ML20091A255

Cleveland Electric Illuminating Co 1983 Annual Rept

ML20091A255
Person / Time
Site:	Beaver Valley, Davis Besse, Perry, Vermont Yankee, Crystal River, Callaway, 05000000, Zimmer
Issue date:	12/31/1983
From:	Ginn R, Miller R, Williams H CLEVELAND ELECTRIC ILLUMINATING CO.
To:
Shared Package
ML20091A217	List: ML20091A214 ML20091A224 ML20091A242 ML20091A255
References
NUDOCS 8405290323
Download: ML20091A255 (43)

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,;'. 3' tl: Energv to a diverse community ,[ ~ w.-uy: 4 ge A.jg 4 4";. nm .~ } c spge W i 1; '1}~ff, 1 ,, N g _s._. w, .y + s wman ...a ..h, y $r n,s j h g: sB hf lY / hjd${ w ?! ll I W y.c. g w 7 a. j e y The Cleveland Electric ,;;{ llluminating Company j $ t.p. I 2 1983 Annual Report e40529032a e4o322 -) c PDR ADOCK 05000334 I PDR , l,l ' M ! ~ ~ --

s Contents flighlights. Financial Summary and Quarterly Stock Prices 1 Letter to Share Owners Our Service Area: A Year of Progress 4 Sales 4 Marketing 7 Energy Today i Electric System Energy Tomorrow 11 System Demand 11 l Construction Program i1 Investing in the Future 1:- j Financial Matters 1:- Financial Section Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Management's Statement of Responsibility for Financial Statements 3 Report of Independent Accountants 3 Financial Statements and Notes 21 Financial and Statistical Review 1973-1983 3: inflation Accounting 3t l General information 3.* Service Area Map 31-j Committees of the Board of Directors Il Board of Directors it Officers 11 j l Quarterly Earnings and Dividends Per Share of Common Stock (dollars) 81.20 h, h E + IFI ~ u RE---shf, 6 Dividends 44 . ; f. m i 6 6 6 h b: E~ 0 Im 2nd 3rd th in 2nd 3rd 4th in 2nd 3rd 4th in 2nd 3rd 4lh le 2nd 3rd 4lh 1979 19A0 19RI 1912 1983

As Am 8 ighlights 1983

• Earnings per share for the year reached a record high of $3.28, up 9% frem 1982.
• Common Stock quarterly dividend per share was increased 3< effective in November 1983. Total,3ayment of $2.31 represents a 5.5% increase over 1982.
• A record peak load of 3.366 megawatts was established in July.
• An $89.4 million (7.4 %) electric rate increase became effective in January 1983; it was later reduced by $13.5 million.
• Nearly $58 million was raised through the Dividend Reinvestment Plan. including

$21 million from more than 21,000 participants in the new customer stock purchase program.

• Perry Unit I 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. 1 f 2 ina icial 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 High and low Prices Book Value Per Share of Common Stock of Common Stock 20.79 $ 19.86 4.7 (dollars) Common Steck Share Owners 132,378 111,688 18.5 Operating Revenues (000) $1,210,316 $ 1,108.571 9.2 Operating Expenses (000) $ 951.954 $ 879.644 8.2 g Net income (000) $ 216.026 5 208.964 173 23 Earnings Available for Common Stock (000) $ 207.600 $ 170.669 21.6 Kilowatthour Sales (Millions of Kilowatthours) m 2m Residential 4.412 4.336 1.8 2 p, 21 Commercial 4.265 4,191 1.7 Industrial 7.514 7.082 6.1 20 Other 426 411 30 D Sub total 16.617 16.026 3.7 19 88 % 88 % Sales to Utilities ')0 139 (85J1 p., Total 16.637 16.165 2.9 I? 17h 16 ' 16 it* 15 ga 14 N 14 13 5 0 Id 2nd 3rd 4th Id 2nd 3rd 4th 1982 1983 1

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• We started a customer stock purchase plan which achieved spectacular results. More than 51,000 of our customers now are share owners as welL
• Our steady and well-documented progress toward completion of the Perry Nuclear Power Plant enabled us to pass several major regulatory inspections.

Sound management principles also require us to remain aware of external influences I that could impair this Company's ability to serve customer and share owner needs. ? Two pohtical issues now looming on the horizon would have short term impac t on l share owners and long-term effects on customers. In both cases. the common public i misconception is that the political measures under consideration would somehow transfer costs from the customer to the utility. One issue is the environmental phenomenon of acid rain. At a time when a clear j scientific understanding of its sources causes and effects does not yet exist some groups continue to press for immediate control measures on the mere assumption that { they may be successful. Le gislation now before the U.S. Congress targets Ohio and other Midwestern states for multi-billion-dollar expenditures to control emissions at j coabfired power plants. Such measures would mean higher energy costs for con-ers I I and would hurt the competitive standing of our industries and businesses in - i and international markets. j Additional scientific research is needed to assure the effectiseness of acid rain measures. A growing number of voices-representing consumers, labor. business. l i science and gosernment-are reinforcing this position. The National Academy of I l Sciences, in a much publicized report, refused to confirm charges that ihdwestern 3 power plants are the cause of the acid rain problems in the Northeast and Canada i That report. too, emphasized the need for continued research to reduce the j uncertainties in policy decisions. We support that position. I A second major issue that threatens the welfare of both customers and share owners j involves a movement in the Ohio legislature against construction work in progress l l (CWIP). a ratemaking option that allows utilities to begin recosering financing (osts as ) new construction nears completion. l I ) CWIP now provides long term cost savings by improsing utility bond ratings and j lessening risk to investors As a result, utilities can obtain capital to construct new l facihties and to refinance maturing debt at lower interest rates This reduces merall construction and interest costs which holds down rates to customers. It is vitallv important to all parties for the Ohio legislature to recogniz" that the interests of utility j share owners and customers alike are best served in the long run by keeping CWIP m i the ra'emaking pnxess. The following pages of this Annual Report will provide you with more perspedise on Cempeny e ihes and the pnweos for its fulme. We are ihmurrent stenards of yom i investment in a company that has earned a sohd reputation for dependahihtv. durability and financial strength. You, our share ow ners, along witn our customos are now reaping benehts from the wise mi'nagement plannmg of scars past. Our decisions todas are intended to ensure that those benehts continue in the future. i bnderitably, this (oWparly and its sersice area sIsil face Inafor (hallenQe% but a (hnlate I of challenge and change often prosides the most fertile ground for significant achievements. We believe we are up to that test. Sincerelv. 8NY vY N /Aku 48f$ nonni u cinn nanad L winiams niin.na uhner chanman Em utn e Yn e newtent newtaa February 17,1% 1 3 I

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me automobile uimponents. appliances, electrical equipment. mac hine tools. computer comixuients iextiles paper. g g,W j glassware, heavy maclunery and many other essentials w hich are in conhnumg demand f i s A j y j g6 This dnersity provides us with an e(onomic (ushion m uintrast to regions dependent p. on one or two industries We find that dethnes experienced at times m some of our i iodest,ies wan>e afsei by gains in etne,s. ino, keep,og ine ietai emomm, ~ *A i comparatively strong. Diversity means another bonus in todaVs (hmate of eumomic N ' recoverv. The sigraficant incre'se in our 1983 industnal salesiame largely through a ' q, ' ' improsernents in automolne and steel concerns We hase many industnes whit h. rather than being mnsumer oriented pnxtuce machinery and equipment for manufaduring firms throughout the nahon. These firms hase just started inueasing i i their orders for new produdion equipment. As the trend wntmues. our local mdustries { will beneht. Thus, we expect continued momentum in the mdustrial sector i F.mploymenon our basic manufaduring sedor may never reuni to the previous peak lesel. Ilut hx al manufadurers are reducing costs through produchon ethuemies and i l labor agreeme its to be more mmpetitis e in uorld markets They also are relyng more and more on ele tric powered technolog:es to imprm e their compehtise starnhngs Some examplev

• Republic Steel last year installed a new $1h0 nullion mntinuous caster that is l

expe ted to result in substantial savings and imprme quahty in steelmaking j f,

• Jones & l.aughhn Sterli Cleseland plant which operates two eledric are furnac es has bee,meem.ennehmes,.mstemd mes,pn andneenne, m mpane,f a hes 1

O ble( IiC kndur!n)n furnace % wbilb fledt Ilillets fnim tbe inshd('(BliI Ily t'lectninldQrleIIc induction are helping redine msts for forgings at italwest Forge. Presrite Corporation. ( Rupp Forge and fhli Acme Company. l

• Industrial robob are in use for alununum die castmg at the llalex Company.

( i mmmenial heat treating operations at Wodm. loc. and pre (ision castings fer aircraft at i TRW's S\\tP dn ision. Output for our ma_ tor steel untomers was up 31 penent user the pres sous scar residting in a 3n pero nt inacase m kilowalthour sales to those untorners The l automobile untustr3 hkenne demonstrated strenQth Sales to our m.nor automotisc ,j (ustomers rose 13 penent from the 1932 lesel At Cieneral \\1otori Cheuolet plant. a l l surge in demand for fu!bsve e ars brought pnidudion to ib Inghest lesel sime 1%9. I lloihes for one of I onli most popular s ehitles ib large s an. are made rulosis cl> in ihn area A kn al foundry whi(h prosides Fonli sole American soune of iron has plans i to add tuore elettrit powered metabhohhng furnat es to make castmgs A Ford stamping plant wlm h lost work in p.nl years because of labor probh nn h,n imprm ed i ih labor.managenient relahons has reg uned all of its lost joln and has plans bir expalnlon e 1 O L___ _____m 1 , y. pn, iu ...r o =

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a. pen via 11ut h<nio,s pornne uene, m wm., . +. an as arnf au \\ 'har \\ nput inent no < omtm mn hurusms sulnn rto e ao.nr u en* and tear E%h The Commercial Secmr anymn dou nonw for namte- 'u nh,' n' pun s al d (he' nu 4 oment l'illL LsW ect dv dHK rm i ) en u t!! als< > mean sth ulget sales QNin th ami nN t un o! u < a rl < ompone7/s (in the '. >num'rcial customers Jn tf u it\\ timsumpto m hs the nuiltitude cif < >th e liuihimes a: nugr. u e ( an espn a 17 i apmg malls hotels,1 per ma' k et s heahh care fat ihhes retu! t enter s.unt ottwr pen ent loss ot < apu( ut Inun commen i d emerprms m %rtheast ()!no has mt reased des}ote the past teu s ou s gennatmg wuts that u oH ho out ut of n essnon st1l it t ?or inault' nan < t hn 't *h ', Few metropohtan areas of the.ountn has e as mans (orporate headeuaners as the heure < an i un sneruht an?l ,a.m 4 Cle.eLod area Lot ated here are Sohio TRW. ReIiubbt Steel Eaton forIioiahon ihn n> dar 1 hat leur n us a ah an White-ConsRd ded. Sh m m-%Ihams. Lohnzol. Fisher Foods. Res t o %dland.Ross ai erage resen e marum of onh sn ..a ao Cook l tuted. Hanna Wmng Amencan Greetmgs and At me-Cln cland ana og pen ent 7' hat s han/Is an eu nsu e man \\ others Soluo's constrin hon of a new MON nulhon Wron headqu.u ter s on rnen e to allou for unevpn led Ch veland s Pubhc Square sohdh dem<etrates that cionpans s (init.Jent t m this,nca a, rraku,ou n*, of na< he en una,.,or b 'ilheast ( lh k, dis < > ls a 1 'Oter lt If I'.a h ir O lmlH'tet ( p[ter at h ills rest'als ll 1tl hi unuwalh htyh denu:'.d suc n as 'but M d >pment lab < oatiaics and cither goiwiag sen ice n onpanies It ninma t,,the Ingened br the heal v at e on Juh .!! 1% The demand or, that dar u as set en peu ent a oi e fore < ast n b ~ i 'g seventh and lith largest law firms in the nation. All of the nation's Big Eight accounting firms have offices here. One of those accounting firms. Ernst & Whinney, is headquartered in Cleveland. Some of the most dynamic growth can be seen in the health care sector. The Cleveland Clinic Foundation, which is world-renowned, currently is embarked on a 5200 million i expansion program which will add 2.600 permanent jobs. Mt. Sinai Medical Center and University Hospitals each have $70 million building programs under way. Also thriving 3 here are a number of medical companies. including Technicare and Picker International. I These companies have been in the forefront of computer-assisted technologies stkh as the CAT scanner and nuclear magnetic resonance. Plans are being developed for a - I$ year to its showcase of equipment for all phases of the medical profession. Medical Mart in downtown Cleveland that is expected to attract some 60.000 buyers a ~ The Residential Sector ( Nearly two million people live in our service area. They continue to use more 1 F electricity for space heating, air conditioning, water heating. cooking. home appliances I g - and all the other conveniences of modern living. More than half of all new residences have electric heating. I 1 During the unusually hot summer of 19S3. home air conditioners and fans helped j contribute to an all-time peak demand of 3.366 megawatts reached on July 21. This ,j exceeded our previous record of 3.362 megawatts established in 1981 and exceeded the 4 highs we had forecast for the next three years. This dramatic surge in demand proved j to us. once again, the importance of adequate reserve capacity. (See storv on page 6.) The Company's Role in addition to continuing our traditional efforts to promote area development, we moved aggressively in 1983 to stimulate industrial and commercial expansion and to - ^- help local enterprises remain competitive. l We have been a pioneer in the field of innovative rate design. For some years we have l offered special contract options to encourage large industrial customers to shift load from peak demand time to off-peak hours and to add new load. We also have offered these customers an interruptible rate which allows us to remove load from our system to reduce peak load. In 1983 we made these special contract options and the interruptible rate available to smaller industrial customers. Also, commercial customers were offered the incentive to shift load to off peak periods. Now these customers, too. can save on y energy costs and use those savings to expand output and create new jobs. l y 1 i Knowing our district steam service is vital to scores of customers in downtown 4 Nuclear magnetic resonance (N\\tHL Cleveland, we offered lower rates to customers who agree to remain with our system at one of the medical field's newest and least five years. This measure assures that our investment in steam service remains ^ most promising diagnostic techniques. worthwhile, and it assures our customers continued service at a more favorable rate. / is now in use at The Cles eland Chnic l [ Foundation. a world-renowned medical We also have looked for new ways to offer our energy expertise to local industries. In i facihty with a $2nn million expansion one instance, we entered into an arrangement with BFGoodrich to provide one of its ? program under way. N\\tR unis. which facilities with two billion pounds of process steam a year from our Avon Lake Plant are also in use k>cally at Unisersity beginning in 1986. Our steam service is being considered by other chemical i & Hospitals, are manufactured by tw" companies. We are pursuing additional ideas to assist custo' ers and. at the same time. m r i t rna i a lize more revenue from our plant investment. g benefiting from the fast growth taicing maior medical center. Cleveland is ) place in the health (are field. ? 1 ) 1 t ); 7 f ~%,.

