ML20095F909

Cleveland Electric Illuminating Co 1991 Annual Rept

ML20095F909
Person / Time
Site:	Perry, Harris
Issue date:	12/31/1991
From:	CLEVELAND ELECTRIC ILLUMINATING CO.
To:
Shared Package
ML20095F890	List: ML20095F909 ML20095F912 ML20095F922 PY-CEI-NRR-1477, Forwards Cleveland Electric Illuminating Co 1991 Annual Rept, Centerior Energy 1991 Annual Rept & Toledo Edison Co 1991 Annual Rept. Sec Form 10-K Also Encl
References
NUDOCS 9204280326
Download: ML20095F909 (27)

Text

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> . , 1 l" (1991 AnnualReport l?u -:- A 5itbsidiaryolCenteriorEnergy Corsvration -

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Contents: -

I'- About Cleveland Electric -

1- Directors 1 _.' Officers -

2 .- Report ofIndependent Public Accountants

- 3 Summary of Significant Accounting Iblicies-5 - : Management's Financial Analysis, FinancialStatements and Notes

- 22 Financial and Statistical Review 24 - Investorinformation

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About Clekltind Electric - Directors

'llie Company, a ivholly owned subsidiary of RobertJ. Tarling? President and Chief Operating _

Centerior Energy Corporation, provides e;ectric Officer of Centerior Energy Corporation and service to an area of northeastern Ohio extending Centerior Service Company.

100 miles along the southern shore of Lake Erie from .

-, Edgar If. Ataugans,** Vice President and Chief IVnnsylvania on the east through the city of Avon c Lake on the west. The southern boundary of the nanc al Omen of tM.,ongany and The Toledo Edison Company and Executive Vice President jervice area is approximately 17 miles south of Lake o nte nngy rporatmn and Centerior Erie. The complete boundary prescribes an area of Service Company.

about 1,700 square miles. Total population served is "about 1,860,000. Although the principal city in the Richard A. Afillcr?** Chairman and Chief Executive

' service area is Cleveland, the Company derives about . Officer of Centerior Energy Corporation and  ;

. 74% ofits total electric revenue from customers out. Centerior Service Compan)

, . side of the city. The Company's 4,500 employees serve . .

Lytnan C. Philh.rs, President and Chief E.xecutive -

about 746,000 customers.

>- Officer of the Company, Chairman and Chief Executive Officer of The Tchdo Edison Company and Executive Vice President of Centerior Energy Executive Off.

............ ices '

..................~....... .. Corporation and Centerior Service Compar.y.

. *Dected Chairman. President and Chief Executive Officer of The Clevelan 3 Electric liluminating Company centerior i nergv effectrve Manh L 1Wcorpvanon and centerior service company 55 Public Square -

- Cleveland, OII **nected Director of the Company and The Toledo Ednon Company effective March 1,1992

(216) 622-9800 Retired from these capacitss etlective March 1.1W2,

Mail Address

........................ . Officers

-P.O. Box 5000.' President and Chief Cleveland, OH 44101 Executive Officer . ,.. . .lyman C. Phillips Vice President &

Chief Financial Officer . . ..EdgarII.Afaugans Vice President . . . . . Fred J. Innge. Jr.

Controller .. . .. . Paul G. Busby Treasurer. . . .. . . . Gary A1. Ifawkinson

. Secretary . . . . . . . . . . .E. Lyle ikpin I

.Report

. . . . . .o. . .. .f.d... .. d ent Public Accountants In.......

epen .. . . .. . . . .. .. . .. .

ARTHUR To the Share Owners of ANDERSEN The Cleveland Electric illuminating Company: Q We I. ave audited the accompanying consolidated in our opinion, the fmancial statements referred to balance sheet and consolidated statement of above present fairly, in all material respects, the cumulative preferred stock of The Cleveland Electnc financial position of The Cleveland Electric illuminadng Company (a wholly owned subsidiary of Illummating Company and subsidiaries as of Centerior Energy Corporation) and subsidiaries as of December 31,1991 and 1990, and the results of their December 31,1991 and 1990, and the related operations and their cash flows for each of the three consohdated statements of income, retained earnings years in the period ended December 31,1991, in and cash flows for each of the three years in the conformity with generally accepted accounting period ended December 31, 1991. These financial principles.

statements are the responsibility of the Company's As discussed further in the Summary of Significant management. Our responsibility is to espress an Accounting Policies and Note 12, a change was made opinion on these financial statements based on our in the method of accounting for nuclear plant audits. depreciation in 1991, retroactive to January 1,1991. _

We conducted our audits in accordance with As discussed further in Note 3(c), the future of generally accepted auditing standards. Those Perry Unit 2 is undecided. Construction has been standards require that we plan and perform the audit suspended since July 1985. Various options are being '

to obtain reasonable assurance about whether the considered, including resuming construction, financial statements are free of material misstatement. converting the unit to a nonnuclear design, sale of all An audit includes examining, on a test basis, or part of the Company's ownership share, or evidence supporting the amounts and disclosures in canceling the unit. Management can give no assurance the fmancial statements. An audit also includes when, if ever, Perry Unit 2 will go in service or assessing the ccounting principles used and whether the Corapany's investment in that unit and a significant estimates made by management, as well as return thereon will ultimately be recovered.

- evaluating the ' overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. y Cleveland, Ohio

.%brure,14,1992 a

1

Sinntnary of Significant Accounting Policics CENERAL Operating revenues include certain wholesale i power sales revenues in accordance with a FERC The Cleveland Electric illuminating Company clari6 cation of reporting requirements. Prior to 1991, (Company) is an electric utility and a wholly owned these bulk power sales transactions were cetted with subsidiary of ( enterior Energy Corporation purchased power transactions and reported as part

- (Centenor Energy). The Lompany follows the of fuel and purchased power expense. The amounts Uniform System of Accounts prescribed by the for prior years have also been reclassihed to conform Federal Energy Regulatory Commission (FERC) and with current reporting requirements. See Note 13.

adopted by The Public Utilities Commission of Ohio (PUCO). As a rate-regulated utility, the Company is FUEL EXPENSE subject to Statement of Fmancial Accounting Standards 71 which governs accounting for the effects The cost of fossil fuel is charged to tuel expense based of certain types of rate regulation. Tne fmancial on inventory usage. The cost of nuclear fuel, statements include the accounts of the Company's includmg an interest component, is charged to fuel wholly owned subsidiaries, which in the aggregate are expense based on the rate of consumption. Estimated not material, future nuclear fuel disposal costs are being recovered The Company is a member of the Central Area through the base rates.

Power Coordination Group (CAPCO). Other The Company defers the differences between -

members include The Toledo EdHn Company actual fuel costs and estimated fuel costs currently (Toledo Edison), Duquesne I ht Company being recovered from customers through the fuel (Duquesne), Ohio Edison Company (Ohio Edison) factor. This matches fuel expenses with fuel-related and Ohio Edison's wholly owned subsidiary, revenues.

Pennsylvania Power Company (Pennsylvania Power). The members have constructed and operate PRE-PIIASE-IN AND PilASE-IN DEFERRALS generation and transmission facilities for the use of OF OPERATING ENPENSES AND the CAPCO companies. Toledo Edison is also a CARRYING CilARGES D wholly owned subsidiary of Centerior Energy. The PUCO authorized the Company to record, as

' " "E "Y"" #"

RELATED PARTY TRANSACTIONS carrying charges related :o Perry Nuclear Power I lant Operating revenues, operating expenses and interest Unit 1 (Perry Unit 1) and Beaver Valley Power charges include those amounts for transactions with Station Unit 2 (Beaver Valley Unit 2) from their affiliated companies in the ordinary course of respective in-service dates in 1987 through December business operations. 1988. Amortization and recovery of these deferrals The Company's transactions with Toledo Edison (called pre-phase-in deferrals) began in January 1989 are primarily for interchange power, transmission line in accordance with the January 1989 PUCO rate order rentals and jointly owned power plant operations discussed in Note 6. The amortizations will continue and construction. See Notes 1 and 2. over the lives of the related property. _

Centerior Service Company (Service Company), As discussed in Note 6, the January 1989 PUCO the third wholly owned subsidiary cf Centerior rate order for the Company included an approved rate Energy, provides management, financial, phase-in plan for the Company's investments in administrative, engineering, legal and other services at Perry Unit I and Beaver Valley Unit 2. On January 1, cost to the Company and other affiliated companies, 1989, the Company began recording the deferrals of The Service Company billed the Company operating expenses and interest and equity carrying

$138,000,000, $106.000,000 and $92,000,000 in 1991, charges on deferred rite-based investment pursuant 1990 and 1989, respectwely, for such services. to the phase-in plan These deferrals (called phase-in deferrals) will be recovered by December 31,1998.

REVENUES Customers are billed on a monthly cycle basis for their DEPRECIATION AND AMORTIZATION energy consumption based on rate schedules or The cost of property, plant and equipment is contracts authorized by the PUCO. An accrual is depreciated over their estimated useful lives on a made at the end of each month to record the straight-line basis. Prior to 1991, only nonnuclear estimated amount of unbilled revenues for kilowatt- property, plant and equipment was depreciated on a hour sales rendered in the current month but not straight-line basis, as depreciation expense for the billed by the end of that month. nuclear generating units was based on the units-of-A fuel factor is added to the base rates for electric production method.

service. This factor is designed to recover from The annual straight-line depreciation provision for customers the costs of fuel and most purchased nonnuclear property expressed as a percent of power. It is reviewed and adjusted semiannually in a average depreciable utility plant in service was 3Po PUCO proceeding. in 1991, 3.3% in 1900 and 3.9% in 1989. The rate 3

declined in 1940 because of a PUCO approved change depreciation expense under the liability method. -

in depreciation mates effective January 1,1990, See Note 7.

attributable to longer estimated lives for nonnuclear propeity. See Note 13. DEFERRED GAIN FROM in 1990, the Nuclear Regulatory Commission SALE OF UTILITY PLANT (NRC) approved a sivyear extension of the operating The Company entered into a sale and leaseback license for the Davis-Besse Nuclear Power Station transaction in 1987 for the coal-hr< d Bruce hiansheld (Davis-Besse). The PUCO approved a change in the Generating Plant (Mansheld Plant) as discussed m units-of-production depreciation rate for Davis- Note 2. The transaction resulted in a net gain which Besse, effective January 1,1940, which recognized the was deferred. The Company is amortizing the life extension. See Note 13.

appbcable deferred gain over the term of leases under Effective January 1,1991, the Company changed the sale and leaseback agreement. The amortization its method of ac' counting for nuclear' plant and the lease expense amount are recorded as other depreciation from the units-of-production method to operation and maintenance expense.

the straight-line method at about a 3% rate. The PUCO approved this change in accounting method INTEREST CHARGES for the Company and subsequently approved a change to lower the 3% rate to 2.5% for the three Debt interest reported in the income Statement does operating nuclear units retroactive to January 1,1991. not include interest on nuclear fuel obligations. _

See Notes 12 and 13. Interest on nuclear fuel obligations for fuel under The Company uns external funding of future construction is capitalized. See Note 5.

decommissioning costs for its operating nuclear units Losses and gains realized upon the reacquisitica or pursuant to a PUCO order. Cash contributions are redemption of long-term debt are deferred, consi . tent made to the funds on a straight-line basis over the with the regulatory rate treatment. Such losses md remaininglicensing period for each unit. Amounts gains are either amortized over the remainder o' the currently in rates are based on past estimates of original hfe of the debt issue retired or amortized over decommissioning costs for the Company of the life of the new debt issue when the proceeds o' a

$63,000,000 in 1986 dollars for Davis &sse and new issue are used for the debt redemption. The

$44,000,000 and $35,000,000 in 1987 dollars for Perry amortizations are included in debt interest expense.

