ML20096A749
| ML20096A749 | |
| Person / Time | |
|---|---|
| Site: | Beaver Valley |
| Issue date: | 12/31/1991 |
| From: | Farling R, Miller R CENTERIOR ENERGY |
| To: | |
| Shared Package | |
| ML20096A734 | List: |
| References | |
| NUDOCS 9205110200 | |
| Download: ML20096A749 (69) | |
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Contents The Toledo Edison 4- i.ethr to Share Owners Company -
6- hiaintaining Earnings The Clewland -
8 hiecting the Competition @CENI"*I"dN"X Lompany 10 Continuous Improvement in Operations ,
14 hianagement's Statement of .
Responsibility for Financial Statements c 9 14 Report ofIndependent Public Accountants ..
15 Summary of Significant Accounting Policies ,
17 hianagement's Financial Analysis, ,
Financial Statements and Notes '
35 Executives of Centerior Energy Corporation \ .
and Centerior Service Company '
36 Financial and Statistical Review l
' [- \
38- Board of Directors 39 Share OwnerIn ormation %
1991 Highlights s
. . . Although reported earnings were down10% to $1.71 per share, the common dividend was maintained at $1.60 per share and cash thw Tntinued to improve. l
. . A commitment to cost control helptd to reduce Centerior Energy Convration aus formed m. .
operation and maintenance expense (excluding fuel and purchased power) by $62 million. Also, Arril m u;vn the affiliatica of The Clewland construction expenditures were about $47 million Electric Hluminatmg Com;uny and The To!cdo lower than 1990. 73,,,, (,,p,,,_ g;,y ,,,,,, ,g,7,, g g y y;;;,,,
. . . The final step of the three-year rate phase-in plan Centerior Encrgy i3 one of the largest electric under the January 1989 rate agreement went into utility systems in the nation. The Centerier effect on February 1,1991. The 6% scheduled open:Hng mmgunres saw 24 nuluon pw;>le in a increase was reduced to 4.35% for Cleveland Electric and to 2.74% for Toledo Edison as we shared our comEined semice area of 4.200 square miles in cost reductions with our customers. Toledo Edison Northern Ohio. Centerior Energy is an egal later waived the increase and reduced its rates , 7,,,, 7, twice in 1991 for certain customers.
. Whi'e the City of Toledo continued to review the option to create a municipal electne 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 plants in the country.
Pnnted on mmleJ papr
. Power sales to other utilities prod uced a record $33.4 million of revenue in excess of the related costs. These sales amounted to 9% of total kilowatt-hour sales. .
Operation & Maintenar.ce E1 pense Etal Kilowatt.llour Sales ' (Lxcluding Tuel & Purchased Pmvr)
L ............. ......... .... ..... ..... . . .. .. .. . . ... .. ...
[ KWH BiUions $ MiDiens 30 1,000 600 20
{
}, 600 1
13 K10 ,
10 .
j
-]
5 s .
0 -
0 =
'87 '88 '8s '90 91 .g7 ,gg 89 '90 '91 (1W.1990 Restated) We achmed a signahcant reduction in OkM expense De;ptre the impact of the recessen on out industrut m IW1.The reduction was attamed ty impleraentiry, cunomers total sales % IW1 increaved 1% on the the mommer& tons cd a managanent auda cmnieted
- strength thontmned gn=th in the cc,mmernal sectat, m 1NO and our ongomg comnutrr,ent to nuracrdze costs.
a hat summer and % eased sales to other utihties.
Construction Lxpenditures Excess Rewnue otvr Cost Uncludmg ATUDCand Existmg NuclareFut> front Off-Systens Sales
$ Mahans $ WHions 1,000 35 1
j m
8.
25 :)
)
m )
g 15 10 200 0
'87 l
'88 '89 '90 '91 5
0
'87 '88 '89 '90 '91 With the completon of our nuclear constructen The increased avadabihty of our nuclear and toasd program in 1967, construction expenditures have generstmg units, in coniunction wah lower average dropped dramatically, averaging about $224 millen production costs, has nude us more competitive m the past three years. We expect that our costs to comply the marketplace for sales of power to other utdities.
with the new clean air legislatmn wdl be sigmficantiy Revenues Irum those sales in 1W1 rwceeded the less than other Midwest utihttes. related costs by a record 533 millon.
3 m .
m u i
_ 'j' '
,.s,.--
j i
1 Earnings PerSharr- _
TbtalElectric Operating Rewnues
. . . . . . , , , . . . . . - . . . . . . . . .............. . ......................=..... . . . . . . - - . . . 2 5! 5 Billions .f
--3,oo . m o m o m- ., . ,. ,
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'87 - 68 '89 '90 '91 '87 '88 '89 '90 '91
. k.;es .miudes uw enat er a wnw. art (1957194 Restated) -
- ernua eceni. mew aewumet - -
p ; 52 As per e.sa. - A nules*one of $2.6 bdhun in total n venues was teached in 1991 as we implenwnted the last of thme ! .j J A}though earn.qg* per share dechned to $1.71 in 1991, annual rce irrreases.
the quahty of our earnmgs continued to improve, as M .
has sure 1901 Noncash aedits contmue to have a "
decreasing effect on earnmgs. .
.1 ~
it y a Atvage Retai!Pdcelyr KWH Compared with the Consumer Priceindex.
itss2.tsu . tco Customer Tatvrubihty Eindex Peretnt
- 140 n .- . . , ,
70 (30 .
i W; , , + n . .
io -
3 40 i120- "- " + - +-
1 30 . -
i
~
$110 * * +++ + =-
to - 4
'100 ' - - < ~
0 =* - :;
- '87 '88 - E'89 '90 L '91 '87 '88- '89 '90 - '91 ;
t M ConsumerPriceInJcx Results of annual customer surveys indkate that we ,
(1991 Preliminary) . have begun to regain custenwr support and confidence.
"5 '""'*"'""' """i""**"*
M .Centerior Energy KWH Price Index -
that their electricity dollaris a good value.
i
, Despite the rate increases we have implemented over <
- the past severalyears, the test of our product remains
- a srnaller segment of most of out(ustoiners' budget
- dollars than a decade agn
. ....e
- 2- 1
( Our corporate mission is to provide quality units also performed well, Ihus helping us elect ric seridce to custome a. tchile carning a fair maintain reliable service to our more Ihan one return for ot.r investors. Ttte year 1991 was million customers.
high lighied by several ach ievements consistent with that mission:
- Our favorability rating with customers for
?
1991 climbed almost 10 percentage points frorn
- Although reportedcarningsdS1.71pershar ? the previous year. According to the survey tu redownfrom theS1.90per analyses. the Sain reflects share repcried in the two cu:.lomerappreciation of the previous yeurs, we main- , ,
y o value of electricity and tained the common stock _
'g' cus.omer awareness of our
~
dividend ol $1.60 per share l ~
f efforts to stabili:e rates and and our cash flow continued ,, reduce costs.
Io improve.
^
We are pleased with Ihese o We reduced operation and
- achievements. We also are
. ? .
maintenance expense (ex- ., x , wellaware ofourcontinuing ciuding fu d and purchased . ; challenges.
poteer1 for 1991 by $62 ..
million. or 7%, from the 1990 j The elechic utiHty business amount. N ,
l'5""S' f ' '" "' 5'I*" ~
9 3 from a tightly regulated and
~
- We were successful in a ,- -
r >
somewhat protectedbusiness e
obtaining approvalfrom The ,' ~ to one that is increasingly Public Utilities Commission - - -- -
more competitive. We are
~
of Ohio (PUCO) of threo accounting requests espectally challenged ty proprments of munici;ul designed to more closely align our accounting elect ric systems-a challenge intensified by the for operating and capital costs to amounts current availability oflow-cos* power in the currently being recovered in rates. wholesale market.
= Our three nucleargenerating units performed In this unrelenting climate, weare endeavoring very well. They accounted for 43% of the elec- to Leep our electric rates stable, even Ihough tricity we generated in 1991. Two of the u nits far inflation, operating demands and state and exceeded the industry averagefor availability; local tax increases continue to put downward -
the third was nearly average. Our coal-fired pressure on ou r earnings.
Robert [ Farling Richard A. Miller 4 l
l We implemented a rate phase-in plan in three Tite text that follows describes our challenges annual steps starting in 1989 to begin rc~ and our st rategies in more detail. We believe that covering our allowed investment in the two the cou rse we have charted will enable us toful-nuclear generatung units completed in 1987, fill ou r ultimate responsibility to you -namely Those units will provide an environmentally to justify Ihe confidence you have placed in us compatible source of electric power for years and to enhance the value of your investment.
to come. Hewever, our prices are now higher On March 1,1992, Dick Miller will retirefrom than those of many other investor-owned his position as Chairman and Chief Executive utilities in our region.
Officer, completing 31 years of dedicated service We are working hard to narrow that price gap. ir' to Cleveland Electric and Centerior Energy.
the 1989 mteagreement, which was reached with He will continue as a member of the Board of ct<stomer representatives and approved by the Directors. Bob Farling will succeed Dick as PUCO, we committed to using our best efforts to Chairman and CEO.
delay Ihe n & forfurther rate increases after the ,
Centerior Energy will continue working to be one iruplemen.d in February 1991. At the ruogni:cd as a top level performer in the energy same time, we a re committed to rewanting you r marketplace. That is Ihe vision we share for confidence in Cents eior Energy as an irnestment, our Company. We have a strong management To satisfy both commitments, uv hare charted a organization and a team of skilled, dedicated coursefor thefuture based on specific strategies employees of whom we are justifiably proud.
to achiae these primary objectives: They give us the confidence that ou r vision wilI become a reality.
- To maintain earnings and the current dividend through continued cost contain-
~
ment, sales ..td revenue enhancement and g;,,,,,
thefurtherpursuit of appropriate account-ing treattnentfor investments and costs not .
reflected in current rates. f
- To vreet the competition by holding the Eine on electric rates, offering customers the -
best possible valuefor their energy dollar y and teorkingfor the economic development Robert J. Farling' of the communities we serve.
- ib strivefor continuous improventent in operations, thus attaining optimal use of existingfacilities while maintaining our February 17,1992 commitment to the environment.
5
Maintaining Earnings HISTORICAL PERSPECTIVE of f in 1992 due to the absence of a rate increase, we expect it to provide nearly the same percentage Our financial picture continues to be influenced of construction expenditures as it did in 1991. by the 1989 rate agreement. That agreement was critical to our fortunes. It allowed us a three step Throughout 199i, we worked to lessen earnings rate increase for each of our operating companies, erosion by following three psimary strategieu the last step implemented February 1,1991, to reducing costs, expanding wholesale revenues recognize m rates cur allowed investment in and achieving regulatory approvalof appropriate Unit 1 of the Perry Nuclear Power Plant and accounting requests to better align ou r accounting Unit 2 of the Beaver Valley Power Siation.The two for operating and capital g nuclear generating units were completed in 1987. costs to the amounts being y' recovered in rates. I i To help moderate the negative earnings impact f( of phasing in ourlarge investment in these units, POSH li E INilwCT or
?g . . ,f er hhipOh. N .
x[ - the agreement included a 10-year phase-in plan COST REntXTIONs MlN for each of our two operating companies allowing us to defer a portion of the nuclear-related in this Report a year ago, w e be kQ , N.4 h;
, 4 operating expenses and carrying charges in the first five years of the plan. In the latter five stated that we expected to achieve significant reductions y [a !
.y of years, as that investment base decreases and revenues increase as a result of sales growth, in cur costs of doing business.
in 1991, we reduced other ([ }ijS Q 1" f '[- 4 the deferred operating expenses and carrying operation and maintenance , charges are to be amortized to expense, expense by $62 million, or g In this way, the phase in plans adequately 75 We also refinanced $310 million of high-cast debt h'* ~ 1 !
~
provide for recovery of the costs associated with and preferred stock for a net our investment in Perry Unit 1 and Beaver Valley annual savings of 59 million > jg ;gi( Unit 2. But we are not currently recovering costs associated with newinvestments or in interest costs and preferred gy U f ' g{ Q ~' e dividends. Our cost reduction - increases in other expenses that have occurred efforts continue. l " since the 1989 rate agreement, Investment that was not in rate base at the end of 1991 amounted Since mid-1990, about 1,500 employee, consultant to about $400 million. Unrecognized investment and contractor positions have been eliminated, and our commitment to delay further rate representing 14% of the 1988 total. Most em-increases continue to affect earnings adversely. playees lef t through an early retirement program; the rest received equitable separation benefits. RESULTS f OR 1991 We have implemented, or plan to implement, Earnir r 1991 were $1.71 per share, down many other cost-reduction initiatives. For from the p.:vious two years. However, 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 nuncash credits. to save 5480,000 during those outages. At the Perry Piant, employees instead of contractors Ourcash flow in 1991, af ter payment of dividends, will perform the periodic refurbis:. ment of was sufficient 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 during each P 6 I 1
refueling and maintenance outage at Perry teams organized throughout the Company and Unit 1. several joint teams set up with major customers - and supplie.s as well.
.Among additional examples, we espect improved scheduling practices and work procedures to WilOLESALE REVI:NUls redt.ce overtime and save $250,000 annually in transmission and distribution operations. A Just as cost reductions helped earnings, s a did better method for detecting cracks in power our kilowatt-hour sales to other utilities. We plant piping will save an estimated $100,000 sold 2.7 billion kilowatt-hours to ather utilities annually. We saved $40,000 at in 1991. Revenues from those sales in 1991 i the Ashtabula Plant in 1991 exceeded the related costs by $33 million. We f ,
by having employees rather are aggressively seeking opportunities for long- [. . l'< l than contractors perform a term power contracts to acnieve maximum 3 i'e A d turbine inspection. Improve- benefit from ouc generating capadty. g Y ( .' '
) h ments in materials manage-3 ment will reduce inventories POSillVE IMPACT OF ACCOUNTING ORDERS y and help save an estimated
,j' ], 1 $1 million in 1992 in our During 1991, the PUCO issued orders approving
&p @ f \ transmission and distribution three accoundng requests designed to more operations. closely align cut accounting fe,r operating and h;
- =
7
\ Achieving these savings capital costs to amounts recovered in rates, thus slowing earnings erosion. Each order was gz ' whik maintaining quality retroactive to January 1,1991, (dS;lN 'yQ 7h '([sM 4D h, M {[ service to customers was made possible only through One order allowed us to change the depreciation
[ d~ 5 __ i h. - the extraordinary commit. method for our three operating nuclear units from units-of-production to straight-line. This
.I I ment of our employees. They e5= gg g'
~
also contributed, individually, change contributed $_20 per share to annual a # - to the cost-reduction effort. earnings in 1991. The second order reduced
~
Their suggestions offered from about 3% to 2.5% the depreciation rate for through our " Bright ideas" program, which nuclear units, contributing 5.15 per share to included some of the above improvements, con. 1991 earnings. The third permitted us to record tributed $3.5 million to annual savings in 1991, additional cost deferrals based on a provision in the 1989 rate agreement that permits such As noted, out refinancing activities also con- action when our kilowatt-hour sales are lower tribute to overall cost reductions. We expect than the agreement projected. as occurred optional and mandatory redemptions in 1992 to in 1991. This contributed $.13 per share to result in another $9 million in annual savings in 1991 earnings. interest costs 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 orga nization representative groups who had participated to the " Total Quality" process 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 corporations world wide. Total Quality effective 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
. . . - , . . _ _ _ - - _ ._ ~ .. .. __ _
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. .... . . .. . , 4 . . .. . . . . .
