. 8,884 8,759 15,311 14,576 16,591 Other Utilities ... .... .. .. . . _. 22.290 24.935 26.073 16 369 26.718 Total . .. ... ..... . . ...... R.86732 $277.130 $298.849 $101.679 $298.610 REVENUE FROM ELECTRIC SALES: .

Residential .... ... ............ . 39.3 % 38.8% 34.9 % 34.1% 33.5 %

Commercial . ... .. . .. . . . .. . 24.2 23.6 20.9 20.3 19.6 ludustrial .. . ... . .. . ... . . . 22.5 22.3 27.5 29.I 29.6 Chher . .... . .. .... .. .. . . 3.1 3.1 2.9 2.9 2.8 Subtotal .., , .. . ..... . . . 89.1 87.8 86.2 86.4 85.5 Parent Company . . .. . .. .. . 3.1 3.2 5.I 4.8 5.6 Other Utilities , .. .. . . . 7.8 9.0 87 8.8 8,9 Total .. . ... .. . . 100.0% 100 0 % 100 0 % 100 0 % 100.0 %

KILOWA'IT-ilOUR SAI ES (Millions):

Residential ... .. .. . .. I,178 1,105 1.050 1,061 1,019 Commercial . . . .. . . ... .. . . 891 831 782 772 732 Industrial . . ... . . . ... . . 1,293 1,212 1,674 1,823 1,795 Other.. .. . ... ... .. .. .. I48 139 138 138 135 Subtotal .. ... . . .. . . 3.510 3.287 3.644 3,794 3,681 Parent Company .. ..... . . . . . 468 469 786 556 743 Other Utilities .. . .. .. . . 466 748 406 790 847 Total . . . . . .... . .. 4.444 4.504 5.336 5.140 5.271  ;

CUSTOMERS SERVED: i Residcutial . . .. . .. . .. .. 124,951 123,316 121,879 120.537 119,530 Commercial . .. .. .. . . . .. .. .. .. 15,966 15,593 15,348 15,127 14,948 Industrial . ... . . .. . .. 219 221 235 243 257 Other . . . . . ... ... 98 97 100 100 117 Total .. . . ..... .. . 141.234 139.227 137.562 136.007 134.852 Average Annual Residential Kilowatt.liours Used . 9,501 9,017 8,672 8,839 8,585 Retail Price per Kilowatt.llour (Cents) . . . 7.37 7.49 7.66 7.89 7.09 Kilowatt.llours Generated (Millions) . ... . 3,964 4,190 4.659 4,135 4,525 Peak Load (Megawatts) , . . . . . .. 710 690 734 739 700 Cost of Fuel per Million Btu .. .. . . . $ l.20 $ 1.28 $ 1.26 $ l.32 $ 1.27 Generating Capability:

Coal . .. . . ... . 72.1% 74.6 % 74.6 % 74.6 % 74.6 %

Oil ..... . . . . . 3.0 2.8 2.8 2.8 2.8 Nuclear . . . . . . 24.9 22.6 22.6 22.6 22.6 Total . . . . .. 100.0 % 100 0 % Ino0% 100 0% 100 0 %

SOURCES OF El.ECIRIC GENERATION:

Coal . .. .. . .. . . 69.6 % 76.8 % 68.3 % 72.9 % 68.4 %

Nuclear . . . . . 30.4 23 2 31.7 27.1 31.6 Total . .. . . .. 100.0 % 100 0 % 100 0 % 100 0 % 100 0 %

NUMBER OF DIPLOYEES . . . ..... .. ... g g i

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STATEMENTS OF INCOME Pennsylvania Power Comnany For the Years Ended December 31 1994 1993 1992 (la thousands)

OPERATING REVENUES ................ . . . . . . . . . . . . . $301.965 12920M $315.458 OPERATING EXPENSES AND TAXES:

Fuel and purchased power . ...... . . . . . . . . . . . . . . . . . . 59.529 67.312 80.303  !

Nuclear operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . , . . 33,480 30.162 24,588 8 Other operating costs . ......... . . . . . . . . . . . . . . . . _ 65.424 61.125 67.578 i Total operation and maintenance expenses . . . . . . . . . . . . . . . . 158.433 158.599 172.469 Provision for depreciation ..................... . . . . 29.108 29,260 30.856 .

Amortization (deferral) of net regulatory assets . . . . . . . . . . .. . . . . . 4.339 (4,339) 2.377 General tues . ... ................... . . . . . . . . . . . . 23,137 22,591 22.162 Income taxes ................... . . . . . . . . . . . . . . . . . . 23.280 23.196 21.069 Total operating expenses and taxes . . . . . . . . . . . . . . . . . . . . 238.297 229.307 248.933 OPERATING INCOME , . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63.668 62.777 66.525 OTilER INCOME AND EXPENSE: .

Perry Unit 2 termination (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . - (24,458) -

Income tax benefit from Perry Unit 2 termination . . . . , .

10.293 -

Other . . . .. .... . . . . . . . . . . . . . . . . . . . , l. Nil ] ,54) 781 Total other income (expense) . . . . . . . . . . . . . . . . . ___1.811 (12.623) 781 TOTAL INCOME . . . . ...... , . . . . . . . . . . . . 65.479 50.154 67 306 NET INTERFST:

Interest on long-term debt ..... ............... . . . . . . . 32.130 33.208 35,707 Interest on nuclear fuel obligations , , . . . . . . . . . . . . . . . . . . . $19 401 457 Allowance for horrowed funds used during construction . . . . . . . (728) (772) (678)

Other interest expense . . ............ . . . . . . . , . . . . . 2.298 1.653 864 Net interest . . . .,. . . . . . . . . . . . . . . . . . . . . . 34.219 34.490 36 350 INCOME IlEFORE CUMUI.ATIVE EFFECT OF A CllANGE IN ,

ACCOUNTING , . .... ...... , . . . . . . . . . . . . 31.260 15,664 30,956 Cumulative effect to January 1,1993, of a change in  ;

accounting for unbilled revenues (net of income taxes of 54.108,000)(Note 2) .... ...... . 5.653 NET INCOME ... ... . . . . . . . . . . . . . 31.260 21,317 30.956 l'REll:RRED STOCK DIVIDEND REQUIREMENTS . . . . . . . 5.364 5 863 6.499 EARNINGS ON COMMON STOCK . . . . . . . . . . . . . $ 25.896 $ 15.454 $ 24.457 The accompanying Notes to Financial Statements are an integral part of these statements.

