Text

Ohio Edison Annual Rept,1983
	ML20091A224
Person / Time
Site:	Beaver Valley, Perry, Vermont Yankee, Crystal River, 05000000, Zimmer
Issue date:	12/31/1983
From:	Rogers J; OHIO EDISON CO.
To:	;
Shared Package
ML20091A217	List: ML20091A214; ML20091A224; ML20091A242; ML20091A255;
References
	NUDOCS 8405290310
	Download: ML20091A224 (44)
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.O OHIOEDISON

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The Energy Makers i

ANNUAL REPORT 1983

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Financial Highlights i

ror the hs Ended Decerrtwar 31 1983 1982 Change (in indhon$ except for hhdret afWhJnh)

Kilowatt Hour Sales 24,345.4 24.025 5

+1.3%

Operating Revenues

$1,515.9

$1.429 6

+60%

Fuel Expense 420.3 432.7

-29%

i Operating income 302.8 269 6

+ 12 3 %

Allowance for Funds Used Dunng Construction, Net 203.7 160 3

+ 2 7.1 %

Interest and OthelCharges 319 8 310.4

+30%

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income before Extraordinary item 272.4 19: 6

+ 39.3 %

Net locome 272.4 215 7

+ 26 3 %

Earnings on Comri3oTStock 227.8 181 5

+ 25 5%

Earnings Per Common Share:

Before Extraordinary item

$2.22

$ 1.89

+ 17.5 %

Earninos on Common Stock 2.22 2 13

+42%

D,vidends fur Common Share'

$ 1.80

$1.76

+23%

Dividends on Capital Stoc k

$230.8

$1858

+ 24 2%

Construction Expenditures:

Construction of Fac Lties

$690.8

$6499 Nuclear Fuci 55.0 124 3

$745.8

$774 2

-3.7%

intgrnallygenpf atpd Funds

_204.4 136 4

+ 49 9%

Not Financinq Activities 483.4 683 5

- 29 3 %

Return on Average Common Eouity 14.2'a 13 5 %

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President's Message Mj Many things camo together to Aggressivo cost cutting measures mako 1983 a successful year for helped to reduco operation and x

y the Company But one of the most maintenanco expenses by $19.7 important doesn't appear in our milhon from the previous year...and, i

"['j financial statements: I'm referring to importantly,it was done without f

-D the stockholders' continuing support sacnt;cing the overallperformanco of our of forts to move the Company of generating plants or the reliabikty I

forward.

of service to customers

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l' With that in mind, f hope you will Several system improvement share with employees the satisfac-programs wero completed dunng tion of being an important part of the year, which will further enhance onc cf our better years.

operating performarco. For example, m dem computer apphcations in Eamings were up 4 2 percent over the new System Dispatching Offico 1982 to $2 22 per share of common and in customer accounting offices stock, despito a larger number of o maMng N gensabon aN sha19s outstanding and an extra-Hansmission of pows a seu A

ordinary gain of 24 cents per sharo to Customers more offlCient, reduc-ing annual operating costs by moro An improved economy, sales to than $1 milhon.

Other utikties and rate adjustments And, wo are encouraged by combined to push annual revenues rogress made in the strengthening up G 0 percent to $15 bilhon.

of our financial position, including Kilowatt hour sa!cs to retail and improved cash flow and growing wholesafo customers wero up 3.7 retained earnings, which should percent, led by significant increases in sales to industnal customers, for our stockholders' investment.

particularly in the automotivo and stooiindustries Concentrated Efforts What is being accomphshed can be 1he Board of Directors, recognizing attnbuted to concentrated efforts in that tnero has been measurablo four maje meat preyress in performanco which snould havo long range benefits.

Reducing the need forincreased increased the quarterty dividend to rates to the extent possiblo by corb 46 cents per share, offective with trolling costs. Achievements in this

'ho first Quarter of 1984.

area are illustrated by lower costs fm coal maintenana and plant 1983'ile.cmplishments oma ons fm M For tha inird consecutivo year, we wcro highly successfulin selkng

Ensuhng steady progross /n out bulk pOhcr to other utshties~

Constructton program and seetng ioptesenting $7G 2 milhon of toits timely and most economical ieveues in 1983. A portion of thoso completion. Segun in 1980, our rever.ues resulted from two major

$600 milhon air quahty control hogerm sales contracts that program is on schedulo for com-siiou!d add a total of over $553 pletion in 1984, mii' ion of predictable revenuo int Whilo we ourselves are not build-

"0 ing a nuclear plant, our partnership in three generating units under con-struction requires activo participa-tion in these projects. Intensive, hands on project management by

3 the companies building these Although there is increasing recog-M units, especially in the area of nition in Washington that the 'ticid quality control, has avoided the rain" question must be addressed, kindsof regulatoryandlicensing thorois alsogrowing understanding difficulties that have drawn atten-that further scientific study should tion to other utilities in the past year.

precedo costly legislation. /bsent s, N hpany and cuses All companies participating in cM W faM M enoms m these projects sharo a total com-mitment to maintaining the highest n

standards of quality and cafety.

The Duquesno Ught Company, Our Outlook which already has considerablo A number of favorablo economic nuclear plant operating conditions should provido the exponence,is making steady opportunity to further improvo progress towards completion of financialperformanco: a modest tho Beaver Valley unit 2 in 1986.

inflation rate, stable fuel prices, Although unit 1 at the Fbrry lower borrowing costs and, as the Nuclear Plant has been rosched-economy gains momentum, an uled for completion in lato 1985, increaso in the demand for The Cleveland Electric lauminating electricity.

Company's management of construction at the Plant has Although past accomplishments and the prospects of a bottor business consistently earned high marks for climato fuel out optimism for the quality controlin major revirvs by the Nuclear Regulatory future, wo will never loso sight of the challenges that yet faco tho electric mmission.

1 u'ility industry. They requiro that wo o Explanng now and diffemnt ways act in the best Interest of customers for customers to uso electncity as and stockholders. And we will.

a cost ellect/w attornatim to other Tho Ohio Edison System is an energy sources. In 1983, a number of proposals were mado to the gg regulatory commissions for their approv:1 to help customers reduco g

energy costs, either by r,hif ting tho q

uso of clectricity to off peak penods or through incentives to capand operations or increaso loc;l employment.

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(Ursuading regulators and

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legislators to deal withlong term Justin I Rogers, Jr.

problems with long term solutions, President inste.nlof shotf term 'tjuick fites" of quostivnablo benefit. This M*'C0 W attitudo is particularly important in the " acid rain" debato, whero como ato urging that billions of dollars in facilities be added to power plants.

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. n - %$ ((f; h. lll$l' ' ''lQXs;, ~ ~'Y," ~] ?- @~_ ~%?, eg.. g :_ .g.;% ~~w '*h,,, N.,, c._ ^ ..w, y ( ' ,,.4.. -k h* j* -- V t- )m t % ^ kg%A. r k, c-gyy ~_ .4 n pfhb \\' G : g- .;s h 3.g i w c " I $j N $(j ~1M ?* s b "-$% #; ?g e $W W,.u., ..u a Yedn ReWew y ..C' Earnings and Revenues improve in 1983 [ ' S$ Wm s Earmnas on common stock in 1983 9 -hyNh qj increasod 25 5 percent f rom 1982 a t g ---< _ -I f Q

C%+y.,

M to $2J 7 S mHhon As a result. earn ~ ~ jj M N 'ngs per tare grew from $213 in L:, E '~" 982 to 52 / in 1983. aespite an I 7 g L straordtnary gain of 24 cents per 'M ^ 4d5 nare in 1982 and a 17 2 mdhon a ~ C-- increaw m tne average nomoer of u-7 e shares outstanding Totai revenues ,p i i O di( j 'ncreased 6 0 percent over 1982 to b ,8 s ( 9 5 DHhon .y f, " O Revenues benefitod f rom the partial C

J ettects of new retail rates approved

~ Q [ J?ji e. 4 oy The Pubhc Utihties Commission y {Q gy - %g of Oh:o iPUCOi ate in the year. i ~yqg%. 34 - p f*;" which should add $94 5 muhon to y y gag?N*e,' *m*- M, q %p }{, , j annuN revenuec + m Q f#dh But because the overaH Cost of h?w -y!j# I;Q" g.w .,,, ',( providing electncrty continued to w n a OQ as s gnQ. WL

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+ +ncrease. and rates granted in the ~ I , gg'4 past have not kept pace with cost M q{[.y:L - A r tf '%n ' gew;4, 7,%.Q[ ~ - 'ncreases. the Comparues have a.a y m reauested new retall rates. If g'd$g

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granted in full. the new rates would - - ~ ^~ increase annual revenues by $127 dhh g rag lf muhon for Ohio Edison and $19 9 ~ mdhon for Penn Power NM[gjf%y gg_7, Tf %gg. j$g ;#e y) Sales and local Economy Stronger an %g~'" N ( ~ g n % g( g.y / ,; U Sales increased 8 8 percent to y

+

DI y Tota l kilowatt-hour sales reflected .;gy + M ( p M [ improvements in the local economy -a wa+ f gp W;gg = Q .ndustnal customers and 2 0 ..Q g~.ger s tw; Q-. ^g;;. a m my,p q .y ngq n i.; %J%[' ' '" ' ' eg Dercent to Commercial Customers i from last year with automotive af d s J3_ steel industnes showing a strong .x

4 3,

turnaround However. residentral i s les remained relative lp flat and pi

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^ , r;n..; ww ' - - W,g. sales to wholesale munic! pal l y de+s [ i customers decreased f l / is gpso For the past several yeart tne / Companies have been aggressively Wet. '. ) pursuing saies of bulk power to other utikties Our success in this + h[ y highly competitive area continued E U_ in 1983 when we negotiated two ..., @y W a s my .m (-c .m m.S f4 long-term sales arrangements that e -@nwv an. eyrwgz; meg @% should increase revenues by more 9 m "..@:/F w*.&~3 than $553 mdhon over the terms of ma m~ a v; e; iY $ ~N ~ the arrangements The Companies ,e ['

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in May began providing up to 150 @h k [sJ megawatts to Potomac Electnc 'j. [sisug - Power Company for a minimum tem of five years And in July, the jc;v e ? Compan:es began supplying up s ~~ w a Y; s- %'s L5( ---r-- VW 9fdp ] h4 pR, g q &s s. m n s .l. Sh h / 6 4 to 200 megawatts for a ten-year my . megawatt-hours-equalhng the penod to General Public Utikties TI:s ?g second highest peak load in Employees contmue Corporation our history to provide customers s with electnc service Ohio Edmor, capped off the year by i Marketing Programs Accelerated thJ is 99.98 percent winning two contracts. eacn to seli m; ' q Tne Onio Edison System serves a 200 nmgawatts for 12-week penods. @$ economy, and electnc sales have region of the country where the ,e for r estimated combined total of 11 Mhon Although relatively traditionally been dependent on the smrt term. these and all sales of Steel and automotive industnes bulk power not only boost the Com-These industnes. of course, will a panies revenues. but make more remain important. but future growth efficient use of our power plants in the economy will come more from and help hold down the cost of nontraditional soulCes inciuding serving our own customers C small manufactunng. research and-development and service-onented i Ohio Edison entered into an agree. businesses rnent with its who!esale municipa In addition, estimated sales of 943 customers, pending approval by the nu! bon kilowatt-hours annually could Recognizing the economic pres-Federal Energy Regulatory Commis-result from new or expanding com. sures on customers and the spirit son to provide power over Research and mercial and industnal projects that of cooperation needed to riurture a tive year penod beginning October development were in progress throughout the growth. Ohio Ed son and Penn f acil t'es such as System in 1983 Powei are seeking regulatory Company will continue to supply approval of incentives for business these customers. who had been Near-record peak demand loads expansion through innovative rates l Technical Center. expected to purchase more were set dunng the summer months For example, one of our economic have become a elecincity from other bu!k power when high temperatures and humid-development plans proposed to the source of renewed supphers Upon approval. the ity increased the use of air condi-regulatory commissions would growth in the local agreement would also finahze three tioning On July 21. the hourly provide special pncing for a five-7 economy-rate cases before the FERC-System peak loao reached 4.148 year penod to new or existing indus-Ina! customers that Duild new ~ h} k [f f b

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facihties or expand existing facihties h [N $.[hf M.5 f.?..[.Q $. -g and increase employment. ,'. M k [.' ~ ' i. 4 P E 'Y c' 5 5. hY Other marketing efforts are armed @g. g [ W .f " g f M 7h g'fl.(.y, ',-' ./ l at helping local companies improve ];i./m 'g y .y /W

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.,. 7 - P. their efficiency and lower their over- . - 4.y " l[Y.1 .Y~;. all energy costs Through Energy hT. ' 'h [

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).N 3,2 M [ ' h.[.. -(} ' .c.5, ('.'j?1*. Teamwork Conferences. our em- 'i f77. g. ; k. s c., ,,,;,;;;.-... -,.i1 ployees contacted more than 550 h(f;.h. 4 ' },.. Y '

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?-;... f(d.[*]' develop plans for energy manage- ][; y, C gh 4 large businesses dunng the year to l .<n . ; ';-) ~r 1:( a 27 og. '{(g 1.7 f...g., j. ; y.y. -,S. yL.!;;( (.., .g^ ~.. N - f... C

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.s i t ;-7 \\.. k b_ ~k. ment and operating etficiency In f..[ t s, 'c F 9 ' }% !~. I [5: O 7 ; *,;. # [V I j.. <.. (; p... addition, greater errphasis is being 1 .{. 4 3.4 i '. s.W . -.g g s,.. X., j T -~.. ' # i placed on how electncity can eco-f, h (.~ hbd f... j$ i. .c y - nomically replace fossil fuels and ' g ;,... '. ~', - f.+ Z ~ " g.Q.. : ~ " ' ~*'~4 34 * ;sp.(~4?1 '- ' ^.,,. ~ f. ^..:- 7 reduce the customer's total energy "i'.-".,.]* }J $f J.. J V se ?.e ;.. - use and costs. i v., t M v 4 r. . j. g. . 9, * ;,w -. y ..;4t .1 . k N'. y s. .g M. One method of lowenng energy

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. y, ? - c.N 3. - . 4 (c. ,w wr, e ,?, g.... c +.. : s... "c-3.:.; ?K +.x . e, g.y. 3 ; $' $7 ~ costs is through load management. .:. f. ,,g ,... t 2 - ,i Ohio Edison and Penn Power are C, g[ % k.3 ':; ; 7,ysji(., gyg,la J -4p> , y,..y, ; [ 1 p >.4'

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AM5# %,c 24.yy;j finding new ways for customers to [ h3 - .m 4 c, g.., ~' f shif t much of their electnc load to 2 c-

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.g g, g + [' l '.,. ,.' c./ 7, 9, ,g afn,*s g +. N y? ~ ?l? _..,.. a ~ ss,,,, ^ n ,mR gy [. ) 5h I b a9 n % n; % )3 -)y, e& g, p 3 4rgq ~ 939 ~ i l l l 9 also enables us to make better use medical or financial difficulties, the Availability has been excellent at the of our power plants. Since the load Companies offer numerous helpful Beaver Valley Power Station unit 1 management program began in programs, such as budget payments the only operating nuclear plant 1977,213 megawatts have been ar d third-party notification. In addition, currently supplying the System. moved to off-peak hours. customers are informed of govern-Except during a scheduled shut-mental or social service agencies down r maintenance, testing and The Companies also help residential that provide financial assistance for refuelii g, the 810-mecawatt unit customers to better manage their home weathenzation and for paying achieved a 94.5 percent operating electric use and energy costs. A w nter heating expenses. This infor-availability for 1983. and it reduced new plan to encourage more use of mation, along with topics on electric our dependence on more expensive electncity, yet lower overall custo-use and energy issues, is also avail-coal-fueled generation by 10.2 per-mer costs, was approved by the able through a wide range of litera-cent for the year. The Companies PUCO in January 1984. It will pro-ture, films, gr,up presentations and own 52.5 percent of the unit, which vide lower rates for qualifying cus-student education programs. is operated by the Duquesne Light tomers with electric water heating Company. the other owner. or electnc add-on home heating Farnings Continue to Benefit from systems In return, their service Plant Reliaoility Additanal work done dunng the coula be interrupted to stabilize Our ability to increase earnings scheduled shutdown will enable the peak loads, but with minimal or no depends not only on efforts to main-unit to operate for longer periods effect on the customer's lifestyle tain sales growth, but on the per-between refuelings The modifica-Custorners Favorable on Service and Cost f rm nce of our employees and tions. which included use of more the most effective utilization of our highly enriched uranium fuel were The Companies continued their long gener ng f cMes. To sustain the partially completed dunng the shut-history of providing dependable high reliability of these facilities, the down, and will be completed at the service, vath the average residentia Companies have intensive employee next scheduled refueling in 1984. customer expenencing an average training and preventive maintenance reliability of 99.98 percent since programs. which significantly reduce Operations Keep Pace with 1980. In a December random the !!kelit'ood of equipment malfunc-Computer Technology survey of 500 Ohio Edison cus-tions and costly generating unit Modern.ization and the use of high tomers 96 percent rated their breakdowns. tectroing' y r'ays an ever ncrea:ing service favorably, and 91 percent rated the cost of tneir electric s -.~ +. A new fustomer service as an average to above [cU l' S, I h.. OkJ N ~ ' - inforrnation System

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announced that unit 1 is now tion about their service or accounts scheduled for completion in late Computer processing is also used 1985 The completion date for unit 2 in purchasing and receiving coal will be reviewed at the time unit 1 is suppnes New computer systems are completed With the reschedul;ng 2

monitonng dehvenes inventones and the add:tiondi work. Our portion and qua ity of coa' of the Plant's costs rose from $1.3 consumptio 1

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13 The third unit is under construction N by the Duquesne Light Company at the Beaver Valley Power Station Unit 2. scheduled for commercial operation in 1986, was 78.1 percent complete on December 31 During the year. major portions of con-struction were completed, and the Atomic Safety and Licensing Board held public hearings as part of the licensing process Ohio Edison will own 41.88 percent of the 833-megawatt unit. With the completion of these proj-ects in the 1980s, the System should not requirr 3dditional capacity until well into the 1990s. But the growth in load over the next 20 years is estimated to be equivalent to a c 1.5 percent annual increase, and the Companies will plan accordingly E" e.. x and continually assess the eco-(f " _,[,y and alternative energy technologies. nomical options in both conventional c ~ y~o In support of one of the emerging .r ' m; $@ technclogies, we are participating in q .7 9 +s( 7 DMf' .. a $155 million cooperative coal-r- 9 gasif cation project Et lilinois Powe's Wood RNet Stat'o. i It ;s the fye [$ cour.try's largest operatirig demon-hpf p%gg 93 stration facility of its type and M!l Wh;jp y determ:ne if high sulfur coM such HH f f.f as that mined in Ohio, can be gd o js$ys v3 ap+ econom:cally converted ic ' c;ean-r. , y" burning gaseous fuel Th:ougt. 'he .Jb.h end of 198' the faci! sty nas success-M e i \\\\, fully met its test objectises I ? Other System construction includes . ( g gg ou' $600 million program to meet j \\ existing federal requirements for air t t ^ 4 quality. Through 1983, the Compa- ~' b.~ i nies have installed facilities to better u 7 MM'@/h >jQ, * ' remove dust from the emissions of $"'UAk QMU ten generating units. As the pro- ~ ' Ag, f gram successfully approaches its _, ' - 4* J g% December 1984 completion, the t; g r-g - -'s; %g-ff)l Y Oi }yy %5i

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.m E E r 14 - M only remaining construction is at approved method to recover those two units of the W H Sammis costs Beginning in August 1982. g i Plant a PUCO-approved recovery For 1983. approximately $C91 9 c million was spent on construction of 5 that had accumulated. In August new plants. environmental facdities I 1983. however. the new commis-g and other System improvements sioners ordered the Company to P E During the year. $421 milhon in cease using that recovery method, capital financing was used to fund which was later approved by the = these System improvements Ohio Supreme Court. while they Regulatory and legislative issues reexamined it L Address Major Concerns ~ To adaress the concerns of tho On January 11.1983. a new law that Commtssion and to resume took effect in Ohio Changed the recovery of previously deferred structure and organization of costs. the Company reached an the PUCO Among other provisions. acreement with the PUCO staff tnat y it increased th number of commis-recommended to the Commission a L-stoners from 3 to 5 and created sMy M mem me rese a 12-member nominating councd to I tive recovery method Approved by select individuals for appointment I the PUCO in January 1984. the new to the Commission ov the state s method provides the Company a = em reasonable opportunity to again One of the most significant rulings recover past and present costs for 7 by the new Comm!ssion concerns coal delivered from the Quarto 7 our recove!y of certain costs mines A similar settiement was i of coal dehverea +o the Bruce proposed to the Pennsylvania Pubhc { Mansdeic Plam frcrn the Qua to Utihty Comm.snon. anj s c urcer.th/ r Mining Can:pary Pr.or to Augus unoer rewew by the CommiFS'Cn 1981 Ohic Ed'E ?n sa ; wur e1 to A 1 adm n atratwe ian judge for the ,q uefer a Dor'icn O' i s,ue. ccsts Cornmission recommended thai the s64 t related to Cuart coal w:th no settlement be apptoveo ? TW f, y -,o-(OnbruC' On prog'e'5 s'+. JI Ifle beJVfl VdEfY k, ,e 7 se, s,,,_m W Q, D~e s ~ r gy 9;.Ik" ,\\. e, K Y h,,. ~ s ?! / A -~ ^ 4, s y B L: [ p

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t - ,1 ; 6 f f,' sg.: mrd:a Using sophisticated g 0 control room simulators. empicyees hne tune then w <r opef ating skills and practice emergency Q pro (edures resulting in greater eff ciency i at our generating plants. [ ', ~~ y 4,; 3\\ c f %&s . ~, L 1

n ji Another major utility issue is the in supporting or conducting both 6 allowance of CWIP, or construction local and regional studies and are J work in progress, in electric rates. carrying on research with experi-3 Current Ohio law allows utilities to mental equipment to find ways of include a portion of construction reducing the cost of sulfur dioxide costs in the rate base. Although control. state legislation to severely restrict g p g this allowance has been introduced, p gg none hasbecomelaw;andthe PUCO To the benefit of customers and in September allowed the Company g to collect $24.5 million in financing results, including cost reductions costs for the Perry Nucl ear Plant and higher productivity, resulted unit 1. Also, the Federal Energy from the efforts of 7,702 employees Regulatory Commission in July ruled in the Ohio Edison System. that electric utilities could include an allowance to cover some financ-A wide range of skills and manage-ing costs in rate cases involving ment training programs have been a wholesale customers, but federal strong foundation for the System's legislative proposals call for a return improved productivity. The Compa-to more restrictive measures. The nies continue to expand this class-i Companies have opposed such room and " hands-on" training. In s '( efforts to eliminata or restrict 1983, we took major steps to study g // j' l. j j allowances for CWIP because the and improve the of fectiveness of result would be higher overall con-training, and to help employees to struction costs to the Companies better apply these tools to everyday { /g [ j and their customers. situations. [ " Acid rain" is a na'.ional issue with Indvidual etforts are recoonized by 3 ' % great potential :mpact en the Com-rewarding employees who suggest I panies and the area economy. Cub specific ways of improving pioduc-i" N rently, somo Vgislative propesals tivity, either thrcugh efficiency or h. Q'4 }

oetore Congress could force es to safety With cash incentives. the spend more tnan $i billion Aer thJ Emp!oyee Suggestion System has igI[

I next seseral years to reduce sdfor raved the Companies morn than dioxide emiss ons by instal!in9 $106.000 since the program began f scrubbers, even though tr.ere are in 198t. ,'A g. / no assurances of cubetantial envi-ronmertal improvement. Instead, employees also make responsible the Companies urge that the g X-4 contnbutions to the community 6 \\[%k scientific community be given the ,N necessary time to bettet identify exarrple, Company and employee ND, and understend the problem, and contributions to United Way in 1983 totaled more than $375,000. And then determine the most effective h %p# and economically sensible employees spend countless hours in a broad range of community b solutions. 1 services, which include providing The Companies have already made food or other goods to the poor and i substantial contributions to the handicapped, teaching life-saving g( \\ reduction and understanding of techniques and volunteering in local x sulfur dioxide emissions, which are fire departments. \\ thought by some to be a major \\ installing expensive air cleaning cause of acid deposition. By facilities, buying more costly low-sulfur coal and other measures, we have reduced sulfur dioxide emis-sions by 30 percent since 1975. I We have also spent about $1 million 1 l ,a

Management's Discussion and Analysis of a Results of Operations and Financial Condition Results of Operations Plant in 1983 compared to 1982. Maintenance on those R:sults of operations for 1983 reflect improving economic units in 1982, plus maintenance performed during a conditions taking place in the Companies' service area. refueling outage of Beaver Valley Unit No.1 during that increased kilowatt hour sales to the Companies' year, were primarily responsible for the increase in 1982 commercial and industrial customers of 2.0% and 8.8%, maintenance costs compared to 1981. r:spectively, were significant to the Company achieving in addition to reduced maintenance costs in 1983, the incr:ases of 39.3%,26.3% and 25.5% in income before improved generating unit availability allowed the extraordinary items, net income and earnings on common stock, respectively. This s'rong performance increased Companies to reduce their requirements for power 1983 eamings per share of common stock by 4.2%' urchased and interchanged with other utilities by 10.6% from 1982, despite an overall increase in kilowatt-hour desp,te a significant increase in the number of shares of i sales from the Companies' system. The significant common stock outstanding in 1983 and the inclusion in increase in purchased and interchanged power during 1982 earnings of an extraordinary non-cash gain. The rate 1982 compared to 1981 resulted primarily from power of return on average common equity was 14.2% in 1983 urchases which were made in 1982 in order to sell short-compared to 13.5% in 1982 and 14.6% in 1981. Excluding term power to other utilities. th3 cffect of extraordinary income in 1982 and 1981, and thn settlemmt of a claimed Pennsylvania tax liability in Additional financing assoc' ited with the Companies' 1981, the rate of retum on average common equity was continuing construction programs in 1983 and 1982 12.3% in 1982 and 12.9% in 1981. necessarily resulted in higher interest costs and preferred increased operating revenues, which served as the basis and preference stock dividends. However, it is important to for the 1983 earnings improvement, resulted from the note that the Companies' extemal finecing requirements in eff ct of base rate increases and increased kilowatt-hour 1983 were below 1982's level and the costs of financing were salts to customers, partially offset by reduced sales to also at a lower bel As Mompanss' ansMon oth:r utilities and reduced fuel component rates in 1983 projects proceed and until the projects are placed in service nd included in rate base, the total allowance for funds used compared to 1982. The reduced fuel rates charged to customers were made possible primarily due to lower during construction (AFUDC) will continue to increase in pricts paid for coal in 1983, evidenced by the reportea order to capitalize the appropnate financing costs which are decr ease in fuei exper.sc. Operating revenues m 1982 not mently recovered through rates. A significant factor, increased from 1981 due to nc' eased base rates, and however, is that AFUDC represented 89.4% of 1983 eamings increased fuel component rates. There is a direct correla-on amm n sM, a &ke kom M b N W tion between the fuel rates charged to the Companies, giving effect to the extraordinary income recorced in tnat year. customers and the increase in fuel expente reported Information with respect to the estimated effects of inflation in 1932. epon the Companias i:, g ven in Note 10. Results of operahons we e fwthe improved in 1983 by Capital Resources and Liquidity operating efficiencies achieved and substantially reduced The Companies' 1983 construction program (excrudug maintenance costs. The Companies' generating units were nuclear fuel) required approximately $691,000.000 which, in available for operation a greater percentage of the time in addition to approximately $204,000,000 of funds generated 1983 compared to 1982. This increased availability results intemally, was funded through extemal financings. Over the in I:ss unscheduled maintenance and naturally leads to last five years, the cost of the Companies' construction reduced maintenance expense. This was most noteworthy program was approximately $2,900,000,000, of which at Mansfield Unit No.1 and several units at the Sammis approximately $570,000,000 was available from internally generated funds, aprwoximately $2,700,000,000 is currently forecast to be spent from 1984 through 1988. The issuance of additional common stock and other securities will be necessary to fund a significant portion of this new construction. Also during this five-year period, the Companies l l l

Management Report a g.. 4 will have additional cash requirements of approximately The consolidated financial statements were prepared by $638,000,000 to meet debt maturities and sinking fund the management of Ohio Edison Company, who takes requir ments for debt and preferred and preference stock. responsibility for their integrity and objectivity. The statements were prepared in conformity with generally At December 31,1983, the Companies had available accepted accounting pnnciples and are consistent with approximately $113,000,000 of temporary cash investments other financial information appearing elsewhere in this and approximately $98,500,000 of funds held in escrow from report. Arthur Andersen & Co., independent publ_c i previous pollution control financings. The Companies also accountants, have expressed an opinion on the Company's have $235,000,000 of short-term bank lines of credit financial statements, as shown on page 37. available to them for interim financing purposes, none of which had been drawn down at December 31,1983. The The Company's internal auditors, who are responsible to l Companies' current financing plans for 1984 include an the Audit Committee of the Board of Directors, review the i estimated 8,000,000 shares of common stock to be issued results and performance of operating units within the through the Dividend Reinvestment and Stock Purchase Company for adequacy, effectiveness and reliability of Plan, and issuances of up to: 10,000,000 additional shares of accounting and reporting systems, as well as managerial common stock through public offerings; $85,000,000 of and operating controls. preferred and preference stock; $65,000,000 of pollution The Audit Comm.ttee consists of four non-employee i control notes; and $170,000,000 of other long-term debt. The directors whose duties include: consideration of the Companies also expect to invest approximately $88,000,000 adequacy of the internal controls of the Company ar4 the for additional nuclear fuel in 1984 through the incurrence of objectivity of financial reporting; inquiry into the number, additional long term obligations. extent, adequacy and validity of regular and special audits Based upon eamings as of December 31,1983, the conducted by independent public accountants and the Company would be permitted, under its First Mortgage internal auditors; the recommendation of independent Indenture, to issue on the basis of property additions, at least accountants to conduct the normal annual audit and $545,000,000 princioal amount of first mortgage bonds special purpose audits as may be required; and reporting assuming an Mterast rste oi 13%; or, under its Articles of to the Board of Directors the Committee's findings and any incorporation, to issue approximately $339,000,000 of recommendation for changes in scope, methods, or preferred stcck at an assumed dividend rate of 13%; or to procedures of the auditing functions. The Audit Committee issue some lesser combination of both. The Company is ab!e held three meetings during 1983. to issue $335,000,000 principal amount of first mortgaga boads against previously retired bonds without the need to meet carnings coverage reouirements. M in September 1983, the Company was granted a base rate up / increase by the PUCO which recognized in rate base / approximately $126,000,000 of the Company's investment in % we, pm Perry Unit No.1, a nuclear unit currently under construction. Chief FinanciaI0fficer A January 1984 PUCO order concerning the Company's electric fuel component rate will allow the opportunity for recovery of current and deferred Quarto coal costs, as discussed in Note 7. These are favorable developments which should have a positive effect upon the Company's ability to generate cash internally. The Companies currently have rate cases pending before the PUCO and the PPUC which, if granted in full, are designed to incr:ase annual revenues by approximately $127,200,000 and $19,900,000, respectively. Orders are anticipated from th1 PPUC by the second quarter of 1984 and by the third quarter of 1984 from the PUCO. I j

Oheo Edison a Selected Financial Data l 1983 1982 1981 1980 1979 i (in thousands, except per share amounts) l Operating Revenues $1,515,852 $1,429,626 $1,279,649 $1,080,869 $ 994.585 Operating income 302,751 269,640 252,381 169,383 163,744 Income Before Extraordinary items 272,400 195,571 183,020 135,150 134,807 N:t income 272,400 215,729 197,062 135,150 134,807 Earnings on Common Stock 227,843 181,496 163,892 101,403 105,120 Eamings per Share of Common Stock (based on weighted average number of shares outstanding during the year) Before Extraordinary items 2,22 1.89 2.10 1.52 1.80 Earnings on Common Stock 2.22 2,13 2.30 1.52 1.80 Dividends Declared per Share of Common Stock 1,80 1,76 1.76 1.76 1.76 Total Assets at December 31 5,905,142 5,247,138 4,460,274 3,979.965 3,446,454 Preferred and Preference Stock Subject to Mandatory Redemption 158,112 152,560 151,141 156,450 150.850 Longterm Debt 2,131,404 2,005,436 1,759,771 1,594.384 1,410,782 Construction Energy Trust and Nuclear Fuel Obligations 719,364 656,655 447,484 265,000 Common Stock Data The Company's Common Stock is listed on the New Wrk and Midwest Stock Exchanges and is traded on other registered exchanges. Price Range of Common Stock 1983 1982 First Quarter Hich-tow 15-7/8 13-7/8 13-1/8 11 3/8 Second Quarter High-low 16 1/3 14 3/8 14 1/8 12 3/8 1hird Quarter High-i.ow 15-1/4 _ 14 14 3'8 12-1/4 Fourth Quarter High-tow 16 11 7/8 1 5-115 13-1/4 Warly H,gh low 16-1/8 11-7/8 15-1/8 11 3/8 Prices aie as quoted on the New trk Stock Ert.hange Compnsite Transactions Classification of Helders of Common Sicck as Of December 31,1983 Holders of Record Shares Held Number Number Individuals 181,290 88.8 53,987,585 49.8 Fiduciaries 19.012 9.3 4,462,051 4.1 Brchers 61 1,032.383 1.0 Nominees 556 0.3 46,397.417 42.8 Banks and FinancialInstitutions 31 53,345 Insurance Companies & Other Corporations 1,562 0.8 1,556,028 1.4 Charitable, Religious & Educational Institutions 495 0.3 349,174 0.3 Pensions, Profit Sharing & Other Investment Trusts 1.094 0.5 622,071 0.6 Total 204,101 100.0 108,460,054 100.0 As of January 31,1984, there were 203,789 holders Quarterly dividends of 45e and 44c per share were paid on the of 108,758,161 shares of the Company's Common Stock. Company's Common Stock during 1983 and 1982, respectively. Information regarding retained earnings available for payment of cash dividends is given in Note 4b. I

Ohio Edison Consolidated Statements of income n fc7 the Wars Ended December 31 1983 1982 1981 (in thousands, except per share amounts) Operating Revenues $1,515.852 $1,429,626 $1,279.649 Operating Expenses and Taxes: Oparation-Fuel 420,336 432,749 413,698 Purchased and interchanged power, net 50,026 52,607 29,321 Other operation expenses 234,526 221,129 195,075 Total operation 704,888 706,485 638,094 Maintenance 121,544 139,615 124,213 Provision for depreciation 115,514 103,206 95,830 Amortization of terminated construction project costs (Note 2) 9,058 1,866 3,995 Ceneral taxes 126,818 114.569 84,316 Income taxes 135,279 94.245 80,820 Total operating expenses and taxes 1,213,101 1,159,986 1,027,268 Operating income 302,751 269,640 252,381 Other income and Deductions: Allowance for equity funds used dunng construction 121,814 84,210 60,421 Miscellaneous, net 20,812 16,871 17.021 Income taxes-credit 64,923 59,166 53,360 Total other income and deductions 207,549 160.247 130,802 TotalIncome 510,300 429,887 383,183 Net Interest and Other Charges: Interest on long-term debt 233,626 211,765 166,378 Interest on long-term ob!igations 73,177 80,092 69,183 Allowance for borrowed funds used during construction, r,et cf deferred inccrne taxes (81,901) (76,086) (67,381) Other interest expense 5,7C2 12,4G 26,37E Subsio!ary's pref arred stock div der,d requiramen,s 7,296 6,098 5 605 Net it'terest and u.her charges 237,900 2'34,316 200,163 I~ncome Before Extrao tlinary items 272,400 195,571 183,020 l Extraordinary items (Note 8): Gr.n oa re?cqt 'sition of tHt mortgage bonds, net of rettted inccme taxes 14,042 Gain en exchange of common stock for first mortgage bonds /0,158 Net income 272,400 215,723 197,062 Preferred and Preference Stock Dividend Requirements 44,557 34,233 33,170 Earnings on Common Stock $ 227,843 $ 181,496 $ 163,892 Weighted Average Number of Shares of Common Stock Outstanding 102,414 85.241 71,180 Earnings Per Share of Common Stock (based on weighted average number of shares outstanding during the year): Before extraordinary items (after preferred and preference stock dividend requirements) $2.22 $1.89 $2.10 Extraordinary items .24 .20 Earnings on common stock $2.22 $2.13 $2.30 Dividends Declared Per Share of Common Stock $1.80 $1.76 $1.76 The accornpanying Notes to Consolidated Financial statements are an integral part of these statements.

Ohio Edison n Consolidated Balance Sheets At December 31 1983 1982 Assets (in thousands) Utility Plant: In service, at original cost $3,632,165 $3,417,669 Less-Accumulated provision for depreciation 1,043,679 953,541 2,588,486 2,464,128 Construction work in progress 2,351,089 1,902,310 Nuclear fuelin process 211,327 156,295 5,150,902 4,522,733 Other Property and Investments 63,614 69,626 Current Assets-Cash 2,781 2,812 Temporary cash investments, at cost, which approximates market value 112,993 61,500 Rectivables-1 Customers iess acct nulated provisions of $1,541,000 and r $1,844,000, respectively, for uncollectible accounts) 132,968 116,054 Other 19,416 24,855 Mat: rials and supplies, at average cost-Fuel 69,047 92,684 Other 45,657 44,466 Prepayment 3 and other 41,184 35,966 424,046 378,337 Deferred Charges: Deferred Quarto coal costs (Note 7) 67,254 71,346 Property taxes 52,575 50,527 Unamortized costs of terminated construction projects (Note 2) 94,747 103,835 Other 52,004 50,734 266,580 276,442 45,905,142 $5.247,133 Capitalization awi Liabilities CapitalkatN1 rSee Consalioated Sta*4mer's cf Capi'alization): Ccmnon stockr oloers' equity $1,711,974 $1,488,371 Preferred stock-Not subject to mardatory redernption 312.335 262.335 Subject to mandatory redemption 60,000 64,000 Prefere:1ce stock-- Not sucject to mardatory recemption 50,000 50,000 Subject to rnandatory redemo'in, 50,641 55,165 I Preierred stock cf consoFoa:ed subsidk,ry-- Not subject to n.andatory redemption 41,905 41,905 i Subject to mandatory reoemption 47,471 33,395 i j Long-terra debt 2,131,404 2,005,436 4,405,730 4,000,607 tong-Term Obligations (Note 5): Construction energy trust 500,000 500,000 t Nuclear fuel 219,364 156,655 719,364 656,655 Current Liabilities: Curr nt maturities of long-term debt, preferred and preference stock 79,594 22,383 Notes payable to banks (Note 6) Accounts payable 154,727 133,776 Accrued taxes 52,564 51,115 Accrued interest 67,891 57,736 Other 44,102 26,390 398,878 291,400 Deferred Credits: Accumulated deferred income taxes 158,437 152,890 Accumulated deferred investment tax credits 107,390 53,727 Property taxes 52,575 50,527 Energy costs recovered in advance 33,335 14,418 Othir 29,433 26,914 381,170 298,476 Commitments, Guarantees and Contingences (Notes 2,3 and 7) $5,905,142 $5.247,138 The recompanying Notes to Consolidated Financial statements are an integral part of these balance sheets.

Ono Edson Consolidated Statements of Capitalization n-At December 31 1983 1982 Common Stockholders

Equity-(In thousands)

Common stock, $9 par value, cuthorized 125,000.000 shares-108.460,054 and 96,081.844 shares outstaneng. respectively (Note 4a) $ 976.140 $ 864.737 Other paxiin captal 494,520 423.195 Retoined earnings (Note 4b) 241.314 200.439 Total common stockholders equity 1,711,974 1,488.371 Optonal Redempton Price Nurmer of Shares Outstanding Aggregate 1983 1982 Nr Share (in Thousands) Preferred Stock (Note 4c)- Cumulative. $100 par value-Authorized 6,000.000 shares Not Subject to Mandatory Redempton: 3.90 % -724 % 973.350 973.350 $103.38-108 00 $102,034 97,335 97.335 7.36 % -8 20 % 800.000 800.000 $104 68-107.40 8c,968 80,000 80.000 864%-912% 850.000 850.000 $106 48-106.84 90.670 85,000 85.000 Total not subject to mandatory redempton 2.623.350 2.623.350 $277,672 262,335 262.335 Subject to Mandatory Redempton (Note 4d): 10 48 % -10.76 % 615.000 659.630 $107.86-11187 $ 67.537 61.500 65.963 Redempton within one year (1,500) (1,963) Total sub,iact to mandatory redempton 60.000 64.000 Cumulative. $25 par value-Authorized 4.000.000 shares Mot Subsect to Mandatory Redemption. $3 50 Seres 2.000.000 $28.75 $ 57,500 50,000 Preference Stock (Note 4c): Cumulative, no par valve-Authonzed 8.000,000 shares Not Subject to Mandatory Redempton: $3 92 Senes 2.000.000 2.000.000 $31.42 $ 62.840 50.000 50.000 Subject to Mandatory Redempton (Note de): $95 00-$102 50 Series 27,000 27.0C0 $1.095 00-1,102 50 $ 29.7U0 27,000 27,000 $180 Senes 1,622.546 1462.181 $16 03 26 001 24,541 28,165 Redempton wi*hin one year (900) Total subject to mandatory redexipton 1.649.546 1.869.181 $ 55.701 50.641 55,165 Preferred Stock of Consondated Subsidiary (Note ec). Cunutaave. $100 par va'ye-Authonzed 950.000 shares Not St.blect to Mandatory Redempton. 4 24%-916% 419.049 419.049 510?.98-10712 3 44,1?3 41,905 41.905 Sut,ec" to Maadatury Rederrction (hore Adr 8 24 % -15 00 % 479.708 338.951 5 t03 29-114.81 $ $2.05C 47,971 33.895 RNeer.;4on uitnm orie year (500) I'00) Total sublect to mandatory redempton 47,471 33.395 Lon8-Term Debt (Note 4f): First mortgage bonds: Oho Edson Company-8 60% weghted average interest rate, due 1984-1988 153,693 153.6S3 14 59% weighted average interest rate due1989-1993 240,864 223,364 10 88% weighted average interest rate, due 1994-1998 95,215 77,715 8.57% weighted average interest rate. dJe 1999-2003 242,156 2a2.156 10 50% weighted average interest rate, due 2004-2010 424,310 424.310 1,156,238 1,121 238 Nnnsytvania Power Company-10.27% weighted average interest rate, due 1984-2008 259.000 239.000 Total first mortgage bonds 1,415,238 1.360.238 Secured notes and obhgations: Cho Edson Company-8 29% weighted average interest rate, due 1984-2014 281,439 230.914 Amount held by Trustee (985) 280,454 230,914 Ohm Edison Fina9ce N V-17.38% weighted average interest rate, due 1987-1988 150,000 150,000 Fbnnsyrvania Fbwer Company-9 00% weighted average interest rate, due 1984-2007 67.661 68.106 Amount held by Trustee (2,572) (5,327) 65,089 62,779 Total secured nntes and obhgatons 495,543 443.693 Urcecured notes of Oho E@ son Company,11.06% weighted average interest rate, due 1984-2014 402,000 302.000 Amount held by Trustee (93,555) (69.026) Total unsecured notes of Orwo Edison Company 308,445 232.974 Net unamortized escount en debt (11,128) (11.549) t.ong term debt due within one year (76.694) (19.920) Total long-term debt 2,131,404 2,005.436 Total Capitahrabon 54,405,730 $4.000.607 We accompanying Notes to Conschdated Financial Statements are an integral part of these statements.

oh Edison Consolidated Statements of Retained Eamings a For the Wars Ended December 31 1983 1982 1981 (in thousands) Balance at beginning of period $200,439 $171,191 $133,592 Net income 272,400 215,729 197,062 472,839 386,920 330.654 Deduct: Preferred and preference stock dividends 45,468 34,488 33,160 Commort stock dividends 185,309 151,289 126,030 Capital stock issuance expense 748 704 273 231,525 186.481 159.463 I Balance at end of period (Note 4b) $241,314 $200,439 $171,191 Consolidated Statements of Capital Stock and Other Paid-in Capital Preferred and Preference Stock Not Subject to Subject to Common Stock Mandatory Redemption _ Mandatory Redemption Number Par Other Paid-Number Par or Number Par or of Shares Value in Capital of Shares Stated Value of Shares Stated Value (Dollars in thousands) Balance. January 1,1981 68,526.172 5616.736 $317.1% 3.069.049 $306.905 3.039,000 $158,450 Sale of Common Stock 7,000.000 63.000 21,875 Dividend Reinvestment Phn 3.122,631 28.103 7,751 Conversion of $1.80 Preference Stock 26,900 242 147 (26.900) (407) i l Preferred Stock Sinking Fund Redemptions-10.48% Series 585 (27.240) (2.724) 10 76% Series 361 (20.000) (2.000) 11.00% Se,ew 63 (4.010) (402) Other Preferred Stock Redemptons-3 90% Series 271 (3,790) (379) 4A0% Series 251 (3,720) (3 72) 4 44% Se.ies 8% (13 440) t1.344) 4.56% Series 386 i5,700) 1570) Balance. December 31,19M 78.675.703 708,081 349 772 3,042,399 204,240 2,960.844 152,917 Sa'e of Common Stock 10.000.000 90,000 42.000 Dividend Reinvestment P:an 4.644,622 41,802 17,647 Exchange of Common Stock for First Mortgage Bonds 2.650.600 23,855 9.463 Conversion of $1.80 Preference Stock 110.919 999 610 (110,919) (1.678) Sale of $3.92 Senes of Preference Stock 2.940 2,000,000 50.000 l Sale of 15% Series of Preferred Stock 80,000 8,000 j Preferred Stock Sinking Fund Redemptiorv-8.24% Series (5,000) (500) 10.48% Series 284 (13,130) (1,313) 10.76% Senes 435 (20,000) (2,000) 11.00% Senes 44 (4.033) (403) Dalance. December 31,1982 96.081,844 864.737 423.195 5,042,399 354.240 2,887,762 155,023 Sale of Common Stock 5,000.000 45,000 33,350 Dividend Reinvestment Plan 7,138,575 64,247 33.056 Conversion of $1.80 Preference Stock 239.635 2,156 1,332 (239,635) (3,624) Sale of $3.50 Series of Class A Preferred Stock 3,140 2.000,000 50.000 Sale of 11.5% Preferred Stock 150,000 15,000 Pr ferred Stock Sinking Fund Redemptions-8.24% Series (5,000) (500) 10.48% Senes 270 (24,630) (2,463) 10.76% Series 160 (20.000) (2,000) 11.00*/. Series 17 (4,243) (424) Balance. December 31.1983 108,460.054 $976,140 $494.520 7,042.399 $404.240 2,744.254 $161.012 The accompanymg Notes to Consoin.tated Fmancial Statements are an otegeal part of these statements.