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@gggid?L l.9ff .J 1E l .g. ~ l t.. .u m.. I j T h. y .;/. i n . ~ .hky;; i fikd C -n .s sa u sau.r. s '; i \\ s s j .9, l Tf .W l + l t, +.s c E ( l, k. -g tty I .~ +w 3 f ~. E lt'. s ,y + 7 y ;<, \\i l i s We applied our energy expertise to create a new, wholly owned subsidiary called t Dynamic Energy Ventures, Inc. (Dyneco), which will sell, install and service such ^ sophisticated options as uninterruptible power supplies, energy management systems and metering services. The opportunities presented and the relatively small investment required by Dyneco make this a low risk venture. ij We saw, too, the need for us to remain competitive relative to other energy suppliers. ( Late in 1983 we asked The Public Utilities Commission of Ohio (PUCO) for a tariff ^ modification to allow us pricing flexibility and the opportunity to provide 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. i nergy Today After more than a century, the prime objective of this Company remains unchanged: to i provide reliable electric service at the lowest cost possible. Electricity is essential to i rebounding industries and businesses. I k in 1983 we made $491 million in capital expenditures to construct new facilities and to { upgrade existing generation, transmission and distribution systems. We expect these 3 efforts to improve service reliability and to lower generating costs, thus producing substantial savings 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 Prodtetion i At our coal-fired plants some $13 million was expended in 1983 to upgrade equipment t 'and improve the operating efficiency of generating units. We expect this investment to "5 pay for itself in the years ahead by increasing the kilowatthour output of existing units while reducing the amount of fuel required. a 2; More savings were achieved as we continued our computerized program of performance evaluation, testing and preventive maintenance on power plant 2 equipment. A major innovation was our establishment of a power plant support center i J which now performs repair work on power plant components, a job formerly handled by outside contractors. We expect to maintain strict quality controls and achieve V substantial cost savings. 4 We spent some $28 million in 1983 on environmental projects at our coal-fired plants. 4 k 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 3 a billion dollars in the past decade. 1 [ Inside this massive piping. water is We were highly pleased by the '73 percent availability rate in 1983 of the Davis Besse _ g evaporated from sodium chloride brine - { at tn RMI Company facility which Nuclear Power Station which we co-own with its operator. The Toledo Edison Compam. During the 11 months preceding the refueling outage in July 1983, Davis-Besse saved j mdnj ur customers $42 million through the lower cost of nuclear fuel. res meta ma umi nies I with which we have worked directly to. $ help thieve savings on energy cods. Transmission and Distribution - $ Northeast Ohio's chemicalindustries To W hi& vow't miles of transmission lines The high level o m h@d m ei m w de a ed d lb ra k n th almost 2,300 circui i > coupled with our strateg,c Midwestern location, allows us to increase our revenues by. third, following steel and automotive i L companies, among our biggest. selling power, when available, to utilities in the East and by transmitting power sold by { rn. -v users. other utilities. t ?a 9 4 u_- h Compressed Air Energv Storage k 4' et it !< a ' ' ~ l h*'ing irn estigaretl lo n:, < l e c!r n /a'ltl if t ?llt' lll?t ' 'Ys O'h! ?>cr urul our enc:rten s art esten lalh t]!)t o ? ti lHis ilsillE t >l)fil!!s se i l jir

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-,,n :n. ' q e 'f y t ' s e shjtli? ? lH di t '! ( l'l * ! 'IC l lljg t, -lft 't Ut j '!t ! ?ltitr 's he % (Jtlst r s! (ht ' t ' t isfe '!h t ' i ? tlhil!H l' dit 'il Il'Hl* 4 - er ru?n! salt arn!!:'vestone nura's \\ < rffirast ilht< > nu1\\ he ult 'al! \\ su!'t *tl fr > > itif s It i h t">lt JC \\ In the Sur+rs>na W irld Tunnel at the N ASA Lems Rewan h Center a tn hna ian tests one ( onyxinent of an ath an( ed propulsn,n ss stein dewned for use on airt raft of the future ()ne i ei (jur finp ll! eltTtrK erlerQs ll\\er\\ \\b N f aiilits is onh one of wrne Mn rewart h labi>rahines that r:iake Niirthe'ast ()hii> a leader in researt h and des elopnieni li Q, Q;R',6 &,j j l p) M@%,. N q,f ip ;.- r v p;g. p -i g f'.7 p in 1983 we continued an in-depth preventive maintenance program on our distribution Q. t/ % d ( / t r C y J system to monitor, repair and upgrade lines, poles, transformers and other facilities that M@ - M7 deliver electricity to customers. We became the first major electric utility in the nation M 'D. @d g; k y Q {: $ l i to remove all PCB capacitors from our utility poles. We were five years ahead of the l l i%k.d4QyW% g.y 1988 deadline established by the U.S. Environmental Protection Agency for eliminating T .* ; :4.i ' mM.'wy the use of PCB equipment in public areas. ) ,; < s x w. ~- 4A ' V V yas

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- g . ;w - - # y% wa.9 The increase in electrical energy demand in 1983 supports our projettions for a ] " %.)E h 4 long-term annual growth rate of about two percent. National statistics point to the same i.[M k trend. Whi!e totalenergy use nationwide has declined by five percent over the past f decade, the demand for c/ectrical energy has increased by 20 percent. Further. i electrical consumption is closely linked to the Gross National Product. as it has c f paralleled or slightly exceeded GNP over that same period of time. +.{ [h. t.fi I Compounded over the next 20 years, our projected annual electrical energy demand E i growth of two percent adds up to about a 50 percent increase. The U.S. Department of I;t : $[(. Energy has predicted that some regions of the nation face electricity shortages by the f. 1990s. We are determined to maintain a plentiful supply of the electrical energy so vital g to continued economic growth in Northeast Ohio. The buik of our construction budget is going toward building new generating capacity to meet our increased demand and y, the replacement of older, less efficient capacity. y \\ w l @g Ot Early in 1983 we retired some oil-fired units which ranged in age from 40 to 57 years and which were increasingly costly to operate and maintain. This move reduced our g'E total capacity by 333 megawatts. We currently have some 900 megawatts of capacity in 5'

.4 units 30 to 42 years of age. These units cannot be expected to remain functional and

' ' ' Ng R cost-effective for many more years. -h ^ '. 74 have under construction 954 megawatts of generating capacity. Some 750 megawatts w.y To meet increased demand and to compensate for the retirement of older units, we ?A l ~f

o will come from our share of the twin units at the Perry Nuclear Power Plant. We ow n l

4 -.? ~ ]* 31 percent of the Plant and are responsible for its design, construction and operation. l .i; Our partners in the Central Area Power Coordination Group (CAPCO) will share the " g., h,

• 2 remaining capacity. The illuminating Company also will own 204 megawatts of the g% J,;h9- (y second unit of the Beaver Valley Power Station in Pennsylvania, another CAPCO

(- .}! ' 'f a v 9; project, being built by the Duquesne Light Company. About 72 percent or 5355 -Q M.7%#j m. million, of our 1983 construction budget went to these nuclear projects. - 2 ~P e. z- ~a. y*ur ons m. - z y r 9.b F 7 A e. =. - For the longer term we are continuing to evaluate load forecasts. study long-term 3 g4f A.p.- a ;. strategies and analyze future generating technologies that promise to produce

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electricity safely, at the most favorable cost and with the least impact on the .. e E:.V & f.S.7N."., "j environment. Two attractive technologies needing further development are fluidized s b J ' ~.e [ f D.f-d S*;U g g' bed combustion, which introduces limestone into the combustion process. and coal %7 % y ( i.; gasification, which converts coal into gas for use as fuel. Each woWd reduce sulfur b.UL [h? R.. emissions at coal-fired plants. A third, more immediate technology is compressed air , f b i'9.g3.; [ fS ' y ~d,J energy storage, which would provide relatively low-cost power for peak demand j.. X t.; A j i periods. (See story on page 10.) .,9.N.(a; -- ljtW N J%. y., g., N a...' . J Progress at Perry ,y: A .: y W< >.i"P. ~ i; $.: y 1.x.. With about 6,500 workers now on site, Perry is the largest construction project under = ~ f,; 7 g. way in Ohio. Unit I and common facilities were more than 90 percem complete at the ,T.,Gv. 64: r './ ri P.$ > enit of 1983: Unit 2 was about 45 percent complete. Our regular monitoring of progren

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indicates that some facets of the overall project are currently behind schedule. Work on

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Perry Construction in November a special Construction Appraisal Team from the Nuclear Regulatory QualityAssurance Commission (NRC) issued its report following a four-week,2,000 manhour inspection of Perry. The report found our project organization to be aggressive in finding and

, On any building project, and - particularly on one aslarge as our resolving construction problems and our QA program to be " adequate" The term ' Peny Plant, occasional construction adequate, in the world of nuclear regulation, is the highest possible accolade. problems come trith the tenitory. Considering the very rigid regulatory climate in which we are working, this Our quality assuranceprogram is construction appraisal report is extremely positive, and we believe it demonstrates the designedto identi& problems so NRC's confidence in our ability to build a safe and reliable plant. that they can be quicklyanalyzed in December a report was received from the Atomic Safety and Licensing Board which and conected. lie also report a# conducted an extensive hearing on Perry's construction earlier in 1983. That 57-page potentially significant items. as report officially gave passing marks to our QA program and moved the two Perry L' nits required, to the Nuc/carRegulatory a step closer to operating licenses. The report said that our QA program "has Commission (NRC). Ourconsistently prevented. and w.ill continue to prevent, unsafe conditions at the plant ' Elsewhere, the high marks at ratious /cre/s of report said: " Applicant's program is comprehensive and provides appropriate . Federalinspections testi/y to the assurance that significant construction deficiencies flave been and will be identified and ~ integrity ofourquality assurance corrected:' elfans. [ Morcorer the Company has We expect, of course, that routine construction problems at Perry will still command undue attention in the news media. We also expect a high level of publicity when 1 ) established a simp /eprocedure public hearings on our emergency planning are conducted, as required by NRC through u hich allo /some 6.500 regulations, later in 1984. But we are confident of our ability to resolve construction l , unrkers at the Perrysite are urged problems as they arise and successfully come through the regulatorv process. to report suspected deficiencies in (See story at left.) constmction uork. Weinrestigate a# such repons. Further, the NRC has a to#-free telephone number nyesting in the Future tchich a uvikerat Perry orany 1 ~ ', other nuclear constmction site' A great deal of capital is required for the new generating units. transmission and. ' nationwide may use to fi/c an distribution facilities and environmental safeguards needed to ensure the energy anonymous repon. These reports, security of our service area. Fortunately, sound financial management is one of the 4 too, are thorough /vinrestigated. strengths of this Company. Because of it, we were able last year to raise capital on ~ advantageous terms and. at the same time, provide a favorable return to our investors. We i /t is naturalthat constmction also maintained a balanced capital structure and improved our interest coverage ratio. i

problems at a nuclearproject,

a hether realor a#eged. often attract undue attention from the nears g,gg7gggggy,,gg7, media upon theirinitialdiscoreir.