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BALANCE SHEE'IS Pumannivania fewer C--

. At Decommber31 1994 1993 (la thousands)

ASSETS UTILITY PLANT:

In service, at original cost . . . ... .. .... . ........ ...... .... $1.215,831 $1.209.%I bee-Accumulated provision for depreciation .. .........,,.,, . .... .. ... 410.508 394.530 805 323 815.431 Construction work in progress-Electric plant . . . . . . . . . . . . .......... ... ..... ........... ... . 11.226 10.996 Nuclear fbel .............. .......... ... . ................... 12389 8.604 23.615 10.6n0 828.938 R35.031 OTilER PROPERTY AND INVESTMENTS . .......... ...... .... ....... 8.777 15.064 CURRENT ASSETS:

Cash and cash equivalente . . . ............... ........ ..... .... ...... 17.200 12.819 Nma receivable from parent company (Note 6) ..... .. . ...... .... ........ 25.000 -

Accounta receivable-Custonwrs (lesa accumulated provisions of $515.000 and $559.000, respectively, for uncollectible accounts) . ... .. . ....... ............ . 32.745 28,122 Pareni company . . ..., .... ........ ...... ........ ........... 20.777 19.737 Other . . . . . .... ...... .... .. ., .... ... . ...,...... 12.823 17,427 Materials and supplies, at everage cost-Fuel . ......... .... .. ........ .. . ... .... .. ... .. 5J84 4,350 Other . ...... ............ . ... .. .............. ..... .... 11,655 12.088 Prepayments ...... . . ..... .. ...... .... ... ... . .. .. 2.048 4.862 127.632 99.411 DEFERRED CilARGES:

Regulatory ansete .. .. . ....... ..... ... ... .. .. . . 219.726 222.301 Other . ., .. ... ... ... ...... ... ........... ..... . ... 8.125 9.176 227.851 231.477

$1.193.198 $ 1.180.9R 3 CAPITALIZA'I10N AND LIABILITIES CAPITAL.lZATION (See Statements of Capitalization):

Common stockholder's equity .. .... ......... .. ...... .. . .. . $ 258.973 $ 254.782 Preferred stock-Not subject to mandatory redemption . . ...... .......... .., ,.. 50.905 50.905 Subject to mandatory redemption . ... . . . ...... . 15.000 20.500 leng4erm debt-Associated companies . . .. .. .... ... . . .... . 15.155 16,401 Other . ............. .. . . ... .. . .. . ,, 409 3 02 424.154 749335 766.742 CURRENT LIABILITIES:

Currently payable preferred stock and long-term debt-Associated companies . .. . ....,. ... . ... ..... . .. 9.318 10.216 Other . . . . . . . . . ... . . . ...... . . . . .. .. 15,126 1.788 Accounts payable-Associated companies . . . . . .. .. . ... ..... .. .. ...... 9.440 7.755 Other . . . ... .. . .. . ... .. . .... .. ...., 25.276 32,680 Accrued taxes ....... ... . . .. . . . ............ ......... 15.421 6,658 ,

Accrued interest . . . ... . . . ..... . . .. 10.108 9.924 l Other , . , .. .. . . . . .. .. . . , . . 21.473 14.30R 106.162 83.329 DEFERRED CREDITS:

Accunmiated deferred inconw taxes ....... . .. ... . . 277.542 273.319 Accumulated deferred investment tax credits . ... . .. . .. 32.209 33,560 j Other . . . . ... .. . .. . . .. . . 27.950 24.033 337.701 330.912 "O%1MITMENTS. GUARANTEES AND CONTINGENCIFS (Notes 4 & 7) . . . .

$1.193.198 $ 1. I RO.9R 3 The accompanying Notes to Financial Statements are an integral part of these balance sheets.

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l STATFMENTS OF CAPITAL,1ZATION Pennestivamis Power Cessnauw l At Deceemiwr 31 (Douan in thousands, encept per share amoush) 1 l

1994 1993 I f

COMMON STOCKilOLDER'S EQUITY:- )

Comumn stock, $30 par value. 6,500,000 shares authorized,6,290,000 shares outstanding . . $188,700 5188.700 I Other paid-in capital . . . . . . . ....... . . ... . ............ . ....... (600) (310) j Retained earnings (Note $a) ...... ............... .............. ......... . 70.873 66.392  :

Total comnen stoc kholder's equity ... ... ... ..... ........ ............... 25R.973 ,J,14.,JH2 j i

Number of Shares Op**8

  • Outstandian Redemantion Price t PREET.RRED STOCK (Note 5b). '

Cunwlative. $100 par value-Authorized 1,200,000 shares  !

Not Subject to Mandatory Redemption: ,

4.24 % ...... .. .... ... . .. 40,000 40.000 $ 103.13 $ 4.125 4.000 4.000 .

4.25 % .. ..... .... ...... 41,049 41,049 105.00 4,310 4.105 4,105 -l 4.64 % ... ,, . ... . . ,,, 60,000 60.000 102.98  : 6,179 6,000 6,000 s 7.64 % . . . . . ,. , ,, 60.000 60,000 101.42 6.085 6,000 6.000 7.75 % .. .. . ... . .. 250,000 250.000 100.00 25,000 25,000 25,000 8.00 % 5R.000 $ R.000 5.920 5.800 5.800 '

... . . . 102.07 Total not subject to mandatory redemption . 509.049 509.049 5 51.619 50.905 50.905 j i

Subject to Mandatory Redemption (Note Sc):

150,000 150,000 l 7.625 % . . ,,, . ... ,,, . $ 107.63 $ 16.144 15,000 15.000 ,

Il .00% ., , ..... . . ,,. . - 3,616 - - - 362 13.00 % . . ...... .. .. . . - 60,000 - - - 6,000 i Redemption within one year . . . . . .

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Total subject to mandatory redemption .

I so,noO 2 0.616 5 16.144 15.000 20.500 t I

1,0NG. TERM DEHT (Note 5d):  ;

First nortgage bonda-9.000% due 1996 . . . . .. ..., ,.. . .. .... . .. ,, ..... . .. . 50.000 50,000 '

9.740% due 1999-2019 ... .,,. .. ... . .... .,,. ...... ..... ... 20,000 20,000 ,

7.500% due 2003 , .. .... .. . . , . ,... . . . 40,000 40,000 l

6.375% due 2004 .. . . . ., ,. .......... .. .. 50.000 50,000 6.625% due 2004 . . ... . ...,. . . .. . , ,.. . 20.000 20,000 8.500% due 2022 . . . . .. . ... . .. .... . . .. 50,000 50,000 7.625% due 2023 . . . , ,... ... . . . . ... , 40.000 40.000 Total first mortgage bonda . .. .. ..... . ... ... . . ... . . 270.000 270,000 Secured notes- l 4.750% due 1998 .... ,. . . . .. . .. .. .. .. . 850 850 6.080% due 2000 . . . .. . ............ .......... .. . 23.000 23.000  ;

5.400% due 2013 . . .. . . ... . .. . . ...... . . ........ 1,000 1,000 j 12.000% due 2014 . . . . ... .. .. . . .... ...... . . . .. ... - 12,700 8.125% due 2015 . .. . . ...... ... . . . . . .. . .. 14,250 14.250 t 5.4005 due 2017 . . . . .. . . . .. ... ..... .. . . . . . . . . . 10.600 10,600 j 7.150% due 2017 . . . ... . .... .. . . .., 17.925 17,925 ,

5.900% due 2018 . .. .. .... .... .... .... . ...... . 16,800 . 16.800 8.100% due 2018 . .. . . . . .. .. ... .. . ......... 10.300 10,300 i 8.100% due 2020 . .. . .. . . . . ... ,, .. .. . ... .. 5.200 5,200 7.150% due 2021. . . . . .. ... ... . .... . ...... ... 14,482 14,482 c 6.150% due 2023 .. .. . . .. . ...... . . .. 12,700 -

6.450% due 2027 ... . . . .. . .. . ... ........... 14,500 14,500 s 5.450% due 2028 . . . . . . . 6.950 6,950 5.950% due 2029 . ., , . . . . . . . ..., ... . ,, 238 238  ;

Total secured notes , , . ..,, . ..... . . .. . .. ... 14R.795 ,14R.795 Other obligations- l Nuclear luel . .. . . , , , , 24.120 25.89; ,

Capital leax:(Note 4) . . .. . .. . .. . . .

