ML20112D610

Oh Edison 1995 Annual Rept

ML20112D610
Person / Time
Site:	Beaver Valley
Issue date:	12/31/1995
From:	Holland W OHIO EDISON CO.
To:
Shared Package
ML20112D597	List: ML20112D593 ML20112D604 ML20112D610 ML20112D620 ML20112D628 ML20112D641
References
NUDOCS 9606040427
Download: ML20112D610 (36)

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Corporato Profile Ohlo Edison Companyis headquartered in Akron, Ohio, and its subsidiary, Pennsylvania Power Company, is based in New Castle, Pennsylvania.

We provide electric service to more than one million customers within 9,000 square miles of central and northeastern Ohio and western Pennsylvania.

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Highlights 1995 1994 OPERATING PERFORMANCE Kilowatt-Hour Sales (Millions) 33,276 30,950 Peak Load (Megawatts) 6,332 5,74 4 Cost of Fuel per Million Btu

$1.18

$121 Customers Served 1,095,672 1,083,327 Numberof Employees 4,812 5,16 6 Customers per Employee 128 210 FINANCIAL PERFORMANCE Operating Revenues

$2,465,846,000

$2.368,191,000 Operating income

$566,618,000

$ 557,254,000 Net incom9

$ 317,241,000

$303,531,000 Cash Provided From Operations

$753,214,000

$695,064,000 Earnings per Common Share

$2.05

$1.97 Dividends per Common Share

$ 1.50

$150 Return on Average Common Equity 12.5 %

114 %

Dividend Payout Ratio 73%

76 %

26 4 2_05 197 566 6 4', O

182_,

5573 _

653 2 EEE BEE BER 93 94 95 93 94 95 93 94 95 e onree r ng Cr a o s t

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We took bold actions in 1995 that produced strong results.

We attained our highest level of common-stock earnings in six years, posted our third consec-utive year of record retail sales, and achieved significant savings in capital and operating costs.

These accomplishments moved us closer to our Strategic Vision - to become the best-performing energy service company in our region and remain our customers' energy supplier of choice.

Making Solid Financial Gains Earnings increased 8 cents per share over 1994's results, reaching $2.05 per share of common stock - even after we recognized $38 million of addi-tional expense for the accelerated recovery of nuclear and regulatory assets. This growth in earn-ings was largely due to retail sales of 26.4 billion kilowatt-hours and our ongoing cost cutting efforts.

While these are clearly positive results, we must continue to aggressively reduce our debt to succeed in the competitive scenarios that may develop in the electric utility industry. As we face this challenge, our first objective is to maintain our dividend and provide sustained dividend growth in the years ahead One of the key actions we took in 1995 to prepare for a more competitive industry was the introduction of our Rate Reduction and Economic Development Plan. Approved by the Public Utilities Commission of Ohio in October, the plan will minimize the risk we would f ace in a more competitive environment by providing customers with long-term, stable pnces for energy services and promoting economic growth throughout our service area.

Rate decreases totaling $600 million over the next ten years will lead to an average reduction of 20 percent for customers by the year 2006. While this plan will have an impact on our financial results, we expect to fully fund it through improvements in our operations. In addition, the plan enables us to accelerate the recovery of fixed costs, which largely determine our prices.

Improving Cash Flow We're continuing to cut costs through the streamlining of our operations, made possible by the use of new technologies and efficiencies. These efforts enabled us to reduce our work force in 1995, and we expect further reductions during the first half of 1996 in our divisions and at the Bruce Mansfield Plant. Including these actions, we will be serving 51,000 more customers with approximately 2,000 fewer employees than we had in 1992.

Other 1995 actions strengthened our financial position and will serve us wellin the future:

• We cut $72 million in capital spending by eliminating a number of projects, replacing others with less-costly alternatives, and using new technologies and officiencies in our operations.

• We pared $26 million from our annual expenses by redeeming or refinancing $437 million in secunties.

• We more than doubled 1994 results for new sales in competitive markets, which include home heating systems and industrial process appkcations.

These and other achievements highhghted in this report helped us reach $753 milhon in operating cash flow-an 8-percent increase over the previous year. More important, they enable us to focus our efforts on what we do best - providing rehable electnc service, and a wealth of energy-related expertise, to our customers.

Delivering Superior Value Through our Customer Value improvement Program, we're delivenng supenor value to our customers. This means being readily accessible and responsive, and ensunng that all problems are resolved to the customer's satisfaction.

2

We're also adding value to the services we provide our business customers through new partnerships that promote economic growth throughout our region. Whether we're meeting the special energy needs of a major industry or helping small businesses take advantage of the latest technologies, we're doing our part to build on our service area's success in economic development and job creation.

Once again, the proof is in the results. For three consecutive years, the largest area we serve, Akron and Summit County, has been ranked among the nation's top 20 metropolitan areas for siting new manufacturing plants. Over the same period, economic growth across our service area has contnbuted to Ohio's top ranking in attracting new and expanded corporate facil. ties. In 1995 alone, we added 2,628 industrial and commercial businesses.

Meeting The Challenges Ahead These results underscore our determination to compete and succeed in a future that may bring significant challenges to our Company and our industry. These challenges could result from increased competition with traditional sources, such as natural gas suppliers, or changes in our industry that woulc; allow greater competition among electricity suppliers. Either way, we are positioning ourselves to succeed and to enhance the long-term value of your investment.

One challenge involves the ongoing debate surrounding retail wheeling, which would permit retail customers to bypass their local utility and purchase electricity from any supplier.

A number of states, including Ohio and Pennsylvania, are currently evaluating retail wheeling and its consequences on industry structure and customer service. Major problems have been identified, such as lost tax revenues; less-reliable service; reduced support for environmental and social programs; the diversion of low-cost power, which CJrrently benefits all customers, to the largest N

users; and the shifting of costs and nsks to small users. Nevertheless, state and federal regulators and lawmakers are being pressured, primari-ly by large manufacturers, to make fundamental changes to our industry.

Eleioming A Top Performer We willcontinue to take an act, a. leadership role in the retail-wheekng debate at both the state ai ' federallevels. At the same time, we recognize that our industry is becoming more competitive - and we're confident that we will take our place as a top performer in the years ahead.

Our employees have met a number of tough challenges in years past, and they're working hard to improve the long-term va;ue of your investment.

I appreciate your continued support as we move forward with our corporate strategy and achieve our vision for future success.

O f, Y Willard R. Holland President and Chief Executive Officer February 23,1996

ur Strategy For Future Success Our Strategic Vision clearly defines where we want to be in tomorrow's energy business. Our corporate strategy outlines how we intend to get there - by focusing on our core business and taking aggressive a0tions today that will make us a stronger competitor in the future.

In 1995, we developed specific strategies in five key areas of our business that will help us become an industry leader:

• Generation - We are pursuing the most cost-effective power supply options. We're also developing generation-related products and services that we can market to our customers.

• Energy services / marketing -We're working to retain customers and expand our business by providing competitively pnced energy and identifying additional ways to market profitable, value-added services.

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f power marketing - We're building the skills necessary to capitalize on short-and long-term regional power supply opportunities. We're also developing strategies that maximize use of our assets and minimize market nsks.

• Transmission -We're taking advantage of new opportunities in the bulk power market by adopting a comparable price structure for transmission services that reflects all of our costs.

1 ogo ___

• Distribution - We're working to achieve additional cost savings through improvements in our productivity, practices and training while marketing related services to other 1083 electricity suppliers.

1 070--

Together, these strategies will help us become a top performer in the years ahead Making Our Rates More Competitive A key feature of our corporate strategyis a comprehensive plan that provides customers with long-term, stable prices for energy services while enhancing our competitive position and promoting economic development within our service area Approved by the Public Utilities Commission of Ohio (PUCO) on October 18. our Rate E

• "*'"**"t"'"'*'*"*'**'

93 94 95 caps base rates until 2006, effectively extending our current freeze of 1990 rates for an Customers served

1. 1. "Si additional ten-year period.

The plan provides customers with decreases in base rates totaling approximately

$600 million over the next ten years. Residential and small business customers receive interim reductions of $1 per month, and an additional 50 cents per month beginning January 1,2001 4

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Major industrial and commercial customers benefit from annual reductions based on their electricity use. In 2006, base rates for all customers will be reduced by approximately 20 percent below current levels. We expect the plan to be fully funded through ongoing improvements in our operations and additional cash flow.

Our rate plan also includes regulatory and accounting measures that provide us with greater financial and operating flexibility. They will enable us to accelerate the recovery of approximately $2 billion in fixed costs related to nuclear operations and regulatory assets.

In addition, the plan builds on our recent success in attracting new businesses and job Orowth to the communities we serve. It targets up to $10 rnillion in grants, loans and leases to schools, local governments and downtown redevelopment projects - funds that can be used to achieve energy savings or make efficiency improvements. And, it continues our commitment of $75 million in loans and grants to governmental, business and residential customers who improve the efficiency of their energy use or the productivity of their operations.

8 27 a Ti' We've also directed $5 million over the ten-year period to the Ohio Department of Development, which will use these funds to enhance business development in and around our service area.

Special incentive rates for cornpanies that locate or expand in our service area - and meet cntena related to increased employment and electncity use - have been extended from the current five-year period to as long as ten years. In 1995,34 companies took advantage of these rates while investing more than $100 million in new facilities and creating 1,900 jobs.

Restructuring Our Generation And Transmission Assets Anotherimportant element of our corporate strategy is the restructunng of our Generation and Transmission 93 94 95 Group, which was designed to improve our competitive position in the generation business.

Average Interest on Debt (Percent)

The new organizational structure will help ensure continuous improvement in our plants and their support groups. Among other changes, we created a Business Support Department that is coordinating and developing strategies to promote the growth of our generation busirgs. A new Tech S po t Department is responsible for all technical support services e

engineering, construction, production training, plant performance improMBt [NI nvironmental policy and compliance.

We will continue to evaluate every facet of our operations, focusing on new strategies or organizational changes that can enhance our competitive edge in the energy business of the future 6

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Improving Cash Flow With key improvements and cost savings throughout our business, including those resulting from our Performance Initiatives program, we achieved $753 million in operating cash flow - an 8-percent increase over 1994 results. This and other financial gains helped us place 30th on the Edison Electric Institute's 100 Index of Investor-Owned Electrics for total return - dividends plus stock appreciation - to shareholders.

Our most significant cost savings were in the area of capital spending, where reductions of

$72 milhon resulted from the elimination of many capital projects, the replacement of others with lower-cost alternatives and the use of new technologies and efficiencies.

We also refinanced or redeemed $437 million of securities in 1995, which willlower annual expenses by more than $26 million.

In addition, the restructuring of our GeneraSon and Transmission Group, the use of new technologies and ongoing efforts to improve productivity and performance have made possible work-force reductions in 1995 and in the first half of 1996 that will save $34 million annually.