Earnings per share for the year 1983 were at 'a record high of $3.28, an increase of nine l The concem in the marketplace' percent over 1982. Return on average common equity was 16.1 percent. I regardingutilitiesthatarecon. structing nuc/carpourrp/ ants is Several factors contributed to our earnings improvement. One was a rate increase understandable. But av remain applied for early in 1982 and received in' January 1983 that resulted in an SS9.4 confident that, once the fu#storyis million, or 7A percent increase in retail electric' rates. (See Note M of " Notes to known, our competence to success-Consolidated Financial Statements'!) Another factor, of course, was the increase in our g /u#ymanagea nudearconstruction kilowatthour sales. A third was a cost containment'and deferral program which saved program ui# be demonstrated' $10 to $12 million in operating expenses. We put limits on hiring, promotions and overtime, and we took measures to increase productivity while reducing department budgets. Not all of these budget reductions are sustainable, but we are determined to hold costs at the lowest level practical, consistent with the need to maintain our good record of customer service. l Effective with the November 15,1983 payment, we raised our quarterl. 9mmon stock i dividend to 60 cents per share from 57 cents per share Last year was the 25th l . consecutive year in which we increased dividends and the 82nd straight year in which i i we paid cash dividends on common stack. That record is matched by few other electric . utilities. l f ( ' 13 - . =.. ~ _

4 i 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 1983 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 electric utility in Ohio rated this high. We ended 1983 with a well-balanced capital structure of 41 percent common equity. 45 percent debt and 14 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 million. 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 $134 million to $175 million at extended maturities and improved terms. Dollars Raised Through Dividend Reinvestment and Stock Purchase Plan During the year we continued to sell notes, secured by our first mortgage tx>nds, to the (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. 5" s8 o Future Rates ("" customm N g%% p, Our credit ratings also depend, in part, on our ability to secure timely and adequate I rate relief. Our cost containment and deferral program produced significant savings in g 1983, enabling us to defer a rate increase request. But service would be adversely affected if such measures were continued indefinitely. ca Because our costs of providing service have continued to rise, in Februarv 1984 we F found it necessary to give notice of intent to file for a $180 million, or 15 percent. electric rate increase. If granted, the increase would have no material effect until 1985 3 and must therefore cover cost increases during the two years since our previous rate order. 23 4 20 The Dividend Reinvestment Plan The success of our DRP was one of 1983's highlights. We raised more than $25 milhon from reinvested dividends, up 50 percent fro'm 1982. An additional $32 million was n7 10 97-raised in optional cash contributions, up 400 percent from 1982. Over 21,000 of our customers enrolled in the customer stock purchase program portior of the DRP. No other electric utility in the nation has equalled that initial success in 8 terms of customer response, enrollment and initial amount invested. We raised a total 7, .go.33 82 '83 of $21 million at an average of $1,044 per participant. The 1984 Outlook The year 1984 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 borrowing costs and, consequently, the costs eventually borne by customers. 14

N M MM -. --sum n a--im u 4 I i g; li2l[ ~ kll;6%W:q - ifffAQ %gLt:- &;43 o.flyg {-p w n .;W M l [ \\ / \\ . h \\ k (f v \\ l T .Qs d ,e 4 ' ' y, x e - u I / 'A _i m ..A l / t ?/,/ i / / ] l l 9 // v' f \\1anagement headquarters h >r 1.1 iif the Fortune Mi conipanies are h a ated in t he fles eland area a nuniher equailed in tew other metnipohtan.ueas in the s e ntifitrs That kiiid i>f oirtwirate at tis its gn es nw to a s anets of other huunesses w hu h i <intributes tii gre twIh in our iininnit'n tal and IndusIna sdles beft l at the worhi headquarters of the SI)S Biorn h Corporation. a biologist studies the ef terts of f unga ides in contnilhng plant disease S[b lhoret h is a relatn eis new airporation formed to pursue new in hnologies and pn niu< ts in the held of t'iotn huologs 13

l = r ' 9 's 4 t 3 - e s ,A q l h e I 4[.. es ~ 1, s d ~. d i 's s \\s ',s., s r f <s The Regulatory Chmate s ( 4 e s 4 s s I s \\- \\

s i i anagement's Discussion and Analysis of Financial Condition l and Results of Operations Capital Resources and Liquidity 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 $480,000,000. 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. i 1 After paying our expenses, taxes, interest and dividends, our business currently does not generate all of the funds needed for our construction program.Therefore, we must supplement our internally generated funds with additional money raised frorn investors. In the past three years,about 52% of the money used for construction was raised 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 several years are expected to be funded about equally from internal and external sources. Since mid-1981,our first mortgage bonds have been rated "A" by both Moody's Investors 3 Service and Standard & Poor's Corporation. Our preferred stock is rated "a" by Moody's and "BBB" by Standard & Poor's. Our commercial paper rating was lowered by Standard J & Poor's in 1983 from Al to A2,while Moody's maintained our rating of.Pl. its highest commercial paper rating. We will continue to seek fair rate levels in order to maintain as strong a financial position . Rate of Return on Common Equity as possible. Without adequate rates it would be impossible to earn a fair return for our Authorized vs. Achieved JPercent) common stock share owners. Inadequate returns could also result in a lowering of our securities ratings, thereby increasing the cost of raising money from outside sources. Our future financing plans are designed to maintain a capital structure of 40-42% - Authmudbyrero common equity and a maximum of 48% debt, with the balance made up of preferred and preference stock. At year end 1983, our capitalization structure was 41 % commcn equity, Achmet g "23 45% debt and 14% preferred and preference stock. Specific financing plans are discussed is no elsewhere in this Annual Report. 16 w-14 11 " ,i nf Over the 1984-1988 period, we must refinance $426,976,000 of maturing debt and u preferred stock which was outstanding at December 31,1983. In addition, we are required to offer to purchase $19,400,000 of preferred and preference stock in both 1984 and i 1985, $36,067,000 in both 1986 and 1987 and $36,066,000 in 1988. See Notes F. H and i s 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 debt will probably be done at much higher rates, thereby increasing our average cost of capital. The amount of first mortgage bonds the Company can issue is limited by our Mortgage rs m si s2 s3 and Deed of Trust. The amount fluctuates depending upon the remaining amount of bondable property and upon earnings and interest rates. At December 31,1983, we 5 would have been permitted to issue approximately $922,000,000 of additional first mortgage bonds. There are no restrictions on issuing additional authorized preferred s i stock and preference stock. We use short term financing such as bank lines of credit l L I 17

e y Sources of E3ectnc Revenue Increases and the sale of commercial paper to give us flexibility in timing our long term financings (mmons ordollars) 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 in the form of bank lines of credit and revolving loan commitments. It s200 accordance with customary industry practice, some of these lines are held in reserve to E F" C' O "8'- ensure that we will be able to pay off commercial paper when it is due. Note K of "Nott - a" 1" to Consolidated Financial Statements" gives the details of our credit arrangements. -, ame ama. 160 Results of Operations EE The " Sources of Electric Revenue increases" chart on the left shows the factors which l ~ 120 g have affected our electric revenues in each of the last five years. 5 i In our service area there are signs of economic recovery as industrial sales were up 100 h I I 6.1 % in 1983.The turn-around in industrial sales, which began early in the year, was so led by improvements in the automotive and steel industries. More moderate increases

j in sales occurred in other sectors, including such industries as chemicals, plastics and ass m m fabricated metal products. Since recovery in these business sectors traditionally lags the 40 general economic recovery, we expect further sales increases in these industries in 198 After very mild winter weather early in 1983, an extremely hot summer provided addei 4s 47 l

p ;' impetus to residential and commercial sales which were higher by 1.8% and 1.7%, respectively. Total sales to ultimate customers increased 3.7 %. c h h. A weak economy as well as milder weather were the major factors affecting sales to 20 l [. - customers in 1982. Industrial sales decreased 14.5% in 1982 while residential sales fell g 0.9 %. During 1982, commercial sales were up 0.4 %. Overall sales declined 7.7%. -s Over the last three years we have vigorously sought rate increases in order to enable u' 79 so si s2 s3 to pay investors the return on investment they demand in the form of interest, dividen< and increased net worth. As a result The Public Utilities Commission of Ohio (PUCO) granted us the following electric rate increases: 17% (May 1981) 10% (March 1982) an< y Interest Charges Coverage Ratio 7.4 % (January 1983). On October 1,1983, electric base rates were reduced 1 % and a (tunes earned) reduction m the fuel clause factor on September 1,1983 lowered rates an additional 79t We also secured various increases in steam, wholesale power and street lighting rates ii the three-year period. These rate increases, coupled with effective cost control and higher AFUDC, offset effects of inflation on operating expenses, higher interest expense 4 stock sales and the delay between the time our costs go up and the time we receive a rate increase to cover those increased costs. Consequently, earnings per share rose in 32 1981,1982 and 1983, reaching a record level of $3.28 in 1983. Also, the ratio of earning 3o 3 I of special contract options such as off-peak rates to commercial and smaller industrial to fixed charges (SEC method) rose in each of the three years (2.4,3.0 and 3.2 in 1981, 1982 and 1983, respectively). 2 In 1983, we took action to stimulate growth in our commercial and industrial sectors and to help business remain competitive. This was accomplished through the extensior l customers. In addition, we offered a lower rate to customers who agree to utilize our i l steam service for a minimum of five years. 1 1 i 0 '79 '80 '81 82 13 1 18

e i e A cost containment 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 avoid filing for an electric rate increase in 1983. However, increases in the cost of providing service prompted us to announce our intent to file for a $180,000,000, or 15%, increase in electric rates. The rate increase,if granted, would not be effective until early 1985. Fuel and purchased 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 UPermillior BW) our power plants, the energy demands of our customers and the price of electricity available from other utilities. In 1983, purchased power expense increased slightly because it was used for economy purposes during the two-month refueling outage for the 225 Davis-Besse Nuclear Power Station. In 1982, purchased power expense declined because .200 of lower kilowatthour sales, improved availability of our plants and power sales to other utilities. Cf= Total fuel and purchased power expense rose in 1983 because of the increase in Iso 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 d'" decline in the unit cost of fuel. Nuclear generation accounted for 13%,10% and 15% of ion our total electric generation in 1981,1982 and 1983, respectively. rs Other significant items affecting earnings per share were increased payments of interest and preferred stock dividends and a greater number of outstanding common shares 50 resulting from additional external financing. The impact of the increases in these items was partially offset by related increases in the amount of AFUDC. u For a discussion of how we are affected by inflation, see " Supplementary Information 79 30 si 32 m Concerning the Effects of Inflation:' i a a 5 k o f e 4 i f [ f l r i l t ![ I gg