Unit 1 and Beaver Valley Unit 2, respectively. Actual decommissioning costs are expected to signincantly PROPERTY, PLANT AND EQUIPMENT exceed these estimates, it is expected that increases in the cost estimates will be recoverable in rates Property, plant and equipment are stated at original resulting from future rate proceedings, The current cost less any amounts ordered by the PUCO to be level of expense being funded and recovered from written off. Included in the cost of construction are ,

customers over the remaining licensing periods of the items such as related payroll taxes, pensions, fringe units is approximately $4,000,000 annually. benents, management and general overheads and allowance for funds used durir.g construction FEDERAL INCOME TAXES ( AFUDC). AFUDC represents the estimated

" # #"" "" " I The financial statements reflect the liability method of C *I #9"N finance construction. This noncash allowance is accounting for income taxes. The liability method credited to income, except for certain AFUDC for requires that the Company's deferred tax liabilities be P Nuch Power Plant Unit 2 (Perry Unit 2). See adjusted for subsequent tax rate changes and that the Note 3(c). The gross AFUDC rate was 10.47% in Company ecord deferred taxes for all temporary 1991,10.4S% in 1990 and 10.91% in 1989.

differences between the book and tax bases of assets hiaintenance and repairs are charged to expense as and liabilities. A portion of these temporary . incurred. The cost of replacing ~ plant and equipment differences are attributable to property-related timmg is charged to the utility plant accounts. The cost of differences that the PUCO used to reduce prior years' property retired plus removal costs, after deducting tax expense for ratemaking purposes whereby n any salvage value, is charged to the accumulated deferred taxes were collected or recorded, Since the ovision for depreciation.

PUCO practice permits recovery of such taxes from customers when they become payable, the net RECLASSIFICATIONS amount due from customers has been recorded as a regulatory asset in deferred charges. A substantial Certain reclassif cations have been made to prior portion of this amount relates to differences between years' financial statements to make them comparable the book and tax bases of utility plant Hence, the with the 1991 financial statements and consistent recovery of these amounts will take place over the with current reporting requirements. These include lives of the related assets. reclassifications related to certain wholesale power Investment tax credits are deferred and amortized sales revenues as discussed previously under over the estimated lives of the applicable property. " Revenues" and accumulated deferred rents as The amortization is reported as a reduction of discussed in Note 2.

4

Managenfenrs Financial Analysis

RESULTS OF OPERATIONS approval to accrue post-in-service carrying costs and Orm*u, defer depreciation for fa<"lities that are in service but not yet recognlied in rates. PUCO action on this LThe January 1989 PUCO rate order for the Company, request has been postponed under the joint as discussed in Note 6, was designed to enable us to recommendation approved by the PUCO discussed begin recovering in rates the cost of, and earn a fair below, return on, our allowed investment in Perry . Unit 1 in December 1991, the PUCO approved a joint and Ecaver Valley Unit 2. The rate order, which recomn endation of the Company, Toledo Edison and provided ior three rate increases, improved revenues customer representative groups involved in the 1989

and cash flows in 1989,1990 and 1991 from the 1988

levels. However, as discussed m the first four rate case settlement. The joint recommendation sought to secure an interim resolution of then-paragraphs of Note 6, the phase-m plan was not pending accounting applications in 1991 'and to designed to improve earnings because gains in establish a framework for resolving accounting issees -

' revenues from the higher rates and assumed sales and related matters on a longer-term basis (i.e.,1992-growth are initially offset by a corresponding 1995). As part of this joint recommen, ation, the reduction m the deferral of nuclear plant operating Company and Toledo Edism agreed to limit their expenses and carrying charges and are subsequent _ly combined 1992 other opemion and maintenance offset by the amortization of such deferrals: expenses and capital expenFures to $1,050,000,000, Although the phase-in plan had a positive effect exclusive of compliance costs re'ated to the Clean Air on revenues and cash flow;s, there are a number of Act Amendments of 1990 (Clean Air mt). Other factors that exerted a negative mfluence on earnings in operation and maintenance evenses and capital 1991 and will continue to present sigmficant earnings expenditures on a consolidated basis for Centerior challenges in 1992 and beyond. One such factor is - Energy totakd $1,005,000,000 in 1991. W Company,

related to facilities placed in service after February . Toledo Edison and the customer representative '

1988 and not mcluded m rate base. The Company ts groups also agreed to an ongoing review of our required to recprd interest charges and depreciation

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on these facilities as current expenses even though business operations, financial condition and accounting practices. This effort, with the participation such items are not yet recovered m rates. We also are of the PUCO staff,is directed at the maintenance and facing the challenge of competitwe forces, mcluding ultimate improvement of our hn. acial condition, the new initiatives to create mumcipal electnc systems. mprovement of the efficiency of our , perations, and The need to meet competitwe threats, coupled with a the delav and minimization of future rate increases.

desire to encourage economic growth in the service The Company and Toledo Edison also agreed nat to

area, is prompting the Company to enter mto an

, . sed any base rate increase that would become increasing number of contracts having reduced rates effect ve' before 1993, with certam large customers. Factors beyond our

^

control also having a negative influence on earni'gs The C,ompany continually faces competitive are the economic recession, the effect of inflatt. . and threats from mumcipal electne systems within its increases in taxes, other than federal income taxes. semce territory, a challenge mtensified by municipal The Company has taken several steps to counter access to low-cost power currently available on the the adverse effects of the factors discussed above. We wholesale market. As part of our competitive have implemented most of the recommendations of strategy, we are strengthening programs that the management audit discussed in Note 6 and have demonstrate the added value mherent in our service, taken other actions which reduced other operation beyond what one might receive from a municipal and maintenance expense by - approximately electnc system. Such programs include providing ,

$44,700,000 in 1991. As discussed in the Summary of savices to communines to help them retam and Significant Accounting Policies and Note 12,.we' attract businesses, providing consulting services to sought and received PUCO approval to lower our customers to improve their energy efficiency and nuclear plant depreciation expense in 1991 to a level developing demand-side management programs. To more closely aligned with th? amount being c unte new mumcipalization initiatives, we are also recovered in rates. In addition, we have increased our stressing the financial risks and uncertainties of efforts to sell power to other utilities which, in 1991, creating a municipal system and our supenor

- resulted in approximately $30,200,000 of revenues in reliability and service.

excess of the cost of providing the power. Annual sales growth is expected to average about Despite the positive aspects of the measures - 2% for the next several years, contingent on future discussed above, more must be donc to maintain economic events. Recognizing the limitations earnings. Continuing cost-reduction efforts will be imposed by these sales projections and current necessary to lessen the negative pressures on competitive pressures, we will utilize our best efforts

- earnings. The Company is aggressively seeking to minimize future rate increases through cost-long-term power contracts with wholesale customers reduction and quality-of-service efforts and exploring to further enhance revenues; To counter the effects other innovative options. Eventually, rate increases of delays in recovering new investment since 1988 will be necessary to recognize the cost of our new and refated costs in rates, we have requested PUCO capital investment and the effect of inflation.

5

1991 vs.1990 Company of 9% effective in iebruary 1989 and 7" .

Factors contributmg to the 8So increase in 1991 effective ,in l'ebruary 1990. The associated sevenue tnerease m 1990 was partially offset bs reduced operating revenues are as follows: "

b Change in Operatmg Revenues increaw

- Lilowatt-hour sales. Industrial sales decrecsed 2 6%

Basc Rates and Muellaneous . $ N oMm0 because of the recession beginning in 1990.

Sale, volume and Mn. 21mmte Res dential sales decreased 1% as seasonal WholNie Sales. _40 A0 000 g Sif 00lW the prior year's temperatures, resulting in reduced customer heating and cooling-related demand.

The increases in base rates and miscellaneous Commercial sales increasni 0% as increased revenues resulted primarily from the lanuary 1989 demand from new all-electnc office and retail space PUCO rate order for the' Company. The pUCO was offset by the effects of mild weather. Other sales approsed rate increases of 7% effective in February activity decreased 21.4% primarily as a result of lower 1990 and 435So effective in February 1991. Total wholesale sales. The increase in revenues was also kilowatt hout sales increased 4.3",in' 1991. Residential d'Udb "NS". tby the loss of revenues related to the and commercial sales increased 4% and 4.9a . o

{iay npirahon f the Company s agreement to resputively., as a result of higher usa e of cooling equipment in response to the unusuaf'ly warm late wH a portion of its, share of I erry Unit I capacity to Quo Edison and I ennsylvama power.

spring and summer 1991 temperatures. The commercial sales increase was also influenced by Operating expenses decreased 0.3% in 1990.

some improvement in the economy for trie Depreciation and amortization expense decreased commercial setor. Industrial sales declined 6.3% primanly because of lower depreciation rates used in -

largely because of the recession-driven slump in the 1990 for nonnuclear and Davis-Besse property steel, auto and chemical industries. Other sales attributable to longer estimated lives and because of increased 45.3% because of increased sales to longer nuclear generating unit refueling and wholesale customers and public authorities. maintenance outages in 1990 than in 1989. Federal Operating expenses increased 4% in 1991. The income taxes decreased primarily because of a increase was mitigated by a reduction of $44,700,000 decrease in pretax operating income. Fuel and in other operation and maintenance expense, resulting purchased power expense decreased primarily from primarily from cost-cutting measures, Offsetting this less amortization of previously deferred fuel costs decrease were an increase in fuel and purchased than the amount amortized in 1989. These decreases power expense resulting from increased purchased in operating expenses were paitially offset b, an increase in taxes, other than federal income taxes, power costs and increased amortization of previously deferred fuel costs over the amount amortized in resulting from higher property and gross receipts 1990; an increase in federal income taxes because of taxes, an increase in other operation and maintenance higher pretax operating income; an increase in taxes, expense and by lower operating expense deferrals for other than fedcral income taxes, resulting from Perry Unit I and Beaver Valley Unit 2.

higher property and gross receipt taxes and accruals Credits for carrying charges recorded in for Pennsylvam,a tax mcreases enacted m August nonoperating income' decreased in 1990 because a 1991 and lower operatmg expense deferrals for l'erry creater share of our investments in Perry Unit 1 and Unit I and Beaver Valley Umt 2 pursuant to the Eeaver Valley Unit 2 were recovered in fates. The January 1989 PUCO rate order. decrease in the federal income tax provision related to Credits for carrymg charges recorded .m nonoperating income was the result of a decrease in nonoperatmg mcome decreased m 1991 because a pretax nonoperating income and federal income tax -

greater share of our investments m Perry Unit 1 and adjust:nents of $18,712,000 associated with previously Beaver Valley Unit 2 were recovered in fates. The . deferred investment tax credits relating to the 1988 ~

federal mcome tax provision related to nonoperatm8 write-off of nuclear plant. Interest expense increased income increased mamly because the 1990 provmon in 1990 because of the higher level of debt outstanding was reduced by $18,712,000 for federal income tas ,vhich was partially offset by rehnancing.

adjustments associated with previously deferred investment tax tredits relating to the 1985 write-off of EFFECT OF INFLATION nuclear plant.