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~ Regulatory approval and customer support in response, we have increased our per.sonal - j for such accounting requests underscore our comacts and developed special communications 1 confidence that pursuing these stiategies is a' programs for community ot'ficials and citizens' prudent business practice. We believe that groups in these communities. We pravide
' the customer representative groups and the information on the financial risks and uncer-regulatory commission wih continue to support tainties of creating a municipal electric system our longer-term operating and financial objectives and stress the superior reliability, service provided we continue to achieve our projected quality and value to the cornmunity of an cost reductions. investor. owned company.
i Jng-BEYOND 1991 Most municipalsystems today _
" =M serve solely as distribution -
We will continue our efforts to m aintain earnings systems that buy pow 3r at : by seeking further cost savings, advantageous wholesale costs from other business transactions, additional wholesale power utilities. The current avail- _ revenues and appropriate accou nting optionsc ability oflow-cost, wholesale n
-$ 4~st=>~
power is expected to decline 7 For example, we are seekmg support from the in years to cc a. Very little ~MY
- customer representative groups for our request - new electric generating dW to the PUCO to pernut us to capitalize the capacity is under construc. '
carrying charges and to defer depreciation on tion in our region. Old . - investment placed in service sin ~ce February 1988 ' generating units, especially. until it is reflected in rates.
- high polluters, are expected to - y be retired or equipped with 4 e
Complementing these strategies, our " Total costly pollution controls. Quality" commitment will help us further red uce '* % t costs, We also expect it to improve our operating Developing an electric power - L [ perform' ance and quality of service to customers- system invoives many com- l two critical factors in our strategy to compete plexities: constructing the l in today's challenging energy market. electrical facilities, controlling . I the dispatch of power, providing back-up capabilities, meeting environmental requirements
- Meeting the Competitw.n and training a workforce to safely operate,
.. 4 . . . . . . . . . . . . . . . . . .. ... .
maintain and repair highly complex equipment. Tile MI NICIPALIZATION CHALLENGE Such costly endeavors would severely drain a community's financial resources which could Rate rec &ry of our investment in Perry Unit 1 be better spent to maintain safety forces and improve other municipai services.
- and Beaver Valley Unit 2 resulted in rate increases -
' in 1989,1990 and 1991 totaling about 20% for Cleveland Electric customers and 16-19% for In the City of Toledo, where municipalization Toledo Edison customers; depending on the has been under review since 1989, a citizens' type of customer. Our rates in both service review committee is expected to make a recom-areas are higher today than those of many other mendation soon to City Council. A consultant'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 expected to be paid to Toledo Edison electric systems in hopes of realizing lower over the next 20 years. We provided evidence to electric bills; refute that assessment. ,
- 8
Defiance, one of the largest citier, in the Toledo During 1990 and 1991, we negotiated ordinances Edison territory, completed a $100,000 munici- in the Toledo Edison service area under which palization study in 1991. .Af ter thorough review, munlcipalities 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 nol proceed with creation of its own benefits 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 expect 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. m For many decades, we have made reduced rates y However, creation of a available to industrial and large commercial jf municipal electric system has customers in recognition of their specialload g# ' characteristics that make themless costly to serve. et ,s been recently proposed in hj h Brook Park, a community Such characteristics include interruptibility, high load factor and off-peak demand, in turn, h ,A that is home to one of our y five largest industrial these customers commit to purchasing all their HIOS!Q w v [ ' ,,1 ) p ' customers, Ford Motor's electric power from Cleveland Electric or Toledo
.I j Brook Park plant, and some Edison for the length of the contract.
Tl> + [j j ,; 8,000 residential customers. N
' [/ During 1991, we stepped up our efforts to help
~
y We are meeting with Ford 5 L< -@ representatives and City industrial and commercial customers attain the Ni'kh jM officials in efforts to seek best possible energy pricing in these challenging
/ I $d resolution, economic times. These efforts sometimes mean Y^ g' kOg) Y. M 5
reduced revenues for us in the short term, but they benefit us in the long run by retaining
- a ^
Our long time competitor,
# d5% Cleveland Public Power (CPP), customers, keeping jobs in the community and 1 gi continues an expansion increasing sales once economb conditions
_h k[ program announced in 1986 improve and businesses grow, g ^ [' CPP is essentially a distri-As an mample, in 1989, we began offering bution system now serving about 50,000 customers. CPP of ficials expect the incentive pricing packages to select Tcdedo expansion to acquire about 20,000 or 1.9%, of Edison customers which were considering our customers by the end of 1992. We consider eAPansion or reorganization. This 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 capital investments. 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%, offset somewhat by lower operating ADDF D VALUE FOR CUSTOM ERS expenses and taxes. We always have valued our customers and placed INCENTIVE PRICING the highest priority on serving their needs. Today, we are endeavoring even more to Incentive pricing is one strategy we employ to strengthen programs that demonstrate the remain competitive and, at the same time, help added value inherent in our service. our customers keep energy costs down. 9
We serve as consultants to communitio to help We are more than an electricity suppher-we ihem retain existing busmesses and attract new are a full service ennrgy company, offering our ones. We are equipped to advise communities customers experience, technical expertise and a on infrastructure, land access, tax incentives broad range of spec;al programs to suit their . and environmental requirements. We provide needs. Customers are our reason for being in similar consulting services for prospective business. Our goal is to achieve the highest customers.Through our Partners in Productivity possible level of customer satisfaction. campaign in the Cleveland Electric area, we int rod uce local enterprises to the newest electio. Corg. orate citizenship is another aspect of the tech nologies to help make them more competitive. added value in our electric ,, , service. In 1991 alone, our g gy~
- Our three Customer Advisory Panels help us corporate contributions to i/ ;'
keep attuned to current attitudes and needs. civic, cultural, educational, _ Today's customers are seeking new ways ta health and social service - a . increase their energy efficier,cy and realize agencies totaled $2.1 million. ;M I, more value from their energy dollar. We offer in addition, Centerior em- i $s demand side raanagement programs to respond ployees pledged $1.65 milhon - \p
- to that need. These programs encourage to the U nited Way, an average g sq Q
customers to shift some electricity consumption of about $200 per employee. . ( d" V p }Q%7 from high-use to low-use periods, with incentive Our Speakers Bureau reached ) ,, pricing reducing the customer's overall energy audiences totaling 60,000. f. ia "' ; - cost. Our Company, in turn, benefits as these Five thousand school children ( ~, '" programs slow the growth in pmk demand, attended our electrical safety . j enabling "s to delay costly investment in new presentations. More than {HL power plants. 2A00 Centerior employees , , We plan to invest about $90 million in demand-volunteered for community , programs in 1991. - 1 side management programs this decade. We are w moving prudently to allow time for us to assess Such activities and programs D ? h. custome needs and acceptancelevels for va-ious substantiate our Comp any's bM programs. To encourage demand-side manage- value to Nort' rn Ohio communities as do the ment, the PUCO allows recovery throvgh rates taxes we pay to support schools and city services. of a utility's investment in demand-side projects We stress these points in our discussions with for customers as well as recovery of some commu nities considering municipalization. associated carrying charges and lost revenues. The PUCO also allows utilities 10% of the savings resulting frow the investment. Continuous Improvement in Operations We are helping commercial customers install high-efficiency lighting, thermal storage cooling and energy management systems. In 1991, we PLANT PERI ORM ANU EXCf.Ls launched a demand-side management demon-
"' '" ""' #'"""*P"'"'*" "'I"'"
stration program m conjunction with the Toledo in 1991, and we are working to continue this Area Small Business Assoc. ia tion. Ultimately, , Perrormance, initiatives from this program are expected to reach 28,000 commercial customers. This is one An important measure of unit performance is of the largest energy-ef ficiency efforts ever id bbi % , M b & p q undertaken in Ohio. .. of time a unit is available to generate electricity. 10
sor the three years ended December 31,1991, Beaver Valley Unit 2 is an 820,000-kilowatt unit Davis Besse attained an availability average of operated by Duquesne Light Company. We have
. 83%, as did Beaver Valley Unit 2. Those results 44% ownership and leasehold interests in the were significantly better than the industry's unit. Like Davis-Desse, Beaver Valley Unit 2 most recent three-year average of 74% for umts received its highest ratings ever in the NRC's with pressurized water reactors. Perry Unit 1 most recent 5 ALP Report. This latest assessment attained a three-year availability average of places it among the top 10 nuclear power 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 enerating L units also performed percent of the electricity we well in 1991. They achieved a combined operating generated in 1991. availability average of 80%. This considerably exceeds the minimum performance standard of l The 883,000-kilowatt Davis- 64.9% availability which was stipulated in the
- Besse station is fully owned 1989 rate abreement. I 6 g by Centerior. The station O" returned to service from a The future of Perry Unit 2 is a continuing un-10-week refueling and main- certainty. Construction of this unit nas been tenance outage on November suspended since 1985 pending consideration of _ e H 8,1991. Sinco ompleting an various options including resumed construction, 7"E .ws--M extensive refu rbishment in conversion to a nonnuclear design, sale of all 1988, Davis-Pesse has become or part cf our ownership share or cancellation.
/ , a top performer among the The umt is about 50% complete.
% R ., nation's 111 nuc! car power
'. - (.C' units. Davis-Besse earned Our net investment in Perry Unit 2 would have its highest marks ever in to ba written off if the unit were canceled. If it
% the Nuclear Regulatory were c nyerted to a nonnuclear design, we M- w uld have to write off the cost of unusable Commission's (NRC) most recent Systematic Assessment nuclear equipment and f acilities.
of Licensee Performance To keep open all 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 1? to 18 rronths for each nuclear extension of the construction permit. It was to power unit in the nation. On a SALP performance expire in November 1991 but remains in ettect scale of 1 to 3, Davis-Besse earned a Category I while the application is pending. Additionally, rating, the top result possible, in three of seven evaluated areas and, for the other four areas, a Cleveland Electric recently agreed to purchase Duquesne Light Company's 13.74% ownership Category 2 rating which signifies a level of share of the unit at a purchase price of about $3 performance above that needed to meet regulatory ' milli n. Duquesne had stated it would not requirements. Additionally, Davis-Besse was commended for improverr$ent in three of the agrn t resume construction. The purchase will g:ve us a 64.76% 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 its subsidiary, Penn sylva nia 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. I 11
I' OUR ENVIRONMENTAL COMMlIMENT Of the 600,000 tons of fly ash produced from coal combustion each year, we market more Through 1991, we continued evaluating the than 10% to concrete manufacturers for use in complex options for complying with the Clean building and highway construction. We plan to Air Act Amendments on 1990. The legislation participate in a research project testing a fly requires substantial reductions in sulfur dioside ash. compost combination as a topsoil replace-(SO2 ) emissions from coal-fired power plants, m nt. We are seeking additional opportunities to be achieved in two phases. to find uses for fly ash, thus reducing landfill requirements and dispesal costs. Each year we The combined 50, emissions from Cleveland also sell about two million . Electric and Toledo Edison power plants already pounds of used alum:num have been cut by about 50% from the 1977 level. and copper, just two of many .,
~ my q That puts us well ahead of many other Midwest utilities which, like us, depend largely on coal.
materials we recycle. W M " - Nevertheless, thelegislation requires us to Many customer., share our P# _ . [ reduce emissions further, achieving the first envirorimental commitment. phase of reductions by 1995; the second phase, {* v] g"-jgb, -- Our mid.1991 offerof recycling d 7-by the year 2000. information kits to customers ppf} $ Out aim is to achieve those reductions at the at no charge drew 150,000 re9uests representing about gdi:K= d $ QV
.1, ; b lowest possible cost to customers. Consequently, N, 9]( 5..EF 15% of our customer total. _
F ,,p we are taking a multi-dimensioned approach " Vk M which emphasizes flexibility. Our approach k s in 1991, the Board of Directors ~- 4., p includes the additional use of low-sulfur coal, created an Environmental ;
' ,b 9 maximum use of our emission allowances, and Public Policy Committee % '
s
! l demand. side management of customerload to oversee the status and -
y(~e and, after 2001, the installation of a scrubber or compliance with environ- N other sulfur emission reduction technology at
;f )[
mentallaws and make recom-g one plant. We will seek PUCO review of our compliance plans in 1992. mendations to management regarding environme ntal g programs. We are prepa ing a report on our Thanks to our previous SO2 reductions and environmental performance that will be offered our broad-based strategy, we 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 anticipated capital expenditures and other expenses represent THE NORTHERN OHIO M ARKET the potential for a 1-2% rate increase in the late 1990s and another increase af ter the year 2000 We expect electricity sales in Northern Ohio for an aggregate increase of about 3-6S Many to increase about 2% annually over the next other coabdepend at utilities in our reginn face several years. We also expect the fastest growth err m-reduction costs two or three times to occur in the commercial sector where growth higher. As they absorb those higher costs has occurred every year since 1978 for an into their rates, our prices will become more aggregateincrease of 39E competitive. The recession may have put a temporary damper Reducing emissionsis just one of many ways on economic growth, but cur Northern Ohio we maintain our commitment to the environ- service area has suffered 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 l 12
1991. Northern Ohio industries learned from Toledo. Downtown Toledo's Portside market, the recession of the early 1960s and have since closed in 1989, may reopen to house a Center ef improved operating ef ficiencies, thus con- Science and Industry museum. Butlington Air tributin6 ot a more resilient manufacturing base. Express' new international cargo hub was com-pleted in 1991 giving Toledo Express Airport in Cleveland, LTV Steel has installed major new air cargo and truck freight links. new production facilities at one of its plants This expansion, now complete, will provide us in the residential sector, we continue promoting with $8 million in additional annual reven ues. use of the heat pump for electric heating and LTV has announced plans for cooling in the home. New electric heat pump k.w a similar installation in its installations added some $860,000 to annual s* ,4 . - i other Cleveland plant to revenues in 1991 and are expected to contribute i become operationalin the nearly $1 million to revenues in 1992. Increased 3 (( / / J:::4N l
'1 I Oh i
j(fkr
'i mid-1990s. Ford Motor will complete expansion of its heat pump saturation also helps to raise system load factor, which means we get more use from V th,.j/ h - Avon Lake plant to begin our generating equipment.
Yb[> production of Mercury n gg Villager Wim% in in OUR DIRECllON FOR TiR FUT UKL
, TN G g g Tnis will add $5 million to our annual revenues. Centerior Energy adheres to the traditions F/ -f'g MhM of service reliability, concern for customers
. __s Q. 3 Industrial sales in thc Toledo and responsiveness to share owners. We also Edison area will be boosted believe in the worth of creativity, innovation y3.- y "3( g) g,h - { ; q in 1992 when Chrysler shif ts and resourcefulness. This is reflected in our s its Wrangler production from willingness to pioneer new approaches to
[ ) a Canada to the local)eep improve financial results, build relationships y with our customers and meet new technological j - {4 g>g z Assembly Plant. BP America plans to spend more than demands.
+ / ., i %6 $100 million at its Toledo
" " " ~ -
refinery for a process to reduce We are living in very challenging times, but we s-Ifur in diesel fuel. The new facility will add are set on a course of action that we believe will
$4-5 million to our annual revenues beginning meet those challenges. We often have said that in 1993. our employees are our single most important resource. They have contributed significantly to 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
.quare feet of new building space, nearly half of years to come.
it electrically heated. Major new customers include downtown Cleveland's Bank One,3ociety With the help of this dedicated workforce Center and Marriott Ilotel. Preparations are and the cooperation of customer representative moving ahead for construction of the 5350 million groups and regulators, 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 compHition and improving operations. We also provided by Cleveland Electric. are coniident 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 Franklin Park Mall shopping center, the Medical College of Ohio and the University of 13
Managernent's Staternent of Responsibihty for Financial Staternents The management of Centerior Energy Corporation is making changes in management or independcx responsible for ths consolidated financial statements public accountants if needed.