_.726 8.690  ;

Total other obligationa . .. . . . .. .. .. . , .... . ,,143 34.5M3 ,

Net unanortised discount on debt . . , ,, . . . .. .. t I .470) (1.681) <

tong-term debt due within one year . . . , ,,. . . . . (24.444) (11.142) l Total long-term debt . . . ... . . . ... .... . . 424.457 440f5ll  ;

TOTAL. CAPITAL.lZATION . . . . . . . , 5744.335 5766.742  ;

l The accompanying Notes to Financial Statenu are an integral part of these statements.  !

A i

4 l

8  !

t

l HATEMENTS OF RETAINED EARNINGS ' ghama Power Comammy For the Years Faded December 31, 1994 1993 N4 (la thousands)

Betance at beginning of year . . . . . . . ........ .......... ......... $ 66.392 $ 72,777 $ 77.317 Net incons . . . . . . . . . . .... ......... ... .. .... ......... . 31.260 21.317 30 956

. 97.652 94.094 108.273 Cash dividends on common stock ... . .. .. .... ........ ... 21.386 21.386 27,676 Cash dividends on prefemd stock . . . .. .. .. .. .. . , .... .. 5.035 5.639 6.448 Premium on redemption of prefemd stock ... . ...... ..... ......... 358 677 1.372 26.779 27.702 35 496 Balance at end of year (Note Sa) . . ,....... .. .. . ...... 1.7M7) $ 66.392 1777 l STATEMENTS OF CAPITAL STOCK AND OT1IER PAID-IN CAPITAL l

Preferred Stock Not Subjwt to Subject to Common Stork Mandatory Redesmotion Mandatory Redeusation Other Number Par Paid-la Number Par Number Par of Share XBlut Captal of b ra Yalue of b ru Xalut (Dollars in thousands)

Balance. January 1,1992 . . . . . . . 6.290.000 $188.700 $ 41 419.049 $41.905 379,016 $37,902 Sale of 7.625% Prsfemd Stock ....

150,000 15,000 Redemptions-8.24 5 Series . . ..... . (5,000) (500) 10.50 % Series . . . . . . . (100,000) g10,000) 11.00 % Series . .... .. (8.000) (800) 11.50 % Series ..... ... (15,000) (1.500) i I3.00 5 Series . . . ...... (10,000) (1,000) 15.00 % Series . . . . .... . (54.400) . . f5.440)

Balance, Iwammber 31.1992 .. . 6.290,000 188.700 41 419.049 41.905 336,616 33,662 Sale of 7.75% Prefemd Stock . . .. (345) 230.000 25.000 Redengtions-8.24 % Serica . . ...... (45.000) (4.500) 8.48 % Series .. .. (6) (80.000) (8.000) 9.16 % Series . . . .... (80.000) (8,000) 11.00 % Series . . . .. (8,000) (800) 11.50 % Series . . . . ...... (60,000) (6.000) 13.00 % Series . . . . . . . . (10.000) (1.000)

Balance, Dwammber 31,1993 . . . .. 6.290,000 188.700 (310) 509,049 50.905 2;3.616 21,362 Mininum lisbility for unfunded retirement benefits .,,.. . (290)

Redenttions-I 11.00 % Series . . (3.616) (362) 13.00 % Series . . . . ,.. (60.000) f6.000)

Balance Deceumber31.1994 900.049 150.905 150.000 $15.000 6.700.0n0 51 RM.700 LOO)

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

9 l

STATEMENIS OF CASH FIDWS Pensmiensis Pow 'wegar I l

For the Yemes Ended Deressber31, 1994 & 1992 (la *waaA)

CASil FLOWS FROM OPERATING ACTIVITIES:

Net incorne . . . . . . .. ............ ..... .... .. ... .. $ 31J60 $ 21.317 $ 30.956 I Adjustments to reconcile net income to net cash from operating activities:  ;

Provision for depreciation ... . ... . .. . ...... 29.108 29,260 30,856  !

Nuclear fuel and lease amortization . . . . . . . . ..... . . , . .. 10.656 8.812 13.866 l De ferred incorne ta tes, net . . . . . . . . . . . . . . . . . . . . . . . . ............ 7.578 10.261 (446)  ;

investment tax credits, net . ... ....... . ........ ........... (I.351) (1.361) (959)  !

Deferred revenue . ...... ................... ... ... . . - - 19,517 l Allowance for equity funds used during construction . . . . .... .... .... . (408) (237) (114)

Deferred ibel costs, net . .. ... . . .. .. . . . ... .... (4,091) 199 2.745 Cumulative effect of an accounting change for unbilled revenues .... ................ . ... ............. - (5,653) -

Perry Unit 2 termination . . . . . . . . . . . ... . .. . ... .. .. .. - 24,458 -

Other .................. ... ....... . .. . ... 7.219 -

2377  ;

Internal cash before dividends . . . .. ... ......... ... . 79.971 87,056 98.798 '

Receivables ..... ... ......... ., ...,.... .. . . . (1.059) (5.974) 19,077 Materials and supplies . , . .. . .. ... . . ... . (601) 4,666 (3,870)

Accounts payable . . . . . . . . . . ., ..,, ..... . ., , .. . (1.686) 4.196 (8,886)

Other ... .... . . ,. .. . . ... . . . . 28.171 (6.178) (11.560)

Net cash provided from operating activities .... . .. ... . 104.796 R3.766 93.559 i

CASil FLOWS tROM 11NANCING ACTIVITIES:

New Financing-  !