Ohio Edisce Cons 0lidated Statements Of S0urces Of Funds for Pr0perty Additions a For the Wars Ended December 31 1983 1982 1981 Internally generated funds-(in thousands) l Income before extraordinary items $272,400 $195,571 $183,020 l Principal non-cash items-Depreciation and amortization-l Charged to provision for depreciation 115,514 103,206 95,830 Charged to other accounts 2,564 1,953 1,318 Amortization of terminated construction project costs 9,058 1,866 3,995 Deferred income taxes, net 80,814 91,832 99,179 Investment tax credits, net 53,670 7,312 (772) Allowance for equity funds used during construction (121,814) (84,210) (60,421) Deferred fuel and energy costs, net 23,009 4,609 (49,393) 435,215 322,139 272,756 LEss-Dividends on common stock 185,300 151,289 126,030 Dividends on preferred and preference stock 45,46b 34,488 33,160 Net funds from operations 204,438 136,362 113,566 Income from extraordinary items 20,158 14,042 Non-cash items-Gain on reacquisition of first mortgage bonds (26,276) Gain on exchange of common stock for first mortgago bonds (20,158) 204,438 136,362 101,332 Financing activities-Common stock 175,653 224,767 120,729 Preferred stock 68,140 8,000 Preference stock 52,940 First mortgage bonds 55,000 105,000 95,000 Secured notes, net 71,770 84,173 94,920 Unsecured long-term notes, nel 125,471 106,660 24,314 Construction energy trust and nucl ear fuel obligatic ns 62,709 209.171 182,484 Redemption of long-term debt and preferred stock (75,307) (43,295) (202,336) Notes payable to bar,ks (74,400) 32,918 Sam of tax b90efits 10,480 37,531 483,436 683,496 335,560 N et change in current assets and current liabilities excluding notes payable to banks and current maturities of hng-term deot, preferred and oreference stack-Tempora y cash investments (51,493) (57,200) (4,300) ibceivables (11,475) (9,063) 2.715 Materials &nd supplies 22,446 (12,045) 3,149 Accounts payable 20,% 1 (8,942) 39,193 Accrued taxes 1,449 4,041 (12.085) Accrued interest 10,155 17,754 285 Miscellaneous, net 12,525 (7,148) 112 4,558 (72,603) 29,069 Other, net-Construction funds held in escrow, including accrued interest 6,454 711 39,847 Allowance for equity funds used during construction 121,814 84,210 60,421 Sale of utility property 13.568 D:ferred income taxes on allowance for bonowed funds used during construction (76,982) (67,127) (59,530) Miscellaneous, net 2,080 (4,384) 11.345 53,366 26.978 52,083 Total Sources of Funds for Property Additions $745,798 $774,233 $568,044 Property Additions-Elictric plant $689,646 $648,633 $546,996 Nuclear fuel 55,032 124,292 18,945 ___Nonutility property 1,120 1,308 2,103 $745,798 $774,233 $568,044 The tcccrrpanymg Notes to Consondated Financial statements are an integral part of these statements.

3 ohio f dmon a Consnlidated Statements of Taxes For the ears Ended December 31 1983 1982 1981 'k = General Taxes: (in thousards) State gross receipts (i) $ 65,495 $ 56,808 $ 34,144 Real and personal property 47,099 45,028 39,193 Social secunty and unemployment 10,097 8,990 8,010 Miscellaneous 4,127 3,743 2.969 Total general taxes $126,818 $114,569 $ 84,316 Provision for Income Taxes: Currently payable-Federal 5 10,119 324 80 State 2,507 2,532 678 ~ Foreign 228 206 59 + 12,854 3,062 817 Deferred, net (see below)- Federal 75.947 88,666 96.218 7 State 4,867 3,166 2,961 80,814 91,832 99,179 Investment tax credits, net of amortization 53,670 7,312 (772) = Total provision for income taxes $147,338 $102,206 $ 99,224 Income Statement Classification of Provision for income Taxes-7 Operating expenses $135,279 $ 94.245 $ 80,820 l-Other income (64,923) (59,166) (53,360) Alicwance for borrowed funds used during construction 76,982 67,127 59.530 L Extraordinary items 12,234 ] Total provision for income taxes $147,338 $102.206 $ 95,224 . j b Sources of Deferred Tax Expense: ( Allowance for borrowed funds used dunng construction, l which is credited to plant ! 76,982 $ 67,127 $ 59.530 Excess of tax over book deoteciation, net 23,081 17.387 13,669 Deferred fuel and energy costs, net (10,202) 7,000 12,306 J Pensions end taves chargeo to utility plant, nel 4,15.4 2,675 b Cost of terminated construction projc',ts net (3,258) 384 5,197 g Deferred interest on leased noclear fuel, net (3,16t,) p,840) 9,56/ Other, net (6,777) 99 (1.092) Total deferred tax expense, net S 80,814 $ 91,832 $ 99,179 Reconciliation of Federal Income Tax Expense at ~ i Statutory Rate to Total Provision for income Taxes: l~ Book income before provision for income taxes $419,738 $317,935 $296,286 L Federal income tax expense at statutory rate $193,079 $146,250 $136,292 L increases (reductions)in taxes resulting from: Aliowance for equity funds used during construction, which does not constitute taxable income (56,034) (38,737) (27,794) Dif ference between tax and book depreciation 9,115 4,026 (2,422) Gain on exchange of common stock for first mortgage (9,273) bonds, which does not constitute taxable income Other, nel 1,178 (60) (6,852) Total provision for income taxes $147,338 $102.206 $ 99.224 (i) Amount for 1981 includes a credit of $14,352,000 resulting from a December 1981 settlement applicable to Pennsylvania Excise Tax on Gross Receipts accrued in poor years. 6 The accornpanying Notes to Co,solidated Financial statements are an integral part of these statements k-E. rm u --i------------

Notes to Consolidated Financial Statements n g,' 1 Summary of Significant Accounting Policies: Utility Plant and Depreciation-The consolidated financial statements include Ohio Edison Utility plant reflects the original cost of conctruction, includ-Company (Company) and its wholly owned subsidiaries, ing payroll and related costs such as taxes, pensions and Pennsylvania Power Company (Penn Pbwer) and Ohio Edison other fringe benefits, administrative and general costs and Finance N.V. All significant intercompany transactions have allowance for funds used during construction (see AFUDC). been eliminated. The Company and Penn Power (Companies) The Companies provide for depreciation on a straight line follow the accounting policies and practices presenbed by basis at various rates over the estimated lives of property The Public Utilities Commission of Ohio (PUCO), the included in plant in service. The annual composite rates for Pennsylvania Public Utility Commission (PPUC) and the electric plant were 3.4% in 1983 and 3.3% in 1982 and 1981. Federal Energy Regulatory Commission (FERC). The Company's depreciation rates include provisions for the Revenues-estimated decommissioning costs for its only nuclear The Companies' residential and commercial customers are generating unit in service. Penn Power provides for the cost metered on a cycle basis. Revenue is recognized for electric of decommissioning radioactive components only, in service based on meters read through the end of the month. accordance with a PPUC rate order. Deferred Fueland Energy Costs-Common Ownership of Generating Facilities-The Company recovers fuel related costs from its retail The Companies and other Central Area Power Coordination customers through an electric fuel component (EFC). The Group (CAPCO) companies own, as tenants in common, EFC is an estimated fixed rate per kilowatt-hour included on various power generating facilities. Each of the companies is customer bills for a six-month period and is based upon fuel-obligated to pay a share of the construction costs of any related costs for the preceding six-month period. Any over or jointly owned facility in the same proportion as its ownership under collection resulting from the operation of the EFC is interest. The Companies' portions of operating expenses included as an adjustment to the EFC rate in a subsequent associated with these jointly owned facilities are included in six-month period. Accordingly, the Company defers the the corresponding operating expenses on the Consolidated difference between actual fuel related costs incurred and the Statements of income. The amounta reflected on the amounts currently recovered Itom its customers. Consolidated Balerce Sheet under utility plant at December 31,1933, nclude tt e following: Penn Fbwer recovers fuel and energy costs frora its retail customers through an annual "levelized" energy cost rate ION Y"" D"> uwyem (ECP). The ECR, which includes adjustment for any over or c-en ua a ia smo omec ma e,wm moot under collect.on from customers, is recalculated each year. m=w Accordingtv, Penn Fbwer defers the difference benveen C""j,,,,*$$ $$2 actual energy costs and the amounts currersly recovered ma ww eno mi azs 2 3s su sm, from its customers. ['Z,'[" Z j[ Z Reference is made to Note 7 with respect to accounting for Ba' m3m3 sma s m in the cost of coal received from Quarto Mining Company ma*m a==a 'acau am*am te sea = wey ez (Quarto). All nuclear fuel in process relates to the CAPCO units but is not segregated among them. Nuclear Fuel-The Companies amortize the cost of nuclear fuel based on the rate of consumption. The Companies also make pro-vision for future nuclear fuel disposal costs associated with the fuel.

o Notes to Consolidated Financial Statements-(Continued) Allowance for Funds Used During Construction (AFUDC)- Company's Consolidated Balance Sheets and are being AFUDC, a non-cash item charged to utility plant under amortized over the life of the related property. The remaining construction during the construction period, unless $4,657,000 and $24.856,000, respectively, were recorded as oth rwise included in rate base, represents the net cost of reductions to utility plant in service and serve to reduce the borrowed funds and equity funds used for construction total provision for depreciation over the life of the property. purposes. The Company also charges AFUDC to certain The Companies defer investment tax credits utilized and projects which are completed but not yet included in rate aMe mese Mim m ime e me esth Me of base, in accordance with a PUCO order. AFUDC varies the related property. At December 31,1983, approximately according to changes in the level of utility plant under $63,000,000 of unused investment tax credits were available construction and in the cost of capital. The Companies to offset future Federal income taxes payable. These credits compute AFUDC utilizing a net of tax rate, which is expire at the end of the following years: consistent with the rate treatment. The AFUDC rate related to assets financed only through the incurrence of long term 1995 $18.000,000 obligations (see Note 5) is based on actual interest accrued 1996 5,000,000 on the obligations during the period. The annual rates used 1997 19,000,000 by the Company for all other construction projects were 1998 21.000,000 10.90%,10.32% and 9.84% during 1983,1982 and 1981, $63,000'000 respectively. Penn Power's rates applicable to such projects were 9.25% in 1983 and 1982, and 8.50% in 1981. Income Taxes-The Companies' trusteed, noncontributory pension plans Details of the total provision for income taxes are shown on cover almost all full-time employees. Upon retirement, the Consolidated Statements of Taxes. The deferred income employees receive a monthly pension based on length of taxes result from timing differences in the recognition of service and compensation. Pension costs for 1983,1982 and revenues and exoenses for tax and accountirig purposes. 1981, were $16,904,000, $15,448,000 and $15,311,000. respectively. Of those amounts, S11,913,000, $10,350,000, The Companies allocate the income tax benefit. result:cg from and $9,237,000, respectively, were charged to ope.ating interest expense related to utility plant under construction, to expenses; the t:alances were charged primarily to income taxes-credit included under other income and conshction. Sud costs Mclude me amo@abon of deductions on the Consolidated Statements of Income. unfunded past service costs on an actuaria' basis over For income tax purposes, the Companies claim liberalized approximate!y 40 years in 1983 and 30 years in 1982 and depreciation and, consistent with the rate treatment, 1981. The Companies funa pension costs accrued. A ger cra'ly 'oilow ' normalization" accounting. The Compenies companson of accumulated plan benefits ard plaq net expect that deferred taxes which have not been provided will assets from the two latest actuarial reoorts is as follows: be col!ected from their customers when the taxes become payable, based upon the established rate making practices of At June 30, 1983 1982 the PUCO, the PPUC and the FERC. Actuarial present value of The Company received $10,480,000 in 1982 and $37,531,000 ",'","[ "" D*"#'* y $176,732.000 $157.014,000 in 1981 resulting from the sales of tax benefits applicable to Nonvested 16.939.000 12.862.000 property placed in service during those years in accordance $193.67 *.000 $169.876.000 with provisions of the Economic Recovery Tax Act of 1981. Of Net assets available for benefits $314.323.000 5224.641.000 the total, $5,823,000 and $12,675,000, respectively, were I Assumed rate of return for actuarial recoraed as additional deferred investment tax credits on the present value of accumulated plan benefits 8% 8% l l The above total actuarial present value of accumulated plan l benefits reflects pension benefits applicable to eligible employees based upon present salary levels and past years of service accumulated through the valuation date. This is

29 y the generally accepted reporting procedure currently set reason to believe that the FERC will not act favorably upon forth by the Financial Accounting Standards Board. The their requests. The PPUC has indicated that it will allow Penn Companies' annual contributions to the plans, however, Power to begin recovering its share of the costs allocable to l consider estimated e' nate salary increases due to inflation PPUC jurisdictional customers over a ten year period I nd other factors ai,,J the estimated total service expected beginning with the effective date of new rates resulting from to be accumulated by employees. This is a widely recognized its pending rate increase request. funding technique and is consistent with the recommenda-3 tion of the Companies' actuary. In addition, the actuary The Companies lease nuclear fuel, certain transmission recommended, and the Companies utilized, a discount rate facilities, computer equipment, office space and other of 7% for funding purposes. Differences between funding roperty and equipment under cancelable and noncancelable bases and reporting requirements can have a significant leases. Total rent expenses included on the Consolidated effect on the compansons above. Statements of Income were $34,778,000, $20,766,000 and 2 Terminated Construction Projects- $20,731,000 in 1983,1982 and 1981, respectively. The future in January 1980, the Companies and all other CAPCO minimum rental commitments as of December 31,1983, for companies terminated plans to construct four nuclear generat-all noncancelable leases recorded as operating leases are: ing units. Costs, including settlement of all asserted claims 1984 $ 26,696,000 r;sulting from termination, unrecovered by the Company and 1985 24,038,000 Penn Power as of December 31,1983, applicable to these 1986 21,902,000 units amounted to approximately $78,747,000 and 1987 19,325,000 $16,000,000, respectively. 1988 16,177,000 The PUCO had authorized recovery of the applicable portion Years thereafter 398,522,000 of th) Company's then known share of the construction costs from its PUCO jurisdictional custorrers over a ten-year if all noncapitalized financing leases had been capitalized, pericd beginning in February 1981. However, due to a July the effect on total assets and liabilities would not have been 1981 Ohio Supreme Coud decision which overtumad a material. PUCO order including a simila. alluwance to another Ohio 4 Capitalization: utiiRy, the PUCO subsequently disallowed.he Company's (a) Commor, Stock-recovery of those costs, as service-related costs, effective Through the Dividend Reinvestment and Stock Purchase August 1,1981. Plan, hoiders of common, preferred and preference stock On NCNember 3,1982, the PUCO decided in the Company's can acquire additional new shares of the Company's then perding rate case to allow a rate of retur7 above that common stock by automatically reinvesting all or a portion which it otherwise would have allowed were it not for the July of their dividende and by making optional cash payments. 1981 Ohio Supreme Court decision. Based on that order, the Purchases made with reinvested cash dividends on Company resumed amortization of the costs of the termi-common stock are made at a price equal to 95% of the nated units applicable to PUCO jurisdictional customers over average of the high and low market prices on the investment a ten-year period. A similar adjustment was included in the dates, and purchases made with optional cash payments Company's September 1983 PUCO rate order. are made at a price equal to 97% of such average. Pur-chases of common stock made with reinvested cash The Companies are currently seeking approval from tne FERC to recover these costs from FERC jurisdictional customers to the extent they are allocable to those customers. The Companies are currently collectina interim rates from FERC jurisdictional customers which bre intended to provide for recovery over a ten-year period and, accordingly, those costs applicable to FERC jurisdictional customers ara being amortized over that period. The Companies believe that the construction costs were prudently incurred and have no

~ r Notes to Consolidated Financial Statements-(Ceatinued) W" . L j l dividends on prefrured and preference stock are made at $100 per share plus accrued dividends. Penn Power's e price equalic< 100% of the average market price. At 10.50% Series includes a provision for mandatory redemp-December 31,1983, the Company had S,B93,219 shares tion of the entire series on April 1,2040, at $100 per share r::s;rved for issuance under this plan and 1,622,546. Wares plus accrued dividends. of common stock reservec for postible converdon of the The sinking fund requirements for the next five years are: $1.80 Preference Stock. 1984 $2,000,000 (b) Retained Earnings-1985 4,871,000 Under the Company's indenture. tne Company's 1986 4,900.000 consolidated retained earnings enrestricted for payment of 1987 4,900,000 cash dividends on the Compaq/'s common otockivere $169,267,000 at December 31,1083. Under Penn Power's 1988 5,220,000 Charter, $33,773,000 of retained earnings at December 31, 1983, were unrestncted for payment of cash diviends to (e) Preference Stock Subject to Mandatory Redemption-the Ccmpany. The $102.50 Series and $95.00 Series each include pro-visions for a mandatory sinking fund to retire a minimum of (c) P,eterred and Preference Stock-900 and 1,800 shares, respectively, on July 1, in each year At the Companies' option, all preferred and preference beginning in 1984 and 1985, respectively, at $1,000 per stock may be redeemed in whoie, or in part, at any time share plus accrued dividends. The $1.80 Series includes a upon not less than 30 nor mom than 60 days notice, unless provision for a mandatory sinking fund to retire a minimum otherwise nnted. Redemotion of all preferred and preference of 100,000 shares on October 1, in each year beginning in stock issued within the past live years is subject to certain 1985, at $15.125 per share plus accrued dividends. restrictions regarding refuriding cperations. The optional rcdernption prices shown on the Consolidated Statements The annual sinking fund requirements are $900,000 for of Capitalization will decline to eventual minimums per 1984, and $4,213,000 for 1985 through 1988. share according to the Charter provisions (Pat establish The $1.80 Series is convertible at any time into common ead senes. stock at a price of $15.125 per shaic. Holders receive one (d) Preferrea Stock Subj&ct to Mandatory Redemption - share of common stock for each share of $1.80 Preference The Corr pany's 10.48% Series and 10.76% Series each Stock converted, subject to adjustment under certain include pf ovisions for a mandatory sinking fund to retPe a condit ons, minimum of 20.000 shares every year on December 1, and (f) Long-Term Debt-January 1, respectively, at $100 per share plus accrued The mortgages and their supplements, which secure all of dividt.nds. Penn Power's 8.24% Series and 11% Series the Companies' first mortgage bonds, serve as direct first each includ's provisions for a manrjatory sinking fond te mortgage liens on substantially all property and franchises, r@re a minimum of 5,000 shares and 4,000 shares, other than specifically excepted property, owned by the respectively, every year on December 3, and January 1, respective Companies. resprtively, at $100 per chare plus accrued dividends. Penn Power's 15% Series and 11.50% Series each include Based on the amount of bonds authenticated by the prov!sions for a mandatory sinkino fund to retire a rninimum Trustees through December 31,1983, the Companies' of 3,200 shares and 15,000 shares, respoctively, on July 15, annual sinking and improvement fund requirements amount of each year beginning in 1988 arid 1989, respectively, ct to $23,182,000. The Company expects to deposit funds in 1584 which will be withdrawn upon the surrender for can-cellation of a like principal amount of bonds, which are specifically authenticated for such purposes against unfunded property additions or against previously retired = f

31 bonds. This method can result in minor increases in the The Company has transferred its interest in Beaver Valley amount of the annual sinking fund reqJirements. Penn Unit No. 2 (exclusive of common facilities and transmission Power expects to satisfy its requirements in 1984 by facilities) to OEET, where the assets are used to secure certifying unfunded property additions of 166-2/3% of the OEET borrowings. All OEET obligations will be assumed by required amount. the Company when they become due, but not later than December 31,1986. At the Company's option, all obligations As of December 31,1983, the Companies' sinking and outstandng unh N $400,000,000 Mng M improvement fund requirements and maturing long term nangemen m y comM e a fogar m loan debt for the next five years are: to the Company. 1984 $ 99,876,000 The Company accrues interest applicable to OEET which 1985 76,325,000 is subsequently capitalized, net of income tax effect. In-198G 59,260,000 terest on borrowings under the $400,000,000 line of credit 1987 184,260,000 includes a commitment fee of 1/2% on the unused portion 1988 194,862.000 of this line. No direct borrowings have been or are expected to be made against the $100,000,000 line of credit, but Th; w:ighted average interest rates shown on the OEET has issued and has outstanding commercial paper Consolidated Statements of Capitalization relate to long-supported by this facility. To the extent that borrowings are 1:rm debt outstanding at December 31,1983-less than the $100,000,000 available under this line of Total secured and unsecured notes outstanding at credit, the Company must pay a commitment fee of 1/2%. D:ccmber 31,1983, and December 31,1982, exclude Under the standby support, an irrevocable bank letter of $97,112,000 and $74,353,000, respectively, of pollution credit has been issued upon which OEET pays a fee of control notes, the proceeds of which were then in escrow 1/8% of the amount of commercial paper notes outstand-pending their disbursement for construction of certain ing. The effective average annualinterest rates on OEET pollution control facilities. Penn Power's obligation to borrowings were 10.7%,14.8% and 18.7% dunng 1983, r pay certain pollution control revenue bonds is secured 1982 and 1981, respectively. by a series of Penn Power first mortgage bonds. The Nuclear Fuel Financing-pollut;on control revenue bonds to which the unsecured in December 1981, Ohio Edison Fuel Corporation and not:s relate are entitled to the benefit of irrevocable bank Pennsylvania Power Fuel Corporation (corporations in 1 tt:rs of credit of $214,156,000. To the extent that which the Companies have no ownership interest) were drawings are made under those letters of credit to pay created to provide funds for the procurement of nuclear principal of, or interest on, the pollution control revenue fuel. The fuel corporations will lease the fuel to the bonds, the Cornpany is entitled to a credit on the notes. Companies under separate fuel leases which require lease Tn: Company pays an annual fee of 1/2%-7/8% of the payments sufficient to permit the fuel corporations to repay amounts of the letters of credit to the issuing banks the obligations. Under ordinary circumstances, the lease and is obligated to reimburse the banks for any payments will be made at such time and in such amounts drawings thereunder, as will coincide with the burnup of the nuclear fuel. 5 longterm Obligations: Financing ori behalf of the Companies of up to Ohio Edison Energy Trust (OEET)- $303.000,000 is currently available through the fuel OEET, which finances part of the Company's investment in corporations, either through revolving credit arrangements Beaver Valley Unit No. 2, has two lines of revolving credit or the issuance of commercial paper, which is supported available to it for $400,000,000 and $100,000,000. The by bank letters of credit, or a combination of both. latt:r credit also serves as a Flandby facility in Connection with OEET commercial paper sales; total borrowings under that credit and commercial paper outstanding may not cxceed $100,000.000 at any t,me.

n Notes to Consolidated Financial Statements-(Continue Jma in November 1982, the Companies also began participating "floa ' are expected to be maintained at an average of in arrangements wherein the Central Area Energy Trust appr ximately $5,800,000 and are not subject to any (CAET) finances the acquisition of nuclear material that contractual restriction against withdrawal. The Companies will ultimately be used to fuel various CAPCO generating are required to pay commitment fees that vary from a flat units. As part of these arrangements, the Companies rate of 3/8% to a variable rate of 5% of the applicable have entered into purchase agreements whereby the prime interest rate to assure the ave; lability of $80,000,000 Companies are unconditionally obligated to purchase of the lines of credit. their share of the nuclear material that has been financed 7 g through CAET in not 'ess than two por more than three years from the date of the agreement, unless the nuclear M s dd ged material reaches the point of fabncation, at which time the tures of approximately $2,700,000,000 for property additions purchase commitment will then be due. Financing of up and improvements from 19841988, of which approximately to $137,000,000 is available to CAET on behalf of the $766,000,000 is applicable to 1984. In addition, the Companies, subject to certain limitations. Companies expect to invest approximately $352,000,000 The Companies accrue interest applicable to the nuclear for nuclear fuel during the 1984-1988 period, of which fuel obligations which is st.tsequently capitalized, net of approximately $88,000,000 is applicable to 1984. The major income tax effect. No direct borrowings have been or are portion of the Companies' construction activities during this expected to be made against the lines of credit available to five-year period relates to the CAPCO companies' program the fuel corporations; the fuel corporations have issued for the joint development of power generation and and have outstanding commercial paper supported by the transmission facilities. lines of credit. To the extent that borrowings are less than the $303,000,000 available under these credit lines, th The o p n e together with the other CAPCO companies, fuel corporations must pay commitment fees of 1/8% to 1/2% on the available portions of the lines of credit. They g also pay fees of 5/8% to 7/8% for the letters of credit on severally, and not j.. tly, guarantee the.ir proport.ionate oin the aggregate amount of outstanding commercial paper. shares of Quarto's debt and lease obligations incurred Interest rates on CAET purchase commitments vary from while developing and equipping the mines. As of December 11/8% to 1-1/2% over the interest rate applicable to 31,1983, the Companies' share of the guarantee was certain dealer placed commercial paper. The effective $225,598,001 average annual interest rates applicable to nuclear fuel obligations were 10.6%,12.6% and 13.9% during 1983, Under the terms of the coal supply contract, which expires 1982 and 1981, respectively. December 31,1999, the Companies must reimburse Quarto f r their shares of the costs of operating the Quarto mines, 6 Notes Payable to Banks and Lines of Credit: including those costs associated with mine construction, The Companies have lines of credit with domestic banks whether or not they receive coal from Quarto. These pay-that provide for borrowings of up to $235,000,000 at rates ments will permit Quarto, over the life of the contract, to that vary from prime up to 105% of the prevailing prime meet the debt and lease obligations it incurred while interest rates. Short term borrowings may be made under developing and equipping the mines. The Companies' total these lines of credit on the Companies' unsecured notes. p yments under this contract, including amounts related All of the current lines expire December 31,1984; however, to mine construction costs, amounted to $92,644,000, all unused lines may be cancelled by the banks. $80,709,000 and $94,379,000 during 1983,1982 and 1981, The Companies maintain cash balances on deposit with respectively. Under the coal supply contract, the Com-banks to provide operating funds, to assure availability of panies' future minimum payments related solely to mine $124,000,000 of the lines of credit and for other banking construction costs are: arrangements. Such compensating balances, net of 1984 $ 26,082,000 1985 25,463,000 1986 24,846,000 1987 24,228,000 1988 23,610,000 Years thereafter 232,688,000 i s

33 Based on studies conceming the economics of the Quarto 110% of such prevailing market price. The PUCO order proj ct and the various alternatives available to provide the states that the Company must recover previously deferred long-t rm fuel requirements of the Bruce Mansfield Plant, costs (amounting to approximately $57,375,000 at December chang:s were made in 1981 in the mode of operation of 31,1983) under this method at the rate of at least one-sixth tha Quarto mines which have the effect of reducing the per year. Any previously deferred costs not so recovered annual tonnage production of these mines. Additional coal during each year would not be recoverable under ordinary requirtments for the Bruce Mansfield Plant are currently circumstances. In addition, any current costs of Quarto being procured in the open market and the Companies are coal not recoverable under the 125% limitation can no pras;ntly continuing to evaluate the alternatives for making longer be deferred under ordinary circumstances. Although additional arrangements to fulfill, together with the use of unable to predict the ultimate leval of recovery, based upon coal from the Quarto project, the long term fuel current and projected operation of the Quarto mines, and requirtments of the Bruce Mansfield Plant.These changes market prices, the Company believes that this method are part of a fuel procurement strategy designed to reduce provides a sufficient basis to recover the deferred costs the weighted average price of coal used at the Bruce and future costs of Quarto coal under the jurisdiction of Mansfield Plant. The Companies will continue to monitor the PUCO. the Ouarto project and conduct such additional studies On February 10,1984, an Administrative Law Judge for the of the economics of the project as are deemed warranted PPUC issued his Initial Decision in the proceedings relating by the, circumstances. o d me wst of Omo M Re Initial Under the terms of the coa l supply contract, the price of Decision would allow Penn Power to recover in its ECR the Quarto coal is based on, among other things, the actual current cost of Ouarto coal and the costs which were production costs plus amortization of certain production deferred in prior years (amounting to approximately expenses which were not included in the price of that coal $9,879,000 at December 31,1983) to the extent that the prior to May 31,1980, when the development period ended. actual cost of all coal burned at tne Bruce Mansfield Plant Following the end of the development period, the Company is less than the generally prevailing delivered market price for comparable coal. Penn Power may continue to defer was ordered by the PUCO, and Penn Power was ordered by costs which are in excess of the amount allowed to be the PPUC, to defer recovery of the cost of Quarto coal in recovered on a current basis. The Initial Decision will excess of generally prevailing market prices, pending ecome hnal, unless it is appealed to the PPUC or the further proceedings. As a result of those orders, the Companies began deferring a portion of the cost of Quarto PPUC elects to review the Decision. Although unable to coal, rather than including such costs in their respective predict the final resolution of this matter, management EFC and ECR. believes that its ultimate disposition will not have a maten,al adverse effect upon the Company's consolidated results of Thereaf ter, the PUCO allowed the Company to implement operations. a recovery formula with respect to Quarto coal costs that An issue has been raised in the Companies' inost recent resulted in the recovery of current Quarto coal costs plus a portion of its previously deferred costs. However, that rate cases before the FERC concerning the amount of the cost of Quarto coal that may be included in the recovery mechanism was suspended by the PUCO on Companies' charges for electric service to their wholesale August 1,1983, pending further review. On January 31, customers. In the case involving the Company, an 1984, following the Comoany's semiannual fuel hearing, agreement between the Company and its wholesale the PUCO approved a method, effective January 1,1984 which provides an opportunity for recovery of the current customers has been filed with the FERC which provides for cost of Quarto coal plus costs which were deferred in prior recovery of the cost of Quarto coal pursuant to the method years. The PUCO order allows the Company to recover in used by the PUCO. The FERC has not yet acted upon the its EFC the current cost of Quarto coal up to 125% of the agmement prevailing comparable delivered market price. Previously deferred costs may also be recovered to the extent that the actual cost of all coal burned at the Bruce Mansfield Plant, including the recoverable cost of Quarto coal, is less than

lu Notes to Consolidated Financial Statements-(Continued) ~ ~ .( ~. mt c Environmental Matters--- power plants and other sources located in several states, Various Federal, state and local authorities regulate the including Ohio and Pennsylvania. The Company is unable Companies with regard to air and water quality and other to predict whether the proposed bills will be enacted and, environmental matters. The Companies estimate that if so, to what extent, if any, the SO, emission limits at the compliance requires capital expenditures of approximately Companies' plants would be af fected. Substantial changes $508,000,000 for projects remaining to be completed. Of in the SO emission limits could result in the need for 2 this amount, approximately $322,000,000 was spent prior changes in coal supply, significant capital investments in to 1984, and $186,000,000 is included in the construction flue gas desulfurization equipment or the closing of some estimate given above under " Construction Program" for coal fired generating capacity to assure compliance. If 1984 through 1988. If Penn Power is required to install off-flue gas desulfurization equipment were to be installed stream cooling in connection with the operation of the on all of their generating units to achieve compliance, a New Castle Plant, costs (based on a 1980 study) estimated circumstance that may be physically impossible because between $13,800,000 and $31,500,000, depending on the of space limitations at certain of their plants, the Companies required thermal limitations, would be incurred. In addition, estimate that the capital costs associated with such instal-annual operating costs would increase substantially. Penn lation could exceed $1,000,000,000. The Companies expect Power expects that the impact of any such capital and that any such capital costs, as well as any increased operating expenditures would eventually be reflected in its operating costs associated with such equipment, would rate schedules. ultimately be recovered from their customers. On December 19,1980, the Commonwealth of On October 11,1983, the U.S. Court of Appeals for the Pennsylvania petitioned the Federal Environmental District of Columbia reversed several significant portions of Protection Agency (EPA) to make findings under Section the EPA's regulations on the methods used by the EPA to 126 of the Clean Air Act. Section 126 provides a remedy for determine the amount of stack height credit for establishing a downwind state that can show adverse impact because individual source emission limitations. The EPA is currently air pollution in an upwind state causes nonattainment of air considering changes to its stack height regulations to quality standards in the downwind state. Pennsylvania's conform them to the court's decision. Such changes could petition complains of excessive particulate and sulfur result in more stringent emission limitations for existing dioxide (SO ) emissions from a number of sources in Ohio plants and increased capital costs and operating ex-2 and other states, including potentially all of the Companies' penses. The utility industry is seeking review of the Ohio plants. The states of New York and Maine have filed decision before the U.S. Supreme Court. The Company is similar petitions which have subsequently been consoli-unable to predict the ultimate outcome of this proceeding. dated with the Pennsylvania petition. In January 1984, a The Pennsylvania Department of Environmental Resources number of states, together with various environmental Pm h M R ihs b e W a organizations, sent the EPA a notice of their intent to sue Consent Agreement with Penn Power in an effort to the EPA for failing to render a timely decision on the substantially reduce alleged opacity v. lations at the New io pending Section 126 petitions. The notice also asserts that Castle Plant. Such Consent Agreement may ultimately the EPA has a mandatory duty to order cutbacks in SO, include capital expenditures and changes in operations at emissions in Ohio and other states under Section 115 of the plant as well as an undeterminable penalty payment. the Clean Air Act, which deals with international air Management is unable to predict the terms of the Consent pollution. These proceedings could ultimately result !n the Agreement but anticipates that any capital costs and revision of the particulate and SO, emission limitations for increased operating expenses would ultimately be these plants, to make them more stringent. The Company recovered from Penn Power's customers and that any is unable to predict the outcome of these proceedings. penalty payment would not be material to the Company s As a part of the reauthorization of the Clean Air Act, consolidated results of operations. legislation has been introduced in Congress to address the Other legal Actions and Complaints-so-called " acid rain problem." Various bills introduced thus in 1977, the Boroughs of Ellwood City and Grove City, far would require reductions in SO, emissions from utility Pennsylvania, filed a complaint against Penn Power, alleging that Penn Power, individually and in conspiracy with the Company and other CAPCO companies, has

35 : violated Sections 1 and 2 of the Sherman Act and 9 Summary of Quarterly Financial Data: Sections 4 and 16 of the Clayton Act by restraining and The following summarizes certain consolidated operating monopolizing trade and commerce in alleged markets for results for the four quarters of 1983 and 1982. clectric power. Damages of $7,000,000 (to be trebled) March June September December and injunctions against the alleged unlawful acts were Three Months Ended 31.1983 30.1983 30.1983 31.1983 originally sought. In February 1984, the Boroughs revised (in thousands, except per share amounts) th;ir claimed damages up to $9,743,000. In 1979, the Operating Revenues $378.157 $364.478 $386.400 $386.817 Court granted summary judgment in favor of Penn Power Operating Expenses as to certain allegations of the complaint. In February and Taxes 302.104 296.956 308.288 305.753 1983, Penn Power filed a Motion for Summary Judgment on Operating Income 76,053 67.522 78.112 81.064 the claims not dismissed by the Court's 1979 Order. Also in Other income and Deductions 4/.530 50.060 54.668 55.291 February 1983, the Boroughs asked the Court to allow them to amend their complaint. In August 1983, the Court "[U er arge 59.472 57.578 60.017 60.833 granted Penn Power summary judgment on the Boroughs' Net income $ 64.111 5 60.004 5 72.763 $ 75.522 conspiracy claims, denied summary judgment on " price squieze" and Robinson-Patman Act claims, and denied the Earnings on Common Stock $ 54.091 $ 48,708 $ 61.117 $ 63.927 Boroughs' request to amend their complaint. Trial is Weighted Average Number anticipated to begin in the second quarter of 1984. of shares of Common stocWutstanding % 841 M 244 M5M2 107.261 Management is unable to predict the ultimate outcome of this action. Earnings per share of Common stock $ 56 $.49 $.58 $ 60 The PPUC is investigating an outage of Beaver Valley Unit No.1 which occurred during the period March-August 1979. The outage had been ordered by the Nuclear March June september December Three Months Ended 31,1982 30,1982 30,1982 31.1982 Regulatory Commission to analyze possible seismic deficiencies of safety-related piping and pipe supports in (In thousands, except per share amounts) the Unit. The PPUC has ordered that the operating Operating Revenues $361.190 $328,834 $374.328 $365.274 a ng Expenses company of the Unit make refunds to that company's es 286.837 258.311 315.272 299.566 customers based upon that company's expenditures for purchased replacement power during the outage. The $,'*(9 " ne and PPUC is currently investigating Penn Power's liability, if Deductions 35.819 30.505 50.212 43,711 any, for the outage and whether refunds are due to Penn Net Interest and Power's customers for purchased replacement power Other Charges 56.335 58.937 59.820 59.224 expenses incurred during the outage which were included income Before in its energy clause. If Penn Power is required at some Extraordinary item 53.837 42.091 49.448 50,195 Extrao@nay Hem 20J 58 future time to make such a refund,it is not expected that Net income $ 53.837 $ 62.249 $ 49.448 $ 50.195 the amount would be material to the Company's consoli. dated results of operations. Earnings on Common stock $ 45.644 $ 54.095 5 41.326 $ 40.431

- '9" * * * *9'""*
8 ExtraordinaII ncome-i of Shares of Common During 1982, the Company exchanged 2,650,600 shares of stock Outstanding 79.131 81.122 88.021 92.688 its common stock for $53,432,000 principal amount of its Earnings per Share outstanding first mortgage bonds which were subsequently of Common stock:

retired. The exchange resulted in a non-taxable gain of Before Extraordinary item $20,158,000, which is included as an extraordinary item (after preferred and on the 1982 Consolidated Statement of income. During preference stock dividend 1981, the Company purchased and subsequently retired $"a[dIna 1 tem $65,821,000 principal amount of its outstanding first mort-Earnings on Common stock $.58 $.67 $.47 $.44 gage bonds for cash. This resulted in a gain of $26,276,000, which is included as an extraordinary item, net of related income taxes of $12.234,000, on the 1981 Consolidated Statement of Income.

Notes to Consolidated Financial Statements-(Continued) x 10 Supplementary Financial Data-Financial Reporting and formation to disclose the estimated effects of inflation and Changing Price $ (Unaudited): changes in prices on property, plant and equipment. This Statement of Financial Accounting Standards No. 33, data is presented in accordance with SFAS No. 33; however, " Financial Reportino and Changing Prices"(SFAS No. 33), it is not intended as a substitute for earnings reported on a provides for the preparation of supplementary financial in-historical cost basis. Mjusted for Mjusted Change in Results of Operations Adjusted for the Effects of for General Specific Prices Changing Pnces for the War Ended December 31,1983 Inflation (Current Cost) (Thousands of average 1983 dollars) Income from continuing operations $227,843 $227.843 Inflationay Effects on Common Equity: Capital Investments Effects-Increase in specific prices (current cost) of property held during the year (i) 443,524 Change in general price level on property held during the year (336,848) Reduction to net recoverable cost (52,921) (123,622) Mditional provision for depreciation (127,538) (163.513) (180,459) (180,459) Mvantage from the decrease in purchasing power of net monetary liabilities 120,422 120.422 Net erosion of common stockholders

equity (60,037)

(60,037) income from continuing operations adlusted for changing prices di) $167,806 $167,806 (i) At Decemoer 31,1983, net property, pf ant and equipment, adjusted for changes in specific prices (current cost) was $9,524,525,000, wnile historical cost (net recoverable cost) was $5.157,196,000. (ii) Income from continuing operations, adjusted for general inflation and adjusted for change in specific prices (current cost) would be $100,305,000 and $64.330,000, respectively, if only the amount reportable as additional provision for depreciation was includad in the adjustment. Companson of supplementary Financial Data For the Years Ended December 31 1983 1982 1981 1980 1979 Operating Revenues-Historical $1,515,852 $1,429.626 $1,279,649 $1,080,869 $ 994,585 Mjusted to average 1983 dollars $1,515.852 $1,475.615 $1,401,789 $1,306,853 $1,365,153 Income (Loss) from Continuing Operations-Historical $ 227,843 $ 161,338 $ 149,850 $ 101,403 $ 105,120 Mjusted for changing prices (average 1983 dollars) $ 167,806 $ 115,172 $ 58,785 $ (27,098) $ (8.294) Income (Loss) from Continuing Operations per Common Share-Histancal $2.22 $1.89 $2.10 $1.52 $1.80 Adjusted for changing prices (average 1983 dollars) $1.64 $1.35 $.83 $ (.40) $ (.14) Return frorn Continuing Operations on Average Common Equity-Historical 14.2 % 12.3 % 13.5 % 9.7% 11.2 % Adjusted for changing prices 10.5 % 8.3% 4.8 % (2.1)% (0.6)% Effective income Tax Rate-Historical 35.1 % 32.1 % 33.5 % 28.3 % 21.9 % Adjusted for changing prices 41.0 % 38.1 % 49.6 % 82.5 % 61.5 % Excess of ine ease in the Specific Level of Prices on Property, Plant and Equipment Over Gerteral Price Changes (average 1983 dollars) $ 106.676 $ 344,737 $ (40,337) $ (202,722) $ (115,228) Advantage Resulting from the Decrease in Purchasing Power of Net Monetary Liabilities (average 1983 donars) $ 120,422 $ 110,243 $ 235,821 $ 306,178 $ 339,387 Year End Common Stockholders' Equity-Historical $1,711,974 $1,488,371 $1,229.044 $1,067,524 $ 970,110 Adjusted for changing prices (average 1983 dollars) $1,682,449 $1.519,188 $1,303,752 $1,226.489 $1,261,648 Cash Dividends Declared per Common Share-Historical $1.80 $1.76 $1,76 $1.76 $1.76 j Adjusted to average 1983 douars $1.79 $1.82 $1.92 $2.11 $2.41 Year End Market Price per Common Share-Historical $12.25 $14.00 $11.625 $11.875 $13.375 Adjusted to average 1983 dollars $12.04 $14.29 $12.32 $13.72 $17.36 Average Consumer Price Index 298.4 289.1 272.4 246.8 217.4

Auditors' Report n [ Th7 increase in specific prices of property held during the To the Stockholders and Board of Directors of Ohio Edison l year attempts to measure increasing asset values which Company: approximate dollars that would have to be spent today t We have examined the consolidated balance sheets and acquire property, plant and equipment identical to assets consolidated statements of capitalization of Ohio Edison [ currently owned. The Companies use the Handy-Whitman Company (an Ohio corporation) and its subsidiary l Index of Public Utility Construction Costs and the Bureau of companies as of December 31,1983, and 1982, and the labor and Statistics engineenng indices to calculate the cur-consolidated statements of income, retained earnings, l r:nt cost of those assets. The indices are applied to actual capital stock and other paid-in capital, sources of funds dollars spent on large construction projects according to the for property additions and taxes for each of the three years . year of expenditure. For all other plant facilities, the current in the period ended December 31,1983. Our examinations cost is determlned based upon the year the facilities were were made in accordance with generally accepted auditing placed in service. standards and, accordingly, included such tests of the Changes in the valuation of assets adjusted for general infla-accounting records and such other auditing procedures as tion are computed by using the average Consumer Price we considered necessary in the circumstances. Index for All Urban Consumers for the calendar year, accord-In our opinion, the financial statements referred to above ing to the guidelines set forth in SFAS No. 33. resent fairly the financial position of Ohio Edison As shown on the results of operations adjusted for the effects Company and its subsidiary companies as of December 1 of changing prices, the erosion of common stockholders

31,1983, and 1982, and the results of its operations and equity is identical either adjusted for general inflation or ad-the sources of funds for property additions for each of the justed for specific price changes. This results from the effect three years in the period ended December 31,1983, in of regulation in setting the Companies' electric rates. Since conformity with generally accepted accounting principles those rates are based upon historical costs of utility plant, applied on a consistent basis.

th3 inflation-adjusted results of operations must recognize this limitation; this is accomplished by the reduction to net recoverable cost shown on the summary. p Additional depreciation expense adjusted for general inflation ARTHUR ANDERSEN & CO-and for the change in specific prices was determined using the same rates and methods used for computing the histor-New York, N.Y. ical cost provision for depreciation. No inflation adjustment February 14,1984 has been reflected for income taxes, in conformity with the reporting requirements of SFAS No. 33. During periods of inflation, the Companies' net monetary liabilities (principally long-term debt and preferred stock) will be repaid with dollars having less purchasing power than dollars had when the original liability was incurred. This 4 economic benefit is portrayed on the summary as the advan- } tage from the decrease in purchasing power of net monetary liabilities, which serves as an offset to the inflationary effects of replacing the Companies' property, plant and equipment. 1 1 4 ,w -e.. - -, e.- - - -,. + + - - -. -,., -~ --a --~,

o Consolidated Financial Statistics 1983 1982 1981 1980 1979 1978 1973 General FinancialInformation (Dollars in thousands, except per share amounts) Total Operating Revenues $1,515,852 $1.429.626 $1.279.649 $1.080.869 $ 994.585 5 862.956 $ 385.806 Operating income $ 302.751 $ 269.640 $ 252.381 $ 169.383 $ 163.744 $ 123.945 $ 89,664 Earnings on Common Stock $ 227.843 $ 181.496 $ 163.892 $ 101.403 $ 105.120 $ 61.259 $ 58.697 Ratio of Earnings on Common Stock to Operating Revenues 15.0T. 12.7 % 12.8 % 9.4 % 10.6 % 7.1% 15.2 % Times interest Earned Before income Tax 2.31 x 2.02 x 2.11 x 2.05 x 2.31 x 1.67 x 3.02 x Net Utikty Plant at December 31 $5.150,902 $4.522.733 $3.867.757 $3.435.267 $3.012.197 $2.717.820 $1.357.017 Property Additions S 745.798 $ 774.233 $ 568.044 $ 515.020 $ 476.746 $ 395.162 $ 227.700 Capitahzation at December 31: Common Stockholders

Equity

$1,711,974 $1.488.371 $1.229.044 $1.067.524 $ 970.110 $ 851.686 $ 438.182 Preferred and Preference Stock Not Subject to Mand' tory Redemption 404,240 354.240 304.240 306.905 306.905 306.905 160,905 Pr9ferred and Prefeence Stock Subject to Mandatory Redemption 158,112 152.560 151.141 156.450 150.850 98.000 Longterm Debt 2,131,404 2.005.436 1,759.771 1.594.384 1.410.782 1.343.195 711.678 Total Capitahzation $4.405,730 $4.000.607 $3.444.196 $3.125.263 $2.838.647 $2.599.786 $1.310.765 Capitahzation Ratios at December 31: Common Stockholders' Equity 38.9 T. 37.2 % 35.7 % 34.2 % 34.2 % 32.7 % 33.4 % Preferred and Preference Stock Not Subject to Mandatory Redemption 9.1 8.9 8.8 98 10.8 11.8 12.3 Preferred and Preference Stock Subject to Mandatory Redemption 3.6 3.8 44 5.0 5.3 3.8 Longterm Debt 48.4 50.1 51.1 51.0 49.7 51.7 54.3 Total Capitalizat:on 100.0T. 100 0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Longterm Obhgations at December 31 $ 719,364 5 656.655 $ 447.484 5 265.000 Cost of Preferred & Preference Stock Outstandirig at December 31 9.63 T. 9.17 % 8.37 % 8.38 % 8.36 % 7.99 % 5 91 % Cost of tJongTerm Debt Outstanding at Decerrt ar 31 10.82T. 10 69 % 990% 9.16 % 8.13 % 7.71 % 6.26 % Common Stock Data Eamings per Average Common Share $2.22 $2.13 $2.30 $1.52 $1.80 $1.19 $2.14 Return on Average Common Equity 14.2T. 13 5 % 14 6 % 97% 11.2 % 7.1 % 14.7 % Dividends Paid Fbr Share $1.80 $1.76 $1.76 $1.76 $1.76 $1.76 $1.58 % l Common Stock Dividend Payout Ratio 81T. 83 % 77 % 116 % 98 % 148 % 74 % Common Stock Dividend Yield at December 31 14.7T. 12 6 % 15.1 % 14.8 % 13.2 % 11.8 % 7.8% Pnce/ Earnings Ratio at December 31 5.5 66 5.1 7.8 7.4 12.5 9.5 Shares of Common Stock Outstanding at December 31 (000) 108,460 96.082 78.676 68.526 59.622 52.120 28,695 Book Value per Common Share at December 31 $15.78 $15.49 $15 62 $15.58 $16 27 $16.34 $15 27 Market Pnce per Common Share l at December 31 $12.25 $14 00 $11.625 $11.875 $13.375 $14 875 $20.25 Ratio of Market Pnce to Book Value per Share at December 31 78T. 90 % 74 % 76 % 82 % 91 % 133 %

