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Forwards Annual Financial Repts 1983 for Duquesne Light Co, Ohio Edison Co,Pennsylvania Power Co,Toledo Edison Co & Cleveland Electric Illuminating Co
	ML20093N722
Person / Time
Site:	Perry
Issue date:	07/27/1984
From:	Edelman M; CLEVELAND ELECTRIC ILLUMINATING CO.
To:	Harold Denton; Office of Nuclear Reactor Regulation
Shared Package
ML20093N724	List: ML20093N722; ML20093N746;
References
	840720, NUDOCS 8408020118
	Download: ML20093N722 (1)
	v • d • e

{{#Wiki_filter:{ Tt!" i 11 k U L :. i t r. )LLa' ia 4.' 4 ni r TU c;r* j ,3 e 'I P.O. BOX 5000 - CLEVELAND, OHlo 44101 - TELEPHONE (216) 622-9800 - lLLUMINATING BLDG - 55 PtlBLIC SOUARE Serving The Best Location in the Nation MURRAY R. EDELMAN vicE PRESIDENT NUCLEAR d July 20, 1984 PY-CEI/NRR-0125 L Harold Denton Director of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission Washington D.C. 20555 Perry Nuclear Power Plant Docket Nos. 50-440; 50-441 10 CFR 50.71(b) Submittal

Dear Mr. Denton:

The Cleveland Electric Illuminating Company, on behalf of itself and Duquesne Light Company, Ohio Edison Company, Pennsylvania Power company and The Toledo Edison company, hereby files a copy of the applicants 1983 annual financial reports, including the certified financial statements, in accordance with the requirements of 10 CFR 50.71(b). Future reports will be provided by direct distribution upon each issuance. Very truly yours, hNitte NM Murray R. Edelman A-Vice President j Nuclear Group MRE:nje Attachments cc. Jay Silberg, Esq. John Stefano J. Grobe 8408020118 840720 PDR ADOCK 05000440 I PDR s

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7 ,M M The Cleveland Electric wn gyp ,lluminating Company , W,M M..;:[y'; ~ s x w: "s 1983 Annual Report x x r + ~ p w, u 2., a, n n A f.[ . Mfd. h I* O ' ' L: $?vh'y~""E Al fa +

g l Oontents Iv liighlights. Financial Summary and Quarterly Stock Prices I Letter to Share Owners 2 Our Service Area: A Year of Progress 4 Sales 4 Marketing 7 Energy Today 9 Electri System 9 Energy Tomorrow 11 System Demand 11 Construction Program 11 l Investing in the Future 13 Financial Matters 13 Financial Section 17 Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Management's Statement of Responsibility for Financial Statements 20 Report of Independent Accountants 20 Financial Statements and Notes 21 Financial and Statistical Review 1973-1983 34 Inflation Accounting 36 General information _ 38 Service Area Map 39 Committees of the Board of Directors 40 Board of Directors 40 Officers 41 Quarterly Earnings and Dividends Per Share of Common Stock (dollars) s1.20 1.00 .80 .60 -s7 Dividends 48 E .40 ,20 0 le 2nd 3rd 4th is 2nd 3rd 4th Id 2nd 3rd 4th le 2nd 3rd 4th le 2nd 3rd 4th 1979 19M0 1981 1982 1983

ighlights 1983

Earnings Imr share for the year reached a record high of $3.28 up 9% from 1982.
Common Stock quarterly dividend per share was increased 3e effective in Nosember 1983. Total payment of $2.31 represents a 5.5% inctease 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 proviam' 15%

of the Company's electricity in 1983. inancial Summary Percent 1983 1982 Change Ea.nings Per Share of Common Stock 3.28 5 3.01 9.0 Dividends Paid Per Share of Common Stock 2.31 $ 2.19 5.5 Quarterly High and I.ow Prices Book Value Per Share of Common Stock of Common Stock 20.79 $ 19.86 4.7 (dollars) Common Stock Share Owners 132.378 111,688 18.5 Operating Revenues (000) $1,210,316 $1,108,571 9.2 Operating Expenses (000) $ 951,951 $ 879,641 8.2 g4 Net income (000) _ $ 216,026 $ 208,964 17.7 23 Earnings Available for Common Stock (000) $ 207,600 $ 170,669 21.6 2' Kilowatthour Sales (Millions of Kilowatthours) 22 2' Residential 4,412 4,336 1.8 21 Commercial 4.265 1.191 1.7 Industrial 7,514 7,082 6.1 2n Other 426 414 3.0 l E Sub-total 16,617 16.026 3.7 19 ,7,[ _ 20 139 (85.7) ^ l" Sales to Utilitles l g Total 16.637 16,165 2.9 II I -17P. 17 16 % 16 16Fr 15 15 4 l 14 13 5 0 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1982 1983 1 es. .y_, --,--..,-...,,.,m- ,%,_,,,y.. -,._,,w -9,.-e,,,g,, 9, ,,9 w w.pgy, .wi

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We started a customer atock purchase plan which..chieved sputacular results. More i

than 51,000 of our customers now are share owners as well. t

Our stead:' and well-documented progress toward completion of the Perry Nuclear Power Plant enabled us to pass se\\cral maior regulatory inspections.

Sound management principles also requite us to remain aware of external influences that could impair this Company's ability % selve customer and share owner umis. Two political issues now hunning on the horizon would hase short-term impact on j share owners and long term effects on custoniers. In inith cases, the conunon pubhc misconception is that the lu)litical measures under consideration would somehow transfer costs from the customer to the utihty. One issue is the ensironmental phenomenon of acid rain. At a time when a (lear scientific understanding of its sources. causes and effects does not yet exist. some l groups continue to press for immediate control measures on the mere assumption that j they may be su(ressful. I egislation now before the l'.S. Congress targets Ohio and other Midwestern states for multi-bilhon-dollar expenditures to control emissions at coal-fired power plant ( Suth measures would mean higher energy costs for consumers and would hurt the competitive standing of our industnes and businesses in national j and international markets. l Additional scientific rescarth is needed to assure the effectis eness of acid rain measures. A growin;t number of soices-representing consumers. labor. business. l science and government-are reinforcint! this position. The National Academy of i Sciences, in a much-publicized report, refused to confirm (harges that Midwestern i j power plants are the cause of the and rain problems m the Northeast and Canada. That reportctoo. emphasized the need for continued research to reduce the j i unccriainties in [wihey decisi<>ns We supinirt that [u nition. A second maior issue that threatens the welfare of both customers and share owners [ involves a movement in the Oluo legislature against construction work in progress (CWIP), a ratemaking option that allows utihties to begin recovering financing costs as new construction nears completion. CWIP now provides tong-term cost savings by imprming utility bond ratings and lessening risk to investors. As a result, utilities can obtain capital to construct new facilities and to refinance maturing debt at lower interest rates. This reduces overall construction and interest costs w hich holds down rates to customers. It is vitally important to all parties for the Ohio legislature to recognize that the interests of utility share owners and customers alike are best served in tho long run by keeping CWIP in the ratemaking process. The following pages of this Annual Report will provide you with more perspective on Company activities and the prospects for its future. We are the current stewards of your investment in a company that has earned a solid reputation for dependability. durahihty and financial strength. You, our share owners, along with our customers are now reaping benefits from the wise management planning of years past. Our decisions today are intended to ensure that those benefits continue in the future. Undeniably, this Company and its service area still face major challenges. P,ut a climate of challenge and change often provides the most fertile ground for significant achievements. We believe we are up to that test. Sim erely. ADY AN$Nma G4wf2lfk Robert M. Ginn liarold 1.. Williams Ri(hard A. Miller Clumman bec utu e Vu e nesalent n est, 'ent February 17, IM I 3

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4 .(' l The industrial Sector ' r.g. ;.j. n y, %>; 'g G g.. O Northeast Ohio is an unusually diverse manufacturing center. Our industries produce i y ]e f 4 ' - or fabricate steel, plastics, cheinicals, biochemicals, aluminum, brass and a host of i s 4 .V.i other basic materials. From our pn> duction lines come automobile components, I ? WN. '~ u appliances, electrical equipment, machine tools, computer components. textiles, paper, [ 3.- .-Q glassware, heavy machinery and many other essentials which are in continuing demand. l W. %],y t. XLO. C ~ t, g,. : '3 This diversity provides us with an economic cushion in contrast to regions dependent l NN.

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on one or two industries. We find that declines experienced at times in some of our ( c ~'. P 4 Qs 7,J; .. f : industries will be offset by kains in others, thus keeping the local economy $. y; Q'. g/A

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.s yye fi*Q~ level. Ilut k) cal manufacturers are reducing costs through prtxluction efficiencies and + =;. _'. g,* labor agreements to be more competitive in world markets. They also are relying more g ;.* e- -,47.,..M and more on eh ctric powered technologies to improve their competitive standings. / 3 . =,. p.~ I s 't Some examples: .%jf ', .~ A' ]; $'.'%

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expected to result in substantial savings and improve quality in steelmaking. l > g. _ y -;, - 4.o r ,.g ,. u 7 r.. y *. s.J- '..t s

Jones & Laughlin Steel's Cleveland plant which operates two electric arc furnaces has

(. \\.h. become one of the lowest-cost and most productive of that company's facilities. f'N < - c ,. 7. i+g,. i ~ gA A. o . FJectric induction furnaces which heat billets from the inside out by electromagnetic r induction are helping reduce costs for forgings at Midwest Forge, Presrite Corporation, Rupp Forge and liill Acme Company.

Industrial robots are in use for aluminum die casting at.::e llalex Company, commercial heat-treating operations at Wodin, Inc. and precision castings for aircraft at TRW's SMP division.

utput for our major steel customers was up 31 percent over the previous year resulting in a 30 percent increase in kilowatthour sales to those customers. The I automobile industry likewise demonstrated strength. Sales to our major automotive l customers rose 13 percent from the 1982 level. At General Motors' Chevrolet plant, a j surge in demand for full size cars brought pmduction to its highest level since 1979. dodies for one of Ford's most popular schicles, its large van, are made exclusively in this area. A h> cal foundry w hich provides Ford's sole American source of iron has plans j to add more electric powered metal holding furnaces to make castings. A Ford ( stamping plant w hich lost work in past years because of labor problems has improsed its labor-management relations, has regained all of its lost jobs and has plans for expansion. i i l i i l l 5

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~ ' ~ ws M w96944 1.d G d h u a n u hauwusmam.mA-a. i. v. ~ .m. We applied our energy expertise to create a new, wholly owned subsidiary called Dynamic Energy Ventures, Inc. (Dyneco), which will sel!, install and service such sophisticated options as uninterruptible power supplies, energy management systems and metering services. The opportunities prewnted and the relatively small investment required by Dyneco make this a low sisk venture. We saw, too, the need for us to remain competitive relative to other energy supp:lers. 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. ergy Today After more than a century, the prime objective of this Company remains unchanged: to provide reliable e!ectric service at the lowest cost possible. Electricity is essential to i rebounding industries and businesses. in 1983 we made 5491 million in capital expenditures to construct new facilities and to upgrade existing generation, transmission and distribution systems. We expect these y efforts to improve service reliability and to lower generating costs, thus pnxtucing R 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 Production At our coal-fired plants some $13 million was expended in 1983 to upgrade equipment and improve the operating efficiency of generating units. We expect this investment to pay for itself in the years ahead by increasing the kilowatthour output of existing units while reducing the amount of fuel required. More savings were achieved as we continued our computerized program of performance evaluation, testing and preventive maintenance on gewer plant equipment. A major innovation was our establishment of a power plant support center - 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 substantial cost savings. We spent some $28 million in 1983 on environmental projects at our coal fired plants, primarily for waste water treatment and the reduction of fly ash emissions. Environmental protection is a continuing objective on which we have spent nearly half a billion dollars in the past decade. ' ; Inside this massive piping, water is We were highly pleased by the 73 percent availability rate in 1983 of the Davis-Besse evaporated from sodium chloride be.me Nuclear Power Station which we co-own with its operator, The Toledo Edison Company C an RMI Company facility which our customers $42 million through the lower'g outage in July 1983 During the 11 months preceding the refuelin manufactures metallic sodium and cost of nuclear fuel. chlorine. RMIis one of many compam.es with which we have worked directly to help achieve savings on energy costs. Transmission and Distribution . Northeast Ohio's chemical industries To send high-voltage power throughout our service area we maintain a network of [$4 almost 2,300 circuit miles of transinission lines. The high level of network reliability, a n rar n ti ~ lhird, folkming steel and au'tomotive ' coupled with our strategic Midwestern location, allows us to increase our revenues by ~ companies, among our biggest selling power, when available, to utilities in the East and by transmitting power sold by other utilities. energy users, L 9 L

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Perry Ginstruclian in November a special Constnnhon Appraiul Team from the Nuticar Regulatory Quality Assurance Cominission (NRC) issued its repon following a fourau ek 1000 manhour inspetti n o of Perrv. The report found our proje t organization to be aggressise in findmg aini On any huihhng proje<1, and n.solsihg ainstrudion pn>hlems amt mn QA program hi he ;ulequate? Tin' term particuhnly on one a3 hirve en our .ulapiate, in the worki of nuclear regulation. is the highest pmstble accolade. I' err) /%mt, occasionalourann tion Cons dering the very rigid regulatory clinute in whis h we are working, this pol >h ms c ome n ith I'te terntory construdion a; pr.usal n port is extreinely positn e, and we beliese it demonstrates the Our <tuniny unmance program is NRCs confidence in our ahdity hs Inld a safe and n hable plant. designect to idenhly proh! ems se that they om he <pilt k/ analyzed in Detember a reporI was rncis ed from Ihe Atomic Safety and I.icensing Board whis h f mulonrn ted tre alv, n put all moducted an extensive hearing on Peny's cointnwtion carher in !!N3 That 37-page patentially sipuhcant itemt as report offinally gase passmg nurks to our QA program.uul mosed the two Perry Units ic<piired. to the No< h or Reguhuory a step closer to operating li(enses The report said that our QA program "has Comminion (NRC/ Our consntenth prevented amt will omtmue to present, tmsafe mmhtions at the plant" Eisenhe re, the high nanks at 4 mions les e6 o/ n port said: "Apphcant's i rogram is ounprehensn e and provides appropriate Federalinspo tions teshly to the assurance that significant construt tion defk ient ies h.n e been aint w dl be ideetifini and Integnty of our ijunhty usurance na rected: elknis. We expett, of course, that toutine constnation prohh1Hs al Perry will stdl cominand Morcos er. the Commmy lun undue attention in the news mnha. We also expect a high leu l of pubhcity when e3tah/ished a simp /c pum chne puhdc heanngs on our emergency planning are conduded, as required hv NRC through n hich n/l o/ vmie tiSD0 regulations. later in 1981 I?ut we are confident of out abihty to resolve construs tion unnkers at the l'e'ry Sue me urged problems as they arise and sua essfully come through the regulator) pnn est to repmf suspes ted deficien< ies In {8ee story at left.) Construc tion u tnk Mk' nu eshgate all sut h repnh Fmther. the NRC nvesting in the Future has a toll hee telephone number n luch a u orker at l'ory or any other mn leur c onstru( tion wie A great deal of (apit.d is required for the new generating units, transmission and natiotw ide inar use to h!v an dntnhution fardities and "nvironmental safeguards needed to ensine the energy anonynous report These rep ots, secunty of om senice arer fortunately, sound financial management is one of the too, are thomughly nu estigoted sliengths of this Company ik aosa of it. We were able last y ear to raise capital on advantageous terms and, at the same time, proside a fasorable return to our msesfors We // is natural that < onshur l'on aho maintained a balanced capital strudure and improved our interest onetage ratin problems at a nm leur pu njec t, n hether real or a!!eged. otten entru< t Return to Investors unefue attention hom the neu A mnha upon their nunal diu of en Eanungs per share fo the year 1983 were at a reconi high of 53 28. an increase of nine 7'he com c'n in the mmketphn e ~ percent os er 1982. Return on aserage common aputy was lhl percent. reganhug unhties Ihat are < on- "h"" ~

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[ l MWW[ f* w ]M-anagement's Discussion and Analysis of Financial Condition and Results of Operations Capital Resources and 1.iquidity Our capital requirements stem from our ongoing program of constructing facilities needed to meet anticipated demat.d for electric servite, to replace worn-out facihties and to comply with pollution control regulations. Over ti.e 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 io Consolidated Financial Statements" At December 31.1983,our purchase commitments totaled $180,000,000 Of this, $260jkH),000 principally relates to the construction program.The balance is applicable to the cost of acquiring nuclear material and processing it into fuel. ? After paying our expenses, taxes, interest and dividends, our business currently does not generate all of the funds needed for t ur construction program. Therefore, we must supplement our internally generated funds with additional money raised from investors. In the past three years, about 52% of the money used for construction was raised from sales of securities, suth as notes, first mortgage tonds and preferred and common stocks, and from hank borrowings. We also raised funds from two sales of the Federal income tax benefits relating to equirment 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 lxmds have been rated "A" by both %)ody's investors Service and Standard & Poor's Corporation. Our preferred stock is rated "a" by Nloody's and "BBB" by Standard & Poor's. Our commercial paper rating was lowered by Standard & Poor's in 1983 from Al to A2,while Wuly's maintained our rating of P1,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 emn a fair return for our -_ Authorized vs. Achieved common stock share owners. Inadequate returns could also resiut in a lowering of our N"'"'l securities ratings, thereby increasing the cost of raising mon'ey from cutside sources. Our future financing plans are designed to maintain a capital structure of 40-12% y - Authomas by a m common erpiity and a maximum of 48% debt, with the balance made up of preferred and G Adumvf preference stock. At year end 1983, our capitalization tructure was 11 % common equity, g', M 15% debt and 11% preferred and preference stock. Specific financing plans are discussed 7 elsewhere in this Annual Report. i is nm -- 14 n """" 12f"" Over the 1981-1988 perni, we must refinance $ 126.976,000 of maturing debt and - 12 . l prefermd stock which was outstanding at December 31,1983. In addition, we are requiral i to offer to purchase $19,400.000 of preferred and preference stock in both 1981 and g 1 1985, $36,067.000 in both 1986 and 1987 and $36.066,000 in 1988. See Notes F. H and I mg of " Notes to Consolidated Financial Statements" for further details. A portion of the debt 8 NNM which matures in the five-year period has very low interest rates. Refinancing of this NM debt will probably be done at much higher rates, thereby increasing our average cost 4 g h of capital. = U$d $Md The amount of first mortgage bonds the Company can issue is limited by our Mortgage g and Deed of Trust.The amount fluctuates depending upon the remaining amount of 79 m si w2 m ] bondable property and upon earnings and interest rates. At Decernber 31,1983, we would have been permitted to issue approximately $922,000,000 of additional first mortgage bonds.There are no restrictions on issuing addition;u authorized preferred stock and preference stock. We use short-term financing such as bank lines of credit = 17 ?

w' w = 'Eb %M22%W MLAN F Sources of Electric Revenue increases and the sale of commercial paper to give us flexibility in timing our long-term financings. R (milhons o/ dollars) Money raised through these short-term arrangements is primarily used to finance { temporarily our construction program. We have a total short-term borrow mg capability m-of $220,300,000 in the form of bank lines of credit and revolving loan commitr.nents. In y s200 accordance with customary industry practice, some of these lines are held in reserve to = Il N="' Go"** ensure that we will be able to pay off c(>mmercial paper when it is due. Note K of " Notes E IM E F""' Co Gaaee - to Coasolidated Financial Statements" gives the details of our credit arrangements. T

Rateincreuses F

im Results of Operations iiii MI The " Sources of Eh>ctric Revenue increases" chart on the lef t shows the factors w hich [ g have affected our electric revenues in each of the last five years. 120 too in our service area there are signs of economic recovery as industrial sales were up 12 1 6.1 % in 1983. The turn-around in industrial sales, which began early in the year, was led by improvements in the automotive and steel industries. More moderate mcreases g g in sales occurred in other sectors, including sm h industries as chemicals, plastics and 133 tai 111 fabricated metal products. Since recovery in these business sectors traditionally lags the -7 jE-40 genera' economic recovery, we expect further sales increases in these industries in 19X1. E 46 47 After very mild winter weather early in 1983, an extremely hot summer provided added = 20 mpetas to residential and commercial sales whirh were higher by 1.8% and 1.7%. respectively. Total sales to u!timate customers increased 3.7 %. o y-L26 L2i %* l L i - A weak economy as well as milder weather were the maior factors affecting sales to -20 {M customers in 1982. Industrial sales decreased i 1.5% in 1982 w hile residential sales fell = 0.9%. During 1982, commercial sales were up 0.1%. Overall. sales declined 7.7%. { Over the last three years we have sigorously sought rate increases in order to enable os 3., 81 32 83 to pay investors the return on investment they demand in the form of interest, dividends - and increased net worth. As a result The Pubhc Utilities Commission of Ohio (PUCO) granted us the following electric rate increases: 17% (May 1981 t 10% (March 1982) and Interest Charges Coverage Ratio I U kd*i ry 1983). On Octob.'r 1,1983, eh ctric base rates were n duced 1 % and a y (times eamaf) reduction in the fuel clause factor on September 1,1983 lowered rates an additional 7%. g We also secured various increases in steam, wholesale power and street lighting rates in the three-year period. These rate increases, coupled with effective cost control and g 4 higher AFUDC, offset effects of inflation on operating expenses, higher interest expense. = stock sales and the delay between the time our rosts go up and the time we re(eise a t rate increase to cover those increased costs. Consequently, earnings per share rose in [ 3 1981,1982 nd 1983, reaching a record level of $3.28 in 1983. Also, the ratio of earnings 2 27 to fimi charges (SEC method) rose in each of the three years (2.1,3.0 and 3.2 in 1981, l23_ _ _.. 24 1982 and 1983, respectively). in 1983, we took action to stimulate growth in our commercial and industrial sectors 2 and to help business remain competitive. This was accomplished through the extension E of special contract options such as off-peak rates to commercial and smaller industrial customers. In addition, we offered a lower rate to customers who agree to utilize our i steam service for a minimum of fis e years. g o 'M '8a '81 H2 '83 E 2 18 l

) I .y f i."cify{:gf g g g y%4f p;,(pg ~ l A cost containment and deferral program w hich was implemented in 1983 placed strict tontrols on hirings and promotions, sharply reduced overtime and limited expenditures for materials and supplies. The program enabled us to avoid filing for an ekctric rate increase in 1983. Ilowever, mereases 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 etfectise 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 (t prmillion B771) our power plants, the energy demands of our custorners 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 iefueling outage for the 225e Dasis-Besse Nuclear power Station. In 1982, purchased power expense declined because of I wer kilowatthour sales, improved availability of our plants and power sales to m, other utilities. C= Total fuel and purchased power expense rose in 19S3 because of the increase in kilowatthour sales which more than offset a shght decrease in the unit cost of fuel This 12 expense declined in 1982 because of the decrease in kilowatthour sales and a slight i2s decline in the unit cost of fuel. Nuclear generation accounted for 13%,10% and 15% of our total electric generation in 1981,1982 and 1983, respectively. ion Other significant items affecting earnings per share were increased payments of interest 7s and preferred stock dividends and a greater number of outstanding common shares d-resulting f rom additional external financing. The impact of the increases in these items w s partially offset by related increases in the amount of AFUDC. 25 For a discussion of how we are affected by inflation, see " Supplementary Information '79 '80 '81 82 '83 Concerning the Effects of inflation" 4 D 19

e ' M T %MN M !M M d.(( Y "' [ $11 2 \\ / anagetnent's Statement of Responsibility \\f,for Financial Statements The management of The Cleveland Electric illuminating Company is responsible for the consohdated financial statements which appear in this Annual Report. The statements were prepared in accordance with generally accepted accounting principics which are appropriate in the circumstances. These principles require that certain amounts must be recorded based on esthnates. Suth estimates are based on an analysis of the best infonnation available regarding the amounts to be estimated. We maintain a system of internal accounting controls. The control pnwedures are designed to assure that the financial records are reasonably complete and accurate. They also are designed to help protect the assets and their related records. We make an effort to ensure that the costs of our control procedures do not exceed the benefits. We have an internal audit program which monitors the internal accounting controls. This program is designed to examine w hether the conirols are adequate and effective. Also, an examination of the financial statements is conducted by Price Waterhouse, independent accountants, whose opinion appears below. The Board of Directors of the Company is responsible for determining whether management and the independent accountants are carrying out their responsibilities. The Board has appointed an Audit Conunittee, comprised entirely of outside directors. The responsibilities of the Audit Commitm are described elsewhere in this Annual Report. eport of Independent Accountants ).nce --.~.e.. ] Anihouse To the Board of Directors and the Share Owners of The Cleveland Electric illuminating Company: In om opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, capihlization, retained earnings, and changes in financial position present fairly the financial position of The Cleveland Electric 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 examinanons of these statements were made in accordance with generally accepted auditing standards and accordingly included such tests of the accounting re<ords and such other auditing procedures as we considered necessary in the circumstances. February 10,1981 Pric e Wa'erhouse

..,. = i neome Statement rne crevcians acari < muminar n company and sutnisianes For the Year Ended December 31, 1983 _ 1982 1981

"""d ' "I U""^'C OPERATING REVENUES Electric

$1,191,162 $1,091,051 51,000,734 Steam 16.151 17,517 12,196 Total Operating Revenues 1.210,316 1,108,571 1,012.930 OPERATING EXPENSES Operation Fuel 320,792 330,674 322,151 Purchased power 12.185 (1,395) 29,256 Other 182.139 168,802 149.374 515c116 498,081 500,781 Maintenance 88.029 81,789 74.925 91,196 86,588 85,291 Depreciation and amortization ? Taxes, other than Federal income tax 126.XS3 106,801 91,618 Federal income tax 127.130 106,382 67,575 Total Operating Expenses 951.951 879.611 820.226 NET OPERATING INCOME 158.362 228,927 192,701 NONOPERATING INCOME Allowance for equity funds used during construction X7,052 76,896 48,970 E Other income and deductions, net 3.8n5 (2,481) 10,617 23.291 22,251 16,125 Federal income tax - credit ~ r Total Nonoperating income 111.1-18 96.669 75,712 INCOME BEFORE INTEREST CilARGES 372,510 325,596 268,416 [ INTEREST CilARGES Long-term debt 151.257 131,250 121,010 Short term bank loans, commercial paper and other 2,717 9,822 25,672 Allowance for borrowed funds used during construction 127.19m (27,410) (31.030) Total Interest Charges 126.181 116.fd2 112.682 NET INCOME 216.026 208,961 155,734 Dividend requirements on preferred and preference stock 3x 126 38,295 31,917 c I EARNINGS AVAILABLE FOR COMMON STOCF $ 207.600 $ 170,669 $ 120,817

=

g EARNINGS PER COMMON SilARE 3.28 3.01 2.52 DIVIDENDS DECLARED PER COMMON SilARE 2 31 2.19 2.08 etained Earnings Statement = For the Year Ended December 31, 1983 1982 1981 chousands of Donars) 7 BALANCE AT BEGINNING OF YEAR $ 325.163 $ 280,285 $ 258,432 ADDITIONS Net income '16.026 208,961 155,731 i DEDUCTIONS h Dividends declared Preferred stock 31636 33,900 29,762 P Preference stock 1.118 4,418 4.417 Common stock i 15 n77 124,811 99,131 [ Costs of issuing equity securities 1:11 627 568 Total Deductions 1 x120 163.786 133.881 E BALANCE AT END OF YEAR _$ _;M 217 $ 325.4f3 $ 280.285 The amur: ponying en>res are un integral part of these hnancial staternent, i 21 i i

. 3_f,. 2 -+ alance Sheet at December 31 rne etevcians Eicetric tin:minating company and subsisiaries ASSETS 1933 19g2 PROPERTY AND PLANT chousmds of Dollars) Utility plant Electric in service $2.791.873 $2,681,629 Steam in service 13.262 40,172 2,838,135 2,724,801 Less accumulated depreciation and amortization 722c192 679,890 2,115,613 2,044,911 Construction work in progress 1.616.653 1.285,731 3.732,296 3,330,642 c Nuclear fuel in trust 58,599 52,751 Other property, less accumulated depreciation 11.511 11,465 ~=_. 3,802.110 3,394,858 POLLUTION CONTROL CONSTRUCTION FUNDS - unexpended 18,d18 17,778 CURRENT ASSETS Cash and temporary cash investments 12.693 59,317 Amounts due from customers and others, net 111.928 101,858 Materials and supplies, at average cost 29.610 28,123 Fossil fuel inventory, at average cost 5h.870 75,403 Taxes applicable to succeeding years 99.881 87,130 -a Other 3.612 1.837 DEFERRED CHARGES 316.627 353,668 E Unamortized costs of terminated projects 19,151 52,385 ~~ Accumulated deferred Federal income taxes 12.240 12,774 Deferred fuel 18.329 22.602 / Other _ 20.019 18,844 99,712 106.605 CAPITALIZATION AND LIABILITIES ~$ 1.267.127 $3,872,909 ~_. ~ CAPITALIZATION (See statement of Capitalization) Long-term debt $1,518.883 $1,441,822 Serial preferred stock With mandatory redemption provisions 261.On0 265,000 Without mandatory redemption provisions 111.021 95,071 Serial preference stock with mandatory redemption provisions 57.000 57,000 Common stock equity 1.355<188 1,227,095 CURRENT LIABILITIES 3,336.392 3,085,988 Current portion of long-term debt and preferred stock 59.110 71,145 Notes payable to banks and others 19.100 19,100 Accounts payable 121,198 91,128 - f. Accrued payroll and vacations 16,119 15,407 Federal income taxes 12,301 10,149 Other taxes 125.016 110,011 Interest 36,322 31,268 Other 7.251 7,328 ~ DEFERRED CREDITS 396.717 355,536 - 7 Unamortized investment tax credits 218.589 153,582 Accumulated deferred Federal income taxes 192,183 168,606 Nuclear fuel trust obligations 58.599 52,751 Deferred fuel 20.313 16,841 Other 11.301 39,605 3, 531,318 431,385 COMMITMENTS AND CONTINGENCIES - See Note L $ 1.267,127 $3.872,909 ' f' The accwnpanying twies are on integral part of these haancral statenren's ~ ~ 99 8

l N[. Ny [U apitalization at December 31 ne aci etans uearic muminanne company and satisidiaries 1983 1982 1983 1982 (Thousands of Dollars) (Perunt of LONG-TERM DEBT (a) Capaah2 ahem First mortgage bonds - maturing through 2013 at rates of 2%t. to 16%% (Less $55,000,000 in 1983 and $50,000,000 m 1982 classified as current) _ $1,315,191 $1,215,191 Collateral pledge notes - maturing in 2012 at semiannual equivalent rates of 11.72% to 13.50?6 43,370 6,100 Term bank loans (b) - maturing 1986-1990 at variable rates (Average rac were 10.10% in 1983 and 14.61% in 1982) 106.000 131,000 Pollutien 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) 57,130 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 i 7.40 500,000 50.000 50,000 B $ 7.56 450,000 45.071 45,071 L Adjustable (c) 500,000 18.950 111.021 95,07i 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 Provisions (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 $ 7.25 240,000 8-1-84 $ 100 10,000 21.000 25,000 E $ 88.00 48,000 6-1-81 $1,000 3,000 18.000 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 10.000 40,000 H $145.00 28,500 6-1 85 $1,000 1,782 28,500 28,500 I $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 10.000 261.000 265,000 Preference: 1 $ 77.50 57,000 4184(e) $1,000 11,400 57.000 57,000 Total Preferred ar;d Preference Stock 162.021 417,071 14 13 COMMON STOCK EQUITY Common shares, without par value 85.000,000 authorized, 65,198,089 and 61,774,582 outstanding in 1983 ant 1982, respectively 967.271 901,632 Retained earnings (f) 3M217 325,463 Total Common Stock Equity 1.355. N8 1,227.095 11 40 TOTAL CAPITALIZATION $3.336.392 $3,083,988 100 100 (a) long term debt matures dunng the next fne years as follows- $53.410.000 m 1988 klassihed as a current hatnhty on the consohdated Balance Shee0; $13.701.0th m 19M5. $al.610W) in 1986 ar.d $21.fWUtoo in 1937 and 19ml (b) The Company has amended its ter.a bank loan agreements to allow up to $175,0009:0 of borrowing The amendments also c hanged the matunty dates of the outstandmg debt from 19881958 to 19861990 derall interest rates under these loans also were reduced. (c) Rw apphrahle rate shall be the hghest of the Treasury Bdl Rate, the Ten Year Constant Matunty Rate or the Twenty Year Constant Matunty Rate, as dehned. but not more than 13% or less than 7% (d) Amoune to be paid for preferred sh>ck whu h must be redeem ' dunng the not fne years are- $lDio.n00 m 1981, $3.7M1000 in 1985. $7.751D8)in 1986; and $13.551,000 in 1987 and IM8. For those senes where the share owners can elect to have their shares redeemed, the maxunum nnlemption payments could be $19.800.000 in 1941 and 19X5. $M0ti7.0W in 19s6 and 1987, and $nouuni in 1988 (e) Tins is an offer date. Redeemed shares would be pun hawd four months after this date. (f) As of D u mber 31.190 the re w as no restn(tion on.he right of the Compans to pay dnidends in any amount up to all the carmngs retained in the business. The accompamtng notes are an ( tregral part of these finanual statements 23

Mbk kb hbb h h M k.; '1 ^ hangCS in Financial Position rne cia einns na tric mwmnanna company and subsidianes V For the Year Ended December 31, 19S3 1982 1981 frhousands of Dollars) FINANCIAL RESOURCES PROVIDED Net income !? t6.026 $206,9f>l $155,731 Items not affecting working capital l Depieciation and amortization 91.336 86,622 85,325 i Deferred Federal income tax 89.125 72,103 43,931 Allowance for equity funds used during construction (87,052) (76,896) (48,970) Other 620 918 1,910 Total financial resources provided from operations 313.055 291,711 237,930 Sales of securities First mortgage bonds 125.000 277,600 82.200 Preferred stock 18,950 70,500 Common stock 65,63S 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 51,800 Nuclear fuel trust obligations 5,R18 52,751 Sale of tax benefits to others 25,199 Pollution control funds expended 18,559 57,805 Working capital decrease (a) 39.957 11,591 Other 7.591 6,007 1,151 Total Financial Resources Provided $693Jn9 $832.439 $612.098 FINANCIAL RESOURCES USED Additions to utility plant $ 190,705 $422,170 $ 109.277 Allowance for equity funds used during construction (87.05;') (76.896) (48.970) 103.653 313,271 360,307 Retirement of debt and preferred stock 9'). I n3 121,600 13,000 Dividends IS3.130 163,786 133,312 Pollution control construction funds deposited 81n 22,200 Deferred fuel costs 11fr12 Nuclear fuel in trust 5.818 52,751 Decrease in short terra debt and other borrowings 10 76,200 71,637 Working capital increase (a) 72.828 Other 693 Total Financial Resources Used $W3.3n9 $832.439 $612.098

SUMMARY

OF CilANGES IN WORKING CAPITAL (a) Cash and temporary cash investments $ ( 16.621) $ 31,621 $ 15,571 Amounts due from customers and others, net 10.070 7.151 (10,477) Fossil fuel inventory (16.533) 6,630 1,306 Taxes applicable to succeeding years 12.751 23,520 5,499 Accounts payable and accrued payroll and vacations ( 30,7X2 ) 12.120 (16,108) Federal income and other taxes payable (17.157) (8.229) (5,4 16) Other J l.69 (3,285) (4,936) Change in Working Capit#a) $ G9.957) $ 72,828 $ (14,591) (a) Other than short term borrowmgs and current portion of long term debt. The accompanying notes are un integralpart r.1 these hnannal statements i l 21 L_

l i. "otes to Consolidated Financial Statements Note A-Summary of Significant Accounting Allowance for Funds Used During Construction Policies We pay interest and dividends to our investors for the We are required to follow the accounting principles use of their money. This is called the cost of money. or rules set by The Public 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 Finantial 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 When a construction project is completed or, significant accouming' principles follows. 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. The cost of the project at that time, including its Our financial statements include the accounts of three AFUDC, is treated as a new asset and is used in a minor subsidiaries. We own all of the stotk in each. subscquent rate case to determine the rates we One subsidiary is The CEICO Company which owns charge our customers for service. Because the nonutility land and performs certain nonutility resulting rates include a factor for all these costs, we services. Another is the CCO Company which re being allowed to recover m cash all costs of the coordinates the operation of a five-company power property, including AFUDC, over the useful life of the pool (including the Company) called the C' ntral Area e Power Coordination Group (CAPCO). The costs of property. CCO are shared by all the CAPCO companies. The The amount of AFUDC for an accounting pcriod is third subsidiary is Dynamic Energy Ventures, Inc., determined by applying a rate of AFUDC to the funds which is in the electrical reliability and energy tied up in construct!on'. The annual AFUDC percentage management business. rate is determined by a for.nula set by the FERC. The rate represents an average of the cost of money paid Property and Plant on funds tied up in construction. The rate is compounded semiannually. The part of the rate which Electric and Steam Utility Plant is carried on the books represents interest is reduced to recognize that interest at original cost as defined by the FERC. The costs of s tax deductible. maintenance and repairs are charged to Operating Expense as incurred. The cost of replacing or 'lhe amount of AFUDC appears on our income improving property is charged to Property and Plant. statement in two parts: under Nonoperating income as The cost of property retired, plus removal cost, less the Allowance for Equity Funds Used During salvage realized, is chaced to Accumulated Construction and under Interest Charges as Allowance for Borrowed Funds Used During Construction On the Depreciation and Amortization. balance sheet, the AFUDC becomes part of N"** Depreciation m mount of AN mcmW in each asunung We report depreciation expense on our income ""N N"" 'C""*" statement as a current cost of doing business to num ars ynt on conmuchon, W h account for the normal using up of our property. Depreciation is deducted in equal amounts over the png of Om mnmudon pnM and W Om rak' used estimated useful life of the property. For example, if '" C9"P.uting AFUDC. The rates were 10.35% m 1983, 10.00N m 1982 and 1017% m 1981. we esh.mt.te that an item will be useful for 10 years, we charge one-tenth of its value to depreciation expense each year. Ilowever, in the case of the Federal Income Tax Davis Besse Nuclear Power Station (Davis Besse), we The depreciat on expense we report on our income utilize the unitrof production depreciation method statement is different from the depreciation expense desenbed in Note L, we use to calculate Federal income tax. Thue are several reasons for this difference. First, AFUDC and Terminated Projects certain overheads are excluded from the cost of assets pmdah' Mr tax purpm Howqa, Huw we Costs assoaated with terminated nuclear generatmg com am indu&d in b W br Hui &pmahn units are being amortized over a period approximating @own m our inmme statement. Second. the period 15 years, beginning in 1983. of time over which the intemal Revenue Service (IRS) 25