^ in this Annual Report. The statements were . The Board har appointed an Audu Committee, prepared in accordance with generally accepted comprised entirely of outside directors, which met accounting principles. Under these principles, so.ne of three times in 1991. The Committee recommends the recorded amounts are based on estimates which annually to the Board the firm of independent public are, in turn, based on an analysis of the best accountants to be retained for the ensuing year and information available. reviews the audit approach used by the accountants We maintain a system of intemal accounting plus the results of their audits. It also ove sees the centrols designed to assure that the financial mcords adequacy and effectiveness of ou. intemal 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 financial position.
such that their costs do not exceed their benefits. Our internal audit program monitors the intemal accounting controls. This program gives us the /dl,gicq.4.,*t " opportunity to assess the adequacy and effectiveness of existing controls and to identify and institute g }t yf aggs j[ changes where needed. In addition, an examination l'tecutiw vice President and of our financial statements is conducted 1 y Arthur Chief Financial Officer Andersen & Co., independent public accountants, whose report appears below. Our Board of Directors is responsible for determining whether management and the g independent public accountants are carrying out their PAUL G. Bussy responsibilities. The Board is also responsible for Controller and Chief Accounting Officer Report ofIndependent Public Accountants To the Share Owners and Board of Directors of ARTHUR Centerior Energy Corporat,on:i ANDERSEN We have audited the accompanying consolidated In our opinion. the finar.cial statements referred to balance sheet and consolidated statement of above present fairly, in all material respects, the cumulative preferred stock of Centerior Energy financial position of Center %r Energy Corporation Corporation (an Ohio corporation) and subsidiaries and subsidiaries as of December 31,1991 and 1990, as of December 31,1991 and 1990, and the rele.ted and the results of their operations and their cash flows consolidated statements of income, retained camings 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 guerally period ended December 31,1991. These financial accepted accounting princip'es. statements are the responsibility of the Company's As discussed further in the Summary of Sigr9icant management. Our responsibility is to express an Accounting Policies and Note 12, i change was macie opinion on these financial statements based on our in the method of accounting for nuclear plant audits. depreciation in 1991, retroactive to January 1,1991. We conducted our audits in accordance with As discussed further in Note 3(c), the future of generally accepted auditing standards. Those Perry Unit 2 is undecided. Construction has been standards require that we plan and perform the audit suspended since July 1985. Various opMs are being to obtain reasonable assurance about whether the considered, including resuming construction, financial statements are free of material misstatement. converting the u ilt 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 financial statements. An audit also includes when, if ever, Perry Unit 2 will go in service or assessing the accounting principles used and whether the Compan/s investment in that unit and a significant estimates made by management, as well as return thereon will ultimately be recovered. evaluating he overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. Mu' Ib , Cleveland, Ohio February 14,1992 14
?
-GENERAL. of fuel and purchased power expense. The amounts for prior years have aL. been reclassihed to wnform i Centerior Energy C.orporation (Centenior Energy) is a with current reporting requirements. See Note 13. !
holding company with two electric utilities as subsidiaries, The Cleveland Electric illuminating Company -(Clevelaad Elec+ric) and The Toledo i UEl ! XPENSE. j Edison Co npany (Tnledo Edison). The consolidated The cost of fossil fuel is charged to fuel expense based ! fmancial statements also include the , counts of on inventory usage. The cost of nudear fuel, i Centerior Energy'T other wholly owned subsidiary, Wluding an interest component, is chuged to h el , Centerior Service Company (Service Cc mpany), and upense based on the rate of consumption. Estirmied ! Cleveland Electric % wholly owned subsidiar!rs. The future nuclear fuel disposal costs . , being recovered Service Compaw provides management, financial, through the base rates. l administrative, engincedng, legal ano other services The Operating Companie$ defer the differences ; at cost to Centerior Energy, Cleveland Electric and between actual fuel costs and estimated fuel costs !
. Toledo Ediron. Cleveland Electric and Toledo Edison currently being recovered from customers through the .
(Operating. Companics) operate n separate foc! factor. This makhes fuel expenses with fuel- ! companies, each Serving the customers in its service related revenues. area. The preferred stock, first mortgage bonds and j other debt obilgations of the Operating Companies PRE-PHASE IN AND PHASI?!N DI.l ERR AIS continue to be outstanding securities of the issuing OF OPERATING laPI NSl3 AND utility, All significant intercompany items have been ! elim,mated in consolidation. NRWG CMRm-Centerior Energy and tM Lperating Companies The PUCO authorired the Operating Companies to follow ine Uniform System of Accounts prescribed b record, as deferrec' charges, certain operating espeno ' the Federal Energy Regulatory Commission (EERC)y and carrying charges related to Perr) Nuclear Ibwer
- and adopted by The Puble Jtilities Commission of Plant Unit 1 (Perry Unit 1) and Deaver Valky Power Ohio (PUCO). As rate tadted utilities, the Station Unit 2 (Beaver Valley Unit 2) f,vm their :
Operating Companies are sue)cet to Statement of respective in service dates in 1987 farough December .t Financial Accounting Standards 71 which governs 1988. Amortization and recoveu of these deferrals , accounting for the effects of certain types of rate (called pre phasedn deferrals) began in January ,1989 -
. regulation. The Service Company follows the Uniform in accordance with the January 1989 PUCO rate System of Accour is for Mutual Setvice Companies orders discussed in Note 6. The amortizations will '
prescribed by the Securities and Exchange continue over the lives6,(tfthe the related property'UCO Commission (SEC) under the Public Utility liolding As discussed in Note January 1989 P , Company Act of 1935. rate orders for the Operating Companies included ,
- The Dperating Companies are members of the approved rate phase-in plans (c<r their investments in :
Central Area Power Coordination Group (CAPCO). Perry Unit I and Beaver Valley Unit 2. On January 1, } Other members include Duquesne Ught Company- 1989, the Operating Companies began recording the rDuquesne), Ohio Edison Company Ohio Edison) deferrals cf operating expenses and interest and i and Ohio Edison's wholly owned (subsidiary, equity carrying charges on deferred rate-based Pennsylvants Power Company (Pennsylvania . investment pursuant to the paase in plans. These Pcuer). The members have constructed and operate deferrals (called phase-in deferrals) will be recovered i generation and transmission facilities for the use of by December 31,1998. .j the CAPCO companies. DEPRECIATION AND AM 71TN10N RiiVhNUES
. . The cost of property, plant and equipment is 1 Customers are billed on a monthly cycle basis for their depreciated over their estimated useful lives on a -l energy consumption based on rate schedules or straight line basis. Prior to 1991, only nonnuclear contrads authorized by the PUCO or on c.rdinances property, plant and equipment was depreciated on a i with indiv;dt.al municipalities. An accrual is made at straight line base as depreciation expense for the - l the end of each month to record the estimated - nuclear generatag units was based on the units of- ;
- amount of unbilled revenues for kilowatt hour sales production method. ,
tenderd .n tiveurrent month but not billed by the The annual straight line depreciation provision for end of that month. nonnuclear property expressed as a percent of 'l ' 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 from in 1991,3.3% in 1990 and 3.8% in 1989. The rate customers the costs of fuel and most purchased declined in 1990 because of a PUCO+pproved 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 FERC ' In 1990, the Nuclear Regulatory Commisabn clarification of xporting requirements. Prior to 1991, (NRC) approved a six-year extension of the operating these bulk power sales transactions were ne.ted with license for the Davis Besse Nuclear Power Station 1 purchased power transactions and reported as part (Dasis-Besse). The PUCO approved a change in the - l
)
15 _ _ . _ . . _ _ . _ _ _ _ . _ _ . _ _ ~ _ _ _ _ _ _ _ . . _ . _ . _ _u _ ~ _ .- _ . _ . _ . -,
units of-production depreciation rate for Davis- Dfl ERRFD GAIN AND 1 OSS FROM l Ibsc, effective lanuary 1,1940, which recognited the SA11S Of UTluTY Pl. ANT-life extension. See Nute 13. Effective January 1,1991, the Operating The Operating Companies entered inta sale and leaseback transactions in 1987 for the coat hred Druce ' Companies changed their method of accounting for nuclear plant depreciatioa from the units-of- Mansheld Generating Plant (Mansheld Plant) and production method to the straight-line method at Beaver Valley Unit 2 as discussed in Note 2. These , almut a 3% rate. The PUCO approved this change transactions resulted in a net gain for the sale of Mansheld plant and a net loss for the sale of Beaver : in accounting method for each Operating Company and subsequently approved a change to lower - Vauey Unit 2, both_ of whkh were deferred. The ; the 3% rate to 2.5% for the ihree operating nuclear Operating Companies are amortizing the applicable j units retroactive to Janua y 1,1991. See Notes 12 atn and loss over the ternw of leases under ! and 13. deferred sale and pcaseback agreements The amortizations . The Operating Companies use external funding along with the lease npense amounts are recorded as
= of futurr decommissioning costs for their operating other operation and mamtenance expense. l nudear units pursuant to a PUC0 order. Cash - INll RLST CllARGl 5 }
cor. ibutions are made to the funds on a straight line base over the remaining lkensing perk >d for each . Debt interest reported in the Income Statement does 4 unit. Amounts cunently in rates are based on past not include interest on nuclear fuel obligations. l estimates of decommissioning costs for the Operating interest on nuclear fuel obligaticns for fuel under , Companies of $122#00,000 in 1986 dollars for Davis. construction is capitalized. See Note 5. ; Dme and $72,000,000 and $ef*0,000 in 1987 I osses and gains realized upon the reacquisition or l dollars for Perry Unit 1 and Beat - Valley Unit 2, redemption of long term debt are defened, consistent ; respectively. Actual decommissioning costs are with the regulatory rate treatment. Smh losses and i espected to significantly exceed these estimates. gains are either amortired over the temainder of the i it is expected that increases in the cost estimates will originallife of the debt issue retired or amortired over , be recovesable in rates resulting from future rate the life of the new debt issue when the proceeds of a i proceedings. The current level of expense being new issue are used for the debt redemption. The 6mded and recovered from customers over the amortir.ations are included in debt interest espense. E.naining fict :g periods of the ' units is ! approximately $wi0,0m1 annually. The present PROPERTL PLANT AND L-QUIPMEN1 funding requhements for Deaver Valley Unit 2 also Property, plant and equipment are stated at original satisfy a similar commitment made as part of the sale cost lest any amounts ordered by the PUCO to be ' and leaseback transaction discussed in Note 2; written off. Included in the cost of construction are : items such as related payroll taxes, pensions, fringe i FEDER AL INCOME TAXES benefits, management and general overheads and ; 4 The fmancial statements reflect the liability method of allowance for funds used during construction r accounting for income taxes. The liability method ( AFUDC). AFUDC represents the estimated - ! requires that our deferred tax liabilities be adjusted composite debt and equity cost of funds used to ; for subsequent tax rate changes and that we record finance construction. This noncash allowance is : deferred tases for all temporary differences between credited to income, except for certain AFUDC for j the book and tax bases of assets and liabihties. A Perry Nuclear Power Plant Unit 2 (Perry Unit 2). See # portion of these temporary differences are attributable Note 3(c). The gross Al UDC rates averaged 10.7% 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 af replacing plant and equipment > were collected or recorded. Since the PUCO practice is charged to the utility plant accounts. The cost of
. permits recovery of >uch tavs from customers when prooerty retired plus removal costs, after deducting ,
v they become payab'e, the net amount due from any salvage value, is charged to the eccumulated
- customers has been recorded as a regulatory asset provision for depreciation. l
.in deferred charges, A substantial portion of this -
amount relates to differences between the book and RLCLASSilK.ATIONd , tax bases of utility plant. Hence, the recovery of these Certain reclassincations have b- a made to prior amounts will take place mer the lives of the related years' financial statements to make them comparable ' assets; _ . with the 1991 financial statements and consistent
. investment tax credits are deferred and amortired with current reporting requirements. These include over the estimated lives of the applicable property, reclasstheations related to certain wholesale power '
' The amortization is reported as a reduction of sales revenues as discussed previously under '
depreciation expense under the liability method. Revenues" and accumulated deferred rents as See Note 7. discussed in Note 2.
, .4 >
. - - .. __ _ _ . _ u - _ _ ._ _ ._ __ _ . ~ _ _ _ _ _ _ - _ _ __ _
Management's Financial Analysis 111 %UI IS 01 OPLRNilDN6 depreciation for fac.lities that are in service but not )et recognised in rates. PUCO act9n on this request has Orrrtme been postponed under the joint rewmmendation The January 1989 PUCO rate orders for the Operating approved by the PUCO discussed below. , Companics, as discussed in Note 6, wete designed to in December 1991, the PUCO approved i voint enable us to begin remveting in utes the cost of, and recommendation of the Operatmg (,.ompanies and earn a fair return on, our allowed inecument in customer representative groups involved in the 1989 Perry Unit 1 and tTeaver Vallev Unit 2. The rate rate case settlement The jomt recommendation ccde'rs, which provided for truee rate increaset sought to s.ecure an interim resoh. tion of then-improved revenues and cash flows m 19H9,1990 and pendmg accounting applicatmm, in 1991 and to 1991 from the 1988 levels. Ilowever, as discswd in establish a framework for resolving atmunting iwues the first four paragraphs of Nete 6, the phase in and related matters on a longer term basis (i e.,1992- , plans were not dei.gned to irerove earninp because 1995). As part of tus joint seconunendation, the gains in revenues from the higher rates and anumed Operating Companies agreed to limit their combined sales growth are initially offset by a corresponding 1992 other operation and maintenance espenws and reduction in the deferraf of nutlear plant operating capital expenditures to il,050AKKUKKt rulusive of expenses and carrying charpes and are sutsequently compliance costs related to the Clean Air hct offset by the amortization of such deferrals. Amendments of 1990 (Clean Air Act Other Although the phate-in plans had a peitive (ifect operation and maintename expenses and capital on revenues and cash flows, there are a number of expenditure' totaled $1,005.0MKl0 in 1991. T he factors that eserted a negative influence on carnings Operating Companies and the customer in Mi and will continue to premt signihrant representative groups also agreed to an ongomg earnings challenges in 1"92 and beyond. One such icview of our business operations, hnancial condition factor is related to facilities placed in service after and accounting practices. This effort, with the l'ebruary 1988 and ot imlude' in rate base.1 he participation of the PUCO staff, is directed at the Operating Compan es are recp ad to record interest maintenance and ultimate improvetaent of our charges and depreciation on these facilities as current hnancial condition, the improvement of the > expenses even though (uch items are not yet efficiency of out operations, and the delav and recovered in rates. We also are facing the shallenge of mmimitation of future rate increases.1he Dperating competitive forces,includmg new o itiatives to create Companies aho agreed not to seek any base raw municipal electric systems. T he need to meet increase that would become effective befor,1991 competitive threats, coupled with a desire to We contmually face competitive threats from encourage economic growth in the service area, is municipal electric systems within our service territory, promptmg the Operarmg Companies to enter into an a challenge intensi6ed by municipal access to low-mcreasmg number of wntracts having reduced rates cost power currently available on the wholesale with certain large customers. Competitive fones also market. As part of our competitive strategy, we are prompted lo!cdo I dison to implement rate strengthening pmgrams that demonstrate the added reductions m 1991 for residential and small value inherent in our service, beyond what one might commercial customers. Factors beyond our control receive from a municipal electric system. Such also having a negative influence on eartdngs 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 toes, other than federal income taxes. consulting services to customers to improve their We have taken several steps to counter the adverse energy ef6ciency and developing demand-side - effects of the factors discussed above. We have management programs. lo counter new implemented most of the recommendations of the mumcipalization initiatives, we are also stressing the management audit discussed in Note 6 and hase fmancial risks and un ertainties of creating a taken other actions whnh reduced other operation municipal system and our superior reliabihty and and maintenance expense by approximatcly service. 562,000,000 in 1991, As discussed in the Summary of Annual sales growth is expected to average about Significant Accounting Policies and Note 12, we 2% for the next several years, contingent on future sought and recewed PUCO approval to lower our economic events. Recognizing the limitations nuclear plam depreciation expense in 1991 to a level imposed l'y these sales projections and current more closely aligned with the amount being competitive pressures, we will utilize our best efforts c recovered n rates. In addition, we have increased out to minimize future rate increases through cost. effort > to sell power to other utilities which, in 1991, reduction and quality-of service efforts and exploring resulted in approximately $33,000 000 of revenues in other innovative options. liventually, rate increases excess of the cost of providing the power. will be necessary to recognize the co's t of our new Despite the positive aspects of the measures capital investment and the erfect of inflation. discussed above, more must be done to maintain earnings. Continuing cost-reduction efforts will be M n WO ' necessary to lessen the negative pressures on Factors contributing to the 55% increase in 1991 earnings: We are aggressively seeking long-term operating revenues are as follows-power contracts with wholesale customers to further Change in Operring Revenur !ncrease enhance revenues. To counter the effects of delays in am un .ng umnancou, . 5 wnuw recovering new investment since 1988 and related san yohn and Mm smuw costs in sates, we have requested PUCO approval to Wholnak Sales W fo; 000 accrue post in4ervice carrying costs and defer gnpqx; 17
The increases in base rates and miscellaneous Companies of 9% effective in February 1989 and 7% tevenues resulted primarily from tne January 1989 effective in February 1990. The associated revenue
'O '
. PUCO rate orders for the O ' perating Companies, The increase in 1990 was partially offset by reduced
- P' CO approved sate increases of 7% effe tive in revenues resulting from a 4.1% decrease in total February 1990 for teth companie, and rate increases kilowatt hour sales. Industrial sales decreased 2.8%
because of the recession beginning in 1990. of 4.35% for Cleveland Electne and 2.744 for Toledo 3
; Edison effenive in February 1991. Howeve., es part of Residential sales decreased 2.1% as $casonal Toledo Edison's efforts to improve its competitive temperatures were more moderate in comparison to the prior year's temperatures, resulting in reduced I.nition 74% rate in itsincrease service area, 'lohdo Edison for residential waived its customer hcating and cooling-related demand.
