ML20095F912
| ML20095F912 | |
| Person / Time | |
|---|---|
| Site: | Perry  |
| Issue date: | 12/31/1991 |
| From: | Farling R, Miller R CENTERIOR ENERGY |
| To: | |
| Shared Package | |
| ML20095F890 | List: |
| References | |
| NUDOCS 9204280327 | |
| Download: ML20095F912 (42) | |
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o i Financial Sunnnary , 1r 1990 % Change Farnings l'er Snare of Common Stock l. /! $ 1.90 (10 0) reme-mssanemrma%=umamMemuaw.saawceurmsurmemmuumse-=wm*amama Dividends Declared Ibr Share of Common Stock 5 ie9 5 1.W 00 Itook Value l'er Share of Common Stock at Tear End 5 20 5 5 20.30 0.3 Closing Common Stock Price at icar End i l y ', $ lb 10.4 Common Stock Share Owners at Year End U 5eo 183,723 (3.4) Common Stock Shares Outstanding at Year End (000) Im 1M 138,401 1.3 amm m meceam m a w a e + -- waruzzwtw - Emmaawuma.wmmaanrmacamwwa - - Operating Revenues (000) $2 M 252 52,427,441 5.5 Operating Espenses (000) ii M o.292 51,923,021 3.0 Net income (000) ! u ~. 2 @ $ 264,459 (10.3) Return on Average Common Stock Equity Mu 9,4% - scrammermermeae_m 6is 4mume= "a a--ewamsmerummamarmacemmetmetche - -- Kilowatt-hour Sales (Millions of Kilowatt hours) Residential tt % 1 6,666 4.7 Commercial E Ut. 6,848 4.8 l Industrial IQ9 12,168 (5.0) Wholesale ' 711 2,487 9.0 Other L0g 959 4.3 Total NC3 29,128 1.2 ut.mc:mmasarmammma.andawmern:rcA%wermLermstmmtummmat.4s emmsM Employees at Year End 8 M2 8,517 0,9 raarmmw- < ansera:arrmanswwmaa,mxusammemmeaammwmmmmmmmarr OQRi! IM T R ANG OF COMMUN i!OG l' RICIN 1991 High 1,ow 1990 liigh Low { 1st Quarter $197:; $16"/, 1st Quarter M1'i S18 2nd Quarter 19'; 16% 2nd Quarter 19 % 17'i 3rd Quarter 18% 15 3rd Quarter 10 % 16% 4th Quarter 19% 17% 4th Quarter 18 % 16% a i t ___ _____ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ l.
D CG Y $ llG TC O ll'IlC Y: Our corpotate nnssien is to prevule qualltu urnis also performed u cil, thus helping us c!cs IrIc service lo cu>tomcrs u hlle car nmg a t.n r mamtam 1cllaNe serelce to our more Ihan one return for out investe s. r The year 1991 ;cas mtlhon cu~tomcry h 5ghl5gh ted by s cvC!al at hiiCc!!!c n t h < otV l'.lettl tellh Ihat mission: U " ' # "I" U " '"I ' "S " ' " A ' """ I ' 1991 climbed almost 10 pcrcentage points from
- Although reportedcarning> of $1.71 per share the previous year. Anording to the survey TCere dmCn f h'm tllC $l.90 per a n all/ > C %, lll( gain rCfirs ts sharc reported in Ihe Iteo customerappreciation of the t'
f r(violt s \lCa r b, loc mairl= ' value of cl(clticilt{ a rid lulncd thC coPlunoll stVch y customer alvaterlCss of our dividerut of $1.t io per share * ' cl forts to stahli:e rates and and ou r cash floie r ontmucd reduce co%Is. to imp rovc. We are pleased teith these ( > . we,cduadopcrationand . achin nentw we ai,v a,c mairllenance (Ypense (et- , iVell dica rc of ou r contin uing cluding fuC) arid purcl 1H sed challenges, e po1CCr)for 1991 by $b2 million. or 7%, from the 1990 tin clectric utilitu business a mou r0. 9 f is in a sta' >f t ransition-from a tightly regulated and
- nC ivere successful in .
someichat prole -ted business oHaining approvalf rom The _ to one that is increasingly Public Utilitics Commission more competitive. We are of Ohio (PUCO) of thTCC Qccounting requests c>pCcialllliha!lCrtged by propone"% of r?lullicipal designed to more closely align on r accounting elect nc systemn -a challenge ins en sified by the for operating and capital costs to amounts current availaHlit.t of loiv cost poiver in the
\ currently being recovered in rates. u hoicsale market.
e 0ur thrce nuclearscncrating units performcd lu this u n relenting climate, tec a re endeavoring very tecil. They accounted far 43% of Ihe c!cc- to Lecp ou r clectric rates stable, even Ihough tricity teegenerated in 1991. T:co of the units far inflation, operating demands and state and eXcCCded the industr\/ average for availability; local tax iricrea%ch cortlinu( to put doientrard the third tra% v1Carly accragt. Our coal htc l prcGu re on ou r carnings. Robert 1. larling Rwhard A. Afiller 4 i _ _ _ ____ _ _ _ _ _ _ _ _ _ _ _ . . -
Larstings ikr Sfatre Total Ehrtrnc 0;wratirng krtvrtues 5 5 Itillains 3 00 30 2.5 2 00 1.50 1.00 - 1.5 0.50 : 1.0 i 0.00 _ l e
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'87 '88 '89 '90 '91 '87 'M 'e9 '90 '91 m ni.ac. me etwo w n .me-.ef (1W 1WO Restated) b E.SY A n a tone d $2 6 t$il n n t dal reenues ean Ahhougb earningi per nhare dishrwd to ll ?t in 1W1. annual rate trwreates
'aslfNIN"d$"s7c'n ISita '"Yct nIn' e$ hSa" durenmg etw on earning Attrage Retail Price lyr Kh'H Compured with the Consumer Price Index enn sm - um Customer Tawrat~ihty Indes Percent 140 70 M) 130 40 120 l
110 10 100 - 0 -
'87 '88 '89 '90 '91 '87 '88 '89 'W '91 M Consumer Prke Irwies Results of annual customer surveys indrate that we (1W1 Prehmanary) have begun tu regam customer su pport and conhdence.
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M Cer tener Energy AWH Prue Indes , ","'."'d a
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Cbutents The Toledo I:Jisen 4 Letter to Share Owners Com;uny 6 Maintaining Earnings The Clercland 4 lutninahng 8 Meeting the Competition ,', 10 Continuous improvement in Operations 14 Management's Statement of Responsibility f or Finanual Statements 14 Report of Independent Public Accountants 15 Summary of Significant Accountinglblicies 17 Management's Iinancial Analysis, Financial Statements and Notes 35 Executives of Centerior Energy Corporation \ and Centerior Service Company j 36 iinancial and Statistical Review ( ;/ 38 Board of Directors N 39 Share Owner information D 1991 Highlights Although reported earnings were down 10% to 51.71 per share, the common dividend was maintained
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at $1.60 per share and cash flow continued to improve. A commitment to cost control helped to reduce operation and maintenance expense (excluding f url '"'"'"""N *"# ""*'!"'""'" and purchased power)by 562 miPion. Also, Arnl 198t' ul"n the afts! ata n of The Clweland construction expenditures were about $47 million E!cctnc ll!um.' tating Compmy and The Ioledo lower than 1940. Edi on company IVith assen,of(nvr $12 billion. The final step of the three-year rate phase-in plan Centenor Energy is one c'inc Prest c!n tric under the January 1989 rate agreemen. went into utshty sysicm4 in the nation. The centenor ef fect on February 1,1991. The 6% 'cheduled onvaung avnpin wny 6 rnimon ;e;>le in a increase was reduced to 4.35% for Cleveland Electric and to 2.74% for Toledo Edison as we shared our mnFined umice an a of 4.200 squa rr miles ir cost reductions with our customers. Toledo Edison Northern ohia Ccnicnor Encre is an equal later waived the increase and reduced its rates gp 7f, ,, ,, gy. ,
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twice in 1991 for certain customers.
. While the City of Toledo continued to review the option to create a municipal ek ctric system, two other communities rejected the municipalization option in 1991. A third, home to one of our five largest customers, undertook a study of the issue.
With only Davis-Besse having a refueling outage during the year, our three nuclear units had an awrage availability of 90% in 1991., far exceeding the average for all nuclear pl<mts in the country. - 4 . s 4; Pim er sales to other utilities prod uced a record $334 millionof nwenueinexcessof th relatedcosts.These sales amounted to 9% of total kilowatt-hour sa:es. 1
Oprutwn & A1aintenarne rnwnse ( T$al k'ilowatt Ht'ur Sain (Luluding Ike' & l'u n hawd IUurr) k WllBillkins 5 hiilluins 30 1.[U0 25 - i . 20 NIO 15 400 10 200 0 - 0 l '87 '88 '89 '90 '91 .g7 ., 39 .ug 9g i (1@ W hstated) We as berd a sgndu ant reduitnen in (4M espenw Despite the ampact of the temskin tm our industnal in twl lhe reductuir) was a*tain d bg- tenplertwriting cu Atistners. total sales in 1W16ncreased 1% on the the towmrtwndatunt td a enanart ttwnt audit tumpleted strength cd centinued gnwth 6n the cornmernal sect er, in 1% and out onpiiry tomnutment to minitnvr tosts 1 a hot summer and iners eed sales to other utihtws Cohstmetion Extenditures Excess Retrnut otrr Cost In ludwg AIUN.'end Lrthedmg %levIvh fmm Off-System Sales 5 Millions 5 hiillnins 1.0l0 35 7 X) MC 25 I W gg 400 10 200 g 0
'87 'M l '89 '40 g
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'87 'M N '40 '41 With the completon of our nuclear construction The intTs.ased availabbty of our nu, lear and tomi pn$ ram in 19C constructun r> penditures have generating ututs. in conjuncton w ith L>wer awrage dnTped dramatgaDy. averapng about $224 mdien pn ductu.n costs has made un mi re competttne in the past three years he esper1 that our cows to u.mply the markeepl.h e f.*r sairs of powet to other utilities with the rww dean att legislata n w tH tw signifg antly hsenues from those sales in 1W1 eu eeded the less than other Medwest utahties related costs ty a rswed $33 mdhon 3
, Maintaining Earnings -
lilS10RICAL PlRSPLC11YE off in 1992 due to the absence of a rate increase, we espect it to provide nearly the same percentage Our financial picture continues to be influenced of construction expenditu es as it did in 1991. by thc 1989 tatc agreement. That agreement was critical to our fortunes, it allowed us a three. step Throughout 1991, we worked tolessen earnings - rate increase for eac h of our operating companies, erosion by following three primary strategies: the last step implernented l'ebruary 1,1991, to reducing costs, expanding wholesale revenues recognire in rates out allowed investment in and achieving regulatory approvalof appropriate Unit 1 of the Perry Nuclear Ibwer Plant and accounting reque$ts to better align our accounting Unit 2 of the Beaver Wiley Power Station. T he two for operating and capital nuclear generating units were completed in 1987. costs to the amounts being recovered in rates. - To help modstate the negative carnings impact J of phasing in ourlargeinvestment in these units, postliv1; lMPAc1 or . the agreement included a 10. year phase.in plan COST RI: DUCTIONS for each of our two operating companies allowing _
'T us to defer a portion of the nuclear related in this Report a year ago, we .y ,
operating expenses and carrying charges in the stated that we expected to s first fhe years of the plan. In the latter five achieve significant reductions
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years, as that investment base decreases snd in our costs of doing business. g ) ~ revenues increase as a result of sales growth, in 1991, we reduced ot her I the deferred operating expenses and carrying operation and maintenance charges are to be amortized to expense. expense by $62 million, or 7E We alto refinanced $310 , in this way, the phase in plans adequately tuillion of hic,h cost debt provute for recovery oi the costs associated with and preferred stock for a net y our investment in Perry Unit 1 and Beaver %11ey annual savings of $9 million gi'
- Unit 2.11ut we are not currently recovering in interest costs and preferred y Wi N costs associated with nem investments or dividends. Our cost reductlon '
increases in other expenses that have occurred efforts continue. since the 1989 rate agreement. Investment that was not in rate base at the end of 1991 amounted Since mid 1990, about 1,N0 employee, consultant to about $400 million. Unrecognized investment and contractor positions have been climinated, and our commitment to delay further rate representing 14% of the 1988 total. Most em. 1"reases continue to affect earnings adversely, ployeesleft through an early retirement program; the rest received equitable separation benefits. RLSULTS FOR 1W) / We have implemented, or plan to implement, Earnings for 1991 were $1.71 per share, down many other cost. reduction initiatives. For from the previous two years, flowever, the quality example, we have centralized training, testing of our earnings has improved dramatically and access authorization for employees and since 1988 as evidenced by the continuing contractors during refueling and maintenance decrease in the portion of earnings related to outages at the Davis-Besse Nuclear Power Station noncash credits. to save $480,000 during those outages. At the l Perry Plant, employees instead of contractors Ou r cash flow in 1991, af ter payment of dividends, will perform the periodic refurbishment of was suf ficient to pay substantially all new cash safety relief valves in main steam lines. This is construction needs. While cash flow willlevel estimated to save at least $113,000 durmg each 6
1 We implemented a rate phase in plan in three The text that follows describes our challenges annual steps starting in 1989 to begin re. and ou r skategies in more detail. We lvlia.1s that covering our allou ed int esiment in the two the cou rse we hats charted will enable us toful-nuclear generating units completed in 1987. fill ou r ultima te respon sibility to you - namely Those units will provide an environmentally to justify the confidence you have placed in us compatible sou rce of clectric power for years and to enhance the value of your investment. 1 to come. However, our prices are now higher On March 1,1992. Dick Miller will retirefrom ihan Ihose of many of her investor owned his position as Chairman and Chief E.1ecutive utilities in our region. Officer, completing 31 yea rs of dedicated service Wearc uvrking hard to narnne that pricegap. In to Cleveland Electric and Centerior Energy, the 1989 rate agnsment, which uus reached with Ile will continue as a member of the Board of customer representatives and approved by the Directors. Bob Tarling will succeed Dick as PUCO, we committed to using ou r best cfforts to Chairman and CEO. delay Ihe needforfu rther rate increases after Ihe Centerior Energy will continue wort.ing to be one implemented in February 1991. At the recognized as a lop levelperfL>rmerin thn energy same time, we a re commit ted to rewa rding you r
"'arketplace. That is Ihe vision we share for confidence in Centen*or Energy as an imestment.
our Company. We have a strong management To satisfy both commitments, we have charted a organi:ation and a team of dilled, dedicated cou rsefor the fut!.re based on specific st rategies employees of whom we are justifiably ;roud. to achieve Ihese primary objectives: They give us Ihe confidence Ihat ou r t is ton wilI become a reality.
- To maintain earnings and the current dividend through continued cost contain.
nient, sales and revenue enhancement and Mncmly thefurtherpursuit of appropria te account-ing treatntentfor investments andcosts not , reflected in current rates. }} _ f *
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- lb meet the competition by holding the line on electric rates, offering customers Ihe ,
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best possible value for their energy dollar - and workingfor the economic development Robert J. Tarling of the communities we serve.
- To strivefor contin a s improvement in operations, thus attaining optimal use of existingfacilities while maintaining our February 17,1992 commitment to the environment.
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1 i l Regulatory approval and c ustomer support in response, we have increased our personal for sm h accounting requests underscore our contacts and developed special communications cc cfidence that pursuing these strategies is a programt, for community of ficials and citizen. prudent business practice. We believe that groups in these communities. We provide the customer representative groups and the information on the financial risks and uncer-regulatory commission v.ill continue to support tainties of creating a municipal electric system our lormer term operating and financialobjectives and stress the superior reliability, service l provided we continue to achiese our projected quality and value to the community of an cost reductions. investor-ownei impany. y m-pt wNo m Mos t municipal systems today = _ nqm$
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a serve solely as distribution .
'o We will continue our elforts to maintain ear nings systems that buy power at :- .