1 l 0 l anagement's Staternent of Responsibility for Financial Statements l The management of The Cleveland Electric Illuminating Company is responsible for the consolidated financial statements which appear in this Annual Report. The statements were prepared in accordance with generally accepted accounting principles which are appropriate in the circumstances. These principles require that certain amounts must be recorded based on estimates. Such estimat :s are based on an analysi of the best information available regarding the amounts to be estimated.. We maintain a system of internal accounting controls. The control proceaures are designed to assure that the financial records are reasonably com, fete and accurete. They also are designed to help protect the assets and their relatea records. We make ar effort to ensure that the costs of our control procedures do not en =ed the benefits. We have an internal audit program which monitors the internal accounting controls. This program is designed to examine whether the controls are adequaic and effective. Also, an examination of the financial statements is conducted by Price Waterhouse, independent accountants, whose opinion appears below. The Board of Directors of the Company is responsible for determining whether management and the independent accountants are carrying out their responsibilities. The Board has appointed an Audit Committee, comprised entirely of outside directors. The responsibilities of the Audit Committee are described elsewhere in this Annual Report. [ eport of Independent Accountants Ce. ,_c--_,__._. gg cunw.ao.m I i To the Board of Directors and the Share Owners of The Cleveland Electric illuminating Company: In our opinion, the axompanying consolidated balance sheet and the related consolidated statements of income, capitalization, retained earnings, and changes in financial position present fairly the financial position of The Cleveland Electric T Illuminating Company and its subsidiaries at December 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 standards and ]; accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. February 10,1984 Price Waterhouse 1 i, 20

ncome Statement The Cleveland Electric illuminating Compans and Subsidiaries For the Year Ended December 31, 1983 1982 1981 OPERATING REVENUES @ m sands f Douars) Electric $1,194,162 $1,091,054 $1,000,734 Steam 16,154 17,517 12,196 Total Operating Revenues 1,210,316 1,108,571 1,012,930 OPERATING EXPENSES Operation Fuel 320,792 330,674 322,154 Purchased power 12,185 (1,395) 29,256 Other 182.439 168,802 149,374 515,416 498,081 500,784 Maintenance 88,029 81,789 74,925 Depreciation and amortization 94,196 86,588 85,294 Taxes, other than Federal income tax 126,883 106,804 91,648 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 INCOME 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 22,2M 16,125 Total Nonoperating Income 114,148 96,669 75,712 INCOME BEFORE INTEREST CHARGES 372,510 325,596 268,416 INTEREST CHARGES long term debt 151,257 134,250 121.040 Short-term bank loans, commercial paper and other 2,717 9,822 25,672 Allowance for borrowed funds used during construction (27,490) (27,440) (34,030) Total Interest Charges 126,484 116,632 112,682 NET INCOME 246,026 208,964 155,734 Dividend requirements on preferred and preference stock 38,426 38,295 34,917 EARNINGS AVAILABLE FOR COMMON STOCK $ 207,600 $ 170,669 5 120,817 EARNINGS PER COMMON SHARE 3.28 5 3.01 5 2.52 DIVIDENDS DECLARED PER COMMON SHARE 2.31 2.19 2.08 Retained Earnings Statement For the Year Ended December 31, 1983 1982 1981 (Thousands of Dollars) BALANCE AT BEGINNING OF YEAR $ 325,463 $ 280,285 $ 258,432 ADDITIONS ^ Net income 246,026 208,964 155,734 DEDUCTIONS Dividends declared Preferred stock 33,636 33,900 29,762 Preference stock 4,418 4,418 4,417 Common stock 145,077 124,841 99,134 Costs of issuing equity securities 141 627 568 Total Deductions 183.272 163,786 133,881 BALANCE AT END OF YEAR $ 388,217 $ 325,463 $ 280,285 Dre accompanying notes are an integral part of these financial statements. 21

l \\ 5 - s alance Sheet at December 31 The Cleveland Electric Illuminating Company and Subsidiarin l ASSETS 1983 1982 i PROPERTY AND PLANT Ghousands of DoHary Utility plant Electric in service $2,794,873 $2,6M,62 Steam in service 43,262 40,17 2,838,135 2,724,80 less accumulated depreciation and amortization 722,492 679.89 2,115,643 2,044,91 Construction work in progress 1,616.653 1,285,73 3,732,296 3,330,M Nuclear fuel in trust 58,599 52,75 Other property, less accumulated depreciation 11,545 11,46 3,802,440 3,394,85 POLLUTION CONTROL CONSTRUCTION FUNDS - unexpended 18,618 17,77 CURRENT ASSETS Cash and temporary cash investments 42,693 59,31 Amounts due from customers and others, net 111,928 101,85 Materials and supplies, at average cost 29,640 28,12 Fossil fuel inventory, at average cost 58,870 75,40 Taxes applicable to succeeding years 99,884 87,13 l Other 3,612 1,83 1 346,627 353,66 DEFERRED CHARGES Unamortized costs of terminated projects 49,154 52,38 Accumulated deferred Federal income taxes 12,240 12,77 Deferred fuel 18,329 22,60 Other 20,019 18,84 99,742 106,60 CAPITALIZATION AND LIABILITIES CAPITALIZATION (See statement of Capitalization) long-term debt $1,518,883 $1,441,82 Serial preferred stock With mandatory redemption provisions 261,000 265,00 Without mandatory redemption provisions 144,021 95,07 Serial preference stock with mandatory redemption provisions 57,000 57,00 Common stock equity 1,355,488 1,227,09 CURRENT LIABILITIES 3,336,392 3,085,95 Current portion of long term debt and preferred stock 59,410 71,14 Notes payable to banks and others 19,100 19,10 Accounts payable 121,198 91,12 Accrued payroll and vacations 16,119 15,40 Federal income taxes 12,301 10,14 Other taxes 125,016 110,01 Interest 36,322 31,2E l l Other 7.251 7,32 1 DEFERRED CREDITS 396,717 355,53 Unamortized investment tax credits 218,589 153,58 Accumulated deferred Federal income taxes 192,483 168,60 l Nuclear fuel trust obligations 58,599 52,75 Deferred fuel 20,343 16,84 Other 44,304 39,60 534,318 431,38 COMMITMENTS AND CONTINGENCIES - See Note L $4,267,427 $3.872,90 The accompanymg notes are on integral part of these (mancial statements. 22

4 t [O apitalization at December 31 The Cleveland Electric illuminating Company and Subsidiaries 1983 1982 1983 1982 (Thousands of Dollars) (Percent of LONG-TERM DEBT (a) Capiiahurion) First mortgage bonds - maturing through 2013 at rates of 2%% to 16%% (Less $55,000,000 in 1983 and $50,000,000 in 1982 classified as current) _ $1,315,191 $1,245,191 Collateral pledge notes - maturing in 2012 at semiannual equivalent rates of i1,72% to 13.50% 43,370 6,100 Term bank loans (b) - maturing 1986-1990 at variable rates (Average rates were 10.10% in 1983 and 14.61% in 1982) 106,000 134,000 Pollution control notes - maturing through 2012 at rates of 5.6% to 6.7% (Less $410,000 in 1983 and $105,000 in 1982 classified as current) 57,430 57,840 Other - net (3,108) (1,309) Total long-term Debt 1,518,883 1,441,822 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 $ 7 40 500,000 50,000 50,000 B $ 7.56 450,000 45,071 45,071 L Adjustable (c) 500,000 48.950 144,021 95,071 Preferred and Preference Stock with mandatory redemption provisions (Less $4,000,000 in 1983 and $3,000,000 in 1982 classified as current) Annual Mandatory Redemption Prosisions(d) 1983 Shares to be Annual Shares Shares Redeemed Dividend Out-Beginning to be at Holders' Series Rate standing on Price Redeemed Option Preferred: 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 48,000 51,000 F $ 75.00 50,000 ll-1-85(e) $1,000 16,667 50,000 50,000 G $ 80.00 40,000 8-1-84(e) $1,000 8,000 40,000 40,000 H $145.00 28,500 6-1-85 $1,000 1,782 28,500 28,500 1 $145.00 31,500 6-1-86 $1,000 1,969 31,500 31,500 J $113.50 29,000 6-1-87 $1,000 5,800 29,000 29,000 K $113.50 10,000 6-1-91 $1,000 10,000 10,000 10,000 Preference: 261,000 265,000 I $ 77.50 57,000 41-84(e) $1,000 11,400 57,000 57,000 Total Preferred and Preference Stock 462,021 417,071 14 13 l COMMON STOCK EQUITY l Common shares, without par value 85,000,000 authorized; 65,198,089 and 61,774,582 outstanding in 1983 and 1982, respectively 967,271 901,632 Retained eamings(f) 388,217 325,463 Total Common Stock Equity 1,355,488 1,227,095 41 40 f TOTAL CAPITALIZATION $3,336,392 $3,085,988 100 100 (a) long term debt matures during the next frve years as follows: $55,410.000 in 1984 (classified as a current liabihty on the consohdated Balance Sheet); $43,701.000 in 1985,.851,610,000 in 1986 and $21,600,000 in 1987 and 1988. (b) The Company has amended its term bank loan agreements to allow up to $175.000.000 of borrowing. The amendments also changed the maturity dates of the outstandmg debt from 19841988 to 1986-1990. Overall interest rates under these loans also were reduced. i (c) The applkable rate shall be the highest of the Treasury Bdl Rate, the TenYear Constant Matunty Rate or the TwentyYear Constant Maturity Rate, as defined, I but not rnore than 13% or less than 7%. l (d) Arnnunts to be paid for preferred stock which must be redeemed during the next five years are: $4,000,000 in 19M; $5.782.000 in 1985; $7,751,000 in 1986; and $13,551,000 in 1987 and 1988. For those senes where the share owners can elect to have their shares redeemed, the maximum i redemption pa>ments could be $19,400,000 in 1984 and 1985, $36,067,000 in 1986 and 1987, and $36,066,000 in 1988. (e) This is an offer date. Redeemed shares would be purchased four months after this date. (f) As of December 31,1983 there was no restnetion on the right of the Company to pay drvidends in any amount up to all the camings retained in the business. 77re accompanying notes are an integralpart of these financial statements. 23

4 s 6 .Wp [V hanges in Financial Position The Cleveland Electric illuminating Company and Subsidiarie For the Year Ended December 31, 1983 1982 1981 ) (Thousands of Dollars) FINANCIAL RESOURCES PROVIDED Net income $246,026 $208,964 $155,734 Items not affecting working capital Depreciation and amortization 94,336 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) (48,97C Other 620 918 1,91C Total financial resources provided from operations 343,055 291,711 237,93C Sales of securities First mortgage bonds 125,000 277,600 82,20C Preferred stock 48,950 70,50( Common stock 65,638 179,711 67,622 Total sales of securities 239,588 457,311 220,322 Term bank loans and collateral pledge notes 37,270 6,100 54,80C Nuclear fuel trust obligations 5,848 52,751 Sale of tax benefits to others 25,195 Pollution control funds expended 18,559 57,805 Working capital decrease (a) 59,957 14,591 Other 7,591 6,007 1,451 Total Financial Resources Provided $693,309 $832.439 $612.096 FINANCIAL RESOURCES USED Additions to utility plant $490,705 $422,170 $409,277 Allowance for equity funds used during construction (87,052) (76,896) (48,97C 403,653 345,274 360,307 Retirement of debt and preferred stock 99,105 121,600 13,00C Dividends 183,130 163,786 133.312 Pollution control construction funds deposited 840 22,20C Deferred fuel costs 11,642 Nuclear fuel in trust 5,848 52,751 Decrease in short-term debt and other borrowings 40 76,200 71,637 Working capital increase (a) 72,828 Other 693 Total Financial Resources Used $693,309 $832,439 $612,098