1 l "otes to Consolidated Financial Statements j allows the cost of assets to be depreciated is shorter Accounts Re:eivable than the period of time (useful life) we use. Finally, Amounts due from customers and others was reduced the IRS allnws 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 liberali7ed depreciatica.) Beginning respectively. with October 197(i property additions, the tax reductions resulting from the use of liberalized Note B -- Deferred Fuel depreciation are not recognized in the income As described in Note A-Revenues, our rates are statement as reductions of tax expense m the periods we obtam them. They are deferred to the periods 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. The deferred amount is taken useful life of property through a procedure called normalization. nto 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 recoid 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 thev recognize the tax savings from this credit over the life exceed the market delivered price of comparabie coal.. of the property involved through the procedure of As of December 31,1983, our share of these deferred normalization. coal costs which remain unrecovered was Our Federal income taxes are lowered because we $18,329,000. A recent PUCO order to a CAPCO can deduct our interest charges from income. This company, which is expected to be apphed 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 int'erest actually paid on funds invested 12% of the market delivered price of comparable in property currently being constructed are charged to coal. Costs above that level may be recovered only il Nonoperating income. Th'e tax reductions of interest they are incurred due to conditions beyond the control 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 recoverale to the extent that Mansfield Plant fuel Revenues costs are less than 110% of the market deirvered price 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 read. to be recovered in the future unless it is due to Under a 1%I Ohio law, a fuel factor is included in conditions beyond the control of Quarto and the CAPCO companies. Although one cannot predict the our base rates. This fuel factor is designed to track ultimate level of recovery, we believe that the order of what we actually pay for fuel. It is changed every s.ix 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 Quarto coal costs based on the projected operation of 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 l. Inventory. When we make a lease payment for nudear property in equal amounts over its estimated useful I fuel, we record it on the balance sheet as Deferred life. The rates include a factor for the money expected l Charges-Other. As the fossil and nuclear fuel is used, to be received when we dispose of the property ( 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 liesse depreciation is based on recovery through rates for the ultimate disposal of the ratio of the amount of electrical energy it produces spent nuclear fuel. 2fi

= ~-~~~ y. - += 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. centage of the depreciable cost of plant are as fol-When a nuclear unit is retired from sersice, we will I *S have additional costs to shut it down. These costs are 1983 1982 1981 called decommissioning costs. The depreciation recorded fc,r 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 ^x Federal income tax, computec ' y multiplying the income before taxes by the statutory rate of 46%, is reconciled to the amount recorded on our bor.a as follows: % of % of % of Pre-Tax Pre-Tax Pre-Tax 1983 income 1982 income 1981 locome (Thdusands (Thousands (Thousands of of of Dollars) Dollars) Dollars) Book income before Federal income tax $350,165 $293,093 $207,181 Tax on book income at statutory rate __ $161,056 16.0 $131,803 46.0 $ 95,285 46.0 Decreases in tax due to: Excess of tax depreciation over book depreciation (5,910) (1.6) (3,608) (1.2) (2,508) (1.1) Allowance for funds used during construction 52,689 15.0 47,991 16.4 38,180 18.4 Other items 10,168 2.9 6,289 2.1 8.163 3.9 56.917 16.3 50.675 17.3 43.835 21.2 Total Federal income tax expense $101.139 29.7 $ 81.128 28.7 $ 51,450 21.8 Federal income tax expense is shown on the income statement as follows: 1983 1982 1981 1 Thousands t Thatnands (Thousands' of of of Dollan) t)ollar s ) Dollars) Operating Expenses Current tax prosision $ 38,309 $ 31.279 $ 23.668 Changes in accumulated deferred Federal income tax: Liberalized depreciation and accelerated amortization 20,727 19,198 19,747 Other items 3,387 1,161 6,520 Investment tax credit deferred, less amounts amortized 65,007 51.111 17.610 Total charged to operating 127,.130 106,382 67,575 expenses Nonoperating income Current tax provision (22,763) (22.251) (16,125) Deferred tax provision (52M Total Federal income tax expense $101139 $ 81.128 $ SI,150 The income tax we paid in 1982 and 1983 was are available to the Company and have not been used reduced bs investment tax credits of $56.582,000 and amount to $11,117,00n. These unused uedits may be $71,201,000, respectively. Investment tax credits whic h used to reduc e tax hability through 1998. 27

MMNblYIE i MN M "otes to Consolidated Financial Statements Note E-Terminated Projects The first mortgage bonds are issued under our in January 1980, the CAPCO companies terminated M dg ge The Mmtgage puts a first lien % a'most all their plans to construct four nuclear generalmg usats Hie pmperty we own and han<h 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 prosisions of our Mor'tgage. Under the recover these costs through the method used to more restrictive of these provisions, we would have calculate the allowed rate of return on rate base and been permitted at December 31,1983 to issue authorize us to amortize the 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 earnings and interest rates. included in our rate base. The collateral pledge notes included in the statement of Capitalization were issued under an agreement Note F - First Mortgage Bonds signed in 1982. This agreement permits us to borrow doional m unts fmm Ume to Ume up to Outstanding first mortgage bonds are as follows: $60,000,000 over a two-year period. The interest rate l Series Year Interest At Deceniber 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 U boHars) 360,000,000 of our first mortgage bonds as security for 1983 1975 8.85 % $ 50,000 pur obHgahon to pay the collateral pledge notes 1981 1977 7.55 % 25,000 25.000 issued under this agreement. Although these bonds 1984 A 1980 12',A 30,000 30,000 are not shown as outstanding in the statement of 1985 1950 2h% 25,000 25,000 Capitalization, they are outstanding under our 1985-A 1980 11 %% 18,291 18,291 Mortgage. 1986 1951 34% 25,000 25.000 1986-A and B 1976 5%% 5.000 5,000 1989 1951 3% 20.000 20,000 Note G - Leases 1989-A 1981 15h% 40,000 40,000 1990 1969 7%% ti0,000 60.000 As part of our operations, we have entered into the 1991 1969 86% 35,000 35,000 following leases: 1992 1981 15%% 20,000 20,000 Tvpe Remaining Terms 1993 1958 3%% 30,000 30,000 1994 1959 4n% 25,000 25,000 Nuclear fuel in the reactor (a) 2005 1970 86% 75,000 75,000 Unit trains 3-7 years (b) 2006 A 1976 7% 11,000 14.000 Office space 10 years (c) 2009 1974 9%% 50,000 50,000 Data processing and Mostly s}iort term 2009-A to C 1979 7% 52,000 52,000 off ca 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 8n% 125,000 125,009 nance equipment of less than one year 2011 A 1980 (a) 48.600 48.600 ta) The leases for the nhi fuel currenov in the rem for at 20ll-B 1981 (b) 22,200 22,200 Dam flesse wdl last as k>ng as it takes to tn.rn the fuel. For fuel 2012 1977 8h% 75.000 75,000 reload leases, we pay ruit rent as the fuel is burned and we pay 2012 A 1982 IG W% 75,000 75,000 a redui ed rent equnalent to an interest iharge wnea tt,e fuel is 2012 B 1982 13%% 78,700 78,700 not being burned 2012 D 1982 12%% 100,000 100,000 on l'nd train leases in< lude renewal options through 2011. h, ,,N " "' " "" "" 1A 19 i, ) $1,370,191 $ 1,291,191 Irss amounts classified as current 55.000 50 000 When the l'UCO determines what rates are to be $ 1,315,191 $1.215,191 charged to our customers it includes the rents on all the above leases as an operating expense. Accordingly (a) The interest paid on these tonas is at a sanable rate. That rat" we record those rents as an operating expense on thi can l'c no lower than 6% and no higher than 12% The aurage rates in 1%I and I'm2 were H Il% and 9 M%, respe. inelv. ' Wtm'd hmW of I'iMM h MM Standards No.13 and No. 71 tequire that not later th) The interest paid on thesn tmne is a' a sariable rate That rat" on t>e no lower than 6% and no higher than I1% The awrave hmWWewwWN(esWWedm raies :n tMi and IM2 werr 8 215 and 10 2%. respc< fnet though we ow!P d them. L

3 k h;h [hhh MMbd W Y [i f M 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. 'Ihe costs in these accounts are transferred Price at to fuel expense on the income statement as the fuel is December 31, Even'ual used. See Note A - Fuel. We paid rent of $12,388,000 Series 1983 'ihrough Minirnurn in 1983, $8,180,000 in 1982 and $7,925,000 in 1981 for Preferred: nuclear fuel and unit train leases. lease payments under all other leases were not material. C $ 103 00 7-31-88 $ 100.00 E $1.088.00 53186 51.000 00 Some of our leases have noncancelable ter as of more F $ 1.035.00 22981 51,000.00 than one year. We have to make the following G $1,033.56 11-30 81 $ 1,000.00 payments for these leases after December 31,1983: H (a) 51.000 00 1 03) $1.000 00 Year Amount y (c) $ 1,900.09 (Thousands of Dollars) Preference: 1984 $ 4,385 1 $1,025.83 73181 $1,000 00 1985 3,971 1986 2,959 (a) Begnning June 1, IW and through May 31,1991 at 1987 9367 (b) Beonning June 1,1991 anJ through May 31. 1992 at 1988 1,340 p g.m later Years 5,020 k) Bmnnum June 1.19% and thnwh May 31,19M at Total $20,042 51.030 11 We can buy back Series E Preferred Stock before June We did not include in the above table the payments 1,1986 only under certain conditions. Any borrowed we must make on our Davis-Besse nuclear fuel reload money we use to buy back the shares cannot be leases. Since the payments are made when fuel is borrewed at an effective interest wst 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. Ilowever, we do know that the other preferred stock or stock ranking higher than lessor has invested $24,263,000 in : hose leases. Serial Preferred Stock if its effective dividend cost is less than 8.8%. Finally, we may not use money raised Note il-S,er,al Preferred and Preference through the sale of stock which is junior to the Series i E. A total of 3,000 shares of Series E Preferred Stock Stock with Mandatory Redemption Provisions was bought back and retired in 1981,1982 and 1983 During the three years ended December 31,1983, we pursuant to its mandatory redemption provision. soki Serial Prefened Stock with mandatory redemption There are no restrictions on our right to issue and sell provisions only in 1981. We sold 31,500 shares of authorized shares of Serial Preferred or Preference Series 1,29,000 shares of Series J and 10,000 shares of Stock. Series K. We have assured the owners of our Series F Preferred Note I-Serial Preferred Stock Without Stock a minimum retum on their investment of 6.96% Mandatory Redemption Provisions after d? ducting Federal income tax on the dividends received on the stock. Il certain income tax laws are In December 1983, we sold 500,000 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 divideeds or we could exchange Series F for refunding imotving debt or preferred stock whose a new preferred stock. The new stock would have a effective annual cost is less than the annual dividend dividend ratt high enough to provide a 6.96% alter tax of the Series I Preferred Stock. mtum. Durmg the last three years, we did not buy back any We have the nght to buy back and retire shares of shares of our Senal Preferred Stock which did not Serial Preferred and Preference Stock which have base mandatory redemption provisions. All this Serial mandatory redemption provisions The redemption Preferred Stock is subject to optional redemption. These prousions give us the right to buy back,ind retire the stoc k. The redemption pnees (plus 29

. m....e. %;db6 * ; h &C,1bliia m m eAsseN.Lik & n i.d ~ - ~L U a LE<& 4 L%5;.hr e "otes to Consolidated Financial Statenents dividends accrued to the redemption dates) are as outstanding options held by employees were as follows: follows-k.ey Employee Pnce at Incenhve Stock Plan (a) December 31, Eventual Series 1983 Through Minimum 1983 1982 1981 Op; ions Outstanding A $102.50 11-30 86 $101.00 at December 31 B $103.78 7 31-87 $102 26 Shares 122,601 118.612 150,095 L $111.36 12-31-8-1 $100.00 Option Price $17.63 to $17.63 to $17 63 to $2213 $22.43 $22.43 Note J - Common Shares issued and 1978 Key Employee Reserved for Issue Stock Opoon Plan 1983 1982 I9hl Shares of Common Stock sold during the three years ended December 31,1983 were as follows: Options outstandmg at December 31 1983 1982 1981 Shares 389.007 371.705 211.125 Fublic Sale 9.n00.000 3.500.Onn Option Price $15 0 to $15 G lo $16M to $20.2a, $20.2a $20.2a, Dividend Reinvestment and Sk)ck Purchase '" U "d" " '" '"""' "' " '" M l'"I "F """"' " " * " "" 4 I further opnons nuv be granrod At uinhngly. only those shares Plan 3.021.125 1.362.111 926.512 rebung to opnons ontvanaing at twdin R IN nm be Employee Savings Plan-298.581 282,162 26M05 moed Employee Thrift Plan _ 71,767 75,775 71.727 The number of outstanding shares of Common Stock Key Employee incentive changes during the year. We calculate camings per Stock Plan 20,171 share based on the average number of shares 1978 Key Emplo>ee outstanding throughout the sear. The weighted aserage Stock Option Plan _ 11,560 shares outstandmg in each of the last three years are Total Shares 3A23.507 10J20.078 .l.765.871 d' I"U0%T 1981 18,001.081 1982 SEI39#"9 At December 31,1983, we had five sto(k purchase 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 Uncluding unexercised stock Note K - Short-Term llorrowing options) are as follows: ,\\rrangements Plan Shares Notes payable to banks totaled $19.100,000 at both December 31,1983 and 1982. Available bank credit D..dend Reinvestment and Stock ivi newnts are e loH'm Purchase Plan J.258.256 At De( emN 31. Employee Savings Plan 2.533.23a Ty> 1983 1982 Employee Thrift Plan 156,560 gnu,ng n, g,ga,g Key Employee incentive Bank knes of credit Umrrow. Stock Plan 529,779 (a) ings at or near pnme rate) $ 170,300 $170,300 1978 Key Employee Stock Eunxiollar revolving crecht Option Plan 588.110 agreement $ 30,000 $ 30,000 13,368.270 Varhible interest note agreements $ 20.000 $ 20.000 = = = = " Stock options heht by employees to pun base All borrowmgs under the En.odollar greement are unissued shares of Common Stock under the Key made and p5id ba( k in l).S. dollars. Tnere are no Employee incentive Stock Plan and the 1978 Key requirements that minimum cash balances Employee Shw k Option Plan are granted at 100% of (compensating bahnnes) be maintained at the b.mks the fair market value on the date of the grant. The involved. Iloweve, a fee of n.s to n% per year is shares which were actually bought donng the three paid on any unused part of this borrowing agreement. years ended December 31,1983 were sold at ophon The interest rat" on borrowmgs is % to %, prices ranging from $15 (W to $18 5" Shares under depemhng on usage, abose the rate whi< h operihed banks pay for Eurodollar deposits in ti.e 1ondon inter bank market. 30

3 sg r m llorrowings under the variable interest rate agreement Several lawsuits and government actions are pending. inust be paid back whenever the b,mk requests such inchuled is an appeal by the City of Cleveland of a repayment. Interut is based on the rate for high decision in an anntmst suit ni which a jury returned a quahty commcrcial paper in the 30-180 day maturity unanimous verdict for the Company. We believe, range. Variable interest notes outstandmg 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, includmg the antitrust credit to ensure the Company s ability to repay them. suit, should not have a material adverse effett on our financial condition, although an adverse final decision The unused portion of the above credit arrangements, in certain instances could have a matenal adverse alter deduchng bank lines held to cover outstanding variable mterest notes, amounted to $181.200,000 at effect on income for the period m which the de(ision becomes fmal. I December 31,1981. I Also pendmg is a petition filed with the PUCO and the The average daily cash balance in bank accounts was Ohio Power Siting Bo.ird clainung that Perry Unit 2 12,700,000 in 1983 and $6,500,000 in 1982. These wiH result in en ess capacity. The petitum requests an balances satisfied informal compensating balance order to (ease construction of Perry Unit 2, to cease arrangements under which we maintain balances at accming AFl!!X' on that Uint and to prohibit the use ~ banks of $3,000,000 to $6,000,000, deperuhng on th" of proceeds of secunty nsues to hnance Perry Unit 2. amount we borrow. We believe On petition is without nient and will oppose it ugorousiv. thaler some circumstantes, the Note L -- Commitments and Contingencies request of the peorioners, une a to be granted, could Material and services needed to build new plant and powMy lead to canidatum of Om Una In wh equipment must be ordered in advance so that it will eu nt, Hw raw making process should provide for ntovnv of our tanunated in canc ellation costs. Howner,yestnnant ain! be available when needed. At December 31,1983, if suc h recovery were to such commitments amounted to: be disallowed, then the imestment aint canceHation Constnxtion program $26njHNLOOO cous, afin adhntment for taxes, wouhl have to be Nuclear material acquisition and written off. Such a wnte off would have a material processing into fuel $220 000,000 adverse effn t on our knancial conchhon and our income in the pniod in which it were to occur. Our Usually we can cancel advance orders but often we 31.11% insest.nent in Petri lhiit 2 at December 31, nuist pay the manufacturers for what they base already 1983 was $281,72s,0no. canteHahon costs couhl be spent for labor and materials and sometimes a substantial. AFUDC n accrued monthly on Peny Unit 2 penalty. and was $2,310.ono in December 1983 Cessation of

b#

Cd" U" We have lease and other arrangements to h,,ux e up to $370,000,000 of the cost of ac(piiring nuclear earnings &pending upon how long H wen to contuunt material, processing it into fuel and leasing it wlule it is being burned m a reac tor. At December 31,1983 The ow ners of Davn liesse m,untain a nuelcar under these arrangements, a trust established in 1982 insurance program to the maximum extent currently invested $58,599,000, whic h is shown on the b, dance cvadable. W th respnI to a nuclear incident at sheet, and lessors have imested $151.621,000 in Davis liesse, the maximum coserages at February 15, nuclear material and costs of pmcessing it into fuel 19x1 will include $580,000.000 nuticar habihty Al.o under those mrangements, nuclear fuel costing coserage for injury to persons and their property and the h ssor $21263,000 is in the Dasis besse rein for $ 1.020.000,000 for damage to the owners' property, urnier operating leases Statement of Financial na luding leased fuel and (lean up costs. 'ihe Atomic Accounting Standants No,71 will requi:e balance I:nergy At t knuts the owners' liabihty to the amount of sheet treatment as described in Note G of all our the nuclear liabihty coverage. Darnage to the existing nuclear fuel lease and other arrangements not Company's propnty, leased fuel and (lean up costs later than 1987. < ombined could enced the property insurain e by a substantial amount. The owners also are obhgated to Under two long tum coal purchase arrangements, w" m wmie up to $10S00,05 pn year y no have agreed to guarantee the mining compamei loan N com any hhhty hnmowe clmm eing oW of a and lease obbeations At December 3,1,1983, th" nm im niih m M.my a hw omb, in un Umh d pnncipal amount of the mining companies loan and %% ed g m KnM000 m mn h ar im Wed pn h ne obligahons was $83,515 000. Under one of these p a M mm any pmpy dmnge unmmu e cbmn a ror.gements, we are reqmted to pay the minmg he Compv b nnm.mn cmnge d $973.Ond pn comp,.r.y eny.n tual out i po( Let idle m.nc expenses, un K br We < M 4 n-@nmW pn pun bed .n adv on e pasments for o.al, when the nunes ar" dmq un Il e 'n pooit startmg 26 weeks aher any idle for a a,ons beyond the control of the nunmq Mdd M De Hme,W $ Kn00 m ed br On-rompaav. nN 52 we he cW and d%Hion W n pixenu M 31

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^ ' 'ni g E*W+ ( z, e. --g, ,r .mAdm W%h ~u W^ ' ? MO = - 'Cz# T~2 A.. : "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 Umted States. Similar Electric Work msurance coverages will be obtained for Perry Units Fac hty Percent in Service in Progress I and 2 and Beaver Valley Unit 2 when they go mto m ds or ooitars) service and retrospective premium obligations wdl increase. Davis-Besse 51.38 $111.259 19,811 Bruce Note M - Rate Matters Mansfield 1 6.50 25.7R1 118 Bruce The PUCO allowed us to raise electric rates by 17% on Manshdd 2 28.60 ll6c109 588 May 6,1981, by 10% on March 19,1982 and by 7A% Bruce on January 7,1983. In the last rate case, a portion of the construction costs related to Perry Umt I was Mansheld 3 21A7 156,232 116 included in the rate, base. As a resultif an Beaver Valley 2 21A7 192,702 investigation into the reasonableness of our rates in Perry I and the light of a one-year delay in the estimated in-service Conunon date and the increase in Perry construction costs Facihties 31.11 710,737 announced in March 1983, the PUCO ordered a 1%, or Perry 2 1' 1.11 "81 728 ~ ' $13,500.000. reduction in rates starting October 1, Eastlake 5 68.80 113,322 1.'031 1983. The order reduced the amount of Perry Unit i and common facilities included in rate base' as Seneca Pumped construction work in ptogress from $278,000,000 to Storage liydro-electnc Plant 80.00 51,736 221 $152,000,000, which is 25% of construction costs as of the June 30,1983 valuation date. These changes in $910,712 $1.510A18 electric rates increased 1983 revenue by $111,100,000, 1982 revenue by $131c100,000 and 1981 resenue by Separate depreciation records are kept for Davis Besse $133,300,000. The Company has filed a notice of property and Seneca property. The accumulated mtent to apply in 1981 for an increase in electric ntes depreciation for Davis Besse at December 31,1983 of approximately $180,000,000, or 15%. was $53,237,000. The accumulated depreciation for Seneca at December 31,1983 was $12,391,000. The PUCO granted a steam service rate increase of $7,000,000, or.17%, in January 1982 and another Depreciation on all other in-service property owned increase of $2c100,000, or 12%, m October 1982. In with other utihties has been accumulated on an account basis along with all other depreciable January 1981, the PUCO allowed us to decrease rates to customers who agree to continue to receive steam property rather than by specific units of depreciable service until 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 apphcation income statement. with the FERC to increase the rates for sales for resale to the Cleveland Municipal Electric 1.ight Plant by Note 0 - Pensions $716,000. The Company implemented the proposed rates and began collecting the requested amount in We pay the full cost of a pension plan for our June 1983, subject to refund, dependent on the employees. Under the plan, an employee who has outcome of formal heanngs, worked at the Company at least 5,10 or 20 years (depending on the person's age when leaving the Note N - Property Owned with Olher company) can begin rec"iving a pension benefit at or Utilities after age 55. The amount of the person's beneht dep(nq on length of service and eamings. The Some of the generating units which we own or are bendt u, nduced by a perhon of social secunty buildmg are owned with other nuhties. Each company "Eh D" nd of an employee who retires after ownr an undivided share m the enhre unit. All the age 65 is dett rmined as il the individual were age 65. owners are tenants in common. Each cornpany has U the 5 e non n'hns before age 62, die empigeeN the right to a percentage of the gem riding rapabihty beneM k ndm ed he plan aho po Mnehts when of each unit equal to its ownership share. We are an employe n or n, h a ed obhgated to pay for our share of the construction amt eptrem costs of each umt. We are not responsible for the other owners' shares 32

.; [h .l ll'[ Q } } } }?) & Q Q f Q [ [ m Q:} @ @ ~ 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 service and consultants believe that FAS 36 disclosures are scry camings in the current year. We also deposit mency misleading because they understate the amount which to fund each year a portion of the cost of benefits the entry age norm J method tells us should be in the arising from past service and earnings because of fund now to provide pension benefits as they become amendments to the plan. In 1983, our total payment to payable under a plan intended to continue the fund was $15,300,000. We deposited $12,100,000 indefinitely. We are making the following disclosures in 1982 and $10,200,000 in 1981. Of these amounts, only because we are 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 ^' """" U I ' remainder was recorded on the balance sheet, mostly 1983 1982 as construction costs. mihons of tuiar.a Actuarial present value of The amount we deposit into the pension plan is accumulated plan determined by a method known as the entry age benehts-normal method. It is used by many private pension Benehb whid m vested $113 $132 plans. This method takes mto account estimated increases in employees' future earnings in an effort to Benel ts which are not levelite the funding of pension benefits over their m ied 14 13 working live 3. The liability of the plan as of January 1, $157 $115 1983 determir,ed under this method was slightly more Value of assets held in than the value of the assets in the plan on that date-the plan $211 $191 Statement of Financial Accounting Standards No. 36 (FAS-36) requires us to disclose accumulated pension Under both methods of determining the plan's liability, 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 earnings of below, required by FAS 36, compare liabihty of the the plan would average about 6% per year over the plan determined on one basis with assets hf" of the plan. Note P-Quarterly Results of Operatious (Unaudited) 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 rnmusands. m q t pr shan. amounts) 1982 Total operating revenues

$273,038 $268,985 $299.221 $267,325 Net operating income $ 52.774 $ 56,953 $ 70,253 $ 48,918 Net income $ 18,019 $ 50,G11 $ 66,819 $ 43,156 Earnings avai!able for common stock $ 38,107 $ 41.051 $ 57.302 $ 33,909 Average common shares 51,2,u a,3.679 56,088 60,304 Earnings per common share .71 .71 1.02 .56 198'l Total operating revenues $299,600 $290.180 $331,011 $269,195 Net operating income $ 38,935 5 38,965 $ 87,717 $ 52,715 Net income $ 36.236 $ 52,192 5 81,601 $ 55.996 Earnings asailable for cornmon stock $.16.690 $ 12,668 $ 72,12! $ 16.12l Average common shares 62,026 62,568 63,1M 61,689 Eanungs per common share .75 .68 1.11 .71

I "'inanCial and Statistical Review 1973-1983 -4 19x3 19x2 1%i TOTAL OPERATING REVENUES I 2to I!n 1.iox 57i ioi2(un Residential mi o7e 34x.757 aio 4m Commercial ut te 3o18u1 2n3um Industnal I mk n 39 c94 3m ses Other Electnc(Includes Sales for Resale) i1 217 43302 39 912 Steam Heatmg _ o,i;4 17 517 121 % TOTAL OPERATlNG EXPENSES w C,4 an 64 x20226 Fuel and Purchased Power 332 97-3t3 279 351.410 Other Operatmg Expenses 27" Ks 230 591 224 2w Depreaahon and Amortization 9i 1* 45m 85 294 Taxes Other Than Federat income Tax 12n e i Hwi 916 u Federal Income Tax 127 4 u kwan 67 sn NET OPERATING INCOME 2

m; 22x 927 i e7o4 NONOPERATING INCOME 114t h

~ % ++9 75 712 l Allowance for Equity Funds Uwd Dunog Constn2ction 87 iil 76 m 48 970

" '"""* a"d oed"<"o"'

2# "2 Income statement INCOME BEFORE INTEREST CHARGES 172

123.s9s

6a 416 (Thousands ot Dollars)

INTEREST is nt 116 632 112 682 tong and Shortactm Interest IM "74 i14 072 146 712 Allowance for Borrowed Funds bed Dunng Constru(tion _ 'T 4 a ' (27 440) O t a tm INCOME BEFORE Cl:MULATIVE EFFECT OF ACCOUNTING CHANGE '+.. c 2 e 64 1ss 73i Cumulahve Effect of Change in Deprecianon Method on Peruxis Pnor to January 1.1979 NET INCOME (a) 2 to "Jo Jim %e in 734 PREFERRED AND PREFT.RENCE DIVIDEND REQUIREMENI3 _ e ile 3x 2% 34917 EARNINGS AVAILABLE FOR COMMON STOCK 207

a 170669 120 s i 7 EARNINGS PER SHARE BEFORE Cl MULATIVE EFFECT OF ACCOUNTING CHANGE 5

33 3 01 5 2 52 CUMULATIVE EFFECT PRIOR TO JANUARY 1,1979 TOTAL EARNINGS PER SHARE (a)(b) 5 <a s 3 ol 5 2 52 DIVIDENDS PER SHARE (b) 5 2 :1 s 2 19 6 2 ox TOTAL ASSETS i? ill 3 x72 wo a n on i Unhty Plant-Total 1 isi a 4eins12 3 6 t o.x9s Accumulated Utihty Plant ikpreaanon and Amortization _.___ (7 >t. M79 pi M21.353) Other Property ~'141 734 2 i 6 23 870 Current and Other Assets 3"i* 178 01 H2 u,i TOTALCAPITALIZATION AND LIABILITIES

9: in 3 872
n 140s o s Balance Sheet tonganm Debt i 4 i s22 i u 4o4 Preferred and Preference 5tm k.

l, ear OHd With Mandatory Redemption Provisions e '.'a 322 200 323 000 til. 1 9s n71 9s 07: (Thousandsof Do!!ars) Without Mandatory Redemption Provisions Cornmon Stot k Equity I i b* 1.227 0 % I 002 2nn Deterred Federal lncome Taxes til' 322 48 2m.441 Current Liabibries and Other Credits _ 3 ( ni 484 n i aia 9:i UTil1TY PLANT ADDITIONS (c) 177 ~ 422.170 4o9277 UTILITY PLANT RETIREMENTS 1 I t' 22 533 i U21 NUMBER OF COMMON SHARES (b) 'iinta 61774 5x2 51054501 KWHR SALES (Thousands) 10 t '7 in 16 th; 157 17 so? Ana Residential I ilJ !i4 e U3.605 4 375 7J2 ' i i 194 177 417u.459 Commercial 1J Industnal

7. 3 I i o 7 4 7 0x2.26i 8.279 700 Other(includes Niles for Resale) 1 F + 2, M ii4 6non ELECTRIC CUSTOMERS-YEAR END 7t; t s 71222 711 523 Resniential 635

i oiI 7%

642.925

f. i.461 f.0 714 Commeraal a<

Industrial 71 7.2 ti 7.26i Other y 121 42; RESIDENTIAL SALES DATA

6. t

6.5 m Average Kw br per Customer 5

+m s 52461 5 4e4 53 Average Revenue per Customer As erage Revenue per Kwhr xD 8 o*

713 Operating Statistics ELECTRIC PRODirTION Not Ava.lable for Sern e Atea(Thonsands) rni-17 o77 x el Iw 918E N+t Generanon 17 11

'1 17o#2359 i7 tu.sa Net Raen ed irom Others

1. m

61072 I 8 m ott i >it t o 4 7 '.

10 so BTU per Kwbr of Net Output 171 72: 17s i te Fuel Cost per %llon BTil b Coal Cor' per Ton 1 a l siil 46 70 Annual Net (A Min Max lui kW4.xtl interrtpribles io 4 1 con 13c2 nuo Nc* h sem Capibihty - KW4 ear Esid tt 4-4 s A *" 62 cm M Er.M HFATING Sales-- Pour,d s (Thousarids) 1!l' I V i 07, l 6:2 151 Customers 2. e at End iI 312 337 i4Ii sio FMPLOYEES J f1R END (a) Tlx 1974 net en.ma and canuurs pe r share uk o.4tol or i pro Orna b.r.a to rHWt the uma of pr > tw Nn mehi of &pm unni a e $102.9 42 50 4 snd 5211 r veitndy 1 he pro formi el'n f,J the mLpn of in &pm anon meahat on la *, n not nm rol 31

d'~ ^^ mMMSSWh%%WtGBM &&W l The Clet eland Dvaric illuminanng rwnpom ana! Minuharws 19:50 1979 1978 1977 1976 1975 1974 1973 M93.5f6 M24 267 717 092 659 2'o 54 i I 4M 521 165 463 917 32M 7 tat 26M.78/ 237,612 213.520 200 7en 1h0.015 154 020 140.030 104.379 220.677 194 M 6 172.251 165 0tl 129.2M6 121 651 W 185 Mo.756 323,764 322.9(F3 278 405 251.181 197 IM9 180 810 177.246 119.964 65713 53.799 42.831 31.611 15.730 55 679 29.946 17 A12 15 065 13 04A 10.nM5 10 6M4 10 928 10921 ' 530 5At7 i41.051 6M7M 599 2M 542 871 4414m 4r16I4 175 159 255 276 1 360.347 349.027 307.429 265.771 214.107 24694 199.362 100 450 l 194 881 162.636 140.996 127.330 102.794 94 539 Mi122 72.735 l 64.619 59 443 56.774 41,307 35 874 33 016 31 632 30 965 81.630 79 455 68 756 53.807 51.925 44.715 43.633 40 906 41 574 38 227 25 134 47.656 16 701 la 310 15 To l0160 150 515 135 479 117401 116 419 101 747 % %I M 77M 71.492 62.440 47.621 42 226 49 4M4 2h 346 17 6M1 M 472 76y .873 33.432 29 M90 35.265 2 4 7t W) 16.9M 7 854 6.363 21.567 I 4.lR9 12 136 14 219 1640 69A 614 1.279 2 t ?.955 1M1.100 160 029 165 9)3 12M091 107 21' 97 2;n Mt.134 M7,5Y1 69 566 61 Ol6 54 175 4ti 411 42 464 it) 509 31 720 111623 85 299 72 071 67.889 5t> 750 50.511 41.717 35 161 (25 051) (15.7311 (11 0351 fil ?l t) (IO T!?) (4 047) (M 20M) (1 941) I?SJ 3 113.534 99 013 111,728 81.fm 64768 60 741 49 414 4.125 125.383 117.659 99 013 111 728 816M0 64.763

41741 49 414 27.ill 25.587 23 575 22 907 I M 005 14 U8h 10067 7 65M 97.672 92.072 75 4 M MM R2I 61675 50 072 71674 41 756 226 S

2 31 5 2 20 5 2 91 5 2 38 5 2 11 1 2 45 1 2 03 II 4 2 26 S 2 42 8 2 20 8 2 91 1 2.3M 2 11 2 45 5 2 03 2 C3 1 92 8 I 84 1 76 5 1 71 1 65 5 1 60 1 55 3 094 2 2.678.7M6 2 33I 541 2 117 115 i R42 Yr> 1 511217 1154(*5 1.152 '115 3.215 339 2.842.253 2.523.t#6 2.232.118 1.955 701 1.tM 614 1.526 659 1.364 122 (557.859) (521.175) (476,933) (429.1501 (3'i6 338) (373k51) (355 M41) (334 071) it137 19.503 15.014 13.753 12 889 9 942 7. 5.331 415.A45 318205 269 494 VU 421 270 787 181 542 175Mit (16 953 3 094f 1 2.67M.7M6 2 331.541 2 117.115 i M42 999 iSI(217 1 114 06i i 152 315 1,211,57, 973.'.r31 920 971 MK5KN 747.392 673 003 553 144 5e2.Ma n) 260.500 232.000 232.000 185.000 135flio 75 000 63 000 25 000 95,07l 95.071 95.07l 95.07I 95.07l 95 07l 95.078 95 07l 912,731 820.411 MM8M 631 744 5 l 1.333 419 9'W) 346.73C 326 947 192.451 162,122 140,677 119.27) 72 318 63 267 4.1.34M 14 312 422 Is') 195 191 211 917 694 122 241 M5 IR6 916 - 252 7f 5 ItA 205 398 0M 329.M9 300 765 2 % 3 33 275 524 - IMI.673 173,M99 145 470 25.C 2 11.612 H MO 19 329 13.417 14 718 11 362 10.l u . 7 88 629 41,271,574 35 995.365 32 3M.055 28.347.548 24 351.4W 20 74&llo 20.611.034 IM 159.754 19 040 45% IM 364 417 IMOM 42M 1M 070 291 14 111426 17 601 f.46 17 747.M1 4,463.147 4 352.9M3 4.2M %5 4 2t4116 4045.158 3 941 006 3.A t0.305 3 910.01 A 4.148.990 4 041 134 3 913 SM6 4 007.123 3 80M 897 3 M5M7M 3 527.382 3 569 tA9 816?.171 9.2 FAB C U N1919 M 874.796 8 475 941 7N2.419 R M19.205 9.103.173 l,4Ai 4 45 1 367 736 1.149 067 984 391 1 740 253 2 641 525 1 424791 1164 7M1 il0 557 708 219 7025 M 696 547 691 425 W#131 M 4724 67M 426 641845 64 t iL% 637 f,09 632.740 630.5MI 627.719 b219MM 61M2h6 (1070 58 6'80 57.310 56.241 55.178 51765 51.070 52.291 7.210 7 232 7.167 7.112 7 206 7,190 7 212 7.415 4T) 4il 452 454 (N) 439 458 454 6.6A6 6 557 6 517 6 412 6IM7 f,.116 5 914 tari8 8 405 0 1 357 Mb 32891 5 30711 213 16 237 02 l 216 69 162 69 6 05e 5 4Me 5 00e 4 M0e 3 974 3 Me 3 678 2 67e 14',22 616 19f=4;ool 19 254 Mi7 19 nM 2 fl IMlll 3MI 17 271 1ta ~ 17 Ml 7.761 I M 257.1 % 15.325.944 17.069 914 16 M2 bM IM 12 (524 1674763 16 213 012 18 040100 17 326 64o 3.396 e/A 2 575 0M7 11/J IM 974 701 I TM 7 W 1 054 157 (121 117) 910 515 iO.635 io 6u to no 10.4oi in 322 iu 454 io s69 iu 332 156 Me til 518 131 Moe 117 Goe loi W lli 14e 102 2 fit 48 404 39 31 8 31 20 30 73 25 72 1 219M 2891 21 53 8 11 05 3 304 to) 3.W7.n o 3 249 fkW) 3 h 'wo 10ci on0 2 917.iw 2911000 3.Il9 tal 4,5;'L4.C:M 4.562.000 4 5M cM 4.3M6 3 o 3 kejnwi 1 # 15 mii0 17641uvi 3.769puir 89/9397 2 Of 4 Mi 2 210 R.% L374510 2 314677 1.2f 161; 2 274 925 2154 3'ao 349 )5 3a .472 36 3W aoh 41 f, 4 991 ' otd 4 831 47H 4 M 60 4 917 1W2 4Ml DJ A lt.unt for de 1 fut 2 W w k # f. el% uw f)e erriet K 1977 lC) bEI Ak 4 $)b.lk2 NE sej haff'.Hiusle%1 pF(igsTi% ** 11,43%.bfil h) l)tlf'Pfqf (hpf gg lt) l() 35

tatement of Income from Continuing Operations The ctec etwut acanc murninming nunpanv ana subsistories Adjusted for Changing Prices for the Year Ended December 31,1983 (unouded) Conventional Constant Dollar Current Cost llistorical Average Average _ Cost 1983 Dollars 1983 Dollars (Thousands of Dollars) Revenue $1,210.316 $1,210,316 $1,210,316 l 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) (114,143) (114,145) faterest expense 126,484 126,481 126,484 964,290 1.072,389 1,099.213 Net income - continuing operations 5 216.026 $ 137.927 (a) $ 111.073 (a) Increase in specific prices of property and plant (b) $ 120,482 Adjustment to net recoverable cost $ (22,96H 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 w ould have been $111,961.000 in constant dollars and $208.053,000 in (urrent cost dollars. (b) At December 31, 1983, the current cost of property, plant and equipment net of accumulated depreoation was $5,931.961.000 whde onginal (net recoverabic) 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 Revenues and Expenses subject to change by the Financial Accounting 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 recdgnized for income tax or ratemaking made to Federal income tax expense.

purposes, Depreciation General The constant dollar and current cost estimates of property and plant were determined by applying the thstorical costs adjusted for general inflation are indices noted to original cost. Restated depreciation referred to as " constant dollars." The original cost cf mses ym used to compute property and plant net utihty plant and certain other items was converted to f depreciation. They were obtamed by applying constar i 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 applymg replacement of existing assets. 'the current cost of current depreciation rates to the average of beginning assets was estimated by applyins, the llandy Whitir,an and end-of-year restated depreciable property.