~l by seeking further cost savings, advantageous wholesale costs f rom other ;
business transactions. additional wholesale power utihties. The current avail- i .. revenues and appropriate accounting options. ability of low-cost, wholesale 2
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.y W power is espected to decline 'g._ gg g"
f or example, we are seeking support f rom the customer representative groups for our request in years to come. Very little Q' . _ i "" - new electric generatmg [ .hp , + to the PUCO to permit us to capitalire the "" capacity is under construc- 2~ cw carrymg charges and to defer depredation on tion in our region. Old e p investment placed in s ervice since February 1988 Q* Amp' "g ge generating units, especially s" g, ,p untilit is reflected in rates. high polluters, are espected to .. be retired or equipped with F y Complementing these strategies, our" Total Quality" comimtment will help us further reduce costly pollution controls, f Q j '. casts. We also espect it to improve our operating Developing an electric power jJ q performance and quality of service to customers- system involves many com- > g j two critical f actors in our strategy to compete in today's challenging energy market. plesities: constructing the g p {'] electrical f acihties, controlhng the dispatch of po- , providing back up capabihtim nw Hng environmentai requirements MCCling the Competifion and training a workforce to safely operate, maintain and repair highly compicu equipment. Till. MUNICIIMI !Z ATION Cli Al i i ngl. Such costly endeavors would sucrely drain a community's financial resources which coulo Rate recovery of our investment in Perry Unit 1 be better spent to maintain safety forces and and fleas er Valley Unit 2 resulted in rate increases improve other municipal services. in 1959,1990 and 1991 totaling about 20% for Cleveland Electra customers and 16-19% for in the City of Toledo, wbere municipali7ation has been under review since 1989, a citizens' Toledo Edison customers, depending on (Se type of customer. Our rates in both service review committee is espected to make a recom-areas are higher today than those of many other mendation soon to City Council. A cons,ultant's investor-owned utilities in our region. As a report in mid-1991 contended that a municipal result, a few communities in our service area electric system could save customers up to 20% are considering creating their own municipal of the costs espected to be paid to Toledo Edison electric systems in hopes of realizing lower over the next 20 years. We provided evidence to electric bill., ref ute that assessment. 8
refueling and maintenance outage Peiry teams organired throughout the Company and Unit 1. Several joint teams set up with major customers and suppliers as well. Among additional examples, we expect improved scheduling practices and work procedures to witoi13At1:girtT U13 reduce overtime and save $250,000 e nnually in transmission and distribution operations. A Just as cost reductions helped earnings, so did better method for detecting cracks in power our kilowatt-hour mles to other utilities. We plant piping will save an estimated $100,000 sold 2.7 billion kilowatt hours to other utilities
.,,., annually. We saved $40 000 at in 1991. Revenues from those sales in 1991 j .q , - the Ashtabula Plant in 1991 exceeded the related costs by $33 million. We IE O
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IhN by having employees rather than contractors perform a are aggressively seekmg opportunities for long-term power contracts to achieve maximum b 3 turbine inspection. Improve- benefit f rom our generating capacity. h';[j,$h ments in materials manage-
-4 = j ; " gh ment will reduce inventories l'0511IW IMI'AC101 ACCOUN'llNG URlH 16 and help save an estimated y
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,- $1 million in 1992 in our During 1991, the PUCO issued orders approving h# N# transmission and distribution three accounting requests designed to more Closely align our accounting for operating and
, operations.
(h4 - l . capital costs to amounts recovered in rates, thus Achieving these saungs slowing earnings erosion. Each order was 7d whkh M - v
; y up y q while maintaining quality retroactive to ]anuary 1,1491. > # o m .k service to custor ws was ,
made possible (.i.., through One order allowed us to change the depr(clation method for our three operating nuclear units I$hkMbyQ the extraordinary commit-kg$@@w;
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ment of our employees. They ab.o contributed, individ ually, from units-of production to straight line.This change contributed 5.20 per share to annual s - M )I to the tost-reduction effort. earnings in 1991. The sectmd order reduced from about 3% to 2.5% the deptcciation rate for Their suggestions off ered ~ through our "Br@t ideas" program, which nuclear units, contributino, $ 13 per share to included some of the above irnprovements, con. 1991 carnings. The third permitted us to recond tributed $3.5 million to annual savings in 1991. additional cost deferrals based on a provis;on in the 1989 rate agreement that permits such As noted, our refinancing activities also con- action when our kilowatt-hour sales are lower tribute to overall cost reductions. We expect than the egreement projected, as occurred optional and mandatory redemptions in 1992 to in 1991. This contributed $.13 per share to result in another $9 million in annua' savings in 1991 earnings. interest > asts and preferred dividends. In seeking regulatory approval for the latter two Perhaps of singular importance to ongoing cost items, we were joined by many of the customer reductions, we have committed our organization representalis e groups who had participated to the " Total Quality" piocess that is improving in the 1989 rate agreement. On our part, we the performance and profitability of some of agreed not to seek any base rate increase to be the top corporatio is world-wide. Total Quality ef fective before January 1,1993, thus extending instills the training and tools necessary to make by nearly a year the rate moratorium included continuous improvement a routine part of every in the 1989 agreement. employee's job. We have quality improvement 7
l 4 We serve as consultants to communities to help We are more than an ele (tritity supplier--we them retain esisting businesses and attract new are a f ull. service energy company, of fering our ones. We are equipped to advise (ommunities customers es perience, technical espertise and a on infrastructure land access, tax incentives broad range of special programs to suit their and environmental requirements. We provide needs. Customers are our reason for being in sitnilar consulting services for prospective business. Our goalis to achieve the hight it c ustomers. Through our Partners in Prod uctivity possible level of customer satisf action. cepaign in the Cles eland I:lectric area, we introduce local enterprises to the newest electro. Corporate citizenship is another aspect of the tec hnologies to help make them mere competiti,e. added valuc in our electric , , service. In 1991 alone, our Our three Customer Advisory I'anels help us corporate contributions to f[%/gDF keep attuned to current c'titudes and necos. civic, cultural, educational, Today's customers are seeking new ways to health and social service
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increase their energy elficiency and realize agencies totaled $2.1 million. Q :3 bO more value f rom their energy dollar. We of fer in addition, Centerior em. ! $ ,, K. demend-side management programs to respond ployees pledged $16'i million (
' s{ M to that need. These programs encourage to the United Way, an average [y' ,
customers to shif t some electricity consumption of about $200 per employer. 19 %$ ,f ' b
- f rom high-use tolow-use periods, with incentive Our Speakers ilureau reached '( .Q pricing reducing the customer's overall energy audiences totaling 60,000. 1'v , ,g
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cost. Our Company, in turn, benefits as these I:ive thousand :hoolchildren T i pregiams slow the growth in peak demand, attended our electrical safety ff %( g/p enabling us to delay costly investment in new presentations. More than P -ci power plants. 2,400 C sterior employees S. g , volunteered for community k We plan to invest about $90 million in demand- programs in 1991. < N' '
,q side management prograrns this decade. We are :
moving predently to allow time for us to assess Such activities and programs Q ; i customer needs and acceptance levels for various substantit te our L ompany's ~ programs. To encourage demand-side manage- value to Northern Ohio communities as do the ment, the PUCO a' lows recovery through rates taxes we pay to support schools and city services. of a utility 9 insestment in den.and-side projects We stress these points in our discussions with for customers as well as recosery of some communities considering municipalization, associated carrying charges and lost revenues. The PUCO also allows utilities 10% of the savings resulting f rom the investment. COUtiUNONS bONNUd*fNt in Opemtions 1 We ere helping commercial cucomers install
- l high-eHiciency lighting, thermal storage cooling ;
and energy management systems. In 1991, we M ^ M M U OIN ANCI IVI I^ ! launched a demand side management demon-
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stration program in conjunction with the Toledo
,an we am wo ng to condnue this Area SmallIlusiness Association. Ultirnately, initiatives from this program are expected to P"""'*#""'
reach 28,000 commercial customers. This is one An important measure of unit performance is of the largest energy-efficiency efforts ever . operational availability, which is the percentage undertaken in Ohio. . , of time a anit is available to generate electricity. 10
Defiance, one of the largest cities in the Toledo Durhg 1990 and 1991, we negotiated ordinanc es Edison territory, completed a $100,000 munici- in the Toledo Edison service area under which palization study in 1991. Alter thorough review. municipalities agreed to retain us as sole elec-the City Council's utility task force recommended tricity supplier for five years in exchange for rate that the City net proceed whh creation of its own bene'its for residential and small commercial electric system because the risks were judged to customers. All municipalities signed the be greater than the potential gains. In Cleveland ordinances except the City of Toledo. We espect Electric's service area, the Village of Orwell also to resume talks with the City later in 1992, turned down the municipalization option in 1991.
- For many decades, we have made reduced rates + liowever, creation of a available to industrial and large commercial I %., rnunicipal electric system has customers in recognition of their specialload 4 ,"@9 1 been recently proposed in characteristics that make themless costly to serve.
ilrook Park, a community Such characteristics include interruptibility,
,j( that is home to one of our high load factor and off peak demand. In turn, 4
EC . ( these customers commit to purchasing all their
$ five largest industrial
'. D M si ,-p' customers, Ford Motor's electric power f rom Cleveland I lectric or Toledo 1_ g
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ilrook Park plant, and some 8,000 residential customers. Edison for the length of the contract. f
- We are meeting with Ford During 1991, we stepped up our ef forts to help g ,
7 4 @, representatives and City industrial and commercial customers attain the
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L f C of ficials in of forts to seek best possible energy pricing in these challenging economic times. These ef forts sometimes mean
-T , j resolution.
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reduced revenues for us in the short term, but g6 H hJ , Our long time competitor, they benefit us in the long run by retaining h)D s , h Cleveland Public Power (CPP), continues an en pant. ion customers, keeping jobs in the community and increasing sales once economic conditions 9 i program announced in 1986. improve and businesses grow.
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- 4 CPP is essentially a distri-bution system now serving As an example, in 1989, we began of fering about 50,000 customeis. CPP officials expect the incentive pricing packages to select Toledo expansion to acquire about 20,000, or 1.9%, of Edison customers which were considering our customers by the end of 1992. We consider expansion or reorganitation. l his economic that estimate overly optimistic. Most of their development incentive has since encouraged target customers are residential; however, the more than 50 industrial customers to make CPP expansion already has taken three City. about $150 million in capitalinvestments. This, operated water pumping stations, typically high in turn, retained or created some 1.800 jobs energy users. The loss of the 20,000 customers, and 23,000 kilowatts of load, it also had positive in addition to the three pumping stations, would implications for commercial and residential sales, reduce our annual revenues by $16 million, or 0.6%, of fset somewhat by lower operating All!RI) VAI U t? I OK C UFIOMib expenses and taxes.
> We always have valued our c ustomers and placed INCI N1ivi ImiclNG the highest priority on se ving their needs.
Today, we are endeavoring even more to incentive pricing is one strategy we employ to strengthen programs that demonstrate the added value inherent in our service, remain competitive and, at the same time, help our customers keep energy costs down. 9
OUR l'NvikoNMI NI AI ( OMMll Mi N1 Of the 600,000 tons of fly ash preduted from coal combustion ear
- car, w' marLet more Through 1991, we continued evaluating the than 10% to concre- .nanuf atturers for use in compics options for complying with the Clean building and highway construction, he plan to Air Act Amendments of IWO. The legislation partitipate in a reseanh project teeing a fly requires substential reduttions in sulfur dioxide ash tompost combmation as a topsoil replact-(sod emissions f rom coal fired power plants ment. We are seeking additional opportunities to be achieved in two phases. to find uses for fly ash, thus reducinglandfill requurments and disposal costs. Each year we The combined SO, emissions from Cleveland alm sell about two million g,yry gf, m ,.;,.y Electric and Toledo Edison power plants already have tieen cut by about 50 v from the 1477 level.
pounds of used aluminum and copper just two of many DC hhhMYMY That puts us well ahead of many other Midwest utilities which, like us, depend largely on coal. materials we recycle. h%Nh WMe
$;F/./ @M N%
Nevertheless, the legislation repres u to reduce emissions f urther, achieving the first Many customers share our environmental commit ment. M_ .. - l$h MO MM h phase of reductions by 1995; the second phase, Our mid-1991 of fer ot recycling VbavACC - . ,lhh b
-n by the year 2000. information Lits to wstomers d5E.i R v' '
at no charge drew 150.000 .w~c"T4 wra 4T aa > d Our aim is to ac hieve those reductions at the requests representing about Qd lowest possible cost to customers. Consequently. we are taking a multi-dimensioned approach 15% of our custorner total. O
- p P~ [ ({hhL/liks which emphasires flexibility. Our approach in 1991, t he lloard of I)ir ectors D*hf4dy ,
includes the additional use of low-sulf ur coal. maximum use of our emission allowances, created an Environmental and Public Policy Cor..mittee h uA n 4 @ demand. side management of customer load and, af ter 2001, the installation of a scrubber or to oversee the status and k,k compliance w ith environ- % Y Q 1,p+ f other sulfur emission reduction technology at mentallaws and make recom. r* (f'y Qd / _Z one plant. We will seek PUCO review of our mendations to management compliance plans in 1992. regarding environmental programs. We are preparing a report on our Thanks to our previous SO, reductions and environmentat performante that will be of fered our broad-based strategy, w e expect to comply this spring at no charge to interested share with both phases of the 1990 legislation at owners and customers. comparatively moderate cost. Our an..cipated capital expenditures a nd other ex penses represent 3 yg wg;y n px mm3 yynj the potential for a 12% rate increase in the late 1990s and another increase af ter the year 2000, We expect electricity r. ales in Northern Ohio for an aggregate increase of about 3 6% Many to increase about 2% annually over the next other coal. dependent utilities in our region f ace several years. We also expect the f astest growth emission-reduction costs two or three times to occur in the mmmercial sector where growth higher. As they absorb those higher costs has occurred every year since 1978 for an into tl ir rates, our prices w ill become more aggregate incicase of 34% competitive. The recession may have put a temporary damper Reducing emissions is just one of many ways on economic growth, but our Northern Ohio we maintain our commitment to the environ- service area has suf fered less than other regions. ment. We have a broad range of corporate The local unemployment rate was lower than programs to re-use, recycle and reduce waste. the national average during the second half of 12
For the three years ended December 31,1991, Beaver Valley Unit 2 is an 820.000 Lilon att umt Davis Besse attained an availability average of operated by Duquesne 1.ight Company. We have 83% as did Beaver Valley Unit 2.1 hose results 44% ownership and leasehold interests in the were significantly better than the industry's unit.1.ike Davis-Besse, Beaver Vallr y Unit 2 most recent three year average of 74% for units received its highest ratings n er in the NRC's with pressurleed water reactors. Perry Unit 1 most recent SALP Report.1 his latest assessment attained a three-year availability average of plates it among the top 10 nuclear poner units 70%, coming close to the 72% industry average in the nation. for units with boiling water reactors. Nuclear energy accounted for 43 Our fossil fueled generating units also performed percent of the electricity we wellin 1991.1 hey ac hieved a combined operating
- M '
i benerated ir 1991. availability average of 80%. T his considerably exceeds the minimum performance standard of } The 883,000 kilowatt Davis- 64.9% availability which was stipulated in the 5 , k 4 Besse station is iully owned 1989 rate agreement. F h i . by Centerior. The station j i g , returned to service from a 10-week refueling and main. The future of Perry Unit 2 is a continuing un-(ertainty. Construction of this unit has been p_~g i b l ~g tenance outage on November suspended since 19S5 pending consideration of various options including resu med construction,
,[ 8,1991. Since completing an conversion to a nonnuclear design, sale of all extensive ref urbishment in 1988, Davis-Besse has become or part of our ownership share or cancellation.
a top performer among the The unit is about 50% complete. viation's 111 nuclear power units. Davis-Besse earned Our net investment in Perry Unit 2 would have its highest marks ever in to be written off if the unit were canceled. If it the Nuclear Regulatory were converted to a nonnuclear design, we w uld have to w tite off the cost of unusable Commission's (NRC) most recent Systematic Assessment nuclear equipment and f acilities. of Licensee Performance To bp open aH options regarding Perry Unit 2, (SALP) Report. This is a critical NRC evaluation we have applied to the NRC for a 10 year issued every 12 to 18 mombs for each nuclear extension of the construction permit. It was to power unit in the nation. On a SALP performance espire in November 1991 but remains in ef feet scale of ; to 3, Davis Besse earned a Category 1 while the application is pending. Additionally, rating, the top i-sult possible, in three of seven evaluated areas and, for the other four areas, a Cleveland Electric recently agreed to purchase Duquesne Light Company's 1374% ownership Category 2 rating which signifies a levcl of share of the unit at a purchase price of about $3 performance above that needed to meet regulatory million. Duquesne had stated it would not requirements. Additienally, Davis Besse was ame t resumnonstruction. The purchase commended for improvement in three af the will give us a 6476% share of the unit with the latter four areas. remainder owned by Ohio Edison Company Perry Unit 1 is a 1,194,000-kilowatt unit of which and us subsid:ary, I ennsylvania Power Company. we own 51% The Perry unit also earned high marks in the NRC's recent SALP Report, receiving a Category 1 rating in two areas and a Category 2 rating in all others. 11
Managenfent's Staternent of Responsibility for Financial Statentents The management of Centerior Energy Corporation is making changes in management or independent responsible for the consolidated hnancial statements public accountants if needed. in this Annual Report. The statements were The Board has appointed an Audit Committee, prepared in accordante with generally accepted compnsed entirely of outside directort, which met accounting principles. Under these principles, some of three times in 1991. The Committee recommends < the recorded amounts are based on estimates which annually to the Board the fun of independent pubhc are, in turn, based on an analysis of the best accountants to be retamed for the ensuing year and information available. reviews the audit approach used by the accountants We maintain a system of internal accounting plus the results of their audits it also oversees the mntrols designed to assure that the hnancial records adequacy and effectiveness of our internal accounting are substantially complete and accurate. The controls controls and ensures that our accounting system also are designed to help protect the assets and their produces financial statements which present fairly related records. We structure our control procedures our hnancial position, such that their costs do not euced their knehts. Our internal audit program monitors the internal accounting controls. This pregiam gives us the .