Although the rate of inflation has eased in recent 1990 n 1989 years, we are still affected by even modest inflation Factors contributing to the 3.5% increase in 1990 since the regulatory process Introduces a time lag operatmg revenues are as follows: during which increased costs of our labor. materials Chance in Operating Revenues (e )

and wss am nd dd M rab ad recoWd

- Moreover, regulation allows only the recovery of Base Rates and Macellaneous . $11t000.fWO historical costs of plant assets ttirough depreciation Saies Volume and Mn . . . . (25000 w0) even though the costs to replace these assets would substantially exceed their historical costs in an an ns P (nmwoo) milationary economy.

Changes in fuel costs do not affect our results of The major factor accounting for the increase in operations since those costs are deferred until operating revenues was related to the January 1989 reflected in the fuel cost recovery factor included in rate order. The PUCO approved iate increases for the customers' bills.

6

Inc0rne Staternent - rut cartuno tucnuc suu.wsmuc comxr suo sueswwns

... ....... . . ..... ...... . .,. . .. . . .. . . . . , , . . . . . . .. . . . . . . ..... 1 For the years ended December 31, 1991 1990 1989 (thousands of dollars)

Operating Revenues . . . . . . . . . . . . . . , . . .. $1,825,738 $1,691,159 $1,634,2_27 Operating Expenses Fuel and purchased power (1) . ... ,. . 455,055 412,397 427.108 Other operation and maintenance . . ..... ... . . 469,530 514,186 -508,151 Depreciation and amortization .. ..., , 170,571 169,526 . 187,614 Taxes, other than federal income taxes .. . . 215,908 197,454 183,120 Phase-in defened operating expenses . . . . ... . ,, (16,426) (33,960) (52,020)

Amortization of pre-phase-in deferred costs .. . . 9,586 10,076 9,553 Dderal income taxes . . . . . . . . . .. . . 105,824 75,099 85.275 1,410,048 1,344,778 1348,80,11 Operating income . . . . . . . . . . . . . . . , .. . . 415,690 346.381 285,426 Nonoperating income Allowance for equity funds used during construction .. 7,852 4.531 ' 8J62 l Other income and deductions, net .. . .. . .. 5,809 1,836 7,934

- Phase-in carrying charges. ... .... .. . . .., 87,615 161,598 216,851 Pre-phase-in carrying charges . . . . . . . . . .. .. .

- - 17,937 Federal income taxes - credit (expense) . . . . . .., . (24,311) (20,401) (55,699) 76,965 147,564 195,385 income Before Interest Charges;.. . .. . ,, ..., . 49L655 493,945 480,811 Interest _ Charges Debt interest . ... . . .. . .. . . . .... 250,799 254,936 - 238.042 Allowance for borrowed funds used during construction (4,302) (3,319) (7,450) 246,497 251.617 230,592 Net income . . . . . .. . , . 246,158 242,328 250,219 Preferred and Preference Dividend Requirements . . . 35,857 36,682

_ 40.227 Earnings Available for Common Stock .. . . . .. . . ., , $ 210,301 _ y 205.646 $ 209.992 (1) includes purchased power expense of $127,691,000, $111,761,000 and $114,123,000 in 1991,1990 and 1989, respectively, for purchases from Toledo Edison.

.R'!"N!'d E".9!i "2' .

For the years ended December 31, 1991 1990 1989 (thousands af dollars)

- Balance at Beginning of Year.-. .. . .. . .. $ 563,559 $ 507,375 5 459,709 Additions

' Net income - .. ... . 246,158 242,328 250,219 Deductions Dividends declared:

Common stock . .. . ... . . .. . . .. .. (194,306) (149,199) (161,662)

Preferred stock. . . . . . .. . . (36,389) (36,205) (40,76")

Preference stock '. . . . . .. . - -

(124)

Other primarily preferred stock redemption expenses . . (816) _ (740) 2 Net increase . ,. , 14,647 56.184 47,ffg Balance til End of Year . . .. ... . . . .

$ 578,2y $ 563,559 $ 507'G5 The accompanying notes and summary of significant accounting policies are an integral part of these statements.

7

N. .... .

CAPITAL RESOURCES AND I.IQUIDITY construction and mandatsry redemption ,

in addition to our need for cash for normal corporate requhements of approximately $286,000,000. About i operations, we continue to need cash for an ongoing 60-70% of the Company's 1993 and 1994 requirements program of constructing new facilities and modifying _ are expected to be financed externally. If economical, existing facilities to meet anticipated demand for additional securities may be redeemed under electric _ service,- comply with governmental optional redemption provisions. See Notes 10(c) and regulations and protect the environment. Cash is also (d) for information concerning limitations on the needed for the mandatory retirement of securities. issuance of preferred and preference stock and debt.

Over the- three-year period of 19891991; these gur capital requirements after 1994 will depend on construction and mandatory retirement needs totaled the implementation strategy we choose to achieve approximately $800,000,000; in addition, we compliance with the Clean Air Act. Expenditures for exercised various options to redeem and purchase our optimal plan are estimated to be approximately approximately $270,000,000 of our securities. $155,000,000 over the 1992-2001 period. See Note

' As a result of the January 1989 PUCO rate order, 3(b),

internally generated cash increased in 1989,1990 and We expect to be able to raise cash as needed. The

- 1991 from the 1988 level, in addition, we raised availability and cost of cap;tal to fneet our external

.inancing needs, however, depends upon such factors

- $1,049,000,000 through security issues and term bank ,

loans during the .989-1991 pe'riod as shown in the as imancial market conditions and our credit ratings.

Cash Flows statement. During the three-year period, Current securities ratings for the Company are as the Compacy also utilized its short-term borrowing f0Il0*S arrangements (explained in Note 11) to help meet its standard woody s cash needs. Proceeds from these financings were used to help pay for our construction program, to y",1 lagors repay portions of short-term debt ir irred to fmance First morgage tmnds. BBB- Baa2 ,

the construction program, to retire, redeem and Prw swk . BB+ baa2 purchase outstanding securities, and for general corporate purposes.

Estimated cash requirements for 1992-1994 for the A write-off of the Company's investment in Perry l Company are $693,000,000 for its construction Unit 2, as discussed in Note 3(c), would not reduce -i program . and 3464,000,000 for the mandatory retained cam.ings sufficiently to impair its ability to redemption of debt and preferred stock. Additionally, declare dividends and would not affect cash flow.

the Company has arranged to refund in -1992 The Tax Reform Act of 1986 (1986 Tax Act)

$78,700,000 principal amount of its First Mortgage provided for a 34% income tax rate in 1988 and Bonds,13%% Series due 2012 by issuing an equal thereafter, a new alternative minimum tax ( AMT) and principal amount of first mortgage bonds duc 2013 other changes that resulted in increased tax payments having an cffective interest cost of 8.25%. We expect to and a reduction in cash flow during 19[- 1990 and finance externally about 50% of our total 1992 1991 because we were subject to the A!V '

8

N., '

,. Cash Flows me cununo tucuac inuwnsnua consur suo suosioisms For the years ended December 31, 1991 1990 1989  ;

.. . (thousands of douan)

Cash Flows from Operating Activities (1)

Net income . ........ ...... .... .. ... ... .... ...... $ 246,158 5 242,328 $ 250.219 Adjustments to Reconcile Net income to Cash from Operating Activities:

Depreciation and amortization , m . , . . . ... . .... . . 170,571- .169,526 187,614 Deferred federal income taxes . , . . . . .. ... ... 50,934 111,029 108,261

~ Investment tax credits, net . . . . ... .. . .. . -12,653 (17,224) (58)

Deferred and unbilled revenues . . . . . .... . ... (25,300). (38,134) (32,168)

Deferred fuel . . . . . . . . . . . . . . . . . . . . . ... . . 13,450 (11,410) 8,827 -

Carrying charges capitalized .... . .. . .. . ... . (87,615) (161,598) (234,788)

Leased nuclear fuel amortization . . . . . . .. ... . 68,866 47,028 55,712 Deferred operating expenses, net . .... .. .... . (6,840)'- (23,884)- (42,467) ,

Allowance for equity funds used during construction . . . , (7,852) (4.531) -- (8,362) 2

- Amortization of reserve for Davis-Besse refund obligations t o cus tomers . . . . . . . . . . . . . . . . . . . .. . .

(12,162)

Pension settlement gain _ . . . ..... . . ... . .. .. ...... -

(34,517) -

Changes in amounts due from customers and others, net. . 11,904 (16,878) (9,251) .

Changes in inventories . . . . . . . . . . . . . . . . .

.. .. (15,040) (2.2.494) -- (4,919) -

Changes in accounts payable., . . ..... . .. . .. (23,667) 31,901 (13,844)

Changes in working capital affecting operations. ... ... -36,997 (5,195) 29,504 Other noncash items . . . . . . . . . . . . . . .......... . . (13,334) _ (9,125) (9,065)

Total Adjustments .. . .. .. .... . .. .. .... 185,727 _ 14,494 22,834 Net Cash from Operating Activities . . . . . . . . . 431,885 _ 256,822 273,053 Cash Flows from Financing Activities (2)

Bank loans, commercial paper and ~other short-term debt. . . . . -(86,703) 86,688 29 Notes payable to affiliates ....... . ...... .. . .. . .. . 7,000 (157,200) 90,200 Debt issues:

First mortgage bonds . . . . .. . . ,,.. . . .. . - 100,000 67,700 Secured medium-term notes . ., .. .. . ,, . 150,000 337,500 212,500 Term bank loans.' ....... . . . .. . . . . ........ . -- 16,000 40,000 Preferred stock issues .. .. _ ....... .... ..... , 125,000 - -

Maturities, redemptions and sinking funds. . . . . . . . , . (132,990) (211,810) (305,741).

. Nuclear fuel lease and trust obligations . . . ... . ... . (63,895) (56,129) (47,574).

Dividends paid -. . . . . , .... . . . , , , . , (229,671) (185,851) (202,444)  !

Premiums; discounts and expenses . . . . . .. ... (5,990) - (5.515) (1.697)

Net Cash from Financing Activities . .. . . . (237,249) -(76,317) (147.027)

Cash Flows from investing Activities (2)

Cash applied to construction . . . .. . .. .. . _ , .. . .....

-(137,851) (156,769) (149,043)

Interest capitalized as allowance for bcGowed i mds used

- during construction . . . . . . . . .. .. . . . .... (4,302) (3,319) (7,450)

Loans to affiliates . . . . . . , . . . ., .. .. ., . . 11,000 (11,000) -

- Other cash received (applied) . . . . . . . . . . . .. ., 2,254 (6,699) - (16.840)

Net Cash from investing A~ctivities . ... .. (128,899) (177,787)- (173,333).