I Consolidated Operating Statistics n 1983 1982 1981 1980 1979 1978 1973 Revenue Frorn Electric Sales (thousands): R:sidential $ 540,167 $ 497.941 $ 442,267 $ 398.832 $360,273 $314,867 $141,473 Commercial 385,277 356.325 308,599 268,788 240.458 205,901 99,428 Industrial 421,736 383,535 381,162 330,717 315.185 258,767 115,320 ) Other 69,278 67,828 53,993 50,420 42,607 46,471 17,064 Subtotal 1,416,458 1,305,629 1,186,021 1,048,757 958,523 826,006 373.285 Sales to Utilitiu 76,220 101.088 73,966 12,381 10,185 9.346 3,300 Total $1,492,678 $1,407,317 $1,259.987 $1,061.138 $968,708 $835.352 $376,585 Revenue From Electnc Sales-%: Residential 36.2 % 35.4 % 35.1 % 37.6 % 37.2 % 37.7 % 37.6 % Commercial 25.8 25.3 24.5 25.3 24.8 24.6 26.4 Industrial 28.3 27.3 30.2 31.2 32.5 31.0 30.6 Other 4.6 4.8 4.3 4.7 4.4 5.6 4.5 Subtotal 94.9 92.8 94.1 98.8 98.9 98.9 99.1 Sales to Utilities 5.1 7.2 59 1.2 1.1 1.1 0.9 Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Kilowatt-Hour Sales (millions): Residential 6,735 6,733 6,747 6,801 6,650 6,501 5,390 Commercial 5.096 4,996 4,917 4,812 4,693 4,470 4.036 Industnal 8,386 7,708 9.352 8,909 9,830 9.600 9.863 Other 1,211 1,227 1,181 1,370 1,346 1,309 1.073 Subtotal 21,428 20,664 22,197 21,892 22,519 21.880 20,362 Sales to Utilities 2,917 3,361 2,465 502 441 429 311 Total 24,345 24.025 24,662 22,394 22.960 22,309 20.673 Customers Served at December 31: Residential 878,949 873.877 872,303 867,447 861,196 848.268 786,744 Commercial 90,072 89,706 89.231 88,505 87,425 86,410 81,777 Industrial 1,003 1,048 1,068 1,059 1,161 1,160 1,128 Other 736 724 711 704 693 689 579 Total 970,760 965,355 963.313 957,715 950,475 936.527 870,228 Average Annual Pesidential KWH Usage 7,695 7,723 7,760 7.870 7,780 7.724 6,935 Average Residential Pnce Fbr KWH 8.02c 7.40c 6.56e 5.86c 5.42c 4.84c 2.62c l Cost of Coal Fbr Million BTU $1.62 $1.75 $181 $1.50 $1.26 $1.16 $.40 Generating Capability at December 31 (megawatts): Coal 4,858 4.858 4,907 4,899 4,861 4.861 3,939 Oil 164 354 354 364 423 423 327 Nuclear 425 425 425 425 425 420 Total 5,447 5.637 5.686 5.688 5,709 5.704 4.266 Sources of Electnc Generation: Coal 89.8 % 93.8 % 89.9 % 98.7 % 93.9 % 90.4 % 99 2'4 Oil 0.1 0.2 06 2.0 3.5 0.8 Nuclear 10.2 6.1 9.9 0.7 4.1 6.1 Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Na> Load-Megawatts 4,148 4,073 4.148 4,210 4,105 4,038 3,810 Number of Employees at December 31 7,702 7,885 7,669 7,503 7.157 6,765 6.073

x c Stockholder Information j Stockholder Profile identification number, or supply a Annual Meeting of Stockholders At the end of 1983,204,000 stock-number if missing. For new Stockholders are cordially invited holders owned 108.5 million shares accounts opened af ter Janua'y 1, to attend the 1984 Annual Meeting of Ohio Edison common stock. 1984, stockholders must prc/ide on Thursday, April 26, at 10 a.m., Approximately 31 percent of those their taxpayer identification local time, in the Company's stockholders are women,9.5 per-number, plus certification that the General Office auditorium in cent are men and 33 percent are number is correct and the IRS has Akron, Ohio. Those unable to or joint holders. The remaining 11 not identified them as taxpayers choosing not to attend can vote on percent are trusts, corporations, whose dividends should be subject the items of business presented at institutions, brokers and other to withholding. the meeting by filling out and investment groups. retuming the proxy card that is Stockholders who fail to provide mailed to each stockholder approx-NeG <5 percent of common the necessary information will be imately 30 days prior to the stockholders own 300 shares or subject to certain IRS penalties 9' less. They live in all 50 states and and a 20 percent withholding tax many foreign countries. on dividends. For additional infor-Additional Information Cominon Stock Dividends and Taxability mation on these new requirements, Information and assistance on contact the IRS or your tax advisor. individual holdings, dividend pay-in the first quarter of 1983, the ments, Mend Westment w Company's Board of Directors Dividend Reinvestment increased the quarterly dividend on in 1983,14,000 stockholders ansW w mgWahn d sg can M WaM, W w Mng M o common stock. Dividends of 45 enrolled in the Company s Dividend Edison Company, Stockholder cents per share were declared by Reinvestment and Stock Purchase the Board for each quarter of 1983-Plan, raising the total number of [08 o in For the year,46 percent of common participants to 66,753, or 30 (216)384 5509. stek dividands were designated percent of all stockholders. By rein-as a retum of capital, and therefore vesung 557 miiiion in dividends and Ohio Edisor Company common nontaxable for federalincome tax making optional cash payments of stock is listed on the New York and purposes, unless the stock was $40 million, they acquired more Midwest stock exchanges and than 7 million shares of common traded on other registered ex-1 sold. Preferred and preference stock dividends paid during 1983 stock during the year. changes under the "OEC" ticker + symbol. Newspapers generally were 100 percent taxable. These The Economic Recovery Tax Act of use N symW wok in figures are subject to final deter-1981 provides that through 1985, hsMgs. mination by the Intemal Revenue most participants in qualified divi-Service (IRS) and stockholders will dend reinvestment plans such as A copy of our 1983 Annual Report benotifiedof anysignificantchange. Ohio Edison's may exclude from to the Securities and Exchange Dividend Withholding their yearly income up to $750 per Commission, Form 10-K, will be During the summer, Congress year ($1,500 on a joint return)of provided without charge to stock-taxable dividends reinvested. We holders upon request. To receive a repealed a law that would have required the Companies to with, anticipate that a portion of common copy, please write to Gregory F. hold 10 percent of most dividend stock dividends paid during the LaFlame, Secretary, Ohio Edison payments for tax purposes. But we next few years will be designated Company,76 South Main Street, are required to comply with backup as a retum of capital. Participants Akron, Ohio 44308. should consult their own tax withholding measures. For information and assistance on advisors to determine the proper the transfer or registration of all According to federalincome tax treatment of common stock divi-classes of Company stock' contact-law, each common, preferred and dends on their federal tax return. preference stockholder must Transfer Agent: Additionalinformation about the provide the Company with a tax. Transfer Agent payer identification number, which Plan, and a Prospectus, can be Ohio Edison Company is either a social security number obtained by contacting Ohio 76 South Main Street Edison s Stockholder Services. or employer identification number. Akron, Ohio 44308 Beginning December 30,1983, E forms were mailed enabling stock-Bn io National Bank holders to certify their taxpayer PM Akron, Ohio 44308

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HIGHLIGHTS 1983 1982 Change Earnings Per Common Share $3.50 $3.18 + 32c Dividends Declared Per Common Share 2.40 2.38 + 8c (current quarterly rate is 63c - equivalent to $2.52 per year) Return on Average Common Equity 14.5 %

13. 3"c Financial Results (millions of dollars)

Income from operations 03 57 + 11% Allowance for equity funds used during construction 65 49 + 33% Net income. 128 106 + 21"r Operating Results (millions of kilowatt hours) Sales fletail customers 6811 6523 + 4% Wholesale customers 320 395 - 10% System Performance Nuclear generation, 2383 1569 + 5 2"o Fossil generation. 4683 5300 - 12% Employees 2405 2458 - 2% Earnings per Common Share Dividends Declared per Common Share Dollars' Share Dollars / Share 3.75 2.00, ~i i ~ 3257 + ,7 s v a g_go i [ ~~ ~ 2.75 i y ,a w t -) i 2 25 < t.sc _ L _ __ E_. - L '79 'H 1 '83 '73 '78 'H3 AllOUT TOLEDO EDISON The Toledo Edison Company is a public utility estimated population of 750,000, the company also whose primary activities are the generation, provides relatively small amounts of natural gas transmission, distribution and sale of electric and steam heating Hervices. Toledo Edison is energy in 1bledo and northwestern Ohio. Servic-owned by over 190,000 shareholders in all 50 ing approximately 2,f;00 square miles with an states and worldwide.

TO OUR SHAREOWNERS: gap ~ d It is a pleasure to report a sig. Jolm it Wdli ms n Wend >H A. J huson nificant earnings gain, especially [."$ ome g o meer in the second half of 1983. Shareowners and customers that as further evidence of a direct fuel adjustment period. This came alike are benefiting from the correlation between industrial elec-at a time when it could be most l results of our successful, on going tric consumption and the economic beneficial-right before the winter { cost reduction and control efforts. health of the community, heating season. l And an upturn occurred in kil ~ 'Ibtal 1983 kilowatt-hour sales Of particular significance in j watt hour sales due to the improv-rose 3 percent. This was the first this commission decision was the j ing economy and a return to more overall sales increase in the last partial allowance of carrying normal weather patterns. s four years. Sales to municipal cus-charges on Construction Work in The price per kilowatt-hour of tomers decreased as a result of Progress (CWIP) for the Perry No. t 4 electricity to our customers was their increased purchases of power generating addition project as part l reduced significantly. Our power fmm other government entities. of the basic price increase. The first j gene:ation facilities, particularly Residential and commercial Perry Unit is now over 90 percent nuclear, set new records for pro-kilowatt-hour sales showed only a complete. Work on a second unit, j duction and officiency. slight annual increase. The first about 40 percent complete,is being The dividend rate was in. half of the year saw exceptionally minimized pending completion of cron=ed two cents, to 03 cents per mild temperatures and low sales. the first unit and future evaluation common share, by your board of However, the weather returned to of capacity tim!ng needs. Your i directors in December.This was the more normal patterns in the sum. company has a 20 percent owner-l 01st increase declared in the last 23 mer and fall, with December tem. ship share in the two units, which l years. The new rate is equivalent to peratures being very cold. are being built by Cleveland Elec-We decreased our prices to tric Illuminating Company on l $2.52 on an annualized basis.1983 l also was the cand consecutive year customers during the year. Most of aH f en al Ama Powe of dividend payments. this is attributable to a 50 percent Coordination Omup (CAPCO). We also have about a 20 percent owner-Earnings rose to $3.50 per decrease in the " fuel charge,, por-common share from the $3.18 cf the tion of our customers bills in ship sharein the Beaver Valley Unit j previous ycar, a 10 percent increase. August. This reflected our lower No. 2, now about 80 percent com-plete and under the construction Irading the way to a 9 percent fuel costs over the prior six month i increase in industrial kilowatt-period. It resulted primarily from supervision of Duquesne Light hour sales were the substantial the low cost generation of the Company. gains registered by automotive-Davis Besse Nuclear Station, along Our Davis-Besse station set a related customers. Their power use with continued efficient produc. new record for annual pmduction was up IH percent for the year. tion fmm our coal-fired Bay Shore in 1983. The nuclear unit pmvided Station' over 5.2 billion kilowatt hours, a The improving economy also six-year high. In 1983 the unit means employment in our eight. Also in August, the Public county servicc area has been on the Utilities Commission of Oh! rated in the upper one third for production of all of the nuclear rise. By late 1983, total employment approved a partially offsetting units in the country. Of the com-was at its highest level in four increase in our base prices. The pany's total electricity output, 3t years. commission appmved a 5 percent, percent was from the nuclear sta-locally, two major automotive-or $23 million, annual increase in tion. With the consequent lowering related employers are operating at retail electric rates' ofcosts and prices, it is not difficult pre recessionary levels. They've The net effect of the two dect-to point out to customers the advan-invested in retooling their existing sions was that our average total tages of nucler.r generation. We northwest Ohio plants and have prico per kilowatt-hour decreased look forward to continued efficient called back laid off workers. We see about to percent for the six month service in 1984. l 1 l

\\ C:cl fircd units previd:d directors. The board also elected generating units under construc-chout 66 percent of company Lyman C. Phillips vice president, tion, and were directed to charge generated powerin 1983, a depend-corporate planning and adminis-off the investment only against able complement to our nuclear tration. IIe has the added respon-shareowners, the resultant write-generating source. sibilities of administration of off could exceed the balance in its Personnel, procurement, indus-Earnings Reinvested Account and We'll continue fine-tuning the trial security, transportation, probably result in a consequent procedures and equipment at our building and office services, and suspension of dividend payments. generating stations to keep their business analysis and planning. as Even a forced suspension in con-performance at peak efficiency. we11 as corporate planning struction of a unit could result in a Our coal-fired units, in particular, reduction in the accrual for Allow-activities. have been the recipients of many Frank W. Keith, vice president, ance for Funds Used During Con-modifications in recent years, most administration, retired after 36 struction credits and a possible of which are designed te minimize meritorious years with the reduction or termination of divi-any harmful environmental dend payments. Either of these

company, impact.

events could, in turn, preclude a 1983 was a gratifying year. Nmpany from selling additional Improving air quality is the Our earnings were up while cus. equity and debt securities. This, reason we have already made sub-tomer prices were down. And we then, could result in a company stantial envimnmental equipment continued monitoring and evaluat-being unable to obtain funds suffi-investments at our Acme and Bay ing the CAPCO generating unit cient to finance its share of the con-Shore Stations in 'Ibledo. We have projects still under construction. struction costs of other units, also changed to higher-cost, low Shareowners can be assured that unless the company was able to sulfur coal sources for our boilers. the same scrutiny and thought that btam the necessary financing by Your management team believes went into our past year's successes ther means. Therefore, politicians the company probably should be will be applied to all of our future and regulators need to be made minimally affected and, in fact, efforts' will be less affected than most very aware of the serious conse-But we entered 1984 with what other utilities in this part of the quences of any actions to " protect could best be termed cautious opti-customers" that would affect util-country by proposed acid rain mism. For even the most prudent ty construction and financing legislation. decisions and the highest quality programs and, ultimately, ade-Cost control programs work are no guarantee against quacy and reliability of customer lawered costs in 1983. For in-adversity. In the last few months service, as well as bills, stance, our operating expenses for we have seen how capricious use of We at 'Ibledo Edision are not the year showed only a slight regulatory standards can make a increaae and maintenance mockery of the carefully balanced wavering in any ofour convictions, expenses actually decreased by 16 relationship between utilities, But as one of the most heavily percent. We achieved this by care-shareowners and customers. regulated of American industries, fully evaluating even the most Providing future capacity "I routine pmjects for ways to reduce involves risks, particularly finan-s n snt an n ask expenses. cial risks these days. New capacity escareQw@ au au Cost-control continues to be additions have become needlessly the repercussions of their actions truly an all-around effort. All of expensive. The regulatory process our employees deserve a great deal has created many uncertainties, rs c ut I tie of credit for making the cost-driven up construction costs and reduction pmgram work. Partially contributed to lowered bond rat-thmugh their hard work and sac-ings and higher financing costs. Cordially, rifices, including wage freezes, we Yet new capacity is vital for new were able to experience an jobs and businesses. Since this yf impmved financial condition com-capacity benefits society as a /. r%4+t - pared to the previous year, whole, it stands to reason that elec-tric customers, who benefit from Management was strength-the power supply, should share the John P. Williamson oned and re-aligned in 1083. risk. But there are those who Chnun and Chief ExecutiveOfneer Donald G. Nicholson was elected believe that the investment risk senior vice president, finance. IIe should fallonly on the shoulders of continues to direct the extensive utility " companies" and their financing of our construction pro-sharmwners. This is patently gram and has the additional unfair and a real threat to our responsibilities for accounting and nation's ability to power its treasury activities. Paul M. Smart economic future. joined the company as senior vice president, with prime responsibil. For example, if a regulated h"udent and Chief 0peraung Omcer ity for corporate development. IIe company such as ours were l was recently elected to theixxtrd of required to cancel any of its

BOARD OF DIRECTORS INSPECTS GENERATING PROJECT o ' ' ' =. W m - _,. e / M - j-7 } -p .. M l -h~ ' A N*l-$.,,, ~ n. l b [ f y x'r y s.. g o. M n <m& = hh- ? s C - ~ ^ \\ . __l s p k,' p%..* ?g - -r' A V.* W, m

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g I ~.,}h %).*- .g.) 7.[ I fv n.. The cornpany's board of direc-1 g _e {,0, j tors (right) inspected the Perry No. j 1 and No. 2 generating projects, 6 1 being built northeast of Cleveland. kg h$ / A{ f f / l The tour provided an opportunity p ~" for first-hand inspection of con-pf4' I d fi struction quality and progress. 4 Most of the tinte and effort on this <Y J project is involved with the first e > y i unit, which is over 90 percent corn-ln A l plete. Work on the second unit, k ~ about 40 percent complete, is being e-g ininiinized pending cornpletion of g the first unit and future evaluation . {h: J' .- S,,,_,- [. NRAjj v. .[h' of capacity timing needs. v. EA-s t2 Q ^:R~ As ; m. f"t g'alig.. The cornpany's board and senior -E ~~ ' ' - " "~4 I ruanagernent will continue to closely anonitor developinents and progress at Perry during 1984. Construction Expenditures Declining Meanwhile, work at a third CAPCO Nhilions of Dollars 9 of Net Plant generating project. Heaver Valley 5on ~-- 25-e No. 2 in southwestern Pennsylva- ~ ~ ~ ~ ~ ~ - ~ ~ ~ ~ ~ ~ - - - ~ ~ ~ ~ ' ~ ~ ~ - ~~ - i nia. is about 80 percent cornplete and on schedule. + 4 ~ * - b .b i l L L L.. ino-. - - - - 3-l l' E '79 'H2 'H5 '88 '79 'H2 'H5 '88 3

BALANCED COAL / NUCLEAR ENERGY MIX WORKS FOR NORTHWEST OHIO I 4 %' V I ^ hg i ..mshh,; g

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~ -- [ll Ts e c y ,-r-- r uv-2. ; e ... - A.. ~ f * [?:,, { 9, r, Q ,,-4 y i J1 j ' - ~ -; _ my ' VQ, s l 7 97 A balance of coal and nuclear generating capacity s i / helped lower energy prices for customers in our service area last year. / 4 The Davis-Besse Nuclear Power Station (above) ~ l f had its best operrting year everin 1983 and generated 5.2 billion kilowatt-hours.The low cost ofits nuclear fuel, w being unloaded (left) upon arrival at the station, enabled 'l us to initiate about a 50 percent reduction in the fuel l 4 charges, which make up about 25 percent of a custom- \\ er's bill. s I L Coal fired generating stations of the company pro-i vide efficient, reliable electricity generation. These .g include Bruce Mansfield station (opposite page. top) in v Pennsylvania and Acme and Bay Shore stations in Toledo. Coal was the fuel source for 4.7 billion kilowatt-hours ( generated by Toledo Edison in 1983. i

9 '

We will continue examining operations at these facilities to keep costs to a minimum. As an example, last 4 3.{- g year a maintenance outage schedule for a unit at Bay Shore Station (opposite page, bottom) was revised to u

4, reduce overtime work. The result was a cost reduction of i

about $40,000. Maintenance and operating costs for the total system were reduced $4 million in 1983 thanks to the cost-reduction program. Our Bay Shore units have ranked in the top tenof the entire nation's coal-fired stations for efficiency for many years. Bay Shore No. I had a 91 percent capacity factor from 1955, when it came on-line, through 1983. 4

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l l l ECONOMIC ACTIVITY ON THE UPSWING i l w fj M l 4 6 ~^ e, i / . 7;s 'q l 4 l m l \\ Northwest Ohio has been experieneing Toledo'slargestemployer, American Motors-Jeep j renewed business investment. Construction activity (below right), reinvested substantially in production l (below left)in downtown Toledo willlead to new office facilities and recently returned to full employment for j space and hotel and convention facilities. It will also the first time in four years. j bring added tax revenue and jobs. Portside Market-1 place (top), along the Maumee Iliver, is scheduled to ) open in May 1984. Its many restaurants and shops will help bring in commercial business and diversify y!]. l ' 7 g y ,,q.. - 4l4 ff Qq the economy. Toledo Edison's 12 year-old headquar- ,8 ters is centered in this redevelopment area. i, __ _.i , e e e.< Mgi ' j hff(..[i,f-l r..' .4 ' + 7,4 g i -; l / ( ~ Nft%g,h?b"jn [ k. f. L m)m., ; A'.g . [q tf (.. ? luj Wf ~' .. w... :,,. m...v O l l

Financial Analycia tric utilities. Sales of power under these contracts Results of Operations declined in 1983 because many neighboring utilitics had more of their own low-cost generation available. d Earnings per common share were $3.50 in 1983,10 percent higher than last year. The result-Operation and maintenance expenses were ing return on average shareowner's investment of 14.5 reduced reflecting an intense cost reduction pro-percent is the highest return achieved since 1975. gram during 1983. A well planned and efficiently executed maintenance schedule helped to minimize the costs associated with the Davis-Besse Nuclear 'Ibtal revenues increased m. 1983 due to higher kilowatt-hour sales to our retail electric customers Power Station refueling and maintenance outage, and the full year effect of our June 1982 price which started in late July 1983. The outage schedule increase. Sales to electric wholesale customers included inspection and testing of various compo-dechned m 1983 as our municipal customers nents, routine major maintenance and government purchased a portion of their electric needs from required changes. The station returned to service in other suppliers. early October. The Public Utilities Commission of Ohio Depreciation expense increased, due mainly to granted us an annual 1: crease of $23 million in the increased production from the Davis-Besse unit our retail electric rates in August 1983. Approxi-and the resultant unit-of-production depreciation mately $12 million of the rate increase was due to the provision. An increase in depreciable plant assets melusion of $63 million of Construction Work In also contributed to the increase. Progress (CWIP)in our rate base. The CWIP included in rate base was primarily due to the Perry Nuclear State and local taxes increased due to a higher Unit. In addition, the PUCO allowed us to continue temporary state excise tax rate on increased reve-to amortize over ten years our share of the costs of nues and to higher property taxes resulting from increases in plant assets. In May 1983, the Ohio the four nuclear generating units cancelled by the. Central Area Power Coordination Group (CAPCO)in public utility tax was temporarily increased from 1980 (see Note 6). 4.75 percent to 5.28 percent. The effects of this tem-porary increase expire in April 1984. We are barred We requested a 50 percent reduction in the W sm fmm coMng Ws Mcmase fmm our fu:1 component of our electric rates and received ustomers. The one-time cost to us is $2.5 million, of PUCO approval in August 1983. This reduction was which $1.7 million was charged to expense in 1983. attributed largely to the good operating perfor. The increase in federal income taxes resulted from '"#"D8' mance of our Davis-Besse Nuclear Unit combined with continued efficient production from our coal-fired Bay Shore Station. The net result of this, com-Allowance for Debt and Equity Funds Used Dur-bined with the rate increase described above, was a ing Construction (collectively known as AFUDC) reduction of our rates by approximately 10 percent. increased substantially due to a higher CWIP base The next revision of the fuel component will be in and higher average AFUDC rates. Through AFUDC, February 1984. we capitalized a substantial amount of the financing costs associated with our continuing construction We filed a price increase request in November program, including a return on equity funds used. 1983 with tile PUCO for a $61 million increase in retail electric rates. Continuing high financing costs 1 ng term financings in 1983 resulted in associated with our construction pmgram make increased interest and preferred stock ditidend pay-these added revenues necessary. The PUCO will ments, as well as more common shares outstanding. probably rule on this matter in the summer of 1984. These financings, which were necessary to fund our construction program, also affected our earnings. Total kilowatt hour sales increased by 3.1 per-cent over 1982. Industrial sales showed a healthy 70.5 percent of 1983 common stock dividends increase indicating that our service area is recover-are not taxable as current income for federal income ing from the recession. Irading the way in the tax purposes and will be considered a return of Indu: trial category were increases in sales to motor capital instead-vehicle manufacturezs, petroleum refineries and foundries. The increase in industrial sales was due Note 11 explains the effect of inflation on our to a surge in manufacturing output. Favorable peradons. i weather conditions also contributed to the increase. Liquidity and Capital Resources Fuel and net purchased power decreased in lor 3. Orcater use of low-cost nuclear fuel resulted in We are engaged in a major nuclear construction e decrease in fuel expense. This was partially offset program that has been, and will continue to be, mod-l by a decline in short term power sales to other elec-ified as necessary for changing economic conditions, t 7 l m a

nf Construction expenditures totaled $294 million for industry will probably increase our external financ-1983. Most of this was due to the continuing construc-ing costs and may result in increased levels of short-tion on three CAPCO nuclear generating units: Perry term debt. A reversal of our 1981 extraordinary gain No.1, Perry No. 2, and Beaver Valley No. 2. (See Note 2 (see Note 1) shotdd not affect our ability to issue for additional discussion regarding Perry No. 2.) first mortgage bonds. However, this charge could J These units are currently planned to be in commercial reduce the amount of preferred stock issuable dur-service between 1985 and 1988. However, an on-going ing the subsequent twelve month period. review of the construction schedule of Perry No. 2 continues by the inembers of the CAPCO group. Our The amount of cash that is provided from inter-ownership share m each of these units is just under nal operations depends primarily upon the level of j 20 percent (see Note 5). electricity sales, the timing and amount of rate increases and our ability to reduce or contain cash expenses. Although our net income has increased in Public and private security markets continue to 1983, a substantial portion of that increase is be a major source of our financing. Long-term exter-attributable to AFUDC, a non-cash income credit. We nal financings provided $231 million in 1983. Of expect this condition to continue until the generat-this, we ueed about $161 million to fund the con-ing units under construction are completed and struction pmgram, $43 million to pay off the short-included in our rate base. term debt that existed at the start of 1983, about $14 million to invest in short-term investments at year end and the balance to pay off maturing long-term Our 1984 construction expenditures are obligations. estimated to be $328 million. Most of this will be invested in the three CAPCO units discussed above. Funding of our construction program in the Net proceeds from long-term debt, preferred and future is dependent on obtaining external financing common stock issues are expected to provide about at reasonable terms and the amotmt of carh provided $211 million in external financing for the construc-from internal operations. Our ability to obtain exter-tion pmgram. In addition, we will need $21 million nal financing and the cost of such funds depends for long-term debt maturities and preferred stock upon financial market conditions, earnings suffi-sinking fund requirements in 1984. cient to maintain debt and preferred stock coverage ratios, and changes in our construction program In 1984, nuclear fuel acquisition and related and credit ratings, among other factors. Rating costs will require an estimated $31 million. Tids esti-agencies lowered our security ratings in 1983, mak-mate excludes financing costs. Nuclear fuel financ-ing the cost of raising new capital more expensive. ing arrangements are in place covering these Recent adverse developments in the nuclear power expenditures (see Note 8). AUDITORS' REPORT 'Ib The Shareewners and Board of Directors of The 'Ibledo Edison Company We have examined the balance sheets and state-In our opinion, subject to the effect on the finan-ments of capitalization of The 'Ibledo Edison Company cial statements of such adjustments, if any, as might (an Ohio corporation) as of December 31,1983 and have been required had the outcome of the uncer-1982, and the related statements of results of opera-tainty discussed in the preceding paragraph been tions, earnings reinvested and source of ftmds known, the financial statements referred to above pre-invested in plant and facilities for each of the three sent fairly the financial position of The 'Ibledo Edison years in the period ended December 31,1983. Our Company as of December 31,1983 and 1982, and the examinations were made in accordance with generally results of its operations and the source of funds accepted auditing standards and, accordingly, invested in plant and facilities for each of the three included such tests of the accounting records and years in the period ended December 31,1983, all in Cuch other auditing proceduren as we considered nec-conformity with generally accepted accounting prin-essary in the circumstances. ciples applied on a consistent basis. As discussed further in Note 1, the PUCO has ordered that the extraordinary gain on an exchange of common stock for bonds recognized in 1981 be reversed and amortized over twenty years. The Com-Arthur Andersen & Co. pany has appealed this decision and cannot predict 'Ibledo, Ohio, the outcome of this matter. January 30,1984. 8

Results of Operati:ns For the years ended December 31, (thousands of dollars) 1983 1982 1981 REVENUES AND OTHER INCOME Electricity sales to retail customers 478 547 452 687 413 436 Electricity sales to wholesale customers 16 824 20 508 21 417 Gas and steam heating sales 9 245 8 530 7 431 Other income 1 617 1 017 8 852 506 233 482 742 451 130 EXPENSES Fuel and net purchased power. 125 075 127 658 122 442 Operating and administrative 77 632 75 834 63 976 Maintenance of equipment and facilities 32 734 38 839 31 908 Depreciation and amortization. 51 138 43 838 43 427 Stato and local taxes 45 210 41 260 36 699 Debt interest 108 612 94 713 86 310 Allowance for debt funds used during construction. (30 443) (22 505) (15 491) 410 858 399 637 369 271 Income Before Federal Income Taxes 95 375 83 105 81 865 Federal income taxes 32 016 26 277 31 226 Income From Operations 62 759 56 828 50 639 Allowance for equity funds used during construction 65 585 48 706 32 498 N:t Income 128 344 105 534 83 137 Preferred stock dividends 30 129 26 221 23 542 Earnings Before Extraordinary Item 98 215 '70 313 59 595 Extraordinary gain (exchange of common stock for bonds) 10 807 EARNINOS ON COMMON STOCK 98 215 79 313 70 402 Av; rage Number of Common Shares Outstanding (thousands) 28 040 24 017 21 507 EARNINGS PER COMMON SHARE Before extraordinary gain $3.50 $3.18 $2.77 After extraordinary gain $3.50 $3.18 $3.27 RETURN ON AVERAOE COMMON EQUITY (before extraordinary gain) 14.5% 13.3% 11.6% The notes on pages 13 through 18 are an integral part of this statement. 9 l

Balance Sheet 1 necemher 31 1 (thousands of dollars) 1983 1982 Property, Plant and Equipment 1 358 467 1 306 677 Plant in service Less accumulated pmvision for depreciation 324 826 285 453 1 033 641 1 021 224 Construction work in pmgress 1 118 802 878 535 Nuclear fuel in service, at amortized cost 22 904 18 390 2 175 347 1 918 149 Current Assets Cash and temporary cash investments 16 005 1 639 Accounts receivable - net 51 225 44 550 Fossil fuel, at average cost. 25 145 36 818 11 457 10 680 Materials and supplies, at average cost Prepaid taxes... 16 495 14 330 Special deposits and other. 15 396 9126 135 723 117 143 Other Assets 20 984 20 947 Pmperty taxes - subsequent years. Deferred charges - cancelled generating projects. 38 074 42 902 11 678 11 618 Quarto coal costs 19 972 14 064 Miscellaneous 90 708 80 531 2 401 778 2 124 823 'Ibtal Assets CAPITALIZATION AND LIABILITIES 715 584 617 127 Common shareowners' equity Cumulative preferred stock 200 000 170 000 Cumulative preferred stock with mandatory redemption provisions 94 002 95 027 Long-term debt 984 976 875 859 1 994 562 1 758 013 Nuclear Fuel Obligations 41 513 34 780 Nuclear fuel trust Nuclear fuellease. 14 715 10 309 56 228 45 089 Current Liabilities Short-term notes payable 43 000 Iong-term obligations due within one year. 29 508 13 184 Accounts payable 44 152 31 354 Accrued taxes 48 665 46 231 Accrued interest 23 489 20 556 Dividends declared 26 505 22 798 Accrued expenses and other. 8 003 7 979 181 222 185 102 Accumulated Provisions and Other Deferred federalincome taxes Accelerated depreciation and amortization 77 426 66 488 Cancelled generating projects 14 905 16 714 Pmperty taxes and other... 21 570 14 755 Investment tax credits.... 40 104 30 963 Deferred credits and other... 15 701 7 699 169 766 136 610 'Ibtal Capitalisation and Liabilities.... 2 401 778 2 124 823 The notes on pages 13 through ts are an integral part of this statement 10

- COpitalization December 31 -(thousands of dollars) 1983 1982 Common Shareowners' Equity Common stock $5 par value, (in thousands) 40,000 shares authorized. (Outstanding shares - 29,669 and 26,223). 148 343 131 116 - Premium on capital stock. 379 766 325 540 Earnings reinvested in the business 187 475 160 471 715 584 617 127 Cumulative Preferred Stock Annual 1983 Current Dividend Shares Outstanding Redemption Rate (thousands) Price Not subject to mandatory redemption. $100 par value $ 4.25 $ 4.56 310 $101-$105 31 000 31 000 $ 7.76 - $10.00 590 $103 - $106 59 000 50 000 Not subject to mandatory redemption. $25 par value $ 4.28 800 $ 32 20 000 20 000 2.21 1 000 27 25 000 25 000 2.37 1 400 29 35 000 35 000 3.47 1 200 31 30 000 200 000 170 000 Subject to mandatory redemption provisions. $100 par value $11.00 60 $111 6 002 7 027 9.38 250 107 25 000 25 000 13.25 130 111 13 000 13 000 12.65 200 113 20 000 20 000 14.80 300 115 30 000 30 (X)O 94 002 95 027 Long Term Debt First Mortgage Bonds, excluding current maturities Maturities Interest Rates 1984 3%% 14 000 1985 9.35%.... 50 000 50 000 1986 3%%. 15 000 15 000 1988 4% 15 000 15 000 1990 -1993 13%- 16%%. 265 000 105 000 ( 1997 -2000 6% - 10% 66 378 66378 2002 -2006 7 % - 0.65%......... 111 725 111 725 l 2008 -2013 9% -15% 246 000 186 000 Discount in pmcess of amortization. (727) (544) 769 276 653 450 Other Long 'Ibrm Debt, excluding current maturities Notes. 8.75%, due 1985 - 1997 DO800 103 400 'Ibrm bank loan, average interest rate 10.08%, due 1987 1989 50 000 SO 000 Pollution control notes 5.71 - 7%%, due 1985 - 2009.... 37 400 37 500 Pollution control loan agreement,0.93 - 10%, due 1990 - 2010..... 31 500 31 500 984 976 875 859 'Ibtal Capitalisation.. 1 994 562 1 758 013 The notes on pages 13 through 18 kre an integral part of this statement. 11 i L___

~ Earnings Reinve-ted For the years ended December 31. (thousands of dollars) 1983 1982 1981 Balance, at the beginning of year. 100 471 142 220 122 7.3 Add - Net Income 128 344 105 534 83 137 Extraordinary gain 10 807 Deduct - Preferred stock dividends declared 30 803 20 700 24 222 Common stock dividends declared 70 537 00 517 50 245 Earnings Reinvested During The Year 27 004 18 251 to 477 Balance, at the end of year 187 475 100 471 142 220 Source of Funds Invested in Plant and Facilities For the years ended Ikeember 31. (thousands of dollars) 1983 1982 1981 Provided From Internal Sources Net income 128 344 105 534 83 137 Principal non-cash items: Depreciation and amortization 51 138 43 838 43 427 Deferred fedetal income taxes 18 523 13 380 13 205 Investment tax credits - net O201 13 303 0 400 'Ibtal allowance for lunds used during construction (90 028) (71 211) (47 080) Other - net 1818 1834 1 400 Funds provided from operations 112 000 loti 708 102 730 Dividcuds (101 d40) (ti7 28J, (74 40's) Ileinvested funds provided from operations 11 050 10485 28 200 Net change in current assets and liabilities, and other accounts 20034 (0 008) 3 000 'Ibtal allowance for funds used during construction 90 028 71 211 47080 Provided from internal sources 134 318 80008 70 807 Provided From External Financing Sale of Securities: Common stock 71 453 48 700 51 700 Preferred stock 30 000 20 000 30 000 First mortgage bonds 130 000 120 000 70 000 Conversion of short-term debt to a term bank loan.. 50 000 Net change in short term borrowings (43 000) 20 500 (60 500) Net change in temporary cash investments (14 178) 2 533 4 482 Iledemption oflong-term debt and preferred stock..... (7 025) (40 473) (15 840) Net change in nuclear fuel obligations.. 13 304 44 838 (2 707) Provided from external financing 180 014 210 008 121 051 Totct Sources Of Funds 314 332 200700 200 018 Construction Expenditures. 204 010 248 515 200 018 Increase in Capitallred Nuclear Fuel.. 20 322 48 281 INVESTED IN PLANT AND FACILITIES 314 332 200 700 200 018 r- - - - m. _.____, l The mtee on pages 13 through IH are an integral part of themn statements 12

Suumary of Significant Accounting Policies General Depreciation and IWalutenance Our accounting records are maintained in accord-The company provides for the depreciation of the ance with the Uniform System of Accounts as pre-original cost of pmperties, except for the Davis Besso scribed by The Federal Energy Hegulatory Commission Nuclear Ibwer Station, over their estimated useful lives (FERC) and adopted by The Publio Utilities Commission on a straight line basis. Depreciation expense on the of Ohio (PUCO). Davis-Besso Nuclear Ibwer Station is based on the unit-of production method. This includes a provision for our Revenues sharo of the total estimatal decommissioning costs of j Customers are billed on a monthly cycle basis, $53 million. The straight line provisions for deprecia-based on rates authorimd by the PUCO that are applied tion averaged 3.0 percent in 1983,3.5 percent in 1982 to clectricity consumption. The larger industrial and and 3A percent in 1981. wholesale customers are billed on a month end meter-reading basis. Maintenance expenso includes repairs of property and renewal of minor items. Costs of replacements and Frl those renewal items that are units of property are The compiuty collects estimated fuel costs over sub-charFed to the utility plant accounts. For retired prop-smiuent six month timo periods through a fuel recov. erty, wa take its cost plus removal cost, net of salvage, cry rate. The rato is based on actual and partially and charge it to accumulated provision for depreciation. projected costs and generation. The PUCO reviews and ) Taxes i epproves the pmjected rate and historical performance. The difference between actual and estimatai fuel The company provides for deferred federal income charges aro deferred until they are applied to the cur. taxes as required on the differences between straight-tomer's bill. This enables us to better match fuel lino depreciation and tax depreciation amounts for expenses with fuel adjusted revenues. pmperty additions since December 31,1973. For tax The company charges the cost of nuclear fuel to pups, an inmspsu am dm!W as tMy amr, " " '"Eu""*d I # fu:1 expenso based on the rate of consumption. In addi-real property."Other depreciation timing differences tion, the estimated nuclear fuel disposal costs are am mn n ra s in tM par mat they aUect taus included in fuel expense. The company contracted with paya Hem such taws can im mmwn'd in the Department of Energy (DOE) for permacent dis-posal of spent nuclear fuel. For fuel used tmfcro 1983, $u"jt d "P i ns' we owo the DOE $8.0 million, which will be paid on or citer June 1985. Wo have already collected $4.0 million For certain pmporty, the company receives invest-fmm our customers and have requested additional re e-rnent tax credits that are deferred and added to income nues of $4.3 million in our current PUCO rato caso. For over the life of that property. Unreallzmi investment tax fu:1 used af ter April 1983, we are currently collecting credits from 1930 to 1983 total $33.1 million. We will the fee from our customers and paying the DOh. record them as they are used in futuro years. Hetirement Income Plan Property, Plant and Equipment Our retirinnent incomo plan is non contributory I'mporty, plant and equipment is stated at original and covers all employee gmups. The company funds cor,t. Includut in the costs of construction are such each year's cost and amortlwa unfunded past service items as related payroll taxes, penslons, fringo tenefits, costs over a 30 year period. Ihnsion cost is based on management and general overheads and allowanco estimatal salary levels and mervice ytars of employees for debt and couity funds used during construction at their retirement. 'Ibtal pension costs were: $4.3 mil-MFUDCL AFilDC mpresents the estimatal composito lion in 10M3: $4.4 million in 1982; and $3.7 million in debt interest and equity costs of capital funds used to 1981. Experienco gains and losses are amortized over finance construction. Theno costs are charged to pmp. 15 yeam. erty, plant and mluipment and crmlital to incomo as The actuarial prenont vnlue of total vested and AFU DC on the llenults of Operations statement. Our l l nonvestml plan Imnorits is basmi on salary levels and AFUDC rates, net of. tax, ranged from 10 percent to years of employees' service as of January 1 for each 10% percent in 10H3. 0% percent to 10% percent in 10H2, year. Theso wero: $42 million and $6 million in 1983; ami H% percent to H W Imrcent in 10Hl. and $30 million and $6 million in 1982. The weightml tverage assummi rate of return usmi in determining these values was H percent for both IDH3 and 1DHg, Meelassificptions Market value of net assets available for benefits Certain reclassifications have imem mado in the amountal to $75 million as of January 1,1983 and ShM prior years' amounts to make them comparable with million as of January 1,19H2, 1983 claasifications. 13

Notes to Financial Statements December 31,1983 (1) Possible Charge Against Earnings As part of the June 1982 and August 1983 rate case In November 1981, wo exchanged D40.293 shares of decisions, the PUCO prescribed an accounting method common stock for $25.0 million of outstanding bonds different from the one used for this gain. The PUCO owned by an investment banking firm. The stock's required that this gain be treated as a dorm red credit exchange value was $10.025 per share. This exchange and amortized over 20 years. We opposed this decision i provided a non taxable extraordinary gain of $10.8 mil-and have it on appeal to the Ohio Supreme Court. lion. This is the difference between the value of the stock traded and the principal amount of the bonds redeemed An unfavorable decisica would result in a reversal of plus their accrued interest, the extraordinary gain. This would involve an extraordi-i nary charge against current earnings of $9.5 million, or l 32 cents per share, based on the number of common shares outstanding at December 31,1983. (a) Petition on Perry No. 2 Construction if the construction of Ibrry No. 2 is not completed and we are not provided a means to recover our invest-In September 198't, the Ohio Ofrice of Consumers' ment in the unit, we could be required to immediately Counsel (OCC) and several other parties filed a petition write off that investment including any cancellation with the PUCO and the Ibwer Siting Board of Ohio (the charges agidnat current earnings. Our investment in board) asking that the PUCO and the board investigate Ibrry No. 2 approximated $203 million at December 31 the need for the 1.205 megawatt Ibrry No. 2. The pett-1983. Our net of. tax write off at December 31.1983 tion also asked the PUCO and the board to order the Ohio would be $135 million, which would reduce Earnings CAPCO companies to stop construction of I%rry No. 2 Heinvested from $187 million to $52 million. This reduc and prevent them from accruing further AFUDC on that tion in Earnings Heinvested would have to be replaced unit. Finally, the petition asked the PUCO and the board with additional common equity funds. The amount of l not to approve the issuance of securities to finance cancellation chargea and other costs payable if work on further construction of Ibrry No. 2. The petition alleges Ibrry No. 2 were to be stopped is not presently determin-l that the completion of Ibrry No. 2 will result in an able, but could be substantial. AFUDC related to Ibrry i unreasonable level of excess capacity and that the remit-No. 2. which accrues in increasing amounts, was $10 ing atem charged to customers would be excessivv. militon m 198J. Any terminat;on of the accrual of such AFUDC before Ibrry No. 2 is included in rate base would reduce earnings by the amount of AFUDC that would otherwise have twen accrued. (3) Federal Income 'hr Detalle 8upplementary information regarding federal income taxes is set forth in the following tables: i l (thousands of dollarn) _ (thousands of dollars) Fbr the yenre endal Iwemt=*r aI, 1983 1982 1981 For tha yearn ended thumter 31, 1993 1987 1981 l FEDEHAI4 INCOME TAX EXPENSE FEDEHAI,1NCOME TAX EXPENSE l WASCOMPUTED AH FOI!DWH DETAllR AHE AS FOt.!DWS. l Thz at statutory rates on Currently payabW....... 2 441 1930 7477 I pro. tax income........... 74042 60 633 57578 investment tax cmitts - I"g'["g$",$,I", "'I Defermt.. 13127 14334 10 119 t i Allowante for funds used Amortimt...... (1 439) (940) (653) during runstruction...... (42270) (32 521) (22075) Prior year adjust ment...... (65) (2857) 233 I Extraordinary gain fmm Deferral taxes - etchangeof common Accelerated depreciation (not) 11 179 11806 12377 (4 971) stock for innds g g g ^ ",$MI",""" Defermt fuel coats........ 3 276 1886 2435 depreciation differences.. 3 286 428 2375 Other pmvisions........... 5906 (350) 356 Miscellaneous............ (2442) (2263) (1681) .Ibtal federal '!btal federalincome tax income tax 32616 26277 31226 expensa 32616 26 277 31726 espensa 14 m

(C) Cuarto Coal Arrangements

b. Coal Cost Deferral e, Coal Supply Contracts At present, the average cost of Quarto coal is higher The CAPCO companies have made long-term than other coal currently available. Prior to July 30, arrangements with Quarto Mining Company (Quarto) 1982, the PUCO had ordered us not to charge customers to supply coal to the Mansfield units. The CAPCO com-more than market prices. We deferred the difference panies each have agreed to guarantee their respective between market price and actual cost. Beginning on chares of Quarto's debt and lease commitments incurred July 30,1982, the PUCO permitted us to recover addi-to develop and equip the mines. As of December 31,1983, tional Quarto coa! costs plus a portion of cost deferrals our share of the guarantees was $27.8 million. Our share under a revised market price formula. We had recovered of these commitments incurred prior to 1983 is 6 39 per-

$3.0 million of deferred Quarto coal costs in rates cent. Our share of commitments incurred after Decem-through July 1983. In August 1983, the PUCO order.d ber 31,1982 will increase in steps from 6.89 percent to us to discontinue recovery of Quarto coal costs in excess 12.4 percent in 1986. of market price, pending further consideration of this matter. Accordingly, we resumed the deferral of the dif-Our coal supply contract with Quarto expires ference between market price and actual cost. December 31,1999. Under its terms, the pricing pmvi-sions reflect Quarto's production costs and deferred A January 1984 PUCO order permits us to recover mine development charges. Our total purchases under specified Quarto coal costs plus a portion of cost defer-these contracts amounted to $14.5 million in 1983, $12.4 rals within a specified six-year period using a "new million in 1982 and $15.5 million in 1981. market price" formula. In the event that we do not recover a* least one-sixth of our deferred fuel costs of Under these arrangements, we expect our mininc n 811.7 milli n as of December 31,1983 in any of the next vearly payments for fixed charges on debt and lease six years beginning in 1984, the amount of previous cost commitments to decline irom $6.6 million in 1983 to deferrals not so recovered in that year shall be written $5.8 million in 1988. off to expense. The "new market price" formula also pro-vides for the recovery of current Quarto coal costs to the extent that such costs do not exceed 125 pe cent of market price. Quarto coal costs in excess of 125 percent of mrcket price must be written off to expense. We believe current and deferred costs will be recoverable within the periods specified by the PUCO. (7) CAPCO Power Pooling Arrangements The company has entered witit four other utilities based on our ownership share, is currently estimated at into a power-pooling arrangement (known as CAPCO), completion to be $1.8 billion. in the interest of reliability and economy. This involves substantial commitments for generation and transmis-We provide our cwn financing for this investment. sion facilities. " Expenses" in Results of Operr.tions includes our share of direct expenses for operation of three CAPCO units CAPCO is currently building three nuclear gencr-presently in service. ating units. We are obligated to pay for our shar e of each of these units under construction and related nuclear The following represents our ownership in each of fuel inventory. Our total investment in the three units, the CAPCO units at December 31,1983: Actual or Ownership Ownership Plant Accumulated Construction Generating Unit (Scheduled) Share Megawatts Fuel In-Service Depreciation Work in Pmgress (thousands of dollars) Davis-Besse No. I 1977 48.62 % 428 Nuclear 429300 52700 21 200 Mamfield No. 2 1977 17.30% 135 Coal 69 900 11 700 800 Man: field No. 3 1980 19.91 % 159 Coal 128400 14900 800 Under Construction: Perry No.1 (1985)*!" 1991'# 240 Nuclear 462 400" Beaver Valley No. 2 (1986) 19.91% 166 Nuclear 15700* 381 900 Perry No. 2 (1988)"* 19.91% ~240 Nuclear 203 000

Common facilities with Beaver Valley No.1
- Includes common facilities for Perry No.1 and Perry No. 2
Currently, construction at the Perry site is being concentrated to complete basic constrsction of Perry No.1 in 1985 and to minimize expenditures on Perry No. 2 pending future rescheduling.