and smali mmmercial customers and reduced its residential rates Commercial sales increased 03% as increased by 3% effective in March 1991 and by an additional demand from new all electric office and retail space 1% effective in September 1991. See Note 6. Total was offset by the effects of mild weather. Other sales
. kilowatt hour sales increased 1.2% in 1991. Residential activity decreased 18.6% as a result of lower and commercial sales increased 4.7% and 4.8%, wholesale sales caused in part by Toledo Edison's .
respectively, as alc$ ult of higher usage of cooling munidpal utility customer, satisfying a great
- equipment in response to the unusually warm late portion of their power needs from other sources tne opting and $ummer 1991L temperatures. The increase in revenues was also partially offset by '.ac commercial sales increase was also innuenced by loss of revenues related to the May 1989 expiration of some improvement in the economy for the Cleveland Electric's agreement to sell a portion of its commercial sector. Industrial sales decPned 5% largely r. hare of Perry Unit 1 capacity to Ohio Edison and because of the recession-driven slump *.a the steel, pennsylvania Power.
auto and chemical industries. Other sales increased Operating expenses .lerreased 0.3% in 1990, 9.1% because: of increased sales to wholesale Depredation and amortization expense decreased custome:s and public authorities. primarily because of lower depreciation rates used Operating expenses increased 3% in 1991. The in 1990 for nonnuclear and Davis Besse
- int ease was mitigated by a reduction of $62,000,000 property attributable to longer estimated lives and
' in other operation and maintenance expense, resulting because of longer nuclear generating unit refueling primarily from cost-cutting measurc Offsetting this md_ maintenance outages in 1990 than in 1989.
decrease were an increase in federnt income taxes Federal income taxes decreat.ed primarily because of a because of higher prelax 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 taxes, resulting from higher property and gross
' amortired in 1990; an increase in taxes, other than receipts taxes, and by lower operating es nse federal income taxes, resulting from higher property deferrals for Perry Unit 1 and Beaver Valle Unit 2.
and pross receipt taxes and ace nts for Pc.msylvania Credits for carrying charges record d in tax increases enacted in Auguss 991; and lower nonoperating income decreased in 1990 because a operating expense deferrals for ivtry Unit 1 and greater share of our investments and leaschold Beaver \ alley Unit 2 pursuant to the January 1989 interests in perry Unit 1 and Beaver Valley Unit 2 PUCO rate orders, were recovered in rates. The decrease in tW 'ederal Credits for carrying charges recorded in income tax provision related to nonoperating income nonoperat!ng income decreased in 1991 because a was the result of a decrease in pretax nonoperating gteater 6 hare of our investments end lessehold income and federal income tax adjustments of
- interests in perry Unit 1 and Beaver Valley Unit 2- .537,522,000 associated with previously deferred
. were recovered in rates. The federal income tax investment tax credits relating to th- 1988 write-off of provision related to nonoperating income inneased nuclear plant. Other income and Muctions, net,
- main) because the 1990 provision was redud by decreased primarily because of less truerest income in
$37,$d2,000 for federal income tax adjustments 1990.
associated with previously defened investment tax credits relating to the 1988 write-off of nuclear plant. EITECl OF INI LATION
- 1990 es.1989 Although the rate of inflation has cased in recent Factors contributing to the 2.8% increase in 1990 years, we are still affected by even modest inflation operating revenues are as follows: since the regulatory process introduces a time-lap incre w during which increased costs of our labor, matenals Change in Opera 2ng Revenues (Decreaw) and bervicet are not reflected in rates and recovered.
Baw Rates and Macellaneous . . . $152.000Alo Moreover, regulation allows only the recovery of keMINc[pacIidiWifoksEikon- historical costs of plant assets through depreciation
' and Pennsyhania fower. o _p2Amoo) even though the costs to replace these assets would g mm, substantially exceed their historical costs in an inflationary 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 reaccted in the fuel cost recovery factor included PUCO approved rate increases for the Operating customers' bills.
18
incorne Staternent cturtnion turncr conronarson suo suosivisnit.s l For the years ended December 31, U 1991 -1990 1989 (thousands of dollars. curpt per share amounts) l Operating Revenues o . . . . ......... ................... $2J60 c252 52.427,441 $2,361,304 - l Operating Espenses ! Fuel and purchased power . . . . . . . . . . . . . . . . . . . . . . . . . . . . 499,672 472,297 472,684 4 Other operation and maintenance . . . . . . . . . . . . . . . ... 801,225 862,738 860,138 j Depreciation and amortiration . . . . . . . . . . . . . . . . . . . . . . . . . 242,70S 242,153 272,671 - Taxes, other than federal income tases . . . . . . . . . . . . . . . . . . 304,709 2M,425 259,871 2 Phase.in deferred operating expenses . . . . . . . . . . . . . . . . . (22,222) (50,940)- (74,555) l
' Amortir.ation of pre phase in deferred costs . . . . . . . . . . . . 16,529 17,272 16,335 '
Federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,581 96,076 122,385 : l 980.202 1,923,021 1,929,529 .! Opera ting inco m e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 580,050 ' 504,420 431,775 Nonoperating income Allowance for equity funds used during wnstruction . . . . 9,351 7,883 < 16,930 .
' Other income and deductions, net . . . . . . . . . . . . . . . . . . . . . 5,248 145. 14,368 Phase.in carrying charges . . . . . . . . . . , . . . . . . . . . . . . . . . . . . 109,601 205,085 '299,159 Federal income taxes - credit (expense) . . . . . . . . . . . . . . . . _
( 30,329) (12,948) _(73,177) , _ 93,871 200,165 257,280 income Before Interest Charges and Preferred Dibidends . . __ 673.921 704.585 689,055 , interest Charges and Preferred Dividends Debt in t erest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381,280 384,278 369,481 .
- Allowance for borrowed funds used during construction .. (5,248) (5,993) (12,929) [
Preferred dividend requirements of subsidiaries . . . . . . . . . . 60,649 61,841 _gg 436,681- 440,126 422,169 i
- Net in co m e ; . m . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2373 '
wn== 5 264,459 s 266,886 - Average Number of Common Shares Outstanding (th o u sa n ds) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139,104 138,885 140.868
- ==io- -
Earnings Per Common Share . . . . . . . . . . . . . . . . . . . . . . . . . [ 1.71 $_ 1.90 $ 1.90 , Dividends Declared Per Common Share. . . . . . . . . . . . . . . . . . $J60 $ 1.60 $ 1.60 Retained Earnings i For the years ended December 31, ; 1991 1990 1989
+
(thousands of dollm)
. Balance at Beginning of Year. . . . . . . . . . . ............. $ 654,836 5 613.774 $ 571,882 +
Additions -
- Net in come a.................................. ..-.. 237,240 264,459 266,886 Deductions Common stock ~ dividends . .... ...................... (222,233) (222,4S2) (224,947) - j O ", primarily preferred stock redemption expenses of o bsid ia ries . . . . . . . . . . -. . . . . . . . . . . . . . . . . . . . . . . . . . _(966) (915) (47)
Ne t i n crea se . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,041 41,062 41,892 Balance at End of Year . . . . . . . , . . . . . . . . . . . . . . . . . . . . ((68,S]7{ $ 654.836 $ 613,774 i The accompanying notes and summary of significant accounting policies are an integral part of these statements. 1 I 19-
.N.9. .. .. . . . .. . . ...
CAPITA 1. RESOURCES AND LlOUlD11Y optional redemption provisions. See Notes 10(d) and in addition to our need for cash for normal corporate (e) for infonnation concerning limitations on the operations, we continue to need cash for an ongoing issuance of preferred and preference stock and debt. Our capital requirements after 1994 will depend on program of constructing new facilities and modifying existing facilities to meet ant:cipated demand for the implementation strategy we choose to achieve electric service, comply with governmental comphance with the Clean Air Act. Expenditures for regulations and protect the environment. Cash is also wr optimal plan are estimated to be approximately needed for the mandatory retliement of securities. $190.000.000 over the 1992 @ 01 period. See Note Over the three-year reriod of 1989-1991, these 3(b) construction and mandatory retirement needs totaled he expect to be able to raise cash as needed. The approximately $1,250,000,000. In addition, we availapility and cost of capital to meet our external exercised various opLons to redeem and purchase finanang needs, however, depends upon such factors as hnancial market conditions and our credit ratings. approximately $480,000,000 of our securities. As a result of the January 1989 PUCO rate orders, Current securities ratings for the Operating
- internally generated cash increased in 1989,1990 and Companies are as follows:
1991 from the 1988 level. In addition, we raised a ronn inve tors
$1,463,000,000 through security issues and term bank Cornwathm krvu loans during the 1989 1991 period as shown in the cleveland riectric _
Cash Flows statement. During the three year period, first mortgage l'ondo BDB- Baa2 the Operating Companies also utilized their short. P'eferred $tak - BB+ tua2
. term borrowing arrangements (explained in Note 1 e w W.~ _
to help nwet their ca'h needs. Proceeds from thess om M BBB- Bu3 4 financings were used w help pay for our constructic h .~ bB+ Bat program, to repay pv4Jons of short term debt M ,W Ba+ tv2 i incurred to flnance the construction program, to retire, redeem and purcha.e ouittanding securities, and for laring unforese citcumstances, we believe that general corporate purposes. the i aM orden and recent regulatory actions, coupled Estimated cash requirements ist_ 1992-1994 for with swinger,t cosi controls, have given us a Cleveland Electric and Toledo Edisoa respectisely, reasonable opportunity to achieve financial results - are $693,000,000 and $248,000,000 ict theit which should permit Centerior Energy to continue the
- construction programs and $464,000,000 ar.d current quarterly common stock dividend of $.40 per
$241,000,000 for the mandatory redemption of debt share. Nevertheless, dividend action by our Board of and preferred stock. Additionally, Cleveland Electrie Directors will continue to be decided on a quarter to-
> has arranged to refund in 1992 $78,700,000 principal quarter basis after the evaluation of hnancial results, amount of its First Mortgage Bonds,13%% Series due potential earning capacity and cash flow. A write-off < 2012 by issuing an equal principal amount of first of cut investment in perry Unit 2, as discussed in rnortgage bonds due 2013 having an effee.ive interest Note 3(c), would not reduce our retained earnings
' cost of 8.25%. Cleveland Electric and Toledo Edison sufficienty to impair our ability to declare dividends expect to finance e>ternally about 50% of their total - and would det affect our cash flow.
1992 construction and mandatory redemption The Tax Reum Act of 1986 (1986 T.n Act) requirements of approximately $286,000000 and provided for a 34% income tax rate in 1988 and
$180,000,000, respectively. About 50 60% of the thereafter, a new alternative minimum tax ( AMT) and Operating Companies' 1993 and 1994 requirements other changes that resulted in it. creased tax payments '
are expected to be financed externally, li econombl, and a reduction in cash flow duiing 1989,1990 and additional securities may be redeemed under ~ 1991 because we were subject tc the AMT. I ed .,.-
-20
Cash Flows - ciurs nion tutnar conronarion ano suosioisnits i e> , .. ......, .. .... .... . . . . . . . . . . . . . . . . . . . . . . .. ..... , .. .. . . ..... .. for the years ended December 31, 1990 1989 l 1991 (thouunds of dollm) , Cash Flows from operating Activities (1) 1 Net income . . . . , . . . . . . , . . . . . . . . . . . . . . . . . . . . . . . . ... [ 237 7240 $ _ 264,459 - $ 266,886 l Adjustments to Reevncile Net income to Cash from Operating '! Activities: ! Depreciation and amortirailon . . . . . . . . . . . . . . . 242,703 242,153 272,671 l Deferred federal income taxes . . . . . . . . . . . . . . . . . 85,331 142,190 181,240 l Investment tax credits, net . . . . . . . . . . . . . . . . . . . . . . . . . . 42,860 (34,287) 1,179 ;
. Deferred and unbilled revenues . . . . . . . . . . . , .
(50 S66) (60,742) (74,792) i Deferred fuel . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . .. 17.648 (11,f643) 25,086 . Carrying charges capitalized . . . , . . . . . . . . . . . . . . .. (109,601) (205,035) (299,159) l Leased nuclear fuel amortization . . . . . . . . . . . . . . . . .. !?2,770 84,150 102,120 i Deferred operating expenses, net . . . . . . . . . . . . . . . . . . ... (5,693) (33,663) (58,220) Allowance for equity funds used during construction . . . . . . . (9,351) (7,883) (16,930)
- Amortization of reserve for Davis-Besse refund obilgations <
to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. - - (24,817) l Pension settlement gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (40,966) ~ Changes in amounts due from customers and others, net . 14,007. (26,445) (13,486) ! Changes in inventories . . . . . . . . . . . c. . . . . . . . . . . . . . . .. (22,175) (29,015) (3,029) . Changes in accounts payable. . 4.. .. , , . . . . . . . . . . ... (49,015) 45,654 (28,826) i Changes in working capital affecting operations.. . . . . . . 18,858 (24,913) 17,120 Other noncash items . . . . . . . . . . . . . . . . . . . . . .. 1,396 7,184 7,775 . Total Adjustments . . . . . . . . . . . . . . .. . . . . . . . . . . . . .. _ 291 877 46,434 _ 87.932- - _ 536,117 310,893 1 Net Cash from Operating mtvitie9. . . . . . . . . . . .., 354.818
' Cash Flows from Financing Activities (2) -l Bank loans, commercial paper and other sho 1. term debt . . . . . . . (109,903)' 109,888 29 .!