SUMMARY

OF CHANGES IN WORKING CAPITAL (a) Cash and temporary cash investments $ (16,624) $ 34,621 $ 15,571 Amounts due from customers and others, net 10,070 7,451 (10.477 Fossil fuel inventory (16,533) 6,630 1,30( Taxes applicable to succeeding years 12,754 23,520 5,495 Accounts payable and accrued payroll and vacations (30,782) 12,120 (16,10E Federal income and other taxes payable (17,157) (8,229) (5,446 Other (1,685) (3,285) (4,93E Change in Working Capital (a) $ (59,957) $ 72,828 $ (14,591 (a) Other than short-term borrowings and current portion of long-term debt. The uwi+i ing notes are an integralpart of Mese financial statements. f \\ 24

e 7- "otes to Consolidated Financial Statements Note A-Summary of Significant Accounting Allowance for Funds Used During Construction es We pay interest and dividends to our investors for the l We are required to follow the accounting principles use of their money. This is called the cost of money. or rules set by he Public Utilities 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 Standards 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 sigmftcant accounting principles follows. When a construction project is completed 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 of three The cost of the project at that time, including its minor subsidiaries. We own all of the stock in each. AFUDC, is treated as a new asset and is used in a One subsidiary is The CEICO Company which owns subsequent rate case to determme the rates we nonutility land and performs certain nonutility charge our customers for service. Because the J services. Another is the CCO Company which resulting rates include a factor for all these costs, we coordinates the operation of a five-company power are being allowed to recover in cash all costs of the pool (including the Company) called the Central Area pr perty, including AFUDC, over the useful life of the Power Coordination Group (CAPCO). The costs of propedy. 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 wgich is in the electrical reliability and energy tied up in construction. Re annual AFUDC percentage management business. rate is determined by a formula set by the FERC. Re rate represents an average of the cost of money paid Property and Plant on funds tied up in construction. Re rate is P Un Se n Ua e pad of me ram wM Electric and Steam Utility Plant is carried on the books epreses s i t is reduced to recognize that interest at original cost as defined by the FERC. The costs of fs maintenance and repairs are charged to Operating Expense as incurred. The cost of replacing or The amount of AFUDC appears on our income improving property is charged to Property and Plant. statement in two parts: under Nonoperating Income as a The cost of property retired, plus removal cost, less the Allowance for Equity Funds Used During ~ salvage realized, is charged to Accumulated Construction and under Interest Charges as Allowance Depreciation and Amortization, for Borrowed Funds Used During Construction. On the balance sheet, the AFUDC becomes part of Depreciation Construction Work in Progress. We report depreciation expense on our income The amount of ARJDC recorded in each accounting statement as a current cost of doing business t period varies. The variation occurs because of (1) the account for the normal using up of our property. number of dollars spent on construction, (2) the Depreciation is deducted in equal amounts over the length of the construction period and (3) the rate used estimated useful life of the property. For example, if in computing AFUDC. The rates were 10.35% in 1983, 10.00% in 1982 and 10.17% in 1981. we estimate that an item will be useful for 10 years, we charge one-tenth of its value to depreciation l expense each year. However, in the case of the Federal Income Tax ^ Davis-Besse Nuclear Power Station (Davis-Besse), we l The depreciation expense we report on our income utilize the units-of-production depreciation method described in Note C. statement is different from the depreciation expense we use to calculate Federal income tax. There are several reasons for this difference. First, AFUDC and Terminated Projects certain overheads are excluded from the cost of assets Costs associated with terminated nuclear generating which we depreciate for tax purposes. However, these units are being amortized over a period approximating costs are included in the basis for the depreciation l 15 years, beginning in 1983. shown on our income statement. Second, the period of time over which the Intemal Revenue Service (IRS) 2S

4 s a otes to Consolidated Financial Staternents 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 reduce ( 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 $2,247,000 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 in the periods we obtain them. They are deferred to the penods in adjusted every six months to reflect changes in fuel costs. The differences between the cost of fuel which we normally would have obtamed them. The deferred amounts are allocated to income over the actually used and the costs included in the bills to customers are deferred. he deferred amount is taken useful life of property through a procedure called normalization. into account to adjust the fuel cost factor for a subsequent six-month period. When we place new property in service during the On September 1,1983, 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 up to 10% of the investment we have made in the new 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 ( recognize the tax savings from this credit over the life exceed the market delivered price of comparable coal j of the property involved through the procedure of As of December 31,1983, our share of these deferred I normalization. coa! costs which remain unrecoveied was Our Federal income taxes are lowered because we $18,329,000. A recent PUCO order to a CAPCO can deduct our interest charges from income. 'Ihis company, which is expected to be dDplied 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 resulting from interest actually paid on funds invested 125% of the market delivered price of 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 the contrc paid on all other funds are charged to Operating of Quarto and the CAPCO companies. Accumulated income. deferred Quarto coal costs as of December 31,1983 are recoverable to the extent that Mansfield Plant fuel evenes costs are less than 110% of the market delivered prict of comparable coal. From 1984 through 1989, to the Customer meters are read or estimated and billed on a extent recovery of accumulated deferrals in a single monthly cycle basis. Operating revenues are recorded year under the 110% formula is less than one-sixth of in the accounting period during which the meters are the balance, the shortfall in that year is not permitted l read. to be recovered in the future unless it is due to Under a 1981 Ohio law, a fuel factor is included in c nditions beyond the control of Quarto and the our base rates. This fuel factor is designed to track CAPCO companies. Although one cannot predict the what we actually pay for fuel. It is changed every six ultimate level of recovery, we believe that the order ol months after a hearing before the PUCO. Our steam the PUCO should permit substantially full recovery of fuel rate is based on what we paid for fuel in the Qu rto coal costs based on the projected operation ot preceding month. the Quarto mines and projected market prices. 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 Fossil Fuel straight line 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 balance sheet as Deferred life. The rates include a factor for the money expectet l a Charges-Other. As the fossil and nuclear fuel is used, to be received when we dispose of the property i 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 produce spent nuclear fuel. 26

0 in the accounting period to its total estimated energy 1983 was based on an estimate of $27,000,000 in cur-production over its useful life. rent dollars. Annual depreciation provisions as a per-When a nuclear unit is retired from service, we will centage of the depreciable cost of plant are as fol-l have additional costs to shut it down. These costs are lows: called decommissioning costs. The depreciation 1983 1982 1981 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 Income 1981 income (Thousands (Thousands (Thcusands of of of Dollars) Dollars) Dollars) Book income before Federal income tax $350,165 $293,093 $207,184 Tax on book income at statutory rate _ $161,056 46.0 $134,803 46.0 $ 95,285 46.0 Decreases in tax due to: Excess of tax depreciation over book depreciation (5,940) (1.6) (3,608) (1.2) (2,508) (1.1) Allowance for funds used during construction 52,689 15.0 47,994 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 5 84,128 28.7 5 51,450 24.8 Federal income tax expense is shown on the income statement as follows: 1983 1982 1981 (Thousands (Thousands (Thousands of of of Dollars) Dollars) Dollars) Operating Expenses Current tax provision $ 38,309 $ 34,279 $ 23,668 Changes in accumulated deferred Federal income tax: 1.iberalized depreciation and accelerated amortization 20,727 19,498 19,747 Other items 3,387 1,461 6,520 Investment tax credit deferred, less amounts amortized 65,007 51,144 17,640 Total charged to operating l expenses 127,430 106,382 67,575 l i Nonoperating Income Current tax provision (22,763) (22,254) (16,125) 1 Deferred tax provision (528) l Total Federal income tax expense $104,139 $ 84,128 $ 51,450 The income tax we paid in 1982 and 1983 was are available to the Company and have not been used ) reduced by 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

~. i l otes to Consolidated Financial Statements Note E-Terminated Projects ne first mortgage bonds are issued under our In January 1980, the CAPCO companies terminated Mortgage. Re Mortgage puts a first lien on almost all their plans to construe' four nuclear generating units the property we own and franchises we hold. which were in various stages of construction start-up. The issuance of additional first mortgage bonds is Our 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 retum on rate base and been permitted at December 31,1983 to issue authorize us to amortize the unamortized terminated approximately $922,000,000 of additional first unit costs. Ohio law does not permit recovery 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 eamings and interest rates. included in our rate base. Re collateral pledge notes included in the statement of Capitalization were issued under an agreement Note F-First Mortgage Bonds signed in 1982. Ris agreement permits us to borrow Outstanding first mortgage bonds are as follows: additional amounts from time to time up to $60,000,000 over a two-year period. De m, terest 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 (Thousands of Dollars) $60,000,000 of our first mortgage bonds as security for 1983 1975 8.85 % $ 50,000 our obligation to pay the collateral pledge notes 1984 1977 7.55 % 25,000 25,000 tssued under this agreement. Although these bunds 1984-A 1980 12%% 30,000 30,000 are not shown as outstanding in the statement of 1985 1950 2%% 25,000 25,000 Capitalization, they are outstanding under our 1985-A 1980 11%% 18,291 18,291 Mortgage. 1986 1951 3%% 25,000 25,000 1986-A and B 1976 5%% 5,000 5,000 1989 1954 3% 20,000 20,000 Note G - Leases $A $,,000 As part of our operations, we have entered into the 999 1991 1%9 8%% 35,000 35,000 following leases: 1992 1981 15%% 20,000 20,000 T Remaining Terms E 1993 1958 3%% 30,000 30,000 1994 1959 4%% 25,000 25,000 Nuclear fuel in the reactor (a) 2005 1970 8%% 75,000 75,000 Unit trains 3-7 years (b) 2006-A 1976 7% 14,000 14,000 Office space 10 years (c) 2009 1974 9%% 50,000 50,000 Data processing and Mostly short-term 2009-A to C 1979 7% 52,000 52,000 off ce equipment leases having a fixed 2010 1975 9.85 % 100,000 100,000 Construction and mainte-noncancelable term 2010-B to N 1982 12.10%-15.75 % 23,900 23,900 2011 1976 8%% 125,000 125,000 nance equipment of less than one year 20ll-A 1980 (a) 48,600 48,600 (a) The leases for the reload fuel cunently in the reactor at 2011-B 1981 (b) 22,200 22,200 Davis-Besse will last as long as it takes to burn the fuel. For fuel 2012 1977 8%% 75,000 75,000 reload leases, we pay full rent as the fuel is burned and we pay 2012-A 1982 16%% 75,000 75,000 a reduced rent equrvalent to an interest charge when the fuel is 2012-B 1982 13%% 78,700 78,700 rd being burned 2012 D 1982 12%% -100,000 100,000 (b) Unit train leases include renewal options through 2011. ve.yYe -A 2 1 p riod $1,370,191 $1,295,191 tess amounts classified as current 55,000 50,000 When the PUCO determines wtiat 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 (a) The interest paid on these bonds is at a variable rate. That rate we record those rents as an operating expense on the can Se no lower than 6% and no higher than 12%. The average rates i.1983 and 1982 were 8.14% and 9.37%, respectrvely. income statement. Statements of Financial Accounting (b) The interest paid on these bonds is at a variable rate. That rate than 1987 we account for certain leased assets as can be no lower than 6% and no higher than 14%. The average + i rates in 1983 and 1982 were 8.21% and 10.26%, respectively. though we owned them. I 28

s 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 Minimurn in 1983, $8,180,000 in 1982 and $7,92S,000 in 1981 for Preferred-nuclear fuel and unit train leases. lease payments under c!! other leases were not material. C $ 103.00 7-31-88 $ 100.00 E $1,088.00 5-31-86 $1,000.00 Some of our leases have noncancelable terms of more F $1,035.00 2-2944 $1,000.00 than one year. We have to make the following G $1,035.56 11-30-84 $1,000.00 payments for these leases after December 31,1983: H (a) $1,000.00 1 (b) $1,000.00 Year Amount J (c) $1,000.00 (Thousands of Dollars) Preference: 1984 $ 4,38S I $1,025.83 7-31-84 $1,000.00 96 2'959 (a) Begg June I,1990 and through May 31,1991 at 1987 2,367 1988 1,340 (b) Beginning kne I,1991 and through May 31,1992 at 51.068.68. Later Years S.020 (c) Beginning June I,1986 and through May 31,1987 at Total $20,042 51,050.44. 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 $24,263,000 in those leases. Serial Preferred Stock if its effective dividend cost is less than 8.8%. Finally, we may not use money raised Note H -- Serial Preferred and Preference. through the sale of stock which is junior to the Series E. A total of 3,000 shares of Series E Preferred Stock Stock with Mandatory Redemption Provisions was txmght back and retired in 1981,1982 and 1983 During the three years ended December 31,1983, we pursuant to its mandatory redemption provision. sold Serial Preferred Stock with mandatory sedemption provisions only in 1981. We sold 31,500 shares of There are no restrictions on our right to issue and sell authorized 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 of our Series F Preferred Note 1 - Serial Preferred Stock Without Stock a minimum retum on their investment of 6.96% after deducting Federal income tax on the dividends Mandatory Redemption Provisions received on the stock. If certain income tax laws are in December 1983, we sold S00,000 shares of Series L changed such that their after-tax retum 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 cr we could exchange Series F for refunding involving debt or preferred stock whose a new preferred stock. *lhe new stock would have a effective annual cost is less than the annual dividend l dividend rate high enough to provide a 6.96% after-tax of the Series L Preferred Stock. l retu m. 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 provisions. The redemption Preferxd Stock is subject to optional redemption. These provisions give us the right to buy back and retire the stock. 'the redemption prices (plus 29