Net Change in Cash and Temporary Cash Ir mtments. . . ... 65,737. 2,718 (47,307)

Cash and Temporary Cash Investments at Beginning of Year ,. . 31,048 28.330 75,637

Cash and Temporary Cash Investments at End of Year. .. . .

.$ 96,785 $ 31,048 $ 28,330 s (1) Interest paid (net of amounts capitalized) was $221,000,000. $189,000,000 and $151,000,000 in 1991,1990 and 1989, respectively. Income taxes paid were $49,536,000, $18,589,000 and $29,106,000 in 1991,1990 and 1989,-

respectively;.

(2) Increases in nuclear fuel and nuclear fuel lease and trust obligations in the Balance Sheet resulting from the noncash capitalizations under nuclear fuel agreements are excluded from this statement.

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

9

,, . , - . .-~ , .-

Balarice Shee!

December 31, 14 _ 1990 thousands of dollars)

_ ASSETS:

PROPERTY, PLANT AND EQUIPMENT Utility plant in service. . , . . . .. . .. . , $6,195,945 $6,032,336 Less: accumulated depreciation and aniottiration . 1,564,984 1,398,258 4,630,961 4,634,078 Construction work in progress . . . . . . 161,890 175,232 Perry Unit 2. . . .. . . . .. ,. . . 507,806 521.464 5,300,657 5,330,774 ,

Nuclear fuel, net of amortization . . . 263,129 300,824 Other property, less accumulated depreciation . . . . 41,834 43,428 5,605,620 5.675.026 CURRENT ASSETS Cash and temporary cash investments .. 96,785 31,048 Amounts due from customers and others, net . . . . 167,280 179,184 Amounts due from affiliates . .. . . 3,648 19,542 Unbilled revenues . . . . . . . . . . . .. . . . . 86,000 60,700 Materials ~ and supplies, at average cost . . . 69,043 76,092 Fossil fuel inventory, at average cost . . . . .. 39,089 37.000 Taxes applicable to succeeding years. .. . ,, 167,753 155,069 Other . . . . . . . . . . . . . . . . . . . 5,453 6.926 655,0?il 565.561 DEFERRED CHARGES Amounts due from customers for future federal income taxes. 673,726 671,450 Unamortized loss on reacquired debt .... .. , .. 49,593 53,160

' Carrying charges and operating expenses, pre-phase-in 368.448 377,324 Carrying charges and operating expenses, phase-in . . . 568,472 464,434 Other. . ... . .. . . . . . 145,670 - 138,202 1,805,909 1,704.570 Total Assets . ... . . . . . .$8,066,580 . $7,945,157 -

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

'10

y THE CLEVELAND ELECTCtlC lilUMINATING COMPANY A!iD SUBSIDIARIES December 31, 1997 1990 (thousands of dollars)

' CAPITALIZATION AND LIABILITIES CAPITAll2ATION . _

Common shares. without par value: 105,000,000 authorized; 79,591.000 outstanding in 1991 and 1990. , . . ... .. $1.240,570 $1,242,074 Other paid-in capital . .. . .. . .. . . . 78,625 78,625 Retained earnings. . . . . . . . .. ... .. . 578,206 563,559

. Common stock equity . .. .. . . . . 1,897,401 1,884,258 Preferred stock With mandatory redemption provisions ., .. . . . 268,368 171,162 Without mandatory redemption provisions . . 217,334 217,334 Long-term debt . . . . ... . ... . ... .. 2,682,805 2.631,911 5,065,908 4,904,665 OTHER NONCURRENT LIABILITIES Nuclear fuel lease obligations . . . . .. . . . . . 197,362 246,460 Other. . . . .. . .. . . 33,391 33,390 ,

230,753 279 '30 CURRENT LIABILITIES Current portion of long-term debt :nd preferred stock . . . 92,857 97,988 Current portion of lease obligations. . . 80,928 64,554 Notes payable to banks and others .. . . . . . . 191 86,894 Accounts payable . . . . . . . .. . . . . . 97,251 120,918 Accounts and notes payable to affiliates . . 58,578 59,884 Accrued taxes . ... . ... . .. . . . . 281,526 225,666 Accrued interest . . .. .. . . . . . 53,096 53,113 Other. .. . .. .. . . . 34,499 37,697 698,926 746,714 DEFERRED CREDITS Unamortized investment tax credits. .. . 258,318 252,759 Accumulated deferred federal income taxes . . . . 1,203,722 1,159,199 Reserve for Perry Unit 2 allowance for funds used during construction . . . . .. . . .. ... , . . 124,398 124,398

' Unamortized gain from Bruce Mansfield Plant sale ... . 375,076 389,658 Accumulated deferred rents for Bruce Mansfield Plant ... 64,194 57,045 Other. . . .... .. . , . . .. . , 45,285 30,869 1 070,993 2.013,928 Total Capitalization and Liabilities. , 58,0_66,580 $7,945,157 11

;Statenient of Cuntulative .

Preferred Stock. .

rut curtuno tucnue inuurnsruna coursur Ano sussivisnits

...............o..-. .. . .. ... . 4 6 .. ... ....... .. .. . . . ... ... ...

1991 Shares Current December 3L Outstandmg Call Price 1991 -1990 (thousands of dollars)

- Without par.value,4,000,000 preferred shares authorized Subject to mandatory redemption:

.$ 7.35 Series C . .. .. . . 170,000 $ 101.00 $ 17,000 $ 18,000

'88.00 Series E. . .. .. . 27,000 1,030.61 27,000 30,000 75.00 Series F . . . , . . . . .... . .2,384-145.00- Series I . .. .. .. - - - 13,779 113.50 Series K . . . .. - - - 10,000 Adjustable Series M . . . . . . . , . . . . . . 400,000 102.00 39,200 49,000 9.125 Series N . .. . . 750,000 105.07 73,968 73,968 91.50 Series Q . . . . . . . . . . . 75,000 - - 75,000 -

83.00 Series R . .. . . 50,000 - 50,000 -

282,168 -197,131

- Less: Current maturities _13,800 25,969 Total Preferred Stock, with Mandatory Redernption Provisions $268,368 $171,162

-Not subject to mandatory redemption:

$ 7.40 Series A . . .. 500,000 101.00 $ 50,000 $ 50,000 .

- 7.56 Series B. . . . ..., . . 450,000 102.26 45,071 45,071 48,950

- Adjustable Series L. . . . .. ,, .. 500,000 103.00 48,950 Remarketed Series P . . . . ... 750 100,000.00 73,313 -73,313

$217,334 $217,334 '

Total Preferred Stock, without Mandatory Redernption Provisions The accompanying notes and summary of significant accounting policies are an integral part of this statement.

i A

12

Rotes to the Financial Statements (1) PROPERTY OWNED WITil OTilER UTILITIES AND INVESTORS The Company owns, as a tenant in common with other utilities and those nvestors who aw owner-participants in various sale and leaseback transactions (Lessors)icettain generating units as listed below. Each owner owns an

undivided share in the entire unit. Each owner has the right to a percentage of the generating capability of each unit equal to its ownership share. Each utility owner is obligated to pay for only its respective share of the

- construction and operating costs. Each lessor has leased its capacity rights to a utility which is obligated to pay for such Lessor's share of the construction and operating costs. The Company's share of the operating costs of these generating units is included in the income Statement. Property, plant and equipment at December 31,1991 includes the following facilities owned by the Company as a tenant in common with other utilities and Lessors:

Owner- Construction in- Owner, ship Plant hork in Service ship Mega- Power in Progress and Accumulated Generating Unit Date Share watts bour< e Servue Suspended Depreciation in Service: (thousands of dollar 9 Seneca rumped Storage. 1970 80 00% 312 Hydro $ 57.733 $ 1.021 $ 19,855 Eastlake Unit 5. 1972 edSO 411 Coal 151.150 2.199 -

Davw Besse . . .. . . 1977 51.38 454 Nu< lear tA0,121 21.055 150,911 Perry Um. I and Common Facihbes , 1987 31.11 371 Nuclear 1,622.823 4.201 191.227 Beaver Valley Umt 2 and Common f acihties (Note 2) . 1987 24 47 201 Nudear 1.170.046 5,461 143J50 Construction Suspended:

Perry Unit 2 (Note 3(c)) . Uncertain 31.1 t 375 Nuclear -

507.80h -

$3 681.873 $541J43 $505143 Depreciation for Eastlake Unit 5 has been accumulated with all other nonnuclear depreciable property rather +

than by specific units af depreciable property.

Effective hiay 1,1991, FERC approved an agreement under which the Company is selhng the power from its share of the Seneca Power Plant to two subsidiaries of General Public Utilities Corporation through 1993.

Revenues from this transaction were $16.000,00C 17.1091.

Ohio Edison and Pennsylvania Power purchased 80 megawatts of the Company's capacity entitlement in Perry. Unit 1 from November 1987 through hiay 19W. Recenues from this transaction were $31.831,000_in 1989 The ownership share of Perry Unit 2,et forth above does not reflect the Company's acquisition of Duquesne's

13.74% ownership share in February 1992. See Note 3(c).

(2) UTILITY PLANT SALE AND LEASEBACK TRANSACTIONS As a result of sale and leaseback transactions Semiannual lease payments conform with the completed in 1987, the Company and Toledo Edison payment schedule for each lease.

are co lessees of 18.26% (150 megawatts) of Beaver Rental expense is accrued on a straight-line basis Valley Unit 2 and 6.5% (51 megawatts),45.9% (358 over the terms of the leases. The amount recorded by megawatts) and 44.38% (355 me r awatts) of Units 1,2 the Company in 1991,1990 and 1989 as annual rental

'and 3 of the Mansfield Plant, respectively, all for ~

expense for the Mansfield Plant leases was

- terms of about 29% years. .

$70,008,000. Amounts charged to expense in excess of '

As co-lessee' with Toledo Edison, the Company is the lease payments are now classified as accumulated also obligated for Toledo Edison's lease payments. If deferred rents on the Balance Sheet l Previously, the Toledo Edison is unable to make its payments under - excess was included in accounts payable.

the Beaver Valley Unit 2 and Mansfield Plant leases, The Company and Toledo Edison are responsible the Company would be obligated to make such .

under these leases for paying all taxes, insurance payments. No payments have been made on behalf of premiums, operation and maintenance costs and all Toledo Edison to date. other similar costs for their interests in the units sold Future minimum lease payments under these and leased back. The Company and Toledo Edison L operating leases at December 31,1991 are summarized may incur additional costs in connection with capital as follows: For improvements to the units. The Company and Toledo

- For the Toledo Edison have options to buy the interests back at the -

l_ Company Edison end of the leases for the fair market value at that time (thousands of dollars) or to renew the leases. Additional lease provisions 1992. $ -_ 63.000 $ 110.000 provide other purchase options along with conditions f r mandatory termination of the leases (and possible 1995; n000 111200 repurchase of the leasehold interests) for events of

_1996. . noon llum default. The.m events of default include

. Later Years . 1.516S00 2.4 WOO noncompliance with several financial covenants Total Future Minimum affecting the Company, Toledo Edison and Centerior

. Isase Payments . $1 M31.000 $3.034AS Energy contaired in an agreement relating to a letter 13

1 1

of credit issued in connection with the sale and significantly higher capital expenditures could be leaseback of Beaver Valley Unit 2, as amended in required during the 1992-2001 period.