Preferred stock . . . . . . . . . . . ......... ............... . .. - 24,654 15.000 Long4erm debt . . .. ...... .. .. .. ........ ... . 11,868 149,867 102,914 Notes payable. net . . . . . . . . . . . . . . . . ...... ... . ..... . - -

7.000 Redemptions and Repayments-Preferred stock .. ...... .... ...... ..... .. . . .. .. 6,687 28,970 20,612 Long4erm debt . . .... .... . . ....... . . ... ... .. 23.655 145.809 137,343 l Notes psymble, net . . . . . . . . . ... . . ........ ... ... .... . - 15,000 -

Dividend Payments-Common stock . .. .. ... .. . .... . .. ... 21,386 21.386 27.676 i Preferred stock ... .. ....... . . .. .. . . . .... ... _ LQ)M 5.639 6.448 Net cash used for financing activities . . . . . .. . 44.895 42.2R3 67.165 ,

CASII FLOWS 11 TOM INVESTING ACTIVITIES:

Property additions . ..... ... .. . ........ ... ....... .... 30,072 31.328 26.465  :

loan to parent . .. ..... ...... . .... . . . . . .. 25.000 - -

Other ..... . ... .... ...... ... ...... ........... 448 999 344 Net cash used for investing activities ............ .. ..... ..... 55.520 32327 _26mL09 9,156 Net inwrease (decrease)in cash and conh equivalents . . . . . . . .. ... .. . 4.381 (415) .

Cash and enah equivalents at beginning of year . ............. . .. . .. 12.819 3.663 4.078 {

Cash and cash equivalents at end of year . .. . . . . .. .. .....

E00 M9 1 3NJ SUPPL.F. MENTAL CASil 11,0WS INFORMATION:

Cash paid during the year- [

Interest (net of amounts capitalized) , ,, , .. . . . . $ 31,738 $ 32.391 $ 37.111  ;

inconw tases .. .. . . .. . ........ . .. . 19.873 10.403 31.312 The accompanying Notes to Financial Statements are an integral part of these staternents.

I F

I t

10 i

I STATEMEfffS OF TAXES Pensasvleania Power Cunasy  !

-t i

For the Years Ended Deraintwr 31 1994 _.J 99.J_ 1992 (la thnanands)

CENERAL TAXES:

Stats grosa receipts , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11.024 $10.754 $10.623 f Real and personal ptwerty . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,699 6.712 6,762'  !

State caphal stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.440 2.000 2,252 Social security and unemploynwnt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,590 2.643 2.067  !

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184 482 458

. Total general taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 g g  ;

PROVISION FOR INCOME TAXES:

. Currently payable-  !

i Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11.040 $ 3.292 $14.933  :

i State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.066 716 7.591 l 18.106 4.008 22.484 i Deferred, net-  !

Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.088 10,035 254 ,

State . . . . . . . . . . . . . . . . . . . . . .. . . . (510) 4.291 (70m j 7.578 14,336 (446)

Investnwns tax credits, net of snortization . . . . . . . . . . . . . . . . . . . (1.351) _fl.361) (939)

Total provision for income taxes . . . . . . . . . . . . . . . . 124.333 $16.973 $21.079 h

INCOME STATEMENT Cl.ASSIFICATION OF PROVISION NR INCOME TAXFS:

Opeesting e xpenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $23.280 $23,196 $21,069 Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,053 (10.331) 10 Cumulative effect of a change in accounting . . . . . . . . . . . . . . . . . - 4.10R -

Total provision for income taxes , , . . . . . . . . . . , . . . . . $24.333 $ l6.973 $2I.079 ,

RFCONCil.lATION OF FEDERAL INCOME TAX EXPENSE AT STATUTORY RATE TO TOTAI. PROVISION mR INCOME TAXFS: i Book income before provision for income taxes . . . . . . . . . . . . . . . . . . . $55.593 $18.290 $92.035 ,

Federal income tax expenas at statutory rate . . . . . . , . . . . . . . . . . . $19.458 $13.402 $17.692 ,

lacreases (reductions)in taxes resulting from: .

[

State inco no taxes. net of federal income tax benefit . . . . . . . . , , . . . . 4.261 3.255 4.522 Amortization ofinvestment tax credits . . . . . . . . . . . . . . . . . . . . . (I.351) (1.361) (2.279) j Excess of book over tax depreciation, net . . . . . . . . . . . . . . . - -

2.863  !

Amortization of tax regulatory enacts . , , . 2.231 2.376 '-

[

Other, net . . . . . . . . . . . . . . . . . . . , . . . . . . . . . . . (266) (699) (1.719)  ;

Total provision for inconw taxes . . . . . . . . . . . . . . . . . . 124.333 $16.973 $21.079 t f

SOURCES OF DEITRRED INCOME TAXFS:  !

Excess of tax over book depreciation, net . . . . ... . . $ 1.370:

Difference between tax and twk revenue, net . . . . . . . . . . . . . . . . . . (6.835)

Deferred fuelcasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,042)  ;

^

' Deferred loss on reacquired debt, net . . . . . . . . . . . . . l.605 Anertization of deferred interest on leased wuclear fuel . . . . . . . . . . . (1,144)

Alternative minimum tax credits utilized . . . . . . 5,843 d

Pension costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.329 [

, Recoverable las surcharge costs . . . . . . . . . . . . . . . . . (978)

  • Other, net . . . . . . . . . . . . . . . . . , . . . . . . . . . . . . 0 94)

[

Net deferred income taxes . . . . . . . . . . . . . . . . . $ (446)

ACCUMt't.ATED DEFERRED INCOME TAXES AT DECFMBER 31t  ;

Pmperty basin diffe*ences . . . . . . . . . . . . . . . . $17N 345 $171.581 l Abwance for equity funds used during construction . . , , , . . . . . . . . 39,921 41.091 Deferred nuclear expense . . . . . . . . . . . . . . . . . . . . . 8.914 8.914 f Customer receivables for future income taxes . . . . . . . . . . . . . , . . . . 55.498 56.736  ;

Unamortized investnwnt tax credits - . . . .. . . . . . . . . . . . . . . . . (13.557) (14.124) [

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.421 9.121 Net deferred income tax liability . . , . . . . . . . . $277.542 $273.319 4 The accompanying Notes to Financial Statements are an integral part of thcae statenwnts.

1 11

~ .-- .--,n.> - > -

NOTES TO FINANCIAL STATEMENTS UTILITY PLANT AND DEPRECIATION-I.