7

__A___________________ _ - _ _ _ _ _ _ _ _ _ _

4 Aggressive Marketing Efforts Our aggressive marketing efforts are also having a positive impact on our cash flow.

In the first full year of our marketing strategy, we more than doubled 1994 results for new sales in cc.Tipetitive markets, which include home heating systems and industrial process applications The projected lifetime contnbution of these sales exceeded $150 million in 1995.

Lifetime contribution is new revenue minus costs over the estimated life of new facilities or equipment.

We also achieved our third consecutive year of record retail sales. With continued growth in our service area's economy - and the addition of 12,345 customers - retail sales reached 6.332 26,4 billion kilowatt-hours, up 51 percent from 1994.

Our customers are finding more ways to use our product: Peak customer demand reached an all-time high of 6.332 megawatts on August 15 - 588 megawatts higher than the record set the previous summer, when customer demand reached 5,744 megawatts.

5.74 4 During the year, we explored ways to deliver greater value to each market segmerit.

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We targeted specific customer categories - such as chain accounts; rubber and plastics; fabricated metals; and government and education - because they reflect the similanty of services we provide customers within each segment.

In the future, value-added services to customers could include economic developmert incentives for fast-growing plastics companies and improved billing and energy management services for government and educational facilities.

93 94 95

• $ $ "[, 7 ""d Enhancing Our Operating Efficiency Our service to customers benefits from new technologies and cooperative efforts that enhance the efficiency of our operations.

In 1995, we completed the conversion of our microwave system to state-of-the-art digital technology. This major improvement to our network of voice, data and control circuits is pg] (73 m supportmo the expansion of Automated Mapping and Facilities Management (AM/FM)-

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4, provide more responsive service to our

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customers. For example, AM/FM will quick dentify specific equipment that may be needed to make repairs in problem areas dunng storms or other emergencies. It also could be used as a marketing tool to show potential customers the location of schools, hospitals, shopping centers and other resources near a particular site. Our Lake Ene and Bay areas have already made the switch from paper to computer maps, and conversion work is underway across our system Digital microwave also supports our new 800-megahertz radio system. Completed in 1995, the r ystem provides more direct and immediate communication between vanous work groups, duch as line crews restonng service in emergency situations.

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A new, $20-million computer system at our System Control Center ensures the efficient and economical use of our transmission and generation networks. The computer helps us avoid costly investments in new power lines and electrical facilities by enabhng dispatchers to run the transmission system closer to its full potential without jeopardizing reliability. It also improves the system's efficiency by helping us monitor power losses.

The computer accurately models variations in a number of generation-related factors such as fuel, environmental impact and operating costs -information that we need to economically and environmentally dispatch our generating units under vanous operating conditions. And, by simulattng virtually any routine or emergency scenano, it serves as an invaluable training resource for dispatchers, especially as our system's operating demands continue to grow.

Promoting Cooperative Efforts Among Employees Our future success is tied to those and other technologies as well as the cooperative efforts of the people who use them. We forged strong partnerships with our bargaining units by reaching new, three-year agreements 210 with Locals 118,126 and 140 of the Utility Workers Union of America (UWUA) and Local 1194 of the international Brotherhood of Electrical Workers (IBEW), representing division employees.

i l

We also reached three-year agreements with Locals 140,350,351 and 457 of the UWUA and 17 9 l

Local 272 of the IBEW, representing power-plant employees.

1 Recognizing the competitive challenges facing our industry and our Company, the i

agreements will improve productivity and cooperation through innovative work-rule changes and performance incentives.

Throughout our operations, employees are coming up with new ways to work together.

In 1995, teams of employees from various work groups spearheaded a number of major improvements, such as an enhanced process for handling new business requests and our new work management system - a computerized data base that ties together all of the information l

needed to conduct work in the field. These cooperative efforts will continue to help us improve 93 94 95 Employee Productvity our productivity and service to Customers.

(Number of Customers served Per Employee)

Working Closely With Customers We're also working closely with our customers and communities to promote econornic development. Our support played a key role in helping

<O MhM h Pl P!CS

/ Arp@/@h M /"% #7A reoben its steel plar$ 1n Martsfield, 6(A8 pa[t o( 4 Compre Mh (%h feh alve.fonding, W%

La Ld LA ' drLiW %%2s) %%W Lbl %%QF M %)

6%72 %ll5

%hador package, we are providing up to $3 million for a continuous caster, which is greatly improving the plant's energy efficiency and long-term competitiveness. The new caster began production in Apnl1995.

At Ford Motor Company's plant in Lorain, Ohio, we financed the installation of six generators that help us meet customer demand during peak-use periods. By leasing the units from us, to

Ford benefits from uninterrupted service. We're also financing and building a new,138-kilovolt substation that Ford willlease to ensure reliable electric service wellinto the future.

Programs such as Community Partners promote the wise use of our product while strengthening our ties with the communities we serve. As part of our rate reduction plan, Community Partners is targeting approximately $5 million over the next several years for energy-efficiency programs that benefit customers with low incomes, senior citizens and community-based agencies. Through one new program, we contributed high-efficiency electric apphances to new homes built by the non-profit agency, Habitat for Humanity. We also worked together with The Salvation Army to provide $50.OOO in energy-saving items that were included in some 4,500 baskets distributed during the holiday season.

These and other partnerships will help us rerrain our customers' supplier of choice for years to come.

Menagement Report The consolidated financial statements were prepared by the management of Ohio Edison Company, who takes responsibility for their integrity and objectivity. The statements were prepared in conformity with generally accepted accounting principles and are consistent with other financial information appearing elsewhere in this report.

Arthur Andersen LLP, independent public accoun-tants, have expressed an opinion on the Company's consolidated financial statements, as shown on page 30.

The Company's internal auditors, who ar e responsible to the Audit Committee of the Board of Directors, review the results and performance of operating units within the Company for adequacy, effectivenessand reliabilityof accountingand reporting systems, as well as managerial and operating controls.

The Audit Committee consists of four nonem-ployee directors whose duties include: consideration of theadequacyof theinternalcontrolsof the Companyand the objectivity of financial reporting; inquiry into the number, extent, adequacy and validity of regular and special audits conducted by indepen-dent public accountants and the internal auditors; recommendation to the Board of Directors of independent accountants to conduct the normal annual audit and special purpose audits as may be required; and reporting to the Board of Directors the Committee's findings and any recommendation for changesin scope,methodsorproceduresof the auditing functions. The Audit Committee held four meetings during 1995.

r H. P. Burg SeniorVice President Chief FinancialOfhcer H. L. Wagner Comptroller 12 A

Colected prinancial Data Ohio Edison Company (In thousands except per share amounts) 1995 1994 1993 1992 1991 Operating Revenues l $2,465,846

$2,368,191 ! $2,369,940, $2,332,378

$2,358,946 Operating income

$566,618

$557,254

$525,330

$522,115

$550,452 !

Net income

$317,241

$303,531,

$82,724,

$276,986 '

$264,823 Earnings on Common Stock

$294,747 4

$281,852 l

$59,017

$253,060 I

$240,069 Eamings per Share of Common Stock

$2.05

$1.97 '

$.39

$1.70

$1.60 i

i Dividends Declared per Share of Common Stock

$1,50

$1.50 l

$1.50

$1.50 i

$1.50 Total Assets

$8,823,934

$8,993,964

$8,918,267 ' $7,830,026 ' $7,812.345 Capitalization at December 31:

{

Common Stockholders' Equity

$2,407,871

$2,317,197 l $2.243,292

$2,408,164 i $2,371,946 Preferred and Preference Stock:

l Not Subject to Mandatory Redemption!

211,870,

328,240 1 328,240 354,240 354,240 Subject to Mandatory Redemption 160,000 1 40,000 1 45,500 59,862 65,582 Long-Term Debt 2,786,256 3,166,593 3,039,263 3,121,647 3,243,167 Tota 1 Capitalization

$5,565,997

$5,852,030

$5,656,295

$5,943,913 l $6,034,935 Common Stock Data The Company's Common Stock is listed on the New York and Chicago stock exchanges and is traded on other registered exchanges.

PRICE RANGE OF COMMON STOCK 1995 1994 First Quarter High-Low 21-1/2 18-1/2 22-3/4 18-7/8 Second Quarter High-Low 22-5/8 19-3/4 19-1/4 16-1/2 Third Quarter High-Low 22-7/8 21-1/4 19-5/8 17-1/2 Fourth Ouarter High-Low 23-3/4 22-1/4 19-1/4 17-7/8 Yearly High-Low 23-3/4 18-1/2 22-3#

16-1/2 Pnces are based on reports published in The Wall Street Joumal for New York Stock Exchange Composite Transactions Classification of Holders of Common Stock as of December 31,1995 Holders of Record Shares Held l

Number Number Individuals 112,643 82.35 50,036,860 32.79 !

Fiduciaries 22,503 16.45 9,503,345 6.23 i Nominees 47

.04 91,491,883 59.97 All Others 1,590 1.16 1,537,349 1.01 i Total 136,783 100.00 152,569,437 100.00 As of January 31.1996, there were 136.828 holders of 152.569.437 shares of the Company's Common Stock. Quarterly dividends of 37 Sc per share were paid on the Company's Common Stock dunng 1995 and 1994 information regarding retained earnings avadable for payment of cash dmdends is given in Note SA.

13

IWlanagernent's Discussion and Analysis of Results of Operations and Financial Condition Results of operations Pennsylvania and certain costs associated with the We continued making significant progress in Performance Initiatives pr ogram. The ef fect of the 1995 as our Company prepares for the rapidly 1993 write-of f was partially off set by a $58,201,000 credit from the cumulative effect of a change in changing environment within the electric utility accounting to accrue metered but unbilled revenue industry.

(seWoM 2).

The most significant event during the year was Operation and maintenance expenses were the approval by the Public Utilities Commission of Ohio (PUCO) of the Company's Rate Reduction and up by 2.5 percent in 1995, mostly due to incremental fuel and purchased power costs incurred to meet the Economic Development Plan (Regulatory Plan). The increased demand f rom our customers. With our Regulatory Plan is designed to enhance and acceler-revenues increasing at a higher rate than our variable ate economic development within the Company's service area and to assure our customers of long-costs, we were able to achieve record operating income for the second consecutive year. A review of term competitive pricing for energy services.