1989. See Note 10(d). We believe that Ohio law permits the recovery of s Toledo Edison is Seiling 150 megawatts of its compliance costs from customers in rates.

Beaver Valley Unit 2 leased capacity entitlement to the Company. This sale commenced in 1988 (c) PERRY UNIT 2 and we anticipate that it will continue at least until 1998. Purchased power expense for this transaction Pctry Unit 2, includ ag its share of the common was $106,589,000, $102,773,000 and $104,127,000 in facilities, is approxiiuately 50% complete. Construction 1991,1990 and 1989, respectively. The future f Peny Unit 2 was aspended in 1985 pending future minimum lease payments associated with Beaver e nsideration of various options, including Valley Urit 2 aggregate $1,869,000,000. resumption of full construction with a revised estimated cost, conversion to a nonnuclear design, s W all or part of our mynership share, or (3) CONSTRUCTION AND CONTINGENCIES cancellation No option may be implemented without (a) CONSTRUCTION PROGRAM the unanimous approval of the owners. In Ocober The estimated cost of the Company's construction 1991, the Company, which is responsible for the program for the 1992-1994 period is $731,000,000, construction of Perry Unit 2, applied for a ten-year including AFUDC of $38,000,000 and excluding extension of the construction permit which was to 3 nuclear fuel. expire in November 1991. Under NRC regulations, the in an agreement approved by the PUCO, the construction permit will remain in effect while the Company and Toledo Edison have agreed to limit application is pending. We expect the NRC to grant their combined 1992 other operation and maintenance the extension.

expenses and capital expenditures to $1.050,000200, in February 1992c the Company purchased exclusive of compliance costs relaied to the Clean Air Duquesne's 13.74% ownership share of Perry Unit 2 Act. Within this limitation, capital expenditures are for $3,324,000. This purchase increased the

- budgeted at $191,000,000 for the Company, exclusive Companyi os mship share of the unit to 44.85%,

of the Clean Air Act compliance costs. with the remainder owned by Toledo Edison, Ohio Ediu and Penn:.ykaN.a Power. The purchase does (b) CLEAN AIR LEGISLATION not Nnal any plans tu resume construction of Perry

' . ..t 2., but rather our intent to keep our options The Clean Air Act will require, among other things, significant reductions in the emission of sulfur dioxide opa Duquenc h;.J stated that it would not agree to mmpu d c nstruction of the unit.

and _ nitrogen oxides by fossil-fueled electric generating units. The Clean Air Act will require that . If Perry Unit 2 were to be canceled, then our net sulfur dioxide emissions be reduced in two phases Nw 1 m the unit (less any tax saving) would over a ten-vear period. hm to be written off. The Company estimates that such a weite-off, based on its investrr.ent m this umt Centerior Energy has developed a compliance as f December 31,1991 and after adjustment for the strategy for the Company and Toledo Edison wbwh will be submitted to the PUCO for review in Apnl Fettuary 1992 purchase of Duquesne's ownership saans w uld have been about $267,000,000, after 1992. Centerior Energy will also seek United St ,

Environmental Protection Agency approval of Phase i taxes. See Note 10(d) for a discussion of potential plans in 1993. The compliance plan which results in "S*9"".s f such a write-off.

the least cost and the greatest flexibihty provkies for if a decision is made to convert Perry Unit 2 to a compliance with both phases th-ough 2001 by greater n nnuclear design in the future, we would expect to use of low sulfur coal at some of ou units and the write off at that time a portion of our in estment for banking of emission allowances. The plan would nuclear plant construction costs not transferable to the require capital expenditures for the Company over the nmmuclear construction project.

1992-2001 period of app. iximately $155,000,000 for lleginning in July 1985, Perry Unit 2 AFUDC was nitrogen oxide control -gwpment, emission credited to a deferred income account until January 1, 1988, when the accrual of AFUDC was discontinued.

monitoring equipment and plant modifications. In addition, higher fuel ano <"ner operation and maintenance expenso would be incurred. The least (d) SUPERFUND SITES cost plan also ca"- for the Company to place in The Comprehensive Environmental Response, service after 200: a scrubber or other sulfur emission CompensaOn and Liability Act of 1980 as amended reduction technohny at one of its generating plants. (Superfund) established programs addressing the The rate increase associated with the Company's cleanup of hazardous waste disposal sites, emergency caphal expenditures and higher expenses would be preparedness and other issues. The Company is about 1-2% in the late 109th and another increase after aware of its potential involvement in the cleanup of the year 2000, for an aggregate rate increase in the seven h.aardous waste sites. The Company has range of 3-6%. recorded reserves based on estimates of its Our final compliance plan will depend upon future proportionate responsibility for these sites. We believe environmental regulations and input from the PUCO, that the u:timate outcorae of these matters will not other regulatory bodies and other concerned entities. have a material adverst effect on our financial if a plan other than the least cost plan is required, condition or results of operations.

14

_- _____ __ _ _ _ ____ _ A

. - .~ -

(4) NUCLEAR OPERATIONS AND (5) NUCLEAR FUEL, CONTINGENCIES ' The Company has inventories for nuclear fuel which sh uld provide an adequate supply into the mid-Ja) ' OPERATING NUCLEAR UNITS 1990s. Substantial additional nuclear fuel must be The Company's interests in nuclear units may be obtained to supply fuel for the remaining useful lives impacted by activities or events beyond its control. of Davis-flesse, Perry _ Unit 1 and Beaver Valley Unit Operating nuclear generating units have experienced 2. More nuclear fuel would be required if Perry Unit

. unplanned outages or extensions of scheduled 2 were completed as a nuclear generating unit.

outages because of equipment problems or new in 1989, existing nuclear fuel fmancing regulatory requirements. A major accident at a nuclear arrangements for the Company and Toledo Edison facility anywhere in the world could cause the NRC were re6nanced through leases from a special-to limit or prohibit the operation, construction or purpose corporation. The total amount of financing

licensing of any nuclear unit. If one of our nuclear currently available under these Icase arrangements is units is taken out of service for an extended period of $509,000,000 ($309,000,000 from intermediate-term n tes nd $200,000,000 from bank credit time for any reason, including an accident at such unit or any other nuclear facility, the Company arrangements), although financing in an amount up cannot predict whether regulatory authorities would to $400,000,000 is permitted. The intermediate-term impose unfavorable rate treatment such as taking our n tes mature in the period 19931997. The bank credit affected unit out of rate base or disallowing certain

~ ements are cancelable on two years notice by

. . enders. As of December 31,1991, $281,000,000 of construction or maintenance costs. An extended .

outage of one of our nuclear units coupled with nuclear fuel was financed for the Company. The

unfavorable rate treatment could have a material Company and Toledo Edison severally lease their adverse effect on our financial position and results of respective p rtions of the nuclear fuel ano are operations. obligated to pay for the fuel as it is consumed in a reactor. The lease rates are based on various

"#~ " ' " " * " * * ' * " ' ' #" '# *"O (b) NUCLEAR INSURANCE commercial paper rates.

The Price-Anderson Act limits the liability of the The amounts fmanced include nuclear fuel in the Davis-Bese perry Unit 1 and Beaver \ alley Unit 2 ownem of a nuclear power plant to the amount react rs with remaining lease payments of provided by private insurance and an industry assessment" plan In the event of a nuclear incident at $76,000,000, $54,000,000 and $18.000,000, respectively, as of December 31,1991. The nuclear fuel amounts

- any unit in the United States resulting in losses in financed and capitalized also included interest excess of the level of private insurance (currently

$200,000,000), the Company's maximum potential charges incurred by the lessors amounting to

$12M000 in 1991, $19,000,000 m 1990 and assessment under that plan (assuming the other $25,000,000 ,m 1989. The estimated future lease

' CAPCO companies were to contribute their amortization payments based on projected proportionate share of any assessment) would be

$70,754,000 (plus any inflation adjustment) per c nsumption are $51,000,000 m 1992, $,54,000,000 m ,

1993, $51,000,000 in 1994, $44,000,000 m 1993 and

incident, but is limited to $10,696,000 per year for each $47,000,000 in 1996.

nuclear incident.

The CAPCO companies have insurance coverage

- for damage to property at the Davis-Besse, Perry and (6) REGUI.ATORY MATTERS Beaver Valley sites (including leased fuel and clean- On January 31,1989, the PUCO issued a rate order up costs).. Coverage amounted to $2,515.000,000 for which provided for three annual rate increases fc '.he each site as of January 1,1992. Damage to property Company of approximately 9%,7% and 6% effective could exceed the insurance coverage by a substantial with bills rendered on and after February 1,1989, amount. If it does, the Company's share of such 1990 and 1991, respectively. As discussed below, the excess amount could have a material adverse effect 6% increase effective February 1,1991 was reduced to on its bnancial condition and results of operations. 4.35% The resulting annualized revenue increases in

-. The Company also has extra expense insurance 1989,1990 and 1991 associated with the rate order coverage which includes the incremental cost of any were $120,700,000, $105,700,000 and $71,400,000,

= replacement power purchased (over the costs which respectively.

would have been incurred had the units been - Under the January 1989 rate order, a phase-in plan operating) and other incidental expenses after the was designed so that the three rate increases, coupled occurrence - of certain types of accidents at our with then-projected sales growth, would provide nuclear units. The amounts of the coverage are 100% revenues sufficient to recover all operating expenses

- of the estimated extra expense per week during the and provide a fair rate of retum on the Company's 52-week period starting 21 weeks after an accident, allowed investment in Perry Unit I and Beaver Valley 67% of such estimate per week for the Unit 2 fer ten years beginning January 1,1989. In the next 52 weeks and 33% of such estimate per week for first five years of the pian, the revenues were the next 52 weeks. The amount and duration of extra expected to be less than that required to re over expense could substantially exceed the insunnce operatiag expenses and provide a fair return on

. coverage. investment. Therefore, the amounts of operating 15

L expenses and return on investment not currently and recorded adjustments te increase the cost - -

recovered are deferred and capitalized as deferred deferrals by approximately $24,000,000 and .a charges. Since the unrecovered investment will $24,500,000 in 1990 and 1991, respectively. The decline over the period of the phase in plan because $24,500,000 increase recorded in 1991 included a of depreciation and deferred federal income taxes $29,000,000 increase for the adjustment of the 1991 that result from the use of accelerated tax cost deferrals, tyhich was partially offset by a depreciation, the amount of revenues required to $4,500,000 reduction for an adjustment of the 1990 provide a fair retum also declines. pursuant to such cost deferrals.

phase-in plan, the Company deferred the following: In connection with the 1989 order and a similar order for Toledo Edison, the Company, Toledo Edison I" ^ I" and the Service Company have undergone . a (thousands of dollars) NMgeWW WM wMd h'M cM%Md M Qd Defmed opmting twenses. $ 16 426 $ n9no 5 52,020 1990. The audit identified potential annual savings in Carrying Charger operating expenses in the amount of $98,160,000 Det t . $ 23.615 s 51.421 $ 81,097 from Centerior Energy's 1989 budget level, 55%

Equity . 64.000 110.177 135.754 ($53,988,000) for the Company. The Company 5 87.615 5161 548 52L 851 realized a large part of the savings in 1991.