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opportunity to assess the adequacy and effectiveness I of existing controls and to identify and institute IL H. M Aucws charges where needed. !n addition, an examination becutive Vice President and of our hnancial s.tatements is conducted by Arthur Chief Financial Officer Andersen & Co., independent public accountants, whose report appears below. Our Board of Directors is responsible for - [* _ determimng whether management and the independent public accountants are carrying out their PAut. G. Busrn responsibilines. The Board is also responsible for Centreller and Chief Acceunting Olficer Report of Independent Public Accountants ARTHUR lo the Share Owners and Board of Directors of ANDERSEN Centerior Energy Corporation: gr We have audited the accompanying consolidated in our opinion, the hnancial statements referred to balance sheet and consolidated statement of above present fairly, in all material respects, the ccmulative preferred stock of Centerior Energy hnancial position of Centerior Energy Corporation Corporation (an Ohio corporation) and subsidiaries and subsidiaries as of December 31,1991 and 1990, as of 1%cember 31,1991 and 1990, and the related and the results of their operations and their cash flows unsondated statements of income, retained earnings for each of the three years in the period ended , and cash flows for each of the three years in the December 31, 1991, in conformity with generally period ended December 31, 1991. These hnancial accepted accounting principles. statements are the responsibil"y of the Company's As discussed further in the Summary of Signihcant management. Our responsibihty is to express an Accounting Policies and Note 12. a change was made opinion on these hnancial statements based on our in the method of accounting for nuclear plant audits. depreciation in 1991, retroactive to lanuary 1,1991. We conducted our audits in accordance with As dkuwd 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, hnancial 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 hnancial statements. An audit also includes when, if ever, Perry Unit 2 will go in service or assessing the accounting principles used and whether the Company's investment in that unit and a signihcant estimates made by management, as well as return thereon will ultimately be recovered. evaluating the overall financial statement presentation. We beheve that our audits provide a reasonable basis for our opinion. bdted I h, Cleveland Ohio February 14,1992 14 i _ _ - _ - _ _ _ _ _ - _ _ _ . _ .- I
1991. Northern Ohio industries learned f rom Toledo. Downtown Toledo's Portside market, the recession of the early 1980s and have since closed in 1989, may reopen to house a Center of improved operating efficiencies, thus con- Sc4nce and Industry museum 11uilington Air tributing to a more resilient manufacturing ba se. Express' new international cargo hub was com-pleted in 1991 giving Toledo ITpress Airport in Cleveland, LTV Steel has mnalled maior new air cargo and truck freight links. now production facilities at ore of its plants. T his expansion, now complete, will provide us in the residential sector, we co.itinue promoting with 58 million in additmnal annual revenues. use of the heat pump for electric heating and LTY has announced plans for cooling in the home. New electric heat pump _p: . . ~ . 5 1 a similar installation in its installations added some $860,000 to annual
". _; l other Cleveland plant to res enues in 1991 and are expected to sontribute 2 ~ become operationalin the nearly $1 million to sevenues in 1992, increased
' TN[ . A ~ 7 4 mid-1990s. Ford Motor will heat pump saturation also helps to raise system complete expansion of its load f actor, which means we get more use from i d ' > y )b$b Avon Lake plant to begin our generating equipment.
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production of Mercury [ Villager minivans in 1992. Olf R DIREMioN FOR TlH I t'It'RI J M@ This will add 55 million to I
-j U' cur annual revenues. Centerior Energy adheres to the traditions
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;I fY Industrial sales in the Toledo of service reliability, concern for customers and responsiveness to share owners. We also p [. Edison area will be boosted believe in the worth of creativity, innovation
. (( l in 1992 when Chrysler shilts and resourcefulness. This is reflected in our P
O p '.d its Wrangler production from willingness to pioneer new approaches to [_ h[ 4"
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.4 Canada to the local Jeep Assembly Plant,llP America improve financial results, build relationships with our customers and meet new technological nians to spend more than demands.
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$100 niillion at its Toledo
~
refinery for a process to reduce We are living in very challenging times, but we sulfur in diesel fuel. The r.ew facility will add are set on a couise of action that we beheve will 54-5 million to our annual revenues beginning meet those challenges. We of ten have said that m 1993. our employees are our single most important l resource. They have contributed significantly .o in the commercial sector in 1991, Cleveland corporate achievements in the past year and we Electric began service to some seven million count on them for further contributions in the
- square feet of new building space, nearly half of years to come.
it electrically heated. Major new customers l include downtown Cleveland's llank One, Society With the help of this dedicated workforce Center and Marriott llotel. Preparations are and the cooperation of customer representative moving ahead for construction of the $350 million groups and regetators, we are confident we can Gateway sports complex in Cleveland's down. achieve our strategic objectives: maintaining town. It will include a stadium with enclosed earnings and the current dividend, meeting the portions featuring electric heating and cooling competition anc! improving operations. We also provided by Cleveland Electric. are confident that, in doing so, we will fulfill our prime responsibility to you-that of in the Toledo area, expansions are planned at enhancing the value of your investment. the Frankhn Park Mall shopping center, the Medical College of Ohio and the University of 13 L .
units-offroduction depreciation rate for Davis- Dfi LRRI:D G AIN AND 1 OSS 1 HOM Dene, effective January 1,1990, which recognited the SAll:S 01 Ulit in Pi ANT life extension. See Note 13. Effective January 1,1991, the Operating The Operating Companies entered into sale and Companies chenged their method of accounting for leaseback transactions in 1987 for the coal 6ted Druce nuclear plant deprecLuon from the units-of. Mansheld Generating Plant (Mansfield Plant) and l production method to the straight-line method at Beaver Valley Unit 2 as disctn. sed in Note 2. These , about a 3% rate. The PUCO appros ed this change transactions resulted in a net gain for the sale of in accounting method for each Operating Company Mansfield Plant and a net loss for the sale of Beaver I and subsequently approved a change to lower Valley Unit 2 both of which were deferred. The the 3% rate to 2.5% for the three operating nuclear Operating Companies are amortiting ;h; appikable units retroactive to lanuary 1,1991. See Notes 12 deferred gain and loss over the terms of ieaso under sale and leaseback agreements. The amortizations and 13. The Operating Companies use external funding along with the lease expense amounts are recorded as , of future decommissioning costs for their operating other operation and maintenance expense, nuclear units pun.uant to a PUCO order. Cash INHRfM CHARMS cont ibutions are made to the funds on a straight h.ne basis over the remaining licensing period for each Debt interest reported in the income Statement does unit. Amounts currently in rates are based on past not include interest on nuclear fuel obligations. I estimates of decommissioning costs for the Operating Interest on nuclear fuel obligations for fuel under ' Companies of $122,00020 in 1986 dollars for Davis. construction is capitalized. See Note 5. Besse and $72,000,000 and $63.000,000 in 1987 Losses and gains realized upon the reacquisition or dollars for Perry Unit 1 and Beaver Valley Unit 2, redemption of long-term debt are deferred, consistent respectively. Actual decommissioning costs are with the regulatory rate treatment. Such losses anil expected to significantly exceed these estimates. gains are either amortized over the remamder of the it is expected that incre'ases in the cost estimates will original life of the debt issue retired or amortired over be recoverable in rates resulting from future rate the life of the new debt issue when the proceeds of a proceedings. The current level of expense being new iwue are used for the debt redemption. The ft.nded and recovered from customers over the amortirations are included in debt interest expense. > remaining licensing periods of the units is approximately $8,000,000 annually. The present PRWah hANT AND I QUlPMliNT funJing requirements for Beaver Valley Unit 2 also Prol erty, plant and equipment are stated at original satisfy a similar commitment made as part of the sale cost few any amounts ordered by the PUCO to be and leaseback transartion discussed in Note 2. written off. Included in the cost of construction are # items such as related payroll taxes, pensions, frir,ge ffDERAl. INCOME TAXES benefits, management and general overheads and The financial statements reflect the liability method of allcwance for funds used during construction accounting for income taxes. The liability method ( AFUDC). AFUDC represents the evimated requires that our deferred tax liabilities be adjusted composite debt and equity cost of funds used to finance construction. This noncash allowance is for subsequent tax rate changes and that we record deferred taxes for all temporary differentes between credited to income, except for certain AFUDC for the book and tax bases of assets and liabilines. A Perry Nuclear Power Plant Unit 2 (Perry Unit 2). See portion of these temporary differences are attributable Note 3(c). The gmss AFUDC rates averaged 10J% in to property related timing differences that the PUCO 1991,10.8% in 1990 and 11.2% in 1989. used to reduce prior years' tax expense for Maintenance and repairs are charged to expense as ratemaking purposes whereby no deferred taxes incurred. The cost of replacing plant and equipment A were collected or recorded. Since the PUCO practice is charged to the utility plant accounts. The cost of permits recovery of such taxes from customers when property retired plus removal costs, after deducting they become payable, the net amount due from any salvage value, is charged to the accumulated customers has been recorded as a regulatory asset provision for depreciation. in deferred charges. A substantial portion of this amount relates to differences between the book and Rf CI. ASSinC A (IONS tax bases of utility plant, Hence, the rec ,very of these Certain reclassifications have been made to prior amounts will take place over the lives of the related years' financial statements to make them comparable assets, with the 1991 fmancial statements and consistent investment tax credits are deferred and amortued with current reporting requirements. These include over the estimated lives of the applicable property, reclassifications related to certain wholesale power The amortization is reported as a reduction of sales resenues as discussed previously under depreciation expense under the liability method, " Revenues" and accumulated deferred rents as See Note 7. discussed in Note 2. 16
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Surnmary of Sigriificant Accounting Policics ClMRAL of fuel and purchased power espense. The amount' for prior years have also been reclassihed to conform i Centerior E.nergy C,orporation (Centerior Energy) is a w th curr'ent reporting requirements. See Note 13. . holdmg company with two electric utilities as subsidiaries, The Cleveland Electric illuminating I Company f.U I WTNH ,
- Edison Com(Cleveland pany (Toledo Edison).Electric) and The Toledo The consolidated The cost of fossil fuelis charged to fuel espense based .
l hnancial statements also include the accounts of on inventory usage. The cost of nuclear fuel, l Centerior Energy's other waolly owned subsidiary, including an interest component, is charged to fuel Centerior Service Company (Service Company), and expense based on the rate of consumption. Estimated Cleveland Electric's wholly owned subsidiaries. The future nuclear fuel disposal costs are being recovered Service Company provides management, hnancial, through the base rates. administrative, engineering, legal and other services The Operating Companies defer the differr ces j ' at cost to Centerior F~ 'rgy, Cleveland Electric and between actual fuel costs and estimated fuel uts Toledo Edison. Cleveland Electric and Toledo Edison currently being recovered from customers through the
-(Operating Companies) operate as separate fuel factor. This matches fuel expenses with fuel-companies, each serving the customers in its service related revenues.
area. The preferred stock, hrst mortgage bonds and i other debt obligations of the Operatmg Companies ppppmg.pgec;.,q , a p; t yy - , continue to be outstanding securities of the issuing gy ggfg g g,g- , utility. All sigruncant intercompany items have been gg g g r .a
- eliminated in consolidation. ' ~ -
Centerior Energy and the Oper. ting Companies The PUCO authorized the Operatini; Companies to follow the Uniform System of Accounts prescribed by record, as deferred charges, certain operating expenses the Federal Energy Regulatory Commission (IERC) and carrying charges related to Perry Nuclear Power
---and adopted by The Public Otilities Commission of Plani Unit 1 (Perry Unit 1) and Beaver Valley Power Ohio (PUCO). As rate-regulated utilities, the Station Unit 2-(Beaver Valley Unit 2) from their Operating Companies are subject to Statement of respective in4ervice dates in 1987 through December Financial Accounting Standards 71 which governs 1988. Amortization and recovery of these deferrals accounting for the effects of certain types of rate (called pre-phase-in deferrals) began in January 1989 regulation. The Service Company follows the Uniform in accordance with the January 1989 PUCO rate System of Accounts for Mutual Service Companies orders discussed in Note 6. The amortirations will .
prescribed by the Securities and Exchange continue over the lives of the related property. Commission (SEC) under the Public Utility Holding As discussed in Note 6, the January 1989 PUCO Company Act of 1935. rate orders for the Operating Companies included The Operating Companies are members of the approved rate phase-in plans for their investments in Centra! Area Power Coordination Group (CAPCO). Perry Unit 1 and Beaver Valley Unit 2. On January 1, Other members include Duquesne Light Company 1989, the Operating Companies began recording the (Duquesne), Ohio Edison Compan) (Ohio Edison) deferrals of operating expenses and interest and and Ohio Edison's wholly owned subsidiary, equity carrying charges on deferred rate-based Pennsylvania Power Company (Pennsylvania . investment pursuant to the phase-in plans. These Power). The members have constructed and operate deferrals (called phase-in deferrals) will be recovered generation and transmission facihties for the use of by December 31,1998, the CAPCO companies. DEPRICI AT!ON A% i YC C:ON REVENtIS T.he cost of property, plant and equipment is Customers are billed on a monthly cycle basis for their depreciated over their estimated useful lives on a energy consumption based on rate schedules or straight-line basis. Prior to 1991, only nonnuclear contracts authorized by the PUCO or on ordinan es property, plant and equipment was depreciated on a i with individual municipahties. An accrual is made at straight line basis, as depreciation expense for the' the end of each month to record the estimated nuclear generating units was based on the unitvof-amount of unHilea revenues for kilowatt-hour sales production method, rendered in the current month but not billed by the The annual straight-line depreciation provision for
- end of that month. nonnuclear property expressed as a percent of A fuel factor is added to the base rates for electric average depreciable utility plant in service was 3A%
service. This factor is designed to recover fro.n in 1991,33% in 1990 and 3 8% in 1989. The rate customers the costs of fuel and most purchased declined in 1990 because of a PUCO approved change power. It is reviewed and adjusted semiannually in a in depreciation rates effective January 1,1990, PUCO proceeding. attributable to longer estimated lives for nonnuclear Operating revenues include certain wholesale property. See Note 13. power sales revenues in accordance with a iERC in 1993 the Nuclear Regulatory Commission clarihcation of reporting requirements. Prbr to 1991, (NRC) approved a sieyear estension of the operating , these bulk power sales transactions were netted with license for the Davis Besse Nuclear Power Station purchased power transactions and reported r.s part (Davis Besse). The PUCO approved a change in the 15
=__. .___ ___.____.____ _ _ _ _ _ _ _ _ _ ___
. _ _ _ _ _ _ _ _ _ -~ _ _ - _ _ _ _
. The increases in base rates and mir.cellaneous Companies of 9% effective in February 1989 and 7%
revenues resulted primarily from the January 1989 effective in February 1990. T he associated revenue increase in 1940 was partially offset by reduced PUCO PUCO approved rate orders ratefor the Operatiny% increar.es of , effective inCompanics. revenuesThe resulting from a 4.1% decrease in total February 1990 for both companies and rate increases kilowatt-hour sales. Industrial sales decreased 2.8% of 4.35% for Cleveland Electric and 2.74% for Toledo because of the recession beginning in 1990. J Edison effective in February 1991. However, as part of Residential sales decreased 2.1% as seasonal Toledo Edison's efforts to improve its competitive temperatures were more moderate in comparison to position in its service area, Toledo Edison waived its the prior year's temperatures, resulting in reduced l 2.74% rate increase for residential and small customer heating and cooling-related demand. commercial customers and reduced its residential rates Commercial sales increased 0.3% as increased by 3% effective in March 1991 and by an additional demand from new all. electric office and retail space 14 effective in September 1991. See Note 6. Total was offset by the effects of mild weather. Other sales ; kilowatt hour sales inercased ).2% in 1991. Residential activity decreased 18+% as a result of lower and commercial sales increawd 4.7% and 4.8%, wholesale sales caused in part by Toledo Edison's : respectively, as a result of higher usage of cooling municipal utility customers satisfying a greater equipment in response to the unusually warm late portion of their power needs from other sources. The i spring - and summer 1991 -temperatures. The mcrease in revenues was also partially offset by the <
- commercial sales increase was also influenced by loss of revenues related te the May 1989 espiration of some-improvement in the economy for the Cles eland Electric's agreement to sell a portion of its ,
commercial i.ector. Industrial sales declined 5% largely share of Perry Unit I capacity to Ohio Edison and because of the recession-driven slump in the steel, Pennsylvania Power. i auto and chemical industries. Other sales increased - Operating espenses decreased 0.3% in 1990. 9.1% because of increased sales to wholesale Depreciation and amortization expense decreased customers and public authorities. primarily because of lower depreciation rates used i Operating espenses increased 3% in 1991. The in 1990 for nennuclear and Davis-Besse increase was mitigated by a reduction of 562,000,000 property attributable to longer estimated lives and in other operation and rnaintenance expense, resulting because of longer nuclear generating unit refueling
- primarily from cost-cutting measures. Offsetting this and maintenance outages in 1990 than in 1989.