15 1:

(!) Previously Cancelled Generating Projects amortization on our books at.d allowed a specific addi-In January 1980, the company, along with the other tional risk factor as additional return on common equity CAPCO companies, cancelled the construction of four in our rates. This treatment was affirmed by the Ohio nuclear generating units. All cancellation costs related Supreme Court. to these units have now been paid. In our August 1983 rate order, the PUCO again pro-In April 1981, the PUCO approved rate recovery vided incremental revenues to recover these costs f of these costs over a ten-year period as an operating through the method used to calculate the allowed rate of expense. Since April 1981, we have been amortizing these return on common equity. The PUCO reaffirmed the con-costs to expense over that ten-year period. tinued amortization of these costs over a ten-year period ending in 1991. In June 1982, the PUCO disallowed recovery of these costs as an operating expense, based upon a 1981 Ohio The amortization of these costs amounted to $4.9 Supreme Court decision. This disallowance has been million in 1983, $4.7 million in 1982 and $3.3 million in appealed to the Ohio Supreme Court and the decision is 1981 and is classified in depreciation and amortization still pending. The PUCO did allow continued ten-year on the Results of Operations statements. (7) Capitalization

c. Cumulative Preferred Stock With Mandatory

a. Capital Stock Transactions Redemption For the years ended The company held 10,335 shares at December 31, Dacember 31.

1983 1982 1981 1983, and 4,730 shares at December 31,1982 of the $11.00 series as treasury stock. CAPITAL S'IOCK SII ARES SOLD (RETIRED): Common stock The sinking fund requiremerits for the various series of Cumulative Preferred Stock are: Public sales 2500 000 2 200 000 2053707 Exchange of common d*"d stock for bonds. 946 293 hh hhhm Nuh Shareowner Dividend Reinvestment and $ 11.00 5 000 1979 Stock Purchase Plan. 945 474 574 680 300 201 9.38 16650 1985 'Ibtal common shares 3 445 474 2774 680 3300 201 14.80 12 000 1987 Cumulative preferred stock Public sales, $25 par $4.28 series 800 000 The shares of the above series may be purchased at $3.47 series 1200000 the sinking fund redemption price of $100 per share plus Cumulative preferred stock accrued and unpaid dividends. Future sinking fund with mandatory redemption redemption requirements are: $500,000 in 1984; $2,165,000 in 1985; $3,831,000 in 1986 and $5,031,000 Public sales, $100 par $14.80 series 300 000 in 1987 and 1988. Retirement, $100 par

d. Long-Term Debt

$11.o0 series (5000) (5 000) (5 000) The annual interest requirement on long-term debt (thousands of dollars) outstanding at December 31,1983 is $109.2 million for PREMIUM ON CAPITAL S'IOCK: an average interest rate of 11.13 percent. This includes Balance, beginning of year 325 540 290713 255 508 amortization of debt discount and expense but excludes Premium, net of expense - - interest on the nuclear fuel obligations. Common stock. 52502-33783 35569 Preferred stock i724 1 044 (364) Sinking fund redemption requirements and sched-Balance, end of year 379 766 325540 290713 uled maturities for long-term debt, cxcluding nuclear fuel leases, through 1988 are as follows: Sinking Fund

b. Cumulative Preferred Stock Redemption Scheduled Requirements Maturities We are authorized to issue 3,000,000 shares of $100 par and 8,000,000 shares of $25 par Cumulative Pre-(thousands of dollars) f;rred Stock under car amended articles of incorpora-1984 3 600 20700 tion. The annual dividend requirement on Cumulative 1985 3600 56700 Preferred Stock outstanding at December 31,1983 is 1986 3 450 21700

$31.2 million for an average dividend rate of 10.61 1987 3 450 23 367 percent. 1988 3 300 38 367 16

In addition, the first mortgage bond indenture pro-The mortgage securing first mortgage bonds issued vides for a required annual payment after certain cred-by us constitutes a direct first mortgage lien on substan-ite, as defined, to the Trustees as a Maintenance and tially all property and franchises owned by us. This does Heplacement Fund. We have been satisfying the require-not include expressly excepted property, such as cash m nts under the indenture by pledging more property and securities, accounts receivable, fuel, supplies and additions which might have otherwise been used as the automotive equipment. basis for the issuance of additional bonds. (;) Nuclear Fuel Financings In November 1982, the CAPCO companies created In September 1983, we capitalized our share of the Davis-the Central Area Energy Trust (the trust). The trust will Besse No.1 fuellease related to the portion of the oversee the financing of procurement, conversion and nuclear fuel loaded into the reactor. This is in accord-enrichment stages of nuclear fuel for the CAPCO units. ance with the provisions of PUCO orders. Total commit-Each company's role in the trust is independent of its ments under the lease arrangements were $123.2 million ownership share of any CAPCO unit. Also, each com-at December 31,1983. pany's rights and requirements in connection with the trust are separate and distinct from the other com-panies. As of December 31,1983, we have an obligation Financing under these agreements, including the of $41.5 million to the trust. This includes $4.7 million trust, of up to $298 million is available. We expect our in capitalized interest incurred through December 31, nuclear fuel leasing arrangements to be adequate through 1985. Estimated paymen 1983. The 1983 interest was calculated at an average rate includmg mterest, are: $12.1 milh,ts based on burn-up, of 10.6 percent. on in 1984; $33.0 mil-lion in 1985; $42.0 million in 1986; $45.4 million in In addition, the company has lease arrangements for 1987; and $69.4 million in 1988. nuclear fuel to be loaded into the CAPCO nuclear units. (2) Short-Term Borrowing Arrangements We had $96.1 million in unused credit lines at whereby banks expect us to maintain average deposits December 31,1983 with various banks and pay commit-equal to 5 percent to 20 percent of the line of credit, ment fees for about two-thirds of those lines. The rest are depending on the borrowed amount. The deposits provide based on. informal compensating balance arrangements, operating balances for us and are not legally restricted. (15) Selected Quarterly Data (Unaudited) The following quarterly results reflect all adjust-ments (that are of a normal recurring nature) to ensure a fair statement of results for such periods: (thousands of dollars) (dollars per common share) Earnings Market Price

Three months Hevenues and Income before Net on Common Dividends ended Other Income Income'lhres Income Stock Earnings Paid High Iow 19_8L March al 129 457 20403 28 845 22031 84 41 22W 20 June 30 126722 19 259 28 536 20 903

.78 .61 22 % 20K September 30 131 978 35167 40 064 32218 1.10 61 21 % 19 December 31 118 076 20 546 30899 23063 .78 .61" 21 % 17% ! 1082 March 31 124738 23 841 25 650 19 683 .84 .59 17% - ib% June 30 112217 15983 24 078 17387 .72 .59 .184 16h September 30 126914 27757 32 108 25359 .98 .59 19 % 16 December 31 - 118873 15 524 23698 16 884 .65 .59 21 % 18 %

The Common Stock is listed on the New York Stock Exchange. The price quotations am twm The Wall Street Journal The number of common stock shareholders as of December 31,1983 and 1982 were 87781 and 86.710, mspectively.
- The dividend decland in December 1983 and paid in January 1984 was increased to 83 cents per share.

17

(11) Effects of Changing Prices (Unaudited) The following financial information shows the During a period of inflation, issuers of debt experi-cffects on our company of general inflation (Constant ence an economic gain. This is especially important for Dollar Accounting) and changes in prices of specific us due to the substantial amounts of debt issued to assets, namely property, plant and equipment (Current finance our construction program. This gain is shown Cost Accounting). in the following statement under the caption " Gain from decline in purchasing power of net amounts owed" Constant dollar amounts represent historical dollars etated in terms of dollars of equal purchasing power, as The comparative Constant Dollar and Current Cost measured by the Consumer Price Index for All Urban values of allitems on the income statement, except depre-Consumers (CPI). Current cost amounts reflect the ciation, represent the amounts recorded in the historical changes in specific prices of plant from the date the plant cost income statement. Income taxes are not adjusted i was acquired to the present. The current cost of plant because current tax laws do not allow for the inflation ) estimates the probable cost of replacing existing plant effect on capital investment. We have calculated deprecia-assets and was determined by indexing the surviving tion provisions, for the current year, on the Constant plant by the Handy-Whitman Index of Public Utility Dollar and Current Cost amounts of property, plant and Construction Costs. equipment. We figured this by applying the ratio of the provision for depreciation over the average property, Because our rates are regulated, we cannot recover plant and equipment on the Historical Cost basis, to the through revenues any more than the original cost of indexed plant values. plant assets, even though the cost to replace such assets will substantially exceed the original cost. In 1983, the The following table shows the net effect of inflation added cost, due to inflation, of replacing our plant assets on common stock equity in 1983: is shown in the following statement under the caption: Co tant Cur nt " Inflation effect during 1983 on capital investment." Accounting Accounting (millions of dollars) Inflation effect during 1983 on capital investment: 171 Increase in specific prices to current costs. (147) Effect of change in general price level. Reduction to net recoverable cost. (52) (72) Additional provision for depreciation. (28) (32) (80) (80) Gain from decline in purchasing power of net amounts owed (primarily debt) 54 54 Tbtal effect of innation on common stock equity. [26) (26) The table below presents selected operating and reportable as an additional provision for depreciation financial data for the past five years adjusted for infla-were deducted from the reported amount of such income. tion as measured by the CPI. Earnings on common stock We revised the 1982 data to reflect actualindices. and earnings per share are shown as if only the amount (millions of dollars except per share amounts) 1983 1982 1981 1980 1979 General Innation (constant dollars) Operating Revenues...... 505 497 485 486 501 Earnings on Common Stock 70 53 34 36 29 Earnings per Common Share.... 2.52 2.14 1.59 1.89 1.70 Dividends Declared per Common Share.... 2.46 2.46 2.52 2.66 3.02 Market Price per Common Share (year-end). 18.00 21.84 17.82 18.69 23.18 Specific Prices (current cost) Earnings on Common Stock 66 49 28 32 23 Earnings per Common Share........... 2.37 1.96 1.30 1.66 1.39 Increase in General Price level Over (Under) Increase in Specific Prices (24) (42) 5 84 77 Net Plant 3951 3 555 3177 2804 2 390 General Information Gain Fmm Decline in Purchasing Power of Net Amounts Owed......... 54 45 93 113 102 Net Aasets at Net Recoverable Cost 702 610 532 457 408 Consumer Price Index - Annual Average 298.5 289.1 272.4 246.8 217.4 - Year End 304.1 292.4 281.5 258.4 229.6 18

Finanil Revhw-Rev:nues and Other Income (thousands of dollars) idtal Gas & Revenues 1btal 1btal Steam Other & Other War Residential Commerual Industrial Other Retail Wholesale Electric Heatmg income income 1983 161 275 105 482 169 672 42 118 478 547 16 824 495 371 9 245 1 617 506 233 -1982 153 662 101 789 158 930 38 306 452 687 20 508 473 195 8 530 1 017 482 742 1981 138 781 93 863 151 539 32 253 413 436 21 417 434 853 7 431 8 852 451 136 ( 1980 126 085 80 836 137 860 28 458 373 239 21 647 394 886 6 982 879 402 747 1979 113 464 72 354 128 931 25 119 339 868 18 839 358 707 6 414 1 017 366 138 1973 40 696 27 300 43 632 10 426 122 144 4 271 126 415 2 732 227 129 374 l Expenses (thousands of dollars) Fuel & Net Depreciation Federal Purchased State & Debt AFUDC-Expenses Incorne Income Year Ibwer Operation Mamtenance Amortization In;al hxes Interest Debt Before FIT Before FIT hxes 1983 125 975 77 632 32 734 51 138 45 210 108 612 (30 443) 410 858 95 375 32 6?.1 1982 127 658 75 834 38 839 43 838 41 260 94 713 (22 505) 399 637 83 105 26 277 1981 122 442 63 976 31 908 43 427 36 699 86 310 (15 491) 369 271 81 865 31 220 1980 155 771 55 842 29 319 26 002 31 202 70 866 (15 148) 353 854 48 893 10 158 1979 146 869 44 691 21 137 29 117 29 760 52 584 ( 9 991) 314 167 51 971 16 888 1973 42 507 22 098 7 471 12 318 11 822 14 126 110 342 19 032 5 746 Income (thousands of dollars) Common Stock (dollars per share and %) Return Income Preferred Earnings Average on From AFUDC-Net Stock on Shares Average Dividends Market Price Book War Operations Eqwty Income Dividends Common Outstandmg Earnings Eqmty Declared High low Year End Value 1983 62 759 65 585 128 344 30 129 98 215 28 040 3.50 14.5 2.46 22.50 17.50 18.00 24.12 1982 56 828 48 706 105 534 26 221 79 313 24 917 3.18 13.3 2.38 21.13 15.75 21.00 23.53 l 1981 50 639 32 498 83 137 23 542 59 595" 21 507 2.77" 11.6 " 2.30 18.38 15.00 16.50 23.46 1980 38 735 28 443 67 178 18 021 49 157 19 226 2.56 10.5 2.20 20.75 15.00 15.88 23.77 1979 35 083 23 512 58 595 13 894 44 701 16 848 2.65 10.7 2.20 23.38 17.38 17.50 24.15 i l 1 1973 13 286 10 282* 23 568 3 911 19 657 6 282 3.13 14.3 1.94 30.88 23.13 26.88 22.20 l l 'In 1973. allowance for debt furds was included in allowance for equity funds. "In 1981, excludes extraordinary gain from exchange of common stock for bonds (after gain earnings on common - $7o.402; earnings per thare - $3.27; return on average common equity - 13.5 percent). 19 J l

F Staticti al Revisw Electric Sales (millions of kilowatt-hours) Electric Customers (end of year) Residential Usage Annual Price Annual KWII Ivr Revenue Industrial I4r KWII I4r War Resulential Commercial Industrial Wholesale Other 1btal Residential Commercial & Other 1btal Customer ECents) Customer 1983 1 915 1 341 3 127 320 428 7 131 242 959 23 694 3 864 270 517 7 900 8.44 665 1982 1 911 1 325 2 873 395 414 6 918 241 492 23 495 3 815 268 802 7 906 8.04 636 1981 1 919 1 294 3 080 449 409 7 151 241 663 23 573 3 844 269 080 7 966 7.23 576 1980 1 971 1 282 3 165 560 410 7 388 240 142 23 532 3 818 267 492 8 232 6.40 527 1979 1 934 1 256 3 559 559 401 7 709 238 353 23 636 3 695 265 684 8 166 5.87 479 1973 1 552 1 085 3 249 356 349 6 591 218 105 21 399 4 119 243 623 7 187 2.62 188 l Load (megawatts) Energy (millions of kilowatt-hours) Fuel Net Purchased Capability load Reserve & Net Fuel Cost Efficiency at Time 1%ak Factor Factor Generated Interchanged Ivr KWil BTUI%r War off%ak Ioad (80 (H Fossil Nuclear 1btal Ibwer Ibtal (Centsi KWII 1983 1 777 1 325 66 34 4 683 2 383 7 066 593 7 659 1.67 10 337 1982 1 700 1 355 62 32 5 306 1 569 6 875 510 7 385 1.80 10 220 1981 1 773 1 315 66 35 5 349 2 142 7 491 157 7 648 1.68 10 274 1980 1 760 1 310 68 34 5 529 1 031 6 560 1 352 7 912 1.65 10 246 1979 1 825 1 395 67 31 5 349 1 535 6 884 1 348 8 232 1.33 10 262 1973 1 358 1 246 64 9 5 376 5 376 1 670 7 046 .52 9 880 Investment (thousands of dollars) Amumulated Constructx>n Annual Plant in f% visions For Net Work in Nuclear Fuel 1btal Construction 1btal War Servre Drpreciation Plant Progress In Service Plant Expenditures Assets 1983 1 358 467 324 826 1 033 641 1 118 802 22 904 2 175 347 294 010 2 401 778 1982 130P 677 285 453 1 021 224 878 535 18 390 1 918 149 248 515 2 124 823 1981 1 261 174 252 310 1 008 861 656 999 10 951 1 676 814 20G 918 1 869 967 1980 1 208 001 220 629 987 372 518 746 17 644 1 523 762 234 827 1 701 655 1979 979 809 201 895 777 914 519 464 11 786 1 309 164 239 010 1 467 512 1973 407 195 108 467 208 728 192 133 490 861 119 524 540 896 Capitalization (thousands of dollars) Cumulauve Preferred Common Cumulatave with Iong-Shareowners Preferred ILlandatory 1brm War Equity Stock Bedemptmn Debt lbtal 1983 715 584 36 200 000 10 94 002 5 984 976 49 1 994 562 1982 617 127 35 170 000 10 95 027 5 875 859 50 1 758 013 1981 550 176 35 150 000 10 95 500 6 762 584 49 1 558 260 1980 478 993 34 150 000 11 66 500 5 708 295 50 1 403 788 1979 432 554 35 150 000 12 34 000 3 611 137 50 1 227 691 1973 145 665 31 71 000 15 259 164 54 475 829 20

Borrd cf Dirsst:ra Offic2ra Richard P. Anderson (O) John P. Williamson Stock Transfer Agents Partner and General Manager Chairman and The 'Ibledo Trust Company The Andersons Chief Executive Officer 'Ibledo, Ohio 43603 SamuIl G. Carson (EXN'XS) Wendell A. Johnson Morgan Guaranty Trust Chairman President and Chief Company of New York 'Ibledo Trust Company and Operating Officer New York, N.Y.10015 'Ibledo 'IYustcor poration, Inc. Anthony A, Bosch, Jr. Stock Registrars Richard P. Crouse Vice President, Customer Services Ohio Citizens Bank Vice President, Nuclear Medo, Ohio 43603 i Richard P. Crouse Morgan Guaranty Trust Robert 11. Davies (C* XOXS) Vice President, Nuclear Senior Vice President Company of New York John R. Dyer New York, N.Y.10015 Owens-Illinois Inc. Vice President, Public Relations Mortgage Trustee Chozter Devenow (AXC) Donald G. Nicholson The Chase Manhattan Bank, N. A. l

I Senior Vice President, Finance New York, N.Y. tow!

l Sheller-Globe Corporation Lyman C. Phillips Auditors w I. rson (C) Vice President, Corporate Planning Arthur Andersen & Co. and Administration 300 Madison Avenue Chairman, President and .Ibledo, Ohio 43604 Chief Executive lowell E. Roe Dinner Bell Foods, Inc. Vice President, Energy Supply Exchange Listings Co.mmon Stanley W. Gustafson (Deceased) Paul M. Smart President, Dana Corporation Senior Vice President, New York Stock Exchange (TED) Wendell A. Johnson (E) ""*I P**" *"d Midwest Stock Exchange General Counsel Unlisted Trading Privileges President and Chief Operating Officer Stratman Cooke Boston Stock Exchange Secretary Cincinnati Stock Exchange Isabel F. Martin ( A) Philadelphia, Baltimore and Consultant Donald II. Saunders Washington Stock Exchange 'Ibledo Area United Way Weasunt Donald G. Nicholson Paul G. Busby Preferred - $25 par value - 8.84%, Senior Vice President, Finance Contmller $2.365, $4.28, $3.47 series New York Stock Exchange i IIenry A. Page, Jr. (EXN) Director of Development Pmferred - $100 par value - 4 %% 8.32%,7.76% and 10% series The Medical College of Ohi at W ed American Stock Exchange Executive Offices Lyman C. Phillips 300 Madison Avenue Bonds Vice President, Corporate 'Ibledo, Ohio 43652 7%% - Due 2002,9%% - Due 2008 Planning and Administration Phone (419) 259-5000 8% - Due 2003,9.65% - Due 2006 Paul M. Smart Dividend Disbursing and 9% - Due 2000,11% - Due 2009 Seni r Vice Pmsident Reinvestment Agent Corporate Development and The 'Ibledo 'IYust Company 9.35% - Due 1985. General Counsel ,1bledo, Ohio 43603 New York Stock Exchange Willard I. Webb, III (A* XEXS) Chairman and Chief Executive Officer ~ ~ ^ W Ohio Citizens Bank Director Changes - John P. Williamson (E*XS*) Chairman and Chief Chester Devenow, chairman and chief executive offi-Executive Officer cer, Sheller-Globe Corporation, was elected to the board of directors in August,1983. Sheller-Globe, a 'Ibledo- - Robart O. Wingerter (NXO'XS) . based company, is a major manufacturer of parts and Chairman, Executive Committee

assemblies for cars, trucks and off-highway equipment.

Libtmy Owens-Ford Company Mr. Devenow is a graduate of New York University. Key to Directors' Committees f . lie replaces Marvin S. Kobacker, who was elected - director emeritus after 14 years of distinguished board i (A) Audit Committee (C) Compensation Committee - service.. (E) Executive Committee Paul M. Smart, senior vice president, corporate devel. (N) Nominating Committee -~1 - opment, was elected to the board of directors in January (O) Operations Committee i i 1984; (S) Strategic Planning ,; ' A former senior partner'with Fuller & IIenry, with denotes committee chairman ]' l specialization in 'Ibledo Edison regulatory matters, Mr. i Smart continues as the company's general counsel, with Directors Emeriti added responsibilities for marketing, rates, area devel-2 opment, and meearch and development. l Floyd M. Canter - IIe replaced board member Stanley W. Gustafson, William S. Carlson who died shortly before year's end. We will miss Mr. Gua-e Virgil A. Gladieux . tafson's talent, energy and keen advice. Marvin S. Kobacker ~ -

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To Our Stockholders Duquesne Light's revenues and net We can reasonably expect that income were both higherin 1983 recovery and new growth will create than in the previous year. While as many as 30,000 new jobs in our heavy industry remained depressed, area next year. However, this other areas of business advanced. growth will not make up for our load losses quickly. The expected sources Our changing market of the growth, such as office build-Traditionally a mainstay of ings and advanced technology Duquesne Light s business, the steel industries, do not use electricity in industry m this area operated at an the same quantities as steel mills. It even lower level than m, 1982, with may well be three or four years contmumg high unemployment before we see a summer peak load among local steelworkers. We expect equal to that of 1981. this area's steel industry, and its con-sumption of electricity, to recover Long-term investment slowly over the next three years, but considerations not to the level of 1981. Almost cer-Recognizing these limitations on' our tainly, a part of the decrease in growth prospects, Duquesne Light is steelmaking demand for electricity currently engaged in a strategic will be permanent; some of the older planning process to help establish steelmaking facilities, no longer cost-operating goals. The aim is to deter-competitive, probably will never mine the lowest level of revenue that reopen. will provide a reasonable level of Fortunately for our community earnings for stockholders, and to and for Duquesne Light, the trend of determine the lowest level of economic development in this area investment that will maintain and over the past two decades has been improve service to the 559,000 one of diversification. This trend has customers who depend on us for helped to reduce the effects of the electricity. decline of the area's heavy industrial Since generating units under con-base and the loss of steel-related struction are scheduled to give jobs. Duquesne Light an additional 445 This transition is still in progress. megawatts of capacity during this The Pittsburgh area ranks fifth in decade, we do not presently foresee the U.S. as a center of research and a need for further generating capac-development and continues to ity until about the year 2000.This develop as a corporate and financial should reduce our dependence on center. Additionally, advanced tech-capital financing and thus improve nology is a growing segment of this our ability to hold the line on costs. new makeup oflocal business and Cost reduction measures industry. Employment also is Cost reduction, always a major man-increasing in service-oriented agement g 1, is urgent at this time; industries such as banking, transpor-n t only for the sake of earnings, tation, health care and retail sales. but also to remain competitive. Serv-These economic strengths account ing a m j r northeastern metropoh-for the fact that our commercial and tan area, as Duquesne Light does, is residential sales were strong last costlier than serving less densely - year, considering the recession. populated areas. Loss of business to neighboring utilities or the move-ment of corporations to the- " Sunbelt" could cost us some larger -2

l customers and have the eventual Our service area effect of raising costs for our other The recession was harder on our customers. We have no higher priori-service area than on most parts of ties than controlling costs with the the country. Local unemployment aim of keeping our rates competitive. persists at a level well above the One means is our continuing national average, with only gradual Company-wide cost reduction pro-relief in sight. In this situation, our gram, which again produced large long-term area development pro-l savings. During the year, negotia-gram is of particular interest. In the l tion of a new two-year union con-past 12 months, more than 3,000 jobs ~ ' tract resulted in productivity have been added or retained as a improvements and fringe benefit result of this Duquesne Light effort. j modifications. In addition, a new This area faces a difficult come-reorganization plan, which will be back. But people here are a hardy implemented in 1984, will reduce breed. They have weathered worse I costs by making our operation leaner storms. e and more cost-effective. Our towns Management reorganization An underlying strength of our 1910 20 so 40 so so vo 83 93 i The reorganization plan consolidates larger community is the great diver-Annuaisystem reak roaa all operating divisions and depart-sity among the many smaller com-ments under the direction of five munities within it. To illustrate this, l Group Vice Presidents. It should we feature in this report photos of reduce total stalling by about 100 five of the towns we serve. I cannot positions. The reduction in number call them typical, because they are of employees will be brought about all so different. Perhaps this very largely through a new voluntary variety is a clue as to why, hard early retirement program. times or not, this region displays such vitality. Community involvement Although many challenges lie In 1983, we recognized a growing ahead, I am optimistic about the problem of people facing a hardship future of our service area. Duquesne because of mability to pay the Light's Management and Board of i

increasing cost of heat and light. To Directors acknowledge and appreci-help alleviate this problem, we pro-ate the support of the many stock-vided strong planning and financial holders, employees and customers and fund-raising support to a new who contributed to the Company's
mdependent agency, the Dollar progress in the past and will help to Energy F und, which provides meet the challenges of the future.

assistance when government help is inadequate. jg. l Duquesne Light employees 7 pledged a total of $333,600 to the John M. Arthur United Way of Southwestern Penn-Chairman of the Board and . sylvama. Additionally, our employ-President ' ees donated $T>S,100 in 1983 to a l Salvation Army food bank for unem-ployed workers. Approximately GT6 FebruaryIT), 1984 , of our 4,900 employees signed pay-i roll deduction cards to contribute $1 . each pay to the food bank. 3

Perspective of 1983 I. FINANCIAL MATTERS Cost reduction JUR TOWNS Revenue-earnings improvement L st year Duquesne Light expanded Duquesne Light's revenues rose .ts cost-reduction program to cover from $746 million in 1982 to $800 mil. the efTorts of every employee in the lion in 1983. Rate increases were pri. Company. One purpose was to EWICKLEY marily responsible for the higher encourage employees to find new revenues. Earnings per share from ways to save the Company money. continuing electric operations were This program appears to be working. $2.20 in 1983 compared to $1.06 in Identified savings rose from $8.3 mil-lion in 1982 to $14.4 million in 1983. 19g9 Looking ahead for savings, h ~ Sales: A year of ups and downs Duquesne Light has been using 1853 Total kilowatt-hour sales for 1983 sophisticated computer programa for were slightly lower than last year's strategic load planning. The task is level, and the summer peak load complex and technical. The goal is to e increased about 8'k. Improved com-determine how to fulfill the Com-Only 15 miles from the hus-mercial and residential sales played pany's load requirements at the 'l",,a " pi sburgh s t e pe c a part in improving our fmancial per-jowest cost to our customers while serenity and charm of formance for the year. maintaining an adequate level of sewickley. c Total industrial sales dropped T6 earnings for our stockholders. by cen$ur"y$id caks aYd compared to 1982. Sales to steelmak-Other major cost reduction maples. stand c.tately ers, our largest single market, fell measures are described on the h m s,buijt first by cap-g ,b9,, even lower than last year. However, following pages under " Manage-later by captains of there was growth in other segments ment reorganization" and "New ir.dustry, of the market, especially oflice park early retirement plan." herefanEa'pEmenIs.*and projects west of Pittsburgh, fast-a shopping district. food restaurants, hospital expan. Saving on dividend reinvestment sewickley is a living. sions and of11ce buildings in down. During the last quarter of the year, breathing iown-not a ,,, g town Pittsburgh, where large-scale the Company began to admimster the residential streets you the Dividend Reinvestment Plan have the feeling that you l development continues. have st d back n t i in-house. This will reduce processing l costs by approximately $150,000 a somewhat unique. But. the sense of charm and gra-vear. The new system will also enable $"*,7llj',7,$ii, $,',5 ~ y us to supply more complete answers of our other towns. to stockholders' inquiries. The plan is open to all holders of Common, Pref-i erence and Preferred Stock. The hLi number of stockholders taking OMhS$.m advantage of the plan now stands at hggQf 44,000. For information on benefits l Ni f and how to participate, write U2bdd Duquesne Light, c/o Dividend Rein-1979 1980 1981 1982 1933 vestment, Box 68, Pittsburgh, Pa. KWII Sales-5 Years 15230-0068. 4'

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Construction and financing issued $20.5 million of tax exempt )UR VILLAGES Work continued at the nuclear Bea-pollution control revenue bonds to ver Valley Power Station Unit No. 2 finance the Company's share of and at the nuclear Perry Plant Units the costs for certain pollution con-Nos. I and 2. Duquesne Light has a trol facilities at the coal-fired ENNSBURY 13.74% ownership interest in each of Sammis plant. Net proceeds to the VILLAGE these units. Other major construc-Company were approximately ~ . c~ tion projects included a new Western 819.8 million. District Headquarters building and a

4. On December 6,1983 the Com-simulator / training building at pany issued $50 million of 13%

Beaver Valley Power Station. First Mortgage Bonds, Series due L Our total capital expenditures for December 1,2013. Net proceeds the year came to $224 millian. About to the Company were approxi-267 of this was generated internally. matelv $49.3 million.

5. The Company issued 2,524,407 Ei,,, c,",',", N ',*,"x'i,I,7.

I The balance was raised by outside financing. This included: shares of Common Stock in 1983 fully grown. it was built in 'h S x $ $

1. On April 14,1983 the Company pursuant to its Dividend Rein-d,

n ent to in-issued $60 million principal vestment Plan. Issuances of Com-houses. mostly two-amount of 12M First Mortgage mon Stock through this plan bedroom. When the town-Bonds, Series due April 1,2013. aggregated approximately $39 "",$' En u ns, the ne m Net 3roceeds to the Company million. In addition, 143,727 shares owners (average age 31) were approximately $59.3 million. of Common Stock were issued j',',$d',d[,*Y "",',","l,' sat

2. On August 2,1983 the Company pursuant to the Company's municipality. They issued a issued 2,475,000 shares of Com-Employee Stock Ownership Plan.

Declaration of secession, performed the necessary mon Stock. Net proceeds to the legai symnastics, and Farewell, steam heat Company were approximately launched their own unique On May 31,1983, foHow, g the plan local government. m $39'4 million' announced in 1982, Duquesne Now the Borough takes

d. On November 1,1983 the Ohio Air care of roads, enforces Quality Development Authority Light,s long-unprofitable subsidiary, laws and provides fire pro.

Allegheny County Steam Heatmg tection:the Condominium Company (ACSH) terminated steam C',""*'jl,8k',*[, *' g,

D service to the public. The estimated includes water, sewage, loss from discontinued steam heat _

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i; ing operations was recognized in U",'fe*,'j,*['Jhcais l

.z l 1982. The major portion of the steam includes use of the pool and distribution system which ACSH had

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' - cooperative of steam users. know it is never going to expand. They also know ~ Rates that living there is never ~ On January 28,1983 the Pennsvlva-going to be much trouble. nia Public Utility Commission (PUC) ,, $t,","cCr' eta'n"a"# entered a final order covering the few acres. But, as we said earner, our suvice area is Company's request for a $165 million .^ 7 indeed diverse. ~. (subsequently reduced to $155 mil- \\ lion) increase in annual rates which l ( was filed on April 30,1982. The order r l l 1973 '74 '75 '76 '77 '78 '79 '80 '81 '82 '83 Cost of Feil aml Nucicar Fuel G - -. - - ~ - -

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allowed $105.8 million or 64% of the Beaver Valley Unit No. 2 is on )UR BORSUGHS rate increase originally requested. schedule On April 29,1983 the Company Construction of Beaver Valley Unit filed a new rate schedule with the No. 2 proceeded on schedule; at year PUC estimated to increase annual end, this nuclear plant was 78% com-OMESTEAD revenues by approximately 5.6% or pleted. The Nuclear Regulatory $49.9 million per year. This was the Commission and the Institute of r-lowest general rate increase request Nuclear Power Operations audited by the Company since 1971. On Sep-the engineering and construction tember 16,1983, the PUC approved a work, and both reported acceptable settlement of the rate proceeding performance. Barring unforeseeable which provided for an increase of delays, the operating license should $21 million, or 42% of the amount be granted by the time the unit is requested. The early settlement of ready for its initial core loading near this request allowed the Company to the end of 1985. begin collecting the increase about Our other community pro-IIL ENT7IRONMENT 4 % months earlier than the normal files show you the diver-decision date. For the second year running, various sit # N " area H imesf[a erv On July 22,1983 the PUC members of Congress proposed leg-offers a more traditional approved the Company's request to islation to "do something" about the and onent mes stereotyped lower its Energy Cost Rate for serv. acid rain problem. If some of the mill town. ice rendered on and after August 1, most stringent proposals are The names of similar decreasing electric bills for the aver _ adopted, Duquesne Light could be styl mi owns ma# $"k' g pp g,ddo age residential customer by about required to spend as much as $335 Duquesne. Munhall. '59' million for flue gas scrubbers and an Monessen. For many years. additional $100 million a year for fe's 'IIIs n th se own II. NUCLEAR operation and maintenance of these roared 'round the clock. Heaver Valley Unit No.1 is a devices. Customers' bills could {l,","'hr ed )$$"va"$y reliable performer increase as much as 6% to 12%, and of reasons.the boom ended Beaver Vallev Unit No. I was shut this area's already depressed steel in the Seventies and early down for refueling and modifications and coal industries would be badly $iI'f rnaces ha e been on June 11,1983 and was returned to hurt. Duquesne Light has proposed goins cold. service as scheduled on September an alternative. It calls for acceler- ,,",",,, (8 ",P jy,'(',h e b*d IIs 24,1983. During the outage,33 ated research (the causes of acid rain butin Homestead. Aliquippa, design modifications were made to are not scientifically established); an Braddock and the rest, the plant,21 of which were required emission ceiling for sulfur dioxide; $'( r't h s passed. e by the Nuclear Regulatory innovative alternative methods of Homestead has endured hard' $ hefo e a Commission. neutralizing acidity in lakes and p n,9 [, ,] h From the beginning of the year streams; and a trade-off policy Until the answer is in, peo-until June 11, this nuclear unit oper-between types of chemical com_ pie here are doing what ated at an availability factor of 96%. pounds that may lead to airborne lng,ca"'. he cut On an annual basis, taking into acids. The plan would reduce the account the shutdown period, its emissions that are blamed for availability factor was 68%. causing acid rain, yet cushion the In February 1983, the Emergency human and cost impacts. Preparedness Plan for Unit No.1 was tested in a full-scale, all-day l i drill. Federal agencies determined that public health and safety can be I adequately protected in the event of l a nuclear emergency. ls

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i l IV. INTERNAL OPERATIONS 100 positions will be eliminated, 1UR CITIES i AND PERSONNEL including some 20 managerial Management reorganization positions. Duquesne Light's overall organiza-New early retirement plan ONROEVILLE tional structure has not sigmficantly The reduction in personnel called for changed for about 17 years. Early m by the reorganization will be accom-1983, the Board of Directors retamed plished largely by attrition and by a T0i the consultmg firm of Rooz, Allen & new limited early retirement pro- .D ) Hanulton, Inc. to examine the organ-gram which was entirely voluntarv. F 6 L izational structure of the Company When the option was offered in late ~ p Pa WroeVIii' and make recommendations for 1983,450 employees were eligible; improvement. In November, the 323 chose early retirement. The Board of Directors adopted a new option was terminated in Januarv ~ plan of organization. 1984. Under the new organizatwn, oper-lon ations are directed by five Group New two-year union contract [',88ylg,s ega p,, l \\ ice Presidents. They are Charles M. Duquesne Light and the Interna' and Sixties:the developers Atkinson, Finance and Accounting; tional Brotherhood of Electrical dug up farms and planted h Roger D. Beck, Administrative Ser-Workers signed a new contract ,]8;,8",',',$,,5',',",* ' "' ,r vices; ClitTord N. Dunn, Power Sup-effective October 1,1983. It provides settled into the quiet rou-ply; John J. Carey, Nuclear; and for a 6% increase in wages and a tine of a typical bedroom William F. Gilfillan, Jr., Customer small improvement in fringe benefits

"'"""broeville was hen Services. In addition, Walter T.

each year of the two-year pact. Most just in the making, a shop-Wardzinski is Vice President of important in these times is a provi-(",yl,"','[,j",",C7,b',ser ,,eded i Isegal and Corporate Communica-sion that wi~ help reduce costs by was built. it was a catalyst: i tions. All report to John M. Arthur, increasing tue work week of certain now Monroeville has about one store for every 60 res-4 Chairman of the Board and Presi-clerical workers from 378.!: to 40 idents. and shoppers drive l l dent. For a complete list of Company hours at no additional increase in miles to get here Four j ofIicers, see the inside back cover of wages. This change results in a stan-yl,*,",',Porat(o"s,c cent rs.' l this report. dard 40-hour work week for all Com-That tilted the population i The purpose of the new reorgani-pany employees. mix: there's a high pert.ent-age of PhD's, and you hear i j zation is to provide more efh..cient '82 management audit produces '83 accents from Sweden. Eng-management and to reduce costs. It land. France, plungary, 1 j will make our organization leaner by a r$1'rIaSo eNts hea - g\\ e the PUC-mandated manage _ 1 reducing the number of departments quarters here, and an ment audit of 1982 by Temple' en,repreneur put up an i and increasing the responsibilities of Barker and Sloane, Inc. found exhibit hall that drew over existing managers. A total of about half a million buyers and conventioneers last year. Monroeville is only 14 miles from downtown Pittsburgh and even closer l to three major universities. ', It, and other communities, l are starting to sprout build-ings with company names that don't have any vowels. Advanced-tech is taking root around here. 1982 1983 Iligh low Common Stock The principal tmding marketfor the Company's Common Stock is the Nete York Stock &cha nge. The stock is also lis:ed on the Philadelphia Stock &cha nge.

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Duquesne Light's operations to be Duquesne Light has worked with )UR TOWNSF 1 >S generally acceptable,it also made various community groups for over some specific recommendations to two years to establish an energy further improve our operations. We assistance fund. In 1983, we helped ENTER have been implementing certain of found the Dollar Energy Fund, an TOWNSHIP these recommendations. One visible independent, non-profit agency result in 1983 was a wider use of which was formed to meet the spe-computerized information systems. cific problem of inability to pay. - g Benefits included increased clerical Duquesne Light supported the Dol- . c se' 6 productivity, improved customer lar Energy Fund with start-up, pro- - MR P ~ service and enhanced management motion and administration funds. We control. mailed more than a million of the Fund's appeals along with our regu-E m ns lar monthly bills. In addition, we will Early in the year, the Transmission provide up to $50,000 in matching and Distribution Department moved credits for the accounts of eligible Drive along the main north-its Western District headquarters t Duquesne Light customers receiving south road, first cut when This completed a multi-year consoh:- assistance from the Dollar Energy ' $ y*o*u's'e"e o'n"e sYde$ a new buildmg m Center Township an Fund. While only in existence for a Center Township-a be(. dation of Western District opera-little over three months, the Fund commu et r$Ibu abo tions. There are seven sections and had received $55,970 in cash contri-minutes on the exprestr approximately 200 employees at this butions from customers by year end, way. lt's a chore. but seaver County taxes are l location. The consolidation of three facilities has reduced costs and has Conservation @,Th$ "p'e* opie $en# h t on made it more convenient for several Besides conducting energy audits at the colleges-a t.ommunity d a enn ate departments to work together. below cost for residential customers, [,*P**[a ch h,pp g,, Duquesne Light conducted a series very large mall, and their Most important awards of 1983 of free lunchtime energy conserva-friendly neighbors. We take pride in a good safety tion presentations for the public at y,",7,*,thsidr . o, er s f record, and special pride m, awards our new headquarters in downtown Center Township-the like these received in 1983: Pittsburgh. We also sponsored a load countryside. 8etter than From the Pennsylvania Electric management seminar for commer- $'ar'e "n$1[s sYr$n'a' Association, an award for the best cial, industrial and governmental failow. water and woods, accident-prevention record in the customers-hills-places quite wild-Commonwealth's electric utility ann ciln th town-a mdustry. More j,obs ship is more than a 10-From the Pennsylvania Electric For the 25th year, Duquesne Light minute walk from where Association, an award for meritori-operated a full-time Area Develop-Y"{de opb Sd *' Nit' '"f es ous results in the prevention of ment Department that works to have them in Center Town-ship and in other parts of disabling shocks and burns. expand the local economy and From the Edison Electric Insti-expand employment opportunities m tute, the Injury Frequency Reduc-our service area. The department tion Award certificate, for having staff worked with 180 prospective reduced injury rates 25% in a sin-employers during the year. Their gle year. efforts included finding land or buildings, locating financing, expe-V. COMMUNITY CONCERNS diting permits and providing studies Inability to pay on markets and labor skills. Our With heavy industry in our area still staff secured 52 commitments to l in deep recession, the number of our expand or relocate in our service customers unable to pay for electric area. The result was 2,960 jobs l service has grown noticeably. added or retained. ,12

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Company Report on Financial Statements The Company is responsible for the financial informa-ance with generally accepted auditing standards and tion and representations contained in the financial included a review of the system of internal accounting statements and other sections of this Annual Report. controls and tests of transactions to the extent they The Company believes that the financial statements considered necessary to provide reasonable assurance have been prepared in conformity with generally that the financial statements are not misleading and do accepted accounting principles appropriate in the cir-not contain material errors. cumstances to reflect, in all material respects, the sub-The Board of Directors has an Audit Committee stance of events and transactions that should be composed of four non-officer directors which met four included and that the other information in the Annual times in 1983. The Audit Committee has the following Report is consistent with those statements. In prepar-duties and responsibilities: (1) recommand the indepen-ing the financial statements, the Company makes dent public accountants; (2) review the planned scope informed judgments and estimates based on currently and results of their audit and other services to be per-available information of the effects of certain events formed;(3) review the financial statements and the and transactions. related report of the independent public accountants; The Company maintains a system ofinternal (4) review with the officers, internal auditors and the accounting controls designed to provide reasonable independent public accountants the adequacy of the assurance that the Company's assets are safeguarded Company's system of internal accounting control, and that transactions are executed and recorded in including their recommendations with respect thereto; accordance with established procedures. There are lim-and (5) review the planned scope and results of the its inherent in any system of internal control based on internal audit function. The independent certified pub-the recognition that the cost of such a system should lic accountants and internal auditors have full and free not exceed the benefits to be derived. The system of access to the Audit Committee and meet with it, with internal accounting control is supported by written pol-and without management being present, to discuss icies and guidelines and is supplemented by a staff of internal accounting controls, auditing and financial internal auditors. The Company believes that the inter-reporting matters. nal accounting control system provides reasonable assurance that its assets are safeguarded and the C,h, @-M [ financial information is reliable. The accompanying consolidated financial statements C. M. Atkinson John M. Arthur have been audited by Deloitte Haskins & Sells,inde. Vice President-Chairman of the Board pendent certified public accountants, whose appoint. Finance and and President ment was approved at the 1983 Annual Meeting of Accounting Group Stockhoklers. Their examination was made in accord-Opinion ofIndependent Certified Public Accountants DELOITTE HASKINS & SELLS tests of the accounting records and such other auditing Certified Public Accountants procedures as we considered necessary in the Two Gateway Center circumstances. Pittsburgh, Pennsylvania 15222 In our opinion, such consolidated financial state-TO THE DIRECTORS AND STOCKHOLDERS ments present fairly the consolidated financial position OF DUQUESNE LIGHT COMPANY: f Duquesne Light Company at December 31,1983 and 1982 and the results of its operations and the changes We have examined the consolidated balance sheets of in its financial position for each of the three years in Duquesne Light Company as of December 31,1983 the period ended December 31,1983, in conformity and 1982 and the related statements of consolidated with generally accepted accounting principles applied income, retained earnings, capital surplus and changes on a consistent basis. in financial position for each of the three years in the period ended December 31,1983. Our examinations were made in accordance with generally accepted [ auditing standards and, accordingly, included such February 15,1984 14

Duquesne Light Company Statement of Consolidated Income For the Three Years Ended December 31,1983 (Thousands of Dollars, Except Per Share Amounts) 1983 1982 1981 ELECTRIC OPERATING REVENUES $800,345 $746,462 $786,229 OPERATING EXPENSES: Fuel 192,512 229,693 242,871 Purchased power (sales)-net (7,330) (23,172) 16,189 Other operation 136,188 126,151 113,423 Maintenance (Note N) 65,016 66,855 63,106 Depreciation 73,682 62,939 60,854 Taxes other than income taxes (Note N) 60,651 57,476 57,694 Income taxes (Note H) 92.954 71,213 72,263 Total Operating Expenses 613,673 591,155 626,400 OPERATING INCOME 186,672 155,307 159,829 OTHER INCOME: Allowance for equity funds used during construction 50,709 35,415 24,619 Ineome taxes-<redit (Note H) 16,760 17,906 14,462_ Other income and deductions-net 246 8,913 3,467 Total Other Income 67.715 62,234 42,548 INCOME BEFORE INTEREST CHARGES 254,387 217,541 202,377 INTEREST CHARGES: Interest on long-term debt 118,813 111,726 97,404 Other interest 5,736 3,471 6,957 Allowance for borrowed funds used during construction, net of income taxes (15,388) (14,853) (11,393) Total Interest Charges 109.161 100,344 92,968 INCOME FROM CONTINUING ELECTRIC OPERATIONS BEFORE EXTRAORDINARY GAIN 145,226 117,197 109,409 DISCONTINUED STEAM HEATING OPERATIONS (Note C): Ioss from operations of discontinued steam heating subsidiary (924) (538)_ Ioss on disposition of discontinued steam heating subsidiary (9,000) INCOME BEFORE EXTRAORDINARY GAIN 145,226 107,273 108,871 EXTRAORDINARY GAIN ON EARLY EXTINGUISHMENT OF BONDS (Note D) 9,609 NET INCOME 145,226 116,882 108,871 DIVIDENDS ON PREFERRED AND PREFERENCE STOCK 22,411 22,701 22,976 EARNINGS FOR COMMON STOCK $122,815 $ 94,181 $ 85,895 AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (000) 55,883 48,236 41,764 i EARNINGS PER SHARE OF COMMON STOCK: Income from continuing electric operations $2.20 $1.96 $2.07 Ioss from discontinued steam heating operations (Note C) (.21) (.01) Extraordinary gain (Note D) .20 ) Net income $2.20 $1.95 $2.06 DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $2.00 $1.90 $1.85 The accompanying Notes to Financial Statements are an integral part of these statements. 15 ~ J