Fifty percent of the savings identificJ by the The amount of deferred operating expenses and management audit were used to reduce the 6% rate carrying charges scheduled to be recorded in 1992 and increase scheduled to be effective on February 1,1991 -

1993 total $51,000,000 and $16,000,000, respectively. for the Company. As discussed previously, our rates Beginning in the sixth year (1994) and continuing increased 4.35% under this provision with the through the tenth year, the revenue levels authorized pUCO's approval.

pursuant to the phase-in plan were designed to be The 1989 order also set nuclear performance sufficient to recover that period's operating expenses, standards through 1998. We could be required to a fair return on the unrecovered investment, and the refund incremental replacement power costs if the amortization of the deferred operating expenses and standards are not met. No refund was required in 1991 carrying charges recorded during the earlier years of nor is one expected far 1992. The Company banked the plan. All phase-in deferrals relating to these two $1,500,000 in benefits in 1991 for above-average units will be amortized and recovered by December nuclear performance based on industry standards for 31,1998. operating availability established in the 1989 order.

The phase-in plan was also designed so that These banked benefits are not recorded in the fluctuations in sales should not affect the level of fmancial statements as they can only be used in future eamings. The phase-in plan permits the Company to years, if necessary, to offset disallowances of request pUCO approval of increases or decreases in incremental replacement power costs.

the phase-in plan deferrals to compensate for the Under the 1989 order, fossil fueled power plant effects of fluctuations in sales levels, as compared to performance may not be raised as an issue in any rate the levels projected in the rate order, and for 50% of proceeding before February 1994 as long as the the net after-tax savings in 1989 and 1990 identified by Company and Toledo Edison achieve a systemwide the management audit as discussed be >w. pursuant availability factor of at least 64.9% annually. This to these provisions of the or'ier, the Co.npany standard was exceeded in 1989,1990 and 1991, with recorded no adjustment to the cost deferrals in 1989 availability at approximately 80% for each year.

16

_ (7) FEDERAL INCOME TAX Federal income tax, computed by multiplying income before taxes by the statutory rates, is reconciled to the amount of federal income tax recorded on the books as follows:

f or the years ended December 31, 1991 1990 _1P (thour. ands of dollars)

Ibok income Before federal Income Te $37h.293 5317S28 5391.193 Tas on Book Income at Statutory Rate . 5127,940 $114362 5133.00t>

Increase (Decrease) in Tar Accelerated depreciation. . .

(1.b61 ) ' I40 4,422 Imestment tas credits on disallowed nuckar plant . , + 712) -

Taws. other than federal income tases . (IMO) R469) -

Other items . 5.736 16'9 3346 Total lederal income Tas Espense, 5130,135 5 45300 $140.974 Federal income tax expense is recorded in the income Statement as follows:

lor the years ended December 31.

1991 1990 1989 (thousands of dollars)

Operatmg Expenses. _.

Current Tax Provtsion. . . ... . . . ... $ 74.552 $ 26.934 $ 63.447 Cbsnges in Accumulated Deferred federal income Tat

.. ceterated depreciation and smortiration, R623 40.197 35,380 Alternative mmimum tas credit . . (2.5;0) (18360) (34.874)

Sale and leaseback transaction and amertiration . (8 838) 3.496 3.893 Property tax espense. -

(10.h80) -.

Reacquired debt costs . 15,729 1,887 (872)

Deferred construction work in progress revenues. (1,509) ILO93 11.005 Deferred fuel costs . (5.040) 4,763 (3.155)

Davis Ibse replaceraent power . - -

4.136 Other items : . 13415 14,980 6.257 Investment Tas Credits. 11.242 1 489 58 Total Charged to Operating Espenses. _

105 824 75 099 85.275 Nonoperatmg income:

Current Tau Provision. ....,, . .. .

(t203) (25,225) (31,298)

Changes in Accumulated Deferred Federal income Tat Write-off of nuclear costs . (199) (11,98o) -

AFUDC and carrying charges . 31,709 57,612 87.541 Other items . 944 -

(544j Total Expense Charged to Nonoperatmg income . 24.311 20 401 55.699 Total Federal Income Tax Expense. $130.135 5 95300 $140.974 The Company joins in the filing of a consolidated federal income tax return with its affiliated companies. The method of tax allocation reflects the benefits and burlens realized by each company's participation in the consolidated tax return, approximating a separate return result for each company.

Federal mcome tax expense adjustments in 1990, associated with previously deferred investment tax credits relating to the 1988 write-off of nuclear plant investments, decreased the net tax provision related to nonoperating income by $18,712,000.

The favorable resolution of an issue concerning the appropriate year to recognize a propecty tax deduction resalted in an adjustment which reduced federal income tax expense in 1990 by $10,100,000 ($8,207,000 in the fourth quarter).

For tax purposes, net operating loss (NOL) carryforwards of approximately $233,451,000 are available to reduce future taxable income and will expire in 2003 through 2005. The 34% tax effect of the NOLs generated is

$79,373,000 and is reflected as a reduction to deferred federal income tax relating to accelerated depreciation and amortization. Future utilization of these tax NOL carryforwards would result in recording the related deferred taxes.

The 1986 Tax Act provides for an AMT credit to be used to reduce the regular tax to the AMT level should the regular tax exceed the AMT. AMT credits of $56,448,000 are available to offset future regular tax. The credits may be carried forward indefinitely.

17

(8) RETIREMENT INCOME PLAN AND The settlement (discount) rate assumption was.

OTIIER POSTRETIREMENT llENEFITS 8.5* for both December 31,1991 and December 31, .

W. The long-term rate of annual compensation

- (a) RLTlREMENT INCOME PL4N ase assumption was SSo for both December 31, The Company and Sewice Company jointly sponsor a x and December 31,1990. The long-term rate of noncontributing pension plan which covers all return on plan assets assumption was 8.55. in 1991 empk,yee groups. The amount of retirement benefits and 8'o in 1990.

generally depends upon the length of service. Under Plan assets consist primarily of investments in certain circumstances, benehts can begin as early as common stock, bonds, guaranteed investment

- age 55. The plan also provides certain death, medical contracts, cash equivalent securities and real estate.

and disability benehts. The Company's and Service Company's funding policy is to comply with the (l') OTHER POSTRETIREMENT BENEflTS Employee Retirement income Security Act of 1974 The financial Accounting Standards Board has issued guidelines. . a new accounting standard for postretirement in 1990, the Company and Service Company benehts other than pensions. The new standard offered a Voluntary Early Retirement Opportunity would require the accrual of the expected cost of such Program (VEROP). Operating expenses for both benehts during the employees' years of service. Yhe

' companies for 1990 included $8,000,000 of pension assumptions and calculations involved in determining the accrual closely parallel pension

~

plan accruals to cover enhanced VEROP benefits plus

an additional $20,000,000 of pension costs for VEROP accounting requirements.

benehts' paid to retirees from both companies' The Company currently provides certain torporate funds. The $20,000,000 is not included in postretirement health care, death and other benefits the pension data reported below. Operating expenses and expenses such costs as these benents are paid, for 1990 for both companies also included a credit of which is consistent with current ratemaking practices.

$36,000,000 resulting from a settlement of pension Such costs totaled $6,000,000 in 1991, $5,200,000 in obligations through . lump sum payments to a 1990 and $4,200,000 in 1989, which include medicai substantial number of VEROP retirees. benehts of $4.900,000 in 1991,54,100,000 in 1990 and

_ Net pension and VEROP costs (credits) for 1989 $2,900,000 in 1989.

through 1991 were comprised of the following The Company expects to adopt the new standard

- componentst g prospectively effective January 1,1993. We plan to amortize the discounted present value of the I" U" "U#" ' accumulated postretirement benefit obligation tr Pension Costs (Credits):

service cost for tenehts earned expense over a twenty-year period. The Company has dunng the penod . ._ . . 5 9 $ 10 $ 10 engaged actuaries who have made a preliminary t$gan$." 7. 25 26 25 review using 1990 oata. Based on this preliminary Actual return on plan assets . . (W) 3 (%)- review, the accumulated postretirement benefit Net amortization and deferral . _ 50 p) . 9 obligation as of December 31i 1991, measured in Net pension credits . (11) (12) accordance with the new standard,is estimated in the (15)

VEROP cost .

- 8 - range of $80,000,000 to $115,000,000. Had the new

- settlement gain -

(3e) -

standard been adopted in 1991, the preliminary study indicated that the additional postretirement benefit

. Net credits . $(15) $(39) $(12) cost m 1991 would have been in the range ot

$7,500,000 to $13,500,000 (pretax) We believe the The following table presents a reconciliation of the effect of actual adoption in 1993 may be similar,

- funded status of the plan at December 31,1991 and although it could be signihcantly different because of

- 1990, December 31. changes in health care costs, the assumed health care mi iwo cost trend rate, work force demographics, interest (rninions of rates, or plan provisions between now and 1993.

dollan) The Company does not know what action the Actuanal present value of beneht obhgations: PUCO may take with respect to these incremental

. Vested benents . . $ 209 $ 229 costs. However, we believe the PUCO will either Nonvested benehts . 23 18 allow a means of current recovery of such incremental Accumulated beneht obligation 232 247 costs or provide for deferral of such costs until Effect of future compensanon recovered in .*ates. We do not expect adoption of the 3"I' ' " ' 50 new standard to have a material adverse effect on Ptan a sit aEraifmiu r y 2] ur hnancial condition or results of operations.

surplus of plan assets over projected (9) GUARANTEES-benent obhgation . . . . 274 205

. Unrecognized net gain due to vanance Under two long-term coal purchase arrangements, between assumptions and experience . (137) (77) the Company has guaranteed certain loan and lease

' Unrecognized pnor service cost . m 8 8 obligations of two mining companies. One of these

Tra"

• arr ng ments requires payments to the mining b m "$ m N "E #"E E "

- Net prepaid pension cost . $-57 $ 42

_ expenses (as advance payments for coal) when the 18

mines are idle for reasons beyond the control of the The annualized cumulative prefened dividend-l . mining company. At December 31,1991, after giving requirement as of December 31,1991 is $41,000,000.

l effect to a refinancing completed on January 2,1992 The preferred dividend rates or We Company's

. by one of the mining companies, the principal amount Series L, M and P fluctuate based c 3 prevailing

' interest rates and market conditions, with the of the mining companies' loan and lease obligations guaranteed by the Company was $78,000,00(L dividend rates for thes issues averaging 8.26%,7.61%

and 6.24%, respectivel) in 1991.

(10) CAPITALIZATION Preference stock authorized for the Company is 3,000,000 shares without par value. No preference (a) CAPITAL STOCK TRANSACTIONS shares are currently outstanding.