The Regulatory Plan, which went into effect the work we do was an integral part of Performance November 1,1995, f reezes base electric rates until Initiatives which began in 1993 and continues as a January 1,2006, at which time base rates will be p rt of our Corporate Strategy program. Efficiencies continue to be identified that have resulted in further reduced by $300,000,000, or approximat#y 20 percent below current levels, on an annual basis.

opportunities for restructuring. In 1995, we reduced During the ten-year rate-f reeze period, which will our work force by 293 employees following the shut-remain in effect unless certain significant events down of several old generating units and the restructuring of our generation and transmission occur, transition rate credits will be implemented for group. We expect these actions to result in annual customers served under the General Service-Large rates (primarily industrial customers). Also, the savingsof approximately$18,000,000. Also,using monthly customer charge will be reduced for economic value added-based justification for capital spending contributed to a $67,000.000 reduction in customers served under the General Service-Secondary and Residential rates. Combined, these our construction expenditures in 1995 compared to se yea @M transition rate credits are expected to reduce operat-ing revenues by approximately $600,000,000 during For the third straight year, the Companies ch.ieved record retail kilowatt-hour sales. The follow-the ten-year period.

A major component of the Regulatory Plan is our ing table summarizes the sources of changes in commitment to reduce fixed costs during the ten-operating revenues for 1995 and 1994 as compared to the previousyear:

year period. The PUCO ordered the Company to recognize additional depreciation expense related to 1995

_1994 our generating assets and additional amortization of (In millions) regulatory assets during the ten-year Pc quiatory increased retail kilowatt-hour sales

$105.1

$ 2.4 Plan period of at least $2,000,000,000 m r e than the Reduced average retail electric price (23.3)

(3.1) amount that would have been recognizeu if the Sales to utilities 16.6 2.2 Regulatory Plan were not in effect.The Regulatory Other (0.7)

(3.2) r Plan includes a cap (based upon the most recent Net increase (Decrease)

$ 97.7

$(1.7) common equity return authonzed for the Company by the PUCO) on the amount the Company may earn An improving local economy and increased applicable to its common stockholders in any calen-weather-related demand during the second half of dar year during the Regulatory Plan period. If the cap 1995 helped us achieve record retail sales of 26.4 is exceeded, the excess will be credited to our billion kilowatt-hours. Our customer base continues customers in a future penod.

to grow with more than 12,300 new retail customers The Companies achieved record operating added in 1995, after gaining approximately revenues in 1995, a 4.0% increase over the previous 13,100 customers the previous year. Residential record set in 1993. The increased revenues, in combi-sales increased 4.2% in 1995 af ter f alling slightly the nation with our aggressive cost-control of forts, raised previous year. Commercial sales rose 3.9% during earnings on common stock to $2.05 per share in the year, which follows a 1.4% gain in 1994. A 6.8%

1995 f rom $1.97 a year earlier. The 1993 amount of increase in industrial sales resulted, in part, f rom the

$ 39 was adversely affected by nonrecurnng resumption of operations by two major customers charges of $1.43 per share,which included a that had reduced operations in 1994. Excluding sales

$276,578,000after-taxwnte-off of PerryUnit 2,the to these customers, industrial sales were 3.8% higher expocted resolution of fuel cost recovery issues in than last year's level. We began supplying 14

300 megawatts of power to another uti ityin the Capital Resources arid 1.lquidity l

second quarter of 1995 under a short-term contract We have significantly improved our financial that expired at the end of 1995. This contract was the pnncipal cause for an 18.2% increase in sales to other os tion over the past five years. Cash generated utilities in 1995, which followed an 18.2% decrease the om operations was 62% higher in 1995 than it was in previous year. We have signed short-term contracts 1990 due to higher revenues and aggressive cost controls. By the end of 1995, we were serving about with other utilities in 1996 to replace the expired 1995 contract. Acaresultof allof thesefactors,totalkilo-60,000 more customers than we were five years ago, watt-hour sales were up 7.5% compared with sales in With approximately 2,000 fewer employees. As a 1994,which were down 3.9% from1993.

sd muhWW%emati@as WW Because of higher kilowatt-hour sales,we spent significantly over the past five years, standing at 5.6% more on fuel and purchased power in 1995.

228 customers per ernployee at the end of 1995, During the same period, our nuclear expenses fell compared to 152 at the end of 1990. In addition, 4 9% compared to the previous year-nuclear capital expend:tures have dropped substantially during that period. Expenditures in 1995 were expenses were higher in 1994 mainly due to correc-approximately 28% lower than they were in 1990, tive maintenance work at the Perry Plant. Expenses and annual depreciation charges have exceeded associated with scheduled maintenance outages at our fossil-fueled generating units contributed to a roperty additions since the end of 1987. In fact, our 4.6% increase in other operating costs during 1995' rojections for the next five years indicate that annual compared to last year. Other operating costs were depreciation charges will exceed construction down significantly in 1994 from the previous year due rogram expenditures by at least two to three times to a one-time $39,000,000 charge in 1993 related t because of our reduced capital requirements, coupled with the additional depreciation in accor-Performance Initiatives. That charge consisted of

$9,000,000 for obsolete materials and supplies and dance with the Regulatory Plan.

$30,000,000 estimated for costs of early retirement Over the past five years, we have aggressively taken advantage of opportunities in the financial programs of f ered to qualifying employees resulting from strategies identified in the Performance markets to reduce our embedded capital costs.

Initiatives program.

Through refinancing activities,we have reduced the average cost of outstanding debt fr om 9.28% at the Higher depreciation charges in 1995 resulted mainlyfrom$27,000,000of additionalnuclear end of 1990 to 8.00% at the end of 1995. Also, the cost of outstanding preferred and preference stock was depreciation authorized under our Regulatory Plan reduced from 8.59% at the end of 1990 to 7.59% at discussed earlier. A higherlevel of depreciable utility plant and an increase in the accrual for nuclear the end of 1995.We have improved our financial posi-decommissioning costs also contributed to the tion as a result of these actions. For example, we have increase. The change between 1995 and 1994 in the enhanced our fixed charge coverage ratios and the ercentage of common equity to total capitalization.

P n rease am rt zat on f de er ednuc earcos sand 23 t e o

95 o 9

ee do 99 the discontinuation of deferral accounting for post-The Company's indenture ratio, which is used to retirement benefits, also in accordance with the Regulatory Plan. Penn Power provided an $8,728,000 eNaMMmeMWMe ME mproved from 4.79 at the end of 1990 to 5.78 at the reservc for deferred postretirement benefit costs in 1994, which was responsible for the majority of the end of 1995. Over the same period, the charter ratio, a measure of oumbility toissue preferred stock, change in net amortization of regulatory assets compared to1993.

moroved from 1.87 to 2.31, and, our common equity Overall, interest costs were lower in 1995 than in ercentage of capitalization (excluding the 1994. Interest on long-term debt decreased due to Employee Stock Ownership Plan Trust adjustment) refinancing and redemption of higher-cost debt.

rose f rom approximately 42% at the end of 1990 to about 45% atthe end of 1995.

Other interest expense int reased compared to last year due primarily to higher levels of short-term At the end of 1995, we had the capability to issue borrowing We also discontinued def erring nuclear

$1,466,000,000 principal amount of first mortgage unit interest in the second half of 1995, consistent bonds and $1,673,000,000 of preferred stock with our Regulatory Plan. Preferred and preference (assuming no additional debt was issued). However, our cash requirements in 1996 for operations and stock dividend requirements in 1995 include approxi-mately $2,300,000 for premiums paid on preferred scheduled debt maturities are expected to be met stock redemptions.

w thout issuing additional secunties. During 1995, we ehMaMWaphtey

$285,000,000. We expect to pay off over

$1,300,000,000 of debt over the next five years with internal cash, including $264,000,000 in 1996.

15

We had about $30,000,000 of cash and costs and enhance shareholder value. In December temporary investments and $120,000,000 of short-1995, we announced that we will of f er a voluntary term indebtedness on December 31,1995. Through retirement program to 174 eligible union-repre-OES Fuel credit f acilities, we had the capability to sented e' nployees beginning March 1,1996. The borrow approximately $128,000,000 as of the end of program is expected to produce annual savings of 1995 We also had $52,000,000 of unused short-term up to $7,900,000. Also,in January 1996, employees bank lines of credit, and $50,000,000 of bank facilities at the Bruce Mansfield Plant were informed of future that provide for borrowings on a short-term basis at staf f reductions that will affect approximately 105 bar-the banks' discretion.

gaining unit employees and 35 management and Our capital spending for the period 1996-2000 is administrative / office employees. The reduction is expected to be about $650,000,000 (excluding expected to occur between February 15,1996, and nuclear fuel), of which approximately $160,000,000 April l,1996. This work force reduction is the result of applies to 1996. This spending level is more than continuing efforts to make the plant's costs more

$400,000,000 lower than actual capital outlays over competitive.

the past five years.

Effective operation of the nuclear facilities we Investments for additional nuclear fuel during the jointly own will also help us meet these competitive 1996-2000 period are estimated to be approximately challenges. In 1995, we increased our annual funding

$180,000,000, of which about $29,000,000 applies to of thedecommissioningobligation. Asdiscussedin 1996. During the same periods, our nuclear fuel Note 1, the Financial Accounting Standards Board investments are expected to be reduced by approxi-(FASB)is reviewing the accounting for decom-mately $191,000,000 and $39,000,000, respectively, missioning costs regarding the recognition, as the nuclear fuelis consumed. Also,we have measurement and classification of decommission-operatingleasecommitmentsof approximately ing costs in the financial statements of electric

$594,000,000 for the 1996-2000 period, of which utilities. The FASB issued its proposed accounting approximately $108,000,000 relates to 1996. We standard in February 1996.

recover the cost of nuclear fuel consumed and oper-The Clean Air Act Amendments of 1990, ating leases through our electric rates.

discussed in Note 7, require add:tional emission s

Reference is made to Note 1 f or a discussion of reductions by 2000. We are pursuing cost-effective

\\

regulatory assets. In accordance with the Regulatory compliance strategies for meeting those

\\

PM theCompany'sratesincluderecoveryof all requirements.

\\

regulatory assets and authorizes the Company to Through our Performance Initiatives and accelerateamortizationof thoseregulatoryassets Corporate Strategy programs, we have identified over the next ten years.

substantial savings that will better position us to suc-One of Penn Power's former municipal cessfully compete in the f uture. We continue to customers signed a contract with another energy identify opportunities for revenue enhancement and supplier in November. Penn Power and the former cost reduction. Also, our Regulatory Plan provides customer are in dispute over Penn Power's proposed more regulatory assurance that we will collect our transmission rate. Both parties have filed proposals fixed costs and minimizes the risk of not recovering with the Federal Energy Regulatory Commission some portion of our assets from our customers. Our requesting it to establish final terms. No ruling has yet focus is to exceed customers' service expectations been issued. Sales to this municipality were approxi-by providing superior value and high-quality products mately $1,500,000 in 1995.

and services at competitive prices in order to maximize the value of our shareholders' investment outlook in the Company.