'E l l otes to Consolidated Financial Statements dividends accrued to the redemption dates) are as outstanding options held by employees were as Price at Key Employee Incentive St ck Plan (a) December 31, Eventual l i Series 1983 Through Minimum 1983 1982 1981 Options Outstanding A $102.50 11-30-86 $101.00 at December 31 l B $103.78 7-31-87 $102.26 Shares 122,601 148,642 150,095 L $111.36 12-31-84 $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 31,1983 were as follows: Options Outstanding l at December 31 l 1983 1982 1981 Shares 389,007 374,705 244,425 Public Sa!e 9,000,000 3,500,000 Option Price $15.69 to $15.69 to $16.94 to $20.25 $20.25 $20.25 Dividend Reinvestment and Stock Purchase (a) Under the terms of the Key Employee incentive Stock Plan. no further options may be granted. Accordingly, only those shares Plan 3,021'125 1,362'141 926'M2 relating to options outstandmg at December 31,1983 may be Employee Savings Plan. 298,584 282,162 264,605 issut1 Employee Thrift Plan _ 71,767 75,775 74,727 The number of outstanding shares of Common Stock Key Employee incentive changes during the year. We calculate earnings per Stock Plan 20,471 share based on the average number of shares 1978 Key Employee outstanding throughout the year. The weighted average Stock Option Plan _ 11.560 shares outstanding in each of the last three years are Total Shares 3.423.507 10.720.078 4.765.874 as follows: 1981 48,004,081 I At December 31,1983, we had five stock purchase 1982 56,739,806 1983 63,213,562 plans available for our employees, share owners and customers. The common shares which are set aside to be used for these plans (including unexercised stock Note K-Short-Term Borrowing options) are as follows: Arrangements Plan Shares Notes payable to banks totaled $19,100,000 at both December 31,1983 and 1982. Available bank credit l Dividend Reinvestment and Stock arrangements are as foHows: Purchase Plan 9,258,256 At December 31, Employee Savings Plan 2,535,235 Type 1983 1982 Employee Thrift Plan 456,560 seds d Mars) Key Employee 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 Eurodollar revolving credit Option Plan 588,440 agreement $ 30,000 $ 30,000 13,368,270 Variable interest note agreements $ 20,000 $ 20,000 Stock options held by employees to purchase All borrowings under the Eurodollar 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. However, a fee of W% to %% per year is shares which were actually bought during the three paid on any unused part of this borrowing agreement. years ended December 31,1983 were sold at option The interest rate on borrowings is %% to %%, prices ranging from $15.69 to $18.59. Shares under depending on usage, above the rate which specified banks pay for Eurodollar deposits in the london inter-bank market. 30

Borrowings under the variable interest rate agreement Several lawsuits and government actions are pending. must be paid back whenever 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 returned a quality commercial paper in the 30-180 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 The unused P rtion of the above credit arrangements, pnanda) condition, although an adverse final decision after deducting bank lines held to cover outstanding in certain mstances could hase a material adverse variable interest notes, amounted to $181,200,000 at effect on income for the period in which the decision December 31,1983. becomes final. he average daily cash balance in bank accounts was Also pending is a petition filed with the PUC0 and the $2,700.000 in 1983 and $6,500,000 in 1982. Rese Ohio Power Siting Board claiming that Perry Unit 2 balances satisfied informal compensating balance will result in excess capacity. The petition requests an arrangements under which we maintain balances at order to cease construction of Peny Unit 2, to cease banks of $3,000,000 to $6,000,000, depending on the accruing AFUDC on that Unit and to prohibit the use amount we borrow. of proceeds of security issues to finance Perry Unit 2. We believe the petition is without merit and will oppose it vigorously. Under some circumstances, the Note L-Commitments 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, rec very of our terminated irwestment and such commitments amounted to: cancellation costs. However, if such recovery were to be disallowed, then the investment and cancellation Construction program $260,000,000 costs, alter 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 Usually we can cancel advance orders but often we income in the period in which it were to occur. Our must pay the manufacturers for what they have already 31.11% investment in Perrj Unit 2 at December 31, spent for labor and materials and sometimes a 1983 was $284,728,000. Cancellation costs could be penalty. substantial. AFUDC is accrued monthly on Perry Unit 2 and was $2,310,000 in December 1983. Cessation of We have lease and other arrangements to finance up such accruals could have a material adverse effect on to $370,000,000 of the cost of acquiring nuclear eamings depending upon how long it were to material, processing it into fuel and leasing it while it contim. is being bumed in a reactor. At December 31,1983, he owners of Davis-Besse maintain a nuclear under these arrangements, a trust 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 $154,621,009 in Davis-Besse, the maximum coverages at February 15, nuclear material and costs of processing it into fuel. 1984 will include $580,000,000 nuclear liability Also under those arrangements, nuclear fuel costing coverage for injury to persons and their property and the lessor $24,263,000 is in the Davis-Besse reactor $1,020,000,000 for damage to the owners' property, L under operating leases. Statement of Financial including leased fuel, and clean-up costs. De 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 later than 198. combined could exceed the property insurance by a 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 mer any liability insurance claims arising out of a ~ principal amour t of the mining companies' loan and nuclear m, cident at any nuclear units,m the United lease obligations was $83,545,000. Under one of these States and up to $8,000,000 per nuclear incident per I arrangements, we are required to pay the mining year to cover any property damage insurance claims. company any actual out-of-pocket idle-mine expenses, The Company has insurance coverage of $973,000 per as advance payments for coal, when the mines are week for the cost of replacement power purchased i I idle for reasons beyond the control of the mining Y"'.ing the 52 week period starting 26 weeks after any c mpany. incident at Davis-Besse and $487,000 per week for the next 52 weeks. The cost and duration of replacement 31

e "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 int edW service and retrospective premium obligations will increase. Davis-Besse 51.38 $444,259 19,814 Bruce Note M - Rate Matters Mansfield 1 6.50 25,784 148 Bm Re PUCO allowed us to raise electric rates by 17% on Mansfield 2 28.60 116'409 588 May 6,1981, by 10% on March 19,1982 and by.7.4% Bruce on January 7,1983. In the last rate case, a portion of Mansfield 3 24.47 156,232 446 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 Peny Unit I and common facilities included in rate base as Seneca Pumped i construction work in progress from $278,000,000 to Storage Hydro-electric Plant 80.00 54,736 224 $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 l 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. Re Company has filed a notice of property and Seneca property. The accumulated intent to apply m 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. He accumulated depreciation for ne PUCO granted a steam service rate increase of Seneca at December 31,1983 was $12,391,000. $7,000,000, or 47%, in January 1982 and another Depreciation on all other in-service property owned increase of $2,400,000, or 12%, in October 1982. In with other utilities has been accumulated on an January 1984, the PUCO allowed us to decrease rates account basis along with all other depreciable to customers who agree to continue to receive steam property rather than by specific units of depreciable service until June 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 hearings. 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 Utilities ahe age 55. Re amount of the person's benefit Some of the generating units which we own or are depends on length of service and eamings. De building are owned with other utilities. Each company benefit is reduced by a portion of social security benefits. The benefit of an employee who retires after owns an undivided share in the entire unit. All the age 65 is determined as if the mdividual were age 65. owners are tenants in common. Each company has if the person retires before age 62, the employee,s the right to a percentage of the generating capability benefit is reduced. He plan also pays benefits when of each unit equal to its ownership share. We are obligated to pay for our share of the construction and an employee dies or is disabled. operating costs of each unit. We are not responsible for the other owners' shares. 32

a We annually deposit money into the plan to fund the accumulated on a different basis. We and our pension cost of benefits arising from employee senice and consultants believe that FAS-36 disclosures are very earnings in the current year. We also dgosit 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 aniendments to the plan. In 1983, our total payrnent 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 required to do so. we recorded on the income statement $10,211,000 in 1983, $8,014,000 in 1982 and $6,659,000 in 1981. The At Januaw 1, remainder was recorded on the balance sheet, mostly 1983 1982 as construction costs. %Ilmns of Mars) Actuarial present value of The amount we deposit into the pension plan is accumulated plan determined by a method known as the entry age benefits: normal method, it is used by many private pension plans. This method takes m, to account estimated Benefits which are vested $143 $132 increases in employees' future earnings in an effort to Benefits which are not levelize the funding of pension benefits over their vested 14 13 working lives. The liability of the plan as of January 1, $157 $145 1983 determined under this method was slightly more Value of assets held in than the value of the assets m the plan on that date. the plan $244 $194 Statement of Financial Accounting Standards No. 36 (FAS-36) requires us to disclose accumulated pension Under both methods of determining the plan's liability, plan liability without consideration of future increases the one which we use and the FAS-36 method, we in employees' earnings. Therefore, the disclosures estimated in 1981,1982 and 1983 that the eamings of below, required by FAS-36, compare liability of the the plan would average about 6%% per year over the plan determined on one basis with assets life of the plan. Note P - Quarterly Results of Operations (Unaudited) i The following is a tabulation of the unaudited quarterly results of operations for the two years ended December 31, 1983. Quarters Ended March 31 June 30 Sept. 30 -Dec.31 Ohousands except per share r.ounts) 1982 Total operating revenues $273,038 $268,985 $299,224 $267,325 Net operating income $ 52,774 $ 56,953 $ 70,253 $ 48,948 Net income $ 48,019 $ 50,641 $ 66,849 $ 43,456 l Eamings available for common stock $ 38,407 $ 41,051 $ 57,302 $ 33,909 Average common shares 54,257 55,679 56,088 60,304 Eamings per common share .71 .74 l.02 .56 i 1983 Total operating revenues $299,600 $290,480 $351,041 $269,195 Net operating income $ 58,935 $ 58,965 $ 87,717 $ 52,745 l Net income $ 56,236 $ 52,192 $ 81,601 $ 55,996 l Eamings available for common stock $ 46,690 $ 42,668 $ 72,121 $ 46,121 { Average common shares 62,026 62,568 63,488 64,689 Eamings per common share .75 .68 1.14 5 .71 i 33

I + Financial and Statistical Review 1973-1983 1983 1982 1981 TJrALOPERA11NG REVENUES l.210.316 I 108.571 1.0:2 'Asidendal 385.076 348.757 310 Commercial 334.660 304.801 263 hdustria! 430.209 393.794 38C Other Electric (!ncludes Sales for Resale) 44.217 43.702 39 Steam Heating 16.154 17 517 12 .DTALOPERATING EXPENSES 951.954 879 644 ~ 820 Fue! ard Purchased Power 332.977 329.279 351 Other Oper.ating Expenses 270.468 250.591 224 Depreciaron and Amortization 94.196 86.588 85 j!. Taxe= O-:her Than Federal income Tax 126.883 106.804 91 Federallncome Tax 127.430 106.382 67 NET OPERABNGINCOME 258.362 228.927 192 NONOPERATING INCOME 114.148 96 669 75 Allowance for Equity Funds Used During Construction 87.052 76.8 % 4e Other income and Deductions 27.096 19 773 26 lnCOm Jq aM@ - INCOME BEFORE INTERESTCHARGES 372.510 325 5 % 268 (Thousands M Dollars) INTEREST 126.484 Ils 632 112 long and Short-term listerest 153.974 144.072 14C Allowance for Borrowed funds Used Dunng Construction _ 27.490 (27.440) (34 INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CIONGE 246.026 208.964 155 Cumulative Effect of Change in Depreciation Method / on Periods Prior to hnuary 1,1979 NETINCOME(a) 246 026 208.964 155 PREFERRED AND PREFIRENCE DMDEND REQUIREMEN13 _ 38.426 3R295 34 EARNINGS AVAllABLE FOR COMMON STOCK 207.600 170 669 12( EARNINGS PER SH ARE BEFORE CUMUIATIVE EFTECTOF AU'OUN11NGCHANGE 5 3.28 s 3.01 5 CUMU!X7VE EFFECT PRIOR TO JANUARY 1,1979 TCTAL EARWNGS PER SHARE (a)(b) s 3 28 s 3 01 s DMDENDS PE3 SHARE (b) 2.31 5 2.19 s TOTAL ASSETS _ 4.267.427 s 872 909 3.40f Utihty fut-Total 4.454.788 (0i0.532 3.61( Accumulated Utility Plant Depreciation and Amortization _ (722.492) (679.890) (621 ' Other Property 70.144 64.216 22 Current and Other Assets 464 987 478 051 39: TOTAL CAPITALIZATION AND LIABILITIES 4.267 427 3.872 309 3 40+ Balance Sheet Wierm Debe i3i8.883 i 44i.822 i.32e Preferred and Preference Stock: Year end Wit Mandatory Redemption Provisions 318.no0 322.000 32f (Thousands of Dollars) WitSout Mandatory Redemption Provisions 144.021 95.071 95 Comrren.*tock Equity 1.355.488 1.227.095 1.00: Deferred Federalincome Taxes 411.072 322.188 23f Current Liabilities and Other Credits 519 963 464 733 4It U11UTY PIANT ADDTDONS(c)__ 490.705 422.170 4 01 UTil11Y PLANT RETIREMEN13 46.449 22.533 1: NUMBER OF COMMON SH ARF.t(b) 65.198.089 61.774.582 51.05' ~. % KWHRSAlIS(Thoe t.C 16.637.472 16.165.157 17 W Residential - 4.412.154 4.335.605 4.37' Commer ". 4.265.023 4.194.177