Index of Public Utility Construction Costs to the original cost of strucmres and equipment. Original Materials and Supplies cost of land was trended using the Con. umer Price Balance sheet itous such as fort in stock, materials ludex for All Urban Consumers. Certain < ther propert/ and supplies were treated as cash type items. Fuel was trended to currer,t cost using other industry inventory is subject to rapid turnover. As such, we indices. IMieve the original cost of this item fairly repre.sents as current cost. 36

b da[ M '7ive-Year Comparison of Selected Supplementary The r/n etans en <tric illuyunceme ompany mulsu%sumcs c Financial Data Adjusted for Effects of Changing Prices mnauan Year Ended December 31, werwe im o.,n. rsi 1983 1932 1981 1980 _ 1979 thusane, cuept per,h.ne anuounts) Revenue as reported $1.210.316 $1,108,571 $1,012,930 $ 893,566 $ 821.267 in 1983 constant dellars $ 1.210.316 $1,144,233 $1,109.612 $1,080,389 $1,131,377 Net income as reported - continuing operations 5 216.026 $ 208,961 $ 155,731 $ 125,383 $ 113.531 in 1983 constant do!!= $ 137.927 $ 114,188 $ 75,916 $ 62,826 $ 79.072 in 1983 cu rent cost dollars _ $ 111.073 $ 83,827 $ 47 129 $ 29.367 11,795 Income (loss) per Common Share as reported - continuing operations 3 28 3.01 2.52 2.26 5 2.31 in 1983 constant dollars l.57 1.31 0.79 0.68 5 1.15 in 1983 current cost dollars 1.15 5 0.78 0.19 (0.10) $ 0.18 Net Assets at Year End as reported $ 1,355,1M $1,227.095 $1,002,206 $ 912,731 $ 320,111 at net recoverable cost $1.332.710 $1,252.275 $1,062,374 $ 1,051.020 $1,061,857 increase in specific prices in excess of increase in general prices after adjustment to net recoverable cost 3,891 12,609 $ (131,723) $ (228.301) $ (260,377) Gain from decline in purchasing power of net amounts owed $ 83.105 $ 79 b85 $ 173,930 $ 228,079 $ 213,251 Cash Dividends Declared per Common Share as reported 2.31 2.19 2.08 2.00 1.92 in 1983 constant dollars 2 31 2.26 2.28 2.42 2.61 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 5 16.96 16.89 21.09 Average Consumer Price Index 2984 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 Cost constant dollar and current cost bases. The The increase in general prices as measured by the differences between these measures and income as Consemer Price Index for All Urban Consumers during reported occurs because we are not permitted to 1983 exceeded the overall increase in prices of our recover current cost measures of depreciation through property and plant. Ilowever, when the current cost of rates. Ohio law restricts recovery of investment plant was adjusted to reflect net recoverable cost, the through depreciation charges to the original cost of difference between these price measures was plant. The part of current cost we couldn't recover was significantly reduced. only partly offset by the gain from holding cash type liabilities. Gain from Dect;ne in Purchasing Power of Net We have to raise new capital to meet growth needs at Amouats Owed nflated costs of construction 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 'he cost of new capital, power, lloiding cash type Inbilities such as long term especially during times of inflation, a regular erosion debt results in a gain in pt.rc'.asing power. Preferred of the return on equity will occur. As a result, there stock and defened tax balances were treated as cash udt be a regular need for rate relief. type liabilities for this compuNi~i. We continue to seek proper and tirnel, rate increases and a regulatory environment which is responsive to the effects of inflation on our investment. 37

. y., y. ,.. -.s,.,,b T M i b;,h b, m4m u._ _j f9 ,,u E L _ i n eneral 10 formation D:vidend Reinvestment and Stock Purchase Plar Common Stock The Company has a Dividend Reinsestment and Stock 1.isted on the New York, Midwest ami P.u ific Stoi k Purchase Plan w hich provides share owners of recont and Exchanges; unlisted trading on the Boston, Philadelphia-customers a convenient means of purdiasing shares of llahimore Washington and Cincinnati Shk Enh.mges. Company common stock at no additional cost by insesting New York Stock Exch.mge synbol-CVX a part or all of their quarterly dividends and cash payments' Preferred Stock Dividends reinvested in (ompany common stock imder U d on the New York Sn(k Exchange. the ilan quahly for the tax deferral provisions of,I he Economic Recovery Tax Act of 1981. Inforrnation and a Registrars prospectus relating to the Plan may be obtained from N >r Common St,x h, he/cren< c Sto< k om/ l'ic/ enc <!Nto, k Share Owner Services at the Company. AmeriTrust Company Nation.d Awo(iat on 9"O E"Clid ave""" Form 10 K The Compan, will furnish to share owners. Cleveland, Oh;o Illi i without charge, a copy of its most recent annual report ta the Securities and Exchange Commission (Form 10 K) Transfer Agents and, upon payment of a reasonable fce, a copy of eac h n,r Cominon Sto< k. he/creta e Sto< k nm/ he/crin/ Sto< k exhibit in Form 10 K. Requests shooki be directed to the The Cleveland Elet tric illunnnating Company Sa retary of the Company. Share Ow ner Sers ices Indeper. dent Accotmiants PO IM 5000.Clevela"d. Ohio 11101 Price Waterhouse,1900 Central National Bank limldmg. Sto< k transfers may be presented at Wells Fargo Sn unties Cleveland, Ohio 11111 Cl" aran < e Corporation,15 Bn ud Sireet. New L k. N Y 1mo I ikmd Trustee and Registrar Share Owner Inquiries Morgan Guaranty Trust Company of New York for all senes. Conunumcahons regarding stot k transfer reqmremenk, lost cethf cates. dividends and changes of address shoukt be C,ommuru. cations reganhng bond registrahon requirements diWed to %m Oud mn at dm Cgun L n m h and lost certificates should be dire (ted to Morgan Guaranty %eO n Servim by @nn call the followmg numbers: Trust Lompany of New York. 30 West Broadway, New h k, I"C"ICdII' *. N.Y.10015. Telephone Number (212) 58741f & Chn cland area 622-9hno, ext. 232a, Bond Paying Agent Elsew hoe Manufacturers Hanover Trust Company.10 Wall S0eet, in Ohio 1800 36212R New York, N.Y.10015 and AmeriTrust Company National O &OW IW W 26-Association,900 L,uchd Ave me. Cleveland, Oluo I til1-Pleaw have your.u count nuruner ready w hen < alknu Co-paying agents for the 2%% Series, Due 1983 3h% Series. Due 1993 Executive Offices Mail Address 3 A% Series. Due 1986 1\\% Series. Due 1991 Illommatmg Buildmg Post Off u e Box St nio i l 3% Series, Due 1989 35 Public Square Cleveland, Ohio 11101 Morgan Guaranty Trust Company of New York.30 West .Mephone @nnher W 62200 CI*ld"d Ikoadway, New York. N.Y 10013-Paying agent for the 7.53% Series, Due 19F 1 9yx Series. Due 2009 The annual meeting of Ihe share owners of the Company 124 % Series. Due 1981. A 9 83 T. Series, Due 2010 will be held on Apnl '!1.19x 1 Owners of ionnnon stm k l l 114% Senes, Due 1983 A 8D Series. Due 2011 as of February 21,1981, the reconi date for the meetmg. I 15%% Series.Due 1989 A 8(% Series. Due 2012 will be entitled to vote on the issues I he othrial noti (c. 7K% Series, Due 1990 16%% Senes, Due 2012. A proxy statement and pn.xy wdl be maded to share owners 8X% Series, Due 1991 12h1 Senes, Due 2012.D on or abont Marc h 12,1981 12' % Senes, Due 2013-A Notice: The annual report and the fmanaal statements 15%% Senes, Due 1992 4 8h% Series, Due 2003 herein are for the general information of the share owners of Inquines egnJing interest payments should be directed the Cornpany and are n t intended to be nsed in n.nnn t on l to either Manufacturers llanover Trust Company or Morgan w'th d"Y sale or P"f' hase of sn unnes. ) Guaranty Trust Company of New York for the senes of imnd a e, w m h e - n a m as p o ng egeni.e n. d a _

Service Area Ashtahula Plant,e The Company furnishes e lectric service to an area approxunately 1,700 square g, miles, extending 100 nules akmg the south shore of lake Erie from the Perry Nodear L, Ohio Pennsylvania border on the east through the aty of Power Plant Avon I.ake on the west. Total populanon s,n ed is approximately 1.MO.000. Eastlake Plant ,.A911 Ants A Interconnedions widy Ohio Eihson b., r jffy ' 'd" <r,om navis.nesse suocar Power Avon ,,,g ..; m Station) Lake lake Shore Plant,eE " M ' pi""' H Interconnedions with OMo Echson crXco (From Mansheid and Beaver Valley +'# - l ',,,,i etMA)IfAiA -' /- ON' 4 m Plants) and Ohlo Power 3 . gg.. C Interconnection with Penn9 vania '"" "" pN t Ek'Ottir (from Seneca Pumped Storage i II)drocht tric Power Plant-80% y,, g ow ned by Company) 91A:4, s. apco ggg,,,, p%ag@gy%p@gf%gge{f.h o pWhi gi Tne Company is 4 member onne m/ 'xl'D's"w' Cen,,.d s,..a r_, C_d-. Group (CAPm), fortned by recional 2 ! I he llinnnnanng compan y f, h/ g;ijj d'3, - orno fahson Compa nt hty companies to assure grealer l'ennssis ama power Compam rehabihtv of inten onnet tions, ha(k up M' E'i in t ase bl eltiergen< ies and better YM - t he T.ite.to lain C.mpans <tonomics of operation 0;her k %{.g on,iu. sne I ida compans memnen inonde nuquesne ughi e Company, Ohio Ethson Company, Penn91tama Power Cornpany and The Toledo Edis in Cimipatiy. The tnembers are ronstrm ting power 4t.neration and transmissiott lar'htt> s. Through interconnet tions show n at=we with CAPCO memla n, Pennssivania Ele < tric Company and Ohin Power Cornpany, the Company's G\\l'CO Generating Units tervice area is part of an inter-CoIMH1 led M stelli hlikillQ Contlnelltal 1% pet test Net lh-intit;str Hed (l.S d alid blahtir lMnlitells til Callada. fapahlhti ( kili m ath) Tins interconnet tion networ k further p,,,,,, i h,lal Compnv Mi in-i ennam es nn. rchah,hiv and << onoms. of our <mtornen' chs trir senire. I milake apna 3 e,n ono n7pno in sen g c in, unmm.g:ngroep,m Sanunis e I'mt '7 f,no i m _o~ fn s. n u r i sh,o I,hson compam blMil40el41 El' nit #l IMil l N ill $ l.l M 'l l l11 hen k e ptfil M lb,tn i I;me */ 780ono 221 Im in Sen a e po.u r l Int *.I N Wi ot ill l'8h 188 M l l4 $rn h e t 'i np pis Dasle Ilene e mnpud 1;2 iw x, in N a e e 1 he 'lolni. f h i C co,om l'rr ry Gl'ml *) l2ni000 ,17 's 08/ 6 lG Ilm ma n a innw t, nw o t na 'J l;a5 im nimo im llenger

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y-y y% a ,4 y, t-i%. LO ' I m L.L s.sw sw ' ^ tommittees of lite lloat d of Ilirtvttu s oatil of ihlet fors Audit Committee The Anilit Comonnee in enuarnits to I righ Carter the lhiard !!Pa f:t ni of in.lttwndent au ountanT hi he Chanin.us of ltcon o, hu. mantilai turer of spn ulh retamni for th ensunct war.uid resicw s Or results of 5In1nn al pn"foih and a wholh owned subwl' as of their exanunahon of 0[.* Com;um N hnanti.J statem, oh lln'IM Ca"ulni h Coinguna <Wo. Presnh1it --I nonn n,l arni the andit pr.x hos etopkwed in Ihein aialIhe P" "l"' Cd ""P '"Il f^" "h

V" " P"'"I""I "I I I"'

Company 1he C.mmittee owesees liie estaHolmient and IWC"""I"' h Conip,un admonstrahon hv in.uiageniem of effes u e mfern.d Rohert \\l.Ciinn .h uinliting inlinh a'al all arCNottn.! % sh111iteMQnt11 Ch.uf filali alni ('hlel f.\\et ilta e I ltIn iT i'l tln' (I Hnp.ua 'o produie hoancul statements whn h prisent fanly the Roy li holdt f.n.unial posiinin of the Cionrie^ Chmonan and Oncl bn uta e ( % e r of % Inte Consololatnl C E Spahr (C/untinan). L Gut, n. N // liolift. \\\\ l Lbilnen. Indostnes. Inc. nianof.n turer of pnuhn f

for Ihe honus pn.n ip.dk nuror apph.un cv.nnt niiiluin n. uni npop-C,ompeination (,onum. tee l he l,ooipen% hon (,omo nt t"'

nwn!I r nulosuv i reuck.,uul approws the Con.p.uiy% owrall Comp 1naho'i joini Lundde. Jr. Plan, nulating the peton'n ac j emplowe stoi k pun base Nhnv ni du law hun of sinint N, unten A I knipe plans ed. in parucular, ret omriends the r:1nune'..non of the ( bauh..m. Peident.at 21 Orc l'res.iilents s'.it tant A. Aldier L C nierIChannum). R /I /lohlt /I E Strau brutge Y"*"h nt of nn Coniluun \\1 ) kt/ho'rn Snter \\lary \\l.irthe Remhard, SNl)* Prewlent of Notre 1 tune folhye of ()lno L,1e cutive (,omiinttec,I he [,.3 et uhw (,oninuttn' as is on hefull of the Ibard at tilne, othet than nyullt l'.oad SUI II N"d"l h P meetmo when a n impr.u tu ahic m d 4gethe or nei e O ' """ "' "I d '" b"."'" " C"'"n un ce.u n i o t in d Iban! The Com'niuce h.n ihe same.n.'hotih os the lu.rd C M'"" "' '""I U "d b" "h" ( d " " "I U "' ',"* P"" 5 except that :t may not ele,t oftiien p luf than awistant Craig R3noth seuetanes and awatant heasnterg 'l s ai am ies vi d.e Ch unn.ni of itendn Automahon of th1nh Corgwirahon. Ib.ad or on the bn ntn e Cotunuttt > or authon/c the a wholk.ow nni suh,nh n) of Alhn! Corgsitanon Pienih\\ iwnan(e ni hnt mmtgage l=inds A'nonunon n a pn wini n of una hun,.un!.9 wwones for U "' "" U "' " N " " I"'* !; // HmlolphIChannum). R St G n C H Sunth. . /t C Stron hin!ge ( harles I; Spahr lion for of seural 5 ompann, arni rented Chmonan.unl l'inance Conmuttee lhe l'inanw Cos umflee truews and niid fan ota e ()Ma o of 'I he Standant (Id Compan.- rnommeinh long.iange fin.mi hl p '.i ws a'nt oh n hn U Huot nunu!.n tmer eil piinib um pnidm tv i henni ah. i ami spet the at hern to S 'new mese ob co n e-Ihe pnta s. uni un tals and suppher of a ul i Caronottee, at tun' hr ihr Ornpany.n aihninktramr of Hie flerbert L. Nrawbrutge (.or'p itlyh I,endori i,i lh afid !ns t%hnent Ii ' t/ra'n U! 'h' i ,4 ,p g g, g g gq 4.gg g I.mployee S n mgs lu ab iin wws the inasm* n' d Cha rm me UHn n W 1 b. Whn Compum a performn e of the p 'ouen hnd trustn, other pi von d m nhoied. hire fund kneem m.' N n nyt Hic lanployee.i n me i Mn trustec and.+.hh tn oNem s for the unestment if Alk" ll""Ili"'"" If

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e g m To Our Stockholders Duquesne Light's revenues and net We can reasonably expect that j income were both higher in 1983 recovery and new growth will create than in the previous year. While as many as 30,000 new jobs in our heavy industry remained depressed, area next year. However, this other areas of business advanced. growth will not make up for our load I sses quickly. The expected sources Our changing market f the growth, such as oflice build-Traditionally a mainstay of jngs ang advanced technology Du'quesne Light's business, the steel industries, do not use electricity in industry in this area operated at an the same quantities as steel mills. It even lower level than in 1982, with may weH eme r f urye rs continuing high unemployment m we see a sununer peak load among local steelworkers. We expect equal to that of 1981. this area's steel industry, and its con-sumption of electricity, to recover Long-term investment slowly over the next three years, but considerations nat to the level of 1981. Almost cer-Recognizing these limitations on our tainly, a part of the decrease in growth prospects, Duquesne Light is steelmaking demand for electricity currently engaged in a strategic will be permanent; some of the older planning process to help establish steelmaking facilities, no longer cost-operating goals. The aim is to deter-competitive, probably will never mine the lowest level of revenue that 0 -reopen. will provide a reasonable level of T Fortunately for our community earnings for stockholders, and to and for Duquesne Light, the trend of determine the lowest level of economic development in this area investment that will maintain and . over the past two decades has been improve service to the 559,000 one of diversification. This trend has customers who depend on us for helped to reduce the effects of the electricity. decline of the area's heavy industrial Since generating units under con-base and the loss of steel-related struction are scheduled to give jobs. Duquesne Light an additional 445 1 This transition is still in progress. megawatts of capacity during this The Pittsburgh area ranks fifth in decade, we do not presently foresee the U.S. as a center of research and a need for further generating capac-development and continues to ity until about the year 2000. This develop as a corporate and financial should reduce our dependence on -center. Additionally, advanced tech-capital financing and thus improve nology is a growing segment of this our ability to hold the line on costs. new makeup of local business and Cost reduction measures mdustry.' Employment also is Cost reduction, always a major man-increasing in service-oriented gem nt g al,is urgent at this time; industries such as banking, transpor-n t only for the sake of earnings, tation, health care and retail sales. but also to remain competitive. Serv-These economic strengths account ing a maj r n rtheastern metropoh-E for the fact that'our commercial and tan area, as Duquesne Light does, is residential sales were strong last costlier than serving less densely year, considering the recession. popillated areas. Loss of business to neighboring utilities or the move-ment of corporations to the " Sunbelt" could cost us some larger a .. - ~

customers and have the eventual Our service area 4 effect of raising costs for our other The recession was harder on our eustomers. We have no higher priori-service area than on most parts of ties than controlling costs wnh the the country. Local unemployment aim of keeping our rates competitive. persists at a level well above the g One means is our continuing national average, with only gradual Company-wide cost reduction pro-relief in sight. In this situation, our gram, which again produced large long-term area development pro-savings. During the year, negotia-gram is of particular interest. In the tion of a new two-year union con-past 12 months, more than 3,000 jobs tract resulted in productivity have been added or retained as a improvements and fringe benefit result of this Duquesne Light effort. - modifications. In addition, a new This area faces a difficult come-reorganization plan, which will be back. But people here are a hardy

implemented in 1984, will reduce breed. They have weathered worse costs by making our operation leaner storms.

and more cost-effective. Our towns I Management reorganization An underlying strength of our 19to 20 30 40 so 60 7o 83 '93 The reorganization plan consolidates larger community is the great diver-Annuai system peak r-i all operating divisions and depart-sity among the many smaller com-ments under the direction of five munities within it. To illustrate this, 4 Group Vice Presidents. It should we feature in this report photos of reduce total stafling by about 100 five of the towns we serve. I cannot positions.The reduction in number call them typical, because they are of employees will be brought about all so different. Perhaps this very - largely through a new voluntary variety is a clue as to why, hard early retirement program. times or not, this region displays such vitality. Commum.ty involvement Although many challenges lie In 1983, we recognized a growing ahead, I am optimistic about the problem or, people facing a hardslu,p future of our service area. Duquesne because of m, ability to pay the Light's Management and Board of increasing cost of heat and light. T Directors acknowledge and appreci-help allevmte this 13roblem, we pr - ate the support of the many stock-vided strong plaumng and financial holders, employees and customers and fund-raismg support to a new who contributed to the Company's independent agency, the Dollar progress in the past and will help to Energy Fund, which provides meet the challenges of the future. assistance when government help is i inadequate. g Duquesne Light employees "/ pledged a total of $333,600 to the John M. Arthur United Way of Southwestern Penn-Chairman of the Board and sylvania. Additionally, our employ-President ces donated $58,100 in 1983 to a Salvation Army food bank for unem-ployed workers. Approximately 65's February 15,1984 of our 4,900 employees signed pay-roll deduction cards to contribute $1 each pay to the food bank. 3

Perspective of 1983 L FINANCIAL MATTERS Cost reduction )UR TOWNS Revenue-earnings improvement Last year Duquesne Light expanded Duquesne Light's revenues rose its cost-reduction program to cover from $746 million in 1982 to $800 mil. the efforts of every employee m the lion in 1983. Rate increases were pri. Company. One purpose was to EWICKLEY marily responsible for the higher encourage employees to find new revenues. Earnings per share from ways to save the Company money, continuing electric operations were This program appears to be workmg. $2.20 in 1983 compared to $1.96 in Identified savings rose from $8.3 mil-li n in 1982 to $14.4 million in 1983. g gf 1982. Looking ahead for savings, Sales: A year of ups and downs Duquesne Light has been using 1853 Total kilowatt-hour sales for 1983 sophisticated computer programs for were slightly lower than last year's strategic load planning. The task is . level, and the summer peak load complex and technical. The goal is to increased about 8W. Improved com-determine how to fulfill the Com-Only 15 miles from the hus- ' dow"' mercial and residential sales played pany's load requirements at the piusburghj's e pe c a part.n improvmg our financial per-lowest cost to our customers while serenity and charm of formance for the year. maintaining an adequate level of sewickley. Total industrial sales dropped i% earnings for our stockholders. by 0entury oid oaks anE compared to 1982. Sales to steelmak-Other major cost reduction mapies. stand stately hm uilt f1 $ vcap-ers, our largest single mar 6, M

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,1 ,bo sa even lower than last year. However, following pages under " Manage-later by captains of there was growth in other segments ment reorganization" and "New industry. of the market, e. specially office park early retirement plan." herefanEspEm*e'nIs.*and projects west of Pit sburgh, fast-a shopping district. food restaurants, hospital expan. Saving on dividend reinvestment sewickley is a living. sions and otlice buildings in down. During the last quarter of the year, breathing t n not a g town Pittsburgh, where large-scale the Company began to admmister the residential streets you the Dividend Remvestment Plan have the feeling that you development continues. have stepped back in time. in-house. This will reduce processing Admittedly.sewickley is costs by approximately $150,000 a somewhat unique. But. the sense of charm and gra-

yegp, clousness it represents is The new system w.ll also enable also alive and wellin many i

us to supply more complete answers of our other towns. to stockholdere' inquiries. The plan is ~ open to all holders of Common, Pref-f erence and Preferred Stock. The E B 44,000. Forinformation on benefits number of stockholders taking advantage of the plan now stands at and how to participate, write Duquesne Light, c/o Dividend Rein-1979 1980 1981 1982 1903 vestment, Box 68, Pittsburgh, Pa. KWII sales-5 Years 15230-0068. 4 ~ -

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Construction and financing issued $20.5 million of tax exempt )UR V.LAGES Work continued at the nuclear Bea-pollution control revenue bonds to ser Valley Power Station Unit No. 2 finance the Company's share of and at the nuclear Perry Plant Units the costs for certain pollution con-Nos. I and 2. Duquesne Light has a trol facilities at the coal-fired ENNSBURY 13.74% ownership interest in each of Sammis plant. Net proceeds to the VILLAGE these nnits. Other major construc-Company were approximately tion projects included a new Western $19.8 million. District Headquarters building and a

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

Beaver Valley Power Station. First Mortgage Bonds, Series due Our total capital expenditures for December 1,2013. Net proceeds the year came to $224 million. About to the Company were approxi-26% of this was generated internally. mately $49.3 million. The balance was raised by outside

5. The Company issued 2,524,407 Ei[,,/c',"Eh en" "

o exis e e financing. This included: shares of Common Stock in 1983 fuity grown. it was built in

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

',he Slxti s e,e 9 n ent-5 to n-Issued $60 milh,on prmelpal vestment Plan. Issuances of Com-houses, mostly two-amount of 12%% First Mortgage mon Stock through thisplan bedroom. When the tawn-ho Bonds, Series due April 1,2013. aggregated approximately $30 c,jesm n u n.t; n w Net proceeds to the Company million. In addition, 143,727 shares owners (average age 31) were approximately $59.3 million. of Common Stock were issued j',8,'ld,',dj'g,"',,"',',s 'rsE Y

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

Declaration of Secession. performed the necessary mon Stock. Net proceeds to the legai nymnastics. and Farew. ell, steam heat Company were approximately launched their own unique On May 31,1983, following the plan local government. $39.4 million' io. announced in 1982, Duquesne Now the Borough takes

3. On November 1,1983 the Oh. Air care of roads. enforces Light's long-unprofitable subsidiary, laws and provides fire pro.

Quality Development Authority Allegheny County Steam Heating tection:the Condominium Company (ACSH) terminated steam [',""','[i,,,[, hat '8k'8 are ' g - service to the public. The estimated includes water, sewage. loss from discontinued steam heat. and heating-all units of equal size pay the same '~ - -- Ing operations was recogn1 Zed in service fee which also 1982. The major portion of the steam includes use of the poli and - distribution s} stem which ACSH had ""*"""Y**"'*' work on the homes, trim-l operated was transferred to, and is ming shrubs and mowing ~ being operated by, a newly-formed lawns.The 870 people who live in Pennsbury Village cooperative of steam UEers. know it is never going to 1 expand.They also innow Rates that living there is never II f f-On January 28,1983 the Pennsylva. going to be much trouble. I I nia Public Utility Commission (PUC) ,, $t,","cN[than '" # lIllf l entered c final order covering the few acres. But, as we said 8a ' r. u s vice area is l I I I Company's request for a $165 million ,d d (subsequently reduced to $155 mil-lion) increase in annual rates which i was filed on April 30,1982. The order 1973 '74 '75 '76 '77 '78 '79 '80 '81 '82 '83 Cat of Famil aml Nuclear Fuel

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allowed $105.8 million or 64% of the Beaver Valley Unit No. 2 is on

UR BOROUGHS rate increase originally requested.

schedule On April 29,1983 the Company Construction of Beaver Valley Unit l filed a new rate schedule with the No. 2 proceeded on schedule; at year PUC estimated to increase annual end, this nuclear plant was 78% com-OMESTEAD revenues by approximately 5.6% or pleted. The Nuclear Regulatory $49.9 million per year. This was the Commission and the Institute of r lowest general rate increase request Nuclear Power Operations audited by the Company since 1971. On Sep-the engineering and construction tember 16,1983, the PUC approved a work, and both reported acceptable settlement of the rate proceeding performance..Barring unforeseeable which provided for an increase of delays, the operating license should $21 million, or 42% of the amount be granted by the time the unit is requested. The early settlement of ready for its initial core loading near this request allowed the Company to the end of 1985. btgin collecting the increase about Our other community pro-III. F;NT7IRONMENT 4% months earlier than the normal files show you the diver-u' 0.H mestea l' sity sq" decision date. For the second year running, various ar e, On July 22.1983 the PUC members of Congress proposed leg-offers a more traditional approved the Company's request to islation to "de something" about the and ft,e mes stereogyped ,,g lower its Energy Cost Rate for serv. acid rain problem. If some of the mili town. ice rendered on and after August 1, most stringent proposals are The names of similar decreasing electric bills for the aver _ adopted, Duquesne Light could be 8',y',"'y,",*"5 ",'# $"k , ddo age residential customer by about required to spend as much as $335 Duquesne. Munhall. 5%* million for flue gas scrubbers and an monessen. For many years. through the Fifties and Six-additional $100 million a year for ties. mills in these towns II. NUCLEAR operation and maintenance of these roared 'round the clock. Beaver Valley Unit No.1 is a devices. Customers' bills could y,' ",'"hr ed F a va ty reliable per former increase as much as 6% to 12%, and of reasons.the boom ended Beaver Valley Unit No. I was shut this area's already depressed steel in the seventies and early down for refueling and modifications and coalindustries would be badly N'/ur*n' c"es ha e been on June 11,1983 and was returned to hurt. Duquesne Light has proposed going cold. Noh 8 he ils service as scheduled on September an alternative. It calls for acceler- ,,e9meLc a 1 he w 24,1983. During the outage,33 ated research (the causes of acid rain butin Homestead. Aliquippa, Braddock and the rest, design modifications were made to are not scientifically established); an the plant,21 of which were required emission ceiling for sulfur dioxide; 7,Io*r's[has passe. by the Nuclear Regulatory innovative alternative methods of Homestead has endured ha d ' $ hefo e Commission. neutralizing acidity in lakes and pen,9[,hn ,h s? From the beginning of the year streams; and a trade-off policy Until the answer is in. peo-hat until June 11, this nuclear unit oper-between types of chemical com-ge here are do nQ 9 g, ng h-ated at an availability factor of 96%. pounds that may lead to airborne ing it out. On an annual basis, taking into acids. The plan would reduce the accotnt the shutdown period, its emissions that are blamed for availability factor was 68%. causing acid rain, yet cushion the In February 1983, the Emergency human and cost impacts. Preparedness Plan for Unit No. I was tested in a full-scale, all-day drill. Federal agencies determined that public health and safety can be adequately protec'ed in the event of a nuclear emergency. 8

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4 i IV. INTERNAL OPEllATIONS 100 positions will be eliminated, )UR CITIES l AND PERSONNEL including some 20 managerial Management reorganization positions. j Duquesne Light's overall organi - New early retirement plan ONROEVILLE tional structure has not sigmficantly The reduction in personnel called for changed for about 17 years. Early m by the reorganization will be accom-1983, the Board of Directors retmned plished largely by attrition and by a the consultm, g firm of Booz, Ahen & new limited early retirement pro-E 55. 10 l Har; niton, Inc. to examine the organ-gram which was entirely voluntary. M h; izational structure of the Company When the option was offered in late WroeVI@ 3 and make recommendations for 1983,450 employees were eligible; improvement. In November, the 323 chose early retirement. The Board of Directors adopted a new option was terminated in January plan of organization. 1984. Under the new organization, oper-ations are directed by five Group New two-year union contract Monroeville's expansion was typicalof the Fifties Vice Presidents. They are Charles M. Duquesne Light and the Interna-and Sixties:the developers Atkinson, Finance and Accounting; tional Brotherhood of Electrical dug up farms and planted Roger D. Beck, Administrative Ser-Workers signed a new contract $s "d'i[le nev[r nr vices; Clifford N. Dunn, Power Sup-effective October 1,1983. It provides settled into the quiat rou-ply; John J. Carey, Nuclear; and fcr a CG increase in wages and a tine of a typical bedroom William F. Gilfillan, Jr., Customer small improvement in fringe benefits "*'"""broeviiie was hen Services. In addition, Walter T. each year of the two-year pact. Most just in the making, a shop-l Wardzinskiis Vice President of important in these times is a provi-(",Q',"','l ",",*j,la(( ded Legal and Corporate Communica-sion that will help reduce costs by was built. it was a catalyst: tions. All report to John M. Arthur, mereasmg the work week of certain now Monroeville has about one store for every 60 res-l Chairman of the Board and Pree. clerical workers from 37% to 40 idents, and shoppers drive dent. For a complete list of Company hours at no additional increase in miles to get here. Four officers, see the inside back cover of wages. This change results in a stan- '8yl,*,"lll,'",'[',",8 877,", P this report. dard 40-hour work week fm all Com-That tilted the population mix: th The purpose of the new reorgani-pany employees. ,s a h gh pe;c nt-zation is to provide more eflicient accents from Sweden Eng- ,82 management audit produces '83 land. France, Hungary. ) management and to reduce costs. It results India. Japan. More recently, i will make our organization leaner by While the PUC-mandated manage. a railroad moved its head-reducm, g the number of departments quarters here, and an "'re ren u;,pu up an and increasing the responsibilities of rk r d S oan f h,,,, _ 9,, existing managers. A total of about half a million buyers and conventioneers last year. Monroeville is only 14 -,i miles from downtown & em Pittsburgh and even closer to three major universities. 4 It, and other communities. ~ are starting to sprout build-ings with company names that don't have any vowels. l Advanced-tech is taking , D.7 root around here. 2 V. l .y i t + 1. I 1982 1983 IIlgh./Iow Common Stock The principal trading marketfor the Company's Common Stock is the New York Stock E.rcha nge. The stock is also listed on the Philadelphia Stock E.rchange.