Many competitive challenges lie ahead as the electric utility industry becomes less regulated and more energy suppliers enter the marketplace. Retail wheeling, which would allow retail customers to pur-chase electricity f rom other energy producers, could be one of those challenges, if legislators choose to move in that direction. The Company's Regulatory Plan provides the foundation to position us to meet those challenges by significantly reducing fixed costs and lowenng rates to a more competitive level. For the Regulatory Plan to succeed, it is imperative that we build on the success of our Performance initiatives and Corporate Strategy programs and continue to find ways to increase revenues, reduce 16

ConsoHdated Ctatements Of income Ohio Edison Company On thousanus, except per share amounts)

For the Years Ended December 31, 1995 1994 1993 i

OPERATING REVENUES l $2,465,846

$2,368,191

$2,369,940 !

OPERATING EXPENSES AND TAXES:

1 Fuel and purchased power

}

Nuclear operating costs 465,483 l 440,936 {

456,494 !

289,717 j 304,716 290,321 !

Other operating costs j

446,967 427,133,

474,241 (

Total operation and maintenance exnenses l

1,202,167 1,172,785 1,221,056 Provision for depreciation 256,085 220,502 217,980 General taxes 243,179 237,020 ;

245,554 Amortization of net regulatory assets 5,825 (884);

(6,753)

Income taxes j

191,972 181,514 166,773 Total operating expenses and taxes i

1,899,228 1,810,937 !

1,844,610 l

___l OPERATING INCOME i

566,618 557,254 i 525,330 OTHER INCOME AND EXPENSE:

Perry Unit 2 termination (Note 3)

(390,835)

Income tax benefit from Perry Unit 2 termination j

142,092 Other 14,424,

16,459 19,921 t

Total other income (expense) 14,424 i 16,459 (228,822)

TOTAL INCOME 581,042 573,713 296.508 NET INTEREST AND OTHER CHARGES:

I I

I Interest on long-term debt j

Defened nuclear unit interest 243,570 l 259,554 262,861,

(4,250):

(8,511)l (8,518)l Allowarice for borrowed funds used dunng t

j construction and capitalized interest j

(5,668)

(5,156);

(4,666) 16,445 l Other interest expense j

22,944 '

18,931 Subsidiaries' preferred stock dividend requirements l

7,205 5,364,

5,863 j Net interest and other charges

~

263,801 270,182 l 271,985 INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING 317,241 303,531 24,523,

Cumulative effect to January 1,1993, of a change in accounting for unbilled.

revenues (net of income taxes of $33,632,000) (Note 2) i 58,201 l NET INCOME j

317,241 303,531 82,724 PREFERRED AND PREFERENCE STOCK DMDEND REQUIREMENTS 22,494 21,679 23,707 i

EARNINGS ON COMMON STOCK

$ 294,747 * $ 281,852 $

59,017 l 1

WElGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 143,692 143,237 152,569 l EARNINGS PER SHARE OF COMMON STOCK:

Before cumulative effect of a change in accounting

$2.05

$1.97

$.01 Cumulative effect to January 1,1993, of a change in accounting for unbilled revenues (Note 2)

(

.38 EARNINGS PER SHARE OF COMMON STOCK

$2.05,

$1.97

$.39l DMDENDS DECLARED PER SHARE OF COMMON STOCK

$1.50

$1.50

$1.50 The accompanying Notes to Consohdated Financial Statements are an integral part of these statements 9

9 17

Consondated Emlance Cheets Ohio Edison Company (In thousands) l At December 31, j

1995 1994 ASSETS l

UTILITY PLANT:

l In service, at original cost j

$8,556,722

$8,518.050 Less-Accumulated provision for depreciation 3,051,148 2,910,587 5,505,574,

5,607,463 150,262 l Construction work in progress-Electric plant 174,970 Nuclear fuel 39,613 l ___

52,470

_189,875 l _

227,440 5,695,449 j _ 5,834,903 j OTHER PROPERTY AND INVESTMENTS:

l Letter of credit collateralization (Note 4) 277,763 277,763 Other 252,005 197,546 5

529,768 475,309 Cash and cash equivalents 29,830 23,291 Receivables-i Customers (less accumulated provisions of $2,528,000 and $2,517,000, j

g respectively, for uncollectible accounts) 274,692 254,515 Other 54,988 54,713 Materials and supplies, at average cost-68,829 122,337 Owned l

Under consignment 41,080 Prepayments -_

j 82,257 71,836 DEFERRED CHARGES:

Regulatory assets

.l 103,091 106,883 1,786,543 1,898,875 Unamortized sale and leaseback costs Property taxes l

104,071 106,458 Other___

53,336

_ _ 44,844 i

_2,047,041

__ 2,157,060

$8,823,934

$8,993.964 CAPITALIZATION AND LIABILITIES CAPITALIZATION (See Consolidated Statements of Capitalization):

Common stockholders' equity 1

$2,407,871

$2,317,197 Preferred stock-Not subject to mandatory redemption l

160,965 277,335 Subject to mandatory redemption 1

25,000 25,000 Preferred stock of consolidated subsidiary-1 Not subject to mandatory redemption l

50,905 i 50,905 Subject to mandatory redemption l

15,000 15,000 s

Company obligated mandatorily redeemable preferred securities of l

elbsidiary trust holding solely Company subordinated debentures 120,000 M9: term debt 5,565,997 5,852,030 2,786,256

. 166,593 3

dU'RRENT LIABILITi$S: ' ~

~~

~

Currently payable long-term debt 376,716 l 227,496 Short-term borrowings (Note 6) l 119,965 l 174,642 Accounts payable i

100,536 100,884 Accrued taxes 131,432 140,629 Accrued interest 57,462 65,743 Other 196,482 152,856 D5FERRED dREDITS:

~

~ ~ ~ ~

~ ~ ~

~~ ~

~

{

Accumulated deferred income taxes 1,772,434 1,799,324 Accumulated deferred investment tax credits 213,876 i 223,827 Other 289,034 I 256,533

~

2,'275,344 l 2,279,684 e

COMMITMENTS, GUARANTEES AND CONTIAGEA6lES

~

(Notes 4 and 7).

..$8,823,934 i j

$8,993,964 ;

The accompanytng Notes to Consohdated Financial Statements are an integral part of these balance sheets.

18

Consolidated Ctatements Of Retained Earnings Ohio Edison Company (ln thousands)

For the Years Ended December 31, 1995 1994 1993 Balance at beginning of year

$389,600

$322,821

$490,564 '

Net income 317,241 303,531 82,724 Tax benefit from ESOP dividends 5,256 706,841 ;

626,352 l 578,544 Cash dividends on preferred and preference stock 20,234 21,926 23,275 -

Cash dividends on common stock 215,512 214,826 '

228,855 I

Premium on redemption of preferred stock 4

3,593 1 235,746 236,752 ;

255,723 Balance at end of year (Note 5A)

$471,095

$389,600 f

$322,821 l Consolidated Statements Of Capital Stock And Other Paid-in Capital Preferred and Preference Stock Not Subiect to Subject to Comrnon Stock Mandatory Redempton Mandatory Redempton Unallocated i Other ESOP Par or Par or of Shares '

Value

'! Paid-in 1

Number Par l Common Number Stated Number Stated Stock of Shares Value of Shares f Value l Capital (Dollarsin thousands)

Balance, January 1,1993 152,569,437 ) $1,373,125 l $731,793 ' $(187,318) - 3,542,399

$354,240 592,016 + $64,062 Allocaton of ESOP Shares 6,799 Sale of 7,75% Class A I

Preferred Stock (3,361) :

4,000,000 100.000 Sale of 7.75% Preferred Stock ;

(345) -

250,000 25,000

'7 Redemptions--

$102.50 Series (216).

(5,400) -

(5,400) '

8.24% Senes 1

(45,000):

(4,500) t 8.48% Senes (6):

(80,000).

(8.000) ;

8.64% Senes (400,000)'

(40,000).

9.12% Senes (450,000)

(45,000):

9.16% Senes (80,000) l (8.000)i 11.00% Senes (8,000)

(800) '

i 11.50% Senes (60,000),

(6,000) '

t 13 00% Senes l

(10,000)

(1,000) '

2 Ba$rce, December 31,1993 152,569.437 1,373,125 727 865 (180,519)! 6.782,399 378,240 463,516 46',362 Mnmimliabsty for unfunded retirement benefits (3,053) l Allocaton of ESOP Shares i

36 10,143 Redemptions-Market Aucton Senes (500,000)

(5n,000) '

4 11.00% Senes (3.616) '

(362) :

13.00% Senes (60,000):

(6,000).

Balance,Aecember 31,1994 152,'569,437 1,373,125 724,848 (170,376). 6,282,399 328,240 400,000 40,000 Mornum liabdity for unfunded retirement benefits 2,446 Allocaton of ESOP Shares 1,274 7,720 Sale of 9% Preferred Stock 4,800,000 120,000 Redemptions-(363,700): (36,370);

7.24% Senes (720) :

7,36% Senes (609) :

(350,000);

(35,000)-

8.20% Senes (932) :

(450,000); (45,000)

Balance, Decamber 31,1995 152,569,437 $1,373,125

$726,307

$(162,656) 5,118,699

$211,870 : 5.200,000

$160,000 The accompanying Notes to Conschdated Financial Staternents are an integral part of these staternents 19

Consolidated Statements Of CapitaHzation Ohio Edison Company on thousands, except per share arnounts)

At December 31 1995 1994 COMMON STOCKHOLDERS' EQUITY:

f Common stock, $9 par value, authonzed 175,000,000 shares-152,569,437 shares outstanding

$1,373,125 !

$1,373,125 l Other paid-in capital 726,307 724,848 j Retainedeamings(Note 5A) 471,095 389.600 ;

Unallocated employee stock ownership plan common stock-(170.376) l 8,663,575 and 9,076,489 shares, respectNely (Note SB)

(162,656)l Totalcommon stockholders'equrty 2,407,871 l 2,317,197 Number of Shares i

Optonal Outstanding Redempton Pnce i

1995 1994 Per Share Aggregate PREFERRED STOCK (Note SC)-

Cumulatwe, $100 par value-Authcazed 6,000,000 shares Not Subject to Mandatory Redempton:

l 3.90 %

152,510 152.510

$103.63 i

$ 15,804 15,251 15,251 4.40 %

176,280 176,280 108.00 19,038 17,628 1 17,628 4.44 %

136,560 I 136,560 103.50 '

14,134 13,656 13,656 4.56 %

144,300 144,300 103.38 14 917 14,430 l 14,430 7.24 %

363,700,

36,370 7.36 %

350,000 i 35,000 45,000 8.20 %

450,000

_177,335 I 609.650 1,773,350 63,893 60,%5 '

Cumulatwe, $25 par value-Authonzed 8,000,000 shares Not Subject to Mandatory Redempton:

i l

100,000 100,000 7.75 %

4,000,000 1 4,000,000 l Totalnot subject to l

mandatory redempton 4,609,650 5,773,350 {

$ 63,893 160,%5 l 277,335 CumulatNe, $100 par valu-Subject to Mandatory Rdempton (Note 50):

8.45 %

250,000 250,000 25,000 25,000,

I PREFERRED STOCK OFCONSOUDATED SUBSIDIARY (Note 5C):

Pennsylvana Power Company I

CumulatNe, $100 par value-I Authonzed 1,200,000 shares l

Not Subject to Mandatory Redempton:

4 000 ;

4.24 %

40,000 40,000

$103.13

$ 4,125 '

4,000 4,105 l; i

4.25 %

41,049 41,049 !