Duquesne Light Company Consolidated Balance Sheet December 31,1983 and 1982 (Thousands of Dollars) 1983 1982 ASSFTS PROPERTY, PLANT AND EQUIPMENT: Electric plant in service $2,434,916 $2,347,640 Construction work in progress 856,766 675,621 Held for future use 1,799 1,293 Total 3,293,181 3,024,554 Less accumulated depreciation 555,611 504.680 Property Plant and Equipment-Net 2.737,810 2.519.874 OTHER PROPERTY AND INVESTMENTS: Nonutility property 2,050 2,008 Miscellaneous investments 12,421 8.489 Total Other Property an:1 Investments 14,474 10.497 CURRENT ASSETS: Cash and temporary cash investments (at cost which approximates market) 73,751 33,663 Accounts receivable: Customers (less reserve for uncollectible accounts of $2,652 and $2,270, respectively) 69,822 60,177 Tax refund 5,507 Other 19,797 21,284 Materials and supplies (generally at average cost): Coal 59,205 69,194 Other operating and construction 31,983 33,964 I Deferred ir.come taxes 3.121 7,265 Other current assets 13.028 13.851 Total Current Assets 273,707 244.905 i DEFERRED DEBITS: Extraordinary property losses (Note B) 36,565 40,334 Deferred coal costs (Notes G and M) 22,313 18,338 Other deferred debits 60,882 49,476 Total Deferred Debits 119,790 108,148 Total $3.145,811 $2.883.424 The accompanying Notes to Financial Statements are an integral part of these statements. i i 16

1983 1982 LIAHILITIES CAPITALIZATION (Note E): Common Stock (authorized-75,000,000 shares; outstanding-58,410,659 and 53,276,525 shares, respectively) $ 58,420 $ 53,277 Capital surplus 724,147 649,376 Retained earnings 175,938 165,340 Total Common Stockholders' Equity 958,505 867,993 Non-redeemabie Preferred and Preference Stock 156,137 156,137 Redeemable Preferred and Preference Stock 131,979 140,829 First mortgage bonds 1,100,147 1,006,637 Other long-term debt 234,019 199,934 Unamortized debt discount and premium-net (10,967) (9,488) Total Capitalization 2,572.820 2,362,042 CURRENT LIABILITIES: Long-term debt maturing within one year (Note E) 16,700 12,500 Accounts payable 95,030 98,399 Accrued income taxes (Note H) 5,778 6,403 Other accrue /. and deferred income taxes 19,430 13,658 Energy cost rate refunds 9,974 Accrued interest 40,390 29,482 Dividends declared 31,771 30,302 Sinking fund and purchase requirements (Note E) 13.391 10,987 Reserve for loss on discontinued steam heating operations (Note C) 3,181 2,698 Total Current Liabilities 228,671 214,403 DEFERRED CREDITS: Investment tax credits 143,761 126,447 Accumulated deferred income taxes 193,649 172,600 Other deferred credits 6,907 7.932 Total Deferred Credits 344,320 306.979 C051511T5 TENTS AND CONTINGENT LIABILITIES (Notes G, I, L and M) Tot:d $3,145,811 $2,883,424 17

Duquesne Light Company Statement of Changes in Consolidated Financial Position For the Three Years Ended December 31,1983 (Thousands of Dollars) 1983 1982 1981 SOURCE OF FUNDS: Continuing electric operations: Income from continuing electric operations before extraordinarygnin $145,226 $117,197 $109,409_ ltems not affecting working capital: Depreciation 79,800 66,303 63,560 Investment tax credit deferred-net 17,317 17,335 11,524 Income taxes deferred-net (noncurrent portion) 21,019 18,466 38,040 Allowance for equity and borrowed funds used during construction (66,097) (50,268) (36,012) Total 197,295 169,033 186,521 (9,924) (538) Discontinued steam heating operations Items not affecting working capital (including depreciation: 1982, $595: 1981, $610) (349) 690 Total From Operations (excluding extraordinary gain) 197,295 158,760 186,673 9,609 Extraordinarylain on early extinguishment of bonds Sale of bonds 110,000 65,000 80,000 Issuance of Common Stock 80,485 107,369 61,332 Nuclear fuel obligations 6,125 24,221 Construction costs reimbursed by trustees from proceeds of pollution control financings 19,680 50,000 Decrease in working (capital (exclusive of current maturities 30,312 oflong-term debt) a) Total Source of Funds $413.585 $395,271 $378,005 APPLICATION OF FUNDS: Construction expenditures (net of allowance for equity and borrowed funds used during construction) $224,280 $231,022 $178,942 __ Dividends on capital stock 134,628 115,247 100,268 Reduction of bonds 12,500 43,852 Sinking fund and purchase requirements 4,696 2,691 4,461 Deferred coal costs 4,005 2,669 15,355 _ Decrease in notes payable 35,000 Other-net 14,742 (210) 15,679 Increase in working capital (exclusive of current maturities of long-term debt and notes payable)(a) 18,734 28.300 Total Application of Funds $413,585 $395,271 $378,005 (a) The components of working capital (exclusive of current maturities of long-term debt and notes payable) were as follows: Current assets: Cash and temporary cash investments 8 73,751 $ 33,663 $ 50,655 Accounts receivable 89,619 86,968 94,363 Materials and supplies and other current assets 107,216 117,009 95,878 Deferred income taxes 3.121 7,265 Total 273,707 244,905 240,896 Current liabilities: Accounts payable and accrued interest 135,420 127,881 106,337 Accrued taxes 25,208 20,061 24,280 Energy cost rate refunds 9,974 Dividends declared 31,771 30,302 27,232 Sinking fund and purchase requirements 13,391 10,987 9,733 Reserve for loss on discontinued steam heating operations 3.181 2,698 Total 211,971 201,903 167,582 Workingpital at close of year 61,736 43,002 73,314 _ Working capital at beginning of year 43,002 73,314' 45,014 increase (decrease)in working capital (exclusive of current maturities of long-term debt and notes payable) $ 18,731 $(30,312) $ 28,300 The accompanying Notes to Financial Statements are an integral part of these statements, 18

i Duouesne Light Company Statement of Consolidated Retained Earnings Fir' Three Years Ended December 31,1983 (Thoo mds of Dollars) 1983 1982 1981 BALANCE AT BEGINNING OF YEAR: As previously reported $167,149 $158,546 Less settlement of prior years' income taxes (Note D 3.444 3,444 As restated $165,310 163,705 155,102 NET INCOME FOR THE YEAR 115.226 116.882 108.871 Total 310.566 280.587 263.973 Y ' DEDUCT:, Cash dividends declared: Preferred Stock: t 4"A Series - 1,100 1,100 1,100 3.753 Series 281 281 281 4.15'k Series 291 291 291 4.20"4 Series 210 210 210 216 246 246 4.10'5 Series 336 336 336 $2.10 Series / $8.64 Series 2,219 2,271 2,323 t i $7.20 Series 2,520 2,520 2,520 $8.375 Series 2,512 2,512 2,512 Preference Stock: $7.50 Series 1,9 14 2,038 2,119 $2.75 Series 891 1,035 1,177 $2.315 Series 2,778 2,778 2,778 $2.10 Series ~ 2,520 2,520 2,520 $9.125 Series 4,563 4,563 4,563 Common Stock (Per Share: 1983-$2.00: 1982-$1.90: 1981-$1.85) '

112.217 92.546 77.292 Total Cash Dividends 134.628 115.247 100.268 BALANCE AI' CLOSE OF YEAR

$175.938 $165.340 $163.705 ~ Statement of Consolidated Capital Surplus For the Three Years Ended December 31,1983 (Thousands of Dollars) ,19 f 1982 1981 - =. BALANCE AT BQGINNING OF YEAR _ a g_' _.i a:.316 $550,24 ? $494,228 Premium on Commcn Stock issued ,i ' 53d - 99,395 56,196 Expense of issuing capital stock (571) (263) (180) BALANCE AT CLOSE OF YEAR iAE147 $649,376 $550.244 w g The accompanying Notes to Financial Stateme.tIsrc un integral part of these statements. e /j ,) l A Gc ,p',, I

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Duquesne Light Company Notes to Fmancial Statements A.

SUMMARY

OF ACCOUNTING POLICIES: gress. Investment tax credits are deferred and amortized over Consolidation the lives of the related facilities. The consolidated financial statements include the Company Deferred Fuel Costs and its wholly-owned subsidiary. See Note C concerning The Company defers the difference between actual fuel costs dispositionof thesubsidiary. and base fuel costs until the period in which such costs are Property, Plant and Equipment billed to its customers through its energy cost rate. The energy The properties of the Company are carried at original cost and, cost rate is based on projected costs, with provisions for subse-with minor exceptions, are subject to a first mortgage lien. All quent adjustments to actual cost. Any overcollections of reve-maintenance and repairs and replacements of minor units of nues are refunded to customers. property are charged to income. Replacements of retirement Nuclear Fuel Costs units of property and betterments are capitalized. In connection The Company's share of nuclear fuel costs under non-with retirements, reserves are charged with the carrying value, capitalized lease agreements is charged to fuel expense based j plus dismantiing charges, less salvage, of property retired. on the quantity of electric energy generated and reflects a zero l Revenues net salvage value for the leased nuclear fuel. In 1982 the Com-l Customer meters are read monthly or bimonthly and bills are pany began capitalizing acquisitions of nuclear material rendered on a monthly basis. Revenues are recorded when through a trust arrangement that is intended to finance a por-billed. tion of the Company's requirements for nuclear fuel. An Allowance for Funds Used During Construction accounting pr n uncementissued by the Financial Accounting In accordance with the uniform system of accounts prescribed Standards Board in 1982 will result m, capitalization of the by regulatory authorities, an allowance for funds used during Company s nuclear fuel leases begmnmg m 1984. constructioniAFC)is included in construction work in progress Under the Nuclear Waste Pohey Act of 1982 (the Act), the and credited to other inec...a for AFC attributable to equity United States Department of Energy (DOE)is responsible for the timate storage and disposal of spent nuclear fuel removed funds and to interest charges for AFC attributable to bor-rowed funds, net of income taxes. AFC is a non-cash item and from reactors. Under the Act the Company is required to pay a is computed using a composite rate, which is applied to the bal_ quarterly fee to DOE of one mill per kilowatt-hour on nuclear ance of construction work in progress and assumes that funds generation after April 6,1983 and a one-time fee for nuclear used for construction are provided by borrowings and by pre, generation through April 6,1983. Although the method of ferred, preference and common stock equity. The rate, com. payment of the one-time fee, currently estimated to be approxi-pounded semi-annually, was 9.6%,8.5 and 7.6% in 1983,1982 mately $8,921,000, has not been determmed, this amount has and 1981, respectively. This accounting procedure results in the been recorded as long-term debt with a contra charge to, inclusion in property, plant and equipment of amounts consid-deferred debits. The Company began recovermg the one-time ered by regulatory authorities as appropriate costs for the fee m rates m February 1983 and has established a trust, fund purpose of establishing rates for utility charges to customers. f r the deposit of the amounts recovered.The Company is also recovermg the fees for generation after April 6,1983 and mak-Deprec,ation ing payments to DOE on a quarterly basis. i The Company provides for depreciation of electric plant, exclusive of coal properties, on a straight-line basis determined Debt Discount, Prem,um and Expense i in a manner consistent with applicable Pennsylvania law and Debt discount or pre,mium and related expenses are amortized with methods applied by the Pennsylvania Public Utility Com. ver the hves of the issues to which they pertain. mission (Commission) in the determination of depreciation in H. EXTRAORDINARY PROPERTY LOSSES: rate proceedings. Provisions for depreciation and depletion of In January 1980, the Company and the other CAPCO compa-other Company property are made,on various bases such as nies cancelled the construction of four nuclear generating tons of coal m, ed for coal properties. m units. The Company received approval from the Federal The Company provides for decontamm.ation and dismantling Energy Regulatory Commission (FERC) and the Pennsylvania costs for the IJeaver Valley No. I nuclear generatmg umt m Public Utility Commission (Commission) to amortize and accordance with the provisions of the orders of the Commis-recover from its customers its share of the accumulated costs ,sion. The Company is allowed to recover from its customers applicable to these units over a ten-year period which began annual decommissiomng annuity payments to provide for the January 29,1983. The unrecovered costs which were decommissionmg of the nuclear related components. Such unamortized as of December 31,1983 were $31,291,000. costs are currently estimated to be approximately $30,000,000. On October 1,1982 the Shippingport Atomic Power Station The Company deposits certain revenues m a trust fund which was removed from commercial operation after notice from the has been established to pay for such costs. At December 31, United States Department of Energy that it was planning to 1983, $1,573,000 was included in the Decommissioning Trust terminate operation of the light water breeder reactor core at Fund, which represents the aggregate value of revenue de-the station as of that date. The Company requested approval posits and interest earned on mvestments made by the trustee. from FERC to record the undepreciated cost of the station as Ineome Tnxes an extraordinary property loss and to amortize such loss over a Deferred income taxes are provided principally for differences ten-year period beginning on the date that rates providing for between depreciation for income tax purposes and depreciation the recovery of such cost first become effective. Consistent for accounting purposes to the extent permitted by the Com-with this request, the Company reclassified the net amount to mission for rate-making pu rposes, and for fuel and extraordi-extraordinary property losses. The Company has received nary property losses deferrnt for accounting purposes but approval from the Commission to amortize and recover a por-deducted currently for income tax purposes. In compliance tion of this amount, net ofincome taxes, from its customers with regulatory accounting, income taxes are allocated over a ten-year period which began January 29,1983. between operating expenses and other income, principally with The Company is not earning any return on the unamortized respect to interest charges related to construction work in pro-costs of either of the property losses. 20 -

' C. DISCONTINUED STEAM IIEATING OPERATIONS: 31,1983. These losses were charged against 1982 income, and . On September 30,1982 the Pennsylvania Public Utility Com-no additionalloss is expected to be incurred due to the disposi-mission approved the application by the Company's steam tion. Prior years' operating results have been reclassified to

heating subsidiary, Allegheny County Steam Heating Com-present separately the results of discontinued steam heating

. pany, to discontinue steam service to the public effective May operations from continuing electric operations. 31,1983 and to transfer to Pittsburgh Allegheny County Ther-At December 31,1983 and 1982 assets and liabilities included mal, Ltd. (PACT) a major portion of the subsidiary's assets for m the consolidated balance sheet applicable to the subsidiary nominal consideration. The transfer of the assets became effec-were not material. Revenues from discontinued steam heating tive June 1,1983. In addition, a lease to PACT of a steam gener-operations for the five months ended May 31,1983 and for 1982 ating plant for nominal consideration became effective on Jan-and 1981 were approximately $6,884,000, $8,845,000 and uary 3,1983 after completion by the subsidiary of certain $10,996,000, respectively. demolition work at the plant. The provision for loss on the disposition of the subsidiary's D. EARIX EXTINGUlSIDIENT OF HONDS: assets was $9,000,000 (net of income tax benefit of approxi-In December 1982, the Company exchanged 1,406,898 shares mately $8,712,000) and the loss from operations was $924,000 of Common Stock for approximately $29,852,000 principal (net of income tax benefit of approximately $1,028,000) for the amount of outstanding First Mortgage Bonds which were l nine months ended September 30,1982.The provision for loss owned by an investment banking firm. The exchange resulted l on disposition included estimated operating losses for the sub-in a nontaxable extraordinary gain of $9,609,000, or $.20 per ! sidiary of $1,100,000 (net of income tax benefit of approxi-share, which was the difference between the exchange value mately $970,000) for the period October 1,1982 through May of the Common Stock and the net carrying amount of the bonds, E. CAPITALIZATION: December 31,1983 December 31,1982 Shares Shares Outstanding Amount Outstanding Amount Common Stock-$1 par value (1) 58.119.659 $ 58,119,659 53,276.525 $ 53.276,525 CapitalSurplus: Premium on Common Stock $731,335.853 $655,993,6M Capital stock expense (debit) (7,622,344) (7,065,026) Other 133.442 447.147 Capital surplus $721,146.951 $649.375.775 Non-redeemable Preferred and Preference Stock: Preferred Stock-$50 par value (cumulative)(1) 4% Series (2) 519.969 $ 27,198,150 549,969 $ 27,498,450 3.75% Series (2) 150,000 7,500,000 150,000 7,M)0,000 4.15% Series (2) 140,000 7,000,000 140,000 7,000,000 4.20% Series (2) 100,000 5,000,000 100,000 5,000,000 4.10% Series (2) 120.000 6,000,000 120,000 6,000,000 $2.10 Series (2) 160,000 8,000,000 160,000 8,000,000 $7.20 Series (3) 350,000 17,500,000 350,000 17,500,000 Preference Stock-$1 par value (cumulative)(1) $2.315 Series (4) 1,200,000 1,200,000 1,200,000 1,200,000 $2.10 Series (4) 1,200.000 1.200.000 1,200.000 1,200,000 80,898,450 80,898,450 Premium on Non-redeemable Preferred and Preference Stock 75,238,760 75.238,760 Non-redeemable Preferred and Preference Stock $156,137,210 $156,137.210 Ir. voluntary liquidation value $155.998.450 $155,998,450 Redeemable Preferred and Preference Stock: Preferred Stock-$50 par value (cumulative)(1) $8.64 Series (3) 256.872 $ 12,843,600 262,872 $ 13,143,600 $8.375 Series (3) 300,000 15,000,000 300,000 15,000,000 Preference Stock-$1 par value (cumulative)(1) $7.50 Series (3) 255,920 255.920 268,920 268,920 $2.75 Series (4) 270,570 270,570 365,020 365,020 $9.125 Series (3) 500,000 500.000 500,000 500,000 28,870,090 29,277,540 Premium on Redeemable Preferred and Preference Stock 109,173,360 113,027,160 Purchase and Sinking Fund Requirements (3.061,250) (1.475.500) Redeemable Preferred and Preference Stock $131,979.200 $140,829.200 involuntary liquidation value $131,979.200 $140.829.200 (1) Authorizedsharen:CommonStock-75,000,0001 increased (2) $50_ per share involuntary liguidation value. in 1983 from 60,000,0@); Preferred Stock-- 4,000,000; (3) $100pershareinvolunta hquidation value. and Preference Stock--8,000,000. (4) $25pershareinvoluntary iq idation value.

I Duquesne Light Company Notes (conununo The following summary indicates the changes in the number of shares of Common Stock outstanding during 1983,1982 and 1981: Year Ended December 31, 1983 1982 1981 Common Stock: Shares outstanding at beginning of year 53,276,525 45,302,520 40,166,083 Issuances: Common Stock sales 2,175,000 4,500,000 4,100,000 Dividend Reinvestment Plan 2,521.107 1,962,320 902,977 Employee Stock Ownership Flan 113.727 104,787 133,460 Exchanged for outstanding First Mortgage Bonds 1.406.898 Shares outstanding at end of year 58,119.659 53.276.525 45.302.520 The number of shares reserved at December 31,1983 for 1988, and thereafter at $100 plus the applicable redemption issuance under the Dividend Reinvestment Plan and the premium decreasing from $5.03 in 1988 to $.34 in 2003. Employee Stock Ownership Plan are 6,364,124 and 448,115, respectively. Redeemable Preferred and Preference Stock: The Preference Stock is entitled to quarterly cumulative The shares of $7.50 Preference Stock are entitled to a non-dividends except that no dividends may be paid if dividends on cumulative purchase fund under which the Company ofTers to any series of the Preferred Stock are accumulated and unpaid. purchase annually at $100 per share up to 4% of the number of In the event that six quarterly dividends on any series of Pref-shares originally issued. The shares of $2.75 Preference Steck erence Stock are in default, the holders of the Preference are subject to a cumulative sinking fund which will retire Stock are entitled to elect two directors until all dividends in 55,000 shares by August 1 in each year at $25 per share. The arrears have been paid. Company may on a non-cumulative basis retire an additional The outstanding Preference Stock of the Company is 55,000 shares in each such year. The shares of $9.125 Prefer-callable on not less than thirty days' notice at the following ence Stock are subject to a cumulative sinking fund beginning redemption prices plus accrued dividends: $7.50-redeemable with the year 1985 and continuing through 1997 inclusive at $105 through April 1,1986; $103 through April 1,1989; and which will retire 33,300 sharee on January 1 in each year at $101 thereafter; $2.75-not redeemable prior to August 1, $100 per share. The Company may, on a non-cumulative basis, 1984 through certain refunding operations, otherwise redeem-retire an additional 33,300 shares in each such year, provided able at $27.75 through J uly 31,1984; $26.50 through July 31, that the Company may not redeem through the exercise of this 1989; and $25.25 thereafter; $2.315-redeemable at $26.60 option more than an aggregate of 150,000 shares. through March 31,1986; $25.00 through March 31,1991; and The shares of $8.64 Preferred Stock are entitled to a non- $25.25 thereafter; $2.10-redeemable at $26.40 through cumulative purchase fund under which the Company offers to March 31,1987; $25.70 through March 31,1992; and $25.00 purchase annually up to 6,000 shares at not more than $100 thereafter; $9.125-not redeemable prior to January 1,1989 per share. The shares of $8.375 Preferred Stock are subject to through certain refunding operations, otherwise redeemable a cumulative sinking fund beginning with the year 1984 which at $100 plus the applicable redemption premium decreasing will retire 12,000 shares on April 1 in each year at $100 per from $6.72 in 1984 to $.48 in 1998. share. The Company may on a non-cumulative basis retire an The Preferred Stock is entitled to quarterly cumulative additional 12,000 shares in each such year. dividends. In the event that four quarterly dividends on any The combined aggregate sinking fund and mandatory pur-series of Preferred Stock are in default, the holders of the Pre-chase requirements for the next five years as of December 31, ferred Stock are entitled to elect a majority of the Board of 1983 are as follows: Directors until all dividends in arrears and current dividends have been paid. Year Ending Sinking Fund and Mandatory The outstanding Preferred Stock of the Company is callable December 31. Purchase Requirements on not less than thirty days' notice at the following redemption 1984 $4,364,250 prices plus accrued dividends: 4%$51.50; 3.75%$51.00; 4.15%$51.73; 4.20b$51.71; 4.10b$51.75; $2.10-$51.84; 1985 7,805,000 $8.64-redeemable at $107 through September 30,1984; $104 1986 7,805,000 through September 30,1989; and $101 thereafter; $7.20-1987 7,805,000 redeemable at $102.50 through March 31,1987; and $101 1988 7,805,000 thereafter; $8.375-redeemable at $112 through March 31, 22

The following summary indicates the changes in the number of shares of Redeemable and Non-redeemable Preferred and

Preference Stock outstanding during 1983,1982 and 1981:

Year Ended December 31, 1983 1982 1981

PreferenceStock:

Shares outstanding at beginning of year 3,533,9 to 3,565,220 3,678,6TA) Purchases and redemptions-$2.75 Series (91,850) (20,080) (103,750) -$7,50 Series (13,000) (11.200) (9.680) Shares outstanding at end of year 3,426,190 3,533,940 3,565,220 , PreferredStock: Shares outstanding at beginning of year 2,132,881 2,138,841 2,144,841 Purehases-$8.64 Series (6,000) (6,000) (6,000) Shares outstanding at end of year 2,126,881 2,132,841 2.138,841 l First Mortgage Honds (amount authorized is unlimited by indenture): December 31, 1983 1982 Series due September 1,1983 (3%%) 12,000,000 Series due July 1,1984 (34%) 16,000,000 16,000,000 Series due April 1,1986(3%%) 20,000,000 20,000,000 Series due April 1,1988(3%%) 15,000,000 15,000,000 Series due March 1,1989(4 %%) 10,000,000 10,000,000 Series due February 1,1996 (5%%) 22,800,000 22,800,000 Series due February 1,1997 (5%%) 21,600,000 24,600,000 Series due February 1,1998(6%%) 31,700,000 34,700,000 Series dueJanuary 1,1999(7%) 30,000,000 30,000,000 Series due July 1,1999 (7%%) 28,917,000 28,947,000 Series due March 1,2000 (8%%) 30,000,000 30,000,000 Series due March 1,2001 (7%9) 35,000,000 35,000,000 Series due December 1,2001(7 %%) 26,161,000 26,461,000 Series dueJune 1,2002 (7 %%) 28,170,000 28,470,000 Series due January 1,2003 (7 %%) 32,670,000 32,670,000 Series dueJuly 1,2003(7%%) 35,000,000 35,000,000 Series due April 1,2004 (8%%) 41,100,000 44,100,000 Series due March 1,2005(9 %%) 50,000,000 50,000,000 Series due June 1,2006(9%) 80,000,000 80,000,000 Series due April 1,2007(8%%) 97,400,000 97,400,000 Series due February 1,2009(10%%) 100,000,000 100,000,000 Series dueJanuary 1,2010(12%%) 60,000,000 60,000,000 Series due September 1,2010 (14 %%) 50,000,000 50,000,000 Series due June 1,2011 (167) 80,000,000 80,000,000 Ser es due May 1,2012(16%%) 65,000,000 65,000,000 Series due Aprill,2013(12%%) 60,000,000 Series due December 1,2013 (13%) 50.000,000 Total 1,126,148,000 1,028,148,000 less: Current maturities-Series due September 1,1983 (3%%) 12,000,000 Current maturities-Series due July 1,1984 (3 %% ) 16,000,000 Current sinking fund requirements 10,001.180 9,511,480 First Mortgage Honds s1,100.116,520 $1,006,636,520 23

Duquesne Light Company Notes (continuca) Other Long-Term Debt: Serial Maturity Pollution Control Obligations: Average or 3fandatory December 31* Date of Interest Redemption Final Issuance Rate Beginning hiaturity 1983 1982 September 21,1972 5.49'/c 1983 2002 $ 23,500,000 $ 24,000,000 June 21,1973 5.685% 1984 2003 12,000,000 12,000,000 October 25,1973 5.755% 1984 2003 16,000,000 16,000,000 August 13,1974 7.97 % 1989 2004 18,000,000 14,000,000 April 2,1975 7,50% 1993 2005 17,000,000 17,000,000 October 29,1975 8.40'7e 1991 2005 18,000,000 18,000,000 September 29,1976 6.907< 1994 2011 15,000,000 15,000,000 l March 24,1981 12.00?c 2002 2011 50,000,000 50,000,000 l Novemher 1,1983 10.507c 2013 20,500,000 l Total 186,000,000 166,000,000 less: Current maturities 700,000 500,000 Current sinking fund requirements 325,000 Pollution Control Obligations 181,975,000 165,500,000 Nuclear FuelObligations 30,315,499 24,221,187 Spent Nuclear Fuel Liability 8,920,790 54 Sinking Fund Debentures (authorized $20,000,000) due 31 arch 1,2010 9,778,000 10,213,000 Total Other long-Term Debt $231,019,289 $199,934,187 The pollution control obligations arise from arrangements Year Ending Dec. 31. Sinking Fund Requirements Maturities between the Company and devek>pment authorities whereby 1984 $11,426,480 $16,700,000 the construction of cer+am milution control facilities has been 1985 11,426,480 700,000 financed through the sale ot t,onds by those authorities, and the Company is obligated to pay to the authorities amounts 1986 11,429,480 20,700,000 equal to the principal of and interest on the authorities' bonds, 1987 11,676,480 800,000 The nuclear fuel obhgat ons result from a trust arrange-i 1988 11.526,480 15,800,000 ment for the procurement of a portion of the Company s requirements for nucletr fuel Interest amounts apphenble to The sinking fund requirements in each year relate primarily the trust are capitalized and naluded in construction work in to the First Mortgage Bonds, which requirements may be sat-progress, at rates ranging from 1 M to 1 %% over the isfied by the certification of property additions at 166%% of the trustee's commercial paper rate. Trust obligations will be paid Bonds required to be redeemed, and the pollution control obli-by the Company as the related nuclear fuel is withdrawn from gations.The remaining sinking fund requirement relates to the trust. the 5% Sinking Fund Debentures. At December 31,1983, sink-The spent nuclear fuel liability results from a requirement ing fund requirements for the 5% Debentures had been satis-to provide for payment of a one-time fee to the United States fled for 1984 and 1985, and the 1986 sinking fund requirement Department of Energy for ultimate storage and disposal of had been partially satisfied in the amount of $222,000, spent nuclear fuel used in the generation of electricity through Total interest costs incurred during 1983,1982 and 1981 April 6,1983. See Note A to the fmancial statements. were $131,248,000, $125,004,000 and $111,331,000, respec-Sinking fund requirements and maturities for the next five tively, of which $73,310,000, $60,075,000 and $42,982,000, years for long term debt outstanding, exclusive of nuclear and respectively, were capitalized or deferred, including allowance spent fuel obligations, as of December 31,1983 are as follows: for funds used during construction. F. SilOltT-TEllM llOltitOWING AltitANGEMENTS: 15,1989. Interest rates fluctuate during the revolving and At December 31,1983 the Company had lines of credit with term periods, depending on the period of borrowings, at two banks totaling $15,000,000, all of which was unused. percentages in excess of prime, Euro-Rate or certificate of Elfective February 1,1984 these lines of credit increased to an deposit rates. Until December 15,1986 there is a commitment aggregate of $35,000,000. The range of interest rates under fee of %% per annum on the average unborrowed commit-these lines of credit are from prime rate less one half of one ment. There is no commitment fee during the term period. percent to the prime rate or at a special rate as may be ofTered During the years ended December 31,1983,1982 and 1981 from time to time by the banks, As part of the arrangement the maximum amount of short-term borrowings outstanding for one of the lines of credit, the Company is required to pay was $48,020,000, $37,000,000 and $80,140,000, the average a commitment fee of %% per annum on the unused portion daily short-term borrowings outstanding were $12,251,000, of the line, There are no compensating balances associated $1,559,000 and $28,341,000 and the weighted average daily with these lines of credit. In addition, the Company has a interest rate applicable to such short-term borrowings was $60,000,000 revolving credit arrangement available to Decem-9.40%,15.39% and 17.50%, respectively. ber 15,1986, all of which was unused at December 31,1983. G. DEFEltitED COAL COSTS: Borrowings outstanding at December 15,1986 may be con. The Company and the other CAPCO companies have made verted to term notes payable m s,x equal sem,, annual install-long-term coal supply arrangements with Quarto Mining Com-i i ments commencing June 15,1987 and concludmg December pany (Quarto), an unafIlliated company, to supply coal for the 24

Bruce Mansfield Units. In December 1980 the Pennsylvania investigation entered an order, subject to review by the Com- ~ Public Utility Commission (Commission) instituted an investi-mission, approving the Stipulation Agreement. On November gation into the reasonableness of the cost of coal supplied by 19,1982 the Commission remanded the Stipulation Agreement Quarto. By Interim Order entered January 12,1981 the Com-to the administrative law judge for hearings. Hearings were ' mission directed that, pending conclusion of the investigation held in January and February 1983, and on April 29,1983 the or further order of the Commission, the Company limit its Commission issued an onler allowing the Consumer Advocate recovery of the cost of Quarto coal through its energy cost to place into the record testimony regarding the prudence of rate to approximately the prevailing market price of similar the Quarto project. Further hearings were held in July and coal rather than the actual cost of Quarto coal. As required by August 1983. On February 3,1984 the administrative law - the Interim Order, the Company is deferring the excess of the judge issued a recommended decision, subject to the Com-actual cost of Quarto coal over the cost being recovered mission's approval, concluding that the Company was prmlent through its energy cost rate until recovery of the actual cost is by initiating and continuing the Quarto project and that the prmitted by the Commission. At December 31,1983 the Stipulation Agreement is in the public interest and is a fair and unrecovered cost of Quarto coal paid by the Company was reasonable resolution of the investigation into the reasonable-approximately $21,541,000, including $876,000 applicable to ness of the cost of Quarto coal. The administrative law judge Quarto coal in inventory. If recovery of such excess is disal-recommended that the Stipulation Agreement and its method- ~ lowed, the amount deferred would be charged to income in the ology for recovering the cost of the Quarto coal be approved year of disallowance. Thereafter, any excess of actual cost and the Commission's investigation terminated. The matter is

over the amount permitted to be recovered would be charged presently pending before the Commission. Management of the to income on a current basis. The deferrals and methods of Company believes that the deferred costs were prudently ultimately recovering such deferrals were the subject of dis-incurred and that the eventual outcome of the Commission's

. cussions between representatives of the Company and the investigation will not have a material effect on the Company's ' Commission staff, Such discussions resulted in the filing with financial position or results of operations. The CAPCO compa-the Commission of a Stipulation Agreement, which sets forth nies are continuing to evaluate the economics of the Quarto a method intended to permit the eventual recovery of the arrtmgements and are considering and implementing various

accumulated deferrals of the excess of Quarto coal costs over means for reducing production costs. See Note M to the market price. The administrative law judge assigned to the financial statements.

H. INCOME TAXES: Total income taxes in 1983,1982 and 1981 were comprised of the following components: 1983 1982 1981 Included in operating expenses. (Thousands of Dollars) Currently payable: i Federal $ 33,931 $25,257 $20,519 State 11.295 12,694 13,680 Income taxes deferred-net: Federal 22.955 13,997 26,080 State 5,555 (228) (1,057) Investment tax credit deferml-net 16.218 19,493 13,041 Total 92,951 71.213 72,263

included in other income (income taxes-credit)

1 Currently payable: Federal (13.351) (14,267) (11,523) State (3,106) (3.639) (2,939) Totalincome tax expense $ 76,19 8 $53,307 $57,801 Taxes currently payable-federal and state $ 31,166 $20,045 $19,737 Taxes deferml-net 28,510 13,769 25,023 Investment tax cmlit deferred-net 16,218 19,493 13.041 Tot d income tax expense $ 76,19i $53,307 $57,801 Total income tax expense is exclusive of income taxes applicable to discontinued steam heating operations. See Note C to the financial statements. Sources of income taxes deferred and the tax effects were: Excess of tax over book depreciation $ 20,920 $14,490 $12,672 Fuel costa expensed on tax return and deferml on books 9,786 (3,552) (3,062) Investment tax emlit carryforward recognized againstincome taxes deferml-net 16,932 Extraonlinary property losses ( xpensed on tax return and deferm!on books (I,562) 3,019 81 Other (638) (188) (1 600) Totalincome taxes defermi-net $ 28,510 $13,769 $25.021

Duquesne Light Company Notes (conunued) Total income taxes from continuing electrie operations were less than the amount computed by applying the statutory fed-eral income tax rate of 46% to income from continuing electric operations before income taxes. The reasons for this ditTerence in each year were as follows: Computed federal income tax on continuing electric operations at statutory rate $101.853 $78,432 $76,917 Increase (decrease)in taxes resulting from: Allowance for funds used during construction (30,105) (23,123) (16,565) Excess of tax over book depreciation 3,216 1,131 (577) State income taxes, net of federal income tax benefit 8.880 4,766 5,229 Amortization of deferred investment tax credits (5.266) 0,251) (3,663) Other net (2.11l) (3.648) (3.540) Totalincome tax expense $ 76.19i $53.307 $57,801

1. PltlOlt YEAltS' INCOME TANES:

The Company's income tax returns are settled through 1970. pany concerning percentage depletion for the years 1956 Income tax returns for 1971 through 1979 have been exam-through 1961. The settlement resulted in a charge to retained ined, the 1980 and 1981 returns are being examined, and the earnings of approximately $3,444,000.The Company has 1982 return is subject to review.The Internal Revenue Service received approval from the Federal Energy Regulatory Con-assessed deficiencies regarding the Company's computation of mission for this accounting treatment.The Company expects preentage depletion on coal mined for 1956 through 1979, as that this court decision will serve as the basis for settlement of well as certain other issues of relatively minor importance for the depletion issue for the years 1971 through 1979. Manage-1971 through 1979. A settlement of the depletion issue for the ment of the Company believes that the settlement of federal years 1962 through 1970 occurred in June 1983 based on an and state taxes will not have a material effect on the Com-earlier court decision which was generally in favor of the Com-pany's fimancial position or results of operations. .I. EMl'I.OYEE IIENEFITS: The Company has trusteed retirement plans to provide pen-December 31, sions for all employees, except coal mine employees who are 1982 1981 1980 covered under a plan administered by the United Mine (Thousands of Dollars) Workers of America. Informaton concernmg the plan cover-Actuanal present value of ing coal mine employees is not determinable and is not accumulated plan benefits: ) included in the data below. Pension costs are funded as Vested $159.956 $151,756 $135,345 accrued and include amortization of prior service costs over 30 Nonvested i1.19 8 11,566 10,750 years. Pension costs charged to expense or construction for Total $171.150 $163,322 $146.095 the years ended December 31,1983,1982 and 1981 were $10,803,000, $12,313,000 and $10,083,000, respectively. The Net assets available for decrease in pension costs in 1983 resulted principally from an benefits (at fair value) $135,571 $111,013 $107,798 increase in the interest assumption. The increase in pension i costs in 1982 was due principally to a plan amendment elTec-tive May 1,1981, increasing pension payments to employees The Company is liable under federal and state laws for the retired prior to October 1,1979. payment of benefits to coal mine employees disabled by black The accumulated plan benefits and net assets available for lung and to their survivors and dependents. The estimated benefits for the trusteed plans are presented as of the Decem. costs of providing such benefits, including amortization of her 31 benefit information dates. In 1983 the Company prior service costs over the remaining estimated life of the adopted an early retirement program in which certain benefits Warwick mine, are actuarially determined and accrued on the will be paid from the assets of the retirement plans. Addition. basis of mine payroll costs and are deposited with a trustee. ally during 1983, the Company refunded from such assets all Such costs were $1,574,000, $1,417,000 and $1,524,000 for the employee contributions.The impact of the early retirement years ended December 31,1983,1982 and 1981, respectively. program and the refund of contributions is not reflected in the At July 31,1983 (the date of the latest actuarial valuation), the mnounts below.The assumed rate of return used in determin. unfunded prior service cost for these disability benefits was ing the actuarial present value of accumulated plan benefits approximately $23,513,000. was 5U for 1982 and 5% for 1981 and 1980. e

.K. JOINTIX-OWNED GENERATING UNITS: The Company, together with other electric utilities, primarily the CAPCO companies, has an ownership interest in certain jointly-owned units. Information regarding the Company's share of such jointly-owned units as of December 31,1983 is as follows(thousands of dollars): Company's Interest Utility lant Accumulated Constructam Work Percentage p Unit in Service Depreciation in Progress Ownership Megawatts Fort Martin No.1 $ 46,131 $ 14,583 966 50.0 '276 CAPCO Units: Eastlake No.5 50,216 11,282 1,606 31.2 202 Sammis No.7 67,484 12,150 3,825 31.2 187 Bruce Mansfiehl No.1 72,346 15,112 262 29.3 228 Bruce Mansfiehl No. 2 20,221 3,530 106 8.0 62 Bruce Mansfiehl No. 3 70,073 7,194 564 13.74 110 Bruce Mansfiehl Common and Shared l Facilities 61,297 12,467 2,250 Be ver Valley No.1 333,582 52,279 13,660 47.5 385

Beaver Valley No.2 18 287,236 13.74 114 Beaver Valley Common Facilities 47,920 5,361 19,614 Perry No.1 265,147 13.74 165 l 1%rry No. 2 188,165 13.74 165 Total

$769,288 $133,958 $783,401 1 ! Under terms of the arrangements with the otherowners of such jointly-owned units, the Company is required to provide its ! share of financing the cost of such units.The Company's share of the direct expenses (fuel, maintenance and other operation I expenses) of the jointly-owned units is included in the corresponding operating expenses in the Statement of Consolidated

Income.

il I. I, EASES: Rental payments in 1983,1982 and 1981 amounted to At December 31,1983 minimum rental payments, based l $30,028,000, $17,679,000 and $16,389,000, respectively, of principally on estimated usage of nuclear fuel under lease and which $31,994,000, $15,393,000 and $14,169,000 were charged building rentals, were as follows: to operating expenses. The Company has an undivided interest frhousana of !)ollano l m nuclear fuel lease agreements. Rental payments are made l* 861 t monthly during the terms of the leases based on the amount of ' nuclear fuel leased and the amount of nuclear fuel burned. 1985 32.699 The increase in 1983 rental payments and amounts charged to 19sc 32,474 operating expenses resulted from higher building rentals and 1987 29,269 l en increased amount of nuclear fuel being burned. 1988 23.246 The nuclear fuel leases may be terminated by the lessees or 19 s 1993 80,204 l lessors with notice as defined in the agreements or by casualty After 1993 83.314 ! or certain other contingencies, including default by the

lessees may be required to purchase the leased nuclear fuel lessees, In certain situations involving a termination, the The Company accounts for all of its leases (exclusive of the nuclear fuel trust arrangement described above) as operating at the higher of fair market value or unamortized cost. At leases in accordance with the mannerin which the Company's
December 31,1983, the Company's share of the lessors' rates have been established by the Pennsylvania Public Utility

. unimortized cost of the leased nuclear fuel was $124,891,000 Commission. If the noncapitalized financing leases were capi-

rnd the Company expects to lease an additional $81,262,000 of talized as of December 31,1983 and 1982, property, plant and i nuclear fuel under current leasing arrangements.The Com-equipment net would have been increased by $143,547,000 and l pany finalized a nuclear fuel trust arrangement in 1983 which

$117,538,000, respectively, with related increases in current provides en alternative method of financing nuclear fuel. liabilities and long term debt of $24,271,000 and $119,761,000, The Company has certain buihlings under lease, including respectively, in 1983 and $12,154,000 and $105,820,000, respec-its new corporate headquarters, subject to renewal options tively, in 1982. The impact on net income of capitalizing such end in certain cases purchase options. leases in each year would not be material. 27

Duquesne Light Company Notes (continued) M. COM3flTMENTS AND CONTINGENT LIAHILITIES: sion of time in which to file a refund plan tot ether with an Construction application for a stay of the final onler. On August 24,1983 the The Company's current estimate of construction expenditures, Commission denied the applicatioe for a stay but granted the exclusive of allowance for funds used during construction and petition for an extension of time in which to file a refund plan. nuclear fuel, during the period 1984 through 1988 amounts to Subsequently, the Company filed an application with the Com-approximately $860 million, principally related to CA PCO monwealth Court for a stay of the final order, and on Septem-generating units, ber 28,1983 the Commonwealth Court granted the application. Ed mp ny and outside counsel do not agree with the Com-Quarto Mining Company (Quarto) nussmn s onh, and no provision has been reconled by the The Company and the other CAPCO companies have made long-term coal supply arrangements with Quarto, Comp ny f rany such refunds. While the Companyis unable to predict what action the appellate courts may ultimately take. an unaffiliated company, to supply coal for the Bruce Mans-field Units. As part of these arrangements the individual ami although the amount of such refunds could be substantial, j p werc sts were prudently m,v believes that the management f theCompan i CAPCO companies are severally, and not jointiv, guaranteeing eurred and that the eventual their proportionate shares of Quarto's debt anil lease obliga-utcome of this matter wdl not have a material elfeet on the tions incurred in connection with the development, equipping and operation of two mines from which the coalis supplied. At Company s fmancial position or results of operations. December 31,1983 the Company had guaranteed the obliga. Perry Unit No.2 tions of Quarto with respect to approximately $54,142,000 of In September 1983, the Ohio Office of the Consumers' Counsel,, indebtedness and lease obligations relating to approximately the City of Cleveland, the Boani of County Commissioners of $28,239,000 of capital equipment for the mines. The Company Geauga County, Ohio and three citizen groups filed a petition expects that it will make further guarantees with respect to with the Public Utilities Commission of Ohio (Commission) and } additional indebtedness and leased capital equipment, the the Power Siting Board of Ohio (Board) against The Cleveland amount of which will depend on the actual costs of further Electric Illuminating Company, Ohio Edison Company and The i development of the two mines. In general, it is contemplated Toledo Edison Company (respondents) requesting that the that the purchase prices to be paid for the coal to be received Commission and the Board jointly and/or individually investi-under t he foregoing arrangements will include amounts sufli. gate the public need for the Perry Nuclear Power Plant Unit cient te service the guaranteed obligations. No. 2 (Unit) presently under construction by the CA PCO com-Under the terms of the coal supply contracts, which con. panies.The petitions also request that the Commission and the tinue until December 31,1999 with options to extend for ten Board onler the cessation of construction of the Unit and of additional years, the CAPCO companies must reimburse the accrual by the respondents of allowance for funds used Quarto for their share of the costs of operating the Quarto during construction with respect to the Unit and a declaration mines, including those costs associated with mine construe. by the Commission that the issuance of securities by the l tion, whether or not they receive coal from Quarto. The Com. respondents, the proceeds of which will be used to finance con-pany's total payments under these contracts amounted to struction of the Unit, will not be approved. The respondents i $28,512,000 and $24,292,000 for the years ended December 31, have filed a motion to dismiss the petition filed with the Board 1983 and 1982, respectively. and an answer to the petition filed with the Commission The Company's estimated future minimum payments under requesting that the petition be dismissed. While the Company the coal supply contracts related to mine construction and is not a party to the proceedings, it has a 13.741 ownership equipment costs are: mterest in the Unit. The Unit, which is presently scheduled to Year Ending I>ecember a1. Le placed in service in 1988, is about 43'7e complete. The Com-pany's investment in the Unit, including allowance for funds 19x s 8.77:uoi used during construction, was appnfximately $188 milhon at 19ss 8.r,c7.noo December 31,1983. An onfer requ,rmg the respondents to i 19s6 8.360.000 cease or terminate construction of the Unit could have the 1987 8.153.000 effect of cancelling the Unit. In such event, the Company 19*8 7.917,000 wouhl seek regulatory approval for the recovery from its l Mter 19ss 78.eumo customers of its then investment in the Unit, together with any related cancellation costa, net of applicable taxes. Based The current price of Quarto coal to the CAPCO companies is on its present knowledge of the proceedings, management of based pnneipally on the actual current production costs plus the Company has no reason to believe that the proceedings i amortization of certam production expenses which were not will result in a decision adverse to the respondents and meluded in the price of coal to the CA PCO companies during believes that the ultimate resolution thereof will not have a the development period, which ended on May 31,1980. See material adverse effect on the Company's financial position. Note G to the financial statements. Nuclear Insurance licaver Valley Replacement Power The CAPCO companies have coverage with American Nuclear In connection with a February 20,1981 rate onler, the Com-Insurers (ANI)and Mutual Atomic Energy Liability Under-mission found that the Company had not proven that the costs writers (M AELU) to provide primary property insurance cov-of replacement power during a 1979 outage of Beaver Valley erage for Beaver Valley Power Station Units Nos. I and 2 in Unit No. I were prudently incurred. the amount of $500 million. On November 19,1982 the Commission adopted an onler The CAPCO companies are members of Nuclear Electric nisi which onlered refunds of $12.5 million plus interest over a Insurance Limited (N EIL), a mutual insurer established by the two-year period less a $1 million offset from another proceed-utility industry to provide Decontamination Liability and ing. The onler nisi became fimal on June 10,1983. The Com-Excess Property insunmce in excess of $500 million for mem-pany filed an appeal with the Pennsylvania Commonwealth hers' nuclear generating facilities. NEIL presently provides Court and filed with the Commission a petition for an exten-such excess coverage in the amount of $375 million plus 121

af the amount of the loss in excess of $500 million up to $1 bil-Supreme Court. [ ion. Under this policy the CAPCO companies are subject to a On April 30,1982 the Company filed with the Commission a strospective premium assessment of approximately $9.5 mil-new rate schedule estimated to increase annual revenues by [ ion per year for a period of seven years in the event of acci-approximately $165 million (subsequently reduced to approxi-dents at nuclear plants of member companies if losses exceed mately $155 million). On January 28,1983 the Commission premiums, reserves and other N ell resources. The Com-entered a final order allowing an increase of $105.8 million 'pany's share of any such retrospective premium assessment beginning on January 29,1983. The Commission's order was pould be approximately $2.9 million. appealed to the Pennsylvania Commonwealth Court by both Damages in excess of the primary $500 million coverage are the Pennsylvania Consumer Advocate and the Company. 41so covered by an excess property insurance policy issued to Except for the Consumer Advocate's appeal with respect to she CAPCO companies by ANI and 31AELU which provides the Commission's allowance of the recovery of the cancellation $68 million of coverage. The ANI/31 A ELU and NEIL policies costs of four nuclear generating units (see Note B to the finan-grovide quota sharing coverage for losses in excess of $500 cial statements), both appeals have been discontinued. utillion up to $1 billion. On April 29,1983 the Company filed with the Commission a The property insurance policies described above provide the new rate schedule affecting all classes of customers and esti-CAPCO companies with approximately $1 billion of coverage mated to increase annual revenues based on projected levels en an investment in the two Beaver Valley Units at December of business at December 31,1983 by approximately $49.9 mil-31,1983 of about $2.9 billion. lion. On September 7,1983 the administrative law judge in addition, N El L also provides insurance coverage for the assigned to the rate proceedmg issued a recommended deci-extra expnse of replacement power during prolonged acci-sion adopting a joint petition for settlement filed by the Com-dental outages of nuclear plants. Coverage is provided for the pany, the Commission's staff, the Pennsylvania Consumer Company's interest in Beaver Valley Power Station Unit No.1 Advocate and certain of the other parties to the proceeding and, after a deductible period of 26 weeks, weekly payments which provided for an increase in annual revenues of approxi-of up to $588,000 are provided for one year and up to $294,000 mately $21 million. On September 16,1983 the Commission for an additional year. If losses exceed accumulated funds approved the settlement. The Company began to collect the available to NElL, the Company could be assessed approxi-increased rates effective September 17,1983. Two complaints mately $1.7 million for payment of NEIL's obligations. concerning ate structure issues remain pending, and further The Price-Anderson Amendments to the Atomic Energy Act hearings with respect thereto will be scheduled. limit liability to third parties to $580 million for each nuclear 3f anacment believes that the ultimate resolution of these incident. Coverage of the first $160 million of such liability is rate matters will not have a material adverse effect on the provided through ANI and SIAELU.The next $420 million is Company's financial position or results of operations. provided by retroactive assessments of up to a limit of $5 mil' Other lion pr operating nuclear reactor per incident, but not more in connection with coal supply arrangements for its wholly-than $10 milhon per operatmg reactor m any calendar year. owned generating units the Company has contracted with an Based on its present ownership mterest m one operatmg unaffiliated coal supplier to purchase a minimum of 750,000 nuclear reactor, the Company's maximum potential assess-tons of coal per year through December 31,1986. In 1983 the ment under these provisions wouhl be $2.4 milhon per meident contract was an$ ended to provide that if the Company but not more than $4.8 milhen per calendar year. requests deliveries in 1983 and 1984 below the minimum Itale 31atters annual tonnage, the Company shall make up the shortfall Effective July 15,1981 the Company increased its rates by (plus a 63,000 ton shortfall in 1982) by purchasing additional about $64.2 million annually in acconlance with an option tons during the remaining term of the contract or by extend-onlerof the Pennsylvania Public Utility Commission (Com-ing the term of the contract.The contract also provides that mission). On April 15,1982 the Commission adopted its final any shortfall can be sohl to purchasers other than the Com-onler in the rate proceeding which determined that the option pany.The total shortfall under the contract at December 31, rate increase of $64.2 million an" tally was just and reason-1983 was approximately 317,000 tons. able. The final order was appealed to the Pennsylvania Com-The Company is involved in various other legal proceedings. monwealth Court by a commercial customer. On November 29, In the opinion of management of the Company such legal pro-1983 the Court allirmed the Commission's final onler. The ceedings will not have a materi J effect on the financial posi-Court's onler is the subject of a petition for allowance of tion or results of operations of the Company, appeal by the commercial customer to the Pennsylvania .N. SliPPLIGIENTAltY INCO31E STATE 31ENT INFOlt31ATION: Year En<lal December 31, 1983 1982 1981 (Thousantis of Dollars) Undtr the system of accounting followed by the Company, 31aintenance $75.9 87 $78,431 $73,029 a portion of maintenance expenses and of taxes other than, inmme taxes represents amounts charged to coal inventones. ' Amortization of extraonlinary """D "C*".nts aMeved and operat,ons expense i property losses 6.099 charged as the coalis used. Taxes other than payroll anil income taxes: Gross receipts 35.576 33,186 31,980 Proprty 14.371 11.139 12.583 State capital stock 5.501 6.601 C.301 29