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Duquesne Light's operations to be Duquesne Light has worked with OUR TOWNSHIPS generally acceptable, it also made various community groups for over some specific recommendations to two years to establish an energy further improve our operations. We assistance fund. In 1983, we helped have been implementing certain of found the Dollar Energy Fund, an ENTER TOWNSHIP these recommendations. One visible independent, non-profit agency result in 1983 was a wider use of which was formed to meet the spe-n. q f computerized information systems. cific problem of inability to pay. . 4W Benefits included increased clerical Duquesne Light supported the Dol-MRM]f,( productivity, improved customer lar Energy Fund with start-up, pro-y service and enhanced management motion and administration funds. We control. mailed more than a million of the Fund s appeals along with our regu-

""8 lar monthly bills. In addition, we will Early m the year, the Transm.ission provide up to $50,000 in matching imd Distribution Department moved credits for the accounts of eligible Drive along the main north-its Western District headquarters t south road, first cut when Duquesne Light customers receiving this was Indian country.

a new buildmg m Center Township. This completed a multi-year consoh.- assistance from the Dollar Energy and you see one side of Fund. While only in existence for a Center Township-a bed-dation of Western District opera-room community. People little over three months, the Fund commute to Pittsburgh. 40 tions. There are seven sections and had received $55,970 in cash contri-minutes on the express-approximately 200 employees at this butions from customers by year end. way. H's a chore, but location.The consolidation of three seaver County taxes are facilities has reduced costs and has Conservation Iow. When asked why they live here. people mention made it more convenient for several Besides conducting energy audits at the colleges-a community "d a Penn ate departments to work together, below cost for residential customers, llampu ,nch ea, 9pp g,. Duquesne Light conducted a series very large mail. and their Most important awards of 1983 of free lunchtime energy conserva. friendly neighbors. We take pride in a good safety tion presentations for the public at yo,7,*,',h he other s f record, and special pride m, awards our new headquarters in downtown Center Township-the like these received in 1983: Pittsburgh. We also sporsored a load countryside. Better than From the Pennsylvania Electric management seminar for commer-areNies5s"$r'm'a'nd Association, an award for the best cial, industrial and governmental fallow, water and woods, accident-prevention record in the "t hlHs-places :luHe wHd-Commonwealth's electric utility l",d *' $8'gi,,hItown-c mdustry. More jobs ship is more than a 10-From the Pennsylvania Electric For the 25th year, Duquesne Light minute walk from where Association, an award for meritori-operated a full-time Area Develop-V"[d op n s es N'it' " f ii * ' d ' e ous results in the prevention of ment Department that works to have them in Center Town-disabling shocks and burns. expand the local economy and,, [,iP,and in other parts of From the Edison Electric Insti-expand employment opportumties m tute, the Injury Frequency Reduc-our service area. The department tien Award certiti mte, for having staff worked with 180 prospective redw ed injury rates 25% in a sin-employers during the year. Their gle year. efforts included finding land or "# """N"#'"P V. COMMUNITY CONCERNS-ditmg permits and providmg studies Inability to pay on markets and labor skills. Our With heavy industry in our area still staff secured 52 commitments to in deep recession, the number of our expand or relocate in our service customers unable to pay for electric area. The result was 2,960 jobs 1 service has grown noticeably. added or retained. 12

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

Duquesne Ught Company Statement of Consolidated Income For the Three Years Ended December 31,1983 (Thousands of Dollars, Except Per Share Amounts) 1983 1982 1981 ELECTRIC OPERATING REVENUES $800,315 $746.462 $786,229 OPERATING EXPENSES: _Fu:1 192,512 229,693 242,871 _ Purchased power (sales)-net (7,330) (23,172) 16,189 Other operation 136,188 126,151 113,423 Maintenance (Note N) 65,016 66,855 63,106 Depreciation 73,682 62,939 60,854 T:xes other than income taxes (Note N) 60,651 57,476 57,694 Income taxes (Note H) 92,951 71,213 72,263 Tctal Operating Expenses 613,673 591,155 626,400 OPERATING INCOME 186,672 155,307 159,829 OTHER INCOME: Allowance for equity funds used durmg construction 50,709 35,415 24,619 ~ Income taxes-credit (Note H) 16,760 17,906 14,462 Other income and deducticns-net 246 8.913 3,467 Total Other Income 67,715 62,234 42,548 INCOME BEFORE INTEREST CHARGES 254,387 217,541 202,377 INTEREST CHARGES: Interest on long-term debt 118,813 111,726 97,404 Otherinterest 5,736 3,471 6,957 Allowance for borrowed funds used during construction, net ofincome taxes (15.388) (14,853) (11,393) TotalInterest Charges 109.161 100,344 92,968 INCOME FROM CONTINUING ELECTRIC OPERATIONS BEFORE EXTRAORDINARY GAIN 145,226 117,197 109,409 DISCONTINUED STEAM HEATING OPERATIONS (Note C): (5_. 81 3 loss from operations of discontinued steam heating subsidiary (924) Loss on dispos' tion of discontinued steam heating subsidiary (9,000) -INCOME BEFORE EXTRAORDINARY GAIN 145,226 107,273 108,871 EXTRAORDINARY GAIN ON EARLY EXTINGUISHMENT OF BONDS (Note D) 9,609 NET INCOME 145,226 116,882 108,871 ' DIVIDENDS ON PREFERRED AND PREFERENCE STOCK 22,411 22,701 22.976 EARNINGS FOR COMMON STOCK $122,815 $ 94,181 $ 85,895 AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (000) 55.883 48,236 41,764 EARNINGS PER SHARE OF COMMON STOCK: Income from continuing electric operations $2.20 $1.96 $2.07 (.21) (.01) Loss from discontinued steam heating operations (Note C) Extraordinary gain (Note D) .20 Net income $2.20 $1.95 $2.06 DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $2.00 $1.90 $1.85 - The accompanying Notes to Financial Statements are an integral part of these statements. 15

Duquesne Light Company Consolidated Balance Sheet December 31,1983 and 1982 (Thousands of Dollars) 1983 1982 ASSETS PROPERTY, PLANT AND EQUIPMENT: Electric plant in service $2,131,916 $2,347,640 Construction work in progress 856,766 675,621 Held for future use 1,799 1,293 Total 3,293,881 3,024,554 Less accumulated depreciation 555,611 504,680 Property, Plant and Equipment-Net 2.737,810 2.519,874 OTHER PROPERTY AND INVESTMENTS: Nonutility property 2,050 2,008 Miscellaneous investments 12,121 8,489 Total Other Property and Investments 14,174 10,497 CURRENT ASSETS: Cash and temporary cash investments (at cost which approximates market) 73,751 33,663 Accounts receivable: Customers (less reserve for uncollectible accounts of $2,652 and $2,270, respectively) 69,822 60,177 Tax refund 5,507 Other-19,797 21,284 Materials and supplies (generally at average cost): Coal 59,:'05 69,194 Other operating and construction 31,983 33,964 _ Deferred income taxes 3,121 7,265 Other current assets 13.028 13,851 Total Current Assets - 273,707 244,905 DEFERRED DEBITS: Extraordinary property losses (Note B) 36,565 40,334 Deferred coal costs (Notes G and M) 22,313 18,338 Other deferred debits 60,882 49,476 Total Deferred Debits 119.790 108,148 Total $3,115,811 42,883.424 The accompanying Notes to Financial Statements are an integral part of these statements. 16

4 1983 1982 LIAHILITIES CAPITALIZATION (Note E):

Common Stock (authorized-75,000,000 shares; outstanding-58,419,659 and 53,276,525 shares, respectively)

$ 58,420 $ 53,277 Crpital surplus 724,147 649,376 Retained earnings 175,938 165,340 Total Common Stockholders' Equity 958,505 867,993 Non-redeemable Preferred and Preference Stock 156,137 156,137 Redeemable Preferred and Preference Stock 134,979 140,829 First mortgage bonds 1,100,147 1,006,637 Other long-term debt 234,019 199,934 Unamortized debt discount and premium-net (10,967) (9,488) Total Capitalization 2,572,820 2.362,042 CURRENT LIABILITIES: Long-term debt maturing within one year (Note E) 16,700 12,500 Accounts payable 95,030 03,399 Accrued income taxes (Note H) 5,778 6,403 Other accrued and deferred income taxes 19,430 13,658 Energy cost rate refunds 9,974 Accrued interest 40,390 29,482 Dividends declared 34,771 30,302 Sinking fund and purchase requirements (Note E) 13.391 10,987 Reserve for loss on discontinued steam heating operations (Note C) 3.181 2,698 Total Current Liabilities 228,671 214,403 DEFERRED CREDITS: Investment tax credits 143,764 126,447 Accumulated deferred income taxes 193,619 172,600 Oth?r deferred credits 6,907 7,932 Total Deferred Credits 344,320 306.979 COMMITMENTS AND CONTINGENT LIABILITIES (Notes G. I, L and M) Total $3,145,811 $2.883,424 17

Duquesne Light Company Statement of Changes in Consolidated Financial Position For the Three Years Enr'ed December 31,1983 (Thousands of Dollars) 1983 1982 1981 SOURCE OF FUNDS: Continuing electric operations: Income from continuing electric operations before extraordinary gain $145,226 $117,197 $109,409 Items not affecting working capital: Depreciation 79,800 66,303 63,560 Investment tax credit deferred-net 17,317 17,335 11,524 Income taxes deferred-net (noncurrent portion) 21,019 18,466 38,040 Allowance for equity and borrowed funds used during construction (66,097) (50,268) (36,012) Total Discontinued steam heating operations 197,295 169,033 186,521 (9,924) (538) Items not affecting working capital (including depreciation: 1982, $595; 1981, $610) (349) 690 Total From Operations (excluding extraordinary gain) 197,295 158,760 186,673 Extraordinary gain on early extinguishment of bonds 9,609 Sale of bonds 110,000 65,000 80,000 Issuance of Common Stock 80,185 107,369 61,332 Nuclear fuel obligations 6,125 24,221 Construction costs reimbursed by trustees from proceeds of - r,ollution control financings 19,680 50,000_ Decrease in working (capital (exclusive of current maturities 30,312 oflong-term debt) a) TotalSource of Funds $113.585 N i,271 $378,005 APPLICATION OF FUNDS: Construction expenditures (net of allowance for equity and borrowed funds used during construction) $224,280 $231,022 $178,942 Dividends on capital stock 131,628 115,247 100,268 Reduction of bonds 12,500 43,852 Sinking fund and purchase requirements 4,696 2,691 4,461~ Deferred coal costs 4,005 2,669 15,355 Decrease in notes payable 35,000 Othernet 14,742 (210) 15,679 Increase in working capital (exclusive of current maturities of long-term debt and notes payable)(a) 18,731 28.300 Total Application of Funds $113,585 $395.271 $378,005 (a) The components of working capital (exclusive of current maturities of long-term debt and notes payable) were as follows: Current assus: Cash and temporary cash investments $ 73,751 $ 33,663 $ 50,655 Accounts receivable 89,619 86,968 94,363 Materials and supplies and other current assets 107,216 117,009 95,878 l Deferred income taxes 3,121 7,265 Total

73,707 244,905 240,896 Currentliabilities:

Accounts payable and accrued interest 135,420 127,881 106,337 Accrued taxes 25,3 8 20,061 24,280 _ Energy cost rate refunds 9,974 Dividends declared 34,771 30,302 27,232 Sinking fund and purchase requirements 13,391 10,987 9,733 Reserve for loss on discontinued steam heating operations 3,181 2,698 Total 211.971 201,903 167,582 Working capital at close of year 61,736 43,002 73,314 - Working capital at beginning of year 43,002 73,314 45,014 Increase (decrease) in working capital (exclusive of current maturities of long-term debt and notes payable) $ 18,734 $(30,312) $ 28,300 The accompanying Notes to Financial Statements are an integral part of these statements. L 18

Duquesne Light Company -Statement of Consolidated Retained Earnings For tha Three Years Ended December 31,1983 (Thousands of Dollars) 1983 1982 1981 ~ BALANCE AT BEGINNING OF YEAR: As previously reported $167,149 $158,546 Less settlement of prior years' income taxes (Note D 3.444 3.444 As restated $165,310 163,705 155,102 NET INCOME FOR THE YEAR 115.226 116,882 108.871 Total 310,566 280.587 263.973 DEDUCI': Cash dividends declared: Preferred Stock: 4"4 Series 1,100 1,100 1,100 3.75% Series 281 281 281 4.15"4 Series 291 291 291 4.20'k Series 210 210 210 4.10"4 Series 216 246 246 $2.10 Series 336 336 336 $8.64 Series 2,219 2,271 2,323 - $7.20 Series 2,520 2,520 2,520_ $8.375 Series 2,512 2,512 2,512 Preference Stock: $7.50 Series 1,914 2,038 2,119 $2.75 Series 891 1,035 1,177 $2.315 Series 2,778 2,778 2,778 $2.10 Series 2,520 2,520 2,520 $9.125 Series 4,563 4,563 4,563 Common Stock (Per Share: 1983-82.00: 1982-$1.90: 1981-$1.85) 112,217 92.546 77.292 Total Cash Dividends 134.628 115.247 100.268 BALANCE AT CLOSE OF YEAR $175.938 $165.340 $163.705 Statement of Consolidated Capital Surplus For the Three Years Ended December 31,1983 (Thousands of Dollars) 1983 1982 1981 BALANCE AT BEGINNING OF YEAR $619,376 $550,244 $494,228 Premium on Common Stock issued 75.312 99,395 56,196 Expense of issuing capital stock (571) (263) (180) iiALANCE AT CLOSE OF YEAR $721,1-17 $649.376 $550.244 The accompanying Notes to Financial Statements are an integral part of these statements. 19

Duquesne Light Company N2tes to Fmancial Statements t A. SU3 DIARY OF ACCOUNTING POLICIES: gress. Investment tax credits are deferred and amortized over f Consolidation the lives of the related facilities. U

The consolidated financial statements include the Company Deferred Fuel Costs and its wholly-owned subsidiary. See Note C concerning The Company defers the difference between actual fuel costs disposition of the subsidiary.

and base fuel costs until the period in which such costs are Property, Plant and Equipment billed to its customers through its energy cost rate. The energy . The properties of the Company are carried at original cost and, cost rate is based on projected costs, with provisions for subse-with minor exceptions, are subject to a first mortgage lien. All quent adjustments to actual cost. Any overcollections of reve-maintenance and repairs and replacements of minor units of nues are refunded to customers. property are charged to income. Replacemems of retirement Nuclear Fuel Costs units of property and betterments are capitalized. In connection The Company's share of nuclear fuel costs under non-with retirements, reserves are charged with the carrying value, capitalized lease agreements is charged to fuel expense based plus dismantling charges, less salvage, of property retired. on the quantity of electric energy generated and reflects a zero Rev6nues net salvage value for the leased nuclear fuel. In 1982 the Com-Customer meters are read monthly or bimonthly and bills are pany began capitalizing acquisitions of nuclear material rendered on a monthly basis. Revenues are recorded when through a trust arrangement that is intended to fmance a por-billed. tion of the Company's requirements for nuclear fuel. An Allowance for Funds Used During Construction accounting pronouncementissued by the Financial Accounting In accordance with the uniform system of accounts prescribed Standards Board in 1982 will result in capitalization of the by regulatory authorities. an allowance for funds used during Company's nuclear fuel leases beginning in 1984. construction (AFC) is included in construction work in progress Under the Nuclear Waste Policy Act of 1982 (the Act), the and credited to other income for AFC attributable to equity United States Department of Energy (DOE)is responsible for funds and to interest charges for AFC attributable to bor-the ultimate storage and disposal of spent nuclear fuel removed rowed funds, net ofincome taxes. AFC is a non-cash item and from reactors. Under the Act the Company is required to pay a is computed using a composite rate, which is applied to the bal, quarterly fee to DOE of one mill per kilowatt-hour on nuclear ance of construction work in progress and assumes that funds generation after April 6,1983 and a one-time fee for nuclear used for construction are provided by borrowings and by pre. generation through April 6,1983. Although the method of - fe rred, preference and common stock equity. The rate, com-payment of the one-time fee, currently estimated to be approxi- ~ pounded semi-annually, was 9.6%,8.5% and 7.6% in 1983,1982 mately $8,921,000, has not been determmed, this amount has been recorded as long-term debt with a contra charge to and 1981, respectively.This accounting procedure results in the inclusion in property, plant and equipment of amounts consid-deferred debits. The Company began recovermg the one-time ued by regulatory authorities as appropriate costs for the fee m rates m, February 1983 and has established a trust, fund f r the deposit of the amounts r,ecovered.The Company is also purpose of establishing rates for utility charges to customers. recovermg the fees for generation after April 6,1983 and mak-Depreciation ing payments to DOE on a quarterly basis. The Company provides for depreciation of electric plant, Debt Discount, Prem.s,um and Expense exclusive of coal properties, on a straight-line basis determined in a manner consistent with applicable Pennsylvania law and Debt discount or pre,mium and related expenses are amortized with methods applied by the Pennsylvania Public Utility Com. over the lives of the issues to which they pertam. mission (Commission)in the determination of depreciation in IL EXTRAORDINARY PROPERTY LOSSES-rate proceedmgs. Provisions for depreciation and depletion of In January 1980, the Company and the other CAPCO compa-other Company property are made,on various bases such as nies cancelled the construction of four nuclear genemting tons of coal mm, ed for coal properties. units. The Company received approval from the Federal The Company provides fordecontamm.ation and d.ismantim.g Energy Regulatory Commission (FERC) and the Pennsylvania costs for the Beaver Valley No.1 nuclear generatmg unit in Public Utility Commission (Commission) to amortize and accordance with the, provisions of the orders of the Commis-recover from its customers its share of the accumulated costs sion. The Company is allowed t,o recover from its customers applicable to these units over a ten-year period which began annual d,ecommissionmg annuity payments to provide for the January 29,1983.The unrecovered costs which were decommissionmg of th,e nuclear related components. Such unamortized as of December 31,1983 were $31,291,000. costs are currently e,stimated to be approximately $30,000,000-On October 1,1982 the Shippingport Atomic Power Station The Company deposits certa n revenues m a trust fund which was removed from commercial operation after notice from the has been established to pay for such costs. At December 31, United States Department of Energy that it was planning to 1983, $1,573,000 was included in the Decommissionmg Trust terminate operation of the light water breeder reactor core at Fund, which represents the aggregate value of revenue de-the station as of that date.The Company requested approval posits and interest earned on investments made by the trustee. from FERC to record the undepreciated cost of the station as Income Taxes an extraordinary property loss and to amortize such loss over a Deferred income taxes are provided principally for differences ten-year period beginning on the date that rates providing for

between depreciation for income tax purposes and depreciation the recovery of such cost first become effective. Consistent for accounting purposes to the extent permitted by the Com-with this request, the Company reclassified the net amount to

?- mission for rate-making purposes, and for fuel and extraordi-extraordinary property losses. The Company has received nary property losses deferred for accounting purposes but approval from the Commission to amortize and recover a por-deducted currently for income tax purposes. In compliance tion of this amount, net of income taxes, from its customers with regulatory accounting, income taxes are allocated over a ten-year period which began January 29,1983. between operating expenses and other income, principally with The Company is not earning any return on the unamortized , respect to interest charges related to construction work in pro-costs of either of the property losses. D

C. DISCONTINUED STEA31 IIEATING OPERATIONS: 31,1983. These losses were charged against 1982 income, and On September 30,1982 the Pennsylvania Public Utility Com-no additional loss is expected to be incurred due to the disposi-mission approved the application by the Company's steam tion. Prior years' operating results have been reclassified to heating subsidiary, Allegheny County Steam Heating Com-present separately the results of discontinued steam heating pany, to discontinue steam service to the public effective 31ay operations from continuing electric operations, 31,1983 and to transfer to Pittsburgh Allegheny County Ther-At December 31,1983 and 1982 assets and liabilities included mal, Ltd. (PACT) a major portion of the subsidiary's assets for in the consolidated balance sheet applicable to the subsidiary nominil consideration.The transfer of the assets became effec-were not material. Revenues from discontinued steam heating - tive June 1,1983. In addition, a lease to PACT of a steam gener-operations for the five months ended 31ay 31,1983 and for 1982 ating plant for nominal consideration became effective on Jan-and 1981 were approximately $6,884,000, $8,845,000 and uary 3,1983 after completion by the subsidiary of certain $10,096,000, respectively, demolit on work at the plant. i The provision for loss on the disposition of the subsidiary's D EARIX ENTINGUISIl31ENT OF HONDS: assets was $9,000,000 (net of income tax benefit of approxi-In December 1982, the Company exchanged 1,406,898 shares saately $8,712,000) and the loss from operations was $924,000 of Common Stock for approximately $29,852,000 principal (net of income tax benefit of approximately $1,028,000) for the amount of outstanding First 31ortgage Bonds which were nine months ended September 30,1982. The provision for loss owned by an investment banking firm.The exchange resulted on disposition included estimated operating losses for the sub-in a nontaxable extraordinary gain of $9,609,000, or $.20 per sidiary of $1,100,000 (net ofincome tax benefit of approxi-share, which was the difference between the exchange value mately $970,000) for the period October 1,1982 through 31ay of the Common Stock and the net carrying amount of the bonds. E. CAPITALIZATION: December 31,1983 December 31,1982 Shares Shares Outstanding Amount Outstanding Amount Common Stock-$1 par value (1) 58,419,659 $ 58,119,659 53,276,525 $ 53,276.525 Ce pitalSurplus:- Premium on Common Stock $731,335,853 $655,993,654 Capit'I stock expense (debit) (7,622,341) (7,065,026) Other 433.112 447.147 Capitalsurplus $721,146,951 $649.375,775 Non-redeemable Preferred and Preference Stock: Preferred Stock-$50 par value (curaulative) (1) 4% Series (2) 589,969 $ 27,198,450 549,969 $ 27,498,450 3.75% Series (2) 150,000 7,500,000 150,000 7,500,000 4.15% Series (2) 140,000 7,000,000 140,000 7,000,000 4,20% Series (2) 100,000 5,000,000 100,000 5,000,000 4.10'7o Series (2) 120,000 6,000,000 120,000 6,000,000 $2.10 Series (2) 160,000 8,J00,000 100,000 8,000,000 $7.20 Series (3) 350,000 17,500,000 350,000 17,500,000 Preference Stock-$1 par value (cumulative) (1) $2.315 Series (4) 1,200,000 1,200,000 1,200,000 1,200,000 $2.10 Series (4) 1,200,000 1200,000 1,200,000 1,200,000 80,898,150 80,898,450 Premium on Non-redeemable Preferred and Preference Stock 75.239,760 75,238,760 Non-redeemable Preferred and Preference Stock $156,137,210 $156,137,210 Irvoluntary liquidation value $155,998,150 $155,998,450 Redeemable Preferred and Preference Stock: Pmfirred Stock-$50 par value (cumulative)(1) $8.64 Series (3) 256,872 $ 12,843,600 262,872 $ 13,143,600 $8.375 Series (3) 300,000 15,000,000 300,000 15,000,000 Preference Stock-$1 par value (cumulative)(1) $7.50 Series (3) 255,920 255,920 268,920 268,920 $2.75 Series (4) 270.570 270,570 365,020 365,020 $9.125 Series (3) 500,000 500,000 500,000 TA0,000 28,870,090 29,277,540 Premium on Redeemable Preferred and Preference Stock 109.173,360 113,027,160 Purchase and Sinking Fund Requirements (3.061,250) (1,475,rA0) Redeemable Preferred and Preference Stock $131,979,200 $140,829.200 Involuntsry liquidation value $131.979,200 $140,829.200 (1) Authorizedshares:CommonStock-75,000,000:1 increased (2) $50 ger share involuntary li uidation value. In 1983 from 60,000,000r, Preferred Stock-4,000,000; (3) flodpershareinvoluntary uidation value. end Preference Stock 4,000,000. (4) $25pershareinvoluntary i idation value.

1 Duquesne Light Company Notes (continuca) The following summary indicates the changes in the number of shares of Common Stock outstanding during 1983,1982 and 1981: ) Year Ended December 31, 1983 1982 1981 Common Stock: Shares outstanding at beginning of year 53.276,525 45,302,520 40,166,083 Issuances: Common Stock sales 2,475,000 4,500,000 4,100,000 Dhidend Reinvestment Plan 2,521,107 1,962,320 902,977 Employee Stock Ownership Plan 143,727 104,787 133,460 ' Exchanged for outstanding First Mortgage Bonds 1,406.898 - Shares outstanding at end of year 58.119.659 53.276.525 45,302.520 The number of shares reserved at December 31,1983 for 1988, and thereafter at $100 plus the applicable redemption issuance under the Dividend Reinvestment Plan and the premium decreasing from $5.03 in 1988 to $.34 in 2003. Employee Stock Ownership Plan are 6,364,124 and 448,115, respectively. Redeemable Preferred nnd Preference Stock: The Preference Stock is entitled to quarterly cumulatite The shares of $7.50 Preference Stock are entitled to a non-dividends except that no dividends may be paid if dividends on cumulative purchase fund under which the Company offers to any series of the Preferred Stock are accumulated and unpaid. purchase annually at $100 per share up to 4% of the number of In the event that six quarterly dividends on any series of Pref-shares originally issued.The shares of $2.75 Preference Stock crence Stock are in default, the holders of the Preference are subject to a cumulative sinking fund which will retire Stock are entitled to elect two directors until all dividends in 55,000 shares by August 1 in each year at $25 per share. The arrears have been paid. Company may on a non-cumulative basis retire an additional The outstanding Preference Stock of the Company is 55,000 shares in each such year. The shares of $9.125 Prefer-callable on not less than thirty days' notice at the following ence Stock are subject to a cumulative sinking fund beginning redemption prices plus accrued dividends: $7.50-redeemable with the year 1985 and continuing through 1997 inclusive et $105 through April 1,1986; $103 through April 1,1989; and which will retire 33,300 shares on January 1 in each year at $101 thereafter; $2.75-not redeemable prior to August 1, $100 per share. The Company may, on a non-cumulative basis, 1984 through certain refunding operations, otherwise redeem-retire an additional 33,300 shares in each such year, provided able at $27.75 through July 31,1984; $26.50 th, rough July 31, that the Company may not redeem through the exercise of this .1989; and $25.25 thereafter; $2.315-redeemable at $26.60 option more than an aggregate of 150,000 shares. ~ hrough March 31,1986; $25.90 through March 31,1991; and The shares of $8.64 Preferred Stock are entitled to a non-t - $25.25 thereafter; $2.10-redeemable at $26.40 through cumulative purchase fund under which the Company offers to March 31,1987; $25.70 through March 31,1992; and $25.00 purchase annually up to 6,000 shares at not more than $100 thereafter; $9.125-not redeemable prior to January 1,1989 per share. The shares of $8.375 Preferred Stock are subject to through certain refunding operations, otherwise redeemable a cumulative sinking fund beginning with the year 1984 which e t $100 plus the applicable redemption premium decreasing will retire 12,000 shares on April 1 in each year at $100 per from $6.72 in 1984 to $.48 in 1998. share. The Company may on a non-cumulative basis retire an The Preferred Stock is entitled to quarterly cumulative additional 12,000 shares in each such year. dividends. In the event that four quarterly dividends on any The combined aggregate sinking fund and mandatory pur-ceries of Preferred Stock are in default, the holders of the Pre-chase requirements for the next five years as of December 31, ferred Stock are entitled to elect a majority of the Board of 1983 are as follows: Directors until all dividends in arrears and current dividends have been paid. Year Ending Sinking Fund and Mandatory ' The outstanding Preferred Stock of tFe Company is callable December 31 Purchase Requirements - on not less than thirty days' notice at the following redemption 1984 $4'364,250 prices plus accrued dividends: 4%$51.50; 3.75%$51.00; 1985 7,805,000 4.15%$51.73; 4.20%-$51.71; 4.10%$51.75; $2.10-$51.84; $8.64-redeemable at $107 through September 30,1984; $104 1986 7,805,000 through September 30,1989; and $101 thereafter; $7.20-1987 7,805,000 . redeemable at $102.50 through March 31,1987; and $101 1988 7,805.000 thereafter; $8.375-redeemable at $112 through March 31, 22

The f;11owing summary indicates the changes in the number of shares of Redeemable and Non-redeemable Preferred and Preference Stock outstanding during 1983,1982 and 1981: Year Ended December 31, 1983 1982 1981 > Preference Stock: ~ Shares outstanding at beginning of year 3,533,910 3,565,220 3.678,650 Purchases and redemptions-$2.75 Series (91,150) (20,080) (103,750) -$7,50 Series (13,000) (11.200) (9,680) Shares outstanding at end of year 3,126,190 3,533,940 3,565.220 - PreferredStock: Shares outstanding at beginning of year 2,132,811 2,138,841 2,144,841 Purchases-88.64 Series (6,000) (6,000) (6.000) - Shares outstanding at end of year 2,126,811 2,132,841 2,138,811 First Mortgage Honds (amount authorized is unlim:ted by indenture): December 31, 1983 1982 Series due September 1,1983(3% A) 12,000,000 Series dueJuly 1,1984 (3%9) 16,000,000 16,000,000 Series due April 1,1986(3%%) 20,000,000 20,000,000 Series due Aprill,1988(3%%) 15,000,000 15,000,000 _ Series due March 1,1989(4 %%) 10,000,000 10,000,000 Series due February 1,1996(5%%) 22,800,000 22,800,000 Series due February 1,1997(5%%) 21,600,000 24,600,000 Series due February 1,1998(6%%) 3 t,700,000 34,700,000 Series dueJanuary 1,1999 GW) 30,000,000 30,000,000 Series dueJuly 1,19996%%) 28,917,000 28,947,000 Series due March 1,2000(8%%) 30,000,000 30,000,000 35,000,000 35,000,000 Series due March 1,2001 G%%) 26,161,000 26,461,000 Series due December 1,2001 G%%) Series dueJune 1,2002 G%%) 2_8,470,000 28,470,000 Series dueJanuary 1,2003 G%%) 32,670,000 32,670,000 Series dueJuly 1,2003 G%%) 35,000,000 35,000,000 Series due April 1,2004 (8%%) 41,100,000 44,100,000 Series due March 1,2005(9%%) 50,000,000 50,000,000 Series dueJune 1,2006(9%) 80,000,000 80,000,000 Series due April 1,2007(8%%) 97,100,000 97,400,000 Series due February 1,2009(10%%) 100,000,000 100,000,000 Series dueJanuary 1,2010(12%%) 60,000,000 60,000,000 Series due September l,2010(14%%) 50,000,000 50,000,000 Series dueJune 1,2011(16%) 80,000,000 80,000,000 Series due May 1,2012(16%%) 65,000,000 65,000,000 Series due April 1,2013(12%%) 60,000,000 Series due December 1,2013(13%) 50,000,000 Total I,126,118,000 1,028,148,000 less: 12,000,000 Current maturities-Series due September 1,1983 (3%%) Current maturitiee-Series due July 1,1984 (3 %% ) 16,000,000 Current sinking fund requirements 10,001.180 9.511,480 First Mortgage Bonds $1,100,116,520 $1,006,636.520 23

DtbEh.neiighi. Company' . Nbtas cenntinued) a Other Long Term Debt: seriamaturky Pollution ControlObligations: AveraPe or 3!andatory December 31' Date of Interest Rahnpoon Final Issuance 'v Rate Beginning Maturity 1983 1982 / W 1983 2002 $ 23,500,000 $ 24,000,000 , September 21,1072 June 21,1973 5.685"< IM4 2003 12,000,000 12,000,000 August 13,1974 5.75D1 1984 2003 16,000,000 16,000,000 Octoler 25,1973 7.97% 1989 2004 11,000,000 14,000,00 _0 April 2,1975 7.50% 1993 2005 17,000,000 17,000,000 Oach3r 29,1975 8.40'. 'c IW1 2005 18,000,000 18,000,000 6,90% 1994 2011 15,000,000 15,000,000 September 29,1976 12.00% 2002 2011 50,000,000 50,000,000 March 24,1981 November 1,1983 10.50 % 2013 20,500,000 Total __ 186,000,000 166,000,000 Ins: Currentm.Arities 700,000 500,000 ' Current sinking fund requirements 325,000 Pollution Control 0bligations 181,975,000 165,500,000 Nuclear Puel Obliptions 30,315,199 24,221,187 Spent Nuclear Fuel Liability 8,920,790 5% Sinking Fund Debentares (authorized $20,000,000) due 31 arch 1,2010 9,778,000 10,213,000 Total Other long-Term Debt $238,019,289 $199,934,187 TI e pellution control obligations arise from arre ngement/ Year Ende Dec.31. Sinking Fund Requirements 31aturities between the Company and development authorities whenby 1984 _ $11,426,480 $16,700,000 the construction of certam pollution control facilities has been financed through the sale of bonds by those authoritics, and 11,426,480 700,000 198". the Company is obligated to pay to the authorities amouaia 1986 11,429,480 20,700,000 equal to the principal of and inte. rest on the authonties' bonds. 1987 11,676,480 800,000 The nuclear fuel obligations result from a trust arrange-1988 11,526,480 15,800,000 ment for the procurement of a portion of the Ccnpany s - requirements for nuclear fuel. Inwest amounts applicale 19 The sinking fund requirements in each year relate primarily the trust are capitalized and included in construction werk in ' to the First Mortgage Bonds, which requirements may be sat- _ progress, at rates ranging frhn> 1 %% to 1%% over the isfied by the certification of property additions at 166%% of the trustee's commercial paper rate. Trust cbligations will be paid Bonds required to be redeemed, and the pollution control obli-by the Company as the related nuclear fuelis withdrawn from gations.The remaining sinking fund requirement relates to the trust, the SM Sinking Fund Debentures. At December 31,1983, sink-The spent nuclear fuel liability results from a requirement ing fund requirements for the 5% Debentures had been satis-to provide for payment of a one-time fee to the United States fled for 114S4 and 1985, and the 1986 sinking fund requirement Department of Energy for ultimate storage and disposal of had been partially satisfied in the amount of $222,000. spent nuclear fuel used in the generation of electricity through Total interest costs incurreo during 1983,1982 and 1981 April 6,1983 See Note A to the financial statements, were $131,248,000, $125,004,000 and $111,331,000, respec-Sinking fund requirements aad maturities for the next five tively, of which $73,310,000, $60,075,000 and $42,982,000, years for !ongerm debt outstanding, exclusive of nuclear and respectively, were capitalized or deferred, including allowance spent fuel oblir ations, as of December 31,1983 are as follows: for funds used during construction. F. SilOltTTZIAM HORROWING AltitANGEMENTS: 15,1989, Interest rates fluctuate during the revolving and At DecemberJ1,1983 the Company had lines of credit with term periods, degnding on the period of borrowings, at two banks totating $15,000,000, allof which was unused, percentages in excess of prime, Euro-Rate or certificate of Effective February 1,1984 these Unes of credit increased to an deposit rates. Until December 15,1986 there is a commitment aggregate of $35,000,000.The range of interest rates under fee of %% per annum on the average unborrowed commit-these lines of credit are from prime rate less one half of one ment.There is no commitment fee during the term period, percent to the prime rate or at a special rate annay be offered During the years ended December 31,1983,1982 and 1981 from time to time by the banks. As part of the arrangement the maximum amount of short-term borrowings outstanding for one of the lines of cre dit, the Company is required to pay was $43,020,000, $37,000,000 and $80,140,000, the average o commitment fee of % per annum on the unused portion daily short-term borrowings outstanding were $12,251,000, e f the line There are no compensating balances associated $1,559,000 and $28,341,000 and the weighted average daily with these linas of credit. !n addition, the Company has a interest rate applicatile to such short term bor:nwings was $60,000,000 revolving cred.t arrangement av.Jable to Decem-9#)7,15.M and 17,50%, respectively, 1 ber 15,198tl, all of which was unused at Dacember 31,1983. G. DEFERRED COAL, COSTS: Borrowings out.standmg at December 15,1986 nmy be con-The Company and the other CA PCO compnies have made verted to term notes ;>ayable in m equal semi annual install-long term coal supply arrangements with Quarto Mining Com-ments commem ug lune 13,11,87 and conchdmg December pany (Quarto), an unaffiliated company, to supply coal for the y

7 Bruce Mansfield Units. In December 1980 the Pennsylvania investigation entered an order, subject to review by the Com-Public Utility Commission (Commission) instituted an investi-mission, approving the Stipulation Agreement. On November f gation into the reasonableness of the cost of coal supplied by 19,1982 the Commission remanded the Stipulation Agreement Quuto. By Interim Order entered January 12,1981 the Com-to the administrative law judge for hearings. Hearings were mission directed that, pending conclusion of the investigation l' eld in January and February 1983, and on April 29,1983 the ' or further order of the Commission, the Company limit its Commission issued an order allowing the Consumer Advocate recovery of the cost of Quarto coal through its energy cost to place into the record testimony regarding the prudence of rate to approximately the prevailing market price of similar the Quarto project. Further hearings were held in July and coal rather than the actual cost of Quarto coal. As required by August 1983. On February 3,1984 the administrative law the Interim Order, the Company is deferring the excess of the judge issued a recommended decision, subject to the Com-actual cost of Quarto coal ove r the cost being recovered mission's approval, concluding that the Company was prudent through its energy cost rate until recovery of the actual cost is by initiating and continuing the Quarto project and that the permitted by the Commission. At December 31,1983 the Stipulation Agreement is in the public interest and is a fair and unrecov; red cost of Quarto coal paid by the Company was reasonable resolution of the investigation into the reasonable-approximately $21,541,000, including $876,000 applicable to ness of the cost of Quarto coal. The administrative law judge Quarto coalin inventory. If recovery of such excess is disal-recommended that the Stipulation Agreement and its method-lowed, the amount deferred would be charged to income in the ology for recovering the cost of the Quarto coal be approved year cf disallowance.Thereafter, any excess of actual cost and the Commission's investigation terminated. The matter is over the amount permitted to be recovered would be charged presently pending before the Commission. Management of the to income on a current basis. The deferrals and methods of Company believes that the deferred costs were prudently ultimately recovering such deferrals were the subject of dis-incurred and that the eventual outcome of the Commission's cussions between representatives of the Company and the investigation will not have a material effect on the Company's % mission staff. Such discussions resulted in the filing with fmancial position or results of operations. The CA PCO compa-i ~ ti.dommission of a Stipulation Agreement, which sets forth nies are continuing to evaluate the economics of the Quarto f a method intended to permit the eventual recovery of the arrangements and are considering and implementing various accumulated deferrals of the excess of Quarto coal costs over means for reducing production costs, See Note M to the market price. The administrative law judge assigned to the financial statements. H, INCOME TAXES: l Totalincome taxes in 1983,1982 and 1981 were comprised of the following components: 1983 1982 1981 Included in operating expenses: (Thousands of Dollars) Currently payable: Federal 8 33,931 $25,257 $20,519 State 11,295 12,694 13,680 - Income taxes deferred-net: Federal 22,955 13,997 26,080 State 5,555 (228) (1,057) Investment tax credit deferml-net 16.218 19,193 13.041 Total 92,958 71,213 72,263 Included in other income (income taxes-eredit): Currently payable: Federal (13.358) (14.267) (11,523) State (3.106) (3,639) (2,939) Totalincome tax expense s 76,19i $53.307 $57,801 Taxes curwntly payable-federal and state s 31,166 $20,045 $19,737 Taxes defermi-net 28,510 13,769 25.023 Investment tax credit deferred-net 16.218 19,493 13.041 i-Totalincome tax expense s 76,19 $53.307 $57,801 Total income tax expense is exclusive of income taxes applicable to discontinued steam heating operations. See Note C to the financial statements. Sources of income taxes deferred and the tax eliects were: Excess of tax over book depreciation $ 20,920 $14.490 $12,672 Fuel costa expensed on tax return and deferm! on books 9,786 (3,552) (3,062) 1: vestment tax credit carryforwant recognimi 16,932 against income taxes deferml-net Extraoni! nary property losses expensed on tax return and defermi on books (1,562 3.019 81 Other 1638) (18m (1/>001 Totalincome taxen defermi-net s 28.510 $13.769 $25.023 a

Du uesneLightCompany N;otes(continueaf ~ Totalincome taxes from continuing electric operations were less th the amcunt computed by applying the statutory fed-eral income tax rate of 46% to income from continuing electric cperations befare income taxes. The reasons for this difference i in each year were as follows: s Computed federal income tax on continuing electric operations at statutory rate $101,8D $78,432 $76,917 Increase (decrease) in taxes resulting from: Allowance for funds used during construction (30,105) (23,123) (16,565) Excess of tax over book depreciation 3,216 1,131 (577) State income taxes, net of federal income tax benefit 5,880 4,766 5,229 Amortization of deferred investment tax endits (5,266) (4,251) (3,663) (2,114) (3.648) (3.540) Other-net Tota income tax expense s 76.19i $53,307 $57,801

1. PRIOlt YEAltS' INCOME TAXES:

The Company's income tax returns are settled through 1970. pany concerning percentage depletion for the years 1956 Income tax returns for 1971 through 1979 have been exam-through 1961. The settlement resulted in a charge to retained ined, the 1980 and 1981 returns are being examined, and the earnings of approximately $3,?44,000. The Company has .1982 return is subject to review.1be Internal Revenu a ServicN _ received approval from the Federal Energy Regulatory Com-

assessed deficiencies regarding the Company's computation of mission for this accounting treatment. The Company expects percentage depletion on coal mined for 1956 through 1979, as that this court decision will serve as the basis for settlement of will as certain other issues of relatively minor importance for the depletion issue for the years 1:)71 through 1979. Manage-1971 through 1979. A settlement of the depletion issue.for the ment of the Con 2pany believes that the settlement of federal years 1962 through 1970 occurred in June 1983 based on an and state taxes' will not have a material effect on the Com-earlier court decision which was generally in favor of the Com-pany's financial position or results of operations.