105.00 4,310 4,105 4.64 %

60,000 60,000 l 102.98 6,179 6,000 6,000 !

7.64 %

60,000 60,000 l 101.42 '

6,085 6,000 6,000 '

7.75 %

250,000 250,000 l 25,000 25,000 8.00 %

58,000 58,000 1 102.07 5,920 5,800 5,800 ;

I Totalnot subject to mandatory redempton 509.049 509.049 i

$ 26,619 50,905 50,905 l Sub ect to Mandatory Redsnpton (Note SDr i

7.625 %

150,000 150,000 15,000 15,000 ;

COMPANYOBUGATED MANDATORA.Y i

REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY COMPANYSUBORDINATED l

DEBENTURES (Note SE):

CumulatNe, $25 par value-Authonzed 4,800,000 shares Subject to Mandatory Redempton:

9L0%

4,800,000 120,000 20

Consolidated Statements Of Capitalization (Continued)

Ohio Edison Company On thousands)

At December 31, l

1995 i

1994 1995 1994 1995 1994

{

LONG-TERM DEBT (Note SF):

Fast mortgage bonds:

PemsAaniaPowerCorpany -

l Ohio Edison Company-12.740% due 1995 30,000 9.000%due 1996 50,000 50,000 8.500% due 1996 150,000 i 150,000 9.740% due 1999 2019 :

20,000 i 20,000 8.750% due 1998 150,000 !

150,000 7.500%due 2003

}

40,000 40,000 6 875% due 1999 150,000 l 150,000 !

6.375%due 2004 l

50,000 '

50,000 f

6.375% due 2000 80,000 i 80,000 6.625% due 2004 20,000 20,000 <

i 7.375% due 2002 120,000 120,000 8.500%due 2022 27,250 50,000 7,500% due 2002 34,265 34,265 7.625% due 2023 19,500 40,000 125,000 l' l

8.250% due 2002 125,000 8.625% due 2003 150,000 j 150,000 6.875% due 2005 80,000 j 80,000 l

9.750% due 2019 35,300 1 35,300 8.750% due 2022 94,210 l 100.000 i

7.625% due 2023 75,000 '

75,000 I

7.875% due 2023 100,000 100,000 Total first mortgage bonds 1,343,775 ! 1,379.565 226,750 270,000 1,570,525 1,649.565 Secured notes:

i l

i Ohio Edison Company-l

' PerrsvNarvaPowerCompany-8.380% due 1996 16,464 I 53,718 4.750%due 1998 850 850 l

7.930% due 2002 69,579 l 77.997 6.080% due 2000 23,000 23,000 i

7.680% due 2005 200,000 l 200,000 5.400%due 2013 1,000 1,000 6.750% due 2015 40,000 8.125%due 2015 i

14,250 10.500% due 2015

- l 60,000 5 400%due 2017 l

10,600 1, 10,600 t

10 625% due 2015

- l 40,000 7.150%due 2017

{

17,925 17,925 i

7.450% due 2016 47,725,

47,725 5.900% due 2018 j

16,800 16,800 t

7.100% due 2018 26,000 l 26,000 8.100%due 2018 10,300 10.300 !

7.050% due 2020 60,000 l 8.100% due 2020 t

5,200 5,200 7.000% due 2021 69,500 69.500,

7.150%due 2021 14,482 14,482 7.150% due 2021 443 443 6.150%due 2023 12,700 12,700 1

7 625% due 2023 50,000 50,000 6.450% due 2027 14,500 14,500 8.100% due 2023 30,000 30,000 5.450%due 2028 l

6,950 6,950 7.750% due 2024 108,000 108,000 6.000%due 2028 i

14,250 5.625% due 2029 50,000 50,000 5.950% due 2029 l

238 238 I

5.950% due 2029 56,212 l 56,212 I

5.450% due 2033 14,800 :

14.800 i

838,723 884,395 I 148,795 148,795 987,518 1,033,190 OES Fuel--

6.08% weghted average -

i interest rate 97,162

, 24,984 ;

1 Tota! secured notes l

l 1,084,680 1,158,174 '

Unsecured notes-Ohio Edison Company-9.440% due 1995 75,000 l 7.430% due 1997 i

100,000 100,000 8.635% due 1997 50,000 50.000 4.900% due 2012 50,000 50,000,

4.250% due 2014 50,000 50,000 3.450% due 2015 4.400% due 2018 50,000 50,000 '

56,000 56,000 4.750% due 2018 1

57,100 57,100,

4.300% due 2032 53,400 53,400 Total unsecured notes l

466,500 541,500 Capitallease obigations(Note 4).

48,221 54,180 Netimmortzeddiscount on debt (6,954) :

(9,330) ;

Long-term &bt due ser are year (376,716)

(227,496 Totaliong-term debt l

2,786,256

,3,166.593 '

TOTAL CAPITALIZATION

$5,565,997

$5.852.030 The accompanying Notes to Consohdated Financial Statements are an integral part of these statements 21

t Consolidated Statements Of Cash Flows Chio Edison Oompany (In thousands)

For the Years Ended December 31, j

1995 1994 1993 CASH FLOWS FROM OPERATING ACTMTIES:

I

$ 82,724 f Not Income

$317,241

$303,531 Adjustments to reconcile net income to net cash from operating activities:

l Provision for depreciation 256,085 220,502 217,980 Nuclear fuel and lease amortization 70,849 72,141,

59,858 Deferred income taxes, net l

53,395,

21,156 !

(26,233)

Investment tax credits, net (9,951) !

(8,036)i (8,345)

Allowance for equity funds used during construction (5,277) :

(4,257)

Deferred fuel costs, net 3,916 (2,656) !

(1,078)

Perry Unit 2 termination 390,835,

Cumulative effect of c change in accounting for unbilled revenues j

(58,201)i Receivables (20,452)-

32,113 (1,962) 12,428 6,865 !

41,467 Materials and supplies Accounts payable 3,545 (18,261)i 9,823 Other 66,158 j 72,986,

20,272 Net cash provided from operating activities 753,214 695,064 722,883 CASH FLOWS FROM FINANCING ACTMTIES:

New Financing-Preferred stock 120,000 i

121,294 Long term debt 254,365,

434,759 <

765,358 Short-term borrowings, net 70,516 Redemptions and Repayments-l Preferred and preference stock l

117,528 l 56,362,

122,502 Long-term debt 499,276 1 483,347 '

773,128 Short-term borrowings, net 54,677,

47,445 Dividend Payments-j l

Common stock i

217,192 216,782 >

224,943 Preferred and preference stock 20,623,

21,483 20,926 Net cash used for financing activities 534,931,

272,699 '

302,292 l CASH FLOWS FROM INVESTING ACTMTIES:

Property additions 198,103 !

258,249 256,746 Letter of credit collateralization deposit 277,763 Other 13,641 <

22,752 18,367 Net cash used for investing activities l

211,744,

558,764 '

275,113 i

Net increase (decrease)in cash and cash equivalents 6,539 '

(136,399):

145,478 Cash and cash equivalents at beginning of year 23,291 i 159,690 14,212 Cash and cash equivalents at end of year

$ 29,830

$ 23,291

$159,690 SUPPLEMENTAL CASH FLOWS INFORMATION:

l

$262,410 ll Cash Paid During the Year--

[

i Interest (net of amounts capitalized)

$254,789

$267,319 j

178,643 143,202 94,272 l Income taxes The accompanying Notes to Consolidated Financial Statements are an integral part of these Statements.

22

Consolidated Statements Of Taxes Ohio Edison Company (in thousands)

For the Years Ended December 31, 1995 1994 1993 GENERAL TAXES:

Realand personal property

$ 118,707 ' $ 113,484 : $ 124,709 1 State gross receipts 100,591 l 100,996 97,348 l I

Social secunty and unemployment 15,787 l 14,822 15,626 Other

-. - _8,094 l 7,718 l 7,871 Total general taxes

$ 243,179 i $ 237,020 l $ 245,554 l PROVISION FOR INCOME TAXES:

l Currently payable-I l

Federal

$ 145,511 l $ 161,219 ! $

61,920 State 10,352 14,547 5,544

___l 155,863 175,766 i 67,464 Deferred, net-Federal 50,631 i 20,796 489 State 2,764 '

360 6,455 53,395 l 21,156 l 6,944

_.-_._l investment tax credit amortization l

(9,951) !

(8,036)i (8,345)

Total provision for income taxes i $ 199,307 { $ 188,886 $

66,063 INCOME STATEMENT CLASSIFICATION

{

{

OF PROVISION FOR INCOME TAXES:

j Operating income

$ 191,972 i $ 181,514

$ 166,773 I

Otherincome 7,335 ;

7,372 (134,342)

Cumulative effect of a change in accounting 33,632 199,307 f $ 188,886 l $

66,063 Total provision for income taxes i

RECONCILIATION OF FEDERAL INCOME TAX EXPENSE AT i

l STATUTORY RATE TO TOTAL PROVISION FOR INCOME TAXES:

Book income before provision for income taxes S 516,548 ' $ 492,417 l $ 148,787 Federal income tax expense at statutory rate

$ 180,792 ! $ 172,346 i $

52,075 '

increases (reductions) in taxes resulting from-i Amortization of investment tax credits l

(9,951)l (8,036) ;

(8.345)

State income taxes net of federal income tax benefit l

8,525,

9,690 '

7,799 Amortization of tax regulatory assets

{

19,690 l 14,503 15,412 Other, net 251,

383 i (878)

__-[

__ ___i__.___._

Total provision forincome taxes l$ 199,307 i $ 188,886 j $

66,063 i i

ACCUMULATED DEFERRED INCOME 1 AXES AT DECEMBER 31:

Property basis differences

, $1,047,387

$1,024,737

$ 972,501 !