decrease were an increase in federal income tases Federal income tases decreased primarily because of a because of higher pretax operating income; an decrease in pretax operating income. These increase in fuel and purchased power expense decreases in operating expenses were partially offset resulting primarily from increased amortization of by an increase in taxes, other than federal income previously deferred fuel costs over the amount tases, resulting fro' i Sigher property and gross amortized in 1990; an increast in tases, other than receipts taxes, ar ' by lower operating expense federal income taxes, resulting from higher property deferrals for Pe> y Unit I and Beaver Valley Unit 2. and gross receipt taxes and accruals for Pennsylvania Credits for carrying charges recorded in tax increases enacted in August 1991; and lower nonoperating income decreased in 1990 because a operating expense deferrah, for Perry Umt I end preater share of our investments and leasehold Beaver \ alley Unit 2 pursuant to the January 1989 interests in Perry Unit 1 and Deaver Valley Unit 2 PUCO rate orders, were recovered in rates. The decrease in the federal Credits for carrying charges recorded in income tax provision related to nonoperating income nonoperating income decreased in 1991 because a was the result of a decrease in pretax nonoperating greater share of our investments and leasehold income and federal income tax adjustments of interests in Perry Unit 1 and Beaver Valley Unit 2 - - 537,522,000 associated with previously deferred i were recovered in rates. The federal income tax investment tax credits relating to the 1()88 write-off of provision related to nonoperating income increased nuclear plant. Other income and deductions, net, mainly because the 1990 provision was reduced by decreased primarily because of less interest income in 537,522,000 for federal income tu adjustments 1990. associated with previously deferred investment tax . credits relating to the 1988 write-off of nuclear plant. TFrECT OF iM LATION 1990 rs.1989 Although the rate of inflation has cased in recent Factors contributing to the 2.8% increase in 1990 years, wt are still affected by even modest inflation operating revenues are as follows: since the regulatory process introduces a time-lap inneaw during which increased costs of our labor, matenals Change in Operatmg Revenues (Dearaw) and services are not refietted in rates and recovered. Base Rates and Menaneous . H52AoRo Moreover, regulation allows only the recosery of
' I historical costs of plant assets through depreciation
. h'cMINCafanDM to OhiMson ~
even though the costs to replace these assets would and Pennsylvania rower. (32200mo) 9 y,3m suhtantially exceed their histoncal costs in an mflationary economy. The major factor accounting for the increase in Changes in fuel costs do not affect our results of , operating revenues was related to the January 1989 operations since those costs are deferred until rate orders for the Operating Companies. 'The reflected in the fuel cost rece- factor included in i PUCO approved rate increases for the Operating customers' bills. [ 18
Management's Financial Analysis Rt SU1115 O! OPl RAHONS depreciation for facilities that are in service but not yet remgnited in rat % PUCO action on this request has Ocem.em been postponed under the joint re<ommendation The January 1989 PUCO rate orders fo. the Operating appioved by the PUCO discussed below. Companies, as discussed in Note 6, were designed to in December 1991, the PUCO approved a joint enable us to begin recovering in sates the cost of, and recommendation of the Operating Companies and earn a fair return on, our allowed investment in customer representative groups involved in the 1989 Perry Unit I and lleaver Valley Unit 2. The rate rate case settlement The joint recommendation orders, which provided for th'ree rate increases, sought to secure an interim resolution of then-improved revenues and cash flowa in 1989.1990 and pending accounting applications in 1991 and to 1991 from the 1988 levels, liowever, as discussed in establish a framework for resolving accounting issues the first four paragraphs of Note 6, 'he phase-in and related matters on a longer-term basis (i.e.,1992-plans were not designed to improve earnings because 1995). As part of this joint recommendation, the gains in revenues from the higher rates and assumed Operating Companies agreed to limit thtir combined sales growth are initially offset by a corresponding 1992 other operation and maintenance expenses and reduction in the deferral of nuclear plant operating capital expenditures to $1,050.000,000. exclurire of expenses and carrying charges and are subsequently compliance costs related to the Clean Air Act offset by the amortization of such deferrals. Amendments of 1990 (Clean Air Act). Other Although the phase-in plans had a positive effect operation and maintenance expenses and cspital on revenues and cash flows, there are a number of expenditures totaled $1,005,000 000 in 1991. The factors that exerted a negative influence on earnings Operating Companies and the customer in 1991 and will continue to present significant representative groups also agreed to an ongoing earnings challenges in 1992 and beyond. One such review of our business operations, hnencial condition factor is related to facilities placed in service after and accounting practices. This effort, with the February 1988 and not included in rate base. The participation of the PUCO staff, is directed at the Operating Companies are required to record interest maintenance and ultimate improvement of our : charges and depreciation on these facilities as current fmancial condition, the improvement of the expenses even though such iterns are not yet efficiency of out operations, and the delav and i recovered in rates. We also arc . facing the challenge of minimization of future rate increases. The Gperating competitive forces, including new imtlatives to create Companies also agreed not to seek any base rate municipal electric systems. The need to meet increase that would become effective before 1991 competitive threats, coupled with a desire to We continually face competitive threats from encourage economic growth in the service area, is municipal electric systems within our service territor prompting the Operating Companies to enter into an a challenge intensilied by municipal access to low y, mcreasmg number of contracts having reduced rates cost power currently available on the wholesale with certain large customers. Competitive forces also market, As part of our competitive strategy, we are - prompted Toleoa Edison to implement rate strengthening programs that demonstrate the added reductions in 1991 for residential and small value inherent in our service, beyond what one might , commercial customers. Factors beyond our control receive from a municipal elect'ic r system. Such ; also having a negative influence on earnings are the programs include providing services 'to communities > economic recession,- the effect of inflation and to help them retain and attract businesses, providing increases in taxes, other than federal income taxes. consulting services to customers to improve their We have taken several steps to counter the adverse energy efficiency and developing demand. side effects of the factors discussed above. We have management programs. To counter new implemented most of the recommendations of the municipalization initiatives, we are also stressing the management audit discussed in Note 6 and have fmancial risks and uncertainties of creating a taken other actions which reduced other operation municipal syste... and our superior reliability and , and maintenance expense by approximately service.
$62,000,000 in 1991. As discussed in the Summary of Annual sales growth is ex S!gnihcant Accounting policies and Note 12, we 2% for the next several years,pectedcontingent nnto average about future sought and received POCO approval to lower our economic events. Recognizing the limitations nuclear plant depreciation expense in 1991 to a level imposed by these sales projections and current more closely aligned with the amount being competitive pressures. we will utilize our best efforts recovered in rates. In addition, we have increased our to minimize future rate increases through cost-efforts to sell power to other utilities which, in 1991, reduction and quality-of service efforts and exploring resulted in approximately $33,000,00() of revenues in ~
other innovative options. Eventually, rate increases excess of the cost of providing the power- will be necessary to recognize the cost of our new Despite the positive aspects of the measures capital investme'nt and the effect of inflation.
' discussed above, more must be done to maintain earnings Continuing cost-reduction efforts will be I99I l's.1990 necessary to lessen the negative pressures on Factors contributing to the 5 5% increase in 1991 earnings. We are aggressively seeking long term operatmg revenues are as follows: ,
power contracts With Wholesale customers to further change in o eerating unenues innease l- enhance revenues. To counter the effects of delays in nase gaie, and Mueltaneous . $ mooomo recovering new investment since 1988 and relatied sale, volume and Mn 2u00.000 costs in rates, we have requested pUCO approval to whoteute sale, 19arno accro posin-service carrying costs and dAr g
. i_3_3 auw _
l 17-
Mariagerrier Ys Tirtaricial Arialtuic CAPIT Al. RISOURCl3 AND 1.lQUIDin optional redemption provisions. See Notes 10(d) and in addition to our need for cash for normal wrporate (e) for information concerning limitations on the operations, we continue to need cash for an ongomg iwuance of preferred and preference sto(L and debt. program 08 constructing new f acihties and modif ving Our capital requirements af ter 1994 hill depend on esisting fu ities to meet anticipated demand foi the implementation strategy we choose to achieve electric service, comply with governmental wrnpliante with the Clean Air Act. INpenditures for regulations and protect the environment. Cash is also our optimal plan are estimated to be approximately needed for the mandatory retiremera of securities. SlWO,W m the 1992 2N1 period. See Note Over the three year pe'riod of 19W-1991, these 3(b). construction and mandatory retiremeni needs totaled We e pect to be able to raise cash as needed.1he availability and cost of capital to meet our esternal i approximately $ 1,250,000,000. In addition, we esercised various options to redeem and purchase imancing needs, however, depends upon such factors approsimately 5480,000,000 of our securities. as hnancial amket conditmns and our credit ratings. As a result of the January 1989 PUCO rate orders, Current st. rities ratings for the Operating internally generated cash increased in 1989,1940 and Companies are as follows: 1991 from the 1988 level. In addition, we raised & rwin Inn.uors $1,463,000,000 through security issues and term bank Cortaanon Scre e loans during the 1989-1991 period as shown in the clevetand 11eitnc Cash Flows statement. During the three-year period, Imt n,ongre bona imn- naa the Operating Companies also utilized their short- I'rdened m k BB+ bad term borrowing arrangements (esplained in Note 11) weao t amon to help meet their cash needs. Proceeds from these nm mortuge tendo one- on3 financmns were used to help pay for our construction Unmured notro BB+ Bd P"*"ed *k- !* + b4 program, to repay portions of short term debt incurred to hnance the construction program, to retire, redeem and purchase outstanding securities, and for Darring unforeseen circumstances, we beheve that general corporate purposes. the rate orders and recent regulatory actions, coupled Estimated cash requitements for 1992-1944 for with stringent cost wntrols, have given us a Cleveland Electne and Tokwlo Edison, respectively, reasonable oprmrtunity to achieve hnancial results are $693,000,000 and 5248,000,000 for their w hich should pe.mit Centerior Energy to continue the construction programs and $464,000,000 and current quarterly common stock disidend of 5 40 per 5241,000,000 for the mandatory redemption of debt share. Nevertheless, dividend action by our floard of and preferred stock. Additionally, Cleveland Electric Directors will continue to be decided on a quarter-to-has arranged to refund in 1992 578,700,000 principal quarter basis af ter the evaluation of imancial results, amount of its First Mortgage Bonds,13%*e Series due potential earning capacity and cash flow. A write-off 2012 by issuing an equal principal amount of hrst of out investment in Perry Unit 2, as discussed in mortgage bonds due 2013 having an effective interest Note 3(c), would not reduce our retained earnings cost of 8 25*a Cleveland Electric and Toledo Edison sufhciently to impair our ability to declare dividends espect to hnance externally about 50% of their total and would not affect our cash flow. 1992 construction and mandatory redemption The Tas Reform Act of 1986 (1986 Tas Act) requirements of approximately 5286.000,000 and provided for a 34% income tas rate in 1988 and
$180,00n OR respectively. About 50+0% of the thereafter, a new alternative minimum tas ( AMT) and Operating Companies' 1993 and 1994 requirements other changes that resulted in increased tax payments are espected to be hnanced externally. If economical, and a reduction in cash flow during 1989,1990 and additional securities may be redeemed under 1991 because we were subject to the AMT.
20
e lilCO!!!C ClalCttICill clNutioR INItm c0RPORAHON AND SUBSIDIARH s f or the years ended December 31. 1991 1990 1989 (thousands of douars. eucpt per share etnounts) Operating Revenues . $ 2.560: 252 $2,427,441 $2.361,304 Operating Expenses fuel and purchased power. 499,672 472.297 472,684 Other eperatim and maintenance 80L225 862,738 860,138 Depreciation and amortiration 242.708 242,153 272,671 p Tases, other than federal income taxes . 304,709 283,425 259,871 Phase in deferred operating expenses - (22.222) (50,940) (74,555) P Amortization of pre phase-in deferred costs 16.529 17,272 16,335 federal income taxes . 137 is] 96.076 122,385 L 950.202 1,923.021 1,929.529 Operating income , , % 0,050 504,420 431,775 Nonoperating Income Allowance for equity funds used during construction 9.351 7,883 16,930 Other income and deductions, net . 5.24S 145 14,368 Phase-in carrying charges. 109,601 205,085 299,159 federal income taxes - credit (expense) . . (30,329) j l?948) (73,177) 93,871 200 165 257,280 income Before Interest Charges and Preferred Dividends . _673.921 704.5s' 689,055 Interest Charges and Preferred Dividends Debt interest . 3S1,2S0 384.278 369,481 Allowance for borrowed funds used during construction (5,24S) (5?93) (12,929) Preferred dividend requirements of subsidiaries 60.649 61,'.41 65,617 4 %.681 4d126 422.169 Net Incorne . $ 237,240 5 264.459 5 266.8s6 Average Number of Common Shares Outstanding (thousands) , , 139.104 138.885 140.468 Earnings Per Common Share . $ L71 % _p0 $__ v>0 Dividends Declared Per Common Share. S L60 _$ _119 s 1.60 Relaitted Earnirigs for the years ended December 31. ~ __1991 1WO _ 1989 Ohouunds of dollm) Balance at Beginning of Year. 5 054 636 % 613,774 $ 57),882 Additions Net income . 237,240 264, 0 266,8S6 Deductions Common stock dividends. (222213) (222,482) (224,947) Other, primarily preferred stock redemption expenses of subsidiaries (906) (915) (47) Net increase 14 011 41,062 41,892 Balance at End of Year S 6Wb7' 5 654.836
= = = =
5 613,774
= . = = = =
The accompanying notes and summary of significant accounting policies are an integral part of these statements. 19
Balance Sheet December 31, 1991_ , 1990 i (thousands of dollm) ASSETS , PROPER 1Y, PLANT AND EQUIPMENT l Utility plant in service.. . ...... . . .. ... ..... . $ 8,8SS,219 $ 8,636,219 1.ess: accumulated depreciation and amortliation . . . .. J274,489 2,038,510 6,613,730 6,597,709 Construction work in progress . . . .. .. .. . 215.855 268,386 . petry Unit 2. . . . . . . . . . . . . . . . . . . . . .. .. .. .. . 850,573 ,_ 865,149 7,680.158 7,731,244 Nuclear fuel, net of amortization .. . . . ... 458,414 522.672
.. Other property, less accumulated depreciation . . . . . . . . .
44,513 45,452 6,183,085 8,299,368 CURRENT ASSETS Cash and temporary cash investments .. . .. . .. ..... 177,381 53,278 Amounts due from customers and others, net . . . . . ... . ... . 228,754 242,761 ; Unbilled revenues ....... ...... . .. .. .. .. 107,S44 80,866 Materials and supplie5, at average cost . . .. . . .. 125,618 108,758 ! Fossil fuel inventory, at average cost . . . . . . . .... ....... . 57,893 52,578 - Taxes applicable to succeeding years. . .. . .. .... . 234,096 218,444 Oth er . . . . . . . . . . . . . . . - . . . . . . ... . . .... . 9,298 9,922 940,884 766,607 DEFERRED CHARGES Amounts due from customers for future federal income taxes.. 1.145,925 1,165,904 Unarertized loss from 11eaver Valley Unit 2 sale. . .... . 114,174 119,623 Unamortized kiss on reacquired debt . .... .......... .... 75,265 80,564 Carrying charges and operating expenses, pre-phase-in .. .. 612,852 629,530 Carrying charges and operating expenses, phase in . . . . . . . . . .. 761,571 629,744 Other... ... ... . ..........., . .. .... . . .. _ 20S,333 202,895 2,918,120 2,828,260 I k Total Assets . ... .., .. . . . $1LO42.0S9 $11.894.235
. -m The accompanying notes and summary of signincant accounting policies are an integral part of tais statement.
.t 22 - -
Cash Flows crurtnion turnar convansroon sv sus snits for the veats ended December 31, 1991 _ IWO 1989 (thousands of dollars) Cash Flows frotn Operating Activities (l) Net income , i 237,240 $ 264.459 $_ 266.886 Adjustments to Reconcile Net income to Cash fmm Operating Activities: Depreciation and amortization 212,70S 242,153 272,671 Deferred federal income taxes . S5,331 142,190 181,240 investment tax credits, net . 42,860 (34,287) 1,179 Deferred and unbilled revenues (50,866) (60,792) (74,792) Deferred fuel . . 17,648 (11,843) 25,086 Carrying charges capitalized (109,601) (205,085) (293,159) L. cased nuclear fuel emortization . 122.770 84,150 102,120 Defttred operating ey.anw net (5,693) (33,668) (58 220) j Allowance for equity fur sed during construction (9,351) (7,883) (16,930) Amortizeion of reserve e c , Jesse refund obligations - to customers - - (24,817) Pension settlement gain . (40,966) - Changes in amounts due from customers and others, net 14 ';" (26,445) (13,486) Changes in inventories . (2 (29,01S) (3,029) Changes in accounts payable. (49,015) 45,654 (28,826) Changes in working capital affecting operations. 18.85S (24,913) 17,120 Other noncash items . , _ 1,396 7,184 7.775 Total Adjustments 29S,877 46,434 87,932 Net Cash from Operating Activities. 536,117 310,893 354,8 M Cash Flows from Financing Activities (2) Dank loans, commercial paper and other short-term debt. (109.903) 109,888 29 s Debt issues: First mortgage bends. - 167,300 123,800 Secured medium-term notes , 281500 337,500 212,500 T im bank loans and other longerm debt 108,365 31,000 40,000 Preferred stock issues 125,000 - - Common stock issues 32,028 - 740 Reacquired common stock , (114) (25,601) (19,804) Maturities, redemptions and sinking funds. (311,983) (395,287) (370,747) Nuclear fuel lease and trust obligations (115,623) (99,076) (86,589) Common stock dividends paid (222,233) (222.482) (224,947) Premiums, discounts and expenses (Q91) (7.360) (2,622) Net Cash from Financing Activities . . J216,954) _(104.118) (327,640) Cash Flows from Investing Activities (2) Cash applied to construction . (189,244) (237,436) (210,403) Interest capitalized as allowance for borrowed funds used during construction . (5,24S) (5,993) (12,929) Other cash applied. (568) (13,211) (31,500) Net Cash from investing Activities _(195.060) (256.640) (254,832) Net Change in Cash and Temporary Cash investments. 124,103 (49,865) (227,654) Cash and Temporary Cash invesht;ents at Beginning of Year . _ 53,278 103,143 330.797 Cash and Temporary Cash Investments at End of Year. 5 177,38) $ 53,278 $ 103,143 (1) Interest paid (net of amounts capitalized) was $339,000,000, $297,000,000 and $242,0u0,000 in 1991,1990 and 1989, respectively, income taxes paid were $56,728,000, $21,185,000 and $9,058,000 in 1991,1990 and 1989, respe< tively, (2) incrt ases in nuclear fuel and nuclear fuellease 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 accounte policies are an integral part of this statement. 21
IStaterney of Qunulative Preferred Stock cturtaioa tutRcr coarORATION AND SUBSIDI. arils 1991 Shares Current . _. . Decernber 31. Outstanding Call Price 1991 _ _1990 CLEVELAND ELECTR1C ' _ . (thous *ad5 of dollar *) :i 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 . . . . . . , 2',000 1,030.61 27,000 30,000 -
75.00 Series F , ... ..... - -- .- 2,384 I
- 145.00 Series 1. . . . . . . . . - - - 13,779 113.50 Series K. .