J. EMPLOYEE HENEFITS: The Company has trusteed retirement plans to provide pen ~ sions for all employees, except coal mine employees who are December 31, 1982 1981 1980 covered under a plan administered by the United Mine "*" 8 ^ ' " Workers of America. Information concerning the plan cover- . Actuarial preser.t value of ing coal mine employees is not determinable and is not accumulated plan benefits: $159,956 $151,756 $135,345 included in the data below. Pension costs are funded as Vested ^ accrued and include amortization of prior service costs over 30 - Nonvested 11.49 11,566 10,750 years. Pension costs charged to expense or construction for Total $171,150 $163,322 $146,095 the years ended December 31,1983,1982 and 1981 were $10,803,000, $12,313,000 and $10,083,000, respectively. The Netassets available for decrease in pension costs in 1983 resulted principally from an

bene %(at fair value)

$135.571 $111,013 $107,798 - increase in the interest assumption. The increase in pension' costs in 1982 was due principally to a plan amendment effec-tive May 1,1981, increasing pension payments to employees The Company is liable under federal and state laws for the payment of benefits to coal mine employees disabled by black - retired prior to October 1,1979. The accumulated plan benefits and net assets available for lung and to their survivors and dependents. The estimated benefits for the trusteed plans are presented as of the Decem-costs of providing such benefits, including amortization of

ber 31 benefit information dates. In 1983 the Company prior service costs over the remaining estimated life of the adopted an early retirement program in which certain benefits Warwick mine, are actuarially determined and accrued on the willbe paid from the assets of the retirement plans. Addit'on-basis of mine payroll costs and are deposited with a trustee.

ally during 1983, the Company refunded from such assets all Such costs were $1,574,000, $1,417,000 and $1,524,000 for the employee contributions. The impact of the early retirement years ended Decamber 31,1983,1982 and 1981, respectively. program and the refurd of contributions is not reflected in the At July 31,1983 tihe da te of the latest actuarial valuation), the . amounts below.The assumed rate of return u. sed in determin. unfunded prior scrvice cost for these disability benefits was ing the actuarial present value of accumulated plan benefits approximately $23,513.000. was 5%% for 1982 and 5% for 1981 and 1980. '

gs

K. JOINTLY-OWNED GENERATING UNITS: . The Company, together with other electric utilities, primarily the CAPCO companies, has an ownership interest in certain jointly-owned units. Information regarding the Company's share of such jointly-owned units as of December 31,1983 is as follows(thousands of dollars): Company's Interest t tility Plant Accumulated Construction W x Percent:y;e Unit in Service Depreciation in Progres. Ownership Megawatts Fort Martin No.1 $ 46,131 ' $ 14,583 966 50.0 276 CAPCO Units: Eastlak:No. 5 50,216 11,282 1,606 31.2 202 Sammh No.7 67,484 12,150 3,825 31.2 187 Bruce Mansfield No.1 72,346 15,112 262 29.3 228 Bruce Mansfield No.2 20,221 3,530 106 8.0 62 Bruce Mansfield No.3 70,073 7,194 564 13.74 110 Bruce Mansfiehl Common and Shared Facilities 61,297 12,467 2,250 ' Beaver Valley No.1 333,582 52,279 13,660 47.5 385 Beaver Valley No.2 18 287,236 13.74 114 Beaver Valley Common Facilities 47,920 5,361 19,614 Perry No.1 - 265,147 13.74 165 Perry No.2 188,165 13.74 165 Total $769//.88 $133,958 $783,401 Under terms of the arrangements with the other owners of such jointly-owned units, the Company is required to provide its

hare of financing the cost of such units. The Company's share of the direct expenses (fuel, maintenance and other operation c xpenses) of thejointly-owned units is included in the corresponding operating expenses in the Statement of Consolidated

' Income.- L. LEASES: Rental payments in 1983,1982 and 1981 amounted to . At December 31,1983 minimum rental payments, based ' $30,028,000, $17,679,000 and $16,389,000, respectively, of principally on estimated usage of nuclear fuel under lease and which $31,994,000, $15,393,000 and $14,169,000 were charged building rentals, were as follows: to operating expenses. The Company has an undivided interest (Thousands of Dollars) . m nuclear fuel lease agreements. Rental payments are made 1984 s:rt,591 monthly during the terms of the leases based on the amount of nuclear fuel leased and the amount of nuclear fuel burned. 1985 32 699 The increase in 1983 rental payments and amounts charged to 1986 32,474 operating expenses resulted from higher building rentals and 1987 29,269 an increased amount of nuclear fuel being burned. 1988 23.246 The nuclear fuel leases may be terminated by the :essees or 1989-1993 80,204 lessors with notice as defmed in the agreements or by casualty After 1993 83.314 or certain other contingencies, including default by the lessees. In certain situations involving a termination, the The Company accounts for all of its leases (exclusive of the lessees may be required to purchase the leased nuclear fuel nuclear fuel trust arrangement described above) as operating c t the higher of fair market value or unamortized cost. At leases in accordance with the manner in which the Company's December 31,1983, the Company's share of the lessors' rates have been established by the Pennsylvania Public Utility unamortized cost of the leased nuclear fuel was $124,891,000 Commission. If the noncapitalized financing leases were capi-and the Company expects to lease an additional $81,262,000 of talized as of December 31,1983 and 1982, property, plant and nuclear fuel under current leasing arrangements. The Com-equipment-net would have been increased by $143,547,000 and pany finalized a nuclear fuel trust arrangement in 1983 which $117,538,000, respectively, with related increases in current t - provides an alternative method of financing nuclear fuel. liabilities and long-term debt of $24,271,000 and $119,761,000, The Company has certain buildings under lease, including respectively, in 1983 and $12,154,000 and $105,820,000, respec-its new corporate headquarters, subject to renewal options tively, in 1982. The impact on net income of capitalizing such and in certain cases purchase options. leases in each year would not be material. 27

- Duquesne Light Company Nst s(continued) -M. COMMITMENTS AND CONTINGENT LIAHILITIES: sion of time in which to file a refund plan together with an Construction application for a stay of the final order. On August 24,1983 the The Company's current estimate of construction expenditures, Commission denied the application for a stay but granted the exclusive of allowance for funds used during construction and petition for an extension of time in which to file a refund plan. nuclear fuel, during the period 1984 through 1988 amounts to Subsequently, the Company filed an application with the Com-approximately $860 million, principally related to CAPCO mon wealth Court for a stay of the fir.al order, and on Septem- - g:nerating units. ber 28,1983 the Commonwealth Court granted the application. Quarto Mining Company (Quarto) The Company and outside counsel do not agree with the Com-The Company and the othcr CAPCO companies have mission's order, and no provision has been recorded by the made long-term coal supply arrangements with Quarto, Company for any such refunds. While the Company is unable an unaffiliated company, to supply coal for the Bruce Mans-to predict what action the appellate courts may ultimately take and although the amount of such refunds could be substantial, field Units. As part of these arrangements the individual CAPCO companies are severally, and not jointly, guaranteeing m n gement of the Company beheves that the replacement their proportionate shares of Quarto's debt and lease obliga. Power costs were prudently meurred and that the eventual utcome of th,s matter will not have a material effect on the i tions incurred in connection with the development, equipping and operation of two mines from which the coalis supplied. At Company's financial position or results of operations. December 31,1983 the Company had guaranteed the obliga. Perry Unit No. 2 tions of Quarto with respect to approximately $54,142,000 of In September 1983, the Ohio OfTice of the Consumers' Counsel, indebtedness and lease obligations relating to approximately the City of Cleveland, the Board of County Commissioners of . $28,239,000 of capital equipment for the mines. The Company Geauga County, Ohio and three citizen groups filed a petition expects that it will make further guarantees with respect to with the Public Utilities Commission of Ohio (Commission)and additional indebtedness and leased capital equipment, the the Power Siting Board of Ohio (Board) against The Cleveland amount of which will depend on the actual costs of further Electric Illuminating Company, Ohio Edison Company and The development of the two mines. In general, it is contemplated Toledo Edison Company (respondents) requesting that the that the purchase prices to be paid for the coal to be received Commission and the Board jointly and/or individually investi-under the foregoing arrangements will include amounts sufli. gate the public need for the Perry Nuclear Power Plant Unit cient to service the guaranteed obligations. No. 2 (Unit) presently under construction by the CAPCO com-Under the terms of the coal supply contracts, which con-panies. The petitions also request that the Commission and the tinue until December 31,1999 with options to extend for ten Board order the cessation of construction of the Unit and of additional years, the CAPCO companies must reimburse the accrual by the respondents of allowance for funds used Quarto for their share of the costs of operating the Quarto during construction with respect to the Unit and a declaration mines, including those costs associated with mine construe. by the Commission that the issuance of securities by the - tion, whether or not they receive coal from Quarto. The Com. respondents, the proceeds of which will be used to finance con-pany's total payments under these contracts amounted to struction of the Unit, will not be approved. The respondents $28,512,000 and $24,292,000 for the years ended December 31, have filed a motion to dismiss the petition filed with the Board 1983 and 1982, respectively. and an answer to the petition filed with the Commission The Company's estimated future minimum payments under requesting that the petition be dismissed. While the Company the coal supply contracts related to mine construction and is not a party to the proceedings, it has a 13.747c ownership equipment costs are: interest in the Unit. The Unit, which is presently scheduled to Year Ending December 31. be placed in service in 1988, is about 437c complete. The Com-pany's investment in the Unit, including allowance for funds 1984 $ 8,773,000 used during construction, was approximately $188 milhon at im 8,567,000 December 31,1983. An order requiring the respondents to 1986 8,360.000 cease or terminate construction of the Unit could have the 1987 8,153,000 effect of cancelling the Unit. In such event, the Company 1988 7,947,000 would seek regulatory approval for the recovery from its After 1988 78.426.000 customers of its then investment in the Unit, together with any related cancellation costs, net of applicable taxes. Based The current price of Quarto coal to the CAPCO companies is on its present knowledge of the proceedings, management of based principally on the actual current production costs plus the Company has no reason to believe that the proceedings amortization of certain production expenses which were not will result in a decision adverse to the respondents and included in the price of coal to the CAPCO companies during believes that the ultimate resolution thereof will not have a the development period, which ended on May 31,1980. See material adverse effect on the Company's financial position. Note G to the financial statements. Nuclear Insurance Heaver Valley Replacement Power The CAPCO companies have coverage with American Nuclear - In connection with a February 20,1981 rate order, the Com-Insurers (ANI)and Mutual Atomic Energy Liability Under-mission found that the Company had not proven that the costs writers (M A ELU) to provide primary property insurance cov-of replacement poiver during a 1979 outage of Beaver Valley erage for Beaver Valley Power Station Units Nos.1 and 2 in Unit No.1 were prudently incurred. the amount of $500 million. On November 19,1982 the Commission adopted an order The CAPCO companies are members of Nuclear Electric nisi which ordered refunds of $12.5 million plus interest over a Insurance Limited (NEIL), a mutual insurer established by the two-year period less a $1 million otTset from another proceed-utility industry to provide Decontamination Liability and ing. The order nisi became final on June 10,1983. The Com-Excess Property Insurance in excess of $500 million for mem-pany filed an appeal with the Pennsylvania Commonwealth bers' nuclear generating facilit:es. NEIL presently provides Court and filed with the Commission a petition for an exten-such excess coverage in the amount of $375 million plus 127c L

of the amount of the loss in excess of $500 million up to $1 bil-Supreme Court. lion. Under th9 policy the CAPCO companies are subject to a On April 30,1982 the Company filed with the Commission a retrospective premium assessment of approximately $9.5 mil-new rate schedule estimated to increase annual revenues by . lion per y'ar for a period of seven years in the event of acci-approximately $165 million (subsequently reduced to approxi- . dents et nuclear plants of member companies if losses exceed mately $155 million). On January 28,1983 the Commission premiums, reserves and other NEIL resources. The Com-entered a final order allowing an increase of $105.8 million pany's chare of any such retrospective premium assessment beginning on January 29,1983. The Commission's order was would be approximately $2.9 million. appealed to the Pennsylvania Commonwealth Court by both Damages in excess of the primary $500 million coverage are the Pennsylvania Consumer Advocate and the Company. also cov: red by an excess property insurance policy issued to Except for the Consumer Advocate's appeal with respect to the CAPCO companies by ANI and MAELU which provides the Commission's allowance of the recovery of the cancellation - $68 million of coverage. The ANI/M A ELU and NEIL policies costs of four nuclear generating units (see Note B to the finan-provide quota sharing coverage forlosses in excess of $500 cial statements), both appeals have been discontinued. million up to $1 billion. On April 29,1983 the Company filed with the Commission a Th a property insurance policies described above provide the new rate schedule affecting all classes of customers and esti-CAPCO companies with approximately $1 billion of coverage mated to increase annual revenues based on projected levels in an investment in the two Beaver Valley Units at December of business at December 31,1983 by approximately $49.9 mil-31,1983 tf about $2.9 billion. lion. On September 7,1983 the administrative law judge

In addition, NEIL also provides insurance coverage for the assigned to the rate proceeding issued a recommended deci-e xtra expense of replacement power during prolonged acci-sion adopting a joint petition for settlement filed by the Com-dental cutages of nuclear plants. Coverage is provided for the pany, the Commission's staff, the Pennsylvania Consumer Company's interest in Beaver Valley Power Station Unit No.1 Advocate and certain of the other parties to the proceeding and, after a deductible period of 26 weeks, weekly payments which provided for an increase in annual revenues of approxi-if up to $588,000 are provided for one year and up to $294,000 mately $21 million. On September 16,1983 the Commission for an additional year. If losses exceed accumulated funds approved the settlement. The Company began to collect the m ilable to NEIL, the Company could be assessed approxi-increased rates effective September 17,1983. Two complaints mately $1.7 million for payment of NEIL's obligations.

concerning rate structure issues remain pending, and further ' The Price-Anderson Amendments to the Atomic Energy Act hearings with respect thereto will be scheduled. ' limit liability to third parties to $580 million for each nuclear Management believes that the ultimate resolution of these incident. Coverage of the first $160 million of such liability is rate matters will not have a material adverse effect on the provided through ANI and MAELU.The next $420 million is Company's financial position or results of operations. provided by retroactive assessments of up to a limit of $5 mil-Other lion per operating nuclear reactor per incident, but not more In connection with coal supply arrangements for its wholly-than $10 milhon per operatmg reactor m any calendar year. owned generating units the Company has contracted with an Based on its present ownership mter,est m one operatmg unatliliated coal supplier to purchase a minimum of 750,000 nuclear reactor, the Co,mpany's maximum potential assess-tons of coal per year through December 31,1986. In 1983 the ment under these provisions would be $2.4 million per meident contract was amended to provide that if the Company . but not more than $4.8 milhon per calendar year. requeste deliveries in 1983 and 1984 below the minimum Rate Mitters annual tonnage, the Company shall make up the shortfall Effective July 15,1981 the Company increased its rates by (plus a 63,000 ton shortfa:1 in 1982) by purchasing additional about $64.2 million annually in accordance with an option tons during the remaining term of the contract or by extend-1 order of the Pennsylvania Public Utility Commission (Com-ing the term of the contract. The contract also provides that mission). On April 15,1982 the Commission adopted its final any shortfall can be sold to purchasers other than the Com-order in the rate proceeding which determined that the option pany. The total shortfall under the contract at December 31, rate increase of $64.2 million annually was just and reason-1983 was approximately 317,000 tons. able. The final order was appealed to the Pennsylvania Com-The Company is involved in various other legal proceedings. monwealth Court by a commercial customer. On November 29, In the opinion of management of the Company such legal pro. 1983 the Court affirmed the Commission's final order. The ceedings will not have a material effect on the financial posi- . Court's order is the subject of a petition for allowance of tion or results of operations of the Company. appeal by the commercial customer to the Pennsylvania N. SUPPLEMENTARY INCOME STATEMENT INFORMATION: Year Ended December 31, 1983 1982 1981 (Thousandsof Dollars) Under the system of accounting followed by the Company, a portion of maintenance expenses and of taxes other than Maintenmce $75,917 $78,431 $73,029 inc me taxes represents amounts charged to coalinventories. Amortization of extraordinary The mventory accounts are reheved and operations expense property losses 6.099 charged as the coalis used. Taxes other than payroll andincome taxes: Gmss receipts 35.576 33,186 34,980 Property 11,374 14,139 12.583 State capitalstock 5.501 6.601 6.301 29 tn

3 d Duquesne Light Company - Notes (continued) 1 O. QUAllTEltlX FINANCIAL INFOR31ATION (Unaudited): The following is a summary of selected quarterly financial data (in thousands of dollars, except per share amounts): 1983 Quarter Ended 1982 Quarter Ended j March 31 June 30 Sept. 30 Dec.31 March 31 June 30 Sept. 30 Dec. 31 Electric 0perating Revenues (a) $185,818 $198.666 $215,111 $200,690 $207,398 $186,628 $181,720 $170,716 Operating income (a) 43,918 15,287 19,191 47.976 4l,662 38,480 40,223 34,942 Income from Continuing Electric 'i Operations Before Extraordinary Gain 3L975 31,883 39,392 37,977 32,296 28,990 30,845 25,066 Thscontinued Steam IIeating Operations (b) 371 (484) (9,811) Extraordinary Gain (c) 9,609 Net Income 32.975 31,883 39,392 37,977 32.667 28,506 21.034 34.675 Earnings PerShare: Income from Continuing Electric - Operations Hefore Extraordinary Gain - .51 .51 .60 .56 .58 .51 .51 .37 Discontinued Steam Heating Operations (b) .01 (.01) (.20) Extraordinary Gain (c) .19 Net income .51 .51 .60 .56 .59 .50 .31 .56 (:) Certain a nounts previously reported as Operating Revenues and Operating In ome for the first two quarters of 1982 have been reclassified to set forth separately the results of the steam heating subsidiary as discontinued steam he sting operations. (b) Ste Note C to the financial statements for a discussion of discontinued steam heating operations. (c) See Note D to the financial statements for a discussion of the extraordinary gain from early extinguishment of bonds. P.' SUPPLE 31ENTARY INFOR31ATION TO DISCLOSE TIIE EFFECTS OF CHANGING PRICES (Unaudited): The following supplementary information is supplied in accord-dollar) and changes in specific prices (current cost) have had on ance with the requirements of the Statement of Financial the Company's results of operations. The data provided are Accounting Standards No. 33, Financial Reporting and Chang-not intended as a substitute for earnings reported on a histori-ing Prices.This Statement reqaires adjustments to historical cal basis, but offer some perspective of the approximate effects costs to estimate the effects that general inflation (constant of inflation rather than a precise measurement of these effects. STATE 31ENT OF INCO3tE ADJUSTED FOR CIIANGING PRICES Conventional Constant Dollar CurrentCost ForThe Year Ended December 31,1983 H n al e (Thousands of Dollars) g }g 9 ,g Electric operating revenues $800,345 $800,345 $800,345 Fuel 192,512 192,512 192,512 Purchased power (salesF-net (7,330) (7,330) (7,330) Other operation and maintenance expenses 201,204 201,204 201,204 Depreciation expense 73,682 157,841 174,112 Taxes other than income taxes 60,651 60,651 60,651 + 1neome taxes 92,954 92,954 92,954 Other income and deductions-net, (67,715) (67,715) (67,715) . Interest charges 109,161 109.161 109,161 655,119 739/278 755,549 Income from continuing electric operations (excluding reduction of property, plant and equipment to net recoverable cost) $145,226 $ 61,067* $ 44,796 Increase in specific prices (current cost) of property, plant and equipmont held during the year ** $251,349 Euction of property, plant and equipment to net recoverable cost $(18,925) (40,924) Effect of increase in general price level ~ (213.079) Excess of increase in general price level over increase in specific prices after reduction of property, plant equipment to net recoverable cost (2,651) Gain from decline in purchasing power of net amounts owed 67,732 67,732 Net $ 48,807 $ 65,078

Including the reduction of property, plant and equipment to net recoverable cost, the net income on a constant dollar basis would have been $42,142.

"At December 31,1983, current cost of property, plant and equipment, net of accumulated depreciation, was $5,369.693, while historical cost or net cost 30 recoverable through deperciation was $2,739,890.

g FIVE-YEAR COMPARISON OF SELECTED SUPPLEMENTARY FINANCIAL DATA ADJUSTED FOR EFFECTS OF CIIANGING PRICES (l; Thousands Except PerShare Amounts) Year Ended December 31, 1983 1982 1981 1980 1979 Average 1983 dollars: Electric operating revenues $800,315 $770,733 $861,562 $816.090 $839,296 Hinterical cost information adjusted for general inflation: Income from continuing electric operations (excluding reduction of property, plant and equipment to net recoverable cost)(1) 61.067 38,247 39,552 42,042 41,888 Vncome per share from ec.atinuing electric operations (after dividend requirements on preferred and preference stock)(1) .69 .31 .34 .36 .38 Net assets at year-end at net recoverable cost 910,851 896.216 832,000 833,932 857,570 Current cost information: Income from continuing electric operations (excluding reduction of property, plant and equipment to net recoverable cost)(1) 11,796 23,r41 23,433 23,228 21,453 Income (loss) per share from continuing electric operations (after . dividend requirements on preferred and preference stock)(1) .10 (.01) (.13) (.34) Excess of increase in general price level over increase in specifie prices after reduction of pmperty, plant and equipment to net recoverable cost 2,651 (237) 120,532 235,444 237,872 Net assets at year-end at net recoverable cost 910,851 896,216 832,000 833,932 857,570 . Generalinformation: - Gain from decline in purchasing power of net amounts owed 67,732 64,128 148,0T>l 206,745 237,532 Cash dividends declared per share of common stock 2.00 1.96 2.02 2.18 2.43 Market price per share of common stock at year-end 13.50 15.23 14.52 15.27 18.70 Average consumer price index 298.5 289.1 272.4 246.8 217.5 Historical basis: Electric operating revenues $800,3 85 $746,462 $786,229 $674,744 $611,547 Cash dividends declared per share of common stock $ 2.00 $ 1.90 $ 1.85 $ 1.80 $ 1.76 . Murket price per share at year-end $13.50 $14.75 $13.25 $12.63 $13.63 Proven and probable mal reserves at beginning of year (tons) 25.100 26,300 28,100 29,900 30,650 Tons of coal mined - 785 942 680 875 928 - Average cost per ton of mined coal $36.59 $31.62 $35.10 $31.14 $28.71 (1) Amounta for 1982 are before extraordinary gain. Amounts for 1979 are before cumulative effect of accounting change. Constant dollar amounts represent historical costs stated in in nominal dollars. Rate regulation limits the recovery of fuel termsif equal purchasing power, as measured by the Con-and parchased lower costs through the operation of adjust-cumer Price Index for all Urban Consumers. Current cost ment clauses or adjustments in basic rate schedules to actual rmounts reflect the changes in specific prices of plant from the costs. For this reason fuel inventories are effectively monetary date the plant was acquired to the present and differ from con-assets. stant dollar amounts to the extent that specific prices have As prescribed in Statement 33, income taxes were not ~ increased more or less rapidly than prices in general. adjusted.

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

' future use, construction work in progress and nuclear fuel in value of plant in constant dollars or current cost must be . process, represents the estimated cost of replacing existing reduced to the net recoverable cost, which is historical cost. ' plant assets and was primarily determined by indexing sur-The amount of this excess that accumulated as a result of viving plant by the Handy-Whitman Index of Public Utility inflation in the current year must be reduced to net recovera- . Construction Costs.The current cost of coal pmperties was ble cost. determined by indexing coal reserves and machinery and The Company, by holding auets such as receivables, equipment by the Marshall-Stevens Mining and MilF.ng Index. prepayments and inventory, suffers a loss of purchasing The current year's provision for deprecintion and depletion on power during periods of inflation because the amount of cash the constant dollar and current cost amounts of property, received in the future for these items will purchase less. Con-plant and equipment was determined by applying the Com-versely, by owing monetary liabilities, primarily long-term panyb depreciation and depletion rates to the indexed plant debt, the Company benefits because the payment in the future

amounts, will be made with nominal dollars having less purchasing Puelinventories, the cost of fuel used in generation and pur-power. The Companv has significant amounts of long-term

- chased power have not been restated from their historical cost debt outstanding wh..a will be paid back in dollars having less 31

- Duquesne Light Company Notes (continued) purchasing power and, therefore, for purposes of these calcu-equity capital previously invested. While this effect is partially lations, has a net gain from holding monetary liabilities in mitigated by the benefit derived from holding long-term debt, i excess of monetary assets. the Company has a net purchasing power loss which is experi-The regulatory process limits the amount of depreciation enced by the common shareholder and can only be overcome 1 expense included in the Company's revenue allowance and lim-by adequate rate relief. However, the Company expects that it its utility plant in rate base to original cost, Such amounts pro-will be able to establish rates which will recover the increased duce cash flows which are inadequate to replace such property costs of new plant, in the future or preserve the purchasing power of common Duquesne Light Company Selected Financial Data and Statistical Summary (Thousands of Dellars, Except Per Share Amounts) 1983 1982 1981 1980 1979 1973

SUMMARY

RFSULTS OF OPERATIONS Residential revenues 267,110 238,496 223,146 196,400 176,744 79,113 Commercial revenues 290,370 263,374 243,501 209,871 185,880 75,113 Industrial revenues 221.107 225,292 300,066 250,295 232,389 80,274 Street lighting and other revenues 11,357 13,240 12,383 11,052 10,370 4,762 Miscellaneous revenues 7,801 6.060 7.133 7,126 6.164 2,580 Total electric revenues 800,315 746,462 786,229 674,744 611,547 241,842 Operation and maintenance expenses 386,386 399,527 435,589 380,973 351,731 111,383 Depreciation 73,682 62,939 60,854 53,316 47,885 23,211 Taxes other than income taxes 60,651 57,476 57,694 47,637 46,956 20,462 Income taxes 76,198 53,30s a7,801 50,643 41,592 15,864 Interest charges net of allowance for borrowed funds used during construction 109,161 100,344 92,968 75,629 65,414 32,460 Other income, principally allowance for equity funds used durmg construction 50,955 44.328 28.086 26,749 21,587 13.496 income from continuing electric operations before extraordinary gain 115.226 117,197 109,409 93,295 79,556 51,958 less from discontinued steam 9,924 538 333 1,194 133 heating operations Ineome before extraordinary gain i15,226 107,273 108,871 92,962 78,362 51,825 Extraordinary gain 9.609 Net income 115,226 116,882 108,871 92,962 82,207t 51,825 Dividends on Preferred and Preference Stock 22,811 22,701 22,976 23,353 23,721 9,233 Farnings for Common Stock 122,815 94,181 85,895 69,609 58,486 42,592 Average number of common shares outstanding 55,883 48,236 11,764 38,267 32,239 18,181 1 Earnings per share of Common Stock: Income from continuing electric operations 2,20 1.96 2.07 1.83 1.73 2.35 - Net income 2,20 1.95 2.06 1.82 1.81t 2.34 Dividends declared on Common Stock 2,00 1.90 1,85 1.80 1,76 1,72 tincludes cumulative effect to January 1,1979 of the change in billing practice, net of income taxes, of $3,845 or $.12 per share. PLANT Property, plant and equipment 3,293,881 3,024,554 2,809,753 2,604,333 2.380,805 1,423,135 Accumulated depreciation 555,611 50 680 477,009 424,653 386,479 265,459 Property, plant and equipment-net 2,737,880 2.519,874 2,332,744 2,179,680 1,994.326 1,157,676 TOTAL ASSITS 3,115,811 2.883,421 2,668,577 2,447,163 2,222,537 1,256,291 --

1983 1982 1981 1980 1979 1973 - CAPITALIZATION. Common Stock ' 58,420 53,277 45,303 40,166 35,550 20,400 - Capital surplus -- 724,117 649,376 550,244 494,228 433,984 214,157 , Retained earnings 175,938 165,340 163,705 155,102 155,328 125,261 Non-redeemable Preferred and Preference Stock - 156,137 156,137 156,137 156,137 156,137 96,137 Redeemable Preferred and Preference Stock 134,979 140,829 143,924 146,867 149,998 62,482 - First mortgage bonds 1.100,147 1,006,637 083,870 918,230 808,830 578,160 Other long-term debt 231,019 199,934 176,682 126,981 127,436 66,140 . Unamortized debt discount and premium--net (10,967) (9,488) (9.453) (7.161) (5,770) - Total capitalization 2,572,820 2,362,042 2,210,412 2,030,550 1,861,493 1,162,737 RESIDENTIAL SERVICES Average use per customer (kilewatt-hours) 5,752 5,668 5,698 5,770 5,629 5,552 Average revenue per kilowatt-hour 9,195v 8.361v 7.806v 6.828v 6.363v 3.031e SALES OF ELECTRICITY (millions of kilowatt-hours) Residential 2,905 2,853 2,858 2,876 2,778 2,610 Commercial 4.257 4,163 4,069 4,024 3,870 3,638 Industrial 3,717 3,902 6,582 6,272 6,546 6,181 Streetlighting and other til 120 125 129 131 118 Total 10,990 11,038 13,631 13,301 13,325 12.547 ENERGY SUPPLY AND PRODUCTION DATA - Energy supply (millions of kilowatt-hours) ' Generated in system plants 11,900 12,352 13,914 13,485 13,884 12,979 Purchased and net interchange (161) (689) 410 541 125 336 losses and company use (716) (625) (690) (725) (684) (768) Total 10.990 11,038 13,634 13,301 13,325 12,547 Generating capability (thousands of kilowatts) 3,148 3,144 3,177 3,179 3,294 2,620 Peak load (thousands of kilowatts) 2,181 2,158 2,522 2,474 2,296 2,296 1 Cost of fuel per million BTU 167.110, 167.865v 159.660s 149.768v 131.779v 42.454v BTU per kilowatt-hour generated 10,635 10,853 10,931 10,811 10,924 10,333 Average production cost per kilowatt-hour 2,511e 2.575v 2.354v 2.202v 1.913v 0.540v ' NUMBER OF ELECTRIC CUSTOMERS-At End of Year Residential 505,781 503,987 503,044 500,466 496,005 471,641 Commercial 49,193 49,320 48,859 48,308 47,978 45,975 Industrial 1,988 1,999 2,016 2,005 1,975 1,765 Street lighting and other 1,633 1,647 1,713 1,725 1,746 1,852 Total 558,891 556,953 555fd2 552,504 T>17,704 521,233 33

5 L 'a +

x r

^ 6 !ManagemenFs' Discussion-these is*"e* *?re used to pay short-term indebtednes= incurred prmeipally for construction purposes, and the balance

E. cand:A~nalysis OfFinancial was appired to construction expenditures. The Company cur-rently estimates that approximately 76% of the funds required P-

"COndit10n and Results focits 1984 construction program wiii ceme frem outside L ~ ~p= financing. The Company plans to sell additional First Mort. ?@e n%aLions - Kage Bonds in March 1984.The exact timing and amount of lV l iCapital Resources and Liquidity. this sale will depend on market conditions. In addition to the funds required for the construction pro-a Construction gram $16.8 million was required in 1983 for maturities of long-1 1- > Construction expenditures during 1983, exclusive of allow-f_ ance for funds used during construction and nuclear fuel, - term debt and sinking fund and purchase requirements, and i were approximately $224 million. These expenditures were pri. $21.4 million will be required in 1984 for such purposes. [- marily for the construction of three CAPCO generating units Interim financing will be through bank borrowings and

in addition to improving and expanding production, transmis-sales of commercial paper. In addition, the Company has avail-us s sion and distribution systems and pollution control equipment. able a revolving credit arrangement with two banks which M The Company currently estimates that it will spend, exclu.

allows the Con pany to borrow up to an aggregate of $60 mil-a

h 3ive of allowance for funds used during construction and -

. lion through 1986 and to convert the revolving loans to term ' ; nuclear fuel,' approximately $235, $203, $158, $137 and $127 -

loans for an additional three years 3ee Note F to,the financial

u. million for each of the years 1984 through 1988, respectively, statements. Variable market and general economic conditions L-m These estimates include an aggregate of approximately $294 may affect the Company's selection of financing alternatives

- mdhon for the three jointly-owned nuclear generating units and adversely affect its ability to raise capital. In order to i bemg constructed under the CAPCO arrangements, including mamtam earnmgs adequate to finance construction expendi-trelated transmission facilities. See Note K to the financial. tures and refunding reqmrements, the Company requires rate increases sufficient to offset mereased costs and provide a fair R 7 ~ istatements, rate of return' . % amount Ohich the CEmpany must spend for its con- ." The Restated Articles of the Company require that for the Mtruction program is regularly under review and is subject to L issuance of Preferred Stock, earn,mgs (after mcome taxes) changes influenced by~ business and economic conditions and - available for mterest charges be at least 1.5 times the sum of ? other factors, such as escalation of labor, material and equip. mterest charges on all indebtedness and Preferred Stock dm-yment costs, rate of construction progress, the development of '. dend requirements. This restriction currently preclud,es th Mnvironmental and nuclear safety regulations, service reliabil- _ zCompany from issumg Preferred Stock. There is no similar m~ ~ 'ity and system efficiencies. In addition, this review also must : restriction upon the issuance of the Company's Preference or [ take into account difficulties in obtaining rate increases suffi-Common Stock. ~ @ient to generate adequate earnings,~ possible changes in load growth trends and,in the case of the CAPCO construction pro-Rate Matters On January 28,1983 the Public Utility Commission entered . gram, the ability of each of the CAPCO companies to finance - Mits capitalrequirements.' ' a final order allowing an annual rate increase of $105.8 million - IThe Company finances its nuclear fuel requirements primar. : beginning on January 29,1983. See Note M to the finl statements.. f ily by leasing and through a trust arrangement. See Note L to : n On April 29,1983 the Company filed a request fora $49.9 s" e E the financial statements. In the third quarter of 1983 the Com

pany entered into arrangements permitting the lease of an million annual rate increase with the Commission. On Septem-

,e~' additional $60 million of nuclear fuel. ' ber 16,1983 the Commission approved a settlement allowing c pg an increase of approximately $21 million beginning on Septem-ber 17,1983.See Note M to the financial statements.- W

The Company anticipates that funds required for planned.

- Econstruction expenditures in the next several years will be pro? Extraordinary Property lesses [ pHvidedprincipallyfromtheissuanceof additionalequityand ' In 1980 the CAPCO companies cancelled the construction of T debt securities and in part from cash becoming available from four nuclear generating units. In January 1983 the Commis-aN . The Company issued $60 million of 12 %% Fir at ". sion approved the recovery of the accumulated costs from the : ' ~ Bonds on April 14,1983 and $50 million of 13% First Company's customers but did not allow any return on these

Mortgage Bonds on December 6,1983. On' August 2,1983 the costs. See Note B to the financial statements.

Company issued and sold 2,475,000 shares'of Common Stock.- II)eferred CoalCosts y $ Net proceeds from the sale of the Common Stock were ~- 'By Interim Order entered January 12,1981 the Commission -'ly $39.4 million. Funds provided to the Company ; Edimeted that the Company limit its recovery of the cost of a. v M u,n, der its Dividend Reinvestment Plan in 1983 amounted to - Quarto coal through its energy cost rate to approximately the .=- gpproximately $39 million, and an additional $10.2 million was L prevailing market price of similar coal rather than the actual ' o reinvested on January 1,1984. On November 1,1983 the Ohio cost of Quarto coal. The Company is deferring the excess of

Air Quabty Development Authority issued $20.5 million of pol-the actual cost of Quarto coal over the cost being recovered W

' (lution control revenue bonds to reimburse the Company for its through its energy cost rate until recovery of the actual cost is . share of the cost of certain pollution control facilities at Unit - permitted by the Commission. If recovery of such excess is . No.7 of the Sammis Pbwer Station. The bonds have an inter-disallowed, the amount deferred would be charged to income J est rate of 10%%, and principal and intemst on the bonds will in the year of disallowance. See Note G to the financial ~ 1 be funded by the Company. Portions of the net proceeds from statements. 4 - w-.-..

' Beaver Valley Replacement Pow'er The Company was permitted two rate increases in 1983 . In connection with a February 20,1981 rate order, the Com-effective January 29 and September 17. See Note M to the ~ mission found that the Company had not proven that the costs financial statements. The decreases in electrical consumption of replacement power during a 1979 outage of Beaver Valley in 1982 and 1983 were due primarily to the severe impact of 5 Unit No.' 1 wen 7rudently incurred. Further hearings in the the economic recession in the Con pany's service area, partic-

Beaver Valley refund proceedings were held, and on Novem-ularly on steel and other industrial customers.

ber 19,1982 the Commission adopted an order nisi which The decrease in operation (fuel, purchased power and other ordered refunds of $12.5 million plus mterest over a two-year operation) and maintenance expenses in 1983 compared to , period. The order nisi became final on June 10,1983, and the 1982 was due primarily to a substantial reduction in fuel

Company has filed an appeal with the Commonwealth Court-expenses resulting from higher generation from the Beaver: See Note M to the financial statements.