SUMMARY

OF SIGNIFICANT' Utility plant reflects the original cost of ACCOUNTING POLICIES: construction, including payroll and related costs such as taxes, employee benefits, administrative The Company, a wholly owned subsidiary of and general costs and financing costs (allowance Ohio Edison Company (Edison), follows the for funds used during construction).

accounting policies and practices prescribed by the The Company provides for depreciation on a Pennsylvania Public Utility Commission (PPUC) straight-line basis at various rates over the and the Federal Energy Regulatory Commission estimated lives of property included in plant in (FERC). service. The annual composite rate for electric plant was 2.7% in 1994 and 1993 and 3.0% in -

REVENUES-The Company's retail 1992. Effective in 1993, the anc,ial composite rate customers are metered on a cycle basis. Revenue was reduced as a result of the Company's was recognized for electric service based on depreciation study filed with tne PPUC which took meters read through the er,d of the year for years into consideration extended useftd lives of certain prior to 1993. Beginning in 1993, revenue is generation and distribution facilities. i recognized to include unbilled sales through the The Company recognizes approximately end of the year (see Note 2). $300,000 annually (as depreciation expense) for Receivables from customers include sales to future decommissioning costs applicable to its residential, commercial and industrial customers ownership interest in two nuclear generating umts, located in the Company's service area and sales to The Company's share of the future obligation to wholesale customers. There was no material decommission these units is approximately concentration of receivables at December 31,1994 $70,000,000 in current dollars and (using a 2.8%

or 1993, with respect to any particular segment of escalation rate) approximately $142,000,000 in the Company's customers. future dollars. The estimated obligation (based on site specific studies) and the escalation rate were FUEL COSTS-The Company recovers fuel developed using information obtained from and net purchased power costs not otherwise consultants. Payments for decommissioning are recovered through base rates from its customers expected to begin in 2016, when actual through an annual "levelized" energy cost rate decommissioning work begins. The Company has (ECR). The ECR, which includes adjustment for recovered approximately $2,676,000 for any over or under collection from customers, is decommissioning through its electric rates from recalculated each year. Accordingly, the Company customers through December 31,1994; such defers the difference between actual energy costs amounts are reflected in the reserve for and the amounts currently recovered from its depreciation on the Balance Sheet. If the actual customers. cosa of decommissioning the units exceed the in March 1993, the Office of Consumer accumulated amounts recovered from customers, Advocate (OCA) filed a complaint against the the Company expects that difference will be Company with the PPUC regarding the Company's recoverable from its customers. The Company has ECR. The complaint objected to the elimination of approximately $3,900,000 invested n. sternal certain contractual arrangements for the sale of decommissioning trust funds as of December 31, generating capacity to Edison. In the past, sales 1994. Earnings on these funds are reinvested vith under these arrangements were included in the a corresponding increase to the depraiation ECR calculation, and the OCA alleged the reserve. The Company has also recognizul an elimination of the arrangements increased the estimated liability of approximately $4,400,000 Company's recoverable energy costs. The related to decontamination and decommissioning of i Company recognized a charge of approximately nuclear enrichment facilities operated by the

- $4,950,000 ($2,864,000 after-tax) in the fourth United States Department of Energy (DOE), as quarter of 1993 relating to the expected resolution required by the Energy Policy Act of 1992. The of this issue. The PPUC ordered the Company to Company recovers these costs through its ECR.

begin refunding the $4,950,000 to customers by The staff of the Securities and Exchange l

reducing its ECR fmm April 2,1994 through Commission has raised questions regarding the March 31,1997. recognition, measurement and classification of 12

decommissioning costs for nuclear generating The Company amortizes the cost of nuclear stations in the financial statements of electric fuel based on the rate of consumption. The utilities. In response to these questions, the Company's electric rates include amounts for the Financial Accounting Standards Board (FASB) has future disposal of spent nuclear fuel based upon agreed to review the accounting for nuclear the formula used to compute payments to the

decommissioning costs, if current electric utility DOE.

, . industry accounting practices for decommissioning are changed: (1) annual provisions for INCOME TAXES--Details of the total decommissioning could increase; (2) the full provision for income taxes are shown on the estimated cost for decommissioning could be Statements of Taxes. Deferred income taxes result recorded as a liability rather than as accumulated from timing differences in the recognition of depreciation; and (3) income from the external revenues and expenses for tax and accounting decommissioning trusts could be reported as purposes. All investment tax credits which were investment income. The FASB's review is deferred when utilized, are being amortized over expected to be completed in 1995, the estimated life of the related property.

The Company adopted Statement of Financial COMMON OWNERSillP OF Accounting Standards (SFAS) No.109, GENERATING FACILITIES-The " Accounting for Income Taxes," on January 1, Company and other Cer; tral Area Power 1993, which requires the liability method to be Coordination Group (CAPCO) companies own, as used to account for deferred income taxes. Under tenants in common, various power generating this standard, deferred income tax liabilities related f acilities. Each of the companies is obligated to to tax and accounting basis differences are pay a share of the costs associated with any jointly recognized at the statutory income. tax rates in owned facility in the same proportion as its effect when the liabilities are expected to be paid, ownership interest. The Company's portion of The components of accumulated deferred income operating expenses associated with jointly owned taxes as of December 31,1994 and 1993, are facilities is included in the correspending operating disclosed on the Statements of Taxes, expenses on the Statements of Incomc. The The Company is included in Edison's amounts reflected on the Balance Sheet t.Ar consolidata1 federal income tax return. The utility plant at December 31,1994, include the consolidated tax liability is allocated on a following: " stand-alone" company basis, with the Company recognizing any t x losses or credits it contributed tmy Au-uinut.ited Comtnic- Cosapuny's to the Consolida(ed ret"rn. The Company has ison rrmision tion owner-37,000,000 of t tx-relatui receivables due from Generating in for work in ship .

t ,,i,, s,%, n,. r a uo. en.ano. Ine,re. Edison resulting from its contribution to the 0= 'ha===N consolidated return.

w. II. sanunis #7 5 57.100 s IR.4T $ 100 20.80 %

nrue. ht. r, w RETIREMENT BENEFITS-The si. r2.na a2 90.700 39.000 i.400 5.76 s Company's trusteed, noncontributory defined NvY""

r..w 57:unn 52ni jnn su.on N $5 benefit pension plan covers almost all full-time employees. Upon retirement, employees receive a monthly pension based on length of service and compensation. The Company uses the projected  :

NUCLEAR FUEI -OES Fuel, Incorporated unit credit method for funding purposes and was (OES Fuel), a wholly owned subsidiary of Edison, not required to make pension contributions during is the sole lessor for the Company's nuclear fuel the three years ended December 31,1994, requirements.

Minimum lease payments during the next five ,

years are estimated to be as follows:

iw3 5s.965.000 1996 5.672.oA 1997 4.876.000 1998 2.912.000 low 676.000 13

De following sets forth the funded status of Benefits Other Than Pensions," which requires l the plan and amounts recognized on the Balance companies to recognize the expected cost of l Sheets as of December 31: providing other postretirement benefits to employees and their beneficiaries and covered I"4 I"3 dependents from the time employees are hired I

'

  • I Actuarial preunt value or denent until they become eligible to receive those l ad;,ai;on,. benefits. The Company does not currently fund  ;

vesied bener;ta $ 83.789 $ 7s.042 these future benefits. Costs paid by the Company ,

_Ennvented benen;s s.x62 5.933 l Accumulated benefit oblivelion $ K9,651 $ 8(975 for retiree health care and life insurance benefits of 6

$1,411,000 were charged to ,ncome i ,in 1992, .