Allowance for equity funds used during construction l

263,465 '

278,172 282,525 l Deferred nuclear expense 271,114 277,951,

283,134 l Customer receivables for future income taxes 204,978 237,826 l 244,540 i

Deferred sale and leaseback costs I

82,381 i 87,068 '

90,878 '

Unamortized investment tax credits (77,777) l (82,491) l (85,459) j Other (19,114 (23,939)i 10,432 ' Net deferred income tax liability l $1,772,434 $1,799,324 $1,798,551 The accompanying Notes to Consohdated Financial Statements are an integral part of these statements. t 23

Votes to Concolidated Financial Statements t EUMMARY OF CIONIFICANT ACCOUNTING tion f rom customer s included as an adjustment to a sub-POLICIES: sequent energy rate. The Company followed this practice The consolidated financial statements inniu-te until July 1,1995, at which time current penod deferral for Ohio Edison Company (Company) and its wi ,iy owned over or under collections ceased in accordance with the subsidiaries. Pennsylvania Power Company (Penn Power) Regulatory Plan. is the Company's pnncipal subsidiary. All significant inter-In 1995, the Company sold substantially all of its materk company transactions have been eliminated The als and supplies, except for those located at generating Company and Penn Power (Companies) follow the units not operated by the Company. No gain or loss accounting policies and practices prescnbed by the Public resulted f rom this transaction. The buyer now provides all Utilities Commission of Ohio (PUCO), the Pennsylvania of the Company's materials and supplies under a consigr>- Pubhc Utility Commission (PPUC) and the Federal Energy ment arrangement. In accordance with Statement of Regulatory Commission (FERC) The proparation of finar)- Financial Accounting Standards (SFAS)No.49, cial statements in conformity with generally accepted " Accounting for Product Financing Arrangements," the accounting principles requires management to make estF materials and supplies continue to be reflected as assets mates and assumptions that affect the reported amounts on the Consolidated Balance Sheet even though the sup-of assets, liabilities, revenues and expenses dunng the plier owns the material. reporting penod. Utility Plant and Depreciation -Utility plant Revenuee -The Companies' principal business is refiects the original cost of construction, including payroll providing electnc service to customers in central and and related costs such as taxes, employee benefits, northeastern Ohio and western Pennsylvania The administrative and general costs and financing costs Companies' retail customers are metered on a cycle (allowance for funds used dunng construction). basis. Revenue is recognized f or unbilled electric service The Companies provide f or depreciation on a through the end of the year (see Note 2). straight-line basis at vanous rates over the estimated lives Receivables f rom customers include sales to of property included in plant in service. The annual com-residential, commercial and industnal customers located posite rate for electric plant was approximately 3 0% in in the Companies' service area and sales to wholesale 1995,1994 and 1993. In addition to the straight-line depre-customers. There was no matenal concentration of ciation recognized in 1995, the Company also recognized receivables at December 31,1995 or 1994,with respect to $27,000,000 of additional depreciation in accordance with any particular segment of the Companies' customers. the Regulatory Plan. Regulatory Plan-In the second half of 1995 the Annual depreciation expense includes approximately PUCO approved the Company's Rate Reduction and $7,600,000 for f uture decommissioning costs applicable Economic Development Plan (Regulatory Plan). As part of to the Companies' ownership and leasehold interests in the Regulatory Plan, transition rate credits were imple-three nuclear generating units. The Companies' share of mented for customers on November 1,1995, which are the future obligation to decommission these units is expected to reduce operating revenues by approximately approximately $399,000,000 in current dollars and (using $600,000,000 dunng the Regulatory Plan period,which a 2.8% escalation rate) appi oximately $865,000,000 in expires December 31,2005. The Regulatory Plan also future dollars. The estimated obligation (based on site-established a revised f uel recovery rate formula, which specif!c studies) and the escalation rate were developed eliminated the automatic pass-through of fuel costs to using information obtained f rom consultants. Payments the Company's retail customers. Under the revised for decommissioning are expected to begin in 2016, when formula the f uel recovery rate will be adjusted based upon actualdecommissioningworkbegins TheCompanies annual changes in the Gross Domestic Product implicit have recovered approximately $55,000,000 tor decorn-Price Deflator. missioning through their electric rates from customers All of the Company's regulatory assets are now being through December 31,1995; such amounts are reflected recovered under provisions of the Regulatory Plan. In in the reserve for depreciation on the Consolidated addition, the PUCO ordered the Company to recognize Balance Sheet. lf the actual costs of decommissioning the additional depreciation expense related to its generating units exceed the f unds accumulated f rom investing assets and additional amortization of regulatory assets amounts recovered from customers, the Companies ounng the ten-year Regulatory Plan penod of at least expect that additional amount will be recoverable f rom $2,000,000,000 more than the amount that would have their customers. The Companies have approximately been recognized if the Regulatory Plan were not in effect. $65,100,000 invested in external decommissioning trust These additional amounts are being recovered through funds as of December 31,1995. Earnings on these funds current rates. Among other provisions,the Regulatory are reinvested with a corresponding increase to the depre-Plan also limits the Company's annual earnings on ciation reserve. The Companies have also recognized an common stock; any amounts otherwise earned in excess estimated liability of approximately $18,000,000 related to of the limitation would be credited to the Company's retail decontamination and decommissioning of nuclear enrich-customers in a future period. ment f acilities operated by the United States Department Materials and supplies - The Companies of Energy (DOE), as required by the Energy Policy Act of recover fuel-related costs not otherwise included in base 1992. The Companies recover these costs through their rates from retail customers through separate energy respective energy rates. rates. Penn Power defers the dif forence between actual The Financial Accounting Standards Board (FASB)is f uel-related costs incurred and the amounts currently reviewing the accounting for nuclear decommissioning recovered from customers, with any over or under collec-costs. If current electnc utility industry accounting prac-24

tices for decommissioning are changed: (1) annual provF The following sets fortn the f unded status of the plan sions for decommissioning could increase,(2) the full and amounts recognized on the Consolidated Balance estimated cost for decommissioning could be recorded as Sheetsas of December 3t a liability rather than as accumulated depreciation; and (3) gg3 3994 income from the external decommissioning trusts could be reported as investment income. The FASB issued its proposed accou,1 ting standard in Fobruary 1996. emWh%h Vested benefits $546,936 $483,850 Common Ownership of Generating Nonvested benefits 36,548 27,312 Paollettes - The Companies and other Central Are Power Coordination Group (CAPCO) companies own, as Accumulated benefit obligation $583,484 $511,162 tenants in common, vanous power generating f acilities. Plan assets at fair value $857,961 $719,310 Each of the companies is obligated to pay a share of the Actuanalpresent value of projected costs associated with any jointly owned f acihty in the same @n 80 593,931 proportion as its interest. The Companies' portions of oper-Plan assetsin excess of projected e gaton 172,781 125,379 ating expenses associated with jointly owned f acikties are included in the corresponding operating expenses on the Consolidated Statements of Income. The amounts 2 'Jnrecognized not transition asset (41,830) (49,775) reflected on the Consolidated Balance Sheet under utility Not portsion asset $112,091 $ 97,227 plant at December 31,1995, include the following: Companies' Theassetsof theplanconsistprimanlyof common M Z" stocks, United States government bonds and corporate Genemting Uruts in Serwce Depreciation Progress Interest bonds. Net pension costs for the three years ended gn trasares; December 31,1995, were computed as follows: W.H. Sammis # 7 $ 303.700 $ 89,900 $ 1,700 68.80 % 1995 1994 1993 Bruce Mansfdd gn % gg

1. 1, #2 and #3 777,500 336,500 3,600 50.68 %

See mWe e meddunngthepenod $ 12,794 $ 15,159 $ 13,171 2 1,849,900 606,600 3,600 47.11 % I" " [ # * *"*N Peny # 1 1,624,500 356,000 9,600 35.24 % 48,135 45,299 42,723 Total $4,555.600 $1,389.000 $18,500 Retum on plan assets (194,465) 8.344 (97,849) Net deferral (amortization) 118.672 (89,324) 14,954 Nuclear Fuel-Nuclear f uelis recorded at Voluntary earty retirement onginal cost, which includes matenal, enrichment. fabnca-program expenso 37,299 0,014 tion and interest costs incurred prior to reactor load. The Net pension cost $(14,864) $ 16,777 $(20,987) Companies amortize the cost of nuclear fuel based on the rate of consumption The Companies' electric rates The assumed discount rate used in determining the include amounts for the future disposal of spent nuclear actuarial present value of the projected benefit obligation fuel based upon the formula used to compute payments to was 7.5% in 1995 and 1993, and 8.5% in 1994. The assumed the DOE. rate of increase in future compensation levels used to IncomeTaxes-Detailsof thetotalprovisionfor measure this obligation was 4.5% in each year. Expected income taxes are shown on the Consokdated Statements long-term rates of return on plan assets were assumed to of Taxes Deferred income taxes result from timing differ-be 10%in 1995 and 1994 and 11% in 1993. ences in the recognition of revenues and expenses for tax The Companies provide a minimum amount of and accounting purposes. Investment tax credits, which noncontributory life insurance to retired employees in were deferred when utihzed, are being amortized over the addition to optional contributory insurance. Health care recovery period of the related property The liabihty method benefits, which include certain employee deductibles and is used to account for deferred income taxes. Def erred copayments, are also available to retired employees, their income tax habikties related to tax and accounting basis dif-dependents and, under certain circumstances, their f erences are recognized at the statutory income tax rates survivors The Companies payinsurance premiums to in ef fect when the liabilities are expected to be paid. cover a portion of these benefits in excess of set limits;all Flettrement menefits -The Companies' amounts up to the hmits are paid by the Companies. The trusteed, noncontnbutory defined benefit pension plan Companies recognize the expected cost of providing other covers a!most all ft ll-time employees. Upon retirement, postretirement benefits to employees and their beneficia-employees receive a monthly pension based on length of ries and covered dependents from the time employees are service and compensation. The Companies use the pro-hired until they become ehgtble to receive those benefits. jected unit credit method for funding purposes and were not required to make pension contnbutions during the three years ended December 31,1995. 25 I \\