Duquesne Light Company Notes (continued) 0, QUAllTEltlX FINANCIAI INFOIDIATION (Unauditedh The foliowing is a summary of selected quarterly financial data (in thousmuis of dollars, except per share amounts): 1983 Quarter Ended 1982 Quarter Ende*1 March 31 Junc30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31 Electric Operating itevenues(a) $185,8 88 $198,666 $215.111 $200,690 $207,398 $186,628 $181,720 $170,716 0;wrating Income (a) 13,938 15,287 19,191 17,976 41,662 38,480 40,223 34,982 Income fmm Gmtinuing Eketric Operations Hefore Extraonlinary Gain 32,975 31,883 39,392 37,977 32,21Hi 28,990 30,845 25,066 I)iscontinued Steam Ileating 0;mrations(b) 371 (484) (9,811) 1xtraonlinary Gain (c) 9,609 Net Income 32,975 38.883 39.392 37.977 32.667 28.TiXI 21,031 34.675 Earnings per Share: Income from Continuing Eketric Operations Hefore Extraonlinary Gain .51 .51 .60 .56 .58 .51 .51 .37 Discontinued Steam II ating Operations (b) .01 (.01) (.20) Extraonlinary Gain (c) .19, Net income .51 .51 .60 .56 .59 1i0 .31 .fil (a) Certain amounta previously reported as Ogerating Revenues and Operating income for the fi st two quarters of 1982 have been reclassified to set forth separately the results of the steam heating subsidiary as discontinuni steam heating operations. 0-) See Note C to the financi d statements for a discussion of discontmued steam hvanng operations. (c) See Note D to the financial statements for a discussion of the extraordinary gain from early extinguishment of bnnds. I', SUPI'I.EMENTAltY INFOlulATION TO DISCI.OSE Tile EFFECTS OF CII ANGING l'lIICES (l'nauditedh The following supplementary information is supplied in acconl-dollar) and changes in specific prices (current cost) have had on ance with the requirements of the Statement of Financial the Company's results of operations.The data provided are Accounting Standants No. 33, Financial Iteporting and Chang-not intended as a substitute for earnings reported on a histori-1 ing I' rices. This Statement requires adjustments to historical cal basis, but offer some perspective of the approximate effects ! costs to estimate the effects that general inflation (constant of inflation rather than a precise measurement of these effects., l STATEMENT OF INCOME ADJUSTED FOlt CilANGING PitlCES For The Year Ended December 31,1983 Omventional omstant Dollar Current Cost. Ilistorical Avera Avera (Thousands of Dollars) O>st 1983 Dobre 1983 Dobre ars ars Electric operating revenues $800,345 $x00,345 $800,345 i Puel 192,512 192,512 192,512 ~ purchased power (sales)-net (7,330) (7,330) (7,330) j Other operation and maintenance expenses 201,204 201,204 201,204 Depreciatior. expense 73,682 157,841 174,112 Taxes other than income taxes 60,651 60,651 60,651 Income taxes 92,954 92,9M 92,954 Other income and deductions-net (67,715) (67,715) (67,715) Interest charges 109,161 109,161 109,161 I 655,119 739,278 755,549 Income from continuing ek et ric o[erations (excluding reduction of property, plant and equipment to net recoverable cost) $145,226 $ 61,067* $ 44,796 increase in specific prices (current cost)of pnyerty, plant and equipment hehl during the year" $251,349 Iteduction of property, plant and equipment to net recoverable cost $(18,92G (10,924) l Effect of increase in general price level (213,079) Excess of increase in general price level over increase in s[weific prices after (2,654) ( reduction of property, plant equipment to net recoverable cost 67,732 67,732 l Gain from decline in purchasing power of net amounts owed Net

48,807

$ 65,078 ' Including the nsluction of pmierty, plant and equipment to net ren>verabic cost, the net income on a constant dollar basis would have leen $ l2,142. " At December 31,19s3, current not of property, plant and equipment, net of accumulatol depreciation, was $5,369,693, while historind net or net omt 30 recoverable through depreciati<m was $2,739,890 l

FIVE-YEAlt COMPAltISON OF SEl.ECTED SUPPI.EMENTAltY FINANCI Al, DATA - ADJUSTED FOlt EFFECTS OF CilANGING PitICES (In Thousands, Except Per Share Amounts) Year Ended December 31, 1983 1982 1981 1980 1979 Average 1983 dollars: Electric operating revenues $800,3 85 $770,733 $861.562 $816,090 $839,296 IIistorical cost information adjusted for general inflation: Income from continuing electric operations (excluding reduction of prolerty, plant and equipment to net recoverable cost)(1) 61,067 38,247 39,552 42,042 44,888 income (wr share from continuing ek ctric operations (tfter dividend requirements on prefermi and preference stock)(1) .69 .31 .34 .36 .38 Net assets at year-end at net recoverable cost 910,858 8!Mi,216 832,000 833,932 857,570 Crrrent cost information: Income from continuing ek etric operations (excluding reduction of property, plant and equipment to net recoverable cost)(1) I t,796 23,564 23,433 23,228 21,453 Income (loss) per share fmm continuing ek etric operations (after dividend requirements on prefermi and preference stock)(1) .30 (.04) (.13) (.34) Excess of increase in general price level over increase in speific prices after reduction of pmperty, plant and equipment to net recoverable cost 2,6*> l (237) 120,532 235,444 237,872 Net assets at year-end at net recoverable cost 910,851 896,216 832,000 833,932 857,570 Generalinformation: Gain from decline in purchasing power of net amounts owed 67,732 64,128 148,0T>l 206,745 237,532 Cash dividends declared per share of common stock 2.00 1.96 2.02 2.18 2.43 Market price per share of common stock at year-end 13.50 15.23 14.52 15.27 18.70 Average consumer priceindex 298.5 289.1 'l72.4 216.8 217.5 llistoricci hasis: Electric operating revenues $800,3is $746,462 $786,229 $674,744 $611,587 Cash dividends declared per share of common stock $ 2.00 $ 1.90 $ 1.85 $ 1.80 $ 1.76 Market price per share at year-end $13130 $14.75 $13.25 $12.63 $13.63 pmven and probable coal reserves at beginning of year (tons) 25,100 26,300 28,100 29,900 30,650 4 Tons of coal mined 785 942 680 875 928 Average cost per ton of mined coal $36.59 $31.62 $35.10 $31.14 $28.71 (1) Amounts for 19x2 are lefore extraordinary gain. Amounta for 1979 are lefore cumulative etreet of accounting cbange. C<mstant dollar amounts represent historical costs stated in in nominal dollars. Rate regulation limits the recovery of fuel terms of equal purchasing power, as measured by the Con-and purchased power costs through the operation of adjust-jumer Price Index for all Urban Consumers. Current cost ment clauses or adjustments in basic rate schedules to actual

tmounts reflect the changes in specific prices of plant from the costs. For this reason fuel inventories are effectively monetary: date the plant was acquired to the present and differ from cor.-

assets. Mtant dollar amounts to the extent that specific prices have As prescribed in Statement 33, income taxes were not

increased more or less rapidly than prices in general.

adjusted. The current em 4 property, plant and equipment, which The regulatory process limits the Company to the recovery - includes land, lanJ..xhts, intangible plant, property held for of the cost of service in its rates.Therefore, any excess of the

future use, construction work in progress and nuclear fuelin value of plant in constant dollars or current cost must be

' process, represents the estimated cost of replacing existing reduced to the net recoverable cost, which is historicc.! cost. . plant assets and was primarily determined by indexing sur-The amount of this excess that accumulated as a result of viving plant by the Handy Whitman Index of Public Utility inflation in the current year must be reduced to net recovera-

Construction Costs. The current cost of coal prorerties was ble cost.

i determined by indexing coal reserves and machinery and The Company, by holding assets such as receivables, , eipiipment by the Marshall-Stevens Mining and Milling Index. prepayments and inventory, suffers a loss of purchasing The current year's provision for depreciation and depletion on Imwer during periods of inflation because the amount of cash the const4mt dollar and current cost amounts of property, received in the future for these items will purchase less. Con-plant and equipment was determined by applying the Com-versely, by owing monetary liabilities, primarily long-term pany':2 depreciation and depletion rates to t he indexed plant debt, the Company benefits because the payment in the future

amounts, will be made with nominal dollars having less purchasing Fuel inventories, the cost of fuel used in generation and pur-power. The Company has significant amounts of long-term chased power have not been restated from their historical cost debt outstading which will be paid back in dollars having less 31

Duquosne Light Company Notes (conunuem purchasing power and, therefore, for purposes of these calcu-equity capital previously invested. While this etreet is partially, lations, has a net gain from holding monetary liabilities in mitigated by the benefit derived from holding long-term debt, excess of monetary assets. the Company has a net purchasing power loss which is experi-The regulatory process limits the amount of depreciation enced by the common shareholder and can only be overcome expense included in the Company's revenue allowance and lim-by adequate rate relief. However, the Company expects that it its utility plant in rate base to original cost, Such amounts pro-will be able to establish rates which will recover the increased duce cash flows which are inadequate to replace such property costa of new plant. in the future or preserve the purchasing power of common Duquesne Light Company l Selected Financial Data and Statistical Summary I (Thousands of Dollars, Except l'er Share Amounts) 1983 1982 1981 1980 1979 1973 SU3131 Ally ltESUI.TS OF OpEllATIONS j ltesidential revenues 267,110 238,496 223,14fi 19(i,400 17(1,744 79,113 Commercial revenues 290,370 263,374 243,501 209,871 1H5,880 75,113 Industrial revenues 221,107 2252J2 300,0Gi 250,295 232,389 80,274 Street lighting and other revenues 11,357 13,240 12,383 11,052 10,370 4,762 i 31iscellaneous revenues 7,801 6.060 7.133 7,126 6.lfi4 2.580 Total electric revenues Mm,315 746,462 786,229 674,744 611.547 241,842 Operation and maintenance expenses 386,386 399,527 435,589 380,973 351,731 111,383 Depreciation 73,682 (12,939 G),HT>l 53,316 47,885 23,211 Taxes ather than income taxes 60,651 57,176 57,(198 47,637 4fi,95fi 20,462 income taxes 76,191 53,307 57,801 50,643 41,592 15,864 1 Interest charges, net of allowance for j borrowed funds used during construction 1 09.1111 100,344 92,968 75,629 fi5,414 32,4G) Other income, principally allowance for equity 5 funds used durine construction 50.955 44.328 28.086 2fi,749 21.587 13,196 i income from continuing electric operations before extraordinary gain 115,226 117,197 109,409 93,295 79,556 51,958 k Im from discontinued steam heating operations 9.924 538 333 1,194 133 ) Income twfore extraordinary gain I15,226 107,273 108.871_ 92,962 78.362 51,825 9,609 Extraor linary gain I Net income 115.226 116,882 108,871 92,962 82,207t 51,M25 Dividends on Preferred and Preference Stock 22.111 22,701 22,97(i 23,353 23.721 9,233 l Earnings for Common Stock 122,815 94,181 85,895 69,GM) 58,4xfi 42,592 Average numler of common shares outstanding 55,N83 48,23fi 41,7til 3 8,2117 32,239 18,1H1 Earnings per share of Common Stock: income from continuing electric operations 2.20 1.96 2.07 1.83 1.73 2.35 j Net income 2.20 1.95 2.06 1.82 1.8 t t 2.34 [iividends declared on Common Stock 2.00 1.90 1.85 1.80 1.76 1.72 i l tincludes cumulative effect to January 1,1979 of the change in billing practice, net of income taxes, of $3,845 or $.12 per share. 1 PLANT pro [wrth plant and equipment 3,293,881 3,021,5*>l 2,809,753 2,608,333 2,380,805 1,423_,135 Accumulated depreciation 555,681 501,680 477,009 421.fii3 38fi,479 265.459 I l*rqwrty, plant and equipment-net 2,737,M io 2,519.H74 2.332,741 2,179,680 1,998,326 1,157,676 TOTAL, ASSETS 3,l l5,Ml l 2.883.424 2,668.577 2,447,1fia 2.222,537 1.256 2 11 I f a I f 32

l t 1983 1982 1981 1980 1979 1973 KCAPITA LIZATION hmmon Stock 58.120 53,277 45,303 40,166 35,550 20,400 , Capital surplus 728,117 649,376 550,244 494,228 433,984 214,157 Retained earnings 175,938 165,340 163,705 155,102 155,328 125,261 Non-redeemable Preferred and

Preference Stock 156.137 156,137 IT4,137 IT4,137 156,137 96,137 lRedeentble Preferred and Preference Stock 138,979 140,829 143,924 146,867 149,998 62,482 (First mortgage bonds 1,100,117 1,006,637 983,870 918,230 808,830 578,160 Other long term debt 238,019 199,934 176,0>82 126,981 127,436 66,140 Unamortized debt discount and premium-net i10.967)

(9,488) (9,453) (7,161) (5,770) Total capitalization 2,572,820 2,362,042 2,210,412 2,030,550 1,861,493 1,162,737 ' RESIDENTIAL SERVICES Average use per customer (kilowatt-hours) 5,752 5,668 5,698 5,770 5,629 5,5a2 Average revenue ler kilowatt-hour 9,195v 8.361c 7.806v 6.828v 6.363, 3.031, SALES OF ELECTRICITY (millions of kilowatt hours) Residential 2,905 2,833 2,858 2,876 2,778 2,610 Commercial 4,257 4,163 4,069 4.024 3,870 3,638 Industrial 3,717 3,902 6,582 6,272 6,546 6,181 Street lightine and other til 120 125 129 131 118 Total 10,990 11,038 13,634 13,301 13,325 12.547 ENEltGY SUPPIX AND PRODUcr10N DATA Energy supply (millions of kilowatt hours) Generated in system plants 11,900 12,352 13,914 13,485 13,884 12,979 Purchased and net interchange (161) (689) 410 541 125 336 losses and company use (786) (625) (690) (725) (684) (768) Total 10.990 11,038 13,631 13,301 13,325 12.547 Generating capability (thousands of kilowatts) 3,118 3,144 3,177 3,179 3,294 2,620 Peak load (thousands of kilowatta) 2,188 2,158 2,522 2,474 2,296 2,296 Cost of fuel er million HTU 167,110, 167,865, 159.660, 149.768, 131,779, 42,454, l

HTU per kilowatt-hour generated 10,635 10,853 10,931 10,811 10,924 10,333
Average production cost per kilowatt-hour 2,5 tle 2.575v 2.351v 2.202, 1,913e 0.540, i NU5f Belt OF El.ECrillC CUST051ERS-At End of Year itesidential 505,781 503,987 503,044 500,466 496,005 471,641 Commercial

-19,193 49,320 48,859 48,308 47,978 45,975 Inductrial I,988 1,999 2,016 2,005 1,975 1,765 . Street lighting and other 1,633 1,647 1,713 1,725 1,746 1,852 Total 558,M91 556,953 555,632 552,501 r>l7,704 521,233 33

bngtreinent's Discussion ""e i"*"es "m useho pay shoptam indebtainess meurred principally for construction purposes, and the balance o and Analysis of Financial was annited to constniction eximmiitures. The comnany cur-rently estimates that approximately 70 of the funds required Condit. ion and Results for its i984 construction program win come fn>m outsiae financing. The Company plans to sell a<hlitional First 31 ort-of Operations gage nonds in alarch 1984.The exacuiming and amount of Capital llesources and Liquidity this sale will depend on market conditions. Construction In addition to the funds required for the construction pr

Construction expenditures during 1983, exclusive of allow.

gram $16.8 million was required in 1983 for maturities of long-ance for funds used during construction and nuclear fuel, term debt and sinking fumi and purchase requirements, and were approximately $221 million. These expenditures were pri. $21.4 million will be required in 1984 for such purposes. marily for the unstruction of three CAPCO generating units Interim financing will be through bank borrowings and in addition to improving and expanding pnxluction, transmis-sales of commercial paper. In athlition, the Company has avail-sion and dist ribution systems and pollution control equipment. able a revolving credit arrangement with two banks which The Company currently estimates that it will spend, exclu. allows the Company to borrow up to an aggregate of $60 mil-sive of allowance for funds used during construction and lion through 1986 and to convert the revolving loans to term nuclear fuel, approximately $23T>, $203, $158, $137 and $127 loans for an mlditional three years. See Note F to the financial million for each of the years 1984 through 1988, respectively. statements. Vanable market and general economic conditions These estimates include an aggregate of approximately $298 may affect the Company's selectmn of financing alternatives million for the threejointly-owned nuclear generating units and adversely alfect its ability t<f raise caintal. In order to being constructed under the CA PCO arrangements, including mamtam earmngs adequate to imance construction expen h,- related transmission facilities. See Note K to the financial tures and refun hng requirements, the Company reqm,res rate increases sufficient to offset mereased costs and provale a fair statements. rate of return. The amount which the Company must spemi for its con- . The Itestated Articles of the L,ompany require that for the struction program is regularly under review and is subject to issuance of Preferred Stock, earm,ngs (after meome taxes) changes influenced by business and economic conditions and available for mterest charges be at least 1.T3 times the sum of other factors, such as escalation of labor, material and equi ri ment costs, rate of construction progress, the development of nterest charges on all indebtedness and Preferred Stock <hvi-environmental and nuclear safety regulations, service reliabil. dend requirements. This restriction currently precludes the ity and system etliciencies. In mhlition, this review also must Companyy fnam issumg Preferred Stock. There is no sumlar restriction upon the issuance of the Company s Preference or take into account difficulties in obtaining rate increases suffi-Common Stock. cient to generate adequate earnings, possible changes in load growth trends and, in the case cf the CAPCO construction pro-Itate 31atters gram, the ability of each of the CAPCO companies to finance On January 28,1983 the Public Utility Commission entered its capital requirements. a final onler allowing an annual rate increase of $10T).8 million The Company finances its nuclear fuel requirements primar. beginning on January 29,1983. Fee Note 31 to the financial statements. ily by leasing and through a trust arrangement. See Note L to the financial statements. In the thin! quarter of 1983 the Com. On April 29,1983 the Company filed a request for a $49.9 pany entered into arrangements permitting the lease of an million annual rate increase with the Commission. On Septem-additional $60 million of nuclear fuel. ber 16,1983 the Commission approved a settlement allowing an increase of approximately $21 million beginning on Septem-Financing ber 17,1983. See Note M to the financial statements. The Company anticipates that funds required for planned construction expenditures in the next sevend years will be pro-Extraordinary Property I.osses vided principally from the issuance of additional equity and in 1980 the CA PCO companies cancelled the construction of debt securities and in part from cash becoming available from four nuclear generating units. In January 1983 the Commis-operations.The Company issued $60 million of 12M First sion approved the recovery of the accumulated costs from the Stortgage Ilonds on April 14,1983 and $T>0 million of 13% First Company's customers but did not allow any return on these Sfortgage Honds on December 6,1983. On August 2,1983 the costs. See Note H to the financial statements. Company issued and sohl 2,47T),000 shares of Common Stock. Deferred Coal Costs Net proceeds from the sale of the Common Stock were By Interim Onter entered January 12,1981 the Commission approximately $39.4 million. Funds provided to the Company directed that the Company limit its recovery of the cost of under its Dividend lleinvestment Plan in 1983 amounted to Quarto coal through its energy cost rate to approximately the approximately $39 million, and an additional $10.2 million was prevailing market price of similar coal rather than the actual reinvested on January 1,1984. On November 1,1983 the Ohio cost of Quarto coal.The Company is deferring the excess of Air Quality Development Authority issued $20.5 million of pol-the actual cost of Quarto coal over the cost being recovered i lution control revenue bonds to reimburse the Company for its through its energy cost rate until recovery of the actual cost is share of the cost of certain pollution control facilities at Unit permitted by the Commission. If recovery of such excess is No. 7 of the Sammis Power Station.The bonds have an inter-disallowed, the amount deferred wouhl be charged to income est rate of 10W, and principal and interest on the bonds will in the year of disallowance. See Note G to the financial be funded by the Company. Portions of the net proceeds from statemt nts. 34

Helver Valley Iteplacement Power The Company was permitted two rate increases in 1983 In connection with a February 20,1981 rate or ler, the Com-effective January 29 and September 17. See Note M to the . mission found that the Company had not proven that the costs financial statements. The decreases in electrient consumption of replacement power during a 1979 outage of Beaver Valley in 1982 and 1983 were due primarily to the severe impact of

Unit No.1 were prudently incurred. Further hearings in the the economic recession in the Company's service area, partic-

' Beaver Valley refund proceedings were held, and on Novem-ularly on steel and other industrial customers. ber 19,1982 the Commission adopted an order nisi which The decrease in operation (fuel, purchased power and other

ordered refunds of $12.5 million plus interest over a two-year operation) and maintenance expenses in 1983 compared to

. period. The order nisi became final on June 10,1983, and the 1982 was due primarily to a substantial reduction in fuel Company has filed an appeal with the Commonwealth Court. expenses resulting from higher generation from the Beaver See Note M to the financial statements. Valley No.1 nuclear unit, decreased deferred fuel expenses

Allegheny County Steam lleating Company and lower kilowatt-hour sales. Net sales of power to other On September 30,1982 a final order of the Commission utilities decreased as the market for such sales was not as approved the discontinuance of steam service by the Com-favorable in 1983. The decrease in operation expenses in 1982
pany's steam heating subsidiary effective Slay 31,1983 and compared to 1981 was due to substantial reductions in pur-the transfer of a major portion of the assets of the subsidiary chased power and fuel expenses. The significant reduction in to Pittsburgh Allegheny County Thermal Ltd. for nominal kilowatt-hour sales to industrial customers resulted in a sur-: consideration. The transfer of assets became effective June 1, plus capacity situation. This available capacity and the require-

' 1983. See Note C to the financial statements. Since the subsidi-ments of neighboring utilities resulted in substantial net sales l ary had been losing money over the past several years, the of power in 1982. Other operation and maintenance expenses disposition should improve the Company's financial condition increased in 1982 compared to 1981 due to a scheduled outage land results of operations. for refueling and modification work at Beaver Valley Unit No. jOther 1 and increased customer, general and administrative Under provisions of the Economic Recovery Tax Act of 1981 expenses. ! eligible individuals who are participants in the Company's Depreciation expense increased in 1983 compared to 1982 as ! Dividend Reinvestment Plan may elect to exclude from cur-a result of increases in utility plant and changes in deprecia-rent fedend taxable income each tax year from 1982 through tion rates to conform with the depreciation rates allowed by i 1985 the fair market value of Common Stock received f:om the Pennsylvania Public Utility Commission in its rate orders. l the reinvestment of dividends to the extent the aggregate fair Additionally, depreciation expense includes the amortization market value of such shares does not exceed $750 ($1,500 for of the cancelled nuclear generating units and Shippingport. 18pouses who file a joint return.)This provision has provided See Note B to the financial statements. incentive for stockholders to reinvest dividends and thereby Income taxes increased in 1983 compared to 1982 principally

ease the cash requirements of the Company.

as a result of increased taxable income. The effective income The Company has generated in each year funds from opera. tax rate for the three years ended December 31,1983,1982 ~ i tions sutlicient to meet its operating expenses, pay dividends and 1981 was 347,31% and 359, respectively. l and finance a portion of its capital needs. The demands and The increases in allowance for equity and for borrowed i commitments detailed in Note Al to the financial statements funds used during construction (A FC) were primarily due to and those noted above are not expected to materially affect the the increased cost of construction and increases in the A FC l Co'npany's ability to finance its operations or its construction rate from 7.61 in 1981 to 8Is% in 1982 and to 9.69 in 1983.

program.

Fluctuations in interest income resulted from changes in cash flesults of Operations available for temporary investments. Interest expense for Operating revenues from continuing electric operations each of the years 1983,1982 and 1981 was higher due to , increased (decreased)in the years 1981 through 1983 over the mereased total borrowm, gs to finance the Company's capital i respective preceding years, for the following reasons: expenditures. heatm.1982 the Company's subsidiary discontinued its steam I" 1983 1982 1981 g operatmns resultmg m a charge to eartdngs of $9.9 Otillions of Dollars) million, or $.21 per share. See Note C to the financial General rate increases $88.1 $ 43.0 $ 65.6 statements. Electrical consumption ( 10.0) (62.3) 10.5 A non-taxable extraordinary gain of approximately $9.6 mil-Energy clause revenues (31.0 ) (19.0) 33.9 lion, or $.20 per share, in December 1982 resulted from the exchange with an investment banking firm of newly issued State tax adj.ustment common shares for certain First alortgage Bonds having an andother 6..,. (1.5) 1.o, exchange value substantially lower than their face value. See $53.9 $(39.8) $111.5 Note D to the financial statements. Earnings per share of Common Stock for 1983,1982 and The operating revenues of the Company are based on rates I wm admsely alJected by increases in th er f shams outstanding, which reduced earm,e average num-authorized by the Pennsylvania Public Utility Commission. ngs per share These rates are designed to recover the Company's operating 3, and $.18, respectively. J expenses, plus a rate of return on the investment in utility rate base.The Company also has an energy cost rate which allows The Company has prepared information on the elrects of 4 " it to recover the difference between actual fuel costs and fuel inflation and changing prices in acconlance with the Financial costs included in base rates. Any overeollections of revenues Accounting Standants Boani's Statement No. 33. Such infor- . are refunded, with interest, to customers. mation is in Note P to the financial statements. 35 _.~.

Business of the Company Common Stock Dividends lectively referred to as " junior Duquesne Light Company is The Company has paid cash stock payments"). engaged principally in the produc-dividends on its Common Stock in No dividends or distributions tion, transmission, distribution each year since 1913 and on a reg-may be nmde on the Conunon and sale of electric energy. The ular quarterly basis (January 1 Stock if dividends or sinking or Company serves an area of April 1, July 1 and October 1)in purchase fund obligations on the approximately 800 square miles in each year beginning in 1953 after Preferred Stock or Preference Allegheny and Beaver Counties. becoming publicly owned. Quar-Stock are accumulated and This area, which includes the City terly dividends rehtted to the four unpaid. Furthermore, the aggre-of Pittsburgh, is located in South-quarters of 1982 were paid at the gate amount of junior stock western Pennsylvania and has a rate of 17 %e per share. Com-payments which may be made in population of about 1,430,000. mencing April 1,19S3 the quar-any 12-menth period are in gen-The exetative ollices of terly dividend rate was increased erallimited to(1) 509 of consoli-Duquesne Light are located at: to 5'oe per share. Future div;dends dated net income for any period of One Oxford Centre will depend upon future earnings, 12 consecutive calendar months 301 Grant Street the cash position of the Company, within the 15 preceding months if Pittsburgh, Pennsylvania 15279. construction requirenants, rate the effect of such payments would i regulation and other relevant fac-be to reduce the ratio of common i Duquesne L. ht t,orupany is m tors. The Company expects that stock equity to total capitalization an Equal Opportumty dividends will continue to be paid to less than 209 or(2) 759 of such Employer. in the future, consolidated net income if the Dividends may be paid on the effect would be to reduce such Common Stock to the extent per-ratio to 209 or more but less than mitted by law and as declared by 250. No portion of retained earn-the Board of Directors, subject to ings at December 31,1983 was the provisions of the Company's restricted by virtue of this provi-i I Itestated Articles which restrict sion. The approximate number of the payment of cash dividends or holders of Common Stock as of other distributions on, or the pur-the March 2,1981 record date for a chase of, its capital stock ranking the 1984 Annual Meeting was junior to the Preferred Stock (col-145,000. b"'" Federal Income Tax Status of Common Stock Dividends ~~~ The Company estimates that portions of the Common Stock dividends paid in 1983 represent a return of capital and are not taxable as divi- %t dend income as follows: o,- h Payment Taxable As Not Taxable As Dates Dividend Income Dividend Income Jan.I 100.00'1 0.009 I9'73-1983 Dimensions Apr. I 87.63'1 12.379 Magazine July 1 70 30's 29.709 in mid-year 1984, the Company Oct. I 70.307 29.70'A phms to publish Duquesne Light Dimensions, containing in depth 'I.hese estimates are subj.ect to audit by the Internal Itevenue h,ervice. information concerning the Com-puny. Dimensions will include an Forin 10-K Ofter pany's Annualiteport on Form I l-vear statistical review and a 10-K filed with the Securities and dishussien of some of the impor-If you are a holder or beneh.. l Exchange Commission for the eia I""P tant issues affecting Duquesne "* "7 "I ""Y year 1983 (including a list of Light Company. For a copy of pany s stock as of March 2,1981, exhibits). All requests must be the record date for the 1981 made in writing to the Secretary, Dimensions write: i Duquesne Light Company ^!mual Meeting, the C ompany Duquesne Light Company, One send you, upon requeyt and at Oxford Centre,301 Grant Street, Public Information (30 5)- w no charge, a copy of the Lom' Pittsburgh, Pennsylvania 15279. One Ox ford Centre 301 Grant Street Pittsburgh, Pennsylvania 15279 36

CAPCO Board of Directors Company Officers In 1967, Duquesne Lightjoined John M. Arthurt* John M. Arthur with four other electric utilities to Chairman of the Boani and President Chairman of the Boani and President form the Central Area Power Charles M. Atkinson Charles M. Atkinson Coordination (CAPCO) group. Vice President-Finance and Accounting Vice President-Finance and Accounting Prior to 1980, ten generating Group Group units were committed under the Henry G. Allyn, Jr.*t Roger D. Beck CAPCO arrangements, which pro-Retireil President and Chief Executive Vice President-Administrative Services vided forjoint ownership interests Otticer of The Pittsburgh Group based on individual requirements. and Lake Erie Railroad Company Duquesne Light shares m mne of Daniel Berg tt Vice President-Nuclear Group these units. To date, seven are in Provost and Vice President for Academic l service; three will be placed in A ffairs, Rensselaer Polytechnic Institute Clifford N. Dunn Vice President-Power Supply Group service, one each m. 1985,1986 Doreen E. Boyce*t$ and 1988. Director.The Buhl Foundation Wilh.am F. Gilfillan, Jr. Since 1980 each CAPCO com. Vice President-Customerservices John H. Demmler

Group establishmg,n responsible for pany has bee Partner, Reed Smith Shaw & 3!cClay its own level of Attorneys-at-Law George L Rifendifer reserve and its own generating Vice President-General Services capacity needs beyond the jointly-K %.

Walter T. Wardzinski* S. g xi irector, ficalth systems owned umts still under construc-Agency of southwestern Pennsylvania Vice President-legal and Corporate tion. Duquesne Light is now Communications developing a program to meet its figmH ngl e Omcer. Earl J. Woolever future capacity requirements. Cyclops Cortmration Vice President-Nuclear Engineering and Construction

nuque ne I ight Company G. Christian Lantzsch**

s Rearer lhlley 21 Hearer lhlley J Vice Chairman of %1ellon Bank. N.A. and James O. Ellenberger ha1 Ownership:tNM KW DL Share: llkx 13.74s National Corporation thm0Kw tk a eKW Vice Chairman and Treasurer of Siellon Controller D 4755 D Ownershi RonaId G. Males DL Share:3N, .0tk) KW Eric W. Springert t Treasurer ,([""h[2",'[ . t$"$"efd J $t ['y,2) ringer and 3r ttern Thomas Welfer, Jr. 't" II Coal-!!n6 Coal-lin7 Secretary Capteity: 780.000 KW Capacity: 780.0fe KW

Slemberof Audit Comm D,1,. Share: TM.000 KW D I Share: 62Joo KW t Slember of Compensat. ittee ion Committee Richard,d.. Clora D.I Ownershi c TJXi DL Ownership: 8 01 3 ;

g i 3!emberof Employmant and k"hgd Community Relations Committee Lawrence P. Galie o Capacity:800J00 KW ! 3!emberof NommatmgCommittee Assistant Treasurer L DL Ownershi x 13.7 84 DL Share:11kom KW ypggg[gp Aggggg ggf Joan 8. Senchyshyn j ' Ohio Edison C. mpany Registrars ^*"'**^"t8"cY Sammis #7 Coal-Uni Common, Preference and ' Effective December 1,19S3, the Boanl of Ca acay:rauwm KW D. Owner $hn a1 rs Preferre<I Stock Directors appointed Walter T. Wanizinski Vice President of legal and Corporate l DL Share: Ist#H KW Pittsburgh Nat.ional Bank Communications. Str. Wardzinski's res. i

The Cleseland Electric Pittsburgh innsibilities will include legal services, liluminating Company Chemical Bank, New York public information. public atrairs and the Itrry 21 Itrry */

Secretary's office. Prior to his nppoint. Nuclear-IN Nuclear-l'W Ca acity:1,3GAn KW Ca arity:1, Juno KW Annual Meeting of ment as Vice President,3f r. Wanizinski D Ownership #o KW DL Share:16aAM KW Stockholders was General Attorney of the Company.

13 741 D.

Ownernhip: 13.7 8' DL Share: 16a i Ea.itInke #5 The annual meeting of stockhold-Sa*L Ownershi < 3:25 lsit$7.!nyoKw ers will be held at 10 a.m., Pitts-l D btirgh time, on Tttesday, April 17, DL Share: edan KW 1984 in the David L. Lawrence -rhe Toledo Edi.on Company Convention Center, Pittsburgh, nons neur si Penns}'Ivania. Nuclear-lin7 CapacityWUMH KW DL Ow nershin: 0 DL Sh tre: 0 ' Constructing and ogwratmk compuny i y-p,' e -am -m y6--..- t--ri. -tP 7P4m? -9--'=-- I'l-=--==4"'"=**T"^*=-4-v7-g*-se t-- +-e>T =>T r y,e-g99+=mt-'g. tg 7 w gm--=Wrr y-Wq 1r 9 - sty-W t~t-- ~ ~g-MvT-w'ui'O'--ms-=-us-79t*'P'--*-i-'y wr-=

r Ons Oxford Centre Pittsburgh, PA 15279 h

8 7-Energy to a diverse community h-

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\\_ / / ,/ j ,/ [ ,1 r e r /. / k4 y' p 4 J The Gleveland Electric Illuminating Company g. ~ 1983 Annual Report i-9gggggg i von

Oontents IV liighlights Financial Summary and Quarterly Stock Prices Letter to Share Owners 2 Our Service Area: A Year of Progress -1 Sales 1 Niarketing 4 Energy Today 9 Electric System 9 Energy Tomorrow 11 System Demand 11 Construction Program 11 Investing in the Future 13 Financial Alatters 13 Financial Section 17 Nianagement's Discussion and Analysis of Financial Condition and Results of Operations 17 Nianagement's Statement of Responsibility for Financial Statements 20 Report of Independent Accountants 20 Financial Statements and Notes 21 Financial and Statistical Res iew 1973-1983 31 Inflation Accounting 36 General Information _ 3S Service Area N!ap 39 Committees of the Board of Directors 10 Board of Directors 10 Officers 11 Quarterly Eamings and Dividends Per Share of Common Stock (dollars) s t.20 1 00 .m .60 7 thyktmis 64 .40 .go o. le 2nd bd 4th le 2nd kd 4th le 2nd kd th im 2nd kd 4th te 2nd kd 4th 1979 1%0 1%t 19R2 1943

ighlights 1983

Earnings per share for the year reached a record high of $3.28, up 9% from 1982.
Common Stock quarterly dividend per share was increased 3e effective in November 1983. Total payment of $2.31 represents a 5.5% increase over 1982.
A record peak load of 3.366 megawatts was established in July.
An $89. I millian (7.4%) electric rate increase became effective in January 1983; it was later reduced by $13.5 million.
Nearly $38 million was raised through the Dividend Reinvestment Plan, including

$21 million from more than 21.fxx) participants in the new customer stock purchase program.

Perry Unit 1 and common facilities construction was more than 90% complete at year end 1983. Our Quality Assurance program received high ratings from the NRC.
The Davis-Besse Nuclear Power Station set a generation record and provided 15%

of the Company's electricity in 1983. inancial Summary Percent 1983 1982 Change Earnings Per Share of Common Stock 3.28 $ 3.01 9.0 Dividends Paid Per Share of Common Stock 2.31 $ 2.19 5.5 Quarterly liigh and Imw Prices Book Value Per Share of Common Stock of Common Stock 20.79 $ 19.86 4.7 (<Mkirs) Common Stock Share owners 132,378 111,688 18.5 Operating Revenues (000) $1,210,316 $1,108.571 9.2 Operating Expenses (000) $ 951,951 $ 879,614 8.2 m Net income (000) $ 216.026 $ 208,961 17.7 23 Earnings Available for Common Stock (000) $ 207.600 $ 170,669 21.6 22 Kilow tthou, Sales (Milli..ns of Kilowatthours) 2' Residential 4,112 4,336 1.8 21-Commercial 4.265 1,191 1.7 Industrial 7,511 7,082 6.1 20 Other 426 414 3.0 D Sohtotal 16,617 16.026 3.7 19 g,, ' I" N 88 N Sales to Utilities 20 139 (85.7) I 17N Total 16.637 16,165 2.9 17 16 lh % - 15 g3 g-14 4 14 13 5 O let 2nd 3rd 4th let 2nd 3rd 4th 1982 19R3 1

d C I

We started a customer stock purchase p:an which achieved spettacular results. Alore than 51,000 of our customers now are share owners as well.
Our steady and well documented progress toward completion of the Perry Nuclear P<mer Plant enabled us to pass several major regulatory inspections.

Sound management principles also require us to remain aware of external influences that could impair this Company's ability to serve customer and share owner nec<k Two political issues now looming on the horizon would have short-term impact on share owners and long-term effects on customers. In both cases, the common public misconception is that the poli lical nicasures under consideration would somehow trunster costs from the ( ustomer to the utility. One issue is the environmental phenomenon of acid rain. At a time when a clear scientific understanding of its sources, causes and effet ts does not yet exist, some groups continue to press for immediate control measures on the mere assumption that they may be successful. l cgislation now before the U.S. Congress targets Ohio and other Niidwestern states for multi billion-dollar expenditures to control emissions at coal-fired power plants. Such measures would mean higher energy costs for consmners and would hurt the competitive standing of our industries and businesses in nadonal and international markets. Additional scientific research is needed to assure the t Ifectiseness of acid rain measures. A growing number of soices-representing consumers, labor, business, science and government-are reinforcing this position. The National Academy of Sciences, in a moth publicized report refused to confirm charges that Alidwestern pimer plants are the cause of the acid rain problems in the Northeast and Canada. That rep < it, too, emphasized the need for continued research to reduce the uncertainties in policy decisions. We support that position. A second maior issue that threatens the welfare of both customers and share owners insolves a movement in the Ohio legislatute against construction work in progress (CWIP). a ratemaking option that allows utihties to begin recovering financing costs as new construction nears complehon. CWIP now provides long-term cost savings by improving utilit) bond ratings and lessenmg risk to imestors. As a result. utihties can obtain capital to construct new farlhties and to refinance maturing debt at lower interest rates. lhis reduces merall construction and interest costs w hich holds down rates to customers. It is vitally important to all parties for the Ohio legislature to recogni/c that the interests of utility share ow ners and customers alike are best served in the long run by keeping CWIP in the ratemaking process. The following pages of this Annual Report will provide you with more perspective on Company attivities and th" prospetts for its future. We are the current stewards of your imestment in a company that has earned a solid reputation for dependability, durability and financial strength. You, our share owners, along with our customers are now reaping benefits frun the wise management planning of years past. Our decisions today are intended to ensure that those benefits continue in the future. Undeniably, this Company and its service area still face major challenges. Ilot a climate of challenge and change often provides the most fertile ground for significant achievements. We believe we are up to that test. Sincerely, 4N N Y l N 0 /A k a < /1 f f f $ Robert N1. Ginn Harold L Williams Richard A. Niiller Chamnan Em nta e Vu e neudent l'reudent February 17,1981 3

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The Industrial Sector Northeast Ohio is an unusually dn erse manufacturing center. Our industries proxtuce or fabricate steel, plastics. (hemicals, bio (hemicals, aluminum, brass and a host of other basic materials. From our produttion lines anne automolule cornponents, appliances, electrical equipment. mat hine tools, computer components textiles. paper, glassware. heasy madunery and many other e sentials w hit h are in continuing demand. ] This diversay provides us with an economic (ushion in contrast to regions dependent on one or two industries. We find that dedines experienced at times in some of our 9 industries will be offset by g.uns in others thus keeping the local economy comparatively strong. Dnersity means another bonus in t xlay's climate of economic re(oserv. The significant im rease in our IWi mdustrial sales rame largely through improsements in automotise and steel (oncerns We base many industries whi(h. rather than being (onsumer-oriented produce ma( hinery and equipment for Inanufalturing firrns throughout the natioD Ihese firms ha\\e just started intreasing 1 their orders for oe.v production equipment. As the trend (ontinues, our local mdustries will benefit. Thus, we expn t continued inomentum in the industrial settor. Employment in our basic mannfatturing sector may neser return to the previous i cak lesel. But local manufat turers are reducing (osts through pnnluttion effit iencies and labor agreements to be more competitne in world markets They also are relying more and more on electra powered technologic' to improse their ounpentise standmgs. Some examples-.

Repubhc Steel last year mstalled a new $1nn nulhon continuous caster that is expn ted to resuh in substantial s.nings and improse quality in steelmaking.
h ncsh 1.aughlin Steel s Clevelamt plant which operates two ein tric arc furnaces has become one of the lowestuost and most produt tne of that ounpany's f u ihties.
Eintric indus tion furnat es whit b heat billets from the inside out by electromagnetic indo(tion are helping reduce costs for forgings at \\lidwest Forge. I'resnte Corporation.

Rupo forge aad ihd At me Company.