- - - 10,000 Adjustable Series M . . . . . . . 400,000 102.00 39,260 49,000 9.125 Series N . . . . . . . . . 75n X10 105.07 73,963 73,968 91.50 Series Q . . . .. 75,;D0 - 75,000 -
88.00 Series R . . . . 50,000 - 50,000 - 2P2,16S a 7,131 Less: Current maturities _ 13,800 25,969 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 Adjustable Series L. . . .. 500,000 103.00 48,950 48,950 Remarketed Series P , . . . . ... 750 100,000.00 73,313 73,313 TOLEDO EDISON l' E # - A
$100 par value, 3,000,000 preferred shares authorized and $25 par vahie,
.12,000,000 prefernd shares authorized -
Subjea to mandatory redemption:
$100 par $11.00 .. ... .. 24325 -101.00 . 2,4 S3 3,483 9J75 ,. 133,450 103.46 13,345 15,010 25 nar 2.81 , .. . .. 2,000,000 26.56 50,000 50,000 65,82S 68,493 Less: Current maturities 2,165 2,165
- _ Not subject to mandatory redemption:
$100 par $ 4.25 .. . .. ... 160,000 104.625 16,000 16,000 4.56 ..,.... . . 50,000 101.00 5.300 5,000 4.25 . . . 100,000 102.00 10,000 10,000 8.32 . . 100,000 102.46 10,000 10,000 -
7.76 . . , . 150,000 102.437 15,000 15,000 7.80 , . . . . . 150,000 101,65 15,000 15,000 L 10.00 . . .. , 190,000 101.00 19,000 19,000 25 par 2.21- . .. .. 1,000,000 25.25 25,000 25,000 2.365 . . 1,400,000 28.45 35,000 35,000 Series A Adjustable 1,200,000 25.75 30,000 30,000 Series B Adjustable 1,200,000 25.75 30.000 30,000
# '000 - ' U'*00 CENTERIOR ENERGY
-Without par value,5,000,000 preferred shares authorized, none outstanding - -
Total Preferred Stock, with Mandatory Redemption Provisions . . , . . $ 332,031 $237,490 Total Preferred Stock, without Mandatory Redemption Provisions . . ... $ 427,3]4 $427,334 The accompanying notes and summary of significant accounting policies are an integral part of this statement. 24
CLNTERIOR ENLRGY CORPORATION AND SUllSlDIARitS l Decemnegl, , 1991 1990 (thouunds of dollm) CAPITALIZATION AND LIABILITIES CAPITALIZATION Common shares, without par value (stated value of $221,477,000 and $189,460,000 for 1991 and 1990, respectively): 180,000,000 authorized; 140,160,000 (excluding 2,522,000 shmes in Treasury) and 138,401,000 (excluding 2,511,000 shares in Treasury) outstanding in 1991 and 1990, respectively , $ 2,185,607 5 2,155,197 Retained earnings. .. . . _669U 77 654,836 Common stock equity . . . 2,854,4S4 2,810,033 Preferred stock With mandatory redemption provisions 332,031 237,490 Without mandatory redemption provisions 427,33s" 427,334 lang-term debt . 3.84 L355 3,729,237 _ _Z,4 55.204 7,204.094 OTh TURRENT LIABILITIES fuel lease obligations . 340,507 427,295
.. .. . _ S3,147 81,399
__4 23. b54 508.694 iABILITIES
.ent portion of long-term debt and preferred stock . 216,333 214,138 Current portion of lease obligations. 144,620 114.943 Notes payable to banks and others . 191 110,094 Accounts payable . . 147.810 196,825 Accrued taxes 350,550 323,716 Accrued interest . . 84,495 84,778 Other. . .
__ _ 57 683 73,801 1,001.6S2 1,118,295 DEFERRED CREDITS Unamortized investment tax credits . . 366,047 336,136
~
Accumulated deferred federal income taxes . . 1,784.749 1,730,954 Reserve for Perry Unit 2 allowance for funds used during construct!an . . . 212,693 212.693 Unamortized gain from Bruce MansfwM Plan
- sale 602,446 626,493 Accumulated deferred rents for Bruce Mansfield Plant and Beaver Valley Unit 2. . .
131,032 114,888 Other. . _ _o].522 41,988 3,161 549 3,063,152 Total Capitalization and Liabilities . $12,04 2.099 $11,894.235 23
(3) CONSTRUCTION AND CONTINGENCIES 1991, Cleveland Electric, the company responsible for the construction of Perry Unit 2, applied for a ten. (a) ' CONSTRUCTION PROGRAM year extension of the construction permit which was - The estimated cost of our construction program for the to expire in November 1991. Under NRC regulations,
;1992-1994 period is $991,000,000, including AFUDC the construction permit will remain in effect while of $50,000,000 and excluding nuclear fuel. the application is pending. We expect the NRC to in an agreement approved by the PUCO, the ' grant the extension.
Operating Corapanies have agreed to limit their 'in February 1992, Cleveland Electric purchased combined 1992 aber operation and maintenance Duquesne's 13.74% ownership share of Perry Unit 2 expenses and capital expendtures to $1,050,000,000, for $3,324,000. This purchase increased the Operating exclusive of compliance costs related to the Clean Air Companies' ownership share of the unit to 64.76%, Act. Within this lirrJtation, capital expenditures are with the remainder owned by Ohio Edison and ! budgeted at $2%,000,000, exclusive of the Clean Air Pennsylvania Power. The purchase does not signal i Act compliance com. any plans to resume construction of Perry Unit 2, but
-. rather our intent to keep our options open. Duquesne (b) CLEAN A!R LEGISLATION had stated that it would not agree to resumption of The Clean Air Act will require, among other things, construction of the unit, significant reductions in the emission of sulfur dioxide if perry Unit 2 were to be canceled, then our net and nitrogen oxides by fossil-fueled electric investment in the unit (less any tax saving) would generating units. The Clean Air Act will require that have to be written off. We estimate that such a write-sulfur dioxide emissions be reduced in two phases off, based on our investment in this unit as of over a ten year period.- December 31, 1991 and after adjustment for the We have developed a compliance strategy which February 1992 purchase of Duquesne's ownership will be submitted to the PUCO for review in April share, would have been about $438,000,000, after
- 1992. We will also seek United States Environmental taxes. See Notes 10(d) and (c) for a discussion of Protection Agency approval of Phase I plans in 1993. potential consequences of such a write off The compliance plan which results in the least cost if a decision is made to convert Perry Unit 2 to a and the greatest flexibility provides for compliance nonnuclear design in the future, we would expect to with both phases through 2001 by greater use of low write off at that time a portion of our investment for sulfur coal at some of our units and the banking of nuclear plant construction costs not transferable to the emission allowances. The plan would require capital nonnuclear construction project.
expenditures _over the 1992-2001: period of Beginning in July 1985, Perry Unit 2 AFUDC was approximately $190,000,000 for nitrogen oxide control credited to a deferred income account until January 1, _ equipment, emission monitoring equipment and 1988, when the accrual of AFUDC was discontinued. plant modif cations. In addition, higher fuel and other operation and maintenance expenses would be (d) SUPERFUND SITES
- incurred. The least cost plan also calls for Cleveland The Comprehensive Environmental Pesponse,-
Electric to place in service after 2001 a scrubber or Compensation and Liability Act of 1980 as amended (Superfund) established programs addressing the
~
. other sulfur emission reduction technology at one of its generating plants. The rate increase associated with cleanup of hazardous waste disposal sites, emergency the capital expenditures and higher expenses would preparedness and other issues. The Operating be about 1-2% in the late 1990s and another increase Companies are aware of their potentialinvolvement after the year 2000, for an aggregate rate increase in in the cleanup of nine hazardous ivaste sites. The the range of 3-6A Cleveland Electric would incur Operating Companies have recorded reserves based substantially more of these costs than Toledo Edison, on estimate 4 of their proportionate responsibility for Our final compliance plan will depend upon future these sites. We believe that the ultimate outcome of environmental regulations and input from the PUCO, these matters will not have a material adverse effect other regulatory bodies and other concerned entities. on our financial condition or results of operations.
If a plan other than the least cost plan is required,
- significantly higher capital expenditurer could be (4) NUCLEAR OPERATIONS AND required during the 1992-2001 period. . CONYINGENCIES We believe that Ohio law permits the recovery of compliance costs from customers in rates. (a) OPERATING NUCLEAR UNITS
"' " ~ ""' # ' " " "' " Y P#
-(c) PERRY UNIT activities o. events beyond our control. Operating Perry Unit 2, including its share of the common nuclear generating units have experienced unplanned -
facilities, is approximately 50% complete. Construction outages or extensions of scheduled outades because
- of Perry Unit 2 was suspended in 1985 pending future of equipment problems or new regulatory consideration of various options, including requirements. A major accident at a nuclear facility resumption of full construction with a revised anywhere in the world could cause the NRC to limit e-timated cost, conversion to a nonnuclear design, or prohibit the operation, construction or licensing of sale of all or part of our ownership share, or any nuclear unit. If one of our nuclear units is taken
. cancellation. No option may be implemented without out of service for an extended period of time for any the unanimous approval of the owners. In October reason, including an accident at such unit or any 26 f
Notes to the Financial Statements (1) PROPERTY OWNED WITH OlH1 R U~111lllES AND INYFS10R5 The Operating Companies own, as tenants in common with other utilities and those investors who are owner-l i participants in various sale and leasebc 'ransactions (Lessors), certain generating units as listed below. Each owner owns an undivided share in the e.iare unit. Each owner has the right to a percentage of the generating capability of each unit equal to its owners):ip share. Each utility owner is obligated to pay for only i's respective share of Be 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 Operating Companies' share of the operating costs of these generating units is included in the income Statement. Property, plant arcd equipment at December 31,1991 includes the following facilities owned by the Operating Companies as tenant in common with other utilities and I essors: Owner . Construction in- Owner - ship Plant Work in Ser m ship Mega- Power m Progrew and Accu:nulated C,enerahng Unit Date S * .a re w atti Source Service Suspended Depreciahon in Service; (thousands of dollars) Seneca Pumped Storage . 19'O !m 00% 312 Hydro 5 57JJ3 $ 1,021 5 19$55 Eastlake Umt 5. . , 1972 6M 80 411 Coal 151.1sa 2.109 - Perry Unit I and Common Iacihties . 1987 51 02 NN Nuclear 2346326 5687 310.601 Deaver Valley Umt 2 and Common lacihties (Note 2) . 1967 2e 12 214 N clear 135ENb 7,159 167,083 .___ Construction Suspended Perry Urut 2 (Note 3(c)) . Uncertam 51 02 615 Nuclear - f60373 -
$4_II18I) I* M9 5497339 Depreciation for Eastlake Unit 5 has been ac nulated with t.11 other nonnuclear depreciable property rather than by specine units of depreciable property.
Effective May 1,1991, FERC approved an agreement under which Cleveland Electric is selling the power from its share of the Seneca Power Plant to two subsidiaries of General Public Utihties Corporation through 1993. Revenues from this transaction were $16,000.000 in 1991. Ohio Edison and Pennsylvania Power purchased 80 megawatts of Cleseland Electric's capacity entitlement in Perry Unit I from November 1987 through May 1989. Revenues from this transaction were $31,831,000 in 1989. The ownership share of Perry Unit 2 set forth above does not reflect Cleveland Electric's acquisition of Duquesne's 13.74% ownership share in February 1992. See Note 3(c). (2) UlilBY PLANT SALE AND 1 EASEBACK TRANSACTIONS As a result of sale and leaseback transactions payments are now classi6ed as accumulated deferred completed in 1987, the Operating Companies are rents on the Balance Sheet. Previously, the excess was co-lessees of 18.26% (150 megawatts) of Beaver Valley included in accounts payable. Unit 2 and 6.5% (51 megawatts), 45.9% (358 The Operating Companies are responsible under megawatts) and 44.38% (355 megawatts) of Units 1,2 these leases for paying all taxes, insurance ard 3 of the Martsfjeld Plant, respectively, all for premiums, operation and maintenance cotts and all - terms of about 29h years. other similar costs for their interests in tne units sold Future minimum lease payments under these and leased back. The Operating Compan es may incur operating leases at December 31,1991 are summarized additionai costs in connection with capital as follows: improvements to the units. The Operating Year Amount Companies have options to buy the interests back at (thousands of dudars) the end of the leases for the fair market value at that 1992 . 5 173 000 time or to renew the leases. Additional lease tw3. 174 000 provisions prwide other purchase options along with 1994 174200 conditions for mandatory termination of the leases 1[ -' tater Years . l4] y 3396200 (and possible repurchas'e of the leasehold interests) for events of default. These events of default include Total l:uture Min mum n nc mpliance with several hnancial covenants
- t. ease Payments .
54mmo affecting Centerior Energy and the Operating Companies contained in an agreement relating to a Semiannual ease payments conform with the letter of credit issued in connection with the sale and payment schedule for each lease. leaseback of Beaver Valley Unit 2, as araended in Rental expense is accrued on a straight-line basis 1989. See Note 10(e). over the terms of the leases. The amounts recorded in Toledo Edison is selhng 150 megawatts of its 1991,1990 and 1989 as annual rental expense for the Beaver Valley Unit 2 leased capacity entitlement to Mansheld Plant leases and the Beaver Valley Unit 2 Cleveland Electric. This sale commenced in 1988 lease were $114,564,000 and $72.276,000, respectively. and we anticipate that it will continue at least until Amounts charged ta expense in excess of the lease 1990. 25
- . . . - ~ ~ . . . , - - - . - - - _ - - - _ _ . - - . - - --- - - ..