Preferred and preference stock shares sold and retired There are no restrictions on the Company's ability to issue preferred or preference stock during the t' Tree years ended December 31,1991 are listed in the following table. With respect to dividend and liquidation rights, the lwl two -1989 Company's preferred stock is prior to its preference ghousands Ishares) stock and common stock, and its preference stock is cumulanvc Prefened and Preference Stock Sut' ject to pnor to its common stock jg, '"*""

(d) LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS 5 933o syne, q , 73 _ _

88 00 Series R . 50 - -

Long term debt less current maturities, was as Preferred Retirements: {o))ows:

$ 7.35 Series C . (10) (10) (10) Actual or Average December 31.

- 88.00 Senes E . (3) (3) (3)

Year i Matunty Interest Rate 19 1 IWO 75.00 Series F (2) -

(1) 80.00 Senn G . -

(1) (2) (thousands of dollars) 145.00 Sena H . -

(14) (4) First mortgage bonds:

145 00 Series 1. (14) (4) (4) 1992. 15.25 % 5 - 5 20,000 113 50 Senes K . 1992. 10.58 - 40,000 b (10) - -

Adpustable Senes M (100) - -

1992. 13.75 -

4.334 Preference Reurements: 1993. 3.875 30,000 30,000

$ 77.50 Series 1 - -

(6) 1993. 8.55 ';0,00n 50,000

. 1375 4,334 4,334 Net Change. (14) (32) (30) 25,000 25,000 1994. 4 375 1904. 1E75 4,334 4,334 (b) EQUITY DISTRIBUTION RESTRlCTIONS 199s . 1 a5 4,334 4,334 At December 31,1991, consolidated retained earnings 1995. 7.00 750 750 were $578.206.000. The retained earnings were M6 . 5 4.334 4g34 available for the declaration af dividends on the 993 Ip$

33; 0

9 g Company's preferred and common shares. All of the 2002-2006 . 9.27 140,076 140,076 Company's common shares are held by Centerior 2007-2011 8 66 M5,350 335.350 Energy. 2012-2016 . 8.9/ 439 085 439,085 Any financing by the Company of any of its 2017-2021 8.59 567/80 567,880 nonutility affiliates requires PUCO authorization 2022-2023 . 738 174 00 174.300 unless the fmancing is made in connection with 1,841.9 0 1,906.281 transactions in the ordinary course of the Company's Term bank loans due public utilities business operations in which one 1993-1996 7.96 81,200 114A00 company acts on behalf of another. Medium-term notes due 1993 2021 9,17 700,000 550,000 (c) CUMULATIVE PREEERRED AND Pollution contros notes due 1993-2012 . 6.30 53,750 54,260 PREFERENCE STOCl(

Other - net -

5.908 6,970 Amounts to be paid for preferred stock which must be redeemed during the next five years are $14,000,000 'jb "* "" Smq $1631,911 in 1992, $29,000,000 in 1943, $29,000,000 in 1994,

$40,000,000 in 1995 and $30,000,000 in 1996. Long-term debt matures during the next five years The annual mandatory redemption provisians are as Gilows: $79,000,000 in 1992, $271,000,000 in 1993, as follows: M2,000,000 in 1994, $206,000,000 in 1995 and Sha n P" ' $151,000,000 in 1996.

9 Begmning Pt Redeemed in Sharc During the 1989-1991 period, the Company issued Preferred. $700,000,000 aggregate principal amount of secured

$ 7.35 Senes c . 10 000 1984 $ 100 medium-term notes. The notes are secured by first 88.00 Series E . 3,000 1981 1 m0 mortgage bonds.

The Company has arranged to refund in July 1992 9?! ries N ,

9130 Senes Q . 10.714 1995 1.m0 $7R700,000 principal amount of a public authority's 88.00 Senes R . 50 son 2001- t000 tax-exempt bonds due 2012 and having a 13%%

• All outstandmg shares to tie redeemed December 1,2001 interest rate with the proceeds from the sale in July 19

1992 of an equal principal amcunt of the authority's Short term borrowing capacity authorized by the bonds due 2013 and having an effective interest cost PUC0 is $300,000,000 for the Company. The of 8.25%. The Company's first mortgage bonds Company and Toledo Edison have been authorized collaterally secure both issues. The PUCO authorized by the PUCO to borrow from each o+her on a short-t the Company to record interest expenso er;ual to a term basis.

blend of the higher rate on the outstanding bonds Most borrowing arrangements under the short-l term bank lines of credit require a fee of 0.25% per with the lower rate on the new bonds for an interest expense reduction of $1,000,000 in 1990, $3 MO,0N in year to be paid on any unused portion of the lines of 1991 and approximately $3,000,000 in 199. credit. For those banks without fee requirements, the The Company's mortgage constitutes a direct hrst average daily cash balance in the Cortpany's bank lien ,n substantially all property owned and accounts satished informal compeasating balance franchises held by the Company. Excluded hom the arrangements.

lien, among other things, are cash, securities, At December 31,1991, the Company had no accounts receivable, fuel and supplies. commercial paper outstanding. If commercial paper p Additional nrst mortgage bonds may be issued by were outstanding, it would be backed by at least an the Company under its mortgage on the basis of equal amount of unused bank lines of credit.

bondable property additions, cash or substitution for refundable first mortgage bonds. The issuance ot additional first mortgage bonds on the basis of (12) CHANGES IN ACCOUNTING FOR property additions is limited by two provisions of our NUCLEAR PLANT DEPRECIATION mortgage. One relates to the amount of bondable property available and the other to earnings coverage in June 1991, the Company changed t;u method used of interest on the bonds. Under the more restrictive 'o accrue nuclear plant d(preciation from the units-of these provisions (currently, the amount of of-production method to the straight-line method bondable property available), we would have been retroactive to January 1,1991. The good performance permitted to issue approximately $335.000,000 of of the nuclear g;enerating units over the past several bonds based upon available bondable property at years had resulted in units-of-production December 31,1491. The Company also would have depreciation expense being significantly higher than been permitted to issue approximately $214,000,000 of the amount implicit in current electric rates. The bonds based upon refundable bonds at December 31, straight line method better matches revenue and 1991. If Perry Unit 2 had been canceled and written expense, tends to levelize periodic deprecuion off as of December 31,1991, the Company would not expense for nuclear plant and is more consistent with have been permitted to issue any bonds based upon industry practice.

available bondable property, but would have been The PUCO approved the change and authorized permitted to issue approximately $214,000,000 of the Company to accrue depreciation for its three bonds ts ;ed upon refundable bonds, operating nuclear generating units at an accrual rate of An agreement relating to a letter of credit issued in about 3% of plant investment based upon the units' connection with tne sale and leaseback of Leaver forty-year operating licenses from the NRC. This Valley Unit 2 (as amended in 1989) contains several change in method decreased 1991 depreciation financial covenants affecting the Company, Toledo expense $21,997F" and increased 1991 ntt income Edison and Centerior Energy. Among these are $16,957,000 (net of $5,040,000 of income taxes) from ~

covenants relating to camings coverage ratios and what they otherwise would have been.

capitalization ratios. The Company, Toledo Edison in December 1991, the PUCO approved a and Centerior Energy are in compliance with these reduction in the straight-line depreciation accrual covenant provisions. We believe these covenants can rate from about 3% to 2.5% for each of the three still be met in the event of a write-off of the operating nuclear units retroactive to January 1, Company's and Toledo Edison's investments in Perry 1991. The Company believes the lower depreci-Unit 2, barring unforeseen circumstances. ation accrual rate is appropriate and reduces combined annual depreciation expense to a level more closely aligned with the total amount (11) SilORT-TERM BORROWING currently being recovered in customers' rates for ARRANGEMENTS these units. This change in rate decreased 1991 The Company had $152.000,000 of bank lines of credit depreciation expense $18,309,000 and increased arrangements at December 31,1491. This included a 1991 net income $14.006,000 (net of

$30,000,000 line of credit which provided a $4,303,000 of income taxes) from what they otherwise

$5,000,000 line of credit to be available to the Service would have been.

Company if unused by the Company. There were no Depreciation expense recorded in prior years was borrowings under these bank credit arrangements at not affected. Current electric rates were also December 31,1991. unatfected by the PUCO orders.

20

(D) QUARTI RIN l(I 5U1.3 Of OPI'R ATIONS (UNAUDITI'D)

The followinst is a tabulation of the unaud'ted qua te.ly results of operatio w for the two year *. ended December 31,1991.

Quarters i ndnt M.m h 3L ;une M brpt 30 . I W 31, (thousands of dallata)

' ,"t ?

Uperating Revenues. $431,087 1455,614 5518.105 5420,932 Operating intome. 90.340 102,283 139.400 83,667 I

Net in ome 37494 52,088 94,845 61,331 l'arnings Available 'er Common btotk 29,147 43.402 85.874 51,828 1990 Operating Res enue... $3N7,241 1405,150 5495,337 5403,431 Operating income. 76.273 57,599 130,348 82.161 b,et income .. , , ,.. , 43.831 43,019 95.005 60.473 Earning, Available for Common Stock 34,280 33.682 86.043 :il,641 0;wrating sevcnues for the hrst three quarters of 1991 and the four quarters of 1990 were restrted to comply with current FLRC revenue reporting requirements, as dn. cussed in the E , mary of Signifnant Accounting Policies. This restatement had no effee On earnings results for the applicat,le quarter.1he unaudited quarterly resnits for the quarter ended March 31,1991 were also restated to reflect the change in actounting for nuclear plant depreciation to the straight line method (at about a 3% accrual rate) as disctaud in Note 12.

Earnings for the quarter ended December 31,1991 were increased as a result of year end adjustments of

$18.309,000 to reduce depteriation espense for the year for the change in the nuclear plant straight line depreciation rate to 2.5% (see Summary of Signihtant Accounting Policies and Note 12) and $29,019,000 to increase phase in canying charges for the adiustment to 1991 cost deferrals (see Note 6). The total of these ad;ustments increased quarterly earnings by $33,159JKKI.

Earnings for the quarter ended Junc 30,1940 were increased as a result of federal income tas expense adjustmems associated with deferred investment tax cmdits relating ts the 1988 write off of nuclear plant investments. See Note 7. The adjustments increased quarterly earnings by 518,391.000.

Earnings for the quarter ended December 31,1940 were increased as a result of year end adjustments of

$18,030XXK) to reduce depreciation expense for the year for the change in depreciation rates for nonnuclear and Da trDesse propc see Summary of Signihcant Accounting Policies), $24,102.000 to increase phase-in carrying charges fo- idjustment to 1990 co'.t deferrals (see Note 6) and $8,207,00() to reduce federal income tax espense (see Ni a, lhe total of these adjustments increased quarterly earnings by $37AXX),000.