Debt issues: First mor tgage bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 167,300 123,800 + Secured medium. term notes . . . . . , . . . . . . . . . . . . . , . . . . . . . . . 284,500 337,500 212,500 Term bant loans and other long term debt . . . . . . . . . . . . . . . . . 103,365 31,000 40,000 - ; Preferred stock issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 125,000 - - Common stock issues . . . . . , . . . . . . , . . . . . . . . . . . . . ... 32,028 - 740 Reacquired common stock '. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (174) (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) l
~
= Premiums, discounts and expenses . . . . . . . . . . . . . . . . . . . . . . _ _.(6,991) (7.360) (2,622)
. Net Cash from Financing Activities . . . . n . . . . . . . ... J216,954) (104,118) (327,MO) i Cash Flows from inuesting Activities (2) . .
- Cash applied to construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . (189.244)_ (237,436)-. (210,403)
Interest capitalized as allowance for borrowed funds used d u ring const; uction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,248) (5,993) (12,929) ( Other cash applied i, . . . . . . . . . , . . . . . . , . . . . . . . . . . . . . .. _ 1568) (13,211) _ 31,500)1 ( Net Cash from Investing Activities . . . . . . . . . . . . . . . J195,060) .(256,640) (254,832) , Net Change in Cash an'd Temporary Cash investments. . . . . . . . . . 124,103 (49,865) (227.654). : Cash and Temporary Cash investments at Beginning of Year . . . . 53,278 103,143 330,797- . FCash and Temporary Cash investments at End of Year.... .... U77g81 ,$, _. 53.27,8
$ 103,143 t '(1) Interest paid (net of amounts capitalized) was $339,000,000, $297,000,000 and $242,000,000 in 1991,1990 and -
; 1989, respectively. Income taxes paid were $56,728,000, $21,183,000 and $9,058,000 in 1991,1990 and 1989, respectively.
(2) Increases in n clear fuel and nuclear fuel lease and trust obligations in the Balance Sheet resulting from the _noncash capitalizations under nuclear fuel agreements are excluded from this statement. ' I: The accompanying notes and summary of significant accounting policies are an integral part of this statement. s
- t. ,
++
21 r e-; e ,- , r ., , -~. . --- ,,, .~-- - -,.n. . - , - . - - - - --. . - , , - . . , - - - . - , _.
Balance Sheet 9-December 31, __ _1991 1990 (thouunds of doltan) ASSETS PROPER 1Y, PLANT AND EQUIPMENT Utility plant in service . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . 5 3,888,219 $ 8,636,219 less: accumulated depreciation and amortization . . . . . . . . . . . . 2,274,489 2,038.510 6,613,730 6,597,707 Construction work in progress . . . . . . . .. .. .. ........... 215,855 -268,386 perry U n i t 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8535,73 865,149 7,680,158 7,731,244 Nuclear fuel, net of amortization . . . . . . . . . . . . . . . . . . . . . . . . . 458,414 522,672 Other property, less accumulated depreciation . . . . . . . . . . . . 44,513 45,452 8,183,085 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 :. . . . . . . . . . , , . . . . . . . . . ................. 107,844 80,866 Materials and supplies, s average cost . . . . . . . . . . . . . . . . . . . 225,618 108,758 Fossil fuel inventory, at average cost . . . . . . . . . . . . . . . . . . . . . . . 57,893 52,578 Taxes applicable to succeeding years . . . . . . .. . . . . . . . . .. . 234,096 218,444 Other..................................................... 9,298 9,922 940,884 _ 766J,07 _ _ _ DEFERRED CHARGES
-~ Amounts due from customers for future federal income taxes.. . 1,145,925 1,165,904
. Unamortized loss from Beaver Valley Unit 2 sale. . . . . . . . . . . . . 114,174- 119,623 Unamortized loss 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..................................... .. ........, 208,333 202,b95 -
_ 2,918,120 2,828,260 Total Assets . . . . . . . ... .. . . ..... .. ... ..... $12,042.089 $11.894,235
' The accompanying notes and summary of significant accounting policies are an integral part of this statcinent, k'
- 22 IfIii 'ir i - _ _ , _ _ _
_ ___ _ ______. _ .__-_--, . - ~ . - _ , i CEMTEKlDR LNLRGY CORVOKATION AMD SUb@lADILS I December 31, 1991 1990 Ohousands of dollars) CAPITALIZATION AND WABILITIES h
; CAPITAUZATION 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 shares in Treasury) and 138,401,000 (excluding 2,511,000 shares in Treasury) outstanding in 1991 and 1990, respectively . . . . . . . . . $ 2,165,607 $ 2,155,197 i Retained e a rnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 668,877 654,836 i
. x Common stock equity , . . . . . . . . . , . . . . . . . . . . . . . . . . . . . . . . . . 2,854,484 2,810,033 n Preferred stock j With mandatory redemptica provisions . . . . . . . . . . . . . . . . . . . . . 332,031 237,490 "c~
Without mandatory redemption provisions . . . . . . . . . . . . . . . . 427,334 427,334 f - long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ......... ,_ 3,S_41.355 __7,455,204 3,729.237 7,204,094 l OTHER NONCURRENT UABlUTIES , Nuclear fuel lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 340,507 427,295 ; Ot her o . . . . <. . . . . . . . . . . . . . . . . . .. . . . . . . . .. . . ... . . .... . 83,147 81,399. 423.654 508,694 - CURRENT UABlUTIES '
' Currer$ 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 . . . . . . . . . . . . . . . . . . . . . . . . . . 191 410,094 Accoun ts pa y able . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,810 196,825 i A ccru ed t a xes . . . . ; . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350,550 323,716 l Accru ed in terest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,495 84,778 Other . . . 2 . . . . . . . . . . . .. . . .. . . . . . . . . . . . . . . . . . . . . 5,7dS3 73,801 [ 1.001,682 1,118.295 DEFERRED CREDITS Unamortired investment tax credits . . . . . . . . . . . . . . . . . . . , . . . . . . 366,047 336,136 - Accumulated deferrod federal income taxes . . . . . . . . . . . . . . .. 4. . 1,784,749 1,730,954 ' Reserve. for Perry Unit 2 allowance for funds used during _ const ru ction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . 212,693 212,693 --
. Unamortized gain from Bruce Mans 6 eld Plant sale . . . . . 2. . . . 602,456 .626.493 a
- Accumulated deferred rents for Bruce Mansfield Plant and Bea ver Valley Unit 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13LOS2 114,885 Other....;............................................. 64.522 41,988 3,161,549 3,063,152
~ Total Capitalization and Liabilities . . . . . . . . . . . . . . . . . . . . . $12,042.059 $11,894,235 w a.= a_- - a.
e w-. * -u_m.----m-m._- e m - --w--mw- -*m-
@ it Statenterst Of,Csornulative Pref. erred SIOck amuuon wtrar couonnon mo suesmums 1991 Shares Current Decembe, 31, Outstand lng
, Call Pricj 1991 19u0 Cl.EVEIAND ELECTRIC Ohouunds of dollars)
. Without par value,4,000,000 prefened shares authortred Subject to mandatory redemption:
$ 7.35 Series C . . . . . . . . . . . . 170,000 $ 101.00 $ 17,000 $ 18,000 88.00 Series E . . . . . . . . . . . . 27,000 1,030.61 27,000 30,000 75.00 Series F . . . . . . . . . . . . . - - 2,384
- 145.00 Series I . . . ... . - - - 13,779 113.50 Series K . . . . . . . . . . . - - - 10,0NI Adjustable Series M . . . . . . . . . . . 400.000 102.00 39,200 49,000 9.125 Series N . . . . . . .. 750,0N 105.07 73,968 73,968 91.50 Series Q . . . . . . . . . . . 75,000 - 75,000 -
88.00 Series R . . . . . . . . 50,000 - _ 50 1000 - 2S?.168 197,131 Less: Current matunties _ 13,800 25,969 268,- 368 171,162;' Not Aubject to mandatory sedemption:
$ _ 7.40 Series A . . . . . . . . . . . 500,000 101.00 50,000 50,000 7.56 Series D . . . . . . . . . . . . 450,000 102.26 45,071 -45,071 Adjustable Series L . . . . . . . . . . . . 50G/Ji0 103.00 48,950 48,950 -
Remar keted Series P . . . . . . . . . . . . 750 100,000.00 73,313 73,313
. TOLEDO EDISON EN - **
$100 par value,3,000,000 preferred shares authorized and $25 par value, 12,000,000 preferred shares authorized Subject to mandatory redemption:
$100 par $11.00 . . . . . . . . . . . . . 24.825 101.00 2.483 3,4 83 9.375 . . . . . . . . . . . . 133,450 103.46 13.345 15,010
\t 25 par 2.81 . . . . . . . . . . . . . 2,000,000 26.56 50t000- 50,000 65,828 68,493 + , ~ Less: Current maturities 2.165 2,165 633~663 66,328 % :. Not subject to mandatory redeinption. f' -
$100 par $ 4 25 . . . . . . . . . . . .
4 .5 6 . . . . . . . . . . . . . 160,000 50,000 104.625 101.00 16,000 5,000 16,000 5,000 4.25 . . . . . . . . . . . . . 100,000 102.00 10,000 10.000 100,000 10,000 8.32 . . . . . . . . . . . . . . 102.46 - 10,000 7.76 . . . . . . . . . . . . . 150,000 102.437 15,000 15,000
- 7. 80 . . . . . . . . ... 150,000 101.65 15,000 15,000 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 c000 30,000 l CENTERIOR ENERGY
~
II0'000 2'0'000 Wilnout par value,5,000,000 preferred shares authorized, none outstanding - - Total Preferred Stock, with Mandatory Redemption Provisions . . . . . . . . . . . . . $ 332.031
-~=
$237,4c0
, anm Total Preferred Stock, without Mandatory Redemption Provisions . . . . . . . . . . . . . $ 427,334. $427,334-
===
iThe accompanying notes and summary of signincant accounting policies are an integral part of this statement.
- 24 i
Notes to the Financial Staternents (i) pKOl'1 lily OWNIi) Willi 01.11 R UlllJ111 S AND INVI 9106 The Operating Companies own, as tenants in common with other utihties ind those investors who are owner-participants in various sale and leasebek transactions (l..essors), certain generating units as listed below. Exh owner owns an undivided share in the entire unit. hch owner has the r%ht to a percentage of the genera'.mg capability of each unit equal to its ownership share. Each utility owner is obligated to pay for only 1% tespective share of the construction as d operating costs. Each I essor has leased its capacity rights to a utility whhh is obligated to pay for such Lenor's shaie of the mnstruction and operating costr. The Opciating Companies' share of the operating costs of these generating units is included in tM 'ncome State:rierit. Pro;wrty, plant and equipment at December 31,1971 includes the following f acilitin owned by the Operating Comparieri w tenants in common with other utilities and 1.essorv Owner- v onstruct.on in. Owner. ship Plant Won in Smic e ship Meu Pow er in l'rog.rm .and % cumulated Gene 71ng Unit tlate Share e arts Source S. rvu e Srgended INprenation in S m ue. (thouands c.I dallers) Senc(a Pumped Storage . lWO Km?. M2 % dev $ !7,733 % 1,021 $ 19,8'.5 I aulake U ut 5 . 1972 (A N0 411 Coal 151.1%0 2. lW - Peny Urat I and Common ladhties . 1987 51 Of fed Nudrar 2346326 E6S7 310 601 licaver Vahey Urut 2 and Common 1987 26 t2 214 Nudrar IJ'u 606 7,159 167.0 0 Ianhties (Note 2) . Construtton Suspended. Prny Unit 2 (Note 3(c)) Uncertain $102 615 Nuclear - kH1373 -
$4113 815 theil,9 54973 M waa.za w =. --
Depreciation for Eastlake Unit 5 has been a(cumulated with all other nonnuclear depreciable property rather than by specine units of depreciable property. Effettive 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 Utilities Corporation through 1993. Revenues from this transaction were $16,000,000 in 1991. Ohio Edimn and Pennsylvania Power purchased 80 megawatts of Cleveland Electric's capacity entitlement in Perry Unit 1 fron 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% ownersid;i share in Ecbruary 1992. See Note 3(c). (2) (filllTY l'LANT sal.l AND 1 F Ast BACK 1R ANSACTIONS As a result of sale and leaseback transact!ons payments are now classi%d 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 I caver Valley included in accounts payable. Unit 2 and 6.5% (51 megawatts), C.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 and 3 of the Mansfield Plant, respectively, all for premiums, operation and maintenance costs and all terms of about 29% years. other similar costs for their interests in 'he units sold Future minimum lease payments under these and leased back. The Operating Companies may incur operating leases at December 31,1991 are summarized additional costs in connection with capital as follows: improvements to the units. 'Ibe Operating year Amount Companies have options to buy the interests back at ghousands of dollars) the end of the leases for the fair market value at that tw2 5 373m0 time or to renew the leases. Additional lease 1993. 174mo provisions provide other purchase options along with 1994 174 m o conditions for mandatory termination of the leases (( y',y (and pessible repurchase of the leasehold interests) i.ater vear, . 39%tm for events of default. These events of default include n neompliance with s?veral financial covenants Total f uture Minnnum
- 1. caw Payments . $4 86smo affecting Centerior Energy and the Operating
~~
Companies contained in an agreement rela'ing to a Semiannual lease 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 amended 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 Mansfield 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 to expense in excess of the lease 1998. 25
'l !
(3) CONSTRUCTION AND CONTINGENCIES 1991, Cleveland Electric, the company responsible for I the construction of Perry Unit 2, applied for a ten. l
-(s) CONRRUCTION PROGRAM - year extension of the con $truction permit which was i The estimated cost of our wnstruction program for the to expire in November 1991. Under NRC regulations, ;
199L1994 period is $991,000,000, including AFUDC the mnstruction permit will remain in effect while of $50,000,0n0 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 Companier have agreed to limit their in February 1992, Cleveland Electric purchased comb *ned 1992 other operation and maintenance Duquesne's 13.74% ownership share of Perry Unit 2 expenses and capital expenditures to $LO50,000,000, 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 limitation, capital expenditures are with the remainder owned by Ohio Edison and
- budgeted at $250,000,000, exclusive of the Clean Air Pennsylvania Power. The purchase does not signal !
Act compliance co<.ts. any plans to resume construction of PerTy Unit 2, but rather our intent to I eep our options open. Duquesne
. (b) CLEAN AfR 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 5 . 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 tc, 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. i plant rnodifications. In addition, higher fuel and other operation and maintenance expenses would be (d) SUPERTUND SITES ,
incurred. The least cost plan also calls for Cleveland The Cornprehensive Environmental Response, ' Electric to place in service after 2001 a scrubber or Compensation and Liability Act of 1980 as amended-other s#ur emission reduction technology at one of (Superfund) eshblished programs addressing the 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 potential involvement at'ter the year 2000, for an aggregate rate increase in in the cleanup of nine hazardous waste sites. The
! the range of 3 6%. Cleveland Electric would incur Operating Companies have reco.ded reserves based substantially more of these costs than Toledo Edison, on estimates 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 expenditures could be (4) NUCLEAR OPERATIONS AND required during the 1992-2001 period. CONTINGENCIES We believe that Ohio law permits the recovery of
. compliance costs from customers la rates. (a) OPERATING ..UCLEAR UNITS Our interests in nuclear t. nits may be impacted by
- (c) PERRY UNIT 2 - activities or 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 outages 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
. resump+ ion of full construction with a revised anywhere in the world could cause the NRC to limit - ;,- estimated 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 i
_ ___, _ __.~ __ _ - _ _ _ _ , , - _ . _ . ,
'other nud: r fidlity, we cannot predict whether . to $900,000,000 is pennitted. The intermediate term regul . tory authorities would impose unfavorable rate notes mature in the period 19931997. The bank credit treatment such as taking our affected unit out of sate anangements are cancelable on two years' notice by base or disallowing cerisin construction or the lenders. As of December 31,1991, $490000,000 of maintenance costs, An extended outage of one of our nudcar fuel was nnanced. The Operating Companies nuclear units coupled with unfavorable rate severally lease their respective portions of the treatment could have a material adverse effect on our nudear fuel and are obligated to pay for the fact as it fmancial position and icsults of operations. is consumed in a reactor. The lease rates are based on W NUCLEAR INSURANCE commercial paper rates." *** '*'
The Price Anderson Act limits the liability of the The amounts financed indude nuclear fuel in the 9 owners of a nudear power plant to the amount Davis 4 esse, Perry Unit 1 and Ikaver Valley Unit 2 provided by private insurance and an industry reactors with remaining lease payments of assessment plan. In the event of : nudear incident at $147,000,000, $87,000,000 and $33,000,000, any unit in the United States resulting in losses in respectively, as of December 31,1991. The nuclear fuel excess of the level of private insurance (cunently amounts imanced and capitalized also induded
$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 companies 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 inflation adjustment) per inddent, but is limited consumption are $96,000,000 in 1992, $99,000,000 in
- to $19,540,000 per year for each nuclear incident. 1973, $91,000,000 in 1994, $78,000.000 in 1995 and ,
The CAPCO companin have insurance coverage $82,000,000 in 1996. for damage to property at the Davis Besse, Perry and Beaver Valley sites (induding leased fuel and clean. (6) REGULATORY MATTERS up costs). Coverage amounted to $2,515,000,000 for each site as of January 1,1992. Damage to property On January 31,1989, the PUCO issued orders which !