NOTES Continued The following sets forth the f unded status of the plan equivalents on the Consolidated Balance Sheets. The and amounts recognized on the Consolidated Balance Companies reflect temporary cash investments at cost, Sheets as of December 31. which approximates their market value. Noncash financ-ing and investing activities included capital lease g ,994 transactions amounting to $1,017,000, $3,613,000 and g g, $ 1,487,000 for the years 1995,1994 and 1993, respectively Commercial paper transactions of 0ES Fue!(a wholly a t Retirees $148,169 $165.386 owned subsidiary of the Company) have initial maturity Fully chgit>le active plan partopants 12,578 12,381 penods of three months or less, and accordingly are Other active plan partapants 77,550 77,599 reported not within financing activities under long-term Accumulated postretirement benefit obligation 238,297 255,366 debt and are reflected as long-term debt on the Plan assets at fair value 1,269 Consolidated Balance Sheets (see Note 5F). All borrowings with initial matunties of less than one Accumulated postretirement benefit obligationin excess of plan assets 237,028 255,366 year are defined as financial instruments under generally Unrecognized transition obligation (152,263) (183,196) accepted accounting pnnciples and are reported on the Unrecognized net loss (17,038) (23,425) Consolidated Balance Sheets at cost, which approximates Not postretirement benefit hability $ 67,727 $ 48,745 their f air market value. The following sets forth the approxi-mate f air value and related carrying amounts of all other Net penodic postretirement benefit costs for the three long-term debt, pref erred stock subject to mandatory years ended December 31,1995, were computed as redemption and investments other than cash and cash follows: equivalents as of December 31: 1995 1994 1993 1995 1994 (In thousands) Caryng Fair Carrying Fair Value Value value Value Service cost-benefits attributed to the penod $ 4,499 $ 4,865 $ 3.929 (in mons) Interest cost on accumulated Long-term debt $3,025 $3,152 $3.224 $3,062 beneht obhgation 21,073 19,332 18,039 Preferred stock $ 160 $ 163 $ 40 $ 38 Amortizationof transitionobhgation 10,178 10,178 10,178 Investments other than cash Amortization ofloss 110 787 and cash equivalents $ 353 $ 394 $ 320 $ 317 Voluntary earty retirement program expense 2.815 1,533 The fair values of long-term debt and pref erred stock Not penodic postretIrement reflect the present value of the cash outflows relating to benefit cost $35,860 $37,977 $33,679 those securities based on the current call price, the yield to matunty or the yield to call, as deemed appropnate at the The health care trend rate assumption is 6.0% in the end of each respective year. The yields assumed were first year gradually decreasing to 4.0% for the year 2008 based on securities with similar charactenstics offered by and later. The discount rates used to compute the accu-a corporation with credit ratings similar to the Companies' mulated postretirement benefit obligation were 7.5% in ratings. 1995 and 1993, and 8.5% in 1994. An increase in the health The f air value of investments other than cash and cash care trend i ate assumption by one percentage point in all equivalents represent cost (which approximates f air years would increase the accumulated postretirement value) or the present value of the cash inflows based on benefit obligation by approximately $29,400,000 and the the yield to matunty The yields assumed were based on aggregate annual service and interest costs by approxL financial instruments with similar characteristics and mately $3,500,000. terms Investments other than cash and cash equivalents The Company deferred postretirement benefits until consist primanly of decommissioning trust investments of the Regulatory Plan became ef fective. The costs are no approximately $65,100,000 and a letter of credit collateral longer being deferred and are currently being recovered deposit of $277,763,000. Unrealized gains and losses through rates along with the def erred amounts. applicable to the decommissioning trust have been recog-Emenings Per Share Of Common Stock - nized in the trust investment with a corresponding of f set to The American Institute of Certified Public Accountants the reserve for depreciation. The collateral deposit is in the issued its Statement of Position 93-6 (SOP)in late 1993, held-to-matunty category with a maturity date of July 15, which changed generally accepted accounting pnnciples 2004. The fair value of the deposit at December 31,1995, relating to employeo stock ownership plans (ESOP) f or was $318,383,000. The Companies have no secunties shares purchased after December 31,1992.The held for trading purposes. Company's ESOP shares were purchased pnor to that Regulatory Assets-The Companies recog-date, but the Company elected to adopt the SOP ef fective nize, as regulatory assets, costs which the FERC, PUCO January 1,1994. This change in accounting reduced net and PPUC have authorized f or recovery from customers in income by approximatety $8,700.000 in 1994; the net f uture periods. Without such authonzation, the costs eff ect to earnings per comrnon share resulting f rom this would have been charged to income as incurred. All regu-change was an increase of six cents after eliminating unaL latory assets are being recovered from customers under located ESOP shares from the computation. the Company's Regulatory Plan. Penn Power's rates cur-Supplemental Cash Flows Information - rently exclude approximately $61,000,000 of deferred All temporary cash investments purchased with an initial costs Based on the Company's Regulatory Plan and matunty of three months or less are reported as cash 26

Penn Power's expected rate treatment based on PPUC basic rental payments are adjusted when apphcable precedent, it is improbable that the Companie ; will be federal tax law changes The Company has the right, at the required to terminate application of SFAS No. 71 end of the respective basic lease terms, to renew the " Accounting for the Effects of Certain Types of Regulation

• leases for up to two years The Company also has the nght in the foreseeable future.

to purchase the facilities at the expiration of the basic lease Regulatory assets on the Consolidated Balance Sheets term or renewalterm (if elected) at a price equal to the fair arecomprisedof thefollowing: marketvalueof thefacihties. OES Finance, incorporated (OES Finance), a wholly 1995 1994 m thousands) owned subsidiary of the Company, was estabhshed in Nuclear unit expenses $ 758,434 $ 771,538 1994 f r the sole purpose of maintaining deposits pledged Customer receivables for future as collateral to secure reimbursement obligations relating incone taxes 559,660 639,592 to certain letters of credit supporting the Company's obhg-Sale andleaseback costs 231,435 242,033 ations to lessors under the Beaver Valley Unit 2 sale and Loss on reacquired debt 96,738 99,384 leaseback arrangements The deposits pledged to the Employee postretirement benefit costs 32,397 27,055 financialinstitution providing those letters of credit are the Uncollectible customer accounts 32,540 44,368 sole property of OES Finance. In the event of hquidation, Perry Unit 2 terminaton 39,639 38,066 OES Finance, as a separate corporate entity, would have to t t ss 19,310 21.170 sWs oWaMns mes Mm awo% asses s Other 16.390 15.669 could be made available to the Company as sole owner of ~ Total $1.786.543 $1,898',875 Consistent with the regulatory treatment, the rental D. CHANGE IN ACCOUNTING POR UNNILLED payments for Capital and operating leasas are charged to REVENUES: operating expenses on the Consolideted Statements of On January 1,1993, the Cornpanies changed their income. Such costs for the three years ended December , am semad as Mows: accounting policies to recognize revenue relating to metered sales which remain unbilled at the end of the 1995 1994 1993 accounting period. This change was made to more closely m thousands) match the Companies' revenues with the costs of services Operatingleases provided The cumulative of fect to January 1,1993, was Interest element $104,551 $100,980 $ 96,804 $58,201,000 (net of $33,632,000 of income taxes) or Other 13,896 14.530 15,418 $.38 per share. Capitalleuses Interest element 6,983 7.483 7,896

3. P3RRY UNIT 2 TERMINATION:

Other 6,636 6.960 6,843 In December 1993, the Companies announced that Totalrentalpaynents $132,066 $129,953 ' $126,961 .they would not participate in further construction of Perry Uns* 2 and abandoned Perry Unit 2 as a possible electric The future minimum lease payments as of December generating plant. The Company determined that recovery 31,1995, arc: from customers of its Perry Unit 2 investment was improb-able, resulting in a $366,377,000 wnte-off of its investment Q[ang in 1993 Penn Power expects its Perry Unit 2 investment to I be recoverable from its retail customers based on 1996 $ 15,425 $ 108,495 Section 520 of the Pennsylvania Pubkc Utihty Code. Due t the anticipated delay in commencement of recovery and 0 9 1999 taking into account the expected rate treatment, Penn 11,216 125,630 2000 Power recognized an impairment to its Perry Unit 2 invest-9,888 124,887 Years thereafter 94.228 2,237,913 ment of $24,458,000 in 1993. As a result, net income for the year ended December 31,1993, was reduced by Totalminimumlease payments 157,351 $2,831,577 $248,743,000 ($1.63 per share of common stock). Executory costs 40,527

4. LEASES:

Net minimum lease payments 116,824 Interest portion 68.603 The Companies lease a portion of their nuclear gener-ating facihties, certain transmission facshties, office space Present value of not minimum lease payment 48.221 Less current porton 5,741 and other property and equipment under cancelable and noncancelableleases Noncurrent porton $ 42,480 The Company sold portions of its ownership interests

5. CAPITALIZATION:

in Perry Unit 1 and Beaver Valley Unit 2 and entered into operating leases on the portions sold for basic lease terms (A) Retained Emenings - Under the Company's of approximately 29 years. During the terms of the leases first mortgage indenture, the Company's consohdated the Company continues to be responsible, to the extent of retained earnings unrestricted for payment of cash its combined ownership and leasehold interest, for costs dividends on the Company's common stock were associated with the units including construction expends $404,276,000 at December 31,1995. tures, operation and maintenance expenses, insurance' (B) Employee Stock Ownership Plan - nuclear fuel, property taxes and decommissionhg. The The Companies fund the matching contnbution for their 401(k) savings plan through an ESOP Trust. All full-time 27