- phase in plans, th' e Operating Companies deferred - provision with the PUCO's approval. The rate impact the following- =. was different for the two companies because much of 1991- 1940 le the savings were expected to be achieved in areas owmns of MW such as nuclear operations in which Toledo Edison tumed opmung niwne. '
s 22.222 5_50 940 5 74.sss was to achieve greater savings relative to its size. curying chn, In late 1940 in a move to become more competitive Detit. s 30mi 5 72.782 5t11,714 - in Northwest Ohio, Toledo Edison proposed a rate Eqmij 79.000 n2.An 187.445 reduction package to all incorporated communities in
$109 x 1 520s.oAs $299.159 ~
Toledo Edison's service area which are served , esclusively by Toledo Edison on a retail basis. The The amount of deferred operating expenses and puckage called for the elimination of the 214% rate , carrying charges scheduled to be recorded in 1992 and increase effective February 1,1991 for all residential 1993 total $84,000,000 and $24,000S00, respectitcly. and small commercial customers, a reduction in Beginning in the sixth year (1994) and continuing re lential rates of 3% on March 1,1991 and a further through th_e tenth year, the revenue levels authorized residential rate reduction of 1% on September 1,1931. > pursuant to the phase-in plans were designed to be Communities accepting the package agreed to keep , sufficient to recover that period's operating expenses, Toledo Edison as their sole supplier of electricity for a fair return on the unrecovered investments, and the a period of five years. The package also permits amortization of the deferred operating expenses and Toledo Edison to adjust rates in those commumties on carrying charges recorded during the earlier years of February 1,1994 and February 1,1995 if inflation the plans All phase-in deferrals relating to these two exceeds specified ' levels or under emergency units will be amortized and recovered by December conditions. All eligible communities in Toledo 31,-1998. Edison's service area, except the City of Toledo,
. The phase-in plans were also designed so that accepted the rate reduction package. In March 1991, fluctuations in sales should not affect the level of Toledo Edison obtained PUCO .pproval to reduce
. earnings. The phase-in plans permit the Operating rates to the same levels for the same customer '
Companies to request PUCO approval of increases or categories in the City of Toledo and the rest of its decreases in the phase-in plan deferrals to service area. Annualized revenues were reduced by compensate for the effects of fluctuations in sales about $17,000,000 as a result of these rate reduction levels, as compared to the levels projected in the rate peckages. The revenue reductions do not adversely orders, and for 50% of the net after-tax savings in affect the phase-in plans as the decrease in revenues is l 1989 and 1990 identified by the management audit as mitigated by the cost reductions resulting from the discussed below. Pursuant to these provisions of the management audit. orders, the- Operating Companies recorded no The 1989 orders also set nuclear performance adjustments. to the cost deferrals in- 1989 and standards through 1998. The Operating Companies recorded adjustments to increase the cost deferrals by could be required to refund incremental replacement approumately $10,000,000 and $28,000,000 in 1990 power costs if the standards are not met. No refund and 1991; respectively, was required in 1991 nor is one eg cted for 1992. The in connection with the 1989 orders, the Operating Operating Companies banked $2,u. 30 in benefits Companies and the Service Company have in 1991 for above-average nuclear performance
- undergone a management audit, which was - based on industry standards for operating availability completed in April 1990. The audit identified potential established in the 1989 orders. These banked benefits annual savings in operating expenses in the amount _ are not recorded in the fmancial statements as they of S98,160,000 from 1989 budget levels, 55% can only be used in future years, if necessary, to offset
- ($53,988,000) for Cleveland Electric and -45% disallowances of incremental replacement power
($44/172,000) for Toledo Edison. The Operating costs. Companies realized a large part of the savings in 1091. Under the 1989 orders, fossil-fueled power plant Fifty percent of the savings identified by the performance may not be raised as an issue in any r# 1
~
management audit were used to reduce the 6% rate proceeding before February 1994 as long as the increase scheduled to be effective on February 1,1991 Operating Companies achieve a systemwide
- for each of the Operating Companies. As discussed availability factor of at least 64.9% annually; This previously, Cleveland Electric rates increased 4.35% standard was cxceeded in 1989,1990 and 1991, with and Toledo Edison rates increased 2.74% under this availability at approximately 80% for each year.
l t 28
other nuclear facility, we cannot predict whether to $900,00t000 is pennitted. The intermediate-term regulatory authorities e cu" impose unfavorable rate notes mature ln the period 1993-1997. The bank credit treatment such as taking our effected unit out of rate arrangements are cancelab:e on two years' notice by base or disallowing certain construction or the lenders. As of Decembe 31,1991,5490,000,000 0f maintenance costs. An extended outage of one of our nuclear fuel was hnanced. ?he Operating Companies nuclear units coupled with unfavorable rate severally lease their respe tive portions of the treatment could have a material adverse effect on our nuclear fuel and are obligata d to pay for the fuel as it financial position and results of operations. is consumed in a reactor. The lease rates are based on
'* "~""' ' " " " " ' ' " '* * # "
(b) NUCLEAR INSURANCE commercial paper iates. The Price-Anderson Act limits the liability of the The amounts financed include nucle fuel in the owners of a nuclear power plant to the amount DavieBesse, Perry Unit I and Beaver Valley Unit 2 provided by private insurance and an industry reactors with remaining lease payments of assessment plan, in the event of a nuclear incident at $147,000,000, $87,000,000 and $33,000,000, any unit in the United States resulting in losses in respectively, as c' December 31,1991. The nuclear fuel excess of the level of private insurance (currently amounts fmanced and capitalized also included
$200.000,000), our maximum potential assessment interest charges incurred by the lessors amounting to under that plan (assuming the other CAPCO $21,000,000 in 1991, $33,000,000 in 1990 and comptnies were to contribute their proportionate $44,000,000 in 1989. The estimated future lease share of any assessment) would be $129,257,000 (plus amortization payments based on projected any infhtion adjustment) per incident, but is limited consumption are $96,000,000 in 1992, $99,000,000 in to $19,540,000 per year for each nuclear incident. 1993, $91,000,000 in 1994, $78,000,000 in 1995 and The CAPCO companies have insurance coverage $82,000,000 in 1996.
for damage to property at the Davis-Besse, Perry and Beaver Vall(y sites (including leased fuel and clean- (6) REGUl.ATORY MATTERS up costs). ; overage amounted to $2,515,000 000 for each site a..of January 1,1992. Damage to property On January 31,1989, the PUCO issued orders which could excel the insurance coverage by a substantial provided for three annual rate increases for the I^ does, our share of such excess amount Operating Companies of approximately 9%,7% and amount. could ha di material adverse effect on our financial 6% effective with bills rendered on and after February condition Qd results of operations. 1,1989,1990 and 1991, respectively. As discussed We alsg. ave extra expense insurance coverage below, the 6% increase effective February 1,1991 was reduced to 4.35% for Cleveland Electric and 2.74% for which incVges the incremental cost of any Toledo Edison, which later waived its 2.74% increase replacemem .awer purchased (over the costs which would have been incurred had the units been and reduced its rates on two occasions in 1991 f,r # operating) and other incidental expenses after the certain customers. The resulting aur.ualized revenue occurrence of certain types of accidents at our increases in 1989,1990 and 1991 associated with the nuclear units. The amounts of the coverage are 100% rate orders were $120,700,000, $105,700,000 and of the estimated extra expense per week during the $71,400,000, respectively, for Cleveland Electric and 52-week period starting 21 weeks after an accident, $50,700,000, $44,300,000 and $1,600,000, respectively, 67% of such estimate per week for the for Toledo Edison. Toledo Edimn's $1,600,000 increase next 52 weeks and 33% of such estimate per week for in 1991 reflects the net of $18,600,000 of annualized the next 52 weeks. The amount and duration of extra revenues authorized for the 2.74% increase less expense could substantially exceed the insurance $17,000,000 for the waiver and rate reductions. coverage. Under the January 1989 rate orders, phase-in plans were designed so that the three rate increases, (5) NUCLEAR FUEL. coupled with then-projected sales growth, would The Operating Companies have inventories for provide revenues sufficient to recover all operating nuclear fuel which should provide an adequate supply expenses and provide a fair rate of return on the into the mid-1990s. Substantial additional nuclear Operating Companies' allowed investments in Perry fuel must be obtained to supply fuel for the remaining Unit 1 and Beaver Valley Unit 2 for ten years useful lives of Davis Besse, Perry Unit 1 and Beaver beginning January 1,1989. In the first five years of the Valley Unit 2. More nuclear fuel would be required plans, the revenues were expected to be less than if Perry Unit 2 were completed as a nuclear generating that required to recover operating expenses and unit. provide a fair retum on investment. Therefore, the in 1989, existing nuclear fuel hnancing amounts of operating expenses and return on arrangements for the Operating Companies were investment not currently recovera are deferred and refinanced through leases from a special-purpose capitalized as deferred charges. Since the unrecovered corporation. The total amount of financing currently investment will decline over the period of the phase-available under these lease arrangements is in plans because of depreciation and deferred federal
$509,000,000 ($309,000,000 from intermediate term income taxes that result from the use of accelerated notes and $200,000,000 from bank credit tax depreciation, the amount of revenues required to arrangements), although hnancing in an amount up provide a fair return also declines. Pursuant to such 27
- . . -- - - . . - . - - - - .~. - - - _ - . . . . . . . - .
k8) RETIREMENT INCOME PLANS AND The settlement (discount) rate assumption was OTHER POSTRETIREMENT BENEFITS 8.5% for both December 31,1991 and December 31, 1990. The long-term rate of annual compensation
- (a) RETIREMENT INCOME PLANS increase assumption was 5% for both December 31, We sponsor noncontributing pension plans which 1991 and December 31,1990. The long-term _ rate of cover all employee groups. The amount of retirement - return on plan assets assumption was 8.5% in 1901 benefits generally depends upon the length of and 8% in 1990. j service. Under certain circumstances, benefits can Plan assets consist primarily of investments in ;
begin as early as age 55<The plans also provide common stock, bonds, guaranteed investment certain death, medical and disability benefits. Our contracts, cash equinient securities and real estate. funding policy is to comp!y with the Employee l
' Retirement income Secun,ty Act of 1974 guidelines, (b) OTHER POSTRETIREMENT SENEFITS in 1990, we offered a Voluntary Early Petirement The Financial Accounting Standards Board has issued I Opportunity Program (VEROP). Operating a new accounting standard for postretirement expenses for 1990 included $15,000,000 of pension benefits other than pensions. The new standard -
plan accruals to cover enhanced VEROP ben? fits plus would requite the accrual of the expected cost of such an additional $28,000,000 of pension costs for VEROP benefits during the employees' years of service. The benefits paid to retirees from corporate funds. The assumptions and calculations involved in
$28,000,000 is not included in the pension data determining the accrual closely parallel pension reported below. Operating expenses for 1990 also accounting requirements.
included a credit of $41,000,000 resulting from a We currently provide certain postretirement health settlement of pension obligations through lump sum care, death and other benefits and expense such costs payments to a substantial number of VEROP as these benefits are paid, which is consistent with retirees. curretit ratemaking practices. Such costs totaled Net pension and VEROP costs (credits) for 1989 $9,700,000 in 1991, $8,200,000 in 1990 and $6,500,000 through 1991 were comprised of the following in 1989, which include medical benefits of $8,500,000 components: in 1991, $6,500 000 in 1990 and $5,000,000 in 1989. 1991 19M) 1989 We expect to adopt the new standard (millions of dollars) Prospectively effective January 1,1993. We plan to fo NNts earned am rtize the discounted present value of the seNce accumulated postretirement benefit obligatmn to dunng the period . . . . . . . . . . . . . $ 14 $ t5 $ 14 laterest (ost on projected benent expense over a twenty-year period. We have engaged oNigation . .... 36 37 35 actuaries who hue made a preliminary review using Actual return on plan assets . (129) 5 (73) 1990 data Based on this preliminary review, the Net aroortization and deferral. 65 - j65) _1_3 accumulated postretirement benefit obligation as of Ne: pecsion aedits , (14) (8) (11) December 31,1991, measured in accordance with the VEROP cost. - 15 - new standard, is estimated in the range of settlement gain . 3 41)
- $150,000,000 to $230,000,000. Had the new standard Net credits , jl4) $(34) 311) been adopted in 1991, the preliminary study indicated that the additional postretirement benefit cost in 1991 The following table presents a reconciliation of the would have been in the range of $17,000,000 to
' funded status of the plans at December 31,1991 and $30,000,000 (pretax) We believe the effect of actual 1990. adoption in 1993 may be similar, although it could be oecember 31. significantly different because of changes in health
[ care costs, the assumed health care cost trend rate, 1991 1990 (millions of work force demographics, interest rates, or plan dollars) provisions between now and 1993. f benent Acy"'[Iment vale We do not know what action the PUCO may take ver : e, - . $ 301 5 330 witt respect to these incremental costs, However, we Nonvesteo M wts. . 33 24 believe the PUCO will either allow a means of Accumulated benefit obligation . 334 354 current recovery of such incremental costs os provide Effect of future compensation for deferral of such costs until recovered in rates. We levels . . , 113 72 do not expect adoption of the new standard to have Total projected benefit obligation . 447 426 a material adverse effect on our financial condition or Plan assets at fair market value. 757 653 results of operations. Surplus of plan assets over projected benent obligation . 310 227 Unrecognized net gain due to variance (9) GUAltANTEES between assumptions and expenence. (177) (101) Unrecognized pnar service cost . . . . 13 13 Under two long-term coal purchase arrangements, 1
- Transition asset at lanuary 1,1987 - Cleveland Electric has guaranteed certain loan and being amortized over 19 years . (106) (113) lease obligations of two mining companies. Toledo l
Net prepaid pension cost Edison is also a party to one of these guarantee i included in other deferred arrangements. This arrangement requires payments to charges on the Balance Sheet. $ 40 $ 26 the mining company for any actual out-of-pocket idle 30-
. _ . - - . . - . .- -- . - . . _ ~ -
[ (7) FEDERAL' INCOME TAX ~ Federal income tax, computed by multiplying the income before taxes and preferred and preference dividend Jtequirements of s Midiaries by the statutory rates, is reconciled to the amount of federal income tax recorded on the books as follow For the years ended December 31, 1991 1990 1989 (thousands of dollars) Ikok Income Before Federal Income Tas . . . . . . . 5465.799 $435324 $528,065 Tas on Ikek Income at Statutory Rate . . .... . $158.372 . $148,010 $179,542 Increase (Decrease) in Tas: Accelerated depreciation. . . o . . . ... .. 996 6.287 10.415 - Investment tax credits on disallowed nucicar plant . . .
- (37,522) -
Taxes, other than federal income tam . . . . . (2373) (12,116) (107) Other items . . .. . . 10.915 4365 5.712 Total Federal h.come Tax Expense. .. . . . > $167.910 $109,024 $195.562 Federal income tax expense is recorded in the income Statement as followw For the years ended December 31, 1991 1990 1989 (thousands of dollars) Operatirs Expenses:
$ 42,685 $ $1,869 -
)
Current Tax Provision . . . . . . . . . . . . . . . . . . . . . .... $ 88.189 Changes in Accumulated Deferred Federal income Tas: Accelerated depreciation and amortization. . 17.137 41,777 44,144 Altemative minimum tax credit . . . . . . . (45.902) (24340) (12,874) Sale and leaseback transactions and amortization . . 3,844 8,617 4,348 Property tax expense. . . ,
- (14,891)- -
Reacquired debt costs . ., . 22 403 1.355 (1,250) Deferred CWIP revenues . . . . . 6.972 20,486 22,731 Deferred fuel custs. ... . (8.729) 742 (4,384) Davis-Besse replacement power . . . . -. - 9,191
' Other items . . . . . . . o.. . . , . . . 14,970 16.994 6,830 .
Investment Tax Credits. . .. 38.697 2.651 1,780
- Total Charged to Operating Expenses. 137.5E _ 96.076 122.385 Nonoperating Income: -
Current Tax Prov% ion . . . . . . . . . . . . . . . . . . .. .. - (46,W9) (42.256) (39,341)
- Changes in Accumulated Deferred Federal Income Tax:
Write-off of nuclear costs. .. .. . 1379) (22,143) - AFUDC and carrying charges . . . . 40,709 74.447 114J00 Net operating loss carryforward . . .. 35.014 - - Other items . .. . ... . 1,014 2.900 (1,782) Total Expense Charged to Nonoperating income . 30.329 12.948 73,177 Total Federal Income Tax Expense.. . $167.910 $109,024 $ 195.562 Federalincome 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 $37,522,000 and increased earnings per share by S 27. The favorable resolution of an issue concerning the appropriate year to recognize a property tax deduction resulted in an adjustment which reduced federal income tax expense in 1990 by $14,011,000 ($10,375,000 in the fourth quarter) and increased earnings per share by S.10 ($.07 in the fourth quarter). For tax purposes, net operating loss (NOL) carryforwards of approximately $402,407,000 are available to reduce future taxable income and _will expire in 2003 through 2005. The 34% tax effect of the NOLs generated is
$136.818,000 and is reflected as a reduction to deferred federalincome tax relating to accelerated depreciation and amortization. Future utilization of these tax NOL carryforwards would result in recording the related deferred 3
l taxes. F The 1986 Tax Act provides for an AMT credit to be used to rauce the regular tax to the AMT level should the regular tax exceed the AMT. AMT credits of $82,851,000 are available to offset future regular tax. The credits may be carried forward indefinitely. 29 __ _ ~ . _ _ = _ = _ _ _ _ _ _ _ _ _ _ . __ . _ . _ _ _ _ _ _ _
The annual mandatory redemption provisions are . (c) LONG-TERM DEBT AND OTHER
- as follows: BORROWING ARRANGEMENTS andat Long-term debt, less current maturities, for the jnaua1 , p, ,,
Shares Price Operating Companies was as follows: To Be Per or Average Decemter 31, Redeemed Beginning in Share Year of Maturig Interest Rate 1991 1990
- Cleveland Electri' Prefened: (thousands of dollars) 10,000 F rst mortgage bonds:
- $ 735 Senes C . , 1954 $ 100 1092. . 15.25 % 5 - $ - 20,000 l 88.00 Series E . . .. 3.000- 1981 1,u00 1992 10.58 - 40,000 Adjustable Senes M , . 100.000 1991 100
** * - 13.75 - 4,334 9.125 Seri s N. 150.000 1993 106 1992; 39a3 , , . 3.875 30,000 30,000 91.50 Series Q. . 10,714 1945 1,000 1993. 8.55 50,000 50,000 88 00 Senes R , . , ., 50,000 2001' 1,000 Toledo Eden 1993.. 13.75 4,334 4,334 1994. . 4 375 25,000 25,000 I*t 73' 4'334 4'334 par 511.00. 5 000 1979 100 9375. .
16,650 1985 100 I994 1995 '. . t1.25 - 60,000 25 par 2.81. .