.could exceed the insurance coverage by a substantial provided for three annual rate increases for the amount. If it does, our share of such excess amount Operating Companies of approximately 9%,7% and !
could have a material adverse effect on our finandal 6% effective with bills rendered on and after February > condition and results of operations. 1,1989,1990 and 1991, respectively. As dhcussed ' We also have extra expense insurance coverage below, the 6% increase effective February 1,1991 was
- which indudes the incremental cost of any reduced to 4.35% for Cleveland Electric and 2.74% for replacement power purchased (over the costs which Toledo Edison, which later waived its 2.74% increar,e '
would have been incurred had the units been and reduced its rates on two occasiens in 1991 for operating) and other inddental expenses after the certain customers. The resulting annualized revenue occurrence of certain types of accidents at our increases in 1989,1990 and 1991 assodated with the
. nuclear units The amounts of the coverage are 100% rate ordets were $120,700,000, $105,700,000 and
- of the estimated extra expense per week during the $71,400.000, respectively, for Cleveland Ele, .c 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 Edison'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 experae 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 tinee rate increases, j
. (5) NUCl. EAR FUEL coupled with then-projected sales growth, would j The Operating Companies have inventories for provide revenues sufficient to recover all operatir.g
- nudear 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 I and Beaver beginning January 1,1989,in the first five years of the Valley Unit 2. More nuclear fuel would be required plans, the revenue., were expected to be tess than .'
if Perry Unit 2 were comNeted as a nuclear generating that required to recover operating expenses and
--unit. . .. provide a fair retum on investment. Therefore, the -
In 1989,' existing naclear fuel . financing amounts of operating expenses and return on arrangements for the Operating Companies were investment not currently recovered 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 l' $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 fmancing in an amount up provide a fair return also declines. Pursuant to such I I 27 l
__m.r_._.-._-___._________.-_______.-__ phase in plans, the Operating Companies deferred provision with the PUCO's approval. The rate impact the following: was different for the two companies tvcause much of _LJ._.. W P8' the savings were expected to tv achieved in areas Chaos cN W such as nuclear operations in which Toledo Edison Defened ograung larnw. $ 22.222 5 M 940 5 745 % was to achieve greater savings relative to its size. Carrying Charges. In late 1990 in a move to become rnore competitive Detn . - . . m . > 5 30 601 $ n.782 5111.714 in Northwest Ohio, Toledo Edison proposed s rate Eqwty , mxo _tJ2an3 187.445 reduction package to all incorporated comm ties in geot j $ ot085 52* 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 packat;e called for the elimination of the 2.74% rate carrying charges scheduled to be recorded in 1992 and increase effective February 1,- 1991 for all residential t 1993 total $84,000,000 and $24,000,000, respectively. ar.d small commercial customers, a reduction in Beginning in the sixth year (1994) and continuing residential rates of 3% on March 1,1991 and a further through the tenth year, the revenue levels authorized residential rate reduction of 1% on September 1,1991. pursuant to the phase-in plans were designed to be Communities accepting the package agreed to keep su4icient to recover that period's operating expenses. Toledo Edison as their sole supplier of electricity for a fair riturn on the unrecovered investments, and the a period of hve years. The package also permits amortization of the deferred operating expenses and Toledo Fdison to adjust rates in those communities on carrying charges recorded during the earlier years of February 1,1994 and rebruary 1,1995 if inflation the plans. All phase-in deferrals relating to these two exceds specified levels or under emergency units will be amortized and recovered by December conditions. All eligible communities in Toledo 31,1998c 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 approval to reduce eaming:. 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 $17,00b,000 as a result of these rate reduction levels, as compared to the levels projected in the rate packages. 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 1989 and 1990 identified by the management audit as mitigated by the cost reductions resulting from the i'
' 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 Companh s recorded adjustments to increase the cost deferrals by could be required to refund incremental replacement ; power costs if the standards are not met. No refund approximately $10,000,000 and $28,000,000 in 1990 - ' and 1991, respectively, was required in 1991 nor is one expected for 1992. The In connection with the 1989 orders, the Operating Operating Companies banked $2.800,000 in benents
. 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 -
cc mpleted in April 1990. The audit identified potential established in the 1989 orders. These banked benehts .
' annual savings in operating expenses in the amount are not recorded in the hnancial rtatements as they of $98,160,000 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 1991. Under the 1989 orders, fossil fueled power plant , Fifty percent of the savings identihed by the performance may not be raised as an issue in any rate management audit were used to reduce the 6% rate proceeding before February 1994 as long as the increase scheduled to be effective on February 1i1991 Operating Companies achieve a systemwide for each of the Operating Companies. As discussed- availability factor of at least 64.9% annually. This
- previously, Cle enand Electric rates increased 4.35% standard was exceeded in 1989,1990 and 1991, with and Toledo Edison rates increased 2.74% under this availability at approximately 80% for each year.
l 28 a- -- -.- . = . . . - - - - - . - - -- --_-- _ , . - . . -
- - ---._-----~ _- ..
i t (7) I EDERAL INCOME TAX i Federal income tax, computed by multiplying the income before taxes and preferred and preference dividend requirements of subsidiaries by the statutory rates. is reconciled to the amoent of federal income tax recorded on 'l the books as follows: ! f or the years ended December 31. 1991 1990 1989 (thousands of dollars) , Book income Deinte Federal income Tas . . ... . .. .. $4M.799 $435324 $528.t65
====rm n=um.= --.
' Tax on Book Income at Statutory I ate . .. .. .. .. .. .. $158.372 $148010 $179,542 increase (Dencre) 4n Tac 6,287 Acnlerated depreciation . . . . . . . . . . . . . . g ... 996 10.415 Investment tas pedits on disallowed nuclear plant . . . .
- (37,522) ,
Tases, other than federal income tases . . . . . . . . (2.373) (12,116) (107) .
-* 4365 Other itema . . . . . . . . . . . . . . . . .. .... . .. 10.915 J7_1,2,
- Total Federal income Tas Espense. . .. , . . . . . . ... .. .... . 5167.910 SM.024 3,5J6
' Federal inmme tax expense is recorded in the income Statement as follows:
For the year, ended December 31, ! 1991 1940 1999 (thousands of dollars)
~ Operating Expenses
- Current Ta x Provision . . . . . . . . . m . . . . . . . . . . . .... .. .. . ,, S 88.189 $ 42.685 $ $1869 - '
Changes in Accumulated Deferred f ederal income Tat Accelerated depreciation and amorttration. . ,. .... . . . . 17.137 41.777 44.144 A!ternauve minimum tax credit ..m., . . . . . . .. . . (45.902) - (24340) (12,874) 3.844 8.617 4,348 . Sale and leaseback transactions and amortization . . . Property tax cipense, , . . .. ... ... .. . .. ... .. -
. (14.891) - ;
Reatquired debt costs . .. . ....... .. .. . . . . 22.403 1,355 (1,250) . Defened CWlP revenues . . . . . . . . . . . . . ... , . 6.972 20,486 22J31 Deferred fuel costs. . .. .. ... . . . , . . (8129) 742 (43S4) Davis.Ilesse replacement power . . . . . . .. . . .. . . - - 9,191 Other items i . 4 . . . . . . ' . .. ....... .. . ,. . . . . . 14.470 16.994 6.830 - ; investment Tax C' edits.. ... .. .. . .. . . . . . . 38497 ~ 2.651 1.780 , r Total Charged to Operaung Expent.es. . . . . . 137,5R1 96.076, 122.385 i Nonoperating income: Current Tau Provision . . . . . . . . . o . . . . ....... ...... . . (46K9) (42,256) (39,341). , Changes in Accumulated Deferred Tedrtal income Tat
' Wnte-off of c.ucleat rosts . .. . .. ...... . . .. .. .., . ... , . t379) (22.143) .
AFUDC and carrying charges .,, , , . . ... . . . . . 40J69 74,447 . 1h ,300 35.014 -- Net operating loss carryforward., . . . . . . . ... 2.900- #1,19) Other items e ... . .. .. .. . .. . .. .. . .. 1.014 t Total Erpense Charged to Nermperating income . . . ... .. 30,329 _12.948 - 73,ln - Total Federal income Tas Expense. . $167,910 5109,024 a===mr= _
.$.195.5,62
~z.-
. f ederal income tax expense adjustments in 1990, associated with previously deferred investment tax credits .
relating to the 1(48 write-off of nuclear plant investments decreased the net tax provision related to nonoperating 1 '
- income by $37,522,000 and increased earnings per share by $.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
- fodrth quarter) and increased earninga per share by $.10 ($.07 in the fourth quarter). . .
! For tax purposes, net operating loss (NOL) carryforwards of approximately $402,407,000 are available to l- 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 federai income tax relating to accelerated depreciation and amortization. Future utilization of thne tax NOL carryforwards would result in recording the related deferred -
taxes. .
- The 198C Tax Act provides for an AMT credit to be used to reduce the regular tax to the AMT level should the iegular tax exceed the AM7. AMT credits of $82,851,000 are available to offset future regular tax. The credits may be carried forward indefinitely. ,
7 l t P 29
. 1 J. . _ .-. ._L,.. ..m.-. ..m..., __ , , __; _. . A .. . st~', . - ,
(0) RETIREMENT INCOME PLANS AND The settlement (discount) rate assumption was OTHER POSTRETIREMENT BENEFITS 8.5% for both December 31,1991 and Deceraber 31, 1990. The long term rate of annual compensation (a) RETfREMENTINCOME PLANS increase assumption was 5% for both December 31, We sponsor noncontributing pensian 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% m 1991 benefits generally depends upon the length of and 8% in 1990. service. Under certain circumstances, benehts can Ilan assets consist primarily of investments m, begin as early as age 55. The plans also provide common stock, bonds, guaranteed investment certain death, medical and disability benehts. Our contracts, cash equivalent securities and real estate. funding policy is to comply with the Employee Retirement income Semrity Act of 1974 guidelines. (b) OrffER POSTRETIREMENT BENEEIT5 In 1990, we offered a Voluntary Early Retirement The financial Accounting Standards Board has issued Opportunity Program (VEROP). Operating a naw accounting i.tandard for postretirement expenses for 1993 included $15,000,000 of ptnsion benchts other than pensions. The new standard plan accruals to cover enhanced VEROP benehts plus would require the accrual of the expected cost of such an additional 528,000,000 of pension costs for VEROP benehts during the employees' years of service. The benefits paid to retirees from corporate funds. The assumptions and calculations involved in 528,000,000 is not included in the pension data determining the accrual closely parallel pension reported below. Operating expenses for 1990 also accounting requirementa, 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 benehts and expense such costs payments to a substantial number of VEROP as these benents are paid, which is consistent with retirees. current ratemaking practices. Such costs totaled Net pension and VEROP (osts (credits) for 1989 59,700,000 in 1991, 58,200,000 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 1991,56,500,000 in 1990 and $5,000,000 in 1989. iwi wo 1989 We expect to adopt the new standard (millons of dollan) prospectively effective January 1,1993. We plan to ammtire the discounted present value of the Ec f tw $kn camed accumulated postretirement beneht obligation to dunng the penod . . . . . . . 5 14 5 15 5 14 intemt cost on proiected beneht expense over a twenty year period. We have engaged obligation . .... 36 37 35 actuaries who have made a preliminary review using Actual retum on plan men . . 029) 5 (73) 1990 data. Based on this preliminary review, the Net amortinton and defenal . e5 (65) 13 accumulated postretirement benent obligation as of Net pension credits , . (14) (8) 01) December 31,1991, measured in accordance with the VEROP cat. - 15 - new standard, is estimated in the range of settlement gain $150,000,000 to $230.000,000. Had the new standard J41) Net credits , h~) - E) 51 5iil) been adopted in 1991, the preliminary study indicated that the additional postretirement benent cost in 1991 The following table presents a reconciliation of the would have twen 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 Duember 31. signincantly different because of changes in heahh iwi w care costs, the assumed health care cost trend rate, (minions of work force demographics, interest rates, or plan H n) provisions between now and 1993, Acturial present value of beneht obhgatKYns- E vested bencha . 5 3vl 5 330 with respect to these incremental costs.110 wever, we Nonvested benehts. 33 24 believe the PUCO will either allow a means of Accumulated beneht obhgation , 334 354 current recovery of such incremental costs or provide Lifect 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 pnierted beneht obhgation . 447 426 a material adverse effect on our financial condition or Plan assets at fair market value. 757 653 results of operations. Surple of plan assen over projected beneht obhgation . 310 227 Unrecognized net gain due to vanance (9) GUARANTEES between anumptions and expenence. (177) t101) Unrecognised prior service cmt . . 13 13 Under two long term coal purchase arrangements. Transition met at January 1,1987 Cleveland Electric has guaranteed certain loan and bems amortued over 19 yean . 0 06) 0 13) lease obligations of two mining companies. Toledo g Nd prepaid pension cmt Edison is ab.o a party to one of these guarantee arrangements. This arrangement tequires payments to hr t I a e heet. 5 40 5 26 the mining company for any actual out-of pocket idle
mhie expenses (cs edvance paymentr, for coal) w hen 1992 in the open manket when the common stock
< the mines cre idle for reasons twyond 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 5610,000. We had a similar program to
'1992 by one of the mining companies, the pdncipal - purchase up to 3,000,000 shares of our common stock amount of the mining companies' k>an and lease in the period March 28,1989 through March 31,1991.
obligations guaranteed by the Operating Companies Under this piogram. 2,510,000 shares were
- was $102,000,000. purchawd at a total cost of $46,198,000. Such shares are being held as treuury shares.
(10) CAPITALIZATION \ b) COMMON SHARES RESERVED TOR ISSUE (a) CAPlTAL STOCR TI:ANSACTIONS Common shares reserved for issue under the Shares sold, retired and purchased for treat.ury 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 I*91 IWO I"9 Meeting, share owners will be asked to authorize an (thousands of shares) additional 500,000 common shares for the Employee l Centenor ::nergy common stock: Purchase Plan. '
Dwidend Reinvntment and Stock options to purcharie unissued shares of siwk ruuhee rian ..o , 1.422 -- - common stock under the 1978 Key Employee Stock l
" ~
r ha P!nl."o 2 3, Option Plan were granted at an exercise price of 100% ; 1978 Key Employee $tock of the fair market value at the date of the grant. No-- i Opek n rian. . .o - . - . - - 17 additional options may be granted. The exercise
' Total Common 5tmk Sala . 1.77h - 53 prices of option shares purchased during the three ,
Treasury Shares w.o o , , (11) 0391) (1.082) years ended December 31,1991 ranged from $14.09 to
$17.41 per share. Shares and price ranges of Net Change. . . . . . . o oo.