Pian a.ut. si rair valu. $ 114.s81 $ 123,092 The following sets forth the accrued Actuarial puuni value ore nie'ted postretirement benefit cost on the Balance Sheets benent a,iision ion.498 107.702 Plan assets in excess of pniected gg g, y , i benent obligation 6,383 15,390 Unrecognized net gain (1,281) (1,61I) 1994 1993 Unrecognized prior wrvice cost 2,347 2,563 (la thousands)

Unrecornited net transitinn asset (8.426) (9.479) Accumulated postretirement benent Net penainn snaet dishihty) $ f 977) $ 6.863 obligation allocation:

Retirees $ 28,056 $ 20,604 The assets of the plan consist primarily of Fully eligible active plan participants 1,817 6,794 common stocks, United States government bonds j,',,' 'y'"[,'"'"n, ' 8 "3 "57 and corporate bonds. Net pension costs for the obiigation 48,136 42.905 three years ended December 31,1994, were unrecognized iransition obligation (30.588) (32,287) unmeorni7ed net ion tosin (s.357) computed as follows: Accmed postretirement benefit coat $ 10.637 $ 5.261 tw4 iw3 Iw2 Net periodic postretirement benefit costs for service consbeneni earned the years ended December 31,1994 and 1993 during the period 5 3.294 $ 2.802 $ 2,828 were computed as follows:

Interest on pniected benerit 1994 1993 obligation S.158 7.28: 6,612 (la thousamis)

Return on plan annets 1,346 (15.653) (9.336) service cost-benents attributed to the period $1,109 $ 866 Net dererral (anertization) (14,092) 2.366 (3,652) Interest cont on accumulated benefit obligation 3.496 3.129 voluntary early retirenwnt Amortization or transition obhgation 1,699 1,699 program eunen=e 9.134 3.930 -

Anortization or loss 196 -

Net pension cost $ 7.R40 $ 726 $ (334R) Voluntary early retirement enirram expense 669 1.112 Net periodic postretirement benefh cost 7.169 6,806 The assumed discount rate used in Benenia naid 1.793 1345 determining the actuarial present value of the 3"'"3'" ** **d r""'i"*'"' g ,, g,,

projected benefit obligation was 8.5% in 1994, 7.5% in 1993 and 9% in 1992. The assumed rate The health care trend rate assumption is of increase in future compensation levels used to 7.89% in the first year gradually decreasing to measure this obligation was 4.5% in each year. 3.5% for the year 2008 and later. The discount Expected long-term rates of return on plan assets rates used to compute the accumulated were assumed to be 10% in 1994 and i1% in 1993 postretirement benefit obligation in 1994 and 1993 and 1992.

were 8.5% ai.d 7.5%, respectively. An increase in The Company provides a minimum amount of the health care trend rate assumption by one noncontributory life insurance to retired employees percentage point in all years would increase the in addition to optional contributory insurance, accumulated postretirement benefit obligation by llealth case benefits, which include certain approximately $6,900,000 and the aggregate employee deductibles and copayments, are als annual service and interest costs by approximately available to retired employees, their dependents $800,000, and, under certain circumstances, their survivors.

The PPUC has authorized the Company to The Company pays insurance premiums to cover a defer the incremental costs resulting from adopting portion of these benefits in excess of set limits; all '

SFAS No.106 (compared to costs computed under amounts up to the limits are paid by the Company.

the former accounting basis) for future recovery in 1993 the Company adopted SFAS No.106 from its retail customers. Similar authorizations

" Employers' Accounting for Postretirement relating to otner utilities regulated by the PPUC 14

were appealed by the OCA to the Commonwealth redcmption and investments other than cash and Court of Pennsylvania. The Commonwealth Court cash equivalents as of December 31:

has issued conflicting opinions and both cases have " 94 1"3 r

been appealed to the Pennsylvania Supreme Court. Cagjna Due to the uncertainty resulting from these on miniom>

conflicting opinions, the Company provided a l"""*""" $'" $ 3** $ '" $ '"

reserve in the fourth quarter of 1994 of Preferred stock $ 15 $J2 1 2 $ 2:

$8,728,000 ($5,066,000 after-tax) against the full i.ve.tment, oiner is . ,

amount deferred. enh.ndcah eauiv.iena s s s s s s s s TRANSACTIONS WITII AFFILIATED The fair values of long-term debt and COMPANIES-Transactions with affiliated preferred stock reflect the present value of the cash companies are included on the Statements of outflows relating to those securities based on the income as follows: current call price, the yield to maturity or the yield n94 n93 9 92 to call, as deemed appropriate at the end of each on tho.nnds) respective year. The yields assumed were based on opu. ting revenue.: securities with similar characteristics offered by a tiniric ute. io Edi on 5 a.464 s s.7si s22.755 Bruce M nsfielJ Pl.nt coToration with credit ratinbs similar to the

.dministr.tive .nd gener.1 Company's ratings. The fair value of investments ch.rge.no Ediuin 6,03s 5.652 2.529 other than cash and cash equivalents represent cost (which approximates fair value) or the present

  • $""" 342 3ss 37:

value o the cash mflows based on the yield to 1

l

$14.R44 $14 78R 124.655 Fuel .nd purch.ned power: maturity. The yields assumed were based on power punh..ed from Edi.on si2.673 s s.667 si3.936 financial instruments with similar characteristics NrIt ti.529 10.3s6 15.109 and terms. All of the Company's financial 524.w2 s n.o23 529.i35 instruments are for purposes other than trading.

Other oper.tmg cost.:

es n "$i r 51.io2 s 1.042 s i.172 REGULATORY ASSETS-The Company D.t. procening .ervice, recognizes, as regulatory assets, costs which the rmm rm.on 2.706 3.307 2.624 FERC and PPUC have authorized for recovery from customers in future periods. Without such rE "" ~ 3.coR 4.345 2.679 authorization, the costs would have been charged

$ 7.716 $ Rfo4 5 6.475 to income as incurred. Amounts shown below as SUPPLEMENTAL CASil FLOWS being recovered currently would be recovered over INFORMATION-All temporary cash approximately 24 years based upon amounts investments purchased with an initial maturity of amortized during 1994.

three months or less are reported as cash Regulatory assets on the Balance Sheets are equivalents on the Balance Sheets. The Company comprised of the following:

reflects temporary cash investments at cost, which approximates their market value. Noncash nu m3 financing and investing activities included capital co,,,niiy 3,;o, ,,co,,,,a i3,ou,3 ,,i,,;

lease transactions amounting to $7,566,000, comon=, receiv. die. ror

$2,357,000 and $10,721,000 for the years 1994, future iacom' **"es 5:32.o:2 si35.197 .