. 400,000 1993 25 1995. . . . , M L3M 0 34 1995. , . 7.00 750 750
- All outstandmg shares to be redeemed December 1,2001. 1996. 13.75 4,334 4,334 1996.. . . 7.00 750 750 4 The annualized cumulative preferred dividend 1996.. 9.375 100,000 100,000 l
requirement as of Duember 31,1991 is $66,000,000. 1997 2001 .. . 9.36 127,798 127,798 l
-The preferred dividend rates on Cleveland 2002 2006 . .. . 8.98 251,801 251,801 Electric's Series L, M and P and Toledo Edison's Series - 2007 2011 .. . 8.79 387,250 387,250 -
A and B fluctuate based on prevailing interest rates 2012-2016 . .. 8.97 439,085 439,085 and market conditions, with the dividend rates for 2017-2021 . 8 =3 635,180 635,180 these issues averaging 8.26%,7.61%,6.24%,8.82% and 2022-2023 .. 7.68 322,100 322.100 9.67%, respectively, in 1991. . 2,387,050 2.511,384 Under its articles of incorporation, Toledo Edison Term bank loans due cannot issue preferred stock unless certain earnings 1993-1996 8.46 1 % ,700 127,900 coverage requirements are met. Based on earnings for Medium-term notes
- the 12 months ended December 31,1991, Toled d" 9 l 9 Edison could not issue additional preferred stock. The No s d [1993d99f Debentures due 1997. 11.25 125,000 125,000 issuance of additional preferred stock in the future Pouution control notes
. will depend on earnings for any 12 consecutive due 1993-2015 . . . 9.70 189,900 190.860 months of.the 15 months preceding the date of other - net -
6.063 4.663 issuance, the interest on all long-term debt Total Long-Term outstanding and the dividends on all preferred stock Debt . $3,841,355 $3.729,237 issues outstanding. Preference stock authorized for the Operating Long-term debt matures during the next five years Companies are 3,000,000 shares without par value for - as follows: $200,000,000 in 1992, $318,000,000 in 1993, Cleveland Electric and 5,000,000 shares with a $25 par $89,000,000 in 1994, $278,000,000 in 1995 and
- value for Toledo Edison. No preference shares are $343,000,000 in 1996.
currently outstanding for either company During the 1"89-1991 period, the Operating There are no restrictions on Cleveland Electric's - -- Companies issued $834,500,000 aggregate principal -
' ability to issue preferred or preference stock or Toledo amount of secured medium-term notes. The notes are
- Edison's ability to issue preference stock. Secured by first mortgage bonds. At December 31, With respect to dividend and liquidation rights, 1991, Toledo Edison has $15,500,000 aggregate each Operating Company's preferred stock is prior to principal amount of secured medium-term notes its preference stock and common stock, and each _ registered with the SEC and available for issuance.-
-Operating Company's preference stock is prior to its Cleveland Electric has arranged to refund in July common stock. 1992 $78,700,000 principal amount of a public authority's tax-exempt bonds due 2012 and having a 13%% a..erest rate with the proceeds from the sale in July 1992 of an equal principal amount of the authority's bonds due 2013 and having an effective interest cost of 8.25%. Cleveland Electric's first mortgage bonds collaterally secure both issues. The
( PUCO authorized Cleveland Electric to record interest expense equal to a blend of the higher rate on the outstanding bonds with the lower rate on the new bonds for an interest expense reduction of $1,000,000 in 1990, $3,400,000 in 1991 and approximately
$3,000,000 in 1992.
32
mine expenses (as advance payments for coal) when 1992 in the open market when the common stock the mines are idle for reasons beyond the control of price is below a predetermined level. As of December the mining company. At December 31,1991, after 31,1991,38,000 shares had been purchased at a total giving effect to a refmancing completed on January 2, cost of $610,000. We had a similar prograa to 1992 by one of the mining companies, the principal purchase up to 3,000,000 shares of our common stock amount of the mining companies' locn and lease in the period March 28.1989 thiough March 31,1991. obligations guaranteed by the Operating Comp.nies Under this program, 2,510,000 shares were was $102,000,000, purchased at a total cost of $46,198,000. Such shares are being held as treasury shares. . (10) CAPITAllZATION (b) COMMON SHARES RESERVED TOR ISSUE (a) CAPITAL STOCK TRANSACTIONS Common shares reserved for issue under the Shares sold, retired and purchased for treasury during Employee Savings Plan and the Employee Purchase the three years ended December 31,1991 are listed in Plan were 2,828,848 and 21,423 shares, respectively, at the following table. December 31, 1991. At the April 1992 Annual 1991 1990 1989 Meeting, share owners will be asked to authorire an (thousands of shares) additional 500,000 common shares for the Employee centenor Energy Common Stock: Purchase Plan. Dwidend Reinvestment and Stock options to purchase unissued shares of Stock Purchase Plan . 1.422 - - common stock under the 1978 Key Employee Stock pofNu de Pi$n' . [ { Option Plan were granted at an exercise price of 100% 1978 Key En.ployee Stock of the fair market value at the date of the grant. No option Plan. - - 17 additional options may be granted. The exercise IJ70 53 prices of option shares purchased during the three Total Common Stock Sales . - Treasury Shares . years ended December 31,1991 ranged frem $14.09 to (11) fl391) (1.082)
$17.41 per share. Shares and price ranges of Net Change. 5759 5 15951) {l 029)
_= outstanding options held by employees were as Cumulatwe Preferred and follows: 1978 Key Employee Preference Stock of Sutnidories St ck Option Plan Subject to Mandatory 1991 1990 1989 Redemptic..v Options outstandmg at Cleveland Electric Sales Preferred: D* ember 31: Shares . 129,798 168.655 215,187
$ 91.50 Series Q. 75 - -
83 00 Senes R . 50 - - Option Pnces . $14.09 to $14 09 to $14 09 to
$20.73 $2013 $20.73 Cleveland Electnc Retirements Prefened:
$ 735 Series C . (10) (10) (10) (c) EQUITY DISTRIBUTION RESTRICTIONS 88.00 Series E . (3) (3) (3) 75 00 Senes F (2) -
(1) At December 31,1991, consolidated retained earnings 80 00 Senes G . - (1) (2) were comprised almost entirely of the undistributed 7 145.00 Series H . - (14) (4) retained earnings of the Operating Companies. 145.00 Series 1. (14) (4) (4) Substantially all of their retained earnings were available for the declaration of dividends on their d bl Se sM (1 ) respective preferred and common shares. All of their Preference:
$ 77.50 Series 1 - --
M) common shares tre held by Centerior Energy. Any financing by an Operating Company of any of Toledo Edison Retirements its nonutility affiliates requires PUCO authorization Preferred; unless the fmancing is made in connection with
$100 par $11E (10) (10) (5) transactions in the ordinary course of the companies' 9375. (17) (17) (17) public utilities business operations in which one Net Change, J) (59) (52) company acts on behalf of another.
States of common stock required for our four (d) CUMULATIVE PREFERRED AND stock plans in 1991 were either acquired in the open PREFERENCE STOCK market or issued as new shr's of common stock when the common stock price reached a Amounts to be paid for preferred stock which must be predetermined threshold for such transacCons. redeemed during the next hve years are $16,000,000 We ber :;- 7 tam in July 1991 to purchase up to in 1992, 541,000,000 in 1993, $41,000,000 in 1994, 1,500,000 shares of our common stock by June 30. $52,000,000 in 1945 and $42,000,000 in 1996. 31
)
. ' In December 1991, the PUCO approved for each ' change in rate decreased 1991_ depreciation expense
. Operating Company a reduction in the straight-line $27,762,000 and increased 1991 net income $21,419,000 .
- depreciation accrual rate from about 3% to 2.5% for : (net of $6,343,000 of income taws) and earnings per each of their three operating nuclear units retroactive share $.15 from what they otherwise would have to January 1,1991 We believe the lower depreciation been.
E accrual rate is appropriate and_ reduces combined _ Depreciation expense recorded in prior years was i
" annual depreciation expense to a level more closely . not affe ted. Current electric- rates were alr.o aligned with the total amount currently being unaffected by the PUCO orders.
<ecovered in customers' rates for these units. This (13) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) l The following is a tabulation of the unaudited quarterly results of operations for the two years ended December l 31,1991.
Quarters Ended March 31, June 30. Sept.30 Dec. 31. - (thouunds of dollars, evept per share amounts) ! 1991 Operating Revenues. . . . . .. ... . . . .. $608,583 ' $645,355 $716,070 - $590,244
- Operating income. . . .. ..... . .. ... . . $129,003 $145,709 $182,085 - $123,253 -
- N e t i ncom e . . . . . . _. . . . . . . . . . . . . . . ... . , . $ 35,470 $ 51,736 $ 95,333 $ 54,701 Average Common Shares (thousands) . . <. . . . . . . . . . 138,404 138,881-. 139,336 139,737 Earnings Per Common Share .. .. . .,. ... . , , $ .26 $ .37 -5 .68 - 5 .39 Dividends Paid Per Common Share . ... . ... . $ .40 $- .40 $ .40 $ .40 1990 Operating Revenues. . . . . . ....... .. ... .. . $566,725 $586,164 $699,499 $575,053 Operating income. . . . . . . . . .. . . .. . $116,169 $ 86,743 $171,684 $129,824 Net income .. . .. .. .. . .. ... . .... .. $ 50,509 $ 54,921 $ 99,749 $ 59,280 Average Common Shares (thousands) . . .. . . -139,486 138,980 138,610- 138,441 Eamings Per Common Share . . . . . . ... . . .. $ .36 $ ;40 $ .72 $ .43 -
Dividends Paid Per Common Share . ... ... .. ... $ .40 $ .40 $ .40 ' $ .40 Operating revenues for the first three quarters of 1991 and the four quarters of 1990.were restated to comply with current FERC revenue reporting requirements, as discussed in the Summary of Significant Accounting Policies. This restatement had no effect on camings results for the applicable quarter. The unaudited quarterly results for the quarter ended March 31,1991 were also restated to reflect the change in accounting for nuclear plant depreciation to the straight-line method (at about a 3% act ual rate) as discussed in Note 12.
- Eamings for the quarter ended December 31,1991 were increased as a result of year-end adjustments of
$27,762,000 to reduce depreciation expense for the year for the c'tange in the nuclear plant straight-line depreciation rate to 2.5% (see Summary of SigP..ficant Accounting Policies and Note 12) and $28,215,000 to increase phase-in carrying charges for the adjustment to 1991 cost deferials (see Note 6). Th total of these
- adjustments increased quarterly camings by $40,041,000, or $.29 per share.
Eamings for the quarter ended June 30,1990 were increased as a result of federal income tax expense adjustments associated with deferred investment tax credits relating to the 1988 write-eff of nuclear plant - , investments. See Note 7. The adjustments increased quarterly earnings by $36,298.000, or $.26 per share. ' Earnings for the quarter ended December 31,1990 were increased as a result of year-end adjustments of
$25,790,000 to reduce depreciation expense for the year for the change in depreciation rates for nonnuclear and Davis-Besse property (see Summary of Significant Accounting Policies), $10,169,000 to increase phase-in -
= carrying charges for the adjustment to 1990 cost deferrals (see Note 6) and $10,375,000 to reduce federal income
- < tax expense (see Note 7). The total of these adjustments increased quarterly earnings by $35,000,000; or $.25 per share.
l l l L i
'34
i The mortgages of Cleveland Electric and Toledo (11) SHORT-TERM BORROWING Edison constitute direct first liens on substantially all ARRANGEMENTS property owned and franchises held by them. Our bank credit arrangements at December 31,1991 Excluded from the liens, among other thmgs, are were as follows: cash, securities, accounts receivable, fuel, supplies cleveland Toledo service and; in the case of Toledo Ed! son, automotive Electric Edison Cornpany lotal equipment.- (thousands of dollars) Additional first mortgage bonds may be issued by Bank unes of credit . $152,000 $70,400 $8.000 $230.400 Cleveland Electric under its mortgage on the basis of There were no borrowings under these bank credit bondable property additions, cash or substitution for arrangements at December 31,1991. An additional refundable first mortgage bonds. The issuance of $5,000,0001ine of credit is available to the Service . additional first mortgage bonds by Cleveland Electric Company under a $30,000,000 Cleveland Electric line 1 on the basis of property -dditions is limited by two of credit, if unused by Cleveland Electric. The provisions of its mortgaga One relates to the $5,000,000 line of credit is included in the Cleveland amount of bondable property available and the other Electric total, to earnings coverage of interest on the bonds. ;nder Short-term borrowing capacity authorized by the the more restrictive of these provisions (currently, PUCO is $300,000,000 for Cleveland Electric and the amount of bondable property available), $150,000,000 for Toledo Edison. The Operating Cleveland Electric would have been permitted to issue Companies have been authorized by the PUCO to approximately $335,000,000 of bonds based upon borrow from each other on a short-term basis. available bondable property at December 31,1991. Most borrowing arrangements under the Cleveland Electric aisc would have been permitted to Operating Companies'short-term bank lines of cr ft issue approximat1y $214,000,000 of bonds based require a fee of 0.25% per year to be paid on any upon refundable bonds at December 31,1991. If Perry unused portion of the lines of credit. For those banks Unit 2 had been canceled and written off as of without fee requirements, the average daily cash December 31,1991, Cleveland Electric would not have balance in the Operating Companies' bank accounts been pennitted to issue any bonds based upon satisfied informal compensating balance available bondable property, but would have been arrangements, , permitted to issue approximately $214,000,000 of At December 31,1991, the Operating Companies ! bonds based upon refundable bonds, had no commercial paper outstanding. If commercial _ The issuance of additional first mortgage bonds by paper were outstanding,it would be backed by at least Toledo Edison also is limited by provisions in its an equal amount of unused bank lines of credit. mortgage similar to those in Cleveland Electric's The fee for the Service Company's lines of credit is mortgage. Under the more restrictive of these 0.25% per year to be paid on any unused portion of its provisions (currently, the earnings coverage test), lines of credit. l Toledo Edison would have been permitted to issue No formal short-term borrowing arrangements l approximately $164 000,000 of bonds at an assumed have been established for Centerior Energy, interest rate of 11% based upon available bondable property at December 31,1991. Toledo Edison also (12) Cl!ANGES IN ACCOUNTING FOR would have been permitted to issue approximately NUCLEAR PLANT DEPRECIATION
$186,000,000 of bonds based upon refundable bonds in June 1991, the Operating Companies changed the at December 31,1991. If Perry Unit 2 had been method used to accrue nuclear plant depreciation i
canceled and written off as of December 31,1991, the from the units-of-production method to the straight- l amount of bonds which could have been issued by. line method retroactive to January 1,1991. The good j L Toledo Edison would not have changed. pecformance of the nuclear generating units over the i l Certain unsecured loan agreements of Toledo past several years had resulted in units-of-production i i Edison contain covenants relating to capitalization depreciation expense being significantiy higher than ratios, earnings coverage ratios and limitations on the airount implicit in current electric rates. The secured financing other than through first mortgage straight-line method better matches revenue and bonds or certain other transactions. An agreement expense, tends to levelize periodic depreciation l relating to a letter of credit issued in connection with expense for nuclear plant and is more consistent with L the sale and leaseback of Beaver Valley Unit 2 (as industry practice. amended in 1989) contains several financial The PUCO approved the change for each covenants affecting Centerior Energy and the Operating Company and authorized them to accrue Operating Companies. Among these are covenants depreciation for their three operating nuclear relating to earnings coverage ratios and capitahzation generating units at an accrual r3te of about 3% of their ratios. Centerior Energy av i the Operating plant investment based upon .ne units' forty-year Companies are in compliance with these covenant operating licenses from the NRC. This change in provisions. We believe Centerior Energy and the method decreased 1991 depreciation expense Operating Companies will continue to meet these $35,946.900 and increased 1991 net income $27,952,000 covenants in the event of a write-off of the Operating (net of $7,994,000 of income taxes) and earnings per Companies' investments in Perry Unit 2, barring share $.20 from what they otherwise would have unforeseen circumstances, been. 33
?