Valley No. I nuclear unit, decreased deferred fuel expenses Allegheny County Steam Heating Company and lower kilowatt hour sales. Net sales of power to other - On September 30,1982 a final order of the Commission utilities decreased as the market for such sales was not as approved the discontinuance of steam service by the Com. favorable in 1983. The decrease in operation expenses in 1982 pany's steam heating subsidiary etTective May 31,1983 and compared to 1981 was due to substantial reductions in pur- . the transfer of a major portion of the assets of the subsidiary chased power and fuel expenses. The significant reduction in to Pittsburgh Allegheny County Thermal, Ltd. for nominal kilowatt-hour sales to industrial customers resulted in a sur-consideration.The transfer of assets became effective June 1, plus capacity situation. This available capacity and the require-1983. See Note C to the financial statements. Since the subsidi-ments of neighboring utilities resulted in substantial net sales L ary had been losing money over the past several years, the of power in 1982. Other operation and maintenance expenses ' diposition shoukt improve the Company's financial condition increased in 1982 compared to 1981 due to a scheduled outage 'and results of operations. for refueling and modification work at Beaver Valley Unit No. I and increased customer, general and administrative IOther expenses. . Under provisions of the Economic Recovery Tax Act of 1981 digible individuals who are participants in the Company's Depreciation expense increased in 1983 compared to 1982 as Dividend Reinvestment Plan may elect to exclude from cur-a result of increases in utility plant and changes in deprecia- ? rent federal taxable income each tax year from 1982 through tion rates to conform with the depreciation rates allowed by c 1985 the fair market value of Common Stock received from the Pennsylvania Public Utility Commission in its rate orders.

the reinvestment of dividends to the extent the aggregate fair Additionally, depreciation expense includes the amortization mark;t vilue of such shares does not exceed $750 ($1,500 for of the cancelled nuclear generating units and Shippingport.

spouses who file a joint return.) This provision has provided See Note B to the financial statements. incentive for stockholders to reinvest dividends and thereby Income taxes increased in 1983 compared to 1982 principally

ease the cash requirements of the Company.

as a result of increased taxable income. The effective income The Company has generated in each year funds from opera. tax rate for the three years ended December 31,1983,1982 tions sufficient to meet its operating expenses, pay dividends and 1981 was 34%,31% and 35%, respectively. and finance a portion of its capital needs. The demands and The increases in allowance for equity and for borrowed commitments detailed in Note M to the financial statements funds used during construction (AFC) were primarily due to and those noted above are not expected to materially affect the the increased cost of construction and increases in the AFC

Company's ability to finance its operations or its construction rate from 7.6% in 1981 to 8.5% in 1982 und to 9.67 in 1983.

- program. Fluctuations in interest income resulted from changes in cash Results of Operations vailable for temporary investments. Interest expense for Operating revenues from continuing electric operations each of the years 1983,1982 and 1981 was higher due to incre sed total borrowm, gs to finance the Company s cap,tal i increased (decreased) in the years 1981 through 1983 over the expenditures. respective preceding years, for the following reasons: 1983 1982 1981 In 1982 the Company's subsidiary discontinued its steam heatm, g operations resultmg m a charge to earnmgs of $9.9 (Millions of Dollars) million, or $.21 per share. See Note C to the financial General rate inereases - $s8.1 $ 43.0 $ 65.6 statements. Electrical consumption (10.0) (62.3) 10.5 A non-taxable extraordinary gain of approximately $9.6 mil-Energy clause revenues (31.0) (19.0) 33.9 lion, or $.20 per share, in December 1982 resulted from the exchange with an mvestment bankmg firm of newly issued State tax adjustment common shares for certain First Mortgage Bonds having an rnd other 6.5 (1.5) 1.o. exchange value subst:mtially lower than their face value. See $53.9 $(39.8) - $111.5 Note D to the financial statements. Earnings per share of Common Stock for 1983,1982 and The operating revenues of the Company are based on rates 1981 were adversely affected by increases in the average num-anthorized by the Pennsylvama Public Utility Commission ber of shares outstamding, which reduced earnings per share - These rates are designed to recover the Company s operatm: g by $.3~n $.31 and 8.18, respectively. cxpenses, plus a rate of return on the mvestment m utility rate . The Company has prepared,information on the effects of, ' base.The Company also has an energy cost rate which allows it to recover the difference between actual fuel costs and fuel inflation and changmg prices m accordance with the i inancml cc:ts included in base rates. Any overcollections of revenues Accountmg Standards Board's Statement No. 33. Such infor-mation is m Note P to the fmancial statements. are refunded, with interest, to customers. 35

Business of the Company Common Stock Dividends lectively referred to as " junior ~Duquesne Light Company is The Company has paid cash stock payments"). engaged principally in the produc-dividends on its Common Stock in No dividends or distributions tion, transmission, distribution each year since 1913 and on a reg-may be made on the Conunon and sale of electric energy. The ular quarterly basis (January 1, Stock if dividends or sinking or Company serves an area of April 1, July 1 and October 1) in purchase fund obligations on the approximately 800 square miles in each year beginning in 1953 after Preferred Stock or Preference Allegheny and Beaver Counties. becoming publicly owned. Quar-Stock are accumulated and This area, which includes the City terly dividends related to the four unpaid. Furthermore, the aggre-of Pittsburgh, is located in South-quarters of 1982 were paid at the gate amount of junior stock western Pennsylvania and has a rate of 47 %e per share. Com-payments which may be made in population of about 1,430,000. mencing April 1,1983 the quar-any 12-month period are in gen-The executive otIices of terly dividend rate was increased eral limited to (1) 503 of consoli-Duquesne Light are located at: to 60e per share. Future dividends dated net income for any period of One Oxford Centre will depend upon future earnings, 12 consecutive calendar months 301 Grant Street the cash position of the Company, within the 15 preceding months if Pittsburgh, Pennsylvania 15279. construction requirements, rate the etreet of such payments would regulation and other relevant fac-be to reduce the ratio of common Duquesne L. ht Company is tors. The Company expects that stock equity to total capitalization ig an Equal Opportunity dividends will continue to be paid to less than 200 or (2)759 of such Employer. in the future. consolidated net income if the Dividends may be paid on the effect would be to reduce such Common Stock to the extent per-ratio to 205 or more but less than mitted by law and as declared by 253. No portion of retained earn-the Board of Directors, subject to ings at December 31,1983 was the provisions of the Company's restricted by virtue of this provi-

== Restated Articles which restrict sion. The approximate number of the payment of cash dividends or holders of Common Stock as of other distributions on, or the pur-the March 2,1984 record date for a ~ chase of, its capital stock ranking the 1984 Annual Meeting was junior to the Preferred Stock (col-145,000. J Federal Income Tax Status of Common Stock Dividends The Company estimates that portions of the Common Stock dividends ~'"" paid in 1983 represent a return of capital and are not taxable as divi-dend income as follows: I .m l o,- Payment Taxable As Not Taxable As liates Dividend Income Dividend Income Jan.1 100.00% 0.009 19'73-1983 Dimensions Apr.1 87.639 12.379 Magazine July 1 70.30s 29.709 In mid year 1984, the Company Oct.1 70.309 29.701 phms to publish Duquesne Light Tkse estimates are subject to audit by the Internal Revenue Service. Dimensions, contammg m-depth l information concerning the Com-pany. Dimensions will include an Form 10-K Offer pany s Anmial Report on F,orm 10-K tiled with the Securities and 11-year statistical review and a o n..cm Ewhange Conunissmn for the dis' ussion of some of the impor_ U y u a? a m tant issues affecting Duquesne "*"",r o f any an of thej@om-c year 1983 (meluding a list of CMD AU mquests must be W"?

Light Company. For a copy of the record date for the 1984 made m writmg to the Secretary, Dimensions drite:

^""" K' mPny Duquesne UgM Company, One Duquesne Light Company Public Information (30-5)' WlH send y u, upon N4"? aml Oxford Centre,301 Grant Street, no nup, a copy of the tom-Pittsburgh, Pennsylvama 15279. i One Oxford Centre 301 Grant Street Pittsburgh, Pennsylvania 15279 3G

CAPCO' Board of Directors Company Oflicers . In 1967, Duquesne Lightjoined John 31. Arthurt$ John M. Arthur. with four other electric utilities to Chairman of the Boani and President Chainnan of the Boani and President form the Central Area Power Charles M. Atkinson Charles M. Atkinson Coordmation (CAPCO) group. Vice President-Finance and Accounting Vice President-Finance and Accounting Prior to 1980, ten generating Gn>up Group units were committed under the Henry G. Allyn, Jr.*t Roger D. Beck CAPCO arrangements, which pro-Retired President and Chief Executive Vice President-Administrative Services vided forjoint ownership interests Officer of The Pittsburgh - Group based on individual requirements, and Lake Erie Railroad Company John J. L,arev .Duquesne Light shares m. mne of Daniel Berg ? $ Vice PresidentiNuclear Group these umts. To date, seven are m Provost and Vice President for Academic service; three will be placed in Aftairs. Rensselaer Polytechnic Institute Cliiford N. Dunn service, one each in 1985,1986 Doreen E. Boyce*t $ and 1988. Director,The Bu'hl Foundation William F. Gilfillan, Jr. Since 1980 each CAPCO com. Vice President-Customer services pany has becn responsible for iQ,1kemngg J Gnmp n, & ccx,y establishm, g its own level of Attornevs.at. Law George I. Rifendifer rcscrve and its own generating ~ Vice President-General Senices 8 capacity needs beyond the jointly- 'M h(rector, Health Systems 1 Walter T. Wardzinski* owned umts still under construc~ Agency of Southwestern Pennsvivania vice President-Legal and Corprate tion. Duquesne Light is now ~ Communications William H. Knoell t developing a program to meet its E,arl J. W,oolever President and Chief Executive Officer. puture capacity requirements. cyclops corporation Vh paq4Mear F.ndnsng

Duquesne Light Company G. Christian Lantzsch*$

Bearer U1Ilcy :1 nearer udley 1 V James O. Ellenberger \\, ice Chairman of Mellon Bank, N.A. and Nuclear-1976 Nuclear-19% C.ontroller ice Chairman and Treasurer of Mellon Crpacity: 81010) KW Capacity: 833J00 KW D L ownership 47.51 D L odnership: 13.743 National Corporation Ronald (,. E.l6 s D.L Share:3N.Ono KW D.L Share: 114,000 KW Eric W. Springer t t Treasurer (Penn:ybania Power Company Partner, Hortv. Springer an<t Mattern Mansfield #1 Sla nsfield =2 Attorneys-atd ew Ceal-1976 Coal-1977 Secretary Ca acity: 780.000 KW Ca acity: 7ko.000 KW

Member of Audit Committee e

f[S$ .h v 1 l$ V t Memberof Compensation Committee ^ Mansfield *J t ymlin pf L,mployment and Commumty Relations Committee Lawrence P. Gah,e py,g_ igg Capacity: 800!W) KW t Member of Nominating Conimitte" Assistant Treasurer DL ownership: 11744 D.L. Share: 110.000 KW rprangrer egg and Joan S. Senchyshyn Assistant Secretary ? ohio Edi<on Company Registrars Sammis =7 Coal-~1971 Common, Preference and ' Effective December 1,1%3, the ponrd of Ca1>acity: Preferred Stock. Directors appomted Walter T. halzmski WMoo KW D ownership 3121 ,/im Pruidmt of kgal and Cormrate DL Share: INJe) KW Pittsburgh National Bank, Communications. Mr. Wanhinski's res

The Cleveland Electric Pittsburgh ponsibilities will inande legal senices.

Illuminating Company Chemical Bank, New York public infonnation. puhtic atrairs and ine ' Perry al Perry rJ Secretary's office. Prior to his appoint-N uc! car--19M Nuclear-19M ment as Vice President. Mr. Wardzinski Capacity: 1,20540) KW Capacity: 1. Mono KW dDUUDI MCCIIUM U was General Attorney of the Company. D.L. ownenhip l174%DL Share: 16 000 KW D L Share: 1%p 1174" Stockholders DL ow nershi ~ 000 KW castlake #5 The annual meeting of stockhold- $"'itN.000 Kw ers will be nela at to a.m., Pitts; D1a0wnershi t al x burgh time, on Tuesday, April 14, DL share:201ooo KW 1984 in the David L. Lawrence

The Toledo Edison Company Convention Center, Pittsburgh, no nenesse =1 Penns}*1vania.

Nuclear-1977 Capacity; MO.000 KW DL ow nership: 0 DA Sharc:0

Constructing and operatmg company

Ons Oxford Centre Pittsburgh, PA 15279 s l

r-.- (. ?~ ? ~ OHIOEDISON The Energy Makers ANNUAL REPORT 1983 WY0%190310

.3, e p..e ,o Centsats ~ Chie Edsen-Sjsten ~ 7he Ohb Edhon S}etern b ife fath AttgesNmester- ' '"aa "==' l O ',*,', owned elecind system b uni)hlted States based on e - e.a. total 160metthour sales and cornitsis of Ohk Ectson-a,ammem= am m ame. Cornpanyanditswh00yanned AannsyT . nnis RmerCompany Ohio Edisort, h Akcrt, Ohba proddes eleopt setncen more than 844000 customers hnn Ries b NewCas0s Ransyhenia, aenes more thir.138000 customes - The systernt service arms.comra W A000 square mIIes and incsudes seeral of the most highty ' hdusDiahed cities and pgriculturalN producthe ~ regions b Ohk and knhsyhania. Chb Edhon has a second whatty owned subsksaru Ohk Edhon ? finance N.V., a hietherlands AntWes (West hdes) corporation est@cshed to etand the Cornkknyt .1 Access to braign Amestata lJ i e. ( W Aru ~ e ) h n~us-a w ama, .w -~ E V. t t' 0 .s 1 + .J a i .,,. ~.. =. ',*~ .,.F .g

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Financial Highlights i ... ' ;.. ' ; y ; p y y;, s.- ', y. mW For the Years Ended December 31 1983 1982 Change 1 (In mohons, except per share amounts) Ki!owatt Hour Sales 24,345.4 24.025.5 +1.3% i Operating Revenues $1,515.9 $1.429.6 +6.0% i Fuel Expense 420.3 432.7 -2.9% i Operating locome 302.8 269.6 + 12.3%~ Allowance for Funds Used During Construction. Net 203.7 160.3 + 27.1 % Interest and Other Charges 319.8 310.4 +3.0% incomo Before Extraordinary item 272.4 195.6 + 39.3 % ) Net income 272.4 215.7 + 26.3 % Earninos on Common Stock 227.8 181.5 + 25.5% Earnings Per Common Share. Bcfore Extraordinary item $2.22 $1.89 + 17.5% Earnings on Common Stock 2.22 2.13 +4.2% Dividends Per Common Share * $1.80 $1.76 +2.3% Dividends on Capital Stock $230.8 $185.8 + 24.2 % Construction Expenditures: Construction of Facilities $690.8 $649.9 Nuclear Fuel 55.0 124.3 $745.8 $774.2 -3.7% internaily Generated Funds 204.4 136.4 + 49.9% Net Financina Activities 483.4 683.5 - 29.3 % Return on Averace Common Eauity 14.2 % 13.5 % 'The qwtsely imdend eas increased to 46 cents par share ($184 en an annual basris beginmng eith the imdend payable on March 30,1984. -.r 3,- g.--': - ~ 7. g. ;; gggggg.)lpg $gg M,Reggg ' f %$$$M*: ', -D '$ ~. ,,3., num,, a - w.-c ~' . o. ReWeste M .J'..'- Casunsreld Omer J i,.,'li.i ~ ~ m-t.s-e- ~ ' AM* '. ~1 ~ '.. - '- ;- ) 1

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President's Message 2 . '.wWr Many things came together to Aggressive cost-cutting measures 1 3 m.. make 1983 a successful year for helped to reduce operation and //~ c '( the Company. But one of the most maintenance expenses by $19.7 >/ i; important doesn't appear in our million from the previous year...and,

g.

financial statements: I'm referring to importantly, it was done without F-u.i the stockholders' continuing support sacrificing the overall performance h. ~ ~ '} of our efforts to move the Company of generating plants or the reliability '/ } [ 1 forward. of service to customers. With that in mind, I hope you will Several system improvement share with employees the satisfac-programs were completed during tion of being an important part of the year, which will further enhance one of our better years. operating performance. For example, modem computer applications in Earnings were up 4.2 percent over the new System Dispatching Office 1982 to $2 22 per share of common md in customer accounting offices stock, despite a larger number of are maMng h gensabon and shares outstanding and an extra-powyand sah ans ss n ordinary gain of 24 cents per share to customers more efficient, reduc-in 1982. ing annual operating costs by more An improved economy, sales to than $1 million. Other utilities and rate adjustments And, we are encouraged by combined to push annual revenues rogress made in the strengthening up 6.0 percent to $1.5 billion. of our financial position, including Kilowatt-hour sales to retail and improved cash flow and growing wholesale customers were up 3.7 retained earnings, which should percent, led by significant increases translate into an improved outlook in sales to industrial customers, for our stockholders' investment. particularlyin the automotive and steel industries. Concentrated Efforts What is being accomplished can be i The Board of Directors, recognizing attributed to concentrated ef forts in that there has been measurable om m ja reas: prcgress in performance which should have long-range benefits, . Reducing the need forincreased increased the quarterly dividend to rates to the extentpossible by con-46 cents per share, effective with trolling costs. Achievements in this the first quarter of 1984, area are illustrated by lower costs for coal, maintenance and plant g, UP "U"U' For the third consecutive year, we were highly successfulin selling Ensuring s'eadyprogress in our bulk power to ather utslities-construction program and seeing representing $76.2 million of toits timely and most economical revenues in 1983. A portion of those completion. Begun in 1980, our revenues resulted from two major $600 million air quality control long term sales contracts that program is on schedule for com-should add a total of over $553 pletion in 1984. million of predictable revenue into While we ourselves are not build-the 1990s. ing a nuclear plant, our partnership in three generating units under con-struction requires active participa-tion in these projects. Intensive, hands-on project management by i , -. - ~,-.,- - _.- - -

3 the companies building these Although there is increasing recog-units, especially in the area of nition in Washington that the " acid quality control, has avoided the rain" question must be addressed, kinds of legulatory and licensing thereisalsogrowing understanding dnficulties that have drawn atten-that further scientific study should tion to other utilities in the past year. precede costly legislation. Absent this, the Company and custcmers A!I companies participating in could be faced with enormous new these projects share a total com-costs and m or no tang & mitment to maintaining the highest standards of quality and safety. The Duquesne Light Company, Our Outlook which a! ready has considerable A number of favorable economic nuclear plant operating conditions should provide the experience,is making steady opportunity to further iraprove progress towards completion of financial perforrqance: a modest the Beaver Valley unit 2 :n 1986. inflation rate, stwa fue prices, Although unit 1 at the Perry lower borrowing costs and, as the Nuclear Plant has been resched-economy gains momentum, an uled for completion in late 1985, increase in the demand for The Cleveland Electric illuminating electricity. Company's management of s W sam construction at the Plant has er M in s consistently earned high marks for e hl w opin for me quality controlin major reviews by r I es lose @ d me the Nuclear Regulatory challenges that yet face the electric ssion. utility industry. They require that we = Exploring new anddifferent my; act in the best interest of customers for customers to use electricity as and stockholders. And we will. J;costo/fectim a'tematim to other The Ohio Edison System is an energy sources. In 1983, a number ell-seawned of proposals were made to the e m M W h i@ regulatory commissions for their employees whose pride and talent - approval to help customers reduce e w eq W a me re-energy costs, either by shif ting the g use of electricity to ofI-peak periods or through incentives to expand operations or increase local employment. AE/

Pursuading regulators and legislators to dealwithlong-term Justin T. Rogers, Jr.

problems with long-term solutions, President instead of short-term 'tguick fixes" Match 1,1984 of questionable benefit. This c ttitude is particularly important in the " acid rain" debate, where some are urging that billions of dollars in facilities be added to power plants.

reduced inventory y costs while c;.T 4 g maintaining adequate I f f supphes fot _y dependable service sJ sg s. ~--~+- k - (*e W-u' Y i

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m t - j ~ Year in Review ) q Earnings and Revenues improve in 1983 f~ -t m_ .. j 5 f Earnings on common stock in 1983 f .,) ,3 to $227.8 million. As a result, earn-increased 25.5 percent from 1982 s M rghr,Je4~ l - t M ings per share grew from $2.13 in ? 1 ~- W 1982 to 32.22 in 1983, despite an ( $ extraordinary gain of 24 cents per ~

'~-

?* 5 share in 1982 and a 17.2 million 2 increase in the average number of z,. xy shares outstanding. Total revenues g increased 6.0 percent over 1982 to $1.5 billion. o ll I ] Revenues benefited from the partial 6 "J effects of new retail rates approved .I" by The Public Utilities Commission ~~ L, ., g >- of Ohio (PUCO) late in the year, 't which should add $94.5 million to --.,I J s annual revenues. aa. a, \\ - ? 3, n. 3 fq But because the overall cost of N '- i

j providing electricity continued to 6p.

i increase, and rates granted in the r* ) past have not kept pace with cost 1.,. 1.Q{~"' .j increases, the Companies have m., ~r ' requested new retail rates. If granted in full, the new rates would increase annual revenues by $127 million for Ohio Edison and $19.9 m n -, million for Penn Pbwer. Ato r %.. ,,nr~ ;, 4 i'" m.,., Sales and local Economy Stronger c: Total kilowatt-hour sales reflected ca. 4 j, r improvements in the local economy. e Sales increased 8.8 percent to j[ j industrial customers and 2.0 w d percent to commercial customers N. from last year, with automotive and g 7% steel industries showing a strong turnaround. However, residential ,m.- .y na sales remained relatively flat and e A sales to wholesale municipal x,; + :; gg For the past several years, the Companies have been aggressively + pursuing sales of bulk power to Other utilities. Our success in this highly competitive area continued 27 in 1983 when we negotiated two A 4;p6 long-term sales arrangements that 4

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.d h should increase revenues by more s ~s.~' ~ than $553 million over the terms of the arrangements. The Companies in May began providing up to 150 .L megawatts to Pbiomac Electric e-Pbwer Company for a mintmum f' " term of five years. And in July, the Companies began supplying up 6

y g3 j> j;pt p t wW .n, ,{~ 0 to 200 megawatts for a ten-year g megawatt-nours--Pauavg 'N penod to General Pubhc Ut+ ties Employees conSnee M/ second h gNst pea :oad m i Corporahon to prende customers our htstory mth electnc serwce Oho Edison capped of+ the year by ~ Marketing Programs Accelerated that rs 99.98 percent Mnning two Contracts eacn to sell 3. rne Oh40 Ed. son sys em se,ves a rehable. 200 megawatts for 12-week penods. regior of the country where 'ho for an estimated combined total of economy and electoc saies na<e P2 mdhon Although relattvely traditionahy Deen depenaent on tne short term, these and all sales of steel and automotive tndustra bulk power not only boost the Com-These industries of course M panies' revenues but make more remain important but +uture q'owth efficient use of our power plants in the economy w!h come more from %d neip hold down tre cost of nontraditiona, sources !nch; ding serving our own customers srr 3ll manufactunng researchand Ohio Edison entered into an agree-development and service-own!"d ment uth its wholesale municipal bus'nesses In addition. estimated sales of 943 estomers pendrng approval by the mdhon knowatt-hours annually could Recognizing the economm pre' Federal Energy Regulatory Commis-result from new or expanding com SJres on customer'. and 'he so,rit sion (FERC) to provide power over Research and mercial and industr O protects that of coope,ation needed to nu ture r a tive year per:od beginnina October were in progress throughout the growth Ohio Edrson and Penn g 1.1983 With thrs settlement the power are seeking regulF'orv Company wnl continue to supply those at the Goodyear approval of <ncent:ves for nus'oess these customers who had been Near record peak demand loads Techmcal Center expansion through innovative 'ates ex euted to Durchase more were set during the summer months For example une o' our "conomic have btcome a electr! city from other bulk power when high temoeratures and humid d9velopment nlans proposed to tre source of renewed supphers Upon approval. the ity increased the use of air cond' requiatory commissions woula growth m the local agreement would also finahle th'ee tioning On July 21 me hourly provido special pocinq for a% economy. rate cases before the FERC System peak load reached 4.148 year penod to new or existinq 'ndus tnat customers that bu d new n fac* ties or expand ensting facat'es 7%_ i_ 1 and increase empioyment c, ' Other market nq efforts are a<med 1 i at helping loca[compames emprove F their efficiency and lowe their ovor f j all energv costs; Throug" En-rav Teamwork Conference < ouem Diovees contacted more than % large businesses donng thp year p develop plans for energy manage-i ment and operanng ethciency h N addition greater errphasis is ne na J -.' placed on now eiectoc,tv ca" oco R nomicahy replace fosso fuois and reduce the t ustome' totW energy { N' use and costs One metnoa of ; owr:nr; roergs Costs is through load mi Mqen'er ' Onio Edisor: a nd Pe n n Pr A rr a o r finding new wa r for a, tom. tc sh:f' muc h rF " - " ec mr inw o , PConomica! of f D"+ * / A' TF Mp AN8Mt i %A@ M we N DNN wh

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i 9 also enables us to make better use medical or financial difficulties, the Availability has been excellent at the M of our power plants. Since the load Companies offer numerous helpful Beaver Valley Power Station unit 1, management program began in programs, such as budget payments the only operating nuclear plant i 1977,213 megawatts have been and third-party notification. In addit:on, currently supplying the System. ] moved to off peak hours. customers are informed of govern-Except during a scheduled snut-i mental or social service agencieG down for maintenance, testing and The Companies also help residential that provide financial assistance for refueling, the 810-megawatt unit customers to better manage their home weatherization and for paying achieved a 94.5 percent operating electric use and energy costs. A w nier heating expenses. This infor-availability for 1983, and it reduced new plan to encourage more use of mation, along with topics on electric our dependence on more expensive electricity, yet lower overall custo-use and energy issues, is also avail-coal-fueled generation by 10.2 per-mer costs, was approved by the able through a wide range of litera-cent for the year. The Companies PUCO in January 1984. It will pro-ture, films, group presentations and own 52.5 percent of the unit, which vide lower rates for qualifying cus-student education programs. is operated by the Duquesne Light i tomers with electn,c water heating Company, the other owner. I j or electnc add-on home heating Earnings Continue to Benefit from systems. In return, their service Plant Reliability Additional work done during the could be interrupted to stabilize Our ability to increase earnings scheduled shutdown will enable the peak loads, but with minimal or no depends not only on efforts to main-unit to operate for longer periods effect on the customer's lifestyle. tain sales growth, but on the per-between refuelings. The modifica-f rmance of our employees and tions, which included use of more Customers Favorable on Sentice and Cost the most effective utilization of our highly enriched uranium fuel, were The Companies continued their long generating facilities. To sustain the partially completed during the shut-history of providing dependable high reliability of these facilities, the down, and will be completed at the service, with the average residential Companies have intensive employee next scheduled refueling in 1984. customer experiencing an average training and preventive maintenance } reliability of 99.98 percent since programs, which significantly reduce Operations Keep Pace w,th i i 1980. In a December random the likelihood of equipment malfunc. Computer Technology survey of 500 Ohio Edison cus-tions and costly generating unit Modemization and the use of high tomers,96 percent rated their breakdowns. technology plays an ever increasing service favorably, and 91 percent A new Customer I rated the cost of their electric y

y 7 % fl.(.

Information system i service as an average to above O i average value. ... A 1... ',. 34 F' has improved our c- ..$4 . A o $,. p '#I '* "#I d ". 8 # ; 9[.# = '.- } "5P "d '"5' "" Ongoing surveys are useful in deter- $).R 1 ' # w ~ "'Q.F _ .gp j .. } - mining and meeting customer needs. N r For example, a quarterly survey of .%Mb . M.b'f ,E inpiries with more [ f' '. W y 5.' 'g$.Q ;. 6}};.l(,g detailed information. i customers who contac',ed the Com- -7

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- cc l ~ helps pinpoint where and how serv-i.; p p ,~ s 4 g' yk'WAh g. %j [+ 'p,. - /. m. i.~,..J."! Q l ice can os improved. Some feed-j w% back is more direct, as through our 7, O ' ;1, f g - p(,",g,gf h ' C { r M'_UD i nine Consumer Advisory Panels 7 ~ j where representatives of consumer b w ' ' U }) f ~' /jk%mA i groups meet regularly with our b N .p.. Y., n h77 i7 3 _f b

(.6 * ~./ tb h.( g employees to discuss topics of i

t f _ ';% f l I l interest to both the Companies ~' ' l, l and customers, N r { e. For customers requiring special p y g.. g.- "' W p.. 3 T W; %,Ild % l # ; assistance, especially in times of .s .y, ; r 4 g. +"Sn .m -. L'. ':.. /, .. j ' _ ps,Q i ; ",,,' y% . ) y : e g m. >. ,? ,.a' " J. ., s ;s, A.. mi m.+- -., t.9. \\ .,,.g j..'Y p.',] =.3 i T.Q g ,Q' o - - ' ad ,t dl. p, } j y - 3. g. : ..p i l l

+, -a _,y *wd, Q g (( } ~ttt f role in our of forts to.morove perform ( an W new System Desoatching ,g,. 7,3... g ~,. j-Contracts secured in Office has greatly impreved effe I\\ j s 1983 helped reduce D - .,gg

==. Ciency in eConomlCauv balancing y average coal costs to plant generation to meet customer g' S,;. - M !oad. coordinating scheduled out '4'~y'N i ~ e , Q hi [. "*f ages of generating and transmission ~ ,s facihties and arranging for the inter- ? l ?,. minumm'.m 4 7 y j 4, change of power with other utthfies ,b, < F Edi% A sophmticated,ystem of four N advanced compu'ers provides

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.:x m.- - -; w' >,g,- 6.5 4.s y. + effiCmnCV 'qg, b 4 ' ;.gq'pg Customer service was improved ,f 5.l -t m dunnq the year wdn completion P'0+, C, ,y ,,- x, wi of a new compuienled Customer Information Systern it enables employees to resy and to inquines Because of the :ncreased compier quickly vntn more complete and dv of meeting reouuements by the accurate tnformation Customers Nucie-ir Requiatory Commissior can reouest a review nt their monthiv (NRC, for ah nuclear generating ut,on CEI plants under constr t bdl and obtd n other helpfu! informa announced that unc , nov, t.un about then servico or accounts scheduled for completion !r late Computer processing is also used N85 The compietion date for unit 2 in purchasino and receiving coa wih be reviewed at the Smo and 1 's supphes New computer systen", are compieted Wi h ine rescheduhng t monitoring dehvenes inventones and the additional work our portion consumphon and quahty of Coal of the Plant, costs ros. from 11 rece'ved at our oower piants The t>dhon to 118 bdhor, An of the snformat or helps us obtain the compames that shme +n the most econom. cat suophes of coal owner ship of the Plant are com """"dI

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"" ' t h" " *t New Projects Build for the Future Ohio E dison and Penn fbwe r are m """ ""I d "d 5" "SI '" II" C """I' Y the finm stages of a punt construc Despite the delay. the quahty of tion program initiated in the t 47(Js construction and quick resolution of Three generating units in which ne problems at the Perry Plant were have partlai nwnmship rema+n !n officially recognized dunng the year De completed in November. NRC inspectors found Two of those units aro at the ' J U) that project management was ag gressive in finding and resolving megawatt Por r y Nor mr Ptant The L e construct on problems Also. dunnq t i (.ompa ni ', MUown 6 24 percent ~/. s pubhc hearings. the NRC's Atomic or 89) megawatts of totm gonera Safety and Licensing Board suo tion Unm noth units nernq bum by ported the integnty of quality as Ita'(1avelmid [ ler tr u lih amp Whng %~< ~ -, Surance and otner construction ,,company U li procedures at the Plant Unit 1 ic 911 percent complete. While unit 2 m al 2 percent complete T e A -f 9 >;i 'V

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13 The third unit is under construction e. by the Duquesne Light Company at the Beaver Valley Pbwer Station. Unit 2, schedul6d for commercial operation in 1986, was 78.1 percent complete on December 31. During the year, major portions of con-struction were completed, and the Atomic Safety and Licensing Board held public hearings as part of the licensing process. Ohio Edison will own 41.88 percent of the 833-megawatt unit. With the completion of these proj-ects in the 1980s, the System should not require additional capacity until well into the 1990s. But the growth in load over the next 20 years is estimated to be equivalent to a r 1.5 percent annual increase, and the Companies will plan accordingly and continually a350ss the eco-nomical options in both conventional ~ and alternative energy technologies in support of one of the emerging pk i technologies, we are participating in ,J* a $155 million cooperative coal-j gasification project at il!inois ( Fbwer's Wood River Station. It is tho 1 country's largest operating demon-i stration facility of its type and will u ;M i i determine if high-sulfur coal, such ,g as that mined in Ohio, can be economically converted to a clean-g. .j burning gaseous fuel. Through the y, g 3 .3 end of 1983, the facility has success-o { i fully met its test objectives. N[, h Other System construction includes our $600 million program to meet y existing federal requirements for air i { 4 quality Through 1983, the Compa ( \\' l nies have installed facilities to better /

remove dust from the emissions of

' ' q* . J ten generating units. As the pro. ~ ~ gram successfully nprroaches its J December 1984 completion, the g y 3 g 4 -s w &,,. ?9( 4 %

1-e-- E L 14 lM only remain!ng construction is at aprroved method ;o recover those y two units of the W H Sar,bnis coris Regnnino ir, Aug.st 1Et2. k Plant a PUC3 approved recovery method a: lowed Oho Eason to E For 1983. approximately Sf.31 be p o m N m e e L million was spent on consrr Ct:on of audaW M %M new olants. environmentai 'amlities 1983. however. the new commis-h and other System improvemen's ^ sonem oded me Wag m During the year. $421 million in cease using that recovery method. capital financing was used to fund E which was later approved by the these System improvements Ohio Supreme Court. whih they b Regulatory and Legislative issues reexamined it -r Address Major Concerns To address the concerns of the On January 11. 1983. a new law that C n aM m rew took effect in Ohio changed the recovmy of previously deferred structure and organization of costs. the Company reached an the PUCO Among other provisions. agreement with the PUCO staff that it increased the number of commis 5 o eMed m N Qwson a sioners from 3 to 5 and created sWm M someeat we reh a 12-member nominating councn t tive recovery method Approved by select individuals for appointment the PUCO in January 1984. the new to tne Commission by the state's rnethod provides the Company a 9 " *'" ' reasonable opportunity to again One of the most significant rulings recover past and present costs for by the new Commission concerns coal delivered from the Ouarto our recovery of certain costs mines A similar settlement was of coal delivered to the Bruce proposed to the Pennsylvania Public Mansfield Plant frorr, the Quarto Utility Commission. and is current y Mining Company. Prior to August under review by the Commission 1982. Ohio Edison was required to An administrative law judge for the defer a portion of its fuel costs Commission recommended that the related to Quarto coal with no settlement be approved employe e diratly involved m 4;: Y ~ j. h[ Construction progress d.u - at the Beaver Valley d- -1,, Poe Station unit 2. ( !?$ y g .3 O '. h p j j' $ f a lig vA i< <y h,' W p n ( c .n i! -m m

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>N : J . ;, s E^ 11 in supporting or conducting both MZ g$ Another major utility issue is tha -g allowance of CWIP, or construction local and regional studies and are n I work in progress, in electric rates. carrying on research with experi-

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Current Ohio law allows utilities to mental equipment to find ways of -g include a portion of construction reducing the cost of sulfur dioxide l costs in the rate base. Although control. state legislation to severely restrict p g this allowance has been introduced, pggg g q none hasbecomelaw;and the PUCO To the benefit of customers and in September allowed the Company investors, the improved operating [ to collect $24.5 million in financing costs for the Perry Nuclear Plant esN , unit 1. Also, the Federal Energy from the efforts of 7,702 employees Regulatory Commission in July ruled n the Ohio Edison System. that electric utilities could include an allowance to cover some financ-A wide range of skills and manage-ing costs in rate cases involving ment trsining programs have been a '4 wholesale customers, but federal strong foundation for the System's i legislative proposals call for a return improved productivity. The Compa-4 to more restrictive measures. The nies continue to expand this class-p"f [ Companies have opposed such room and " hands-on" training. In 4 f, i f efforts to eliminate or restrict 1983, we took major steps to study I I allowances for CWIP because the and improve the effectiveness of j' i result would be higher overall con-training, and to he!p employees to struction costs to the Companies better apply these tools to everyday {%*s f } and their customers. situations. [ " Acid rain" is a nationalissue with Individual efforts are recognized by j /l E i % great potential impact on the Com-rewarding employees who suggest ij'@;p panies and the area economy. Cur-specific ways of improving produc-rently, some legislative proposals tivity, either through efficiency or \\l k before Congress could force us to safety. With cash incentives, the spend more than $1 billion over the Employee Suggestion System has M,? j I next several years to reduce sulfur saved the Companies more than 8 Q dioxide emissions by installin9 $106,000 since the program began scrubbers, even though there are in 1981. A Tg. no assurances of substantial envi-ronmental improvement. Instead, employees also make responsible O the Companies urge that the contributions to the community. For r N.. N ~. --V-scientific community be given the example, Company and employee necessary time to better identify i contributions to United Way in 1983 ' N,~ M-A and understand the problem, and totaled more than $375,000. And D. then determine the most ef fective bs kp#$, employees spend countless hours and economically sensible in a broad range of community $3 solutions. 1 services, which include providing The Companies have already made food or other goods to the poor and o V* substantial contributions to the handicapped, teaching life-saving reduction and understanding of techniques and volunteering in local gg-sulfur dioxide emissions, which are fire departments. \\ thought by some to be a major cause of acid deposition. By installing expensive air cleaning facilities, buying more costly low-sulfur coal and other measures, we have reduced sulfur dioxide emis-sions by 30 percent since 1975. We have alsa spent about $1 million / N"Y' ~.