"'"P*Y'"e. 4.724 4.ois I 1993 and 1992, respectively. los. on re.cquired debt 11.967 12.551 All borrowings with initial maturities of less oos decommi ;oning.nJ demntamination w.t. 4.582 3.192 l than one year are defined as financial instruments Dd'"'d f" '"" 7 3 under generally accepted accounting principles and 3gf[, g,]

are reported on the Dalance Sheets at cost which approximates their fair market value. The Not currently recovered through r.te.:

following sets forth the approximate fair value and N"I unii nrenae. 21.180 21.180 related carrying amounts of all other long-term 'Nr N' "" "'

Perry unii 2 termineon 4.339 37+37 debt, preferred stock subject to mandatory 38.o66 59.246 63.156 Total s2i9.726 $222 30i 15

2. CIfANGE IN ACCOUNTING FOR The future minimum lease paymerits as of UNBILLED REVENUES: December 31,1994, are:

capital opwatins On January 1,1993, the Company changed its '"Qj" accounting policy to recognize revenue relating to 1995 $ 2.367 $ 247 i metered sales which remain unbilled at the end of 1996 1.793 247 243 the accounting period. This change was made to lj47

[ 97 more closely match the Company's revenues with 1999 1.179 209 l the costs of services provided. He effect of this Years thereafter 13.673 3.779 change decreased net income for the year ended wi minimum tem paymems 21.9 to Egg

" #'362 December 31,1993, (before the cumulative effect [*'[,[,"'i,,,, p,,,,,, ,7,343 from periods prior to 1993) by approximately interconroon 10.o92

$900,000. The cumulative effect to January 1, Present value of net minimum 1993, was $5,653,000 (net of $4,108,000 of income taxes). The reported results of operations g,'** ,, P'{"""t., g, $6 9 nnocumnt nonian S 6.227 for the year ended December 31,1992 would not have been materially different if this new 5. CAPITALIZATION:

accounting policy had been in effect during that year. (a) RETAINED EARNINGS-Under the Company's Charter, the Company's retained

3. PERRY UNIT 2 TERMINATION: earnings unrestricted for payment of cash dividends on the Company's common stock were In December 1993, the Company announced $59,307,000 at December 31,1994, that it would not participate in further construction of Perry Unit 2 and abandoned Perry Unit 2 as a (b) PREFERRED STOCK-The Company's possible electric generating plant. The Company 7.625% and 7.75% series of preferred stock have expects its Perry Unit 2 investment to be restrictions which prevent early redemption prior recoverable from its PPUC jurisdictional to October 1997 and July 2003, respectively. All ,

customers based on Section 520 of the other preferred stock may be redeemed by the Pennsylvania Public Utility Code. Due to the Company in whole, or in part, with 30-60 days' anticipated delay in commencement of recovery notice. The optional redemption price for the and taking into account the expected PPUC rate 7.625% series shown on the Statements of treatment, the Company recognized an impairment Capitalization will decline to $100 per share by to its Perry Unit 2 investment of $24,458,000 in 2007.

1993, reducing net income by $14,165,000.

(c) PREFERRED STOCK SUBJECT TO

4. LEASES: MANDATORY REDEMI'flON-The  :

Company's 7.625% series has an annual sinking The Company leases certain transmission fund requirement for 7,500 shares beginning on >

facilities, computer equipment, office space and October 1,2002, other property and equipment under cancelable and noncancelable leases. Consistent with the (d) LONG-TERM DEBT-The first mortgage regulatory treatment, the rental payments for indenture and its supplements, which secure all of capital and operating leases are charged to the Company's first mortgage bonds, serve as operating expenses on the Statements of Income. direct first mortgage liens on substantially all Such costs for the three years ended December 31, property and franchises, other than specifically 1994, are summarized as follows: excepted property, owned by the Company.

I"4 1"3 1"2 Maturing long-term debt (excluding capital leases) op,,,,; ,,,,,, during the next five years are $14,250,000 in interras cienwn $ 208 $ 171 5 212 1995, $50,000,000 in 1996, $850,000 in 1998 and other s93 912 1.032 $487,000 in 1999.

Capital leases Interest element 945 1,070 1.169 Other 1.314 1.273 1.231 Total ren'ai revown's $1.360 $ 1.426 $1.644 16

Tha Company's obligations to repay certain potential assessment under the industry pollution control revenue bonds are secured by retrospective rating plan (assuming the other series of first mortgage bonds and, in some cases, CAPCO companies were to contribute their by subordinate liens on the related pollution proportionate share of any assessments under the control facilities, retrospective rating plan) would be $18,000,000 per incident but not more than $2,300,000 in any

6. SHORT-TERM FINANCING one year for each incident.

ARRANGEMENTS: The Company is also insured as to its interest in Beaver Valley Unit I and the Perry Plant under i The Company has lines of credit with banks policies issued to the operating company for each l that provide for borrowings of up to $5,000,000 plant. Under these policies, up to $2,750,000,000 1 under various interest rate options. Short-term is provided for property damage and borrowings may be made under these lines of decontamination and decommissioning costs. The credit on the Company's unsecured notes. To Company has also obtained approximately assure the availability of these lines, the Company $53,100,000 of insurance coverage for

)

is required to pay annual commitment fees of replacement power costs for its interests in Perry l 0.50%. These lines expire at various times during and Beaver Valley Unit 1. Under these policies, j 1995. the Company can be assessed a maximum of ,

The Company also has a credit agreement approximately $2,600,000 for accidents at any j covered nuclear facility occurring during a policy with Edison whereby either company can borrow funds from the other by issuing unsecured notes at year which are in excess of accumulated funds the prevailing prime or similar interest rate. Under available to the insurer for paying losses.

the terms of this agreement the maximum The Company intends to maintain insurance borrowing is limited only by the availability of against nuclear risks as described above so long as funds; however, the Company's borrowing under it is available. To the extent that replacement this agreement is currently limited by the PPUC to power, property damage, decontamination, a total of $50,000,000. Either company can decommissioning, repair and replacement costs and terminate the agreement with six months' notice. other such costs arising from a nuclear incident at any of the Company's plants exceed the policy

7. COMMITMENTS, GUARANTEFS AND limits of the insurance from time to time in effect CONTINGENCIES: with respect to that plant, to the extent a nuclear incident is determined not to be covered by the CONSTRUCTION PROGRAM-The Company's insurance policies, or to the extent Company's current forecast reflects expenditures such insurance becomes unavailable in the future, of approximately $138,000,000 for property the Company would remain at risk for such costs.

additions and improvements from 1995 through 1999, of which approximately $28,000,000 is GUARANTEES--The Company, together applicable to 1995. Investments for additional with the other CAPCO companies, has severally nuclear fuel during the 1995-1999 period are guaranteed certain debt and lease obligations in estimated to be approximately $29,000,000, of connection with a coal supply contract for the which approximately $4,000,000 applies to 1995. Bruce Mans 0 eld Plant. As of December 31,1994, During the same periods, the Company's nuclear the Company's share of the guarantee (which fuel investments are expected to be reduced by approximates fair market value) was $10,952,000. i approximately $39,000,000 and $9,000,000, The price under the coal supply contract, which  !

respectively, as the nuclear fuel is consumed. includes certain minimum payments, has been determined to be sufficient to satisfy the debt and NUCLEAR INSURANCE-The Price- lease obligations. The Company's total payments Anderson Act limits the public liability relative to under the coal supply contract amounted to a single incident at a nuclear power plant to $10,071,000, $13,230,000 and $12,082,000

$8,920,000,000. He amount is covered by a during 1994,1993, and 1992, respectively. Under combination of private insurance and an industry the coal supply contract, the Company's minimum retrospective rating plan Based on its present payments in each year during the period 1995 i

ownership interests in Beaver Valley Unit I and through 1999 are approximately $4,000,000.

the Perry Plant, the Company's maximum 17

l ENVIRONMENTAL MATTERS-Various to any such changes and to the environmental federal, state and local authorities regulate the matters described above, the Company expects that Company with regard to air and water quality and any resulting additional capital costs which n.ay be ,

other environmental matters. The Company has required, as well as any required increase in j estimated additional capital expenditures for operating costs, would ultimately be recovered environmental compliance of approximately from its customers.  ;

$ 12,000,000, which is included in the construction j forecast under " Construction Program" for 1995 8.