Financial and Statistical Review Operating Revenues (thousands of dollars) _ Steam Total Total - T otal Heang - -Operaung
. Year Residenhal - Commercial industriM Other Retad Wholesale (s) llectric & Can Revenues 1991.., . $777 273 723 318 782 747 188 026 2 471 364 88 898 2 560 252 i
$2 560 252 1990. 719 078 668 910 779 391 189 754 2 357 133 70 308 2 427 441 -
2 427 441 1989c . - 685 735 616 902 74 534- 204 769 2 253 940 107 364 2 361 304 - 2 361 304 1988, . . 637 329 537 861 675 564 84 524 1 935 298 119 505 2 054 803 - 2 054 803 1987, 629 M 3- 531 682 689 959 36 272 1 887 576 45 275' 1 932 851 13 371 1 946 222 1981,.. 449 190 354 471 538 344 60 314 1 402 319 71 450 1 473 769 19 627 1 493 396 Opnating Expenses (thousands of dollars) Other Fuel & Operaten Depreciatwn Tases Phaw .n & Federal Total Purchawd & & Other Than Pre-phase m income Operahng icar Power (s) Mamtenance Amortizaten FIT Deferred. Net Taxes Expenses 199)., $499 672 801 225 304 709 137 581 $1980 202 242 708(b) (5 693) 1990. . . . 472 297 862 738 242 153 283 425 (33 668) % 076 1 923 021 1989. . 472 684 860 138 272 671 259 871 (58 220) 122 385 1 929 529 1988. 408 644 865 632 - 264 824 268 550 (188 209) 123 697 1 743 138 1987. . . 491 332 642 594 214 421 207 521 (87 623) 105 912 1 574 157 - 1981, 512 323 319 894 128 71-- 128 347 - 108 417 1 197 702 Income (Loss) (thousands of dollars) Federal Other income Income - Prefureo , income & Taxes ~ Betore Preferene Operatmg AFUDC- Dedactens. Carrying Credit Interest Debt AFUDC- Stock icar Income Equiry Net Charges (Espense) Charges Interest Debt Dividends 1991;, . $580 050 - 9 351 5 248 109 601 (30 329) 673 921 381 280 60 649 (S 248) 1990. 504 420 7 883 145 205 085 (12 948) 704 585 384 278 (5 993) 61 841 1989. 431 775 16 930 14 368 299 159 (73 177) 689 055 369 481 (12 929) 65 617 19&3. 311 665 13 504 (489 047)(c) 372 155 131 254 339 531 378 292 (6 137) 69 489
.1987.. . . 372 065 299 308 (57 ' 39 599 121 122 774 273 435 042 (137 257) 86 135 1981. . 295 694 81 468 19 + 3 - 23 741 422 372 233 022 (49 521) 58 459 Income (Loss) (thousands of dollars) Common Stock (dollars per share & %)
Income (tesa)-- Before _ _ Cumulauve - Cumulative Effect of an - Effett of an Retum on I- Accounting - Accounting Average Average l; Change Change or Net Shares Common - - - i or Entraordmary Extraerdmary income Outstandmg Earnings Stock Dividends Book-Year Gam Cain - (l.oss) ' (thousands) (Ins) ' Equity Declared Value 1991. . $237 240 --
$237 240 139 104 $ 1.71 8.4 % $1.60 $20,37 1990. . 264 459 -
264 459- 138 885 1.90 9.4 1.60 20.30 1989.. , . -266 886 - 266 886 140 468 1.90 96 _ 1,60 19.99 - I 1988.- (102 113) _ 28153(d) - (73 960) 140 778 (033) (23) 1.84 19.68 l 1987. .. 390 353 - - 390 333 138 395 2.82 12.8 2.56 22.10 1981. . . 180 412 ~ 10 807(r) - 191 219 74 679(f) 2.56(f) 13.0 2.00(f) 19.29(f)
- NOTE 1981 data is the result of combining and restating Cleveland Electric and Toledo Edison data.
(a) Wholesale revenues, fuel and purchased power, wholesale electric sales and purchased power amounts are restated for 1990 and prior years to - resect a change in reporting of bulk power sales transactions in accordance with I ERC requirements. (b) In 1991, the Operatmg Companies adopted a change in accounting for nuclear plant depreciation, changing from the units-of-production method
- to the straight-line method at a 2.5% rate.
(c) Includes write off of nuclear costs in the amount of $534,355,000 in 1988. i ld) In 1988, the Operatmg Companies adopted a change in the method of accounting for unbilled revenues.
- -36
Executives of. .Centerior Energy Corpomtion and Centerior Service Cornpany CENTERIOR ENERGY CORPORATION Chairman and Executive Vice President . . . Lyman C. Phillips Chief Ewcutive Officer . . Richard A. Afiller* Vice President-Legal & President and Corporate Affaics . . . Tnd J. lenge. Jr.*" Chief Operating Officer. . Rdert J. Tarling" Controller . .. . . Ihul G. Busly Executive Vice President . . . Afurray R. Edeiman Treasurer. . . . Gary Af. Hawkinson Executive Vice President . . . Edgar H. Ataugans Secretary . ., . . E. Lyle Rpin CENTERIOR SERVICE COMPANY Chairman and Vice President-System Chief ExecutiveOfficer , Richard A. Afiller* Engineering & Control . . Alvin Kaplan President and Vice President-Legal & Chief Operating Officer. . Robert J. Tarling" Corporate Affairs. . Td ). lenge. !r.*" V re Nesident-Exe ative 7 ice President-Power Generation . . . Af array R. Edelman Human Resources & Executive Vice President- Strategic Planning . . John S. IreicN Finance & Administration . . Edgar H. Afaugans Vice President-Legal & Executive Vice President- GeneralCounsel . . . Errence G. Linnert"" Custnmer Operations Vice P~sident-Nuclear-Perry. . Afichael D. Ly>ter (and Chairman & CEO Vice President-of Toledo Edison and Transmission & President & CEO of Distribution Operations . . Daei.f L. Afonscau Cleveland Electric) . . Lyman C. Phillips Vice President-Marketing . . . Thomas Af. Quinn Vice President- Vice President (and President Fossil Operations . Richard P. Crouse of Toledo Edison) . . Donald H. Saunders Vice President- Vice President-Nuclear-Transmission and Davis-Besse . bonald C. Shelton Distribution Engineering & Controller . . Ihul G. Busly Services . Gary J. Greben Treasurer. . . . Gary A1. Hawkinson Vice President- Secretary . . . E. Lyle Rpin - Customer Service & Community Affairs . Jacquita K. Hauserman
- Retired etfcctive March 1,1W2.
** Elected Chairrnan, President and Chief Executive Of ficer effective March 1, IW2. **Dected Senior Vice President-Legal. Ilun.an & Corporate Affain effcctiw March 1.1W2. ****Dected offective March 1,1W2.
35
CENTER 10R ENLRGY CORPORATION AND SUBSIDIARIES Electric Sales (millions of KWH) Electric Customers (year end) Residential Usage Average Avetage Average Prwe Resenue Industnal k Wit f'er Per Per iear kewientul Commernal industnal Wholesale (s) Other Total kendent:al Commeraal & Other T otal Customer LWil C ustomer 1991. 6 981 7 176 11 559 2 711 1 048 29 475 921 995 96 419 12 843 1 031 2S7 7 410 11.16t $ 827.10 1990. 6 066 6 MB 12 168 2 487 959 29 128 918 965 94 522 12 406 1 026 393 7079 10 82 765 93 1989. 6 Ki6 e 00 12 520 3 235 496 30 3M7 914 020 93 833 12 763 1 020 616 7 295 10 08 737.58 le78 6920 657/ 12 793 1 828 446 29 Ot4 909 182 92 132 12 305 1 013 619 7 462 9 21 690 06 1487. o 659 6 350 11 985 1 166 949 27 109 903 365 90 148 12 240 1 005 753 7 217 9.46 685 43 5 472 11360 2 170 808 26 105 BM 5M M 287 11 530 9 % 405 6 939 7.16 400 57 1981. 6 295 Energy (millions of KWH) Fuel Load (MW & %) OperaNe r f6aemy-Capauh Company Gnnated Purchawd fuel Cost BIU Per at Inme Peak Capaaty I oad et Peak trad Maipn Factor hell Nudear Toul Power (s) Total Per AWH AwH i car 1991 6 453 5 361 16 9% 62.9% 18 041 13 454 31 495 40 31 535 1.4 St 10 442 - 1990 6 437 5 261 18.3 63 6 21 114 9 481 30 595 413 31 OM 132 10 354 6 430 5 389 16.2 63.3 20 174 12 122 32 2 % 21 32 317 1 47 10 435 1989 5 525(g) 5 673 60 8 21 576 7 805 29 381 1 855 31 166 159 10 410 1988. (2.7 ) 5 955 5 173 111 63 6 20 894 6 907 27 t01 1 368 29 169 1 53 10 466 1987. 6 440 4 702 26 1 63 6 20 573 4 397 24 970 2 945 27 915 1 80 10 490 1981. investment (thousands of dollars) Constn oon Work in Total Utiht y Accumulated Pnyren Nadear Property. Utihty Plant in Deprecuten & Net & Perry Fueland Plant and Plant Toul Sem e Amortuatmn Flant Umt 2 Other Fquipment Additions Aswts Near 1991 $3 853 219 2 274 489 6 613 730 1 066 428 502 927 $8183 035 $203 843 $12 042 039 1990. 8 636 219 2 038 510 6 597 709 1 133 535 568 124 8 299 368 251 312 11 894 235 1989. 8 397 638 1 823 520 6 574 118 1 157 2~1 591 692 8 323 083 217 319 11 e66 547 1988. 8 143 673 1 569 304 6 574 369 1 222 732 643 087 8 440 188 343 143 11 573 098 1987. 8 388 114 1 324 446 7 063 oo8 1 007 '07 656 350 8 727 725 947 921 11349 h36 1981. 3 874 628 873 tw3 3 000 965 1 645 098 143 590(h) 4 759 653 610 277 5 378 446 Capitalization (thousands of dollars & %) Preferred & Preference Preferred Stewk. without Sitxk. with Mandatory Mandatory Redemptwn lear Common Stock Equiry Redemption Pronuons Provisons imng Term D+t Total , 1991 $2 854 484 3S% 332 03! 4% 427 334 6% 3 841 355 52 % $7 455 204 1990. 2 810 033 39 237 490 3 427 334 6 3 729 237 52 7 204 094 1989. 2 794 572 40 281 352 4 427 334 6 3 533 e56 50 7 036 914 1958. 2 771 744 39 303 781 4 427 334 6 3 551 614 51 7 054 473 1987. 3 109 060 41 343 985 4 457 334 6 3 718 24v 49 7 628 628 1951. 1 545 829 36 420 500 10 245 071 5 2 090 988 49 4 302 388 (c) In 1981, Toledo Edison reabied an extraordt ury gain from the eschange of common stock for bonds (f) Average shares outstanding and related per share computations reflect the Cleseland Electnc 111 for-one exchange ratm and the Toledo Edison one for-one eschange ratio for Centenor Energy shares at the date of affdiation, April 29.1986 (g) Capacity data reflects extended genera' anit outage for renovation and improsements. (h) Restated for effects of capitali.7ation of nuclear fuel lease and hnancing arrangements pursuant to Statement of Financial Accounting Standards 71. 37
board of. Directors
- Richanf R Anderson President and Chief Executive Rokrt Af. Ginn Executive in Residence at John Officer of The Andersons Management - Carroll University. Chairman Emeritus and Corporation, a grain, farm supply and - retired Chairman and Chief Executive Officer retailing firm. of the Company.
' Alkrt C. Bersticler President and Chief Executive George H. Kaull Chairman of Premix, Inc., a developer, Officer of Ferro Corporation, a producer of _ ' manufacturer and fabricator of thermoset specialty chemical materials for manufactured . reinforced composite materials.
P_roducts. Richani A. Afiller" Chairman and Chief Executive Leigh Carter Retired President and Chief Operating Officer of th: Company and Centerior Officer of The BFGoodrich Company, a producer Service Company. . of chemicals, plastics and aerospace products. Trank E. Afosier Vice Chairman of the Advisory Board
. Retired Chairman of Tremco, incorporated, a of BP America Inc., a producer and refiner of manufacturer of specialty chemical products petroleum products.
. and a wholly owned subsidiary of The -
BFGoodrich Company 7 Sister Afary Afarthe Reinhanf, SND Director of Development for the Sisters of Notre Dame of Thomas A. Commes President and Chief Operating Cleveland, Ohio. Former President of Notre Officer of The Sherwin Williams Company, a Dame College of Ohio. manufacturer of paints and painting supplies. Rokrt C. Samge President and Chief Executive Officer
. Wayne R. Embry Executive Vice President and . of Savage & Associates,Inc., an insurance, General Manager of the Cleveland Cavaliers, f nancial planning and estate planning firm, a professional basketball team. Chairman of-Michael Alan Lewis Company, a fabricator of Paul Af. Smart Attorney and retired Vice Chairman of '
. hstdboard, fiberglass and carpeting materials the Company and The Toledo Edison Company, for the automodve industry. William J. Williams Chairman of Huntington RoNrt J. Farling* President and Chief Operating National Bank.
- Officer of the Company and Centerior Service Company. ... .. ... -. . .. . .. .. ..
. ... ... .. . .... , ..... .... .. .. . John R Williamson Chairman Emeritus
' Elected Chairman President and Chief Executive Officer effectiw March 1,:1992.
" Retired as Chairman and Chief Executive Officer effective March 1,1992, 9?!""'!'!"' of!!'?. Board , ., . __ _ , ., , , . . , __ _ .__,_ .,_ .
Capital . Embonmental Human Audit Expendstures and PuHec Miq Excutive finance Resources Nominating Nuclear T.A. Commes, G.H. Kault, - Sr. M.M. Reinhard, R.A. Miller, R. A. Miller. W.J. Williams, EE. Mosier, R.E Anderson, Chairman - Chairman Chairman Chairman Chairman Chairman Chairman Chairman
- W.R. Embry A.C. Bersticker L Carter - L Carter R.E Anderson L Carter R.R Anderson A.C. Bersticker
- RM. Smart l R.J. Farling W.R. Embry R.M. Ginn T. A.Commes GJ1. Kaull A.C. Bersticker L Carter W.J. Williams R M. Ginn R.J. Farhng ' WJ.Wih ms W R. Embry EE. Mosier L Carter . R.J. Farling ,
' R.A. Miller . R.A. Miller R.J. Farling R.C. Savage T.A. Commes R.M. Ginn 1 EE.Mosier RM. Smart R.C. Savage W.R. Embry R.A. Miller Sr. M.M. Reinhard - EM. Smart R.M. Ginn Sr. M.M. Reinhard Gli.Kaull R. A.. Miller Sr. M.M. Reinhard R.C. Savage EM. Smart WJ. Williams
(.: -;~
, - ^
x $lianiOwner'infonnationL - y . . g .y m . v . . . - . . , . .... ...... . t M [ DIVIDEND RFINVESTMENT AND STOCK - - REGISTRAK - , [PURCl1 ASE PLAN ANDINDIVIDUAL NETIRl' MENT - Ameritrust Company National Association
, , f ACCOUNT (CMIRA)) . .
Corporate Trust Division The Company has a Dividend Reinvestment - P.OfBox 6477
# .> 1 and Stock Purchase Plan which provides share : Cleveland, Ohio 44101 J owners of record and gustomers of the Company's CSIRA CUSTODIAN a subsidianes a corwement means or purchasmg
- All communications about an existing CX*1RA
' shares of Company common.(ock by investing should be directed to the Custodian at the address -
'# ~
' t' . all or a part of their quarterly dh iden'ds as well as or telephone numberslisted below:
making cash investments, in addition; individ uals E ' ~ may establish an individual retirement account ' Ameritrust Company National Association' (IRA) which invests in Company common stock - Custodian, CX*1RA
. l through the Plan. Information relating to the P.O. Box 6477 l Plan and the CX*1RA may be obtained from ' Cleveland, Ohio 44101 1 Share Owner Services at the Company. = In Cleveland area 737-5742 or 737 5744 -
iSHARE OWNER SERVICES . Elsewherein Ohio
~ Communications regarding stock transfer. - 1800-362-0697, Ex:ension 5742 frequirementsilost certificates, dividends and : Outside Ohio
; changes of address should be directed to Share 1-800-321-1355, Extension 5742 Owner Services at the Company. To reach Share INDEPENDENT ACCOUNTANTS' I
. Oivner Services by phone, call:
- Arthur Andersen & Co.-
- In' Cleveland area 642-6900 or 447-2400-- 1717 East Ninth Street-
- Outside Cleveland area 1-80 4 433-7794 - Cleveland, Ohio'44114 -
Please have your account number ready ~
- COMMON STOGd
, when calling.- Listed on the New York, Midwest and Pacific
'INVESIOR RELATIONS - - Stock Exchanges. Options are t ae d on '
- Inquiries from security analysts and institutional The Pacific Stock Exchange. New York Stock - .
. + ' im estors should be directed to Terrence R. Moran, Exchange symbol-CX. Newspaper Manager-Investor Relations, at the Company's abbreviation-CentEn or CentrEngy.
- mail address or by telephone at (216) 447-2882. ANNUAL MEETING A TRANSFER AGENT; The1992 annual meeting of the share owners of -
; Centerior Energy Corporation the Company will be held at 10 a.m. on April 28, Share Owner Services . 1992 ct Executive Caterers at Landerhaven in
~
P.O. Box 94661 - Mayfield Heights, Ohio; Owners.of common l Cleveland, Ohio'44101-4661 stock as of February 26,1992, the record date for '~ the meeting, will be eligible to vote on matters
~ .; Stock transfers ^may be piesented ate bmught up for share owners consideration.
' PNC Trust Company of New-York
~40 Broad Street, Fifth Floor . FORM 1E
.Nen York;N.Y.10004 : The Company will furnish to share owners, with ut charge, a copy of its most recent annual a-! --EXECL'T!VEOFFICES; rep rt to_the Securities and Exchange Commission.
U Centerior Energy Corporation Requests should be directed to the Secretary
. > 6200 Oak Tree Boulevard f theCompany.
L Independence. Ohio
. iTelephone:(216).447-3100 - AUDIOCASSETTES AVAILABLE
;FAxi -(216) 447-3240 Share owners with impaired vision may obtain
- udi cassettes of the Company's Quarterly Md!LADDRESS Reports and Annual Report. To obtain a cassette, -
Centerior Energy Corporation p sunpQ wn e or can am Owur Ses.
- P.O. Box 94661 There ts no charge for this service.
L Cleveland, Ohio 44101-4661 39 . a ,, .
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