4. lit industr -

7.513.673 7.082.261 8.2 71 Other(. 19 Q .1 ma'e) 446 622 553 114 67 ELECTR!Ce oTOMLiu /. AR END 712 833 711 222 71 i* R=sidentiat 643.065 641.705 64: Commercial 62.075 61.861 9 Industrial 7.274 7.235 Other 419 421 ,RCSIDENTIALSALESDATA, - Average Kwhr perCus omer 6.608 6.490 t Average Revenue perCustomer s 57'-J 524 63 5 4' y . AverageRevenueperKwbr te 8.088 i Operating Statist.icS uECTRIC PRODUCTION 17.677.831 18 93. Net Available for Se.vice Area (Thousands) 18.461 867 .r Net Generation. - 17.152.981 17.032.759 17.29 Net Received from Others 1.'408 886 645 072 1.63' BTU r Kwbrof Net t 10.452 10.475 It Fuel per Million i 169 08e 174 728 l' CoalCost perTon tS 46 66 5 45.51 5 l AnnualNet60 Min. Max. load-KW Exct.interruptAJes 3.366.000 3.078.000 3.36. l Net System Capabihty-KW-Year End 4.398.000 4.656.000 4.62 i STEAM HEAT 1NG Sales-Pounds (Thousands) 1.281.499 1.501.077 1.6 i. s Customers-Year End 274 312 EMPLOYEES-YEAR END 5.339 5.411 , / ;$)The 1978 net income and carrungs per share calculated on a pro lorma basis lo F i 9s are 5102.942,503 and 52.31 respecively The pro forma efied of the adoption of this depreciation method on 1977 was not mat [ 34

8 The Cleveland Electric illuminating Company and Subsidiaries 1980 1979 1978 1977 1976 1975 1974 1973 893.566 824 2fd 717.092 659 290 543.148 523.165 463.937 328 768 368 787 237.612 213.520 200,765 160.015 154.020 140.030 104.379 220.677 194.899 172.251 165.049 129.286 121.653 109.185 80.756 333.764 322.909 278,405 251.181 197.189 180.890 177.246 119.964 65.273 55.799 42.831 31.611 45.730 55.679 29.946 17.832 15.065 13.048 10.0R5 10 684 10 928 10 923 7.530 5 837 743.051 6M 7M 599 289 542 871 441.401 433 614 375.159 255.276 360.347 349.027 307.429 265.771 234.107 246.984 199.362 100.450 194.881 162.636 140.996 127.330 102.794 94.539 85.122 72.795 64.619 59.443 56.774 43.307 35.874 33.046 31.632 30.965 81.630 79.455 68 756 58.807 51.925 48.735 43.653 40.906 41,574 38 227 25.334 47.656 16.701 10 310 15.390 10.160 113 515 135 479 117.803 116.419 101.747 89 551 M.778 73.492 62 440 47621 42.226 49.484 26.346 17,681 8 472 7442 C3.873 33.432 29.890 35.265 24.706 16.983 7,854 6.363 21,567 14.189 12 336 14.219 1640 698 618 t.279 212.955 183 100 160 029 165 911 128 093 107.232 97.250 81 134 87.572 69.566 61 016 54 175 46.413 42.464 36.5m 31.720 112.623 85.299 72.071 67.889 56.750 50.511 44.717 35.161 (25.0511 (15.733) (11 055) (13.714) (10.337) (8.047) (8 208) (3.441) 125.383 113.534 99.013 111.728 81.680 64.768 60.741 49.414 4.125 125.383 117.659 99 013 111,728 81.680 64.768 60.741 49.414 27,7l I 25 587 2'1 575 22.907 18.005 14.696 10 067 7.658 97.672 92 072 75 438 M 821 63.675 50 072 50 674 41,756 8 126 8 2.31 8 2 20 2.91 8 2.38 8 2 11 5 2 45 5 2.03 11 l 2.26 5 2 42 8 2 20 8 2.91 5 2.38 5 2.11 5 2 45 2 03 5 2 00 l.92 1 84 8 1.76 I.71 8 1.65 5 1.60 l.55 3 044 46; 2.678 786 2.331.541 2.117,135 I S42.999 1,513.247 l.354 065 1.152.335 3.215.339 2.842.253 2.523.996 2.232.Ill I.955.701 1.693.614 1.526.659 1.364.122 (557.859) (521.175) (476.983) (429.150) {396.338) (373.851) (355.841) (334.071) 21.137 19.503 15.034 13.753 12.849 9.942 7.433 5.331 415 845 338 205 269 494 300.421 270.787 183 542 175.814 II6 953 3 634 462 2.678.786 2.331.541 2.117.135 I.842 999 f.513.247 I.354.065 1.152.335 1.211.528 973.991 920.973 885.899 747.392 673.003 553.144 502.800 2ED.500 232.000 232.000 185.000 135.000 75.000 63.000 25.000 95,071 95.071 95.07! 95.071 95.071 95.071 95.071 95.071 912.731 820.411 708.883 633.744 511.333 419.990 346.736 326.947 192.452 162.122 140.677 119.299 72.318 63.267 43.348 34.312 422180 395 191 233 937 198 122 281 M5 186.916 252 766 16r AS 398.0h8 329.869 300.765 286.739 275.524 181.673 173.899 145.470 25.002 11.612 8.880 10.329 13.437 14.718 11.362 10.188 46.288 629 41.271.574 35.995.365 32.388.055 28.347.544 24.351.499 20.748,110 20.611.034 10 159 754 19.030 45'l 18 364.437 18 066 428 18 070,291 In 133 826 17,601.6R6 17.747 663 4.463.147 4.352.983 4.288.865 4.200.116 4.045.158 3.984.004 3.830.305 3.910.018 4.140.990 4.041.134 3.933.586 4.007.123 3.808.897 3.685.878 3.527.382 3.569.689 8.c32.172 9.268 600 8.992.919 8.874.796 8.475.983 7.822.419 8.819.205 9.103.173 1 485 445 1.367.736 1.149.067 984.393 1.740.253 2.641 525 1.424 794 1.164.781 710 557 708 219 702 538 696 547 693 425 689 133 642.845 641.856 637.609 632.740 630.581 627.719 684 728 678 426 623.988 618.266 60.070 58.690 57.310 56.241 55.178 53.765 53.070 52.291 7.210 7.232 7.167 7 112 7,206 7.190 7.212 7,415 432 44I 452 454 460 459 458 454 6.686 6.557 6.517 6.412 6,187 6.116 5.914 6.098 C35 09 3 357.86 5 324 91 S 307.11 8 245.16 8 237.02 8 216.69 8 162 69 l l 6.05e 5 48e 5 00e 4 80e 3.97: 3 88e 3 678 2 67e 18.722,616 19 645 001 19 254 857 19 098 231 18 331.384 17.271.169 17.817,763 18.257.155 15.335.948 17.0ti9.914 16.882.669 18.123.528 16.747.626 16.213.012 18.040.100 17,326 440 l 3.346 668 2.575 087 2.372IM 974 703 1.583.758 I.058 157 (222 3371 930 515 10.635 10.634 10.536 10.401 10.322 10.454 10.569 10.382 ! ( 15692e 142.5 te 131 804 117.504 105 554 Ill.14e 102.264 48 404 39 31 5 35.20 5 30 73 5 25.72 8 23 98 24 93 21 53 11.05 3.304.000 3.097.000 3.249.000 3.350.000 3.065.000 2.937.000 2.934 000 3.119.000 4.598.000 4.562.000 4.566.000 4.386.000 3.906.000 3.615.000 3.764.000 3.769.000 1.979.397 2.004.680 2.210.886 2.374.510 2.359.677 2.263.645 2.274.925 2.154.390 348 365 369 372 385 399 406 416 4.991 .4.963 4.831 4.790 4.840 4.947 4.982 4.853 (b) Admsted int the 3 for.2 stock split, effective Decemtwr 16.1977. (c) Esuudes $56.022.606 of termmated protects reclassihed to Deferred Charges in 1979 35

e Ig' Statement of Income from Continuing Operations The Cleveland Electric illuminating Company andSubsidiaries Adjusted for Changing Prices for the Year Ended December 31,1983 (unaudited) Conventional Constant Dollar Current Cost Historical Average Average Cost 1983 Dollars 1983 Dollars (Thousands of Dollars) Revenue $1,210,316 $1,210,316 $1,210,316 Operation expense 515,415 515,415 515,415 Maintenance expense 88,030 88,030 88,030 Depreciation and amortization 94,196 202,295 229,146 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) (114,148) (114,145) Interest expense 126,484 126,484 126,484 964,290 1,072,389 1,099,243 Net income - continuing operations $ 246,026 $ 137,927 (a) $ 111,073 (a) Increase in specific prices of property and plant (b) $ 120,482 Adjustment to net recoverable cost $ (22,963) 96,980 increase in general prices (213,571) Increase in specific prices in excess of increase in general prices after 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 adjustment $ 60,142 $ 86.996 (a) Including the adjustment to net recoverable cost, net income for 1983 would have been $114,9M,000 in constant dollars and $208,053,000 in current cost dollars. (b) At December 31,1983, the current cost of property, plant and equipment net of accumulated depreciation was $5,934,%I,000 while original (net recoverable) cost was $3,732,296,000. 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 have increased at the effect 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 Board. 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 effects 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 income tax expense. purposes. Deprec,ation i, General The constant dollar and current cost estimates of Historical costs adjusted for general inflation are pr perty and plant were determined by applying the referred to as " constant dollars." The original cost of indices noted to ongmal cost. Restated deprec,ation i reserves were used to compute property and plant net utility plant and certain other items was converted to f depreciation. They were obtamed 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 vmtage 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 Handy-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 'ype items. Fuel was trended to current cost using other industry inventory is subject to rapid turnover. As such, we indices. believe the original cost of this iteri fairly represents its current cost. 36