SUMMARY

OF QUARTERLY  ;

through 1999. FINANCIAL DATA (UNAUDITED): l The Clean Air Act Amendments of 1990 '

require signincant reductions of sulfur dioxide The following summarizes certain operating (50 2) and nitrogen oxides (NO,) from the results by quarter for 1994 and 1993.  ;

Company's coal-fired generating units by 1995 and i additional emission reductions bY 2000' M*"h 38' J""' 38' 8'P' 38' '* 33' Three Months Faded 1994 1994 1994 1994 Compliance options include, but are not limited to, tin th- ne) ,

installing additional pollution control equipment, Operating Revenues $78.358 $74,700 $77,055 $7i,852 burning less-polluting fuel, purchasing emission "P'$",8

, Expenses allowances, operating facilities in a manner that operating incon= is.ts6 is,703 i9,6is 12,i6 minimizes pollution, and retiring facilities. In a Ij'[,',"

g ," ,$ ,5,22 gps g system compliance plan for the Company and see income sio.is7 s s.777 sii.224 s 4,io2 Edison submitted to the PPUC and to the Eam"y*"aCamm"a s , , ,

c Environmental Protection Agency (EPA), the Company stated that 502 reductions for the years 1995 through 1999 likely will be achieved by Manh 31. Jone so, sept. 30, p.e. 31,  !

burning lower-sulfur fuel, generating more nree Month, roded 1993 1993 1993 1993 electricity from lower-emitting plants, and/or - (3 'b*""*) '

purchasing emission allowances. EquiEment e m ung Revenues n4.274 no."266n6.226 ni,31:

Operating Expenses already installed, or to be installed by May 1995, .na Tsie. 61.272 53.70s 56.710 s7.6i7 ,

is expected to provide NO, reductions sufficient to o r=tias lacaw 13,m2 16,558 19,516 is,7oi i 68 7 (13,328) I meet 1995 requirements. Plans for complying with (*h*[,lmonw y (Expense) the year 2000 and later reductions have not been isonw (u.o actore Onalized. EPA is conducting additional studies cumuladve Efrect of a C ""8' i" ^"""ung 4.52 s,ios i t,i34 (s.m6)  !

which could indicate the need for additional NO* Cumulative Effect or a reductions from the Company's Pennsylvam.a ca,m.,;n w ounon, 5.653 - - -

facilities by the year 2003. The cost of such Net incame amo $10.174 s a. ins sii.i34 sca.no6) i reductions, if required, may be substantial. The EarmngHbso Apphcable Company continues to evaluate its compliance plan and other compliance options.

The Pennsylvania Department of Environmental Resources has issued regulations dealing with the storage, treatment, transportation

]

and disposal of residual waste such as coal ash and j scrubber sludge. These regulations impose additional requirements relating to permitting, ground water monitoring, teachate collection systems, closure, liability insurance and operating j matters. The Company is considering various compliance options but is presently unable to determine the ultimate increase in capital and operating costs at existing sites.

Legislative, administrative and judicial actions ,

will continue to change the way that the Company  ;

must operate in order to comply with l

environmental laws and regulations. With respect '

18 1

b

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Pennsylvania Power Company:

We have audited the accompanying balacce sheets and statements of capitalization of Pennsylvania Power Company (a Pennsylvania corporation and wholly owned subsidiary of Ohio Edison Company) as of December 31,1994 and 1993, and the related statements of income, retained earnings, capital stock and other paid-in capital, cash flows and taxes for each of the three years in the period ended December 31,1994.

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting pricJples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion, in our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Pennsylvania Power Company as of December 31,1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December 31,1994, in conformity with generally accepted accounting principles.

As discussed in Notes I and 2 to the financial statements, effective January 1,1993, the Company changed its method of accounting for unbilled revenues, income tar.es and postretirement benefits other than pensions.

t up Rd4240 lLY Arthur Andersen LLP Cleveland, Ohio February 3,1995 19

BOARD OF DIRECTORS OFFICERS II. Peter Burg Willard R. IIolland President of the Company, and Chairman of the Board and Chief Executive Senior Vice President and Chief Financial Officer Officer of the Company's parent, Ohio Edison Company, Akron, Ohio. II. Peter Burg President Robert II. Carlson Retired, formerly President and Chief Executive James R. Edgerly Officer of Universal-Rundle Corporation, a Vice President plumbing fixture manufacturer, New Castle, Pennsylvania. Jack E. Reed Vice President  ;

James R. Edgerly Vice President of the Company, New Castle, Robert P. Wushinske Pennsylvania. Vice President, Secretary, Treasurer, and General Counsel Willard R. IIolland Chairman of the Board and Chief Executive David W. McKean Officer of the Company, and President and Chief Comptroller Executive Officer of the Company's parent, Ohio Edison Company, Akron, Ohio. Randy Scilla ,

Assistant Secretary and Assistant Treasurer Joseph J. Nowak Retired, formerly Vice President of Armco inc., a Mr. Holland is president and chief executive manufacturer of steel products, Pittsburgh, officer and Mr. Burg is senior vice president and Pennsylvania. chief financial officer of the, Company's parent.

The principal employment of all other officers is Jack E. Reed with the Company.

Vice President of the Company, New Castle, Pennsylvania. TRANSFER AGENT and REGISTRAR for Preferred Stock:

Richard L. Werner Office of the Company's parent Chairman of the Board and President of Werner Ohio Edison Company Co., a manufacturer of aluminum extrusions, Investor Services ladders and scaffolding, Greenville. Pennsylvania. 76 South Main Street i Akron, Ohio 44308-1890 i DIRECTOR EMERITUS PRINCIPAL OFFICES:

G. l.co Winger i E. Washington Street l P. O. Box 891 New Castle, Pennsylvania 16103-0891 (412) 652-553i Pennsylvania Power Company is an equal opportunity employer.

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Pann:ylv:nla Power Company 1 E. Washington Street P, O. Box 891 N:w Castle, PA 16103-0891 (412)G52 5531 1994 Annual Report a

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