Management's Discussion and Analysis of Results of Operations and Financial Condition ass m m m m. msm _... 3 Resul;s of Operations Plant in 1983 compared to 1982. Maintenance on those R:sults of operations for 1983 reflect improving economic units in 1982, pius maintenance performed during a conditions taking place in the Companies' service area. refueling outage of Beaver Valley Unit No.1 during that tr creased kilowatt-hour sales to the Companies

year, were primarily responsible for the increase in 1982 commercial and industrial customers of 2.0% and 8.8%,

maintenance costs compared to 1981. r:spectively, were significant to the Company achieving increases of 39.3%,26.3% and 25.5% in income before in addition to reduced maintenance costs in 1983, the extraordinary items, net income and earn,ngs on common improved generating unit availability allowed the i &. mectively. This strong performance increased Companies to reduce their requirements for power 1983 earnings per share of common stock by 4.2%, urchased and interchanged with other utilities by 10.6% despite a significant increase in the number of shares of from 1982, despite an overall increase in kilowatt-hour common stock outstanding in 1983 and the inclusion in sales from the Companies' system. The significant 1982 earnings of an extraordinary non cash gain. The rate increase in purchased and interchanged power during of return on average common equity was 14.2% in 1983 1982 compared to 1981 resulted primarily from power urchases which were made in 1982 in order to sell short-compared to 13.5% in 1982 and 14.6% in 1981. Excluding b omer utilities th7 effect of extraordinary income in 1982 and 1981, and tha settlement of a claimed Pennsylvania tax liability in Additional financing associated with the Companies' 1981, the rate of return on average common equity was continuing construction programs in 1983 and 1982 12.3% in 1982 and 12.9% in 1981. necessarily resulted in higher interest costs and preferred increased operating revenues, which served as the basis and preference stock dividends. However, it is important to for the 1983 earnings improvement, resulted from the note that the Companies' external financing requirements in cffect of base rate increases and increased kilowatt-hour 1983 were below 1982 s level and the costs of financing were sales to customers, partially offset by reduced sales to also at a lower level. As the Companies construction other utilities and reduced fuel component rates in 1983 pr jects proceed and until the projects are placed in service compared to 1982. The reduced fuel rates charged to and included in rate base, the totas allowance for funds used customers were made possible primarily due to lower during construction (AFUDC) will continue to increase in prices paid for coal in 1983, evidenced by the reported order to capitalize the appropriate financing costs which are decrease in fuel expense. Operating revenues in 1982 not cuneg recwemd Wough rams. A sign & ant fam, increased from 1981 due to increased base rates, and however, is that AFUDC represented 89.4% of 1983 earnings increased fuel component rates. There is a direct correla- ". common stock, a decline from 99.4% in 1982 before tion between the fuel rates charged to the Companies, giving ef fect to the extraordinary income recorded in that year. customers and the increase in fuel expense reported Information with respect to the estimated effects of inflation in 1982. upcq the Companies is given in Note 10. R:sults of operations were further improved in 1983 by Capital Resources and Uquidity operating etficiencies achieved and substantially reduced The Companies' 1983 construction program (excluding maintenance costs. The Companies' generating units were nuclear fuel) required approximately $691,000,000 which, in av ilable for operation a greater percentage of the time in addition to approximately $204,000,000 of funds generated 1983 compared to 1982. This increased availability results intemally, was funded through extemal financings. Over the in less unscheduled maintenance and naturally leads to last five years, the cost of the Companies' construction reouced maintenance expense. This was most noteworthy program was approximately $2,900,000,000, of which at Mansfield Unit No.1 and several units at the Sammis approximately $570,000,000 was available from intemally generated funds; approximately $2,700,000,000 is currently forecast to be spent from 1984 through 1988. The issuance of additional common stock and other securities will be necessary to fund a significant portion of this new construction. Also during this five-year period, the Companies L-

Management Report a cs.

5.. 7. : :, m7 7 gg. 3 3.. ~ -

will have additional cash requirements of approximately The consolidated financial statements were prepared by $638,000,000 to meet debt maturities and sinking fund the management of Ohio Edison Company, who takes requirements for debt and preferred and preference stock. responsibility for their integrity and objectivity. The statements were prepared in conformity with generally At December 31,1983, the Companies had available accepted accounting pnnciples and are consistent with approximately $113,000,000 of temporary cash investments other financialinformation appearing elsewhere in th,s i and approximately $98.500,000 of funds held in escrow from report. Arthur Andersen & Co., independent public previous pollution control financings. The Companies also accountants, have expressed an opinion on the Company's have $235,000,000 of short-term bank lines of credit financial statements, as shown on page 37. available to them for interim financing purposes, rone of which had been drawn down at December 31,1983. The The Company's internal auditors, who are responsible to Companies' current financing plans for 1984 include an the Audit Committee of the Board of Directors, review the "stimated 8,000,000 shares of common stock to be issued results and penormance of operating units within the through the Dividend Reinvestment and Stock Purchase Company for adequacy, effectiveness and reliability of Plan, and issuances of up to: 10,000,000 additional shares of accounting and reporting systems, as well as managerial common stock through public offerings; $85,000,000 of and operating controls. pr:ferred and preference stock; $65,000,000 of pollution The Audit Comm.ttee consists of four non-employee i control notes; and $170,000,000 of other long term debt. The directors whose duties include: consideration of the Companies also expect to invest approximately $88,000,000 adequacy of the internal controls of the Company and the for additional nuclear fuel in 1984 through the incurrence of objectivity of financial reporting; inquiry into the number, additional long-term obligations. extent, adequacy and validity of regular and special audits Based upon earnings as of December 31,1983, the conducted by independent public accountants and the Company would be permitted, under its First Mortgage internal auditors; the recommendation of independent Indenture, to issue on the basis of property additions, at least accountants to conduct the normal annual audit and $545,000,000 principal amount of first mortgage bonds special purpose audits as may be required; and reporting assuming an interest rate of 13%; or, under its Articles of to the Board of Directors the Committee's findings and any Incorporation, to issue approximately $339,000,000 of recommendation for changes in scope, methods, or pr:ferred stock at an assumed dividend rate of 13%; or to procedures of the auditing functions. The Audit Committee issue some lesser combination of both. The Company is able held three meetings during 1983. to issue $335,000,000 principal amount of first mortgage bonds against previously retired bonds without the need to o meet earnings coverage requirements. l In September 1983, the Company was granted a base rate w / increase by the PUCO which recognized in rate base approx;mately $126,000,000 of the Company's investment in f)uDvice President mot Perry Unit No.1, a nuclear unit currently under construction. chief Financialofficer A January 1984 PUCO order conceming the Company's ilectric fuel component rate will allow the opportunity for recovery of current and deferred Quarto coal costs, as discussed in Note 7. These are favorable developments which should have a positive effect upon the Company's ability to generate cash internally. The Companies currently have rate cases pending before the PUCO and the PPUC which, if granted in full, are designed to increase annual revenues by approximately $127,200,000 ind $19,900,000, respectively. Orders are anticipated from the PPUC by the second quarter of 1984 and by the third quarter of 1984 from the PUCO. I

onerose o Selected financial Data y ,+.,, ' ~ - ~. ; - 1 -',; 1983 1982 1981 1980 1979 (in thousands, except per share arnounts) Operating Revenues $1,515,852 $1,429.626 $1,279,649 $1,080,869 $ 994.585 Operating income 302,751 269.640 252,381 169,383 163,744 Income Before Extraordinary items 272,400 195,571 163,020 135,150 134,807 N;t income 272,400 215.729 197,062 135,150 134,807 Earnings on Common Stock 227,843 181,496 163,892 101,403 105,120 Earnings per Share of Common Stock (based on weighted average number of shares outstanding during the year) Before Extraordinary items 2.22 1.89 2.10 1.52 1.80 Earnings on Common Stock 2.22 2.13 2.30 1.52 1.80 DMdends Declared per Share of Common Stock 1,80 1.76 1.76 1.76 1.76 Total Assets at December 31 5,905,142 5,247,138 4.460,274 3,979,965 3,446,454 Pr:ferred and Preference Stock Subject to Mandatory Redemption 158,112 152,560 151,141 156,450 150,850 Longterm Debt 2,131,404 2,005,436 1.759.771 1,594,384 1,410,782 Construction Energy Trust and Nuclear Fuel Obligations 719,364 656,655 447,484 265,000 Common Stock Data The Company's Common Stock is listed on the New Wrk and Midwest Stock Exchanges and is traded on other registered exchanges. Price Range of Common Stock 1983 1982 First Ouarter High-Low 15-7/8 13-7/8 13-1/8 11-3/8 Second Quarter High Low 1 6-118 14-3/8 14 1/8 12 3/8 Third Quarter High-Low 15-1/4 14 14-3/8 12 1/4 Fourth Ouarter High-low 16 11-7/8 15-1/8 13 1/4 Ye:rly High Low 16-1/8 11-7/8 15-1/8 11-3/8 Prices are as quoted on the New Wrk Stock Exchange Composite Transactions. Classificaticn of Holders of Common Stock as of December 31,1983 Holders of Record Shares Held Number Number Individuals 181,290 88.8 53,987,585 49.8 Fiduciaries 19,012 9.3 4,462,051 4.1 Brokers 61 1,032,383 1.0 i Nominees 556 0.3 46,397,417 42.8 Banks and FinancialInstitutions 31 53,345 insurance Companies & Other Corporations 1,562 0.8 1.556,028 1.4 Charitable. Religious & Educational Institutions 495 0.3 349,174 0.3 Pensions, Profit Sharing & Other investment Trusts 1,094 0.5 622.071 0.6 Total 204,101 100.0 108,460,054 100.0 As of January 31,1984, there were 203,789 holders Quarterly dividends of 45c and 44c per share were paid on the of 108,758,161 shares of the Company's Common Stock. Company's Common Stock during 1983 and 1982, respectively. Information regardirg retained eamings available for payment of cash dividends is given in Note 4b.

cw cason Consolidated Statements Of Income n( ~. '. 1 Fct the Years Ended December 31 1983 1982 1981 (in thousands, except per share amounts) Operating Revenues $1,515,852 $1,429.626 $1,279,649 Operating Expenses and Taxes: Operation-Fuel 420,336 432,749 413.698 Purchased and interchanged power, net 50,026 52,607 29,321 Other operation expenses 234,526 221,129 195,075 Total operation 704,888 706,485 638,094 Maintenance 121,544 139,615 124,213 Provision for depreciation 115,514 103,206 95,830 Amortization of terminated construction project costs (Note 2) 9,058 1,866 3,995 General taxes 126,818 114,569 84,316 income taxes 135,279 94,245 80,820 Total operating expenses and taxes 1,213,101 1,159,986 1,027,268 Operating income 302,751 269.640 252.381 Other income and Deductions: Allowance for equity funds used during construction 121,814 84,210 60,421 Miscellaneous, net 20,812 16,871 17,021 Income taxes-credit 64,923 59,166 53,360 Total other income and deductions 207,549 160,247 130,802 Totalincome 510,300 429.887 383,183 Net Interest and Other Charges: Interest on long-term debt 233,626 211,765 166,378 Interest on long-term obligations 73,177 80,092 69,183 Allowance for borrowed funds used during construction, net of deferred income taxes (81,901) (7C,088) (67,381) Other interest expense 5,702 12,449 26,378 Subsidiary *s preferred stock dividend requirements 7,296 6,098 5,605 Net interest and other charges 237,900 234,316 200,163 Income Before Extraordinary items 272,400 195,571 183,020 Extraordinary items (Note 8): Gain on reacquisition of first mortgage bonds, net of related income taxes 14,042 Gain on exchange of common stock for first mortgage bonds 20,158 Net income 272,400 215,729 197,062 Preferred and Preference Stock Dividend Requirements 44,557 34,233 33,170 Earnings on Common Stock $ 227,843 $ 181,496 $ 163.892 Weighted Average Number of Shares of Common Stock Outstanding 102,414 85.241 71,180 Earnings Per Share of Common Stock (based on weighted average number of shares outstanding during the year): Before extraordinary items (after preferred and preference stock dividend requirements) $2.22 $1.89 $2.10 Extraordinary items 24 .20 Earnings on common stock $2.22 $2.13 $2.30 Dividends Declared Per Share of Common Stock $1.80 $1.76 $1.76 The accompanymg Note: to Consohdated Financial statements are an integral part of these statements. P

Oh,o Edison n Consolidated Balance Sheets At December 31 1983 1982 Assets (In thousands) Utility Plant: In service, at original cost $3,632,165 $3,417,669 Less-Accumulated provision for depreciation 1,043,679 953,541 2,588,486 2,464,128 Construction work in progress 2,351,089 1,902,310 Nuciaar fuelin process 211,327 156,295 5,150,902 4,522,733 Other Property and Investments 63,614 69,626 Current Assets: Cash 2,781 2,812 Temporary cash investments, at cost, which approximates market value 112,993 61,500 Receivables-Customers (less accumulated provisions of $1,541,000 and $1,844,000, respectively, for uncollectible accounts) 132,968 116,054 l Other 19,416 24,855 Materials and supplies, at average cost-Fuet 69,047 92,684 Other 45,657 44,466 i Prepayments and other 41,184 35,966 424,046 378,337 Deferred Cha'Bes: Diferred Quarto coal costs (Note 7) 67,254 71,346 Property taxes 52,575 50,527 Unamortized costs of terminated construction projects (Note 2) 94,747 103,835 Other 52,004 50,734 266,580 276,442 $5,905,142 $5,247,138 Capitalization and Liabilities Capitalization (See Consolidated Statements of Capitalization): Common stockholders' equity $1,711,974 $1,488,371 Pr;ferred stock-1 Not subject to mandatory redemption 312.335 262,335 Subject to mandatory redemption 60,000 64,000 Pr:ference stock-Not subject to mandatory redemption 50,000 50,000 Subject to mandatory redemption 50,641 55,165 Pr:ferred stock of consolidated subsidiary-Not subject to mandatory redemption 41,905 41,905 Subject to mandatory redemption 47,471 33,395 Long-term debt 2,131,404 2,005.436 l 4,405,730 4,000.607 Long-Term Obligations (Note 5): Construction eriergy trust 500,000 500,000 Nuclear fuel 219,364 156,655 719,364 656,655 Current Liabilities: Current maturities of long-term debt, preferred and preference stock 79,594 22,383 Notes payable to banks (Note 6) Accounts payable 154,727 133,776 Accrued taxes 52,564 51.115 Accrued interect 67,891 57,736 Other 44,102 26,390 398,878 291,400 Deferred Credets. Accumulated deferred income taxes 158,437 152,890 Accumulated deferred investment tax credits 107,390 53,727 Property taxes 52,575 50,527 Energy costs recovered in advance 33,335 14.418 Other 29,433 26,914 381.170 298,476 Commitments, Guarantees and Conting:,icies (Notes 2,3 and 7) 55,905,142 $5,247,138 The accompanymg Notes to Consohdated Fnancel statements are an integral part of these balance sheets.

Ohio Edscn Consolidated Statements of Capitalization n i At Decernber 31 1983 1982 Common Stockholders' Equitr, (in thousands) Common stock, $9 par value, authorized 125.000.000 shares-108.460.054 and 96.081.844 shares outstaneng, respectively (Note da) $ 976.140 $ 864.737 Other paein capital 494,520 423,195 Retained earnings (Note 4b) 241,314 0 0.439 Total common stockholders' equity 1.711,974 1.438.371 Optonal Redempton Prce Number of Shares Outstandng Aggregate 1983 1982 Rer Share (in ~housands) Preferred Stock (Note 4c): Cumulative. $100 par value-Authonzed 6.000.000 shares Not Subject to Mandatory Redemption: 3.90 % -7.24 % 973.350 973.350 $103.38-108.00 $102.034 97,335 97,335 7.36 % -8.20 % 800,000 800.000 $104 68107.40 84,968 80.000 80,000 8 64 % -9.12 % 850.000 850.000 $106.48-106.84 90.670 85.000 85.000 Total not subject to mandatory redemption 2.623.350 2.623.350 $277.672 262.335 262.335 Subject to Mandatory Redempton (Note 4d): 10.48 % -10.76 % 615.000 659.630 $107.86111.87 $ 67,537 61,500 65.963 Redempton within one year (1,500) (1.963) Total subject to mar.datory redempton 60.000 64.000 Cumulative, $25 par value-Authonzed 4.000.000 shares Not Subject to Mandatory Redempton: $3 50 Senes 2.000.000 $28.75 $ 57,500 50.000 Preference Stock (Note 4c)- Cumulative, no par value-Authonzed 8.000,000 shares Not Sobject to Mandatory Redempton: $3.92 Series 2.000.000 2,000.000 $31.42 5 62.840 50,000 50.000 Subject to Mandatory Redemption (Note 4e): $95.00-$102 50 Seres 27,000 27,000 $1,095 00-1.102.50 $ 29.700 27.000 27.000 $1.80 Seres 1.622,546 1.862,181 $16.03 26.001 24,541 28.165 Redemption withm one year (900) Total subject to mandatory redempton 1.649.546 1.889.181 $ 55.701 50,641 55.165 Preferred Stoc:k of Cor=am*=d Subsidiary (Note 4c): Cumulatria, $100 par value-Authonzed 950,000 shares Not Subject to Mandatory Redempton: 424%-916% 419.049 419.049 $102.98-107.32 $ 44.123 41,905 41.905 Subject to Mandatory Redempton (Note 4d): 8.24 % -15 00 % 479,708 338.951 $103 29114 81 5 52.056 47,971 33.895 Redemption within one year (500) (500) Total subject to mandatory redempton 47,471 33.395 Long-Term Debt (Note of): First mortgage bonds: Ohio Eoison Company-8 60% weghted average mierest rate, due 1984-1988 153,693 153,693 14.59% weighted average interest rate, due 1989-1993 240,864 223.364 10 88% weghted average interest rate due 1994-1998 95.215 77.715 8.57 % wegated average interest rate, due 1999-2003 242,156 242.166 ~ 10.50% weghted averaglinterest rate, due 2004-2010 424.310 424.310 1,156,238 1,121 238 Pennsylvania Fbwer Company-10.27% weighted average interest rate due1984-2008 259.000 239.000 Total hrst rnortgage bonds 1.415.238 1.360.238 Secured notes and obigatons: Ohio Edson Company-8 29% weaghted average interest rate, due 1984-2014 281,439 230,914 Amount held by Trustee (985) 280.454 230.914 Ohm Edison Finance NV-17.38% weghted average interest rate, due 1987-1988 150.000 150.000 F%nnsylvania Fbwer Company-9 00% weghted average mterest rate, due 1984-2007 67,661 68.106 Amount held by Trustee (2,572) (5.327) ) 65.089 62.779 Total secured notes and obinations 495.543 443.693 Unsecured notes of Ohio Edson Company,1106% weghted average interest rate, due 1984-2014 402.000 302.000 Amount held by Dustee (93,555) (69.026) Total unsecured notes of Ohc Ecson Company 308,445 232.974 Net unarrertized discount on debt (11,128) (11.549) long term debt due within one year (76.694) (19.920) Total long-term debt 2,131.404 2.005.436 Total Capitalization 54.405.730 $4.000.607 The accompanymg Notes to Consohdated Financial Statements are an integral part of these statements.

Oh:o Ediscn Consolidated Statements of Retained Earnings a For the Years Ended December 31 1983 1982 19ei (In thousands) Balance at beginning of period s200,439 $171,191 $133,592 Net income 272,400 215,729 197.062 472,839 386.920 330.654 Deduct: Preferred and preference stock dividends 45,468 34,488 33,160 Common stock cividends 185,309 151,289 126,030 Capital stock issuance expense 748 704 273 231,525 _ 186.481 159.463 Balance at end of period (Note 4b) $241,314 $200,439 $171,191 Consolidated Statements of Capital Stock and Other Paid-in Capital Preferred and Preference Stock Not Subject to Subject to Common Stock Mandatory Redemption Mandatory Redemption Number Par Other Paid-Number Par or Number Par or of Shares Value in Capital of Shares Stated Value of Shares Stated Value (Dollars in thousands) Balance, January 1,1981 68,526,172 $616,736 $317,196 3,069,049 $306.905 3,039,000 $158.450 Sale of Common Stock 7,000,000 63.000 21,875 Dividend Reinvestment Plan 3,122,631 28,103 7,751 Conversion of $1.80 Preference Stock 26,900 242 147 (26,900) (407) Preferred Stock Sinking Fund Redemptions-10.48% Series 585 (27,240) (2,724) 10.76% Series 361 (20,000) (2,000) 11.00% Series 53 (4.016) (402) Other Prefe, red Stock Redemptions-3.90% Series 271 (3,790) (379) 4.40% Series 251 (3,720) (372) 4.44% Senes 896 (13,440) (1,344) 4.56% Series 386 (5,700) (570) Balance, December 31,1981 78.675,703 708.081 349,772 3,042,399 304.240 2.960,844 152,917 Sale of Common Stock 10,000,000 90,000 42,000 Divideno Reinvestment Plan 4,644,622 41,802 17,647 Exchange of Common Stock for First Mortgage Bonds 2,650.600 23,855 9,463 Conversion of $1.80 Preference Stock 110,919 999 610 (110,919) (1,678) Sale of $3.92 Series of Preference Stock 2,940 2,000,000 50.000 Sale of 15% Series of Preferred Stock 80,000 8,000 Preferred Stock Sinking Fund Redemptions-8.24% Series (5.000) (500) 10.48% Series 284 (13,130) (1,313) 10.76% Series 435 (20,000) (2,000) 11.00% Series 44 (4,033) (403) c Balance, December 31,1982 96,081,844 864.737 423,195 5,042,399 354,240 2,887,762 155,023 Sale of Common Stock 5,000.000 45,000 33,350 Dividend Reinvestment Plan 7,138.575 64.247 33.056 f Conversion of $1.80 Preference Stock 239,635 2,156 1,332 (239.635) (3.624) Sale of $3.50 Series of Class A Preferred Stock 3,140 2,000,000 50.000 Sale of 11.5% Preferred Stock 150,000 15,000 Preferred Stock Sinking Fund { Redemptions-8.24% Series (5,000) (500) 10.48% Senes 270 (24.630) (2,463) 10.76% Series 160 (20.000) (2,000) 11.00% Series 17 (4.243) (424) Balance. December 31.1983 108.460.054 $976,140 $494.520 7,042,399 $404.240 2.744.254 $161.012 The accompanyng Notes to Consohdated Financial statements are an integral part of these statements. I

Ohc Edtsca Consolidated Statements of Sources of Funds for Property Additions a . ;;7v,xmxgammmmmwwa;g;- For the Years Ended Decernber 31 1983 1982 1981 Intemally generated funds-(in thousands) Income before extraordinary items $272,400 $195,571 $183,020 Principal non-cash items-Depreciation and amortization-Charged to provision for depreciation 115,514 103,206 95,830 Charged to other accounts 2,564 1,953 1,318 Amortization of terminated construction project costs 9,058 1,866 3,995 Deferred income taxes, net 80,814 91,832 99,179 investment tax credits, net 53,670 7,312 (772) Allowance for equity funds used during construction (121,814) (84,210) (60,421) Deferred fuel and energy costs, net 23,009 4,609 (49,393) 435,215 322,139 272,756 Less-Dividends on common stock 185,309 151,289 126,030 Dividends on preferred and preference stock 45,468 34,488 33,160 Net funds from operations 204,438 136,362 113,566 Income from extraordinary items 20,158 14,042 Non-cash items-Gain on reacquisition of first mortgage bonds (26,276) Gain on exchange of common stock for first mortgage bonds (20,158) 204,438 136,362 101,332 Financing activities-Common stock 175,653 224,767 120,729 Preferred stock 68,140 8,000 Preference stock 52,940 First mortgage bonds 55,000 105,000 95,000 Secured notes, net 71,770 84,173 94,920 Unsecured long-term notes, nel 125,471 106,660 24.314 Construction energy trust and nuclear fuel obligations 62,709 209,171 182,484 Redemption of long-term debt and prefen ed stock (75,307) (43,295) (202,336) Notes payable to banks (74,400) 32,918 Sale of tax benefits 10,480 37,531 483,436 683,496 385,560 Net change in current assets and current liabilities excluding notes payable to banks and current maturities of long-term debt, preferred and preference stock-Temporary cash investments (51,493) (57,200) (4,300) Receivables (11,475) (9,063) 2,715 Materials and supplies 22,446 (12,045) 3,149 Accounts payable 20,951 (8,942) 39,193 Accrued taxes 1,449 4,041 (12,085) Accrued interest 10,155 17,754 285 Miscellaneous, net 12,525 (7,148) 112 4,558 (72,603) 29,069 Other, i.et-Con 7truction funds held in escrow, including accrued interest 6,454 711 39,847 A'lowance for equity funds used during construction 121,814 84,210 60,421 Sale ot utility property 13.568 Defarred income taxes on allowance for borrowed funds t sed during construction (76,982) (67,127) (59,530) Miscellaneous, net 2,080 (4,384) 11,345 53,366 26,978 52,083 Total Sources of Funds for Property Additions $745,798 $774,233 $568,044 Property Additions-Electric plant $689,646 $648,633 $546,996 Nuclear fuel 55,032 124,292 18,945 Nonutility property 1,120 1.308 2,103 $745,798 $774,233 $568,044 The accompanying Notes to conschdated Financial statements are an integral part of these statements.

Ohio Edison a Consolidated Statements of Taxes .. :.:o :. s . mya-For the Years Ended December 31 1983 1982 1981 GeneralTaxes: (in thousands) State gross receipts (i) $ 65,495 $ 56.808 $ 34,144 Real and personal property 47,099 45,028 39,193 Social security and unemployment 10,097 8,990 8,010 Mscellaneous 4,127 3,743 2,969 Total general taxes $126,818 $114,569 $ 84,316 Provision for Income Taxes: Currently payable-Federal 5 10,119 324 80 State 2,507 2,532 678 Foreign 228 206 59 12,854 3,062 817 Deferred, net (see below)- Federal 75,947 88.666 96,218 State 4,867 3,166 2,961 80,814 91,832 99.179 Investment tax credits, net of amortization 53,670 7,312 (772) Total provision for income taxes $147,338 $102,206 $ 99.224 Income Statement Classification of Provision for income Taxes: Operating expenses $135,279 $ 94,245 $ 80.820 Other income (64,923) (59,166) (53,360) Allowance for borrowed funds used during construction 76,982 67,127 59.530 Extraordinary items 12.234 Total provision for income taxes $147,338 $102,206 $ 99,224 Sources of Deferred Tax Expense: Allowance for borrowed funds used during construction, which is credited to plant $ 76,982 $ 67,127 5 59.530 ' Excess of tax over book depreciation, net 23,081 17,387 13,669 Deferred fuel and energy costs, net (10,202) 7,000 12,308 Pensions and taxes charged to utihty plant, net 4,153 2.675 Cost of terminated construction projects, net (3,258) 384 5,197 Deferred interest on leased nuclear fuel, net (3,165) (2,840) 9,567 Other, net (6,777) 99 (1,092) Total deferred tax expense, net 5 80,814 $ 91,832 $ 99,179 Reconciliation of Federal Income Tax Expense at j Statutory Rate to Total Provision for income Taxes-Book income before provision for income taxes $419,738 $317,935 $296,286 Federal income tax expense at statutory rate $193,079 $146,250 $136,292 increases (reductions) in taxes resulting from: Allowance for equity funds used during construction, which does not constitute taxable income (56,034) (38,737) (27,794) Difference between tax and book depreciation 9,115 4,026 (2,422) Gain on exchange of common stock for first mortgage bonds, which does not constitute taxable income (9,273) Other, net 1,178 (60) (6.852) ) Total provision for incomo taxes $147,338 $102.206 $ 99,224 (i) Amount for 1981 includes a credit of $14,352,000 resulting from a December 1981 settlement apphcable to Pennsylvania Excise Tax on Gross Receipts accrued in pnor years. T?u accompanying Notes to Consolidated Financial staternents are an integral part of tnese staternents-

c l Notes to Consolidated Financial Statements n 1 Summary of Significant Accounting Policies-Utility Plant and Depreciation-The consolidated financial statements include Ohio Edison Utility plant reflects the original cost of construction, includ-Company (Company) and its wholly owned subsidiaries, ing payroll and related costs such as taxes, pensions and Pennsylvania Power Company (Penn Power) and Ohio Edison other fringe benefits, administrative and general costs and Finance N.V. All significant intercompany transactions have allowance for funds used during construction (see AFUDC). been eliminated. Tne Company and Penn Power (Companies) The Companies provide for depreciation on a straight-line follow the accounting policies and practices presenbed by basis at various rates over the estimated lives of property The Public Utilities Commission of Ohio (PUCO), the included in plant in service. The annual composite rates for Pennsylvania Public Utility Commission (PPUC) and the electric plant were 3.4% in 1983 and 3.3% in 1982 and 1981. Federal Energy Regulatory Commission (FERC). The Company's depreciation rates include provisions for the Revenues-estimated decommissioning costs for its only nuclear Th] Companies' residential and commercial customers are generating unit in service. Penn Power provides for the cost m:tered on a cycle basis. Revenue is recognized for electric of decommissioning radioactive components only, in service based on meters read through the end of the month. accordance with a PPUC rate order. "l Deferred Fueland Energy Costs-Common Ownership of Generating Facilities-The Company recovers fuel-related costs from its retail The Companies and other Central Area Power Coordination customers through an electric fuel component (EFC). The Group (CAPCO) companies own, as tenants in common, EFC is an estimated fixed rate per kilowatt-hour included on various power generating facilities. Each of the companies is customer bills for a six-month period and is based upon fuel-obligated to pay a share of the construction costs of any r: lated costs for the preceding six-month period. Any over or jointly owned facility in the same proportion as its ownership under collection resulting from the operation of the EFC is interest. The Companies' portions of opera!;ng expenses included as an adjustment to the EFC rate in a subsequent associated with these jointly ownea facilities are included in six-month period. Accordingly, the Company defers the the corresponding operating expenses on the Consolidated difference between actual fuel-related costs incurred and the Statements of Income. The amounts reflected on the amounts currently recovered from its customers. Consolidated Balance Sheet under utility plant at December nce me foHowing: Penn Pbwer recovers fuel and energy costs from its retail customers through an annual "levelized" energy cost rate UU YT" Us$ uwmani (ECR). The ECR, which includes adjustment for any over or ceneanno unos, m se~c. oegec non ewess wees: under collection from customers, is recalculated each year. oays Accordingly, Penn Power defers the difference between e,,, u nsw t,2 aN #3 699 917 114 670 2 9C7 50 68'/. actual energy costs and the amounts currently recovered Beae 33 82ji2 44 7.9m s from its customers. %,,,, om,2 t23uo3 3s 24. wa' St339 013 5223.073 52 106 '71 R;ference is made to (te 7 with respect to accounting for the cost of coal received from Quarto Mining Company mncues comrmn tacees amicaue to sea-vae, #2 (Quarto)- All nuclear fuel in process relates to the CAPCO units but is not segregated among them. Nuclear Fuel-The Companies amortize the cost of nuclear fuel based on the rate of consumption. The Companies also make pro-vision for future nuclear fuel disposal costs associated with the fuel. t

o Notes to Consolidated Fimial Statements-(Continued) Allowance for Funds Used During Construction (AFUDC)- Company's Consolidated Balance Sheets and are being AFUDC, a non-cash item charged to utility plant under amortized over the life of the related property. The remaining construction dur;ng the construction period, unless $4,657,000 and $24,856,000, respectively, were recorded as otherwise included in rate base, represents the net cost of reductions to utility plant in service and serve to reduce the borrowed funds and equity funds used for construction total provision for depreciation over the life of the property. purposes. The Company also charges AFUDC to certain The Companies defer investment tax credits utilized and projects which are completed but not yet included in rate amortize these credits to income over the estimated life of base, in accordance with a PUCO order. AFUDC varies the related property. At Decembe 31,1983, approximately according to changes,n the level of utility plant under i $63,000,000 of unused investment tax credits were available construction and in the cost of capital. The Companies to offset future Federal income taxes payable. These credits compute AFUDC utilizing a net of tax rate, which is emia M me ed of me follW m consistent with the rate treatment. The AFUDC rate related to assets financed only through the incurrence of long term 1995 $18,000,000 9014 obligations (see Note 5) is based on actual interest accrued 1996 5,000,000 M e on the obligations during the period. The annual rates used 1997 19,000,000 D < by the Company for all other construction projects were G8 21 000 000 %' " 10.90%,10.32% and 9.84% during 1983,1982 and 1981, $63,%0,0 % respectively. Penn Power's rates applicab!e to such projects were 9.25% in 1983 and 1982, and 8.50% in 1981. g.g Income Taxes-The Companies' trusteed, noncontributory pension plans Details of the total provision for income taxes are shown on cover almost all full-time employees. Upon retirement, the Consolidated Statements of Taxes. The deferred income employees receive a monthly pension based on length of taxes result from timing differences in the recognition of service and compensation. Pension costs for 1983,1982 and revenues and expenses for tax and accounting purposes. 1981, were $16,904,000, $15,448,000 and $15.311,000, respec% G hse amMs, W,M,000, M,350,0%, The Companies allocate the income tax benefit, resulting from a ,000, respectively, were charged to operating interest expense related to utility plant under construction, to expenses; the balances were charged primarily to income taxes-credit included under other income and nsuu n. costs inMe N amo@aten of deductions on the Consolidated Statements of income. unfunded past service costs on an actuarial basis over For income tax purposes, the Companies claim liberalized approximately 40 years in 1983 and 30 years in 1982 and depreciation and, consistent with the rate treatment, 1981. The Companies fund pension costs accrued. A generally follow " normalization" accounting. The Companies comparison of accumulated plan benefits and plan net Cxpect that deferred taxes which have not been provided will assets from the two latest actuarial reports is as follows: be collected from their customers when the taxes become payable, based upon the established rate making practices of At June 30, 1983 1982 the PUCO, the PPUC and the FERC. Actuarial present value of accumulated plan benefits: The Company received $10,480,000 in 1982 and $37,531,000 vested $176,732.000 $157,0:4.000 in 1981 resulting from the sales of tax benefits applicable to Nonvested 16.939.000 12.862.000 property placed in service during those years in accordance $193.671.000 $163.876.000 with provisions of the Economic Recovery Tax Act of 1981. Of Net assets avmiable for benefits $314.323.000 5224.641.000 the total, $5,823,000 and $12,675,000, respectively, were Assumed rate cf retum for actuanal recorded as additional deferred investment tax credits on the presentvalueof accumulatedplan benefits 8% 8% The above total actuarial present value of accumulated plan benefits reflects pension benefits applicable to eligible employees based upon present salary levels and past years of service accumulated through the valuation date. This is

29 the generally accepted reporting procedure currently set reason to believe that the FERC will not act favorably upon forth by the Financial Accounting Standards Board. The their requests. The PPUC has indicated that it will allow Penn Companies' annual contributions to the plans, however, Power to begin recovering its share of the costs allocable to consider estimated ultimate salary increases due to inflation PPUC jurisdictional customers over a ten-year period and uther factors and the estimated total service expected beginning with the effective date of new rates resulting from tc be accumulated by employees. This is a widely recognized its pending rate increase request. funding technique and is consistent with the recommenda-3 h tion of the Companies' actuary. In addition, the actuary TN %ah lese Mes M mb med recommended, and the Companies utilized, a discount rat M eWh of 7% for funding purposes. Differences between funding property and equipment under cancelable and noncancelable bases and reporting requirements can have a significant leases. Total rent expenses included on the Consolidated c.ffect on the compan, sons above. Statements of Income were $34,778,000, $20,766,000 and 2 Terminated Construction Projects- $20,731,000 in 1983,1982 and 1981, respectively. The future in January 1980, the Companies and all other CAPCO minimum rental commitments as of December 31,1983, for companies terminated plans to construct four nuclear generat-all noncancelable leases recorded as operating leases are: ing units. Costs, including settlement of all asserted claims 1984 $ 26,696,000 r~sulting from termination, unrecovered by the Company and 1985 24,038'000 Penn Power as of December 31,1983, applicable to these units amounted to approximately $78,747,000 and Sh 9 $16,000,000, respectively. 1988 16,177,000 The PUCO had authorized recovery of the applicable portion Years thereafter 398,522,000 of the Company's then known share of the construction costs from its PUCO jurisdictional customers over a ten-year if all noncapitalized financing leases had been capitalized, period bcginning in February 1981. However, due to a July the effect on total assets and liabilities would not have been 1981 Ohio Supreme Court decision which overtumed a material. PUCO order including a similar allowance to another Ohio 4 Capitalization: utility, the PUCO subsequently disallowed the Company's recove of those costs, as service-related costs, effective f Thr gh D dend Reinvestment and Stock Purchase Plan, holders of common, preferred and preference stock On November 3,1982, the PUCO decided in the Company's can acquire additional new shares of the Company's then pending rate case to allow a rate of return above that common stock by automatically reinvesting all or a portion which it otherwise would have allowed were it not for tne July of their dividends and by making optiona! cash payments. 1981 Ohio Supreme Court decision. Based on that order, the Purchases made with reinvested cash dividends on Company resumed amortization of the costs of the termi-common stock are made at a price equal to 95% of the nated units applicable to PUCO jurisdictional customers over average of the high and low market prices on the investment e ten-year period. A similar adjustment was included in the dates, and purchases made with optional cash payments Company's September 1983 PUCO rate order. are made at a price equal to 97% of such average. Pur-chases of common stock made with reinvested cash The Companies are currently seeking approval from the 6 FERC to recover these costs from FERC jurisdictional customers to the extent they are allocable to those customers. The Companies are currently collecting interim rates from FERC jurisdictional customers which are intended to provide for recovery over a ten-year period and, accordingly, those costs applicable to FERC jurisdictional customers are being cmortized over that period. The Companies believe that the , construction costs were prudently incurred and have no