1 i j FFinancial Data Adjusted for ive-Year Comparison of Selected Supplementary he Cleveland Electric illuminating Company andSubsidiaries Effects of Changing Prices (unaudited) Year Ended December 31. (Average 1983 Dollars) 1983 1982 1981 1980 1979 (Thousands, except per share amounts) Revenue as reported $1,210,316 $1,108,571 $1,012,930 $ 893,566 $ 824,267 in 1983 constant dollars $1,210,316 $1,144,233 51,109,612 $1,080,389 $1,131,377 Net income as reported - continuing operations $ 246,026 $ 208,964 $ 155,734 $ 125,383 $ 113,534 in 1983 constant dollars $ 137,927 $ 114,188 $ 75,946 $ 62,826 5 79,072 in 1983 current cost dollars $ 111,073 $ 83,827 5 47,129 $ 29,367 $ 41,795 Income (Loss) per Common Share as reported - continuing operations 3.28 3.01 2.52 2.26 2.31 in 1983 constant dollars 1.57 1.31 0.79 0.68 l.15 in 1983 current cost dollars 1.15 0.78 5 0.19 (0.10) $ 0.18 Net Assets at Year End as reported $1,355,488 $1,227,095 $1,002,206 $ 312,731 $ 820,411 at net recoverable cost $1,332,710 $1,252,275 $1,062,374 $1,054,020 $1,064,857 increase in specific 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 $ 83,105 $ 79,885 $ 173,930 $ 228,079 $ 243,251 Cash Dividends Declared per Common Share as reported 2.31 2.19 s 2.08 2.00 1.92 in 1983 constant dollars 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 298.4 289.1 272.4 246.8 217.4 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. General Prices after Adjustment to Net Recoverable Net income from operations increased in 1983 on both constant dollar 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 4 1983 exceeded the overall increase in prices of our recover current cost measures of depreciation through property and plant. However, when the current cost of rates. Ohio law restricts recovery of investment i 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. from Dec ine in Purchasing Power of Net W2 have to raise new capital to meet growth needs at inflated costs of constructicn and to replace wom-out With inflation, holding cash type assets such as items at higher replacement costs. If rate adjustments money and receivables results in a loss in purchasing fail to compensate for the cost of new capital, power. Holding cash type liabilities such as long-term especially during times of inflation, a regular erosion i 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 liabilities for this computation. i We continue to seek proper and timely rate increases and a regulatory environment which is responsive to the effects of inflation on our investment. 37

s GeneralInformation 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 purchasing shares of Baltimore-Washington and Cincinnati Stock Exchanges. Company common stock at no additional cost by investing New York Stock Exchange symbol-CVX. a part or all of their quarterly dividends and cash payments. Preferred Stock Dividends reinvested in Company common stock under Listed on the New York Stock Exchange. the Plan qualify for the tax deferral provisions of The Economic Recovery Tax Act of 1981. Information and a Registrars prospectus relating to the Plan may be obtained from for Common Stock, Pre /erence Stock and Pre / erred Stock Share Owner Services at the Company. AmeriTrust Company National Association 900 Euclid Avenue Form 10-K The Company will furnish to share owners, Cleveland, Ohio 44114 without charge, a copy of its most recent annual report to the Securities and Exchange Commission (Form 10-K) Transfer Agents and, upon payment of a reasonable fee, a copy of each for Common Stock, Pre /erence Stock and Pre /erredStock 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 44101 Independent Accountants Price Waterhouse,1900 Central National Bank Building, Stock transfers may be presented at Wells Fargo Securities Cleveland, Ohio 44114 Clearance Corporation,45 Broad Street, New York, N.Y.10004. Bond Trustee and Registrar Share Owner Inquiries Morgan Guaranty Trust Company of New York for all series. Communications regarding stock transfer requirements, I st certificates, dividends and changes of address should be Communications regarding bond registration requirements directed to Share Owner Services at the Company. To reach and lost certificates should be directed to Morgan Guaranty Share Owner Services by phone, call the following numbers. Trust Company of New York,30 West Broadway, 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 Company,40 Wall Street-in Ohio 1-800-362-1237 i New York, N.Y.10015 and AmeriTrust Company National Outside Ohio 1-800-321 3206 Assocation,900 Euclid Avenue, Cleveland, Ohio 44114-Please have your account number ready when calling. Co-paying agents for the 2%% Series, Due 1985 3%% Series, Due 1993 Executive Offices Mail Address 3%% Series, Due 1986 4%% Series, Due 1994 Illuminating Building Post Office Box 5000 3% Series,Due 1989 55 Public Square Cleveland, Ohio 44101 Cleveland, Ohio I Memn Guaranty Trust Company of New York,30 West Telephone Number (216) 622-9800 Broaoway, New York, N.Y.10015-Paying agent for the 7.55% Series, Due 1984 9%% Series, Due 2009 The annual meeting of the share owners of the Company 12%% Series, Due 1984 A 9.85% Series, Due 2010 will be held on April 24,1984. Owners of common stock 11 K% Series, Due 1985-A 8%% Series, Due 2011 as of February 24,1984, the record date for the meeting, l 15%% Series,Due 1989 A 8%% Series,Due 2012 will be entitled to vote on Ihe issues.The official notice, 7%% Series, Due 1990 Iti%% Series, Due 2012-A Proxy statement and proxy will be mailed to share owners 8%% Series, Due 1991 12%% Series,Due 2012 D on or about March 12,1984. 15%% Series, Due 1992 12%% Series, Due 2013-A Notice: The annual report and the financial statements 8%% Series, Due 2005 herein are for the general information of the share owners o inquiries regarding interest payments should be directed the Company and are not intended to be used in connectior to either Manufacturers Hanover Trust Company or Morgan with 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.

e Service Area Ashtabula Plant The Company furnishes electric service to an area approximately 1,700 square g,y f,'/ %g /gj miles, extending 100 miles along the south shore of Lake Erie from the Perry Nuclear C Ohio-Pennsylvania border on the east through the city of Power Plant Avon Lake on the west. Total population served is approximately 1,850,000. _ /2v Eastlake Plant F/ _ // A Interconnections with Ohio Edison j (From Davis-Besse Nuclear Power Avon [ Station) Lak' Lake Shore Plant B Interconnections with Ohio Edison Pt-.t J (From Mansfield and Beaver Valley 77

1. 1. /4 Plants)and Ohio Power

!' / / j //' A / C Interconnection with Pennsylvania &#M4 Electric (From Seneca Pumped Storage ///gpV/// fjl _ '~ Hydroelectric Power Plant-80% ff, B owned by Company)

1. 1. 1. ,4.

O apco IV g g/ / The Company is a member of the Central Area Power Coordination j, (M.pgM Je 1w$ j Group (CAPCO), formed by regional ?"W ff The Illuminating Company utility companies to assure greater Pennsylvania Power Company reliability of interconnections, back up N, h 0 h 4' Ohio Edison Company %pf;i in case of emergencies and better

EfM, TheToledo Edison Company

" ' ' " " ' ' - ~ economies of operation. Other g" p, ' 7,d 1 T N D f*, . 4 c Ljmh Duquesne Light Company ' members mclude Duquesne Light c.c 4g@/3g%%j,g, Company, Ohio Edison Company, yy 4 h gygW Pennsylvania Power Company and M.,4 The Toledo Edison Company.The g& h 'h f. W 6 9 h M W d:#.:1 % ; i ig, g d W l g ? " members are constructing power E. generation and transmission facilities. h f ', u $. p $w. 4 ~Q.P 7 mw ~ Through interconnections shown V%ad?4W almve with CAPCO members, YQF'( cf'M Pennsylvania Electric Company and kg. Ohio Power Company, the Company's CAPCO Generating Units service area is part of an inter-connected system linking continental Expected Net Demonstrated U.S.A. and major portions of Canada. Capability (Kilowatts) Year of Construction This interconnection network further Scheduled and Operation Project Total CompanyShare Completion Responsibility enhances the reliability and ecr3nomy of our customers' electric service, Eastlake a Unit *5 635,000 437,000 in Service The Illuminating Company 7 Sammis a Unit *7 600,000 In Service Ohio Edison Company 4 Manstleid a Unit *l 780,000 51,000 in Service Pennsylvania Unit *2 780,000 223,000 in Service Power j Unit *3 800,000 196,000 In Service Company Davis Beseee 880,000 452,000 in Service TheToledo Edison Company ? Perry eUnit *1 1,205,000 375,000 1985 Unit *2 1,205,000 375,000 1988 The Illuminating Company Beaver eUnit *1 810,000 In Service Duquesne l Valley Unit *2 833,000 204.000 1986 Light Company a co.i nrco e Nucicar 3g

a nommittees of the Board of Directors oard of Directors lv l Audit Committee The Audit Committee recommends to Leigh Carter the Board the firm of independent accountants to be Chairman of Tremco,Inc., manufacturer of specialty 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 BFCxxxirich Company. Also, President-Engineered i and the audit practices employed by them and the Products Group and Executive Vice President of The I Company. The Committee oversees the establishment and BFGoodrich Company administration by management of effective internal Robert M.Ginn accounting controis and an accounting system designed Chairman and Chief Executive Officer of the Company to produce financial statements which present fairly the Roy H.Holdt l financial position of the Company. Chairman and Chief Executive Officer of White Consolidated ~ C E Spahr(Chairman) L Caner, R.H. Holdt, W1. Williams Industries Inc., manufacturer of products for the home, principally maj r appliances, and machinery and equip-Compensation Committe-The Compensation Committee ment for mdustry reviews and approves the Company,s overall Compensation Plan, including the pension and employee stock purchase John Lansdale,Jr. plans and,in particular, recommends the remuneration of Partner in the law firm of Squire, Sanders & Dempsey the Chairman, President and all Vice Presidents. Richard A. Miller L Caner (Chairman). R. H. Holdt. H. E Strawbridge, President of the Company WJ. Williams Sister Mary Marthe Reinhard,SND* President of Notre Dame College of Ohio Executive Committee The Executive Committee acts on behalf of the Board at times other than regular Board Karl H.Rudolph meetings when it is impracticable to call together the entire Chairman of the Executive Committee and retired Board. ' he Committee has the same authority as the Board, Chairman and Chief Executive Officer of the Company T except that it may not elect officers (other than assistant Craig R. Smith secretaries and assistant treasurers), fill vacancies on the Chairman of Bendix Automation of Bendix Corporation. Board or on the Executive Committee or authorize the a wholly-owned subsidiary of Allied Corporation. Bendix issuance of first mortgage bonds. Automation is a producer of machines and accessories for K. H Rudolph (Chairman). R. At Ginn. C R. Smith. the metalworking industry, H E Straabridge Charles E.Spahr Director of several companies and retired Chairman and Finance Committee The Finance Committee reviews and Chief Executive Officer of The Standard Oil Company recommends long range fmancial poh,c,es and objectives (Ohio), manufacturer of petroleum products, chemicals. i and specific actions to achieve these objectives.The plastics and metals and supplier of coal Committee, acting for the Company as administrator of the Herbert E.Strawbridge Company's Pension Plan and Investment Program of the Chairman of the Finance Committee and retired Chairman Employee Savings Plan, also reviews the investment nd Chief Executis e Officer of The Higbee Company, a performance of the pension fund trustee,other pension department store fund investment managers and the Employee Savings Plan trustee and establishes objectives for the investment of Allan J.Tomlinson, Jr.' Pension Plan and Employee Savings Plan assets. Chairman, President and Chief Executive Officer of SDS " I*8 "0

1. 1. ?*W "" * #*'I P*'"'"

I R. A. h! iller (Chairman), R. At Ginn, K. H. Rudolph, products m the field'of biotechnology C R. Smith, C E Spahr, R. B. Tullis Richard B.Tullis Nominating Committee The Nominating Committee Chairman of the Executive Committee and retired Chairman recommends to the Board candidates to be nominated for and Chief Executive Officer of Harris Corporation, manufacto election as directors at the annual meeting and to fill any of communication and information processing equipment vacancies on the Board. When reviewing potential Harold LWilliams candidates, the Committee considers suggestions made by Executive Vice President of the Company share owners. H. E Strawbridge(Chairman). L Carter, R. Af. Ginn, t r, en and Chief Operating Officer of Republic R. M Holdt, J. Lansdale, Jr, K. H. Rudolph, C R. Smith, j Steel Corporation, manufacturer of steel and steel products C E Spahr, R. B. Tuflis, WJ. Williams l Planning Committee The Planning Committee advises and consults with managemant and the Board 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 organization appropriate to meet those objectives. h irm n E e tus of the Board of Directors R. Ai Ginn (Chairman), L Carter, R. A. Afiller, H. L Williams, WJ. Williams 49

e s i eigh Carter Robert.\\1. Ginn Roy ll Floldt .lohn I..msda!c..lr i m ( .(n hard A \\1 iller dr \\lary \\larthe Reinhard.5.\\l)* Karl 11. Rudolph Cr.ue R snuth I h,I y e / w ? i 4 ('ll trlt's k. hpallr lit'rht'rt II bliah hrhlQt' d!!an J. 'blinhust)n, Jr.

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• Cleveland, Ohio 44101

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