. ===
1.759 g) ._(1,029) outstanding options held by employees were as , Cumulative Preferred and followy Preference Stock of Subsidianes 1978 K tmp ce ; Simk ( puon n F Subject to Mandatory Redemption: . 1991 15 13 2 ; Cleveland De(tric Sales - Options Outstanding at ; ^
. Preferred: Decemter 31: e Sharn . 1?oJ98 168M5 215,187
$ 91.50 Series Q. -. . 75 - - - .
[ 68 00 SM,es R . . . . . uo 50 - - - Option Prices - . . . $1. 09 to $14 09 to $14 09 to . Cleveland 't.lectnc Retirernents $20J3 $20J3 $20J3 ( Preferr# _ c '% senn C . ~ . . , . , ~ . 00) 0 01 00) (c) EQUlIY DlSTRIBUTION RESTRICTIONS 4
' erin E . . . .. p) p) 0)-
At ' December 31,1991, consolidated retalnul earnings ieries F . . m o. (2). - (1) ! 6 # ierin G . . . . . . . . -
- 0) -(2) were comprised almost entirely of the undistributed i h , Senes H . ' 04) (4)
. ,o --
retained earnings of the Operating Companies. usa serin 1. . . . . .. . 04)- 0) =0) Substantially all of their retained earnings were l [ [ available for the declaration of dividends on their Na ta$1 sIe's Ql; respective preferred and common shares. All of their - p,,r,,,nc,.
- S 77.50 series 1 ~ . ... , - -- y) . common shares are held by Centerior Energy.
,: Any financing by an Operating Company of any of '
. Toledo Edison Rettrements its nonutility affiliates requires PUCO authorization
.t - Prefend unless the financing is made in connection with 1 X 5100 par $11.00. m .. 00) - 00) - (5) transactions in the ordinary course of the companiest >
9.375 , 4 . . 07) 07) - - 07) public utilities business operations'in which 'one
- Net Change . . . . .o .
j4j) - g) js2) company acts on behalf of another. , iH ' Shares of common stock required for our fnur (d) CUMULATIVE PREFERRED AND h ' stock plans in '1991 were either acquired in the open PREFERENCE STOCK p rnarket or issued as new shares of common stock 1; when the common stock _ price reached a - Amounts to be paid for preferred stock which must be - l: predetermined threshold for such transactions. redeemed during the next five years are $16,000,000
. We began a program in July 1991 to purchase up to in 1992, $41,000,000 in 1993, 541.000,000 in 1994, '
.1,500,000 shares of our common stock by June 30, $52,000,000 in 1995 and $42,000,000 in 1996.
L l-F , . . L 31 p U. - _ . . . _ _. .. . .. _ _ _ _ _ _ _ __ _ _
The annual mandatory redemption provisions are (r) LONG-TERM DEBT AND OTHER , as fo1\cws: BORROWING ARRANGEMENTS ReIEp'tNn r"d'Mns L ng term debt, less current maturities, for the ] p_ Operating Companies was as follows: To Be ikgtnning Per ,, g y,,, ,;, hmkr 31, Redectned m Shar' Year of Maturity interest Rate 1991 1990
^
Cleveland Eledric (thousands of donars)
*N#F "
7 Scrin C , 10.000 1YS4 $ 100 B&OO Serin E . 3,000 1981 1.000 y' [ Adjustabte Serin M 100S00 1991 100 9125 Senn N, 150.WO 1993 100 1992 13.75 - 4314 # 9130 Series Q . 10714 1995 1.000 1993. . 3 875 30,000 30 M E8 00 Series R . . 50,000 2001' 1,000 1993. BM 50M0 50 M 1993. . 1315 4334 4334
' toledo Edaon 1994. 4.375 29 000 25,000
$ $ 11.00. 5.000 1979 100 1994. 13 5 4334 4.334 1995. . 11.25 - 60,000 9,375. 16.t60 1985 100 1995.. 1375 4334 4334 25 par 2.81. . . 400A00 1993 25 1995. . 7.00 750 750
' All outstanding shares to tw redeerned tkccmber 1,2001. 1996. 1375 4334
. 4334 ~~
1996. . 7.00 750 7S0 The annuali7ed cumulative preferred dividend 1996. 9375 100,000 100,000 requirement as of December 31,1991 is $66,000,000. 1997 2001 . . 9.36 127,798 127,798 The preferred dividend rates on Cleveland 2002-2006. 8.98 251,801 251,801 Ekctric's Series L, M and P and Toledo Edison's Series 2007-2011 879 387,250 387,250 3 A and B fluctuate based on prevailing interest rates and market conditions, with the dividend rates for 2012-2016 . 2017-2021 . 8.07 8.53 439,085 635,180 439,085 635,180 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, 2387.050 2,511384 Under its articles of incorporation, Toledo Edison 1erm bank loans due cannot issue preferred stock unless certain earnings 1993-1996 .. . 8.46 196,700 127,900 coverage requirements are met, Based on earnings for Medium term notes the 12 months cnded December 31,1991, Toledo due 1993-2021 . . . . 9.15 834,500 550,000
. Notes due 1993-1997 , 11.01 102,142 219,430 Edison could not issue additional preferred stock. The Debentures due 1997. . 11.25 125,000 125,000 issuance of additional preferred stock m the future Polluilon control notes will depend on earnings for any 12 consecutive due 1993-2015 . 970 189,900 190,860 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 ar.d tht: dividends on all preferred stock Debt . , . $1,841355 $3,729,237 issacs 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 iollows: $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 1989 1991 period, the Operating There are no restrictions on Cleveland Electric'e 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 Ope ating 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%% interest rate whh the proceeds from the sale in July 1992 of an equal principal amount of the authotity's bonds due 2013 and having an effective interest cost of 8.25%. Cleveland Electri:'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 appsoximately
$3,000,000 in 1992.
32
The mongages of Cleveland Electric and Toledo (11) SliORT IfRM liORROWING Edison coastitute direct first liens on substantially all ARRANGEMENTS property owned and franchiws held by them. Our bank credit arrangements at December 31,1991 Excluded from the liens, among other thmgs, are were as followv cash, securities, accounts receivable, fuel, supplies aeniana toledo smwe and, in the case of Tcledo Edison, automotive lh t* l'd e n Com.'nv Total equipment. Ohouwas of oottm) Additional first mortgage bonds may be Mued by tunk unn of credit . sts2.om 570.400 Sa m 5n0.400 Ciescland Electric under its mortgage on the basis of Tl se were no bonawings under these bank credit bondable property additiora, cash or substitution for arrangements at December 31,1991. An additional refundable fw. mortgage bond,. The issuance of $5,000,000 line of crest is available to the Service additional fm.t mortpge bcmds by Cleveland Electric Company under a $30,000,000 Clevelano Elettric line on the basis of property additions is limited by mo of crec'it, if unused by Cleveland Electric. The provisions of its mortgage. One relates to the $5,000,000 lire 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. Under Short term borrowing capacity authorized by the the more restrictive of these provisionc (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 also would have been permitted to Operating Companies'short-term bank lines of credit issue approximately $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 ice requirements, the average daily cash December 31,1991, Cleveland Electric would not have bahnce in the Operating Companies' bank accounts been permitted to issue any bonds based upon satisfied informal compensating balance available bondable property, but would have been arra ngements, permitted to issue approximately $214,000,000 of At December 31,1991, the Operating Cornpanies 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 ciedit. 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 pali on any unused portion of its provisions (currently, the earnings coverage test), lines of credit. Toledo Edison would have been permitted to issue No formal short-term borrowing arrangements approximately $164,000,000 of bonds at an assumed have been established for Centerior Energy. s interest rate of 11% based upon available bondable property at December 31,1991. Toledo Edison also (12) CHANCES IN ACCOUNTING f OR 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 canceled and written off as of December 31,1991, the from the units-of-production method to the straight-amount of bonds which could have been issued by line method reticactive to January 1,1991. The good Toledo Edison would not have changed. performance of the nuclear generating units over the Certain utsecured loan agreements of Toledo past several years had resulted in units-of-production Edison contain covenants relating to -capitalization depreciation expense being significantly higher than , ratios, earnings coverage ratios and limitations on the amount implicit in current electric rates. The secured fmancing other than through first mortgage straight line method better matches revenue and bonds or certain other transactions. An agreement expense, tends to leselize periodic depreciation relating to a letter of credit issued in connection with expense for nuclear plant and is more consistent with 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 at.d authorized them to accrue Operating Companies. Among these are covenants depreciation for their three operating nuclear relating to earnings coverage ratios and capitalization tcyncrating units at an accrual rate of about 3% of their ratios. Centerior Energy and the Operating plant investment based upon the 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 $35,946,000 and increased 1991 net income $27,952,000 covenants in the event of a write-of' 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 otherwite would have unionscen circumstances. been. 33
In December 1991, the PUCO approved for each change in rate decreased 1991 depreciation expense Operating Company a redu. tion in the ottaight line $27,762,000 and increased 1991 net income $21,419,000 depreciation accrual rate fro n about 3% to 2.5% for (net of $6.343,000 of income taxes) and earnings per each of their three operating nuclear units retroactive share 5.15 from what they otherwise would have to January 1,1991. We believe the lower depreciation been. accrual rate is appropriate and reduces combined Depreciation expense recorded in prior years was annual depreciation expen e to a level more closely not affecteA Current electric rates were also aligned with the total amount currently being unaffected by the PUCO orders, recovered h custorners' rates for these units. This (13) QUARTERLY "ESULTS OF OPERATIONS (UNAUD11ED) The folic. wing is a tabulation of the unaudited quarterly results of operations for the two years ended December 31,1991. Quarters Ibded Man h 31, June 3e. Sept 30. Ikc. 31. OhousanA of dollar $. cucpt per share amounts) 1991 Operating Revenues. .. .. . $608,583 $645,355 $716,070 $590,244 Operating income. .. . .. . . .. .. $129,003 $18.709 $182,085 $123,253 Net income . . . $ 35,470 $ $1,736 $ 95,333 $ 54,701 Average Common Shares (thousands) . . 138,404 138,881 139,336 139,737 Earnings Per Common Share . . . $ .26 $ .37 $
~
.68 $ .39 Dividends Paid Per Common Share .. . $ .40 $ .40 .40 $ .40 1990 Operating Revenues. . . $566,725 $5S6,164 $699,499 $575,053 Operating income. . $116,169 $ 86,743 $17),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 Earnings Per Common Share . . .. . . . $ % $ .40 $ .72 $ .43 Dividends Paid Per Common Share . . . $ .40 $ .40 $ .40 $ .40 Operating revenues for the hrst three quarters of 1991 end the four quarters of 1990 were re;tated to comply with current FERC revenue reporting requirements, as discussed in the Summary of Signihcant Accounting Policies. This restatement had no effect on camings results for the applicable quarter. The unaudited quarterly results for the quarter ended Match 31,1991 were also restated to reflect the change in accounting for nuclear plant depreciation to the straight line method (at about a 3% accrual rate) as discussed in Note 12.
Earnings for the quarter ended December 31,1991 were increased as a result of year-end adjustrnents of
$27,762,000 to reduce depreciation expense for the yeai for the change in the nuclear plant straight-line depreciation rate to 2.5% (see Sumrnary of Significant Accounting Policies and Note 12) and $28,215.000 to increase phase-in carrying charges for the adjustment to 1991 cost deferrals (see Note 6). The total of these adjustments iacreased 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 off of nuclear plant investments. See Note 7. The adjustments increased quarterly earnings by $36,298,000, or $.26 per share. Eamings for the quarter ended December 31,1990 were increased as a result of year-end adjustments of
$25,790,000 to redt.ce depreciation expense for the year for the change in depreciation rates for nonnuclear and Davis-Besse property (see Summary of SigmCcant 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 eamings by $35,000,000, or $.25 pei share.
t + l 34
g Y Executivm
.w...........
of. .Centerior Energy
..........,4 Corpomtion and Centerior Scruice Contpany ...........
l- .. i . . CENTl'RIOR ENERGY CORPORATION O.aisman and FAecutive Vice President . . . . . . Lyman C. Phi /I!Ps Chief Executive Officer i. . . . . . Richard A. Afillcr* Vice President-Legalk President and Cor}srate Affairs . . . . . . . . . . . Trrd). lenge, Jr.*" Chief Operating Officer. . . . . . Rulert f. Tarling* Controller . . . . . . . . . . . . . . . . . Brul C. Busly Executive Vice President . . . . . . . Aiurray R. Edcima Treasurer. . . . . . . . . . . . . . . . . . . Gary Af. Hawkinson Executive Vice President t. . . . . . Edgar H. Afaugans Secretary . . . . . . . . . . . . . . . . . . E. Lyle n pin CENTERIOR SERVICE COMPANY
- Chairman and Vice President-System
^ ' Chief Executive Of ficer . . . . . . Richard A. Afillcr* Engineering & Control . . . . . Alvin Kaplan
[* Prer.ident and . Vice President-Legal & l l} Chiel operating Officer. . . . . . Rotert l. Tarling" Corporate Affairs . . . . . . . . . . . Tred). lange. ]r.*" ;
' Eartnitive Vice President- Vice President-Ibwer Generation . . . . . . . . . . Af urray R. Edciman
. l{uman Resources &
' Executhy Vice President- Strategic Planning . . . . . . . . . . John S. Iecidi ;
- Finance & Administration . . . . Edgar f L Ataugans Vice President-Legal & i i < EnecutiveVicePresident - General Counsel . . . . . . . . . 7Frrence G. Linnert *"* 1 Customer Operations: Vice President-Nuclear. Perry. . Afichael D. Lyster ,
(and Chairman & CEO. Vice President- ! of Toledo Edison and- Transmission &
~ President & CEO of - Distribution Operations . . . . . Daeid L. Afonscan Cleveland Electric) . . . . . . . . . . Lyman C. Phillips Vice President-Marketing . . . . . Thomas A1. Quinn Vice President- Vice President (and President !
l 1 Ibssil Operations ' . . . . . . . . , . . Richard P. Creuse - of Toledo Edison) . . . . . . . . . . . Donald il Saunders I Vice President- Vice President-Nuclear-
- Transmission and Davis.llesse . . . . . . . . . . . . . . Donald C. Shelton .
. Distribution Enghieering & Coritroller . . . . . . . . . . . . . . . . . . Brul G. Busly [
Services . . . . . . . . . . . . . . . . . . Gary J G. clen Treasurer. . . . . . . . . . . . . . . . . . . Gary A1. Hawkinson Vice President- Secretary . . . . . . . . . . . . . . . . . . . E. Lyle ltrin - Customer Service & ' .! Community Alfaits . . . . . . . . . Jacquita K. llausennan . i 4.....-..... 3......... ................ .
,. ' Retired effective March L 1W2.
" **Dected Chairman, President and Chief Ewutive Offker etfutive March L 1W2. '
"Occted Senior Vice l'rtsident-legaliluman & Corporate Affairs effechve March L 1W2.
c"Dected effective March t,1W2.
?
.I i
k v
.. 4 .