Industnal robots are in us" for alomunun die casting at the llalex Compan),

oHulucr(ial heat treating operatHols at Wtithn, lnC. uld precisitol castillQs har aircraft at TRW's S\\1P dis ision output for our mmor steel (ustomers was up 31 peu ent os er the pres ious ycar resulting in a ln pt 's t at increase in kilow atthour s. des to those ( nstomers. The aulonvil+ industry hkewiw demonstrated sitength Sales to our Inajor automotise ( Ustiimers rose l I pert ent in un the IM,. les el At General \\1otors' Chevrolet plant, a smge in dem.unt for full si/e cars brought produttion to its highest lesel sime IN9. Ibidies for one of Ford s most popular vehicles. its large van, an made exclusisely in this an a A h>t al foundrs whis h pur,' des Foni s sole American soone of iron has plans to add more einInt powcred metal hohhng lurnaces to make castings. A Font stampmg plant w his h lost work in past years bnause of labor problems has improved its labor management relations has regained all of its hist jobs and has plans bir eNpah3h Hl. ~,

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T 5 h We applied our energy expertise to create a new, who!!y owned subsidiary called Dynamic Energy Ventures, Inc. (Dyneco). which will sell. install and senice such sophisticated options as uninterruptible power supplies. energy managcment systems and metering services. The opportunities presented and the relatively small investment required by Dyneco make this a low-risk venture. We saw, too, the need for us to remain competitive relatise to other energy suppliers. Late in 1983 we asked The Public Utilities Conunission of Ohio (PUCO) for a tariff modification to allow us pricing flexibility and the opportunity to prmide non-standard service equipment to customers. This modification would eliminate the need to seek PUCO approval for pricing flexibility on a case-by-case basis. thus enabling us to compete with other energy suppliers. nergy Today After more than a century, the prime objective of this Company remains unchanged to provide reliable electric senice at the lowest cost possible. Electricity is essential to rebounding industries and businesses. In 1983 we made $.191 million in capital expenditures to construct new facilities and to upgrade existing generation, transmission and distribution systems. We expect these efforts to improve service reliability and to lower generating costs thus pn>ducing substantial sasings to pass along to customers. We also saw long-range strategies conceived in years past result in environmental benefits and improved equipment performance at our power plants. Electricity Production At our coal fired plants some $13 miiiion was expended in 1983 to upgrade equipment and improve the operating efficiency of generating units. We expect this investment to pay for itself in the years ahead by increasing the kilowatthour output of existing units while reducing the amount of fuel required. More savings were achieved as we continued our computerized program of performance evaluation, testing and preventive maintenance on power plant equipment. A major innovation was our establishment of a power plant support center which now performs repair work on power plant componems, a job formerly hanakxl by outside contractors. We expect to maintain strict quality controls and achieve substantial cost savings. We spent some $28 million in 1983 on environmental prc@ cts at our coal-fired plants, primarily for waste water treatment and the reduction of fly ash emissions. Environmental protection is a continuing objective on which we have spent nearly half a billion dollars in the past decade. Inside this massive piping. water is We were highly pleased by the 73 percent availability rate in 1983 of the Davis-Besse evaptated hom sutium (hloride brine Nuclear Power Station which we co-own with its operator, The Tok do Edison Company. at an R\\tl company facihty which During the 11 months preceding the refueling outage in July 1983. Davis-Besse saved manufac tures metalhc sm hum and our customers $12 million through the lower cost of nuclear fuel. t blonne. R\\tl is one of many compam.es cith w hhh we bas e worked dires tty to hvip at hieve s. wings on energv mts. Transmission and Distribution ' Ettheast (}hio's chemical industries To ed hi@ vow pm hou@out om mice area we maintain a network of $k i . ?.' almost 2.300 circuit miles of transmission lines. The high level of network reliability, ,i third. followmg steel and automonu coupled with our strategic Midwestern kication, allows us to increase our revenues by comp.unes. among our biggest selling power, when available, to utilities in the East and by transmitting power sold by energy users. other utilities. 9 2

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{^ Perry Cons /ruc/icis in November a special Construction Appraisal Team from the Nuclear Regulatory Quality Assurance Commission (NRC) issued its report following a four-week. 2,000 manhour inspection of Perrv. The report found our project organization to be aggressive in finding and On any building project, and resolving construction problems and our QA program to be ' adequate? The term panicularly on eine us huge as our adequate, in the world of nuclear regulation, is the highest possible accolade. Peny Plant. occasional rointmrtirni Considering the very rigid reg' ulatory climate in which we are working. this proh/ ems come u nh the territory consuudion appraisal report is extremely positis e, and we believe it demonstrates the Our Gunlity assuranre program is NRC's con +idence in our ability to build a safe and reliable plant. designed to identify problems so ~ that they can he quickly una/yred in December a report was received from the Atomic Safety and Licensing Board which and corrected tre also report n// conducted an extensive hearing on Perry's construction earlier in 1983. That 57-page potentially sigiu/icant items, as report officially gave passing marks to our QA program and moved the two Perry Units rovdred. to the Nuclear Regn/utory a step closer to operating licenses The report said that our QA program "has Gunmissirni /NRC). Our consistently prevented, and will continue to prevent, unsafe conditions at the plant" Elsewhere, the high marks ut twirms /ere/s of report said: " Applicant's program is comprehensive and provides appropriate th/ern/ irnvec tions testdy to the assurance that significant construction deficiencies have been and will be identified and integray of our quality assmance corrected: clforts. We expect. of course, that routine construction problems at Perry will still command 3/orcor es the Company has undue attcution in the news media. We also expect a high level of publicity when estah/ished a simp /c pmcedme public heanags on our emergency planning are conducted, as required by NRC through n hirh n// o/ some ti.500 regulations later in 1981. But we are confident of our ability to resolve construction umhers at the Fein site are mged problems as Ihey arise and successfully come through the regulatory process. to report suspn ted deliciencies m (See story at left.) constmction u oik \\Ve investigate u// su(h reports. finther. the NRc nvesting in the Future has a to// hee telephone munber n /urh H uwNer Gt PenY or UnV other nru /ven constmtfon 3itc~ A great deal of capital is required for the new generating units. transmission and ! natu,nn ide mar use to h/e un distribution facihties and environmental safeguards needed to ensure the energy unornmous report. These reports, seemity of our service area. Fortunately, sound financial management is one of the too. me thoroughly im estigated strengths of this Campany. Because of it, we were able last year to raise capital on advantageous term.s and. at the same time, provide a favorable return to our investors. We h is natural thr;I constnution also maintained a balanceJ capital structure and improved our interest coverage ratio pmblems at a nw /eur project. u hether rea/ or alleged, often anra< t gegg79goggyeggg7g n'V/ut' Ullen! on lrs Un the hen s I med a upon their initin/ dr corcry Earnings per share for the year 1983 were at a record high of $3.28. an increase of nine The < om em in the nunketplace percent over 1982. Return on average common equity was 16.1 percent. regmding utdities that are con-m al on conn u d to our camings improvement. One was a rate increase struenng nut / car von er plants is undenlandah/c lint u e remain app f r ea@ in and received, January 1983 that resulted in an $89.4 m ronhdent that. mu e the tu// stmv is numon, a n4 percent, increase in retail electric rates. (See Note M of " Notes to Consolidated Financial Statements") Another factor, of course, was the increase in our knou n our cmnpetence to succe3s- /u//v manage a nuclear unntruc tion kilowatthour sales. A third was a cost containment and deferral program which saved 510 to $12 milhon,m operating expenses. We put limits on hiring, promotions and program u d/ he demon 3trated overtime, and we took measures to increase productivity while reducing department budgets Not all of these budget reductior.. are sustainable, but we are determined to hold costs at the lowest level practical, consistent with the need to maintain our gomi record of customer service. Effective with the November 15,1983 payment, we raised our quarterly co.nmon stock dividend to 60 cents per share from 57 cents per share. Last year was the 25th consecutive year in which we increased dividends and the 82nd straight year in which we paid cash dividends on common stock. That record is matched by few other electric utilities. 13

.e-- a The 1983 Financial Picture The ability to raise capital at advantageous terms is a direct result of our success in maintaining a favorable credit rating. In !983 Moody's investors Service and Standard & Poor's Corporation maintained their ratings of our long-term securities at investment grade levels. Our first mortgage bonds are rated "A2" by Moody's and "A" by S&P. We are the only ekctric utility in Ohio rated this high. We ended 1983 with a well-balanced capital structure of 11 percent common equity. -15 percent debt and 11 percent preferred and preference stock. Equity and debt financings during the year raised about $275 million. Major issues included the sale of $125 million of first mortgage bonds and an offering of adjustable rate preferred stock which raised $50 miilion. The dividend on the preferred stock will range from seven to 13 percent. We are the first electric utility in Ohio to sell preferred stock with this new adjustable rate feature. We also arranged to increase our term bank loans from $131 million to $175 million at extended maturities and improved terms. Dollars Raised Through IAvidend During the year we continued to sell notes secured by our first mortgage bonds, to the Reinvestment and Stock Purchase Plan (millions o/ dollars) bond funds of a major financial institution. We also raised capital through our Dividend Reinvestment Plan and our employee stock purchase plans sd o Future Rates W p cuennm O.ur credit ratings also depend, in part. cn our ability to secure timely and adequate m, rate relief. Our cost containment and deferral program pnxtuced significant savings in g n;j 1983, enabling us to defer a rate increase request. But service would be adversely 7j affected if such measures were continued indefinitely. ca 4 Because our costs of providing seivice have continued to rise, in February 19S I we b found it necessarv to give notice of intent to file for a $180 million, or 15 percent. electric rate increase. It granted, the increase <culd have no material effect until 1985 and must thertfore cover cost increases during the two years since our previous r,te order. 21 4 The Dividend Reinvestment Plan 2o The suc(ess of our DRP was one of 1983's highlights. We raised more than $25 million g from reinvested dividends. up 50 percent from 1982. An additional $32 million was u7 m 9L raised in optional cash contributions, up 400 percent from 1982. Over 21.000 of our customers enrolled in the customer stock purchase program portion of the DRP. No other electric uhlity in the nation has equalled that initial success in .y .y % terms of customer response, enrollment and initial amount invested. We raised a total y., of $21 million at an average of $1.0 t i per participant. The 1984 Outlook The year 1981 will be an active one for financings. We plan to issue first mortgage bonds and to raise funds through the sale by the Ohio Air Quality Development Authority of tax-exempt bonds to finance environmental projects. From time to time international economic conditions permit lower-cost borrowing in Europe than in the United States. We are poised to take advantage of such opportunities to minimize our horrowing costs and, consequently, the costs eventually borne by customers. 11

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==- t I D e L: w 'anagement's Discussion and Analysis of Financial Condition and Results of Operations Capital Resources and I.iquidity Our capital requirements stem from our ongoing program of constructing facilities needed to meet anticipated demand for electric service, to replace worn-out facilities and to comply with pollution control regulations. Over the years 1981-1983, we spent approximately $1.3 billion on our construction program.This amount included an = allowance for funds used during construction ( AFUDC) which is explained in Note A of" Notes to Consolidated Financial Statements." At December 31,1983,our purchase commitments totaled $ 180,000,000. Of this, $260,000,000 principally relates to the construction program.The balance is applicable to the cost of acquiring nuclear material and processing it into fuel. After paying our expenses, taxes. interest and dividends, our business currently does s not generate all of the funds needed for our construction program.Therefore, we must d__. supplement our internally generated funds with additional money raised from investors. In the past three years, about 52% of the money used for construction was rai3ed from sales of securities, such as notes, first mortgage bonds and preferred and common stocks, and from bank borrowings. We also raised funds from two sales of the Federal income tax benefits relating to equipment placed in service in 1981, pursuant to provisions of The Economic Recovery Tax Act. Construction program expenditures over the next f several years are expected to be funded about equally from internal and external sources. 7 Since mid-1981, our first mortgage bonds have been rated "A" by both Moody's Investors L Service and Standard & Poor's Corporation. Our preferred stock is rated "a" by Moody's 4 arid "BBB" by Standard & Poor's. Our commercial paper ating was lowered by Standard ] & Poor's in 1983 from Al to A2.while Moody's maintained our rating of P1,its highest 1_ commercial paper rating. We will continue to seek fair rate levels in crder to maintain as strong a financial pesition Rate of Return on Common l'quity as lossibic. "!+out adequa'e rates it wouhl be impo sible to earn a fair return for our s-Authorized vs. Achieved commen stotk share owners. Inadequate returns could also result in a lowering of our P t mvnt) i securities ratings. thereby increasing the (ost of raising money fram outside sources. Our future financing plans are designed to maintain a capital structure of 40-42% T n-- mmmon equity and a maximum of 18% debt, with the balance made up of preferred ard j - Aanman,y n m e stock. At year end 1983, our capitalization structure was 41 % common equity, L im "" 15% debt and I'l% prefened and preference stock. Specific financing plans are discussed 4 ,jN elseu here in this Annual Report. W n n-C a Over the 1981-1988 period, we mus; refinance $ 126.976.000 of raaturing debt and A e --- T - preferred stock which was outstanding at December 31,1933. In addition, we are required e l to offer to purchase $19,400,000 of preferred and preference stock in both 1981 and r 1985, $36,067,000 in both 1986 and 1987 and $36.066,000 in 1988. See Notes F. H and 1 3..--~~ of " Notes to Consolidated Financial Statements" for further details. A portion of the debt which matures in the five year period has very low interest rates. Refinancing of this t -= debt will probably be done at much higher rates, thereby increasing our average cost of capital. a ? dMF ' The amount of first mortgage bonds the Company can issue is limited by our Mortgage [ w w xi w ao and Deed of Trust.The amount fluctuates depending upon the remaining amount of bondable property and upon earnings and interest rMes. At December 31,1983, we would has e been permitted to issue approximately $922,000.000 of additional first mortgage bonds. There are no restrictions on issuing additional authorized preferred stock and preference stock We use short-term financing such as bank lines of credit 1 17

a i Sources of Electric Revenue In-reases and the sale of conunercial pper to give us flexibility in timing our longterm financings. (millions of d>!/ars) Money raised through these short-term arrangements is primarily used to finance temporarily our construction program. We have a total short-term borrowing capability of $220,300,000 m the form of bank lines of credit and revolving loan commitments. In s2m accordance with customary industry practice, some of these lines are held in reserve to _g soin wiumecN v ensure that we will be able to pay off commercial paper when it is due. Note K of " Notes o im Grurinar cww-to Consolidated Financial Statements" gives the details el our credit arrangements. Rare Incrmws iG) Results of Operations [ A ll The " Sources of Ekictric Revenue Increases" chart on the left shows the factors which g have affected our electric revenues in each of the last five years. 120 E In our service area there are signs of economic recovery as industrial sales were up im ,,27,,, 6.1 % in 1983. The turn-around in industrial sales, which began early in the year, was e , #7 led by improvements in the automotive and steel industries. More moderate increases IKh in sales occurred in other sectors, including such industries as (hemicals, plastics and g b Ed 13a 13 fabricated metal products. Since recovery in these business sectors traditionally lags the in a general economic recovery, we expect further sales increases in these industries in 1981. a 47 After very mild winter weather early in 1983, an extremely hot summer provided added 2 impetus to residential and commercial sales which were higher by 1.8% and 1.7%, a respectively. Total sales to ultimate customers increased 3Tt. y 220 -21 iso (al A weak economy as well as milder weather w are the major factors afhcting sales to _2o F customers in 1982. Industrial sales decreased 14.5% in 1982 while residential sales fell 0.9% During 1982, commercial sales were up 0.4 %. Overall, sales dedined 73%. = Over the laat three years we have vigorously sought rate increases in order to enable us 3 y .>u s sn k to pay investors the return on investment they demand in the form of interest,disidends E and increased net worth. As a result The Pubhc UtiEties Commission of Ohio tPUCO) [ granted us 'he following ehrtric rate i tcreases: 17 % (May 1981),10% (March 1982) and 11V (January 1983) On October 1,19M3, eh ctric base rates were redaced 1% and a interest Giarges Onerage Ratio 7 (times mmnff n duction in the fuel clause factor on September 1,1983 lowered rates an additional 7 % g We also secured vanous intreases in steam, wholesale power and stu et lighting rates in the three-year period. These rate increases, coupled with e'fective cost control and = g 4-higher AFUDC, offset elfects of inflation on operating expenses, higher interest expense, g stock sales and the delay between the time our costs ga up and the time we reteive a n' rate merease to cos er those increased costs. Consequently. carnino per share rose in { . "d 1951,1982 and 1983, reaching a record level of $3.28 in 1983. Also, the ratio of earmngs 3__ . 4 to fixed charges (SEC methul) rose in each of the three years (2.1,3.0 and 3.2 in 1981, y {: p n?p$ 24 1982 and 1983, respectively) O M dy y +- In 1983, we took action to stimulate growth in our commercial and industrial sectors J~ y k %} and to help business remain competitive. This was accomplished thn> ugh the extension of special contract options such as off-peak rates to commercial and smaller industrial 5 -~ d w {j .3 customers. In addition, we offered a lower rate to customers who agree to utilize our p__ I 1 M 'f W steam service for a minimum of five years. 1 e4 h/-j d l -e ,4 __. $s M.il_d n A l-o = nw m re u i8

A cost coniainment and deferral program which was implemented in 1983 placed strict controls on hirings and promotions, sharply reduced overtime and limited expenditures for materials and supplies. The program enabled us to as oid filing for an electric rate increase in 1983. flowever, increases in the cost of providing service prompted as to announce our intent to fi!e for a $180,000.000, or 15%, increase in electric rates. The rate increase,if granted, would not be effective until early 1983. Fuel and purc hased power expense is the largest part of our operating expenses.The Fuel Costs amount of purchased power varies from year to year depending upon the availability of (< per million 1071) our power plants, the energy demands of our customers and the price of electricity available from other utilities in 1953, purchased power expense increased slightly because it was used for economy purposes during the two-month refueling outage for the r25 - Davis-ik sse Nuclear Power Station. In 1982, purchased power expenw declined because 3m of lower kilowatthour sales, improved availability of our plants and power sales to other utilities. ns Total fuel and pun based power expense rose in 1983 because of the increase in 0d 19) kilowatthour sales which more than offset a slight decrease in the unit cost of fuel.This expense declined in 1982 because of the decrease in kilowatthour sales and a slight decline in the unit cost of fuel. Nuclear generation accounted for 13%,10% and 15% of i2s our total electric generation in 1981,1982 and 1983, respectively. im _ Other significant items affecting earnings per share were increased payments of interest 75 and preferred stock dividends and a greater numtwr of outstand;ng common shares W-resulting from additional external financing. The impact of the increases in these items 33 was partially offset by related increases in the amount of AFUDC. For a discussion of how we are affected by inflation see " Supplementary information 3 n m '81 M '83 Concerning the Ef fects of inflation:' i 19

anagement's Statement of Responsibility ,for Financial Statements The management of The Cleveland Eiectric illuminating Company is responsible for the consolidated financial statements which appear in this Annual Report. The statements were prepared in accordance with generally accepted accounting principles which are appropriate in the circumstances. These principles require that certain amounts must be recorded based on estimates. Such estimates are based on an analysis of the best information available regarding the amounts to be estimated. We maintain a system of internal accounting controls. The control procedures are - 5 designed to assure that the financial records are reasonably complete and accurate. They also are designed to help protect the assets and their related records. We make an effort to ensure that the costs of our control pn>cedures do not exceed the benefits. We have an internal audit program which monitors the internal accounting controls. This program is designed to examine whether the controls are adequate and effective. Also, an examination of the financial staternents is conducted by Price Waterhouse, independent accountants, whose opinion appears below. The Board of Directors of the Company is responsible for determining whether management and the independent accountants are carrying out their responsibilities. The Board has appointed an Audit Committee, comprised entirely of outside directors. The responsibilities of the Audit Committee are described elsewhere in this Annual Report. s epcrt of Independent Accountan'e ). [ flCe - u.a m - - w,o,omo htTrhouse """-~ 4 'f, To the Ibard of Directors ano the Share Owners of The Cleveland Electric illuminating Company: in our opinion, the accompanying consolidated halance sheet and the related consolidated statements of income, capitalization, retained earnings, and changes in financial position present fairly the financial position of The Cleveland Electric J liluminating Company and its subsidiaries at Decemtwr 31,1983 and 1982, and the results of their operations and the changes in their financial position for each of the three years in the period ended December 31,1983, in conformity with generally accepted accounting principles consistently applied. Our examinations of these statements were made in accordance with generally accepted auditing standants and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. February 10.1981 Price Waterhouse

nCome Statement The Cleteland Electric lllutninating Cornpany and Subsidiaries For the Year Ended December 31, 1983 1982 1981

'""' "d' ' U"""*)

OPERATING REVENUES Electric $1,191,162 $1,091,054 $1.000,731 Steam 16.154 17.517 12,196 Total Operatmg Revenues 1,210,316 1,108,571 1,012,930 OPERATING EXPENSES Operation Fuel 320,792 330,674 322,161 Purchased power 12,185 (1,395) 29,256 Other 182.439 168,802 149.374 515A16 498.081 500,781 Maintenance 88,029 81,789 74,925 Depreciation and amortization 94.196 86,588 85,294 Taxes, other than Federal income tax 126.883 106,801 91,618 Federal income tax 127.430 106,382 67,575 Total Operating Expenses 951.954 879,644 820.226 NET OPERATING INCOME 258.362 228,927 192,704 NONOPERATING INCONIE Allowance for equity funds used during construction 87,052 76,896 48.970 Other income and deductions, net 3.805 (2,481) 10,617 Federal income tax - credit _ 23.291 22,251 16.125 Total Nonoperating income 114.148 96,669 75,712 INCOME BEFORE INTEREST CilARGES 372,510 325,596 268,416 INTEREST CllARGES Long term debt 151.257 134,250 121,040 Short term bank k)ans, commercial paper and other 2,717 9,822 25,672 Allowance hr borrowed lun is used during construction _ (27.490) (27,440) (34.030) Total interest Charges !26,484 116.632 112,682 NET INCOME 246,026 208,961 155,734 Dividend requirements on preferred and preference stock 38.426 38,295 34 S17 EARN lNGS AVAILAblE FOR COMMON STOCK $ 207.600 $ 170,669 $ 120,817 EARNINGS PER COMMON SilARE 3.28 3.01 2.52 DIVIDENDS DECLARED PER COMMON SilARE 2.31 2.19 2.08 3 ]etained Earninga Statement ,,\\ For the Year Ended December 31, 1983 1982 1981 (niousands of Dollars) -3 BALANCE AT BEGINNING OF YEAR $ 325A63 $ 280,285 $ 258,432 ADDITIONS Net income 216.026 208,961 155,734 DEDUCTIONS Dividends declared Preferred stock 33,63G 33,900 29,762 Preference stock 4 A18 4,418 4,417 Common stock _ _ _. 145,077 124,841 99,134 Costs of issuing equity securities 141 627 568 Total Deductions 181.272 163,786 133.881 IL\\ LANCE AT END OF YEAR $ 388.217 $ 325A63 $ 280.285 The <ntwrtparrvrng n<tes are arr unregral pirt of there rinawral staternents 21

alance Sheet at December 31 nie etei etand i:tectric ittuminating company and subsidiaries ASSETS 1983 _ 1982 PROPERTY AND PLANT cniousands of Doitam Utility plant Electric in service $2,791,873 $2,681,629 Steam in service 43.262 40,172 2,838.135 2,724,801 Less accumulated depreciation and amortization (22,492 679,890 2,115,fr13 2,014,911 Construction work in progress 1.616.653 1,285,731 3,732.296 3.330,642 Nuclear fuel in trust 58.599 52,751 Other property, less accumulated depreciation 11.515 11,465 3,802,410 3,391,858 POLLUTION CONTROL CONSTRUCTION FUNDS - unexpended 18,618 17,778 CURRENT ASSETS Cash and temporary cash investments 12,693 59,317 Amounts due from customers and others, net 111.928 101,858 Materials and supp!ies, at average cost 29,640 28,123 Fossil fuel inventory, at average cost 38,870 75,403 Taxes applicable to succeeding years 99.881 87,130 Other 3.612 1,837 316,627 353,668 DEFERRED CilARGES Unamortized costs of terminated projects 49,151 52,385 Accumulated deierred Federal income taxes 12.240 12,774 Deferred fuel 18 329 22,602 Other 20.019 18.814 99.742 106.605 $4.267.427 $3,872.909 CAPITAIRATION AND LIAi31LITIES CAPITAlH.ATION Nee statement of Capi:ahzation) Inng tenn debt $ 1.518,8S3 $1,411,822 Serial prefened stock With mandatory redemption provisions 261,000 265,000.' ^ Without mandatory redemption prosi< ions 141.021 95,971 Seri d preference stock with mandatory redemption provisions 57,000 57,000 Common stock equity _ l.355,488 1,227.095 3.336.392 3,085,988 CURRENT LIABILITIES Cunent portion of long term debt and preferred stock 59,410 71,145 Notes payable to banks and others 19,100 19,100 Accounts payable 121,198 91,128 Accrued payroll and vacations 16.119 15,407 Federal income taxes 12.301 10,149 Other taxes - 125,016 110.011 Interest 36,322 31,zim Other 7.251 7,328 396.717 355,536 DEFERRED CREDITS Unamortized investment tax credits 218.589 153,582 Accumulated deferred Federal income taxes 192,483 168,606 Nuclear fuel trust obligations 58,599 52,751 Delerred fuel 20.313 16,841 Other 44.304 39.605 COMMITMENTS AND CONTINGENCIES - See Note L $1.267.12 7 $3.872,909 The ammennyinq nm we an iracqui mut of these finam wt.ea emena 22

.~ _ [apitalization at December 31 The cleveland Electric lituminating Company and Subsidiaries 1983 1982 1983 1982 (Then. sands of Dollars) (Percent of LONG-TERM DEBT (a) Capitanzatical First mortgage bonds - maturing throu.;h 2013 at rates of 2M6 to 16%% (Less $55,000,000 in 1983 and $50,000.000 in 1982 classified as current) _ $1.315,191 $1,215,191 Collateral pledge notes - ma'uring in 2012 at semiannual equivalent rates d 11.72% to 13.50% _ 41,370 6,100 Term bank loans (b) - maturing 1986-1990 at variable rates (Average rates were 10.10% in !983 and 11.61% in 1982) 106.000 131,000 Pollution control notes - maturing through 2012 at rates of 5.5% to 6.7% (Less $110,000 in 1983 and $105,000 in 1982 classified as current) 57,430 57,840 Other - net (3,105) (1,309) Total Long-term Debt 1.518.883 1,411.822 45 47 SERIAL PREFERRED AND PREFERENCE STOCK - cumulative, without par value, 4,000,000 and 3,000,000 authorized shares, respectively Preferred Stock without mandatory redemption provisions Annual 1983 Dividend Shares Series Rate Outstanding A I T IO 500,000 50.000 50,000 B $ 7.56 450,000 45,071 45,071 L Adjustable (c) 500,000 48.9_50 141,021 95,071 Preferred and Preference Stock with mandatory redemption provisions (l. css $1,000,000 in 1983 and $3,000,000 in 1982 classified as current) Annual Mandatory Redemption Provisions (d) 1983 Shares to be Annual Shares Shares Redeemed Dividend Out-Beginning ta be at iloiders' Series Rate standing on Price Redeemed Option Prefened: C $ 7.35 240,000 8-1-84 $ 100 10,000 24,000 25,000 E $ 88.00 48,000 6-1-81 $1,000 3,000 18,000 51,000 F $ 75.00 50.000 l l-1-85(e) $1,000 16,6C r a0,000 50,000 G $ 80.00 10,000 8-181(c) $1,000 8.000 40,000 40,000 ll $145.00 28,500 6-1-85 $1,000 1,782 28,500 28,500 I $115.00 31,500 6-1-86 $1,000 1,969 31,500 31,500 J $113.50 23,000 6-1-87 $1,000 5,800 29,000 29,000 K $113.50 10,000 6-1-91 $1,009 10,000 10.000 10.000 261,000 2 5.000 Prelcrenee: 1 $ 77.50 57,000 4 I-81(e) $1,000 11,400 57,000 57,000 Total Preferred and Preference Stock 462,021 417.071 14 13 COMMON STOCK EQUITY Common shares, without par value 85,000,000 authorized; 65,198,089 and 61,771,582 outstanding in 1983 and 1982, respectively 967,271 901,632 Retained earnings (f) 388.217 325,463 Total Common Stock Equity 1.355.488 1,227.095 41 40 TOTAL CAPITAllZATION $3,336.392 $3,085,988 100 100 (a) tung term debt nutures dunng the next fne wars as follows: $55.110.000 in IW1 (clasufied as a utrrent habihty on the consohdated iblance Sheet). $13,701.000 in 1985..$31.610.000 in 1986 and $21.600 too in 1987 and 194 (b) The Comp:my has amended its term tunk loan agreements to allow up to $175.000,000 of borrowmg. The ann ndments also changed the maturity dates of the outstanihng debt from 19419ss to IN1990 Owrall interest rates under these loans aho were reduced. h i The apphs able rate shall tw the highest of tbc Trea,ury lhil Rate, the Ten Year Constant Matunty Rate or the Twenty Year Constant Maturity Rate, as dehned. but not note than 13% or lew than 7% uD Amounts to be paid for preferrt-d stot k whn h must be redeemed dunng the next hw wars are: $1.000.000 in 1981, $5.781000 in 1985; $7,751,300 in 19sti. and $13.551.000 in 19N7 and 19M for those senes where the share ewners can elect to haw their shares redeemed, the nuximum redemphon pnments (otild be $19.hmW in 19&l and 19h5. $36.067.000 m 1986 and IM7, and $3t>.ut>6.tw m 19E (c) Tlus is ri offer date Redeemed stures would be purdmed four months after this date. 40 As of themtwr 31,1%I there was no restnction on the right of the Company to pay dnidends in any anwamt up to all the carrungs re'.ained in the taisiness The at wmpr0 tm emtes a'e a t enregralput of there finam tal statements 23

llanges in Financial Position The c/c, c/mu/ enuric mmmnumm company and subsisimics V For the Year Ended December 31, 1983 1982 1981 rnmusands of Douars) FINANCIAL RESOURCES PROViDED Net income $216,026 $208,961 $155,734 Items not affecting working capital Depreciation and amortization 91,336 86,622 85,325 Deferred Federal income tax 89,125 72,103 43,931 Allowance for equity funds used during construction (87,052) (76,896) (48,970) Other 620 918 1,910 Total financial resources provided from operations 313,055 291,711 237,930 Sales of securities First mortgage bonds 125,000 277,600 82,200 Preferred stock '18.950 70,500 Cornmon stock 65.638 179,711 67,622 Total sales of securities 239.588 457,311 220,322 Term baak loans and collateral pledge notes 37,270 6,100 54,800 Nuclear fuel trust obligations 5,818 52,751 Sale of tax benefits to others 95,199 Pollution control funds expended 18,559 57,805 Working capital decrease (a) 59.957 11,591 Other 7.591 6.007 1,151 Total Financial Resources Provided $69902 $832,139 $612.098 FINANCIAL RESOURCES USED Additions to utdity plant $ 190.705 $422,170 $409,277 Allowance for equity funds used during construction (87,n32 ) (76,896) (48,970) 103,653 315,271 360,307 Retirement of debt and preferred stock 09.105 121,600 13,000 Dividends 183,110 163,786 133,312 Pollution control construction funds deposited 810 22,200 Deferred fue! costs 11,612 Nuclear fuel in trust 5.818 52,751 Decrease in short term debt and other borrowings 10 76,200 71.637 Working capital increase (a) 72,828 Other 693 Total Financial Resources Used $h93,33 $h32,439 $612.098

SUMMARY

OF CilANGES IN WORKING CAPITAL (a) Cash and temporary cash investments $ (16.621) $ 31.621 $ 15,571 Amounts due from customers and others, net 10,070 7,151 (10,477) Fossil fuel inventory (16.533) 6,630 1,306 Taxes applicable to succeeding years 12,751 23.520 5,499 Accounts payable and accrued payroll and vacations (30,762) 12,120 (16,108) Federal income and other taxes payable (17.157) (8,229) (5,4 16) Other (1,685) (3,285) (4,936) Change in Working Capital (a) 5(59.937) $ 72M8 $ (14.591) (4 Other than short term terrowings and current pntion of long term debt. The amenpanyng notes are an integralpart of there hnancial statements 21

)

p y p y h y Q W W ~ QRW

,j_ ~ L ^^fLQ "otes to Consolidated Financial Statements Note A-Sumniary of Significant Accounting Allowance for Funds Used During Construction Policies We pay interest and dividends to our investors for the We are required to follow the accounting principles use of their money. This is called the cost of money. or rules set by The Public Utihties Commission of The PUCO and the FERC allow us to include as part of Ohio (PUCO) and the Federal Energy Regulatory the total cost of constructing new assets a portion of Commission (FERC). The principles we follow are also the cost of money paid on funds which are tied up in substantially consistent with the requirements of the construction projects. That cost of money is called Financial Accounting Standants Board, as expressed Allowance for Funds Used During Construction in their Standard No. 71," Accounting For the Effects (AFUDC). of Certain Types of Regulation". A description of our significant accounting principles follows. gwn a mn4mc6 n pmjnt.n mmpleted or, if the PUCO allows, at least 75% completed, the funds invested in it are no longer considered tied Consolidation up in construction and we stop recording AFUDC. Our financial statements include the accounts on three h mst ol the project at that time, including its AFUDC,,s treated as a new asset and is used in a i nunor subsidiaries. We own all of the stock in each. One subsidiary is The CEICO Company which owns subsequent rate case to determine the rates we nonutility land and performs certain nonutihty charge our customers for service. Because the services. Another is the CCO Company which "'sulting rates include a factor for all these costs, we ~ comdinates the operation of a live-company power "' being allowed to recover in cash all costs of the pool (including the Company) called the Central Area property, including AFUDC, over the useful life of the Power Coordination Group (CAPCO). The costs of property. CCO are shared by all the CAPCO companies. The The amount of AFUDC for an accounting period is third subsidiary is Dynamic Energy Ventures. Inc., determined by applying a rate of AFUDC to the funds which is in the electrical rehability and energy tied up in construction. The annual AFUDC percentage management busmess. rate is determined by a formula set by the FERC. The rate represents an average of the cost of money paid Property and Plant on funds tied up in construction. The rate is compounded semiannually. The part of the rate which Electric and Steam Utility Plant is carried on the books represents interest is reduced to recognize that interest at original cost as defint d by the FERC. The costs of is tax deductible. maintenance and repairs are charged to Operating Expense as incurred. The cost of replacing or The amount of AFUDC appet.rs on our income improving property is charged to Property and Plant. statement in two parts: under Nonoperating Income as The cost of property retired, plus removal cost, less the Allowance for Equity Funds Used During salvage n alized. is charged to Accumulated Con:truction and under Interest Charges cs Allowance Depreciation ami Amortization, for Borrowed Funds Used During Construction. On the balance sheet. the AFUDC becomes part of C nstruction W rk in Progress. Depreciation amount of AFUDC recorded in each accotmting We report depreciation expense on our income period varies. He variation occurs because of (1) the statement as a cunent cost of doing business to number v dollars spent on construction, (2) the account for the normal using up of our property, Depreciation is deducted in equal amounts ove'r the length of the construction period and (3) the rate used estimated useful life of the property. For example, if '""*P.uting AFUDC. De rates were 10.35% m 1983, I m and WM m M. we estimate that an item will be useful for 10 years, we charge one tenth of its value to depreciation expense each year. Ilowever, in the case of the Federal Income Tax Davis llesse Nuclear Power Station (Davis Besse), we The depreciation expense we report on our income utilize the 3mits-of production depreciation method statement is different from the depreciation expense desenbed m Note L, we use to calculate Federal income tax. There are several reasons for t..is dillerence. First, AFUDC and Terminated Projects certain overheads are excluded from the cost of assets Costs associated with terminated nuclear generatmg ch we &praiate for tax purposes. HowgrJwse w msts are included in the basis for the depreciation units are being amortized over a period approximating shown on our income statement. Second, the period 15 years, beginning in 1983. of time over which the Internal Revenue Service (IRS) 25

.s r "otes to Consolidated Financial Statements allows the cost of assets to be depreciated is shorter Accounts Receivable than the period of time (useful life) we use. Finally. Amounts due from customers and others was reduced i the IRS allows some of the depreciation we are by the allowance for uncollectable accounts of entitled to in future years to be used early. (This $5?,247,000 and $1,741,000 in 1983 and 1982, practice is called liberalized depreciation.) Beginning respectively. with October 1976 property additions, the tax reductions resulting from the use of liberalized Note B - Deferred Fuel = depreciation are not recognized in the income As described in Note A-Revenues, our rates are = statement as reductions of tax expense m the periods adjusted every six months to reflect changes in fuel we obtain them. They me deferred to the periods m costs. The differences between the cost of fuel i which we normally would have obtamed them. The actually used and the costs included in the bills to deferred amounts are allocated to income over the customers are deferred. The deferred amount is taken useful life o! property through a procedure called into account to adjust the fuel cost factor for a normalization. subsequent six-month period. When we place new property in service during the On September I,1981, the PUCO issued an order year, the IRS allows us a credit against the tax due for halting further recovery through our electric fuel cost 5 up to 10% of the investment we have made in the r.ew factor under a specified formula of deferred costs of asset. This is called an investment tax credit. We Quarto Mining Company coal used at the Mansfield record Federal income tax on our income statement Plant. Since September 1,1983, we have been as though it were not reduced by this credit. We deferring all Quarto coal costs to the extent they I recognize the tax savings from this credit over the life exceed the market delivered price of comparable coal. of the property imolved through the procedure of As of December 31.1983, our share of these deferred normalization. coal costs which remain unrecovered was Our Federal income taxes are lowered because we $ 18,329.000. A recent PUCO order to a CAPCO can deduct our mterest charges from income. This company, which is expected to be ifDplied to us as reduction of taxes is split between Operating income well, authorizes resumption of recovery of current and Nonoperating income. The tax reductions Quarto coal costs to the extent they do not exceed i resulting from interest actually paid on funds inve3ted 125% of the market delivered price <. comparable in property currently being constructed are charged to coal. Costs above that level may be recovered only if Nonoperating income. The tax reductions of interest they are incurred due to conditions beyond tae control paid on all other funds are charged to Operating of Quarto and the CAPCO companies. A(cumulated lacome. deferred Quarto coal costs as of December 31,1943 h are recoverable to the extent that Mansfield Plant fuel ? costs are less than 110% of the market delivered price of comparable coal. From 1984 through 1989, to the Customer meters are read or estimated and billed on a extent recovery of accun.ulated deferrals in a single monthly qcle basis. Operatmg resenues are recorded year urder the 110% fonnula is less than one-sixth of 3 in the accounting penod dunng which the meter; are the balance, he shortfall in that year is not permitted !!l read. to be r(covered in the future unless it is due to 4 conditions beyond the control of Quarto and the Under a 1981 Oh.io law, a fuel factor is meluded m. CAPCO companies. Although one cannot predict the our base rates. Tins fuel factor is designed to track ultimate level of recovery, we believe that the order of I what we actually pay for fuel. It is changed every six the PUCO should permit substantially full recovery of 4 months after a hearing before the PUL,O. Our steam Quarto coal costs based on,he projected operation of luel rate is based on what we paid for fuel in the the Quarto mines and projected market prices. = preceding month. = Note C - Depreciation Fuel We compute depreciation on all of our utility plant When we make a payment for coal or oil, it is with the exception of Davis Besse using the recorded on the balance sheet as Fossd Fuel straightline method which depreciates the cost of Inventory. When we make a lease payment for nuclear property in equal amounts over its estimated useful fuel, we record it on the bidance sheet as Deferred life. The rates include a factor for the money expected Charges-Other. As the fossil and nuclear fuel is used, to be received when we dispose of the property J we transfer the cost to the income statement as fuel (salvage) and the cost of dismantling and removing it expense. Nuclear fuel amortization also includes a (removal cost). Davis-Besse depreciation is based on recovery through rates for the ultimate disposal of the ratio of the amount of electrical energy it produces spent nuclear fuel. i

[ .$ h N[bhbk)[hh hkdlhirAh bb in the accounting period to its total estimated energy 1983 was based on an estimate of $27,000,000 in cur-production over its uscful life, rent dollars. Annual depreciation provisions as a per-centage of the depreciable cost of plant are as fol-When a nuclear unit is retired from service, we will I *S have additional costs to shut it down. These costs are 1983 1982 1981 called decommissioning costs. The depreciation recorded for Davis-Besse includes a factor for decom. Electric Plant 3.4% 3.2% 3.3% missioning costs. The factor used in 1981 through Steam Plant 2.6% 2.6% 2.7% Note D - Federal Income Tax Federal income tax, computed by multiplying the income before taxes by the statutory rate of 46%, is reconciled to the amount recorded on our books as follows: % of % of % of Pre-Tax Pre-Tax Pre-Tax 1983 income 1982 locome 1981 Income (Thousands (TNusands (Thousands of of of [bilars) Dollars) nollars) Book income before Federal income tax $350.165 $293,093 $207,181 Tax on book income at statutory ra*e $161,056 46.0 $134.803 46.0 $ 95,285 46.0 Decreases in tax due to: Excess of tax depreciation over book depreciation (5,9 10) (1.6) (3,608) (1.2) (2,508) (1.1) Allowance for funds used during construction 52.689 15.0 47,991 16.4 38,180 18.4 Other items 10.168 2.9 6.289 2.1 8.163 3.9 56.917 16 3 50.675 17.3 43,835 21.2 Total Federal income tax expense $104,139 29.7 $ 84.128 28.7 $ 51,450 21.8 Federal income tax expense is shown on the income statement as follows: 1981 1932 1981 (Thousan.h (Thousands (n.ausands of of of Ibliarsi_ Dol;ars) Ibtlars) Operating Expenses Current tax provvion $ 38.309 $ 34,279 $ 23,668 l Changes in accumulated defened Federal income tax: Ld>eralized depreciation and accelerated amortization 20,727 19,498 19,747 Other items ___. 3,387 1,461 6,520 Investment tax credit deferred, less amounts amorrized 65.007 51,144 17,640 Total charged to operating expenses 127,430 106,382 67,575 Nonoperating income Cunent tax provision (22,763) (22,251) (16,125) Deferred tax provision (528) Total Fedtal income tax expense $104,139 $ 81.128 $ 51.450 The income tax we paid in 1982 and 1983 was are available to the Company and have not been used reduced I y investment tax credits of $56,582.000 and amount to $11,117,000. These unused credits may be $71,201,000, respectively. Investment tax credits which used to reduce tax liability through 1998. 27

E ? _ _.., NW_ Em h w "otes to Consolidated Financial Statements Note E - Terminated Projects The first mortgage bonds are issued under our in January 1980, the CAPCO companies terminated M ngage. h M dg ge puts a first lien on almost all their plans to construct four nuclear generating units tim property we own and franchises we hold. which were in various stages of construction start-up. The issuance of additional first mortgage bonds is Ou rate case orders provide specific revenue to limited by two provisions of our Mortgage. Under the recover these costs through the method used to more restrictive of these provisions, we would have calculate the allowed rate of return on rate base and been permitted at December 31,1983 to issue authorize us to amortize the unamottized terminated approximately $922,000,000 of additional first unit costs. Ohio law does not permit recovety of these mortgage bonds. This amount fluctuates depending costs through rates as an operating expense. The upon the remaining amount of bondable property and unamortized costs of the terminated units are not upon earnings and interest rates. included in our rate base. The collateral pledge notes included m. the staternent of Capitalization were issued under an agreement Note F - First Mortgage Bonds signed in 1982. This agreement permits us to borrow additional amounts from time to time up to O.utstanding first mortgage bonds are as follows: $60,000,000 over a two year period. The interest rate Series Year Interest At December 31. on each borrowing will be fixed when it is made, but Due issued Rate 1983 1982 cannot be higher than 16%% We have delivered mionsands of Douars) $60,000,000 of our first mortgage bonds as security for 1983 1975 8.85% $ 50,000 pur bligation to pay the collateral pledge notes 1941 1977 7.55 % 25,000 25,000 ist.ued under tius agreement. Although these bonds 19st A 1980 124% 30,000 30.000 are not shown as outstanding in the statement of 1985 1950 2b% 25,000 25,000 Capitalization, they are outstanding under our 1985 A 19M0 liv % 18.291 18.291 Mortgage. 19s6 1951 3GN 25.000 25,000 1986 A and B 1976 5%% 5.000 5,000 1959 1954 3% 20,000 20.000 Note G - Leases 1989 A 1981 15n% 40.000 40,000 1990 1969 76% 60,000 60,000 As part of our operations, we have entered into the 1991 19ti9 86% 35,000 35,000 following leases: 1992 1981 15h % 20,000 20,000 Ty Remaining Terms 1993 1958 3h% 30,000 30,000 1991 1959 4N% 25.000 25,000 Nuclear fuel in the reactor (a) 2005 1970 Nh% 75 000 75,000 Unit trains 3-7 years (b) 2006 A 197ti 7% 14;000 14,000 Ofhce space 10 years (c) 2009 1978 9eA 50.000 50,000 Data processing and Mostly short-term 11 0 1. 9. I 1 E"#" "S U 201011to N 1982 12.10%.15 35 % 23,900 23,9N Constructujn and ma. te-noncancelable term m 2011 1976 8W 125.000 125,000 nance eqmpment of less than one year 2011.A 1980 fa) 4S.600 48,600 (a) The leaws for the reload fuel currently in the reactor at 2011 B 1981 (b) 22,200 22,200 Dasis Besse will last as long as it take's to burn the fuel. For fuel 2012 1977 8h% 75.000 75.000 reload leases. we pay full rent as the fuel is burned and we pay 2012-A 1982 16V.% 75.000 75.000 a reduced rent equivalent to an interest charge when the fues is 2012 11 1982 13b% 78,700 78,700 tot being turned. 2012 D 1982 126% 100,000 100,000 (b) Unit train leases inch 2de renewal options through 2011. f, (l A i 1 i $1,370,191 $1,295.191 less amounts classihed as current 55.000 50,000 When the PUCO determines what rates are to be $1.315,191 $1.245,191 charged to our customers it includes the rents on all the above leases as an operating expense. Accordingly f a) The interest pud on these txirah is at a variable rate. That rate we record those rents as an operating expense on the ran te no lower than 6% and no higher than 12% The average income statement. Statements of Financial Accounting rares m 199 and 19e were 814% and 9 37%. respectnetv. Standards No.13 and No. 71 require that not later th) The interest paid on thew bonds is at a vanable rate That rate than 1987 we account for certain leased assets as can be no lower than 6% aint no higher than 14% The astrage tates in 19M and 194 were 8 21% and 10 26%. respec tnvly. though we owned them. 28

All the rental payments we make for nuclear fuel and prices (plus dividends accrued to the redemption unit trains are recorded in balance sheet fuel dates) are as follows: accounts. The costs in these accounts are transferred Price at to fuel expense on the income statement as the fuel is December 31, Eventual used. See Note A - Fuel. We paid rent of $12,388,000 Series 1983 Through %nimum in 1983,58,180,000 in 1982 and $7,925,000 in 1981 for Prdured: nuclear fuel and unit tram leases. Lease payments under all other leases were not material. C $ 103.00 7-31-88 $ 100.00 E $ 108S.00 5-31 86 $1,000.00 Some of our leases have noncancelable terms of more F $1.03100 22984 $1,000.00 than one year. We have to make the following G $1.03156 11-30 84 $1,000.00 payments for these leases after December 31,1983: 11 (a) $1,000.00 I 03) $1,000.00 i, ear Amount J (c) $1,000.00 (ThMNnd% OI lhllaIS) Preference: 193-1 $ 1.385 1 $1.02183 7-31-84 $1,000.00 1983 3,971 1986 2,959 (al Beginning June 1.1990 2nd through May 31,1991 at 1987 2l367

I M """ ' "

^"d'"" * " 1988 1 310 3 later Years 5,020 h-) Bmni,ing June I,19^6 at.J through May 31,19X7 at Total $20#12 5150.11. We can buy back Series E Preferred Stock before June We did not include in the above table the payments 1,1986 only under certain conditions. Any borrowed we must make on our Davis-Besse nuclear fuel reload money we use to buy back the shares cannot be leases. Since the payments are made when fuel is borrowed at an effective interest cost of less than used, we do not know the timing or total amount of 8.8% Also, we may not use money from the sale of the rental payments. However, we do know that the other preferred stock or stock ranking higher than lessor has invested $24,261,000 in those leases. Serial Preferred Stock if its effective dividend cost is less than 8.8% Finally, we may not use money raised thrruuh the sale of stock which is junior to the Series Note H - Ser. l Preferred and I3 reference ia ~ E. A total of 3,000 shares of Series E Preferred Stock Stock with Mandatory Redemption Provisions was bought back and retired in 1981,1982 and 1983 During the three years ended Dnember 31,1983, we pursuant to its mandatory redemption provision. sold Serial Preferred Stock with mandatory redemption There are no restrictions on our right to issue and sell provisions or:ly in 1981. We sold 31,500 shares of at thorind shares of Serial Preferred or Preference Series I,29,000 shares of Series J and 10,000 shares of Stock. Series K. We have assured the owners ot our Senes F Preferred Note 1 - Serial Preferred Stock Without Stock a minimum return on the,r mvestment of 6.96% i Mandatory Redemption Provisions after deducting Federal income tax on the dividends received on the stock. If certain income tax laws are in December 1983, we sold 500,000 shares of Series L changed such that their after-tax rtturn is lower, we Preferred Stock which did not have mandatory would have the option to do one of two things: we redemption provisions. Series L Preferred Stock can could buy back the Series F at $1,000 per share plus not be redeemed prior to January 1,1989 as part of a accrued dividends or we could exchange Series F for refunding involving debt or preferred stock whose a new preferred stock. The new stock would have a effective annual cost is less than the annual dividend dividend rate high enough to provide a 6.96% after tax of the Series L Preferred Stock. "4*"' During the last three years, we did not buy back any We have the right to buy back and retire shares of shares of our Serial Preferred Stock which did not Serial Preferred and Preference Stock which have have mandatory redemption provisions. All this Serial mandatory redemption pnwisions. The redemption Preferred Stock is subject to optional redemption. These pnwisions give us the right to buy back and retire the stock. The redemption prices (plus 29 ]

E E' h.-.swra mwSR D E "otes to Consolidated Financial Statements dividends accrued to the redemption dates) are as outstanding options held by employees were as follows: follows: Key Employee Price at inwnuve Stock Plan (a) December 31, Eventual Series 1983 Through Minimum 1983 1982 1981 Options Outstanding A $102.50 11-30 86 $101.00 at December 31 B $103.78 7-31-87 $102.26 Shares 122,601 148,612 150,095 L $111.36 12-31-81 $100.00 Option Price $17.63 to $17.63 to $17.63 to $22.43 $22.43 $22.43 Note J - Common Shares Issued and 1978 Key Employee Reserved for issue Stock Option Plan 1983 1982 1981 Shares of Common Stock sold during the three years ended December 31,1981 were as follows: Options Outstanding at December 31 1983 1982 1981 Shares 389,007 374,705 244,425 Publ.c Sale 9,00 0 )00 3,500,000 Option Price $15.69 to $15.69 to $16.91 to $20.25 $20.25 $20.25 Diudend Reinvestment (a) Under the terms of the Key Endoyee ince ntne Stoc k Plan, im and Stock Purchase fu@er ophons nuv be granted. Accordingly, only those shares Plan 3.021,125 1,3ti2.141 92ti,512 relatmg to options outstanding at Decemtwr 31.19M may be Emphnee Saungs Plan _ 298,581 2M2,162 2r*l.605 issued Employee 'thnft Plan _ 71,767 75.773 71,727 The number of outstanding shares of Common Stock Key Eniployee incenhve changes during the year. We calculate earnings per Stock Plan 20,171 share based on the average number of shares 1978 Key Emplovce outstanding throughout the year. The weighted average 5 toc k Option Plan _ 11.560 shares outstanding in each of the last three years are as follows: Total Shares . _ 3.123.5n7 In.720.078

.iG5 N 1 1981 48,001,081 1982 56,739,806 At December 31,1983, we had five stock purchase 19S3 --.