Notes to Consolidated Financial Statements-(Continued) ~ dividends on preferred and preference stock are made at $100 per share plus accrued dividends. Penn Power's a price equal to 100% of the avetage market price. At 10.50% Series ;ncludes a provision for mandatory redemp-D:cember 31,1983, the Company had 5,893,219 shares tion of the entire series on April 1,2040, at $100 per share reserved for issuance under this plan and 1,622,546 shares plus accrued dividends. of common stock reserved for possible conversion of the $1.80 Preference Stock. The sinking fund requirements for the next five years are: (b) Retained Earnings- '90A $2'000 000 Under the Company's indenture, the Company's 1985 4,871,000 consolidated. retained earnings unrestricted for payment of 1986 4,900,000 cash dividends on the Company's common stock were 1987 4,900,000 $169,267,000 at December 31,1983. Under Penn Power's 1988 5,220,000 Charter, $33,773,000 of retained earnings at December 31, 1983, were unrestricted for payment of cash dividends to (e) Preference Stock Subject to Mandatory Redemption-the Company. The $102.50 Series and $95.00 Series each include pro-visions for a mandatory sinking fund to retire a minimum of (c) Preferred and Preference Stock-900 and 1,800 shares, respectively, on July 1, in each year At the Companies' option, all preferred and preference beginning in 1984 and 1985, respectively, at $1,000 per stock may be redeemed in whole, or in part, at any time share plus accrued dividends. The $1.80 Series includes a upon not less than 30 nor more than 60 days notice, unless provision for a mandatory sinking fund to retire a minimum otherwise noted. Redemption of all preferred and preference of 100,000 shares on October 1, in each year beginning in stock issued within the past five years is subject to certain 1985, at $15.125 per share plus accrued dividends. restrictions regarding refunding operations. The optional redemption prices shown on the Consolidated Statements The annual sinking fund requirements are $900,000 for of Capitalization will decline to eventual minimums per 1984, and $4,213,000 for 1985 through 1988. share according to the Charter provisions that establish The $1.80 Series is convertible at any time into common each senes. stock at a price of $15.125 per share. Holders receive one (d) Preferred Stock Subject to Mandatory Redemption-share of common stock for each share of $1.80 Preference The Company's 10.48% Series and 10.76% Series each Stock converted, subject to adjustment under certain include provisions for a mandatory sinking fund to retire a conditions. minimum of 20,000 shares every year on December 1, and (f) long-Term Debt-January 1, respectively, at $100 per share plus accrued The mortgages and their supplements, which secure all of dividends. Penn Power's 8.24% Series and 11% Series the Companies' first mortgage bonds, serve as direct first cach include provisions for a mandatory sinking fund to mortgage liens on substantially all property and franchises,

r. tire a minimum of 5,000 shares and 4,000 shares, other than specifically excepted property, owned by the r:spectively, every year on December 1, and January 1, respective Companies.

r:spectively, at $100 per share plus accrued dividends. Penn Power's 15% Series and 11.50% Series each include Based on the amount of bonds authenticated by the provisions for a mandatory sinking fund to retire a minimum Trustees through December 31,1983, the Companies' of 3,200 shares and 15,000 shares, respectively, on July 15, annual sinking and improvement fund requirements amount of each year beginning in 1988 and 1989, respectively, at to $23,182,000. The Company expects to deposit fund.s in 1984 which will be withdrawn upon the surrender for can-c.ellation of a like principal amount of bonds, which are specifically authenticated for such purposes against unfunded property additions or against previously retired l i I

f 31 bonds. This inethod can result in minor increases in the The Company has transferred its interest in Beaver Valley amount of the annual sinking fund requirements. Penn Unit No. 2 (exclusive of common facilities and transmission Power expects to satisfy its requirements in 1984 by facilities) to OEET, where the assets are used to secure certifying unfunded property additions of 166-2/3% of the OEET borrowings. All OEET obligations will be assumed by required amount. the Company when they become due, but not later than December 31,1986. At the Company's option, all obligations As of December 31,1983, the Companies' sinking and outstanding under the $400,000,000 revolving credit improvement fund requirements and maturing long-term anangement may M conded into a fogar term loan debt for the next five years are: to the Conipany. 1984 $ 99,876,000 The Company accrues interest applicable to OEET which 1985 76,325,000 s subsequently capitalized, net of income tax ef fect. In-1986 59,260,000 terest on borrowings under the $400,000,000 line of credit 1987 184,260,000 neludes a commitment fee of 1/2% on the unused portion 1988 194,862,000 of this line. No direct borrowings have been or are expected to be made agahst the $100,000,000 line of credit, but Th: weighted average. terest rates shown on the OEET has issued and has outstanding commercial paper in Consolidated Statements of Capitalization relate to long-supported by this facility. To the extent that borrowings are t:rm debt outstanding at December 31,1983. less than the $100,000,000 available under this line of T;til secured and unsecured notes outstanding at credit, the Company must pay a commitment fee of 1/2%. December 31,1983, and December 31,1982, exclude Under the standby support, an irrevocable bank letter of $97,112,000 and $74,353,000, respectively, of pollution credit has been issued upon which OEET pays a fee of control notes, the proceeds of which were then in escrow 1/8% of the amount of commerclal paper notes outstand-pending their disbursement for construction of certain ing. The ef fective average annual interest rates on OEET pollution control facilities. Penn Power's obligation to borrowings were 10.7%,14.8% and 18.7% during 1983, repay certain pollution control revenue bonds is secured 1982 and 1981, respectively. by a series of Penn Power first mortgage bonds. The Nuclear Fuel Financing-pollution control revenue bonds to which the unsecured in December 1981, Ohio Edison Fuel Corporation and not s relate are entitled to the benefit of irrevocable bank Pennsylvania Power Fuel Corporation (corporations in 11ttes of credit of $214,156,000. To the extent that which the Cornpanies have no ownership interest) were dr wings are made under those letters of credit to pay created to provide funds for the procurement of nuclear principal of, or interest on, the pollution control revenue fuel. The fuel corporations will lease the fuel to the bonds, the Company is entitled to a credit on the notes. Companies under separate fuel leases which require lease Th3 Company pays an annual fee of 1/2%-7/8% of the payments suf ficient to permit the fuel corporations to repay r mounts of the letters of credit to the issuing banks the obligations. Under ordinary circumstances, the lease and is obligated to reimburse the banks for any payments will be made at such time and in such amounts drawings thereunder, as will coincide with the burnup of the nuclear fuel. 5 tong-Term Obligations: Financing on behalf of the Companies of up to $303,000,000 is currently available through the fuel Ohio Edison Energy Trust (OEET)- corporations, either through revolving credit arrangements OEET, which finances part of the Company's investment in or the issuance of commercial paper, which is supported Beaver Valley Unit No. 2, has two lines of revolving credit by bank letters of credit, or a combination of both. tvrilable to it for $400,000,000 and $100,000,000. The latt? r credit also serves as a standby facility in connection with OEET commercial paper sales; total borrowings under thit credit and commercial paper outstanding may not cxceed $100,000,000 at any time.

Notes to Consolidated Financial Staten1 eats-(Continued) n w.. _.w 33~37,_, g in November 1982, the Companies also began participating " float," are expected to be maintained at an average of in arrangaments wherein the Central Area Energy Trust approximately $5,800,000 and are not subject to any (CAET) finances the acquisition of nuclear material that contractual restriction against withdrawal. The Companies will ultimately be used to fuel various CAPCO generating are required to pay commitment fees that vary from a flat units. As part of these arrangemer.ts, the Companies rate of 3/8% to a var able rate of 5% of the applicable i have emered into purchase agreements whereby the prime interest rate to assure the availability of $80,000,000 Companies are unconditionally obhgated to purchase of the lines of credit. their share of the nuclear material that has been financed 7 g through CAET in not less than two nor more than three y ars from the date of the agreement, unless the nuclear The Compan.ies' current budget forecasts reflect expendi-material reaches the point of fabrication, at which time the purchase commitment will then be due. Financing of up tures of approximately $2,700,000,000 for property additions to $137,000,000 is available to CAET on behalf of the and improvements from 1984-1988, of which approximately $766,000,000 is applicable to 1984. In addition, the Companies, subject to certain limitations. Companies expect to invest approximately $352,000,000 The Companies accrue interest applicable to the nuclear for nuclear fuel during the 1984-1988 period, of which fu;i obligations which is subsequently capitalized, net of approximately $88,000,000 is applicable to 1984. The major income tax effect. No direct borrowings have been or are portion of the Companies' construction activities during this expected to be made against the lines of credit available to five-year period relates to the CAPCO companies' program th3 fuel corporations; the fuel corporations have issued for the joint development of power generation and and have outstanding commercial paper supported by the transmission facilities. lines of credit. To the extent that borrowings are less than the $303.000,000 available under these credit lines, the The Companies, together with the other CAPCO companies, fu.11 corporations must pay commitment fees of 1/8% to have entered into a long-term coal supply contract with 1/2% on the available portions of the lines of credit. They Quarto. The CAPCO companies have also agreed to also pay fees of 5/8% to 7/8% for the letters of credit on severally, and not jo,ntly, guarantee their proportionate i the aggregate amount of outstanding commercial paper. sharea of Quarto's debt and lease obligations incurred interest rates on CAET purchase commitments vary from while developing and equipping the mines. As of December 1-1/8% to 11/2% over the interest rate applicable to 31,1983, the Companies' share of the guarantee was certain dealer placed commercial paper. The effective $225,598,000. average annualinterest rates applicable to nuclear fuel obligations were 10.6%,12.6% and 13.9% during 1983, Under the terms of the coal supply contract, which expires 1982 and 1981, respectively. December 31,1999, the Companies must reimburse Quarto 6 Notes Payable to Banks and Lines of Credit: { r their shares of the costs of operating the Ouarto mines, incMg Mose cosM assodatM wM dne consWdon, The Companies have lines of credit with domestic banks whether or not they receive coal from Quarto. These pay-that provide for borrowings of up to $235,000,000 at rates ments will permit Quarto, over the life of the contract, to that vary from prime up to 105% of the prevailing prime meet the debt and lease obligations it incurred while interest rates. Short-term borrowings may be made under developing and equipping the mines. The Companies' total these lines of credit on the Companies' unsecured notes. p yments under this contract, including amounts related All of the current lines expire December 31,1984; however, mine consWdon costs, amoded b 92,W,M, all unused lines may be cancelled by the banks. $80,709,000 and $94,379,000 during 1983,1982 and 1981, The Companies maintain cash balances on deposit with respectively. Under the coal supply contract, the Com-banks to provide operating funds, to assure availability of panies' future minimum payments related solely to mine $124,000,000 of the lines of credit and for other banking construction costs are: arrangements. Such compensating baiences, net of 1984 $ 26,082,000 1985 25,463,000 1986 24,846,000 1987 24,228,000 1988 23,610,000 Years thereafter 232,688,000

33 ~;7s... g. ;3 3 y.yyys gz '; Based on studies concerning the economics of the Quarto 110% of such prevailing market price. The PUCO order project and the various alternatives available to provide the states that the Company must recover previously deferred long term fuel requirements of the Bruce Mansfield Plant, costs (amounting to approximately S57,375,000 at December ch^ nges were made in 1981 in the mode of operation of 31,1983) under this method at the rate of at least one-sixth th? Quarto mines which have the effect of reducing the per year. Any previously deferred costs not so recovered cnnual tonnage production of these mines. Additional coal during each year would not be recoverable under ordinary requirernents for the Bruce Mansfield Plant are currently circumstances. In addition, any current costs of Quarto being procured in the open market and the Companies are coal not recoverable under the 125% limitation can no pr:sently continuing to evaluate the alternatives for making longer be deferred under ordinary circumstances. Although additional arrangements to fulfill, together with the use of unable to predict the ultimate level of recovery, based upon coal from the Quarto project, the long-term fuel current and projected operation of the Quarto mines, and requirements of the Bruce Mansfield Plant. These changes market prices, the Company believes that this method cr3 part of a fuel procurement strategy designed to reduce provides a suf ficient basis to recover the deferred costs th ? weighted average price of coal used at the Bruce and future costs of Quarto coal under the jurisdiction of M1nsfield Plant. TI e Companies will continue to monitor the PUCO. th; Quarto project and conduct such additional studies On February 10,1984, an Administrative Law Judge for the of the economics of the project as are deemed warranted PPUC issued his Initial Decision in the proceedings relating by the circumstances. to the recovery of the cost of Quarto coal. The Initial Under the terms ' the coal supply contract, the price of Decision would allow Penn Power to recover in its ECR the Quarto coal is based on, among other things, the actual current cost of Quarto coal and the costs which were production costs plus amortization of certain production deferred in prior years (amounting to approximately txpenses which were not included in the price of that coal $9,879,000 at December 31,1983) to the extent that the prior to May 31,1980, when the development period ended. actual cost of all coal burned at the Bruce Mansfield Plant is less than the generally prevailing delivered market price Following the end of the development period, the Company f r comparable coal. Penn Power may continue to defer was ordered by the PUCO, and Penn Power was ordered by costs which are in excess of the amount allowed to be the PPUC, to defer recovery of the cost of Quarto coalin recovered on a current basis. The Initial Decision will txcess of generally prevailing market prices, pending become final, unless it is appealed to the PPUC or the further proceedings. As a result of those orders, the PPUC elects to review the Decision. Although unable to Companies began deferring a portion of the cost of Quarto predict the final resolution of this matter, management coal, rather than including such costs in their respective believes that its ultimate disposition will not have a material EFC and ECR' adverse effect upon the Company's consolidated results of Thereaf ter, the PUCO allowed the Company to implement operations. a recovery formula with respect to Quarto coal costs that An issue has been raised in the Companies' most recent risulted in the recovery of current Quarto coal costs plus rate cases before the FERC concerning the amount of the a portion of its previously deferred costs. Hovwever, that cost of Quarto coal that may be included in the rtcovery mechanism was suspended by the PUCO on Companies' charges for electric service to their wholesale August 1,1983, pending further review. On January 31', customers. In the case involving the Company, an 1984, following the Company's semiannual fuel hearing agreement between the Company and its wholesale the PUCO approved a method, effective January 1,1984, customers has been filed with the FERC which provides for which provides an opportunity for recovery of the current of O me M M cost of Ouarto coal plus costs which were deferred in prior used by the PUCO. The FERC has not yet acted upon the years. The PUCO order allows the Company to recover in its EFC the current cost of Quarto coal up to 125% of the prevailing comparable delivered market price. Previously deferred costs may also be recovered to the extent that the actual cost of all coal burned at the Bruce Mansfield Plant, including the recoverable cost of Quarto coal, is less than

Notes to Censolidated Financial Statements-(Continued) u g.yg EnvironmentalMatters-power plants and other sources located in several states, Various Federal, state and local authorities regulate the including Ohio and Pennsylvania. The Company is unable Companies with regard to air and water cuality and other to predict whether the proposed bills will be enacted and,

.nvironmental matters. The Companies estimate that if so, to what extent, if any, the SO, emission limits at the compliance requires capital expenditures of approximately Companies' plants would be affected. Substantial changes

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

35 o, . 7 7 gn, y.. 3 n. = 1 - viol ted Sections 1 and 2 of the Sherman Act and 9 Sumrnary of Quarterly Financial Data: Sections 4 and 16 of the Clayton Act by restraining and The following summarizes certain consolidated operating monopolizing trade and commerce in alleged markets for results for the four quarters cf 1983 and 1982. Electric power. Damages of $7,000,000 (to be trebled) March June september December and injunctions against the alleged unlawful acts were Three Months Ended 31.1983 30.1983 30.1983 31.1983 originally sought. In February 1984, the Boroughs revised (In thousands. except per share amounts) th:ir claimed damages up to $9,743,000. In 1979, the Operating Revenues $378.157 $364.478 $386.400 $386.817 Court granted summary judgment in favor of Penn Power Operating Expenses cs to certain allegations of the complaint. In February and Taxes 302,104 296.956 308.288 305.753 1983, Penn Power filed a Motion for Summary Judgment on Operating income 76.053 67.522 78.112 81.064 th3 claims not dismissed by the Court's 1979 Order. Also in Other income and Deductions 47.530 50.060 54.668 55.291 February 1983, the Boroughs asked the Court to allow them to amend their complaint. In August 1983, the Court "*',"te s , narge 59.472 57.578 60.017 60.833 granted Penn Power summary judgment on the Boroughs' Net income $ 64.111 5 60.004 $ 72.763 $ 75.522 conspiracy claims, denied summary judgment on " price Ear:-ings on Common stock $ 54.091 $ 48.708 $ 61.117 $ 63.927 squeeze" and Robinson-Patman Act claims, and denied the Boroughs' request to amend their complaint. Trial is Weighted Average Number ~ f sha of mon anticipated to begin in the second quarter of 1984. 96.841 100.244 105.312 107.261 Management is unable to predict the ultimate outcome of this action. Eamings per share of Common stock $ 56 $.49 $.58 $.60 Th3 PPUC is investigating an outage of Beaver Valley Unit No.1 which occurred during the period March-August March June september December 1979. The outage had been ordered by the Nuclear Three Months Ended 31.1982 30,1982 30,1982 31,1932 Regulatory Commission to analyze possible seismic deficiencies of safety-related piping and pipe supports in (in thousands. except per share amounts) tha Unit. The PPUC has ordered that the operating Operating Revenues $361,190 $328.834 $374.328 $365.274 company of the Unit make refunds to that company's 0][g Expenses 286.837 258.311 310.272 299.566 customers based upon that company's expenditures for O erating income 74.353 70.523 59.056 65.708 purchased replacement power during the outage. The Other Income and PPUC is currently investigating Penn Power's liability, if Deductions 35.819 30.505 50.212 43,711 any, for the outage and whether refunds are due to Penn Net Interest and Power's customers for purchased replacement power Other Charges 56.335 58.937 59.820 59.224 cxpenses incurred during the outage which were included income Before Extraordinary item 53.837 42.091 49.448 50.195 in its energy clause. If Penn Power is required at some Emaordinapern 20158 future time to make such a refund, it is not expected that Net income $ 53.837 $ 62.249 $ 49.448 $ 50.195 the amount would be material to the Company's consoli-dated results of operationt. Eamings on Common stock $ 45.644 $ 54.095 $ 41.326 $ 40.431

- '9"'*d ^* 9* """**'

8 Extraordinary income-of shares of Common During 1982, the Company exchanged 2,650,600 shares of stock Outstanding 79.131 81.122 38.021 92.668 its common stock for $53,432,000 principal amount of its Earnings per share outstanding first mortgage bonds which were subsequently of Common stock: r; tired. The exchange resulted in a non-taxable gain of Before Extraordinary item $20,158,000, which is included as an extraordinary item (after preferred and on the 1982 Consolidated Statement of income. During P*]"C*gkd'V'd*"d g g g g 1981, the Company purchased and subsequently retired Extraordinary item .25 $65,821,000 principal amount of its outstanding first mort-Eamings on Common stock $.58 $.67 5.47 $.44 g:ge bonds for cash. This resulted in a gain of $26,276,000, which is included as an extraordinary item, net of related income taxes of $12,234,000, on the 1981 Consolidated Statement of Income. i l

Notes to Consolidated Financial Statements-(Continued) 3

-. _ -.4 10 Supplementary Financial Data-Financial Reporting and formation to disclose the estirnated etfects of inflation and Changing Price $ (Unaudited)

changes in prices on property, plant and equipment. This Statement of Financial Accounting Standards No. 33, data is presented in accordance with SFAS No. 33, however, " Financial Reporting and Changing Prices" (SFAS No. 33), it is not intended as a substitute for earnings reported on a provides for the preparation of supplementary financial in-historical cost basis. Adjusted for Adjusted Changein Results of Operations Adjusted for the Etfects of for General Specific Prices Changing Prices for the Year Ended December 31.1983 Inflation (Current Cost) (Thousands of average 1983 dollars) Income from continuing operations $227.843 $227.843 Inflationary Effects on Common Equity: Capita: Investments Effects-Increase in specific pnces (current cost) of property held dunng the year (i) 443.524 Change in general price level on property held dunng the year (336.848) Reduction to net recoverable cost (52,921) (123.622) Additional provision for depreciation (127,538) (163.513) (180,459) (180,459) Advantage from the decrease in purchasing power of net monetary liabilibes 120.422 120,422 Net erosion of commen stockholders' equity (60.037) (60.037) Income from continuing operations adlusted for chancing onces (ii) $167.806 $167.806 (i) At December 31.1983, net property, plant and equipment, adjusted for changes in specific pnces (current cost) was $9.524.525.000, whiie histoncal cost (net recoverable cost) was $5.157,196.000. (ii) Income from continuing operations, adjusted for general inflation and adjusted for change in specific prices (current cost) would be $100.305,000 and $64.330,000, respectively. if only the amount reportable as additional provision for depreciation was included in the adjustment. Comparison of Supplementary Financial Data Fce the Wars Ended December 31 1983 1982 1981 1980 1979 Operating Revenues-Histoncal $1,515.852 $1,429.626 $1.279.649 $1,080,869 $ 994,585 Adjusted to average 1983 dollars $1.515.852 $1.475,615 $1,401.789 $1,306,853 $1,365,153 Income (l. ass) from Continuing Operations-Histoncal $ 227,843 $ 161,338 $ 149,850 $ 101.401 $ 105.120 Adjusted for changing prices (average 1983 dollars) $ 167,806 $ 115,172 $ 58.785 $ (27,098) $ (8.294) Income (Inss) from Continuing Operations per Common Share-Historical $2.22 $1.89 $2.10 $1.52 $1.80 Adjusted for changing pnces (average 1983 dollars) $1.64 $135 $.83 $ (.40) $ (.14) Return from Continuing Operations on Average Common Equity-Histoncal 14.2 % 12.3 % 13 5 % 9.7% 11.2 % Adjusted for changing pnces 10 5 % 8,3% 48% (2.1)% (0.6)% Effective income Tax Rate-Historical 35.1 % 32.1 % 33.5 % 28.3 % 21.9 % Adjusted for changing pnces 41.0 % 38.1 % 49 6 % 82.5 % 61.5 % Excess of increase in the Specific Level of Prices on Property, Plant and Equipment Over General Price Changes (average 1983 dollars) $ 106.676 $ 344.737 $ (40.337) $ (202.722) $ (115.228) Advantage Resulting from the Decrease in Purchasing Power of Net Monetary Liabilities (average 1983 dollars) $ 120.422 $ 110.243 $ 235.821 $ 306.178 $ 339.387 Year End Common Stockholders

Equity-Historical

$1,711,974 $ 1.d 88.371 $1,229.044 $1,067,524 $ 970,110 Adjusted for etnnging prices (average 1983 dollars) $1.682,449 $1,519.188 $1.303.752 $1,226,489 $1,261.648 Cash Dividends Declared per Common Share-Histencal $1.80 $1.76 $1.76 $1.76 $1.76 Adjusted to average 1983 dollars $1.79 $1.82 $1.92 $2.11 $2.41 Year End Market Price per Common Share-Historical $12.?5 $14.00 $11.625 $11.875 $13.375 Adjusted to average 1983 dol lars $12.04 $14 29 $12.32 $13.72 $17.36 Average Consumer Price Index 298.4 289.1 272.4 246.8 217.4

Auditofs' Report n a J. t umm : t,, . ' 2. y J ! aho;&M u a M w. m ; -; ; *./.;, ' The increase in specific prices of property held during the To the Stockholders and Board of Directors of Ohio Edison year Ettempts to measure increasing asset values which Company: approximate dollars that would have to be spent today t We have examined the consolidated balance sheets and acquire proper ty, plant and equipment identical to assets consolidated statements of capitalization of Ohio Edison currently owned. The Companies use the Handy-Whitman Company (an Ohio corporation) and its subsidiary index of Public Utility Construction Costs and the Bureau of companies as of December 31,1983, and 1982, and the Labor and Statistics engineering.ndices to calculate the cur-nsolM stMeMs d inm WM eWs rent cost of those assets. The ind;ces are applied to actual I sM M h pie WM smes d bs dollars spent on large construction projects according to the a@h M hs W M d h he p year of expenditure. For all other plant facilities, the current in the period ended December 31,1983. Our examinations cost is determined based upon the year the facilities were ere Me h aMme @ pe@ meM adN placed in service. standards and, accordingly, included such tests of the Changes in the valuation of assets adjusted for general infla-accounting records and such other auditing procedures as tion are computed by using the average Consumer Price we considered necessary in the circumstances. Index for All Urban Consumers for the calendar year, accord-In m o#m h hial stmem eM m h ing to the guidelines set forth in SFAS No. 33. present fairly the financial position of Ohio Edison As shown on the results of operations adjusted for the effects Company and its subsidiary companies as of December of changing prices, the erosion of common stockholders' 31,1983, and 1982, and the results of its operations and equity is identical either adjusted for general inflation or ad-the sources of funds for property additions for each of the justed for specific price changes. This results from the effect three years in the period ended December 31,1983, in of regulation in setting the Companies' electric rates. Since conformity with generally accepted accounting principles those rates are based upon historical costs of utility plant, applied on a consistent basis. the inflation-adjusted results of operations must recognize this limitation; this is accomplished by the reduction to net recoverable cost shown on the summary. p Additional depreciation expense adjusted for general inflation ARTHUR ANDERSEN & CO-c nd for the change in specific prices was determined using the same rates and methods used for computing the histor-New York, N.Y. ical cost provision for depreciation. No inflation adjustment February 14,1984 has been reflected for income taxes, in conformity with the reporting requirements of SFAS No. 33. During periods of inflation, the Companies' net monetary liabilities (principally long-term debt and preferred stock) will be repaid with dollars having less purchasing power than dollars had when the original liability was incurred. This economic benefit is portrayed on the summary as the advan-tage from the decrease in purchasing power of net monetary liabilities, which serves as an offset to the inflationary effects of replacing the Companies' property, plant and equipment.

Consolidated Financial Statistics

mw assa;az_.eu 1983 1982 1981 1980 1979 1978 1973 General FinancialInformation (Dollars in thousands except per share amounts)

Total Operating Revenues $1,515,852 $1,429.626 $1.279.649 $1,080.869 $ 994.585 $ 862.956 $ 385.806 Operating Income $ 302,751 $ 269.640 $ 252.381 $ 169.383 $ 163.744 $ 123.945 $ 89.664 Earniny on Common Stock $ 227,843 $ 181.496 $ 163.892 $ 101,403 $ 105.120 $ 61.259 $ 58.697 Ratio of Earnings on Common Stock to Operating Revenues 15.0T. 123 % 12.8 % 34% 10.6 % 7.1% 15 2 % Times interest Earned Before income Tax 2.31 X 2.02 x 2.11 x 2.05 x 2.31 x 167 x 3 02 x Net Utility Plant at December 31 $5,150,902 $4.522.733 $3.867.757 $3.435.267 $3.012.197 $2.717.820 $1,357.017 Property Additions $ 745,798 $ 774.233 $ 568.044 $ 515.020 $ 476.746 $ 395,162 $ 227.700 l Capitalization at December 31: Common Stockholders' Equity $1.711,974 $1,488,371 $1.229.044 $1,067.524 $ 970,110 $ 851.686 $ 438,182 Preferred and Preference Stock Not Subject to Mandatory Hedemption 404.240 354.240 304.240 306.905 306.905 306.905 160.905 Preferred and Preference Stock Subject to Mandatory Redemption 158.112 152.560 151,141 156.450 150.850 98.000 Longterm Debt 2,131,404 2,005.436 1.759 771 1,594.384 1,410,782 1.343.195 711.678 Total Capitalization $4,405,730 $4.000.607 $3,444.196 $3,125.263 $2.838.647 $2.599.786 $1,310.765 Capitalization Ratios at December 31: Common StM 'ioiders' Equity 38.9 T. 37 2 % 35.7 % 34 2 % 34.2 % 32.7 % 33.4 % Preferred and Preference Stock Not Subject to Mandatory Redemption 9.1 89 88 9.8 10 8 11.8 12.3 Preferred and Preference Stock Subject to Mandatory Redemption 3.6 3.8 44 5.0 53 38 Longterm Debt 48.4 50.1 51.1 51.0 49.7 51.7 54.3 Total Capitahzation 100.0 7. 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % tongTerm Obligations at December 31 $ 719,364 $ 656.655 5 447,484 $ 265.000 Cost of Preferred & Preference Stock Outstanding at December 31 9.63 T. 9 17 % 8 37 % 8.38 % 8 36 % 7.99 % 5 91 % Cost of tongTerm Debt Outstanding at December 31 10.82 % 10 69 % 9 99 % 9.16 % 8.13 % 7.71 % 6.26 % Common Stock Data Eamings per Average Common Share $2.22 12.13 $2.30 $1.52 $1.80 $1.19 $2.14 R turn on Average Common Equity 14.2 T. 13 5 % 14.6 % 9.7% 11.2 % 7.1 % 14.7 % Dividends Paid Per Share $1.80 $1.76 $1.76 $1.76 $1.76 $1.76 $158% . Common Stock Dividend Payout Ratio 81T. 83 % 77 % 116 % 98 % 148 % 74 % Common Stock Dividend Yield at December 31 14.7T. 12 6 % 15.1 % 14 8 % 13 2 % 11.8 % 7.8 % Price /Eamings Ratio at December 31 5.5 66 5.1 7.8 7.4 12 5 9.5 Shares of Common Stock Outstanding at December 31 (000) 108,460 96.082 78.676 68.526 59.622 52.120 28.695 Book Value per Common Share at December 31 $15.78 $15 49 $15 62 $15.58 $16 27 $16 34 $15 27 Market Price per Common Share at December 31 $12.25 $14 00 $11.625 $11875 $13.375 $14.875 $20 25 Ratio of Market Price to Book Value per Share at December 31 78T. 90 % 74 % 7G% 82 % 91 % 133 % 1

Consolidated Operating Statistics n . - - L :... . c. .n en 1983 1982 1981 1980 1979 1978 1973 Revenue From Electric Sales (thousands): Residential $ 540,167 $ 497.941 $ 442.267 $ 398.832 $360,273 $314.867 $141.473 Cc:nmercial 385,277 356.325 308.599 268.788 240.458 205,901 99.428 Irdustrial 421,736 383.535 381.162 330.717 315.185 258,767 115,320 Other 69,278 67,826 53,993 50,420 42.607 46.471 17.064 Subtotal 1,416.458 1,305.629 1,186.021 1,048.757 958,523 826.006 373.285 Sales to Utilities 76,220 101.688 73.966 12.381 10.185 9.346 3.300 Total $1,492,678 $1,407,317 $1.259.987 $1,061.138 $968.708 $835.352 $376.585 Revenue From Electric Saies-%: Residential 36.2T. 35 4 % 35.1 % 37 6 % 37.2 % 37.7 % 37.6 % Commercial 25.8 25.3 24 5 25.3 24 8 24 6 26,4 Industrial 28.3 27.3 30.2 31.2 32.5 31.0 30.6 Other 4.6 48 4.3 4.7 44 56 4.5 Subtotal 94.9 92.8 94.1 98 8 98.9 98.9 99.1 Sales to Utihties 5.1 7.2 59 1.2 1.1 1.1 09 Total 100.0T. 100.0 % 100 0 % 100.0 % 100.0 % 100.0 % 100.0 % Kilowatt Hour Sales (millions): F;esidential 6,735 6,733 6,747 6.801 6.650 6.501 5,390 Commercial 5,096 4.996 4,917 4.812 4.693 4.470 4.036 Iridustrial 8,386 7,708 9.352 8.909 9:830 9.600 9.863 Other 1,211 1.227-1.181 1,370 1.346 1,309 1,073 Subtotal 21,428 20.664 22,197 21.892 22.519 21.880 20.362 Sales to Utilities 2,917 3,361 2.465 502 441 429 311 Total 24,345 24.025 24.662 22,394 22.960 22.309 20.673 Customers Served at December 31: R:rsidential 878,949 873.877 872,303 867,447 861,1 % 848.268 786.744 Commercial 90,072 89.706 89.231 88.505 87,425 86.410 81.777 Industrial 1,003 1,048 1,068 1.059 1,161 1,160 1,128 Other 736 724 711 704 693 689 579 Total 970,760 % 5.355 % 3.313 957.715 950,475 936.527 870.228 Average Annual Residential KWH Usage 7,695 7,723 7,760 7.870 7,780 7,724 6.935 Average Residential Pnce Per KWH 8.02c 7.40c 6.56c 5 86c 5 42c 4 84c 2 62c Cost of Coal Per Milhon BTU $1.62 $1.75 $1.81 $1.50 $126 $1.16 $.40 Generating Capability at December 31 (megawatts): Coal 4,858 4.858 4.907 4.899 4.861 4.861 3.939 Oil 164 354 354 364 423 423 327 Nuclear 425 425 425 425 425 420 Total 5,447 5.637 5.686 5.688 5.709 5.704 4.266 Scurces of Electric Generation: Coal 89.8T. 93 8 % 89 9 % 98.7 % 93.9 % 90.4 % 99 2 % Oil 01 02 06 2.0 35 0.8 Muclear 10.2 6.1 99 0.7 4.1 6.1 Total 100.0T. 100 0 % 100.0 % 100 0 % 100 0 % 100 0 % 100.0 % Pead load-Megawatts 4.148 4.073 4.148 4.210 4,105 4.038 3.810 Number cf Employees at December 31 7,702 7.885 7.669 7,503 7,157 6,765 6.073 l

d Stockholder Information ~ -a Stockholder Profile identification number, or supply a Annual Meeting of Stockholders At the end of 1983,204,000 stock-number if missing. For new Stockholders are cordially invited holders owned 108.5 mill!oa shares accounts opened after January 1. to attend the 1984 Annual Meeting of Ohio Edison common stock. 1984, stockholders must provide on Thursday, April 26, at 10 a.m., . Approximately 31 percent of those their taxpayer identification local time, in the Company's - stockholders are women,25 per-number, plus certification that the General Office auditorium in cant are men and 33 percent 'are number is correct and the IRS has Akron, Ohio. Those unable to or joint holders. The remaining 11 not identified them as taxpayers choosing not to attend can vote on percent are trusts, corporations, - whose dividends should be subject the items of business presented at institutions, brokers and other to withholding. the meeting by filling out and investment group;. returning the proxy card that is ~ Stockholders who fail to provide mailed to each stockholder approx-Nearly 75 percent of common the necessary information will be imately 30 days prior to the stockholders own 300 shares or subject to certain IRS penalties

- - "9' less. They live in all 50 eta'es and and a 20 percent withholding tax many foreign countries.

on dividends. For additional infor-AdditionalInformation Common Stock Dividends and Tuability mation on these new requirements, Information and assistance on contact the IRS or your tax advisor. individual holdings, dividend pay-In the first quarter of 1983, the ments, dividend reinvestment or ~ Company's Board of Directors Dividend Reinvestment increased the quarterly dividend on in 1983,14,000 stockholders ansh & Wsuahn d sy can Mained W w@ng mo . common stock. Dividends of 45 enrolled in the Company's Dividend Edison Company. Stockholder c:nts per share were declared by Reinvestment and Stock Purchase the Board for each quarter of 1983. Plan, raising the total number of 8 i - For the year,46 percent of common participants to 66,753, or 30 (216)384-5509. stock dividends were designated percent of all stockholders. By rein-ts a return of capital, and therefore vesting $57 million in dividends and Ohio Edison Company common nontaxable for federalincon e tax making optional cash payments of stock is listed on the New York and purposes, unless the stock was $40 million, they acquired more Midwest stock exchanges and than 7 million shares of common traded on other registered ex-sold Preferred and preference. stock dividends paid during 1983 stock during the year. changes under the "OEC" ticker symbol. Newspapers generally w:re 100 percent taxable. These The Economic Recovery Tax Act of use sy M M C in figures are subject to final deter-1981 provides that through 1985, sM hsdngs. mination by the Intemal Revenue most participants in qualified divi-Service (IRS) and stockholders will dend reinvestment plans such as A copy of our 1983 Annual Report be notified of any significant change. Chio Edison's may exclude from to the Securities and Exchange Dividend Withholding their yearly income up to $750 per Commission, Form 10-K, will be 'r During the summer, Congress year ($1,500 on a joint return)of provided without charge to stock-taxable dividends reinvested. We holders upon request. To receive a repealed a law that would have required the Companies to with-anticipate that a portion of ccmmon copy, please write to Gregory F. hold 10 percent of most dividend stock dividends paid during the LaFlame, Secretary, Ohio Edison payments for tax purposes, But we next few years will be decignated Company,76 South Main Street, are required to complywith backup as a return of capital. Participants Akron, Ohio 44308. should cc,nsult their own tax withholding measures. For information and assistance on advisors to determine the proper the transfer or registration of all According to federalincome tax treatment of common stock divi-classes of Company stock, contact: law, each common, preferred and dends on their federal tax return. pr~ference stockholdcr must Transfer Agent: Aciditional information about the provide the Company with a tax, Transfer Agent payer identification' number, which Plan, and a Prospectus, can be Ohio Edison Company is cither a social yecurity number obtained by contacting Ohlo 76 South Main Street Edison's G ockholder Seru.ces' or arnployer identificaticn number. Akron, Ohio 44308 . Beginning December 30 1983, forms were mmted enabing stock-E 8$ B M elB M holders to certify their tagayer One Cascade Plaza Akron, Ohio 44308

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Bulk Rate US. Postage m Paki -~ Akron, Ohio OHIOEDISON 76 South Main Street Permit No. 561 1he Energy Makers Akron, Ohio 44308 s ., j u .e O f 9 i . 1 i e L / g e y ^ -y ? \\ \\ . x ! 4 ' i ,r 6 a f a s} t? / ANNUAL REPORT 1983 .}}

ML20093N722

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