, . _ _ . _ . _ . .--- .,.. _a_._..._,__.,_._,
Financial and Statistical Review . Operating Revenues (thousands of dollatt.) bicam bal lotal Total lleatmg Operating irar Rentennal Commemal frututtnal Other Retail Wholesale (s ) liertru & Gao Revenues 199). $777 273 723 318 782 747 188 026 2 471 364 88 888 2 Sf'O 252 ~
$2 560 252 19%), 719 078 M8 910 779 391 Ifi9 754 2 357 123 70 308 2 427 441 -
2 477 441 1989. t45 735 616 902 746 534 204 769 2 2M 940 107 364 2 361 304 - 2 361 304 19M 637 329 537 %) 675 $M 84 524 1 935 298 119 505 2 054 803 - 2 054 tiO3 19P 629 663 531 682 M9 459 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 714M1 1 473 769 19 627 1 493 396 Operating Espenset (thousands of dollars) Othet f uel & Operaten Deprettatum Tam Phame-m & f ederal lots' Purtha ed & & Other lhan Pte phase in Irwme Operstmg Year Power (s) Mamtenance Amortintum 11T Defened, Net Tam l apenses 1991. $499 672 801 225 242 708(b) 304 709 (5693) 137 581 $1980 202 - 1990. 472 297 862 738 24't 153 263 425 (33 668) 96 076 1 923 021 1989 . 472 684 vb U8 272 671 259 871 (58 220) 122 385 1 929 529 1988. 408 644 8e n32 264 824 268 550 (188 209) 123 697 1 743 s38 1987. 491 332 M2 594 214 421 207 52) (87 623) 105 912 1 574 157 198L 512 323 319 894 128 721 128 347 - 108 417 1 197 702 Income (Loss) (thousands of dollars) Iederal Other Income income Preferred & income & Taues- Behwe Preferente Operstmg ATUDC- Deductona, Carryms Credit interes: Debt ATUtK-- Secu k i' ear income I quity Net Charge (I nynne) Charges Inierent Debt [hvidends 1991. $580 050 9 351 5248 109 601 (30 329) 673 921 381 280 (5 248) 60 649 1990., 504 420 7 U3 145 205 085 (12 948) 704 585 384 278 61 M1 (5 993) 1989 . 431 775 16 930 14 368 299 159 (73 177) 689 055 369 481 (12 929) 65 617 1983, 311 665 I? 504 (489 047)(c) 372 155 131 254 339 531 378 292 69 489 (6 137) 1987. 372 065 299 308 (57 821) 39 599 121 122 774 273 435 042 (137 257) M 135 1981. 295 (A4 81 468 19 469 - 25 741 422 372 233 022 (49 521) 58 459 Income (Loss) (thousands of dollars) Common Stock (dollars per share & Y Inanne (irms) Behwe Cumulanve Cumulative Ufact ad an Ufect ed an Return on Accounnng Amuntmg Average Average Change Change or Net $haren Commtm or Entraordman Eutraordmar) Income Outstandmg Landnp 5tsx-k Dmdends Ikok feat Gam Gain (lese) (thousands) (tr a) I quity Orriated 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 94 1.60 20,30 1989, 266 886 - 266 BS6 140 468 1.90 9.6 1.60 19.99 1988, (102113) 28153(d) (73 960) 140 7'8 1,M (0 53) (2.5) 19.68 1987. 390 353 - 390 353 138 395 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) NOll21981 data is the result of tombining and restating Cleveland Electric and Toledo Edson data. (s) Wimlesale revenues, fuel and purchased power, wholesale electric sales and purchased power amounts are restated for 1990 and prior years to reflect a change in reporting of bu!L power sales transactions in accordance with ITRC requirements. (b) in 1991. the Operatmg Companies adopted a change in accouriting for nuclear plant depreciation, changing, from the uruts-of-production method to the straight-hne method at a 2 5% rate. (c) Includes wnte-off of nuclear costs in the a nount of $534,3%.000 in 1988. (d) In 1988, the Operatmg Companies adopted a change in the method of accountmg for unbilled revenues. 3 36 l _ _ _______.__.,_.m.m__---__mm____m-- - - - - - - - - - - - - - - - - - - - -
CLNTERIOR ENlRGY CORPOM110N AND SUllSIDIARILS filectric Customers (year end) 1(esidential Usage Flectric Sales (millions of KWil) A+ciane A m age ! A ver a ge Pnt e Resenue Industnal LWit fer Per Per T otal Luuomer LWH Customer irer Realennal Commernal indusyal Wholesale (s) (We T otal Reudentia_) Commernal & Other 2 711 1 048 29 475 921 995 96 449 12 843 1 031 287 7 410 11.1 N $ 827.10 1991. 6 981 7176 11 $$9 959 29 128 9114 965 94 522 12 906 1 026 393 7 079 10 H2 76 93 1W. tto t 848 12 168 2 487 996 30 387 914 020 93 833 12 7ed 1 020 616 7 295 10 08 73738 1989. 6 80o 6 830 12 520 3 235 92 132 12 305 1 013 619 7 462 9 21 640 06 19% . 6 920 6 577 12 793 1 828 446 29 Ot4 9W 182 1166 949 27 109 903 365 4014R 12 240 1 005 753 7 217 9 46 to 41 1987. 6 639 6 350 11 985 84 287 11 530 9540 405 6 939 7 16 490 57 1981 6 295 5 472 11 360 2 170 808 26 105 884 586 Energy (millions of KWH) Fuel Load (MW & %) operable Ifhnenct-C apaatt Company Gnerated Purs hamed f uel Cret ti1U Per at hme Peak Capactty load Total Per LWil LWit load gn f actor h+ul Nudest Total Pewer(s) N ear of Peak 13 454 31 495 40 31 535 1.48t 10 442 1991 6 453 5 361 16.9% 62 9% 18 041 9 481 30 545 413 31 008 132 10 354 1990. 6 437 5 261 18 3 ed 6 21 114
;6,2 20 174 12 122 32 296 21 32 317 1 47 10 435 1989. 6 430 5 389 633 29 381 1BM 31 25o 139 10 410 19M . 5525(g) 5 673 (2 7) W8 21 576 7 805 6 907 27 801 1 368 29 169 1.53 10 466 1987. 5955 5 173 13 1 63 6 20fi94 63 6 20 573 4 397 24 970 2 945 27 915 1 rio 10 490 1981. 6 440 4 762 26.1 investment (thousands of dollars)
Comtructmn hrk In Tmat Nutlear Preperty . Utihty UtAtv Arrumulated Pt few Fueland Plani and Plant Total Plant in Deptmatum & Net & rern Anwis Plant Unit 2 Other i quipment Adahons iear Servu e Anattration 6 613 730 1 066 428 502 917 $8183 095 $203 843 $12 042 089 1991 $8 888 219 22?4489 6 597 704 1 1335B 568 124 8 299 368 251 312 11 894 235 1990. 8 fd6 219 2 038 510 6 574 118 1 157 273 591 692 8 323 083 217 319 11 666 547 1989. 8 347 639 1823 $20 1 222 732 643 087 8 440 188 343 143 11 573 099 1988 8 143 673 1 569 304 6 574 369 7 063 668 1 007 707 6% 3% 8 727 725 447 921 11 349 836 1987 8 388 114 1 324 446 1 645 098 143 590(h) 4 789 M3 610 277 5 378 446 1981. 3 874 628 873 663 3 000 965 Capitalization (thousands of dollars & %) Preferred da Preferente Preferted Simk without Stoa with Mandator, Mandatory Redemption Proviuona Lcng Term tktit Total lear Common Simk Iqmty kederePtion Proviuons 332 031 4% 427 334 6% 3 841 355 52% $7 455 204 1991 . $2 854 484 38% 3 427 334 6 3 729 217 52 7 704 094 1990. 2 810 033 39 237 490 4 427 334 6 3 533 656 50 7 036 414 1989, 2 794 572 40 281 352 4 427 334 6 3 551 614 51 7 054 473 19f9. 2 771 744 39 303 781 457 334 6 3 718 249 49 7 b28 628 1987. 310904 41 343 985 4 10 245 071 5 2 090 988 49 4 302 388 1981. 1 545 829 36 420 500 (t) In 1981 Toled: Edison reahzed an estraordmary gain from the nchange of common stuk for bonds (f) Average shares outstandmg and related per share computations reflect the Cleveland Ilettric 1.11-for-one exchange ratio and the Toledo F dison one-for-one exchange ratio for Centerior Energy shares at the date of afhhation, April 29, 1986 (g) Capacity data reflects estended generating unit outage for renovation and improvements (h) Restated for effects of capitahtation of nudear fuel lease and hnancing arrangements pursuant to Statement of financial Accosmting Standards 71, 37
\'l Bnn...... of. .....................................<..........................................
Directors i RichardP. Andmen President and Chief Executive Rohrt1 Af. Ginn Executive in Ibsidence at John l Officer of'the Andersons Management Carroll University. Chairman Emeritus and ; Corporation, a grain, farm supply and retired Chairman and Chief Executhe Officer retailing firm. of theCompany. j Albert C. Berstickr President and Chief Executive George 11. Kault 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. . products. ' Richard A. Afillcr" Chairman and Chief Executive Irigh Carfer Retired President and Chief Operating Officer of the Company and Centerior l Officer of The BFGoodrich Company, a producer Service Company. of chemicals, plastics and aerospace products. Trank E. Afosicr Vice Chairman of the Advisory Boani ! Retired Chairman of Tremco, incorporated, a of BP America Inc., a prodacer and refiner of . manufacturer of specialty chemical products petroleum products. and a wholly owned subsidiary of The ' BFGoodrich Company. Sister Afary Afarthe Reinhard, SND Director of - Development for the Sisters of Notre Dame of Thomas A. Commes President and Chief OperatinS Cleveland, Ohio. Former President of Notre . Officer of The Sherwin. Williams Company, a . Dame College of Ohio. I manufacturer of paints and painting supplies. . - - t Robert C. Satuge President and Chief Executive Officer F Wayne R. Etnbry Executive Vice President and I of Savage & Associates, Inc., an insurance, General Manager of the Clevdand Cavaliers, ' financial planning anci estate planning firm. a professional basketball team. Chairman of
' Michael Alan I.ewis Company, a fabricator of ihl Af. Smart Attorney and retired Vice Chaltman of r hardboard, fiberglass and carpeting materials the Company and The Toledo Edison Company. l for the automoth'e industry.' William J. Williams Chairman of liuntington
. Robert J. Tarling* President and Chief Operating . National Bank. -
. Officer of the Company and Centerior Service !
Company. ..............................i.......... ;
......................................... John P. hilliamson Chairman Emeritus
'
- Elected Chairman, President and Chief Executive Officer cifectiw March 1,1W2.
".March Rettred1.1W2. as Chairman and Chief Executhe Ofticer effecth e &
-Comn_tittees
;..... of.Ihe Boani
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. Capital invirnmental Huma:t Audit Expenditurrs . and PuNicivky Executne financr Recurcet &minating W. lear L T.A.Commes.T G.H Kae" ; Sr M.M. Reinhard, : R.A.Mdler,; R.A. Miller, WJ.Williann. - EE.Mosier, R.P. Anderson, Chairman Chairn Chairman Chairman Chairman Chairman Chairman - Chairman
- W.R.Embryl J A.C. Bersticker . L Carter . L Carter R.P. Anderson L Carter 1.P. Anderson . A.C. Bersticker .
+ P.M. Sman - R.J. Farling W.R. Embry - R.M. Ginn T.A.Commes G.H, Kaull - A.C. Bersticker -- L Carter L WJ. Williams . R.M. Ginn : ' RJ. Farling = WJ. Williams W.R. Embry EE.Mosier L Cacter RJ, Farling :! R.A. Miller - R. A. Miller RJ.farling R.C. Savage T.A Cotames R.M. Ginn . L EE. Mosier - . P.M. Smart ' R.C. Savage W.R. Embry . R.A. Miller
-- Sr. M.M. Reinhard - P.M. Smart R.M. Ginn Sr. M.M. Reinhard -
l _ G.H. Kaull L R.A. Miller i! Sr. M.M.Reinhard
- R.C. Savage P.M. Smart WJ. Williams ,
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1 1DI IDENDREINVESTMENT AND bIOCK RIGISTRAR ~ PURCll ASE l'LAN A ND IND)VIDUA L R ETIRBIENT Ameritrust Company National Association
, 9 ACCOUNT (CX*1RA); . ; _ , , Corporate Trust Division l De Company has a Dividend Reinvestment = EO. Box 6477 Cleveland, Ohio 44101 -'
< =
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fand Stock Puryhase Plan which provides sharc
'i. owners of record and customers of the Company's CX*lH A CUSTODI AN v ? > ; subsidiaries a convenient means of purchasmg '
AH communicatpns about an cu, sting CX*1RA I~ . shares of Company common stock by investing should be directed to the Custodian at the address 3 E allor&partof theirquarterlydividendsaswellas '. making cash investments. in addition, individ uals ItelePhonenumberslistedbelow: l may establish an indh idual retirement ' account ' , Ameritrust Company National Association !
. (IRA) which invests in Company common stock - Custodlan. CX*1RA N. : through ths Plan;Information relating to the : E O. Box 6477 ,," l t - * , APlan and the CX*IR A may be obtained from , ' Cleveland, Ohio 44101
'l
! Share Owner Services at the C wpany. 1In Cleve4nd area 737-5742 or 737 5744 [
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. s S!!ARE OWNEli SERVICES [ .
. Elsewherein Ohio .
5800 362 0697, Extension 5742
? 3 ~ CommunicAtionsregardingstoclitransfer .
7 requirements, lost certificates, dividends and : c Outside Ohio .
.y f changes of address'should be directed to Share - 1-800 3211355, Extension 5742 > U
; Owner Services at the Company 'fo reach Share L 1NDEPENDENT ACCbUNTANTS -
, c Owner Services by phone, call:- . -
hthur Andersen & Co. d"
~2 g g iln Clevelhnd ar$642 6900 or.447-2400 1717 East Ninth Street = ~ '
. < Outilde Cisvelkrjd area 1-800-4'33-7794 -
Clevelknd, Ohio 44114 - j f- ' T 1Please have your accou'nt number ready LCOMMON STOCK %y ' > when callingi ', - * >
. ' Listed on the New York, hildwest and Pacific ' ~W W~ NINVESTORRELATIONSi ,
Steck Exchanges. Options are traded on.- 13 _ , . Ondirids from securifyinalysts and institutional he Pacific Stock Exchange. New York Stock'- -/ i wI* fimestors sho0ld be directed to Terrence R. Moranf Exchange'. symbol--CX. Newspaper , 's Manager;luyestor Rclations,Lht the Company's abbreviation -Cent Eri or,CentrEngy.
- Jmall addremor by telephone at (216) 447 2882.- ANNUAL MElglNC
_- - m _. _ o - - -r i TRANSFERnGENT ~ ~ ; The1992 annual meeting of the s' hare owners of fCenterior Enei t ;yCdrporation -
, i he t Companywill be held at 10 a.m. on April 28,1 1 5 . 7, " , ;P.O. Box 94661i i Sharnowner Servicesf o
1992 at Ewcutive Caterers at Landerhaven in : Mayfield Heights, Ohio. Owners of common : - C
~
, ' Cleveland, Ohio 44iO1< 46611 < stock as of February 26,1992/ the record date for . m the meeting, illbe eligible tovote on matters n 7 Stod transfers may 6e presented $t'
. b5ughtupf rshareowners consideranon.
7' s PNCTrust Company of New York Je ?40 Broad Street lFifth Flo' o rj . OFORM nK-gn ' New.Wrk, N Y.10004 The Company will furnish to share owners, i
~
h' ? EXEC 1/TIVEOFflCFUS;. J without chargei a copy of its most recent annual , 7 report t ,the Securities and Exchange Commission. t "I' Cendrior Energy Co@ ration .
- j d6200 OnTree Boulevard < '8*9FS of the ompany. C.h uld be dhected to the Secretary ?
W ? fIndependence. Ohi6 - liTelephone;'(21Q 447-3100 L ' f AUDIO CASSETTIS RWA 1LAELE ! d ql1
< FAX: ' (216)447-3240. >
Sh_are owners wph Jmpaired nion may obtain. ? / Malt /ADDRESST T
~ ianWasspues of the CosmM 's Quarterly
" " " " C# M"
Y Nk 1Cehterior Energy Corporation -
- P.OJ Box 94661 ' '
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