21

f >

?

r Financial and Statistical Raicw Operating Revenues (thousands of dollars) [

Total i imal total bicam Operstmg 3

t ear Raidenh4 Commevaal industnal (hhre Retait Wholesair(sj lintm Incatmg lievenuce 1991.. . . $$47 433 $39195 $46 k98 lib 826 17b0 752 74 9Fb 1 825 738 -

$1825 738 lu90. .. . .. 495 158 494 370 543 813 122 701 1 (66 042 M 117 1 691 159 -

1 691 159 {

1989. 469 M3 452 911 1.19 854 117 220 1 $$9 788 74 439 1 034 227 -

1 fil4 227 1988 436 413 3 % lta 476 063 59 804 1 367 445 85 7 % 14'i3201 -

1 493 201 >

1987. . 428 7 % 31t9 297 470 %) 12 322 1 301 266 11416 1314 t42 13 371 1 328 053 i

1981.,,. 310 409 263 W8 386 M5 28 3'O 989 172 27 M7 1 017 039 12 196 1029 2B l l

Operating INpemes (thousands of dollars) l Chhrt _

1:pel & Opriathm (Apecoawn Taico Phaw m a l ederal lotal [

Purt hawd & & Othee lhan l're phase m Inmnic 0;wtatmg

) ear rowce(el Mamienance Amorummn f il Determt Net lawe hpenses 1991. . . . . , $455 055 469 $30 170571(b) 21! 908 (6840) 105 824 $1410 048 '

1940. 412 397 514 186 1t>9 526 AV7 'Al (23 884) 75 099 1 344 778 1989.. . 427 108 508 151 187 614 DS? ?D (42 467) 85 275 1 34' 801 1988 . 308 637 524 478 1R9?31 l'34 A3 (104 396) c4 654 1 197 917 l 1987... .. . 334 328 425 938 148 918 146 ;07 (47 826) k) 179 1 090 944 ,

1981, , , 367 71$ 224 299 85 294 91 648 -

67 575 836 531 Income (thousands of dollars) i lederal Othet imurne Int orne inmme & lam- Defwe Oprratmg - AFUDC- Ikductmns, Carrymg C redit intrecat f ge_ inmme I quity Net Chay { l sgee) ' Chaeges 19914 ,,.. ,, 5415 690 7 832 5 809 87 615 (24 311) $492 655 1990..,... .. 346 381 4 531 1 836 161 598 (20 4011 493 94%

1989. . , . 285 426 8362 7 934 234 788 (55 69')) 4ii0 811 1988. . 255 284 8052 (243 2971(r) 224 585 53 162 297 786 1987., 237 109 177 170 (41 940) 24 610 79 606 47e $$$ i 1981. , , . 192 704 48 9R1 10 617 -

16 125 268 416 Income (thousands of dollars)

Ina,mr  ?

Before Cumulatne - Cumulative Prefefted & Iarnings I flect of an ificci of an Prefereme AvailaNe hv 1%t AWDC- - Armunting Arrounting Net - Stimi Common Year Interest Or pt Charige Change inmme Div1dends 9mk L991,, .,,+. $250 799 (4302) 246 158 -

246 158 35 857 $210 301 1990., ,, 254 936 (3 P9) 242 328 -

242 326 36 68t2 205 646  ;

1989. . .. 238 042 (740) 250 219 -

250 219 40 227 ' 209 992 1988. ..,o 2.'8 879 (4 ))4) 73 211 21874(d) 95 085 42 506 52 579 ,

1987. . 249 958 -(82185) 309 552 -

309 582 43 3 % 266 196

. 1961; . . . 146 712 (34130) 155 734 -

155 734 34 917 120 817 (a) Wholeule revenues, fuel and purchased power. wholesale electnc ules and punhased power amountr. are restated for 1990 and prior years to refini a change in reportmg of bulk power sales transactions in accordance with IIRC requirements.

(b) In 1991; a change in aucunung for nuclear plant depreciation was adopted, changing from the umts-of production method to the straight-line rnethod at a 2% rate.

(t) Iruludes write-off of nudcar costs in the amount of $257.40(t000 in 198k i 1(d)'In 1988, a change in the niethai of accounting for unbilkd revenues was adopted.

22

lHI Cll VilAND lit C1RIC Illll%flNAllNG Gn11'AN) AND SllllblDIMlls Fle(tr c Sale > (millions of KWil) 1lectile Cu tomers (year end) Residential Usay,e A mt , A , e, m 4,,,o re k n e ,u, inaminai uut lee r e, Pet

[ )en b yJenhal C omr-en ul Inantrtal D hinhalf la f Otteet 1W F ra. den nal C om met o a. & Od.es loul ( miomer > P11 % u*mmet 1991. 4 440 5 493 8 017 2 442 5e.5 71 457 667 495 70 405 8398 746 298 7 170 11.ov $79725 1m 4 716 5 214 8 'Al 1 no? 4r 20 'i?! NA 000 tA NU k 351 742 usi e %7 to $3 7231%

1999 47W 5 209 6 7MO 2 132 501 il 410 toO 756 6M 010 6 329 737 145 7 025 9 fil 641.61 IVMt 4 M2 4 998 9 913 749 472 20 (54 657 92 66 606 8 203 732 4PI 7 152 8W N6h 1987 4 6$12 4 bik 8 396 1M 46 IN 5t.4 (A4 021 M 978 8 15% 7.'? 154 6 427 9 16 637 46 19xl 4 37t> 4 178 k '. ko 714 3W 17 947 642 925 (0 714 7bu 711 325 6 544 7 12 466 51 l.oad (MW & %) Energy (millions of KWil) I uel Oper at4

( apan%  ! *% wn4 g -

at imic Ptsk Carat ut loaJ "* I'" I.' " " " Pun hamed I uri ( v tilU Per irst of Prah l oad Magin i s< tor I msil N u< Mar T otal l' ow er ( s ) 1 stal Frt Abit khH 1991 4 695 3 li86 17.2% 61 8 % 13 193 7 al 20 644 2 144 22 788 149t 10 503 1990 4(M 3 778 19 4 63 3 15 SW 5 262 26 fit t 964 21 N A 132 10 417 1989 4 536 't h66 14 M 65 2 14 % 4 6 5N1 21 SD 1 2fA 22 kD6 1 49 10506 198M. 4 46Mr) 4 067 90 59 k 15 7sd 4 450 20 236 13%9 2) 5v5 1 59 10 517 1987; 4 257 3 722 12 6 62.5 14 V78 3 689 th 667 1 376 20 041 I ?*i. 10 546 1981 4 667 3 447 26 1 62 7 15 225 2 25% 17 4'60 17bl 19 161 1 R% 10 'J2 Investment (thousands of dollars) c onenn u..n work b Total Utibty Au umulated l'rogrms Nsu le at Propctiv UHhts Mant in lieperution & Net & Perry I m>l at d l%nt and 11 ant Total irat %cruic A mortmunn hant Urut 2 O* her i t}typnwne Aut (iny Aswis 1991 56195 a45 1 564 984 4 eaa 961 669 696 304 m 55 605 620 $150 005 58 066 580 IM 6 032 D6 1 398 258 4 6T4 075 e46 696 344 252 5 675 026 164 - 7 445 157 19N9. 5 % 9 281 12'ik M6 4 610 378 726 933 354 374 5 6916M 1416 + 7 670 405 14M 5 704 746 1 0N1 758 46229" 76162R MO $73 5 767 IW 211 060 7 4'i619H IVN7 5 787 MO 905 297 4 M2 306 633 4D 384 281 5 W 020 566 447 7 0N9 026 1981 2 674 4TH 621 3%3 200306 4% 457 122 211 f f) 3 111 773 409 277 3 514 57 Capitalization (thousands of dollars & %)

Pretened & Prcierense Prdened Sio.k. without

% k wah Mandato s Mandann kedempnon ieer Cornmon % k lymv Nedempimn Prousnes Prov mons 1.ory Term Det t l otal 1991 51 897 401 38% 26S 368 5% 217 334 4% 2 652 805 53'k 55 005 903 1% 1 M4 25k u 171 It.2 3 217 D4 4 2 611 911 55 4 904 66%

19ei9. 1 828 074 40 212 362 4 217 D4  % 2B63N 51 4 594 149 19M 1 780 406 40 212 e.26 5 217 B4 5 2 2hc 170 50 4 490 MN 1987 1 925 719 41 270 645 6 217 D4 4 2 517 M7 49 4 731 655 19M1 1 002 206 36 325 000 12 9% 071 4 1 328 404 48 2 750 681 (r) Capaaty data reflete e tended * .nenamg urut outage for renos ation and impmg ementt.

(f) Restated for chech of caPitahraton of nutlear f uel leaw and tmanang anangemens purwant to Sta'ement of I mannal Anountmg Standard

• 71 23

ltitWlor Illf.onlltillot!

SI1 ARE OWNER INIORMATION INQUIRIES INDI l'ENDENT ACCOUNTAN1S I Questions regarding the Company or sto(L Arthur Andersen & Co accounts should be directed to bhaie Owner 1717 East Ninth Street Services at Centerior Energy Corporation at the Cleveland. 01144114 addren and telephone numbers indicated below for the Stock Transfer Agent. mRM 104 The Company will f urnish to share owners.

I' lease have your accot.at r ready without c harge, a copy of its most recent annual when calling' MNhS i6 ad Nhaw-STOCKTRANSlER AGENT Commission. Requests should be diretted to Centerior Energy Corporation the Secretary of Centerior Energy Corporatbn Share Owner Services at the address of the Stock Transfer Agent.

I u t. i 11 44101-4661 I!OMDIIOLDER INI'ORN1 ATION DOND TRUS~l EE in Cleveland area 642 6900 or 447-2400 hiorgan Guaranty'lrust Company of New Wrk

~

Outside Cleveland area 1400 433 7794 C m 1:W & nich Stock transfers may be presented at 60 Wall Street PNCTrust Company d New Wrk Yew Wrk, NY 10260 40 Broad Street, Eif th Moor 1elephone Number (212) 233-0602 New Wrk, NY h004 llOND PAYING AGENT STOCK REGISTRAR ingimies regarding interest payments should be Ameritrust Company National Association directed to either Manufacturers llanover Trust Corporate Trust Division Company or Morgan Guaranty Trust Company 1 Et1 0 1144101 eac h acts as paymg agent as noted below.

[3Cli ANGE LISTINGS Lo-paving agents for Preferred Stock Series A, it and L aie listed on 37b' Senes due 1W3 4Vb Series due 1994 the New Wik Stock Exchange.

Manufacturers ilanover Trust Company DIVIDEND REINVESTMENT AND STOCK 40 Wall Street PURCilASE PLAN ANDINDIVIDUAL New brk, NY 1001; -

RETIREMENT ACCOUNT (IRA)

Centerior Energy Corporation has a Dwidend Ameritrust Company National Association _

Reinvestment ar$d Stock Purchase Plan which 900 Euclid Avenue provides Cleveland Electric share owners of Cleveland,01144114 record and other investors a convenient means Paying agent for all other series of bonds-of purchasing i. hares of Centerior common stock Morgan Guaranty 1 rust Company of New %rk by investing all or a part of their quarterly 60 Wall 9reet dividends as well as making cash investments. New brk, NY 10260 in addition, individuals may establish an Individual Retirement Account (IRA) which invests in Centerior common stock through the Plan. Information relating to the Plan and the IRA may be obtained from Centerior Share Owner Services.

24

The Cleveland Electric illuminatint; Company ,13 yy no.11m NW U s msuu cleveland,01144101 l 1.m.' ^01 1) g I'l RMll NO 4W k

- _ - - - - _ - - - - - - - - . . - _ . - . _ - . - - - - - . _ _ - - . _ . . - . . - _ . - - - . - - _ _ _ . .