63.213.562 plans avadable for our employees, share owners and customers. The common shates which are set aside to be used for these plans (includmg unexercised stock Note K - Short-Term Borrowing options) are as follows: /\\rrangements Plan Shares Notes payable to banks totaled $19,100,000 at both Deandxv 31, I and 198. Avadable bank credit Dividend Reinvestment and Stock """"RC*C"'S "'" "S I U"*

Purchase Plan 9,258,256 At December 3,,

Employee Savings Plan 2,535,235 Type 1933 1962 Employee Thrift Plan 156,560 crhousands of Donars) k,ey E,mployee incentive Bank lines of credit (borrow-Stock Plan 529,779 (a) ings at or near prime rate). $170,300 $170,300 1978 Key Employee Stock Eunxiollar revolving credit Option Plan 588,410 agreement $ 30,000 $ 30,000 13.368.270 Variable interest note agreements $ 20,000 $ 20,000 Stock options heht by employees to purchase All bonowings under the Eunxiollar agreement are unissued shares of Common Stock under the Key made and paid back in U.S. dollars. There are no Employee incentive Stock Plan and the 1978 Key requirements that minimum cash balances Employee Stock Option Plan are granted at 100% of (compensating balances) be maintained at the banks the fair market value on the date of the grant. The involved. Ilowever, a fee of 4% to %% per year is shares which were actually bought during the thice paid on any unused part of this borrowing agreement. ~vears ended December 31,1981 were sold at option The interest rate on borrowings is %% to %%, prices rang'ng from $15.69 to $18.59. Shares under depending on usage, above the rate which specified banks pay for Eurodollar deposits in the timdon inter-bank market. 30 ~ _ _ _ _ _ _ _ _ _ - _ _ _ - - _ _

m as Borrowings under the variable interest rate agreement Several lawsuns and government actions are pending. must be paid back whentver the bank requests such included is an appeal by the City of Cleveland of a repayment. Interest is based on the rate for high decision in an antitrust suit in which a jury retumed a quality commercial paper in the 30180 day maturity unanimous verdict for the Company. We believe, range. Variable interest notes outstanding are backed based on the opinion of our counsel, that the ultimate by at least an equal amount of unused bank lines of disposition of these matters, including the antitrust credit to ensure the Company's ability to repay them. suit, should not have a material adverse effect on our financial condition, although an adverse final decision The unused portion of the above credit arrangements, n certain instances could have a material adverse after deducting bank lines held to cover outstanding effect on inceme for the period in which the decision variable mterest notes, amounted to $181,200,000 at becomes final. December 31,1983. Also pu> ding is a petition filed with the PUCO and the The average daily cash balance in bank accounts was Ohio Power' Siting Board claiming that Perry Unit 2 $2,700,000 in 1983 and $6,500,000 in 1982. These w 11 result in excess capacity. Th' petition requests an ~ e balances satisfied informal compensating balance order to cease construction of Peny Unit 2, to cease arrangements under which we maintain balances at accruing AFUDC on that Unit and to prohibit the use banks of $3,000,000 to $G,000,000, depending on the of proceeds of security issues to finance Perry Unit 2. amount we borrow. We believe the petition is without merit and will oppose it vigorously. Under some circumstances, the Note o - Conunitments and Contingencies request of the petitioners, were it to be granted, could Material and services needed to build new plant and possibly lead to cancellation of the Unit. In such equipment must be ordered in advance so that it will event, the rate making process should provide for be available when needed At December 31,1983, recovery of our terminated mvestment and such commitments amounted to: c ncellation costs. However, if such recovery were to be disallowed, then the investment and cancellation Construction program $260,000,000 costs, after adjustment for taxes, would have to be Nuclear material acquisition and written off. Such a write-off would have a material processing into fuel $220,000 000 adverse effect on our financial condition and our income in the period in which it were to occur. Our Usually we can cancel advance orders but often we 31.11% investment in Perry Unit 2 at December 31, must pay the manufacturers for what they have Elready 1983 was $281,728,000. Cancellation costs could be spent for labor and materials and sometimes a substantial. AFUDC is accrued monthly on Peny Unit 2 penaity. and was $2,310,000 in December 1983. Cessation of We have lease and other arrangements to finance up ud accruals could have a material adverse effect on to $370,000,000 of the cost of acquiring nuclear earnings depending upon how long it were to ~ material, processing it into fuel and leasing it while it continue. is being bumed in a reactor. At December 31,1983, The owners of Davis Besse maintain a nuclear under those arrangements, a tmst established in 1982 insurance program to the maximum extent currently invested $58,599,000, which is shown on the balance available. With respect to a nuclear incident at sheet, and lessors have invested $151,621,000 in Davis-Besse, the maximum coverages at February 15, nuclear material and costs of processing it into fuel 1981 will include $580,000,000 nuclear liability 3 Also under those arrangements, nuclear fuel costing coverage for injury to persons and their property and the lessor $21,263.000 is in the Davis-Besse reactor $1,020,000,000 for damage to the owners' property, under operating leases. Statement of Financial including leased fuel, and clean-up costs. The Atomic Accounting Standards No. 71 will require balance Energy Act limits the owners' liability to the amount of sheet treatment as described in Note G of all our the nuclear liability coverage. Damage to the existing nuclear fuel lease and other arrangements not Company's property, leased fuel and clean-up costs j later than 1987. combined could exceed the property insurance by a I Under two long-term coal purchase arrangements, we substantial amount. The owners also are obligated to have agreed to guarantee the mining companies' loan pay retmspective premiums up to $10,000,000 per year and lease obligations. At December'31,1983, the to ser any liabihty msurance claims arising out of a principal amount of the mining companies' k>an and nuclear mcident at any nuclear units to the United Sttes nd up to $8,000,000 per nuclear, c, dent per lease obligations was $83.515,'000. Under one of these mi anangements, we are rcquired to pay the mining year to mer any pmpmy damage insurance daims. 2 2 company any actual out of pocket idle-mine exp'enses' The Company has insurance coverage of $973,000 per as advance payments for coal, when the mines are wp i r the et of mplacement power purchased idle for reasons beyond the control of the mining Y"'.mg the 52 week period starting 26 weeks after any = mcident at Davis-Besse and $187,000 per week for the C *P""E next 52 weeks. The cost and duration of replacement 31 , a

%Q3I$NM$$5NMD$ ?YW ?? Y "otes to Consolidated Financial Statements power could substantially exceed the insurance Utility Plant at December 31,1983 includes the coverage. Also, the Company is obligated to pay following facilities owned as tenants in common with retrospective premiums up to $3,000,000 per nuclear other utilities: incident per year to cover any replacement power Company Ownership insurance claims arising out of a nuclear incident at Construction any nuclear units in the United States. Similar Electric Work insurance coverages will be obtained for Perry Units Facility Percent in Service in Progress I and 2 and Beaver Valley Unit 2 when they go into ggg service and retrospective premium obligations will Davis-Besse 51.38 $444,259 19,814 increase. Bruce Note M - Rate Matters Mansfield 1 6.50 25,784 148 Be PUCO allowed us to raise electric rates by 17% on O'"yansfield '9 2860 116'409 588 May 6,1981, by 10% on March 19,1982 and by 7.4% Bruce on January 7,1983. In the last rate case, a por' tion of Mansfield 3 24.47 156,232 416 the construction costs related to Perry Unit I was included in the rate base. As a result of an Beaver Valley 2 24.47 492,702 investigation into the reasonableness of our rates in Peny Iand the light of a one-year delay in the estimated in-service Common date and the increase in Perry construction costs Facilities 31.11 710,737 announced in March 1983, the PUCO ordered a 1%, or Perry 2 31.11 284,728 $13,500,000, reduction in rates starting October 1, Eastlake 5 68.80 113,322 1,031 1983. The order reduced the amount of Perry Unit I and common facilities included in rate base' as Seneca Pumped St rage Hydro-construction work in progress from $278,000,000 to electric Plant 80.00 _51,736 224 $152,000,000, which is 25% of construction costs as of the June 30,1983 valuation date. These changes in $910,742 $1,510,418 electric rates increased 1983 revenue by $111,100,000, 1982 revenue by $131,400,000 and 1981 revenue by Separate depreciation records are kept for Davis-Besse $133,300,000. The Company has filed a notice of property and Seneca property. The accumulated mient to apply in 1984 for an increase in electnc rates depreciation for Davis-Besse at December 31,1983 of approximately $180,000,000, or 15%. was $53,237,000. The accumu'ated depreciation for Seneca at December 31,1983 was $12,391,000. The PUCO granted a steam service rate increase og $7,000,000,'or 47%, in January 1982 and another Depreciation on all other in-service property owned with other utilities has been accumulated on an increase of $2,400,000, or 12%, in October 1982. In account basis along with all other depreciable January 1984, the PUCO allowed us to decrease rates to customers who agree to continue to receive steam property rather than by specific units of depreciable service until Jtme 30,1988. property. Our share of the operating expense of properties owned with others is included in our in November 1982, the Company filed an application income statement. with the FERC to increase the rates for sales for resale to the Cleveland Municipal Electric Light Plant by Note 0 - Pensions $716,000. The Company implemented the proposed rates and began collecting the requested amount in We pay the full cost of a pension plan for our June 1983, subject to refund, dependent on the employees. Under the plan, an employee who has outcome of formal heanngs. worked at the Company at least 5,10 or 20 years (depending on the person's age when leaving the Note N - Property Owned with Other Company) can begin receiving a pension benefit at or Utilittes after age 55. The amount of the person's benefit depends on length of service and earnings. The Some of the generating units which we own or are benefit is reduced by a portion of social security building are owned with other utilities. Each company benefits. De benefit of an employee who retires after owns a'n undivided share in the entire unit. All the age 65 is determined as if the mdividual were age 65. owners are tenants in commoa. Each company has H the pason retin's befon3 age 62, We employn s the right to a percentage of the generating capability benefit is reduced. The plan also pays benefits when of each unit equal to iis ownership share. We are an empi yee dies or is disabled. obligated to pay for our share of the construction and operating costs of each unit. We are not responsible for the other owners' shares. 32

m ~_ - We annually deposit noney into the plan to fund the accumulated on,_ different basis. We and our pension cost of benefits arising from employee service and consultants believe that FAS-36 disclosures are very earnings in the current year. We also deposit money misleading because they understate the amount which to fund each year a portion of the cost of benefits the entry age normal method tells us should be in the arising from past service and earnings because of fund now to provide pension benefits as they become amendments to the plan. In 1983, our total payment to payable under a plan intended to continue the fund was $15,300,000. We deposited $12,100,000 indefinitely. We are making the following disclosures in 1982 and $10,200,000 in 1981. Of these amounts, only because we are reqnited to do so. we recorded on the income statement $10,211,000 in 1983, $8,011,000 in 1982 and $6,659,000 in 1981. The At Januaq 1, remainder was nronted on the balance sheet, mostly 1983 1982 as construction costs. Stillum of LMiars) Attuarial present value of The amount we deposit into the pension plan is accumulated plan determined by a method known as the entry age benefits: nonnal method. It is u:ed by many private pension llenefits which are vested $113 $132 plans. Tlu,s methmi takes into account eshmated knefits which are not increases m employees' future earning'ts over their s in an effort to mted 11 13 levelize the funding of pension beneli working hves. The liability of the plan as of January 1, $157 $145 1983 determined under this method was slightly more Value of assets held m than the value of the assets in the plan on that date. the plan $211 $191 Statement of Financial Accounting Standards No. 36 (FAS 36) requires us to disclose accumulated pension Under both methods of determining the plan's liability, plandiability without considerathn of future increases the one which we use and the FAS-36 method, we in employets' earnings. Therefore, the disclosures estimated in 1981,1982 and 1983 that the earnings of below, required by FAS-36, compare liabihty of the the plan would average about 6%"6 per year over the plan determined on one basis with assets life of the plan. Note P - Quarterly Results of Operations (Unaudited) 'the following is a tabulation of the unaudited quarterly results of operations for the two years ended December 31, I981. Quarters Ended March 31 June 30 Sept. 30 Dec.31 Obusands, euept per share anunnits) 1982 Total operatmg revenues ? $273,038 $268,985 $299,221 $267,325 Net operating income __._. 5 52,771 $ 56,953 $ 70,253 $ 48,918 Net income L $ 18,019 $ 50,611 $ 66,849 $ 43,456 Earnings available for common sh>ck $ 38,407 5 41,051 $ 57,302 $ 33,909 Average conunon shares 51,257 55,679 56,088 60,3n1 Eamings per common share .71 .71 1.02 .56 19Kl Tott operating revenues $299.600 $290,480 $351,011 $269,195 Net ooerating income $ 58,935 $ 58,965 $ 87,717 $ 52,745 Net income $ 56,236 $ 52,192 $ 81,601 $ 55,996 Etinh s available for common seck $ 16,690 $ 42,668 $ 72,121 $ 46,121 N Average common shares _ 62,026' 62,568 63,488 G1,689 Eamings per common share 75 .68 1.14 ,71 1 33 J

1 l l "'inanCial and Statistical Review 1973-1983 H 119 0 1982 1981 TOTALOPERABNG REVENUES 1 21o 316 t.fint 571 I ol2m Residential 3x3 07t; 348.757 310.40 Commerdal 33i 6w 364.801 263.et industnal 430 2n9 393.791 3x6A Other Electnc (Irnludes Sales for Resale) 14217 43.702 3931 16 ist 17 517 12 19 Steam lleating TOTAL OPERATING EXPENSES 951 954 879 64i M10 2D Fuel and Purchased Power 3:52 97-333.279 351,41 Other Operatmg Expens(s no 4te 25R591 224 2' 9i 196 86.5M 85.26 Deprecation and Amortization Taxes Other Than Federal incorne Tax 128 xx3 106 804 91.6 Federal Income Tax 127 m 106 3x2 67,57 NET OPERATINGINCOME 29 in2 22x 927 192.7i NONOPERATING INCOME ii

Iis

% M9 75 71 Allowarice for Equit Funds Usnj During Constnution x 7.052 mh06 4A9; o'he"aco"* *"dl * *'io"> 2 7 """ '9 773 2'm lHCome statement INCOME BEFORE INTEREST CilARGES 372 sin 325 5 % 2tx 4i (1.houunds of Ib!lars) INTEREST mm m 3' m long and Short-term hderest 153 971 144 072 146.71 Allowance for Borrowed Funds Uwd Dunng Constnuton _ 27 io a.27 4 4* n (3 4 0.- INCOME BEFORE COMt flATIVE ElTECT OF ACCOUNTING CllANGE 2 Ku26 208.904 15U Cumulathe Effect of Change in t hyreaanon Method on Pernwis Prior to January 1.19i9 NET INCOME (a) 2 te:02r; 2o8 %4 155 7 PREFERRED AND PRfHRENCE DIVIDEND REQUIREMENE _ _ 38.1 8 3x 295 349: EARNINGS AVAILABLE FOR COMMON STOCK 2o7eni i7o 6m 120 t EARNINGS PER SilARE BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 5 13 5 3 01 5 2: CUMULATIVE EFFECT PRIOR TO JANUARY 1.193 TOTAL EARNINGS PER SHARE (a)(b) s 3 28 3 01 5 2: DMDENDS PER SHARE (b) s 2 31 5 2 19 5 2i TOTAL ASSETS 4 2n7 ir 1872 w 1 aow Utility Plant-Total 4su > 4n10.532 3 clop Accumulated Ut hty Plant Depreoatum and Amortaation _ p22 i m (679 *)) (f.21.3 Other Property 7a d 1i 61216 23 > Current and Other Aswts in i w7 478 on 392i TOTALCAPITAIJZAT!ON AND LIABILITIES 4 a.7 427 3 x72 909 34*,o Balance Sheet lont ierm D* uiwa L uin2 i.3x 4-Preferrni and Preference Stoi h,eafeud With Mandatory Rniemptisn Provisons 31*

32290 32in (Thou uu of lbilars)

Without Mandatory Rolemptwin Provmons 1 o21 95.071 95.0 Common Stixk Equity 1.3n ts.s 1.227Fi5 1.002 2 Defermi Fnteral Irnume Tases 1i1 072 322.18x 236.4 ~ Current Liabihties arnt Other Credits st9%i th4 7Ti 418.9 UT!!JTY PLANT ADDITIONS (c) IN 422 lio 409.2 (D11 fly PLANT REBREMENTS 46.1i9 ?2.533 13 7. NUMBER OF COMMON SHARFS (b) 65iA m 61.774 SR2 5 L054.5-KWHR SAtB(Thousands) in 617 472 let16; is7 i7 507 m, Remdential 4,412, g 3 : q 3 gspi3 4,373,7 Comnwrcial 4261.o21 4 194 177 4,178_4 Industrial 7.513 673 7OX2.261 82797 Other(hu tudes Sales ter Resale) 4 in q1 r,5 t 1 I 4 s73 9 ELECTKlc CUSTOMERS-YEAR END 7 t ? Mn iit 222 7n 1 Residential td ioid bil 705 6429 Commeraal ti2 075 bl.861 (Q7 Irulustrial 7.278 7.235 7.2 Other 419 421 4 RESIDENTIALSALES DATA Average Kw hr per Customer 6um 6 440 6.5 Average Revenue per Customer. 5 579 39 s 524 63 466 Average Res enue per Kwbr 8 77e 8 ost 7 O.perating Statistics ELECTRIC PRODUCnON Net Avastable for ServW Area (Thousarnh) Ix $61 N.7 17 677 At1 in 936 ; Net Generation 17.I5.9xi 17.032.759 17.237.5 Net Received from Others lp 8% 641 072 1 639 o IMU per Kwhr (A Net Out it la4u IR47s In 5 Fuel Cost per Mdlion B 199iA< 17 6 72t 175 Coal Cost per Ton 5 te; M s 45 si s 46 Annual Net W-Mm Max im4W.Exct. In:ceruptibles 3.3:4 im 3 078.0u0 3 362.6 Net Sutem Capabihty-KW-Year End 4 3,p o 4.656 00n 4.624 e STEAM HEATING Sales-Pournis(Thousarxh) 1.281 tw I.501.077 1.612 I' Customers-Year End 27t 312 3 EMPt.OYEES-YEAR END $339 5.411 5.1 (4 The 1978 no nonw and earn ngs per share cakubmt on a pro forma baws to refht the unitvol pnntation nehol d desmiat are $102.942.50.1 and 52 31. rewme!v The per turma of%1 of the.mv enn of tha depmiation morwat on 1977 m.m not mar 31

-y. 'f 7 .x

b..f

\\ y {. Jy .[f y/ 3 ,N ,S / W l _, A L t' The Cleceland F ctr !!uminating Company and Subsidiaries 19MO ' 1979 - 1978 fIl7 1976 ' [O li$ 1974 1973 AYl 5(,6 M24 267 - 717/H2 659 2'n - 543 14.4 523.165 463.931 328 168 268 737-237.612 - 213.520 200.765 160.015 154.020 140.030 104.379 y ' 220.677. -194S99 172 25l 165.049 121 286 ..12]M3 / 109.185 80.756 323.764 322.909- ' 278.405 ' 251.181 197.189 - V - 65.273 f 55.799 42.831. 31.611

41730,

~ 180.s90 177.24 6 119.964 55 99 29.946 17.832 15cs5 13044 10M5 10,644 ' 10 92s i 7.530 5.M37 c 74't OSI 6MJel 5992M9 542 87_1 441,401 4h MJ 375 159 255.276 !,,_i : ' 234 101. 246.984 " 199.362 100.450 300,347 311027 . 307.429 265.775 .194 MI IC2f.36 - 1402D6 127.330 102Ja4 94.539 85.122 72.795 64 619 ' 59. 4 *J - 56.774 43.307 h. /. 35' /4 33.046 31.632 30.965 81.630 79.4 % . MJ56 58M07 r< 51.925 - 4813i. r 43.653 40.906 41,574 38 227 25 334 47 656 ' J fI 701 to3F '.<f 15 3 %. 10 160 550 515 13 [4 5 117 Mi Il6.41s . WlJ47 M9 551 ' 88178 73 492 L 62 4to 47 621 42 226 ' 414A4 ' ~ _ ' 26.346 17MI 8,4J2 7 642 40.873 33.432 29 M90 35.265 24306 16383 7 S54 6.363 7 t S7 ' 141A9 12 336 g 14.2I9 1.640 6% Ria IJ79 L -212 955 Ql3 160,029 109'3 I?M.m1 107.232 _ 97.0 0, 81.134 I A7.572 f9 566 + 61.016 54.175 46.413 42,464 36s(ss 31120 i 112.623 85ZN 72.c.' t 67.M9 56J50 50.511 44J17 35.161 (25.051) _ (15 733) (11,03 (11 718) (10.317) (M 047) (M 208) (3.441) 125 383 111538 99.0d 111.728 81.680 64.768 60J41 49.414 j l +- j. 4.125 (' ..J' A 125.341 il7,6E 99 011 li f.72A AIMO 64 1633 i 60,741 49.414 ,4 7 10 067 7,658 27,711 25.587 ,di 23 575 j j, 22%W 18 005 14 6 % { _ 50 674 41J56 97.672 v2 072 75,418 / pg 63 675 50 072 2.26 8 2 31 5 2 20 2jl ,4< "2 3A ~ ' s 2.11 5 2.45 5 2.03 c ii __ a,. f Q }- _ 2 26 8 2.42 5 2J( 47/. 2.91 h ' 2.38/ 5 2.11 5 2 45 5 2.03 )- 2 00 1 92 1 84

4 1 76

, 1.71 5 1.65 5 1 60 1.55 s 1 3 034 462 2.67M 7M6 2,331y41 f 2,117.135 1.842.999 - 1 Lal3.247 1.354 065 1.152.335 w 3.215.319 - 2.842.253 2.523 % / 2.232.111 1.955J01 f.693 U4 ).526.659 1.364,122 l ' (557.8M <(521.175) (478.9Ah (429.1501 (396.338) (373 41) (355.841) (334.071) 21.137. e 19.501 110A 13J53 12.849 .9 942 7.433 5.331 415AU : 3b% 269.4'18 % 421 270 7A7 I A3 542 175.814 116 953 3 024 4(a, 2.6M 7Q

2.331 541 2.117.135 -

1.842.911 1,513.247 L 1 354.065 1 152.335 1.288.528 -'s 971Af. 920.973 885399 747.392 673.003 553.144 ", jy s'- 502.800 MOne F 212 0M 232.000 185.000 135.000 75.000 63.000 25.000 95.071 95.07'3 . / 95.071 95.071 95.078 95.071 95.071 95.071 912M J20.411).' 708 M3 633,741 511.333 419.990 346.736 326.947 422180 162.122 ' 110.677 111 299 72.318 63.267 43.348 34.312 l'.12.452 3 % 191 231 937 198 122 2418K5 1869{G q 252J66. 168.205 3'mM8 329. % 9 300Jh5 - 2M6.739 275D -- Ip>b 4 173,899 145.470 25 &l2 11.612 8 EMU 10.329 11437 . ' pl3 11.362 10.188 46.2p.629 41.271,574 35.995.365 32.388.055 28.347.544 - 24J51.495j 20.748.110 20.611.034 p-141 % 754 19,0D 3, I A.364.437 Ik A66,42R 48p70 291 4~

~~

j 18.133 826 4, _ 17 601 686 17.747 6t3 ,4.463.147 4.3% AJ. 4.2M M5 . Wo.Il6 )t\\4115d < 3.954 904 / # 3A10.305 3.910.018 g 8.0 4.172 9.268A9 - " A9'1586 LN7.123 eo'180f,897 3.tTs5 W 3.527.382 3.569.689 4.143,910 - 4.041.f 44 ' ' " %#.M3 5874196 ' 8#4.9Cv + 7.8K.419 8.819.205 9.103.173 p ' [4M 445 , I#77Y4 1.14947, j88313 A 40.24 3 '.f 2.641.525 1,424 794 1,164.781 710 M7 -. 70M 2'# 7QA M

4 SJi -

691 65 689.1 7 6M 728 678.426 642 885 64t N 6 3 3.)7.009 ' bPJ40 * ;< - b30.5MI '

617.719 2.f 623.9M 618.266 60.070 e: sn 6%

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53.070 52.231 .,v 7.206 7.190 '7.2t? - 7.415 7.2 14 ,f 7.167 7.112 s 7 .- 7.210 412 7; - 4!! i,_ 412 ~ 4'4 460 459 454 454-6.557 - 6.5Vi .' 6.412 - 6[187 6 I'16 5.914 6.098 ' 6.M6 357 86 ~ l ~ 7.?4 9) 5 307.II 5 21116 5 237.02 5' 216 69 .162 69 405_U9 x '. tt - WD.$ 6 05: /' 5.488 4 808 3 974

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??. g64 Mi h g C., + 19.0'm.231 18,331 38] ' 17,271 169 _ 17,817363-18.257,155 13 722 616' l. I5.325.948 ' s 759.9i 4 16.M239._ l,,, !8.123.528 ~_ I,583 758 1.058 157 (H2.337) - 930.515 16J47.621 16.213.012 18.040.100 17.326.640 Q 196 668. 2,575 M7 2.572.lM 974.703 10.635, .10.634 10.516 s j' ).. 10.401 10.322. 10.454 10.569 = 10.382 ~ 156 928 : J I42.5H . 131808.* 117.504 105.55e '11.148 , 102.264 48.404 1 f[3,24Wes 39 31. 'S-35 20 .?p 73 : 25 72' ,S 23 98 5 J4 93 , 21 53 11 05 ,' 3.3503m f g,,M5.000 ' 2.937.000 / 1 334.000 3.119.000 3,238.000 3.097 000. M t.562 y< j *, r>4.59fe ' ' 4.59n,000 ' ,p- - 4.386 000 ; 3,90iOOO ' 3.615,#?J / lIJ64 000 3J69.000 Q.,^', r. P st un M,397- ,IOKtEt, 4 /[0 8M6 ' a 2.N4.310 - I 2{ 3R5 39) 7 ' ; 40F : =416 W 40 a f.A}2.h k 677' 2.263.6N) - 2.2. .: Ui4.925 2.154.390 / 3 68 . _ - 365 p 3 369," t .t377 4?K 7 t" A43t FA8to J.. 4.982 4.853 %_ 4 99) 'I a Adieddtbf h.2 sod stAfettatMemtwr16.IlW# O. 4.9 17 y dtw e q6s2m6 a mmmqe miaa mneo to mred Ngn in 1971

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Statement of income Irom Continuing Operations The crevetuna tte< tric tituminuwm a>mpany andsumidianes Adjusted for Changing Prices for the Year Ended December 31,1983 m""*di Conventional Constant Dollar Current Cost llistorical Average Average Cost 1983 Dollars 1983 Dollars (Thousands r f Dollars) Revenue $1,210,316 $1,210,316 $1,210,316 Operation expense 515,115 515,415 515.415 Maintenance expense 88,030 88.030 88,030 Depreciation and amortization 91,196 202,295 229,146 Taxes other than Federal income tax 126,883 126,883 126,883 Federal income tax 127,430 127,430 127,430 Nonoperating income (114,148) (111,148) (114,145) Interest expense 126,481 126,184 126,481 961.290 1,072.389 1,099,243 Net income - continuing operations 5 216,026 $ 137,927 (a) $ 111,073 (a) Increase in specific prices of property and plant (b) $ 120,482 Adjustment to net recoverath emt $ (22,963) 96,980 Increase in general prices (213.571) increase in specihc prices in excess of increase in general prices alter the adjustment to net recoverable cost 3,891 Gain from decline in purchasing power of net amounts owed ___ 83,105 83.105 Net price level adpistment $ 60,142 $ 86,996 <a) includma nie adiostment to net rmwerable unt, net income for 1983 would have been 5n t.9ra. coo in constant dollars and 5:08.053.000 in < unent cost dollars (tn At December 31, 1983. the runent cost of property, plant and equipment net of accumulated depreciation was $5,938.%1.01X) whde orispnal inet recowrable) < mt was $3.732.296.000. j Supplementary Information Concerning the Effects of Inflation As prescribed by Statement of Financial Accounting Current cost data differ from constant dollar data Standards No. 33, we have prepared information on mainly because the prices of assets hase increased at the ellect of inflation on operations. The methods rates different from the rate of general inflation. used to compute this data are experimental and subject to change by the Financial Accounting Revenues and Expenses Standards Boaid. These data do not reflect the Revenues and expenses (except for depreciation) were " current value" of our assets. They do not measure all assumed to accumulate evenly throughout the year. the ellects of inflation on our operations or predict our No adjustments were made to the figures reported in future cash requirements. The effects described herein the primary financial statements. No adjustments were are not recognized for income tax or ratemaking made to Federal ircome tax expense. purposes. Depreciation General The constant dollar and current cost estimates of pr perty and plant were determined by applying the Ilistorical costs adjusted for general inflation are indices notal to original cost. Restated depreciation referred to as " constant dolla'rs." The original cost of reserves were used to compute property and plant net utility plant and certain other items was ' converted to I depreciation. They were obtained by applying constant dollars by applying the Consumer Price Index current depreciation rates by account to restated for All Urban Consumers to the cost of these assets. property and plant figures by vintage year. The Current cost data reflects the cost of current depreciation provisions were obtained by applying replacement of existing assets. The current cost of current depreciation rates to the aserage of beginning assets was estimated by applying the llandy-Whitman and end-of year restated depreciab!e property. Index of Public Utility Construction Costs to the original cost of structures and equipment. Original Materials and Supplies cost of land was trended using the Consumer Price Balance sheet items such as fuel in stock, materials Index for All Urban Consumers. Certain other property and supplies were treated as cash type items. Fuel was tren(ted to current cost using other industry inventory is subject to rapid tumover. As such, we indices. believe the original cost of this iter i fairly represents its current cost. 36

'live-Ycar Comparison of Selected Supplementary The Cleveland E!cctric liluminating Company at:d Subsidiaries , Financial Data Adjusted for Effects of Changing Prices (twman Year Ended December 31, (Averag,e IW Di&ru 1983 1982 1981 1980 1979 (Thouunds, except per share ammnts) Revenue as reported $1,210,316 $1,108.571 $1,012,930 $ 893,566 $ 824,267 in 1983 constant dollars $ 1,210,316 $1,141,233 $1,109,612 $1,080,389 $1,131,377 Net income as reported - continuing operations $ 216.026 $ 208,964 $ 155,734 $ 125,383 $ 113,534 in 1983 constant dollars $ 137.927 $ 114,188 5 75,946 $ 62,826 $ 79,072 in 1983 current cost dollars $ 111,073 $ 83,827 $ 47,129 $ 29,367 $ 41,795 income (Inss) per Common Share as reported - continuing operations 3.28 3.01 2.52 2.26 2.31 in 1983 constant dollars 1.57 l.31 0.79 0.68 1.15 in 1983 current cost dollars l.15 0.78 0.19 (0.10) $ 0.18 Net Assets at Year End as reported $1.355 A88 $1,227.095 $1,002,206 $ 912,731 $ 820,411 at net recoverable cost $1,332.710 $ 1.252,275 $1,062,374 $1,054,020 $1,064,857 Increase in specif,c prices in excess of increase in general prices after adjustment to net recoverable cost 3.891 12,609 $ (134,723) $ (228,301) $ (260,377) Gain from decline in purchasing power of net amounts owed 5 83,105 $ 79,885 $ 173,930 $ 228,079 $ 243,251 Cash Dividends Declared per Common Share as reported 2.31 2.19 2.n3 2.00 1.92 in 1983 constant dollars 5 2.31 2.26 2.28 2.42 2.64 Market Price per Common Share at Year End as reported 18.63 19.75 16.00 14.63 16.25 in 1983 constant dollars 18.31 20.16 16.96 16.89 21.09 Average Consumer Price Index 298A 289.1 272.4 246.8 217.4 Adjustment to Net Recoverable Cost Effects of Inflation on the Company Under Ohio law, we can recover only what we paid for Our 1983 revenue increase exceeded the increase in plant and equipment, so the values of these items unit sales of electricity. Revenues in constant dollars under both constant dollar and current cost methods also increased but less dramatically. This shows that were adjusted to reflect the original cost amount. inflation reflected in rates by the increasing cost of service was lower than in prior years, but remains a Increase in Specific Prices in Excess of increase in major factor in revenue growth. eral Prices after Adjustment to Net Recoverable Net income from operations increased in 1983 on both constant uollar and current cost bases. The The increase in general prices as measured by the differences between these measures and income as Consumer Price Index for All Urban Consumers during reported occurs because we are not permitted to 1983 exceeded the ovcrall increase in prices of our recover current cost measures of depreciation through property and plant. Ilowever, when the current cost of rates. Ohio law restricts recovery of investment plant was adjusted to reflect net recoverable cost, the through depreciation charges to the original cost of difference between these price measures was plant. The part of current cost we couldn't recover was significantly reduced, only partly offset by the gain from holding cash type liabilities. Gain from Decline in Purchasing Power of Net Amounts Owed We have to raise new capital to meet growth needs at inflated costs of construction and to replace worn-out With inflation, holding cash type assets such as items at higher replacement costs. Il rate adjustments money and receivables results in a loss in purchasing fail to compensate for the cost of new capital, power. Iloiding cash type liabilities such as long-term especially during times of inflation, a regular erosion debt results in a gain in purchasing power. Preferred of the retum on equity will occur. As a result, there stock and deferred tax balances were treated as cash will be a regular need for rate relief. type habilities for this computation. We continue to seek proper and timely rate increases and a regulatory environment which is responsive to the effects 6! inflation on our investment. 17

h:'(((((([ h,h((hh [jh hh[hh M h h %.M [ O encral Infortnation Dividend Reinvestment and Stock Purchase Plan Common Stock The Company has a Dividend Reinvestment and Stock Listed on the New York, Midwest and Pacific Stock Purchase Plan which provides share owners of record and Exchanges, unlisted trading on the Boston, Philadelphia-customers a convenient means of pur(hasing shares of Baltimore-Washington and Cincinnati Stock Exchanges. Company common stock at no additional cost by investing New York Stock Exchange symtxal-CVX. a part or all of their quarterly dividends and cah payments. Preferred Stock Dividends rein ested in Lompany common stock under 1.sted on the New York Stock Exchange. the Plan qualify for the tax deferral pnuisions of The Economic Recovery Tax Act of 1981. Information and a Registrars prospectus relating to the Plan may be obtained from Er Common Stoc k, neference Stock and &clerred Stock 5 hare Owner Sersices at the Company. AmeriTrust Company Natior,al Association 900 Euclid Asenue Form 10 K The Company will furni3h to share owners, Cleveland, Ohio 41111 without charge, a copy of its most recent annual report to the Secunties and Exchange Commission (Form 10 K) Transfer Agents and, upon payment of a reasonable fee, a copy of each For Common Stoc k, he/crene e Stock and he/crred Stock exhibit to Form 10-K. Requests should be directed to the The Cleveland Electric illuminating Company Secretary of the Company. Share Owner Services P.O. Box 5000. Cleveland, Ohio 11101 independent Accountants Price Waterhouse,1900 Central National Bank Building, Stock transfers may he presented at Wells Fargo Securities Cleveland, Ohio 4 till Clearance Corporation,45 Broad Street, New Wrk, N.Y.10001. Bond Trustee and Registrar Share Owner Inquiries Morgan Guaranty Trust Company of New York for all series. Communications regarding stock transfer requirements, Communications regarthng bond registration requirements y cer

ates, n an changes of ach shouM k mcu to %am f)wn&tes at M,umpanyl mach and lost certificates should be directed to Morgan Guaranty

, es h phone caU me foHowing numh am wnn Trust Company of New Wrk,30 West Broadwa'y, New York. Local calls in N.Y.10015. Telephone Number (212) 587-6469. Cleveland area 622-9800, ext. 2325 Bond Paying Agent Elsewhere Manufacturers Hanover Trust Campany,10 Wall Street-in Ohio 1-800-362-1237 New Wrk N.Y.10015 and AmeriTrust Company National Outside Ohio 1-800-321-3206 Association,900 Euclid Avenue,C!escland, Ohio 11111-Please have your account number ready when calling. Co paymg agents for the 2%% Series, Due 1985 3%% Series Due 1993 Executive Offices Mail Address 3%% Series. Due 1986 1%% Series, Due 1991 Illuminating Building Post Office Box 5000 3% Series. Due 1989 55 Public Square Cleveland, Ohio 11101 Clevel nd, Ohio Morgan Guaranty Trust Company of New York,30 West Telephone Number (216) 622-9800 Broadway, New York, N.Y.10015'-Paying agent for the 7.55% Series Due 1981 9%% Series, Due 2009 ' Die annual meeting of the share owners of the Company 12%% Series, Due 1981 A 9.85% Series, Due 2010 will be held on April 24,1981. Owners of common stock 11S% Senes, Due 1985-A 8%% Series, Due 2011 as of February 24,1981, the record date for the meeting, 15%% Series, Due 1989-A 8%% Series, Due 2012 will be entitled to vote on the issues. The official notice, 7%% Series, Due 1990 16%% Series, Due 2012 A proxy statement and proxy will be mailed to share owners 8%% Series, Due 1991 12X% Series Due 2012-D on or about March 12,1981. 15%% Series, Due 1992 12%% Series, Due 2013 A Notice: The annua! report and the financial statements 8%% Series, Due 2005 herein are for the general information of the share owners of Inquiries regarding interest payments should be directed the Comnimy and are not intended to be used in connection to either Manufacturars llanover Trust Company or Morgan w th any sale or purchase of securities. Guaranty Trust Company of New York for the series of bonds for which each acts as paying agent as noted above. 38

I d IH i l I I I IE iI d l I It bIi 1 Ser" ice Area Ashtabula Plant 4'#,f,j#3?S x' The Company furnishes ekttric service to an area approximately 1,700 square dhW "'j,M $"s'.3 miles, extending 100 miles along the south shore of lake Erie from the Perry Nuclear C <f'h ; /jj$' /,y;n' ,?h,;'f('yn[ Ohio-Pennsylvania border on the east through the city of Po'wer Plant Avon take on the west. Total p>pulation serval is 9 approximately 1,850.000' h - @hhbb ;%$ thWG Eastlake Plant ' JW%~';'d r, A Interconnections with Ohio Echson E;M (From Davis-Besse Nuclear Power Avon w / 9 atation) laise Lake Shore Plant yf, Eld"I (From Mansfield and Beaver Valley +[ $'Ahf#' B Interconnections with Ohio Edison gs,1 ' f-k W 4'4 ~aW~#^%;^M~ t ' ~ Plantsi and Ohio Power A /'s s C Interconnection wilh Pennsylvania '/hom 5 Ekctric (From Seneca Pumped Storage g8 Ilydn>eltitric Power Plant-80% B ownnt by Company) M , gg'M apeo eg%g,,NA 't D7~* The Company is a member of the t W J ' x Cenital Area Power Coordination I . i'M Y.-( E-j - [, W.

c. ff, f "'- -

I he liluminating Company Group (CAPCO). lonned by regional rehability of interconne(tions, hat k-up j';g f"'t jg jj Pennsylvania Power Company ohhty companies to assure greater i-g E '>^- ~ Ohio Edison Company m case of emergencies and better 6:Jfez o Edison Company u o cronomies of operation. 01her N hg.,g,[f[N

v4pa, ky Duquesne Light Company

' ' ^ - members include 1)uquesne Light Company. Ohio Edison Company, y*:;g'%g Pennsvlvania Power Company and N'l'4' ~ 'T he Toledo Edis<ni Compariy. The members are constructing power generation and transmission f acilities. Through interconnections shown alu e with CAPCO members, ~ 2 Pennsvivania Eln tric Company and ^* Ohio Power Company, the Company's CAPC'() Generating Units service area is part of an inter-connnled system hnking continental Expntnt Net Demonstrated Year of Construction U.S A and major putions of Canada. Capabihty (Kilowans) This interconnection network further Scheduled and Operation oin . Total ompany Share Completion Responsibility enhances the f eliabihty and economy of our customers' electric service. Eastlake a Unit '5 ti33AN) 137Ah) in Sen ice The Illuminatmg Company Sammis a Unit '7 6n0Ak) -- o _ In Sen ice Ohio Edison Company Mansfield u Unit *1 780DM) 31MN) in Service Pennss !vania Unit "2 780JO) 223AX) In Sen-ice Power Unit "3 Sn0AW) 1963N)0 In Service Company Dasis.llesse e 880Jn) 432AX) In Sen ice The Toledo Edison Company Perry eUmt *1 1,2039,a 375 A X) F)s3 Unit '2 1.203 Ah! 375AM) 1988 The Illuminating Company Bew er e Unit 'l 810.m) In Senxe Duquesne Valley Unit '2 833Ah) 204 A K) 1986 Light Company e c.4 %1 e %aiur g

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.,'c ...,_, i', ,'f J p .o g.S omnlittees of the lloard of l)irectors oard of Directors Audit Committee The Audit Conunittee recommends to Leigh Carter the ik>ard the firm of independent accountants to le Chairman of Tremco. inc., manufac turer of.speciahy retained for the ensuing year and reviews the results of chemical products and a wholly-owned subsidiary of their examination of the Company's financial statements The BFGxxirich Company. Also. President-Engineered and the audit practices emploved by them and the Products Group and Exe( utive Vice President of The Company. The Committee oversees the establishment and BFGux! rich Company ^ administration by management of effectne internal Robert M.Ginn a(counting controls and an accounting system designed Chairman and Chief Executise Ofbrer of the Company to produce financial statements which present fairly the Rov li. lloidt financial position of the Company. cyinuan and Chief Executive Otficer of White Consolidated C E Spahr IChainnant L Carter. R H Holdt,101 LUilhams Industries,Inc., manufacturer of pnalucts for the home. principally major appliances, and machinery and equip-(.ompensation C.ommittee 1.he L,ompensation t,onimitwe med b ihdmy reviews and appros es the ( ompany s overall Compensanon John Lansdale,Jr. Plan. including the pension and emplosee stock purchase plans and. in particular, reconunends the remuneration of Partner in the law firm of Squire. Sanders & Dempsey the Chairman, President and all Vice Presidents. Richard A. Miller L Carter (Chainnant R H Holdt. H E Straa' bridge. President of 1he Company 101 Wdliams Sister Mary Marthe Reinhard,SND* Pnsident of None Dame College of Ohio Executive Committee The Execuive Committee acts on behalf of the ik>ard at times othei than regular Board Karl li.Rudolph meetings w hen it is impracticable to cdl together the entire Chairman of the Executive Committee and retired Ikurd The Committee has the same autaority as the Board. Chairman and Chief Executive Officer of the Company except that it may not elet t officers (other than assistant Craig R. Smith secretaries and assistant treasurers), fill vacancies on the Chainnan of Bendix Automation of Bendix Corporation. Ikurd or on the Executive Committee or authorize the a wholly-owned subsidiary of Allied Corporation. Bendix issuance of f rst mortgage bonds Automation is a pnxtucer of machines and accessories for K H Rudolph (ChmrmanL R M Ginn C R Smith. the unetalworking industry H E Smm hndge Charles E.Spahr Director of ses eral companies and retired Chairman and H. nance C.ommittee The Finance t,onum.ttee reviews and Chief Executive Officer of The Standan! Oil Company recommends long range financial policies and objectises (Ohid nunufadmer c. petroleum puxtucts.chemicIils and specific actions to acineve these objectives.The plastics and metals ano supplier of coal Committee, acting for the Company as administntor of the lierbert E.Strawbn.dge Company's Pension Plan and investment Program of the Employee Savings Plan. also review s the investment Chairyuan (M th Hnamr u, nnuun and rdired (,hairman and thief E,xecutive Officer of T he fligbee C,ompany, a performance of the pension fund trustee,other pension department store fund insestment managers and the E.mployee Savings Plan trustee and establishes objectives for the investment'of Allan J.Tomlinson, Jr.' Chairman. President and Chief Executive Officer of SDS Pension Plan and Employee Savines Plan assets. ."'Y"'" U" "'" W' h "' " b '" "" R A Shller(Chainnant R H Ginn. K H Rudolph. pnxim ts m the field of biotechnology L, R h.unth. L L. Spahr. R H Tulb.s Richard B.Tullis Nominating Committee The Nominating Committee Chairman of the Executive Comnuttee and retired Chairman recommends to the Board candidates to be nominated for and Chief Executive Officer of flarris Corporation. manufacture election as directors at the annual meeting and to fill any of communication and information processing equipment vacancies on the Ikunt When reviewing potentia; liarold L. Williams candidates, the Committee considers suggestions made by Executive Vice President of the Company share ow ners. William J. Williams U L. Stran hmige(Chaumant L t,mter. R M G,m.n. Director. President and Chief Operating Officer of Republic R H Holdt. J. Lansdale fr, K 17 Rudolph. L R Smith' Steel Corporation. manufacturer of steel and steel products C E bpahr. R H Tullis. WJ. Wilhams ~ Planning Committee The Planning Committee advises and consults with management and the Boani on long-range strategic planning. Responsibilities of the Committee Ralph M. Besse include recommending long range objectives and the. Chairman Emeritus of the Board of Directors strategies, manpower and overall corporate organizatton appro'priate to meet those objectives. Chairman (ndseth Elmer L L. Emeritus of the Board of Directors R M Ginn(Chaumank L Carter. R A. Ahiler. H L Williams. WJ. Wdhams 40

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THE CLEVELAND' ELECTRIC ILLUMINATING COMPANYL ,otx,,,,

P.O. Box 5000

Cleveland, Ohio 44101 u.s. POsTAoE PAID

~~ CLEVELAND, OHIO PERMIT NO.400 .~ d W G e I i y 1 b E-I =}}

ML20091A224

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ML20091A224

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