NOTC) Continued employees eligible for participation in the 401(k) savings beginning December 31,2000, by the Company at a plan are covered by the ESOP The ESOP borrowed redemption pnce of $25 per Subordinated Debenture plus $200,000,000 f rom the Company and acqJired accrued interest,in which event the Trust Secunties will be 10,654,114 shares of the Company's common stock on redeemed on a pro-rata basis at $25 per share plus accu-the open market. Dividends on ESOP shares are used to mulated distnbutions. The Company's obligations under service the debt. Shares are released from the ESOP on a the Subordinated Debentures along with the related pro rata basis as debt service payments are made. In Indenture, amended and restated Trust Agreement, 1995,1994 and 1993,412,914 shares,532,250 shares and Guarantee Agreement and the Agreement for expenses 369,956 shares, respectively, were allocated to employees and liabilities constitute a full and unconditional guarantee with the corresponding expense recognized based on the by the Company of payments due on the Preferred shares allocated method. The f air value of 8,663,575 Secunties. shares unallocated as of December 31,1995,was approxF (P) Long-Term Debt -The first mortgage mately $203,594,000 Total ESOP-related compensation indentures and their supplements, which secure all of the expensewascalculated as follows: Companies' first mortgage bonds, serve as direct first mortgage liens on substantially all property and f ran-1995 1994 1993 ~ chises, other than specifically excepted property, owned vn thousands) by the Companies. Base compensation $ 8,994 $10,179 $ 6.799 Based on the amount of bonds authenticated by the Interest on ESOP debt 19,985 Trustee through December 31,1995, the Company's Dividends on common stock he8d by the ESOP and used annual sinking and improvement f und requirement for all to service debt (2,503) (1,966) (15,944) bonds issued under the mortgage amounts to Interest earned by the ESOP (275) $30,056,000. The Company expects to deposit funds in Totalexpense $ 6,491 $ 8,213 $10,565 1996 that will be withdrawn upon the surrender f or cancel 1 tionof alikeprincipalamountof bonds,whichare (C) Preferred Stock-Penn Power's 7.625% specifically authenticatea for such purposes against and 7.75% senes of preferred stock have restrictions unfunded property addrtions or against previously retired which prevent early redemption prior to October 1997 and bonds. This method can result in minor increases in the July 2003, respectively The Company's 8.45% series of amoun e annuaWnMng Onh@ emet preferred stock has no optional redemption provision, anci Sinking fund requiremento for first mortgage bonds its 7.75% senosis not redeemable before April 1998. All and maturing long-term debt (e.xcluding capital leases) for other preferred stock may be redeemed by the ne e ye rs am Companies in whole, or in part, with 30-60 days' notice. (D) Preferred Stook Subject to 1996 $370 975,000 Mandatory Redemption - The Company's 8.45% 1997 369.261,000 senes of pref erred stock has an annual sinking fund 1998 258,683,000 requirement for 50,000 shares beginning on Septemoer 1999 162,036,000 16,1997. Penn Power's 7.625% series has an annual 2000 116.473,000 sinking fund requirement for 7,500 shares beginning on October 1,2002. Amounts shown above for 1996 include $38,300,000 The Companies' preferred shares are retired at $100 of first mortgage bonds optionally redeemed in January per share plus accrued dividends. S nking fund require-1996. ments f or the next five years are $5,000,000 in each year The Companies' obligations to repay certain pollution from 1997 through 2000. control revenue bonds are secured by several series of (E) Company Obligated Mandatority first mortgage bonds and,in some cases, by subordinate Redeemable Preferred Securities Of liens on the related pollution control f acilities. Certain pollu-Subsidiary Trust Holding Solely Company tion control revenue bonds are entitled to the benef!t of Subordinated Debentures - Ohio Edison irrevocable bank letters of credit of $338,831,000. To the Financing Trust, a wholly owned subsidiary of the extent that drawings are made under those letters of credit Company, was established in 1995 and issued to pay principal of, or interest on, the pollution control $120,000,000 of 9% Cumulative Trust Preferred Capital revenue bonds, the Company is entitled to a credit against Secunties TheCompanypurchasedallof theTrust's its obligation to repay those bonds. The Company pays Common Secunties and simultaneously issued to the annualfeesof 0.55%to0.875%of theamountsof the Trust $123,711,350 principal amount of 9% Junior letters of credit to the issuing banks and is obligated to Subordinated Debentures due 2025 ln exchange for the reimburse the banks for any drawings thereunder. proceeds that the Trust received f rom its sale of Preferred Nuclear f uel purchases are financed through the and Common Secunties. The sole assets of the Trust are issuance of OES Fuel commercial paper and loans, both of the Subordinated Debentures whose interest and other which are supported by a $225,000,000 long-term bank payment dates coincide with the distribution and other credit agreement WNch expires March 31,1998. payment dates on the Trust Secunties. Under certain cir-Accordingly, the commercial paper and loans are cumstances the Subordinated Debentures could be reflected as long-term debt on the Consolidated Balance distributed to the holders of the outstanding Trust Sheets. OES Fuel must pay an annual f acility fee of Secunties in the event the Trust is liquidated. The 0.1875% on the total line of credit and an annual commit-Subordinated Debentures may be optionally redeemed ment fee of 0.0625% on any unused amount. 28

O.CHORT. TERM BORROWINO3 AND BANK of accumulated funds available to theinsurer for paying LINES OF CREDITS losses. Short-term borrowings outstanding at December 31, The Companies intend to maintain insurance against 1995, represent debt of OES Capital, Incorporated nuclear nsks as desonbed above as long as it is available. (OES Capital). a wholly owned subsidiary of the Company. To the extent that replacement power, property damage, Those borrowings are secured by customer accounts decontamination, decommissioning, repair and replace-receivable. OES Capital can borrow up to $120,000,000 ment costs and other such costs arising f rom a nuclear under a receivables financing agreement at rates based incident at any of the Companies' plants exceed the policy on certain bank commercial paper. OES Capital is limits of the insurance in effect with respect to that plant, to required to pay an annual fee of 0.41% on the amount of the extent a nuclear incident is determined not to be the entire finance hmit. The receivables financing agree covered by the Companies' insurance policies, or to the ment expires Apal 23, d 996 The Company plans to extent such insurance becomes unavailable in the future, negotiate an extension to this agreement. the Companies would remain at nsk for such costs. The Companies have hnes of credit with domestic Guarantees - The Companies, together with the banka that provide for borrowings of up to $52,000,000 other CAPCO companies, have each severally guarark under vanous interest rate options. Short-term barrowings teed certain debt and lease obhgations in connection with may be made under these lines of credit on the a coal supply contract for the Bruce Mansfield Plant. As of Companies' unsecured notes. To assure the availabikty of December 31,1995, the Companies' shares of the guaran-those knes, the Companies are required to pay annual tees (which approximate fair market value) were commitment iees that vary from 0.22% to 0.50%. These $72.851,000. The price under the coal supply contract, lines e xpire at various times dunng 1996. The weighted .vhich includes certain minimum payments, has been average interest rates on short-term borrowings outstand-determined to be suf ficient to satisfy the debt and lease ing at December 31,1995 and 1994, were 5.67% and obligations. The Companies' total payments under the 5 76%, respectively coal supply contract were $120,015,000, $99,774,000 and

7. COMMITMENTS.QUARANTEMS AND

$114.572,000 dunng 1995,1904 and 1993, respectively. CONTINGENCIES: Under the coal supply contract, the Companies' minimum Construction Program-The Companies, payments in each year during the penod 1996 through current forecasts reflect expenditures of approximately 1999 are approximately $35,000,000. $650,000,000 for property additions and improvements Environmental Matters - Various federal, from 1996-2000, of which approximately $160,000,000 is state and local authonties regulate the Companies with apphcable to 1996. Investments f or additional nuclear fuel regard to air and water quality and other environmental dunng the 1996-2000 penod are estimated to be approxF matters. The Companies have estimated additional capital mately $180,000.000, of which approximately expendituresforenvironmentalcomphanceof approxe $29,000,000 apphes to 1996. During the same penods, the mately $17,000,000, which is included in the construction Companies' nuclear fuelinvestments are expected to be forecast provided under " Construction Program" for 1996 reduced by approximately $191,000,000 and through 2000. $39,000,000, respectively, as the nuclear fuelis con-The Companies are in comphance with the sulfur dioxide (SO ) and nitrogen oxides (NOx) reduction sumed. 2 Nuclear Insurance - The Pnce-Anderson Act re@ements fo@5 unde @an Md Amendments of 1990. SO reductions for the years 1995 hmits the pubhc habihty relative to a single incident at a 2 nuclear power plant to $8,920,000,000. The amount is through 1999 are being achieved by burning lower-sulf ur covered by a combination of private insurance and an fuel, generating more electricity from lower-em tting industry retrospective rating plan. Based on their present plants, and/or purchasing emission allowances. Plans for ownership and leasehold interests in the Beaver Valley complying with reductions required for the year 2000 and Station and the Perry Plant, the Companies' maximum thereafter have not been finakzed. The Environmental potential assessment under the industry retrospective Protection Agency (EPA)is conducting additional studies rating plan (assurning the other CAPCO companies were which could indicate the need f or additional NOxreduc-to contnbute their proportionate share of any assess-tions from the Companies' Pennsylvania facihties by the ments under the retrospective rating plan) would be year 2003. The cost of such reductions,if required, may be $102,800,000 per incident but not more than $13,000,000 substantial. The Companies continue to evaluate their in any one year for each incident. comphance plans and other comphance options. The Companies are also insured as to their respective The Companies are required to meet f ederally pproved SO regulations. Violations of such regulations interests in the Beaver Valley Station and the Perry Plant 2 under pohcies issued to the operating company for each can result in shutdown of the generating unit involved plant. Under these pohcies, up to $2,750,000,000 is pro-and/or civil or criminal penalties of up to $25,000 for each vided for property damage and decontamination and day the unit is in violation. The EPA has an interim enforcement pokcy for SO regulations in Ohio that allows decommissioning costs. The Companies have also 2 obtained approximately $414,000,000 of insurance cover-for comphance based on a 30-day averaging period. The l age for replacement power costs for their respective EPA has proposed regulations that could change the ' interests in Perry and Beaver Valley. Under these pohcies, intenm enforcement pokcy, including the method of the Companies can be assessed a maximum of approxF determining comphance with emission kmits. The mately $17,400,000 f or incidents at any covered nuclear Companies cannot predict what action the EPA may take facihty occurnng dunng a pokcy year which are in excess 29

Repos t of Independent Public NOT!!O Continued Accountants in the f uture with respect to proposed regulations or the intenm enforcement policy. To the Stockholders and Board of Directors of Legislative, administrative and judicial actions will Ohio Edison cornpany: continue to change the way that the Companies must operate in order to comply with environmental laws and We have audited the accompanying regulations. With respect to any such changes and to the consolidated balance sheets and consolidated state-environmental matters described above, the Companies ments of capitalization of Ohio Edison Company (an expect that any resulting additional capital costs which Ohio corporation)and subsidiaries as of December may be required, as well as any required increase in oper-31,1995 and 1994, and the related consolidated ating costs, would ultimately be recovered f rom their statements of income, retained earnings, capital mstomas. stock and other paid-in capital, cash flows and taxes O. CUMMARY OF QUARTERLY FINANCIAL DATA for each of the three years in the period ended WNAumum December 31,1995. These financial statements are The following summarizes certain consolidated oper-the responsibility of the Company's management. ating results by quarter f or 1995 and 1994. Our responsibility is to express an opinion on these March 31, June 30, september 30 December 31, financial statements based on our audits. Three Months ErKbd 1995 1995 1995 1995 We conducted our audits in accordance with on tnovsands, excer per snare amounts / generally accepted auditing standards. Those OperatingRevenues $587,734 $593,838 $667,013 $617,261 standards require that we plan and perform the audit Operating Expenses and Taxes 453,921 454,424 508,024 482,859 to obtain reasonable assurance about whether the Operating Incomo 133,813 139,414 158,989 134,402 financial statements are free of material mis-other income 2.997 3,829 1,190 6,408 statement. An audit includes examining, on a test basis, evidence supporting the amounts and dis-t C 65,214 66,192 67,127 65,268 closures in the financial statemen. An audit also Net income $ 71,596 $ 77,051 $ 93,052 $ 75,542 ~~ ncludes assessing the accounting principles used Earnings on and significant estimates made by management, as Common Stock $ 66,237 $ 71,514 $ 87,703 $ 69,293 well as evaluating the overall financial statement Eamings per Share of presentation. We believe that our audits provide a Common stock S.46 $.50 $.61 $.48 reasonable basis for our opinion. March 31, June 30, September 30 December 31, In our opinion, the financial statements referred Three Months Ended 1994 1994 1994 1994 to above present f airly, in all material respects, the e thousands, exceptper snare amounts) financial position of Ohio Edison Company and OperatingRevenues $601,248 $585,428 $614,390 $ 567,125 subsidiaries as of December 31,1995 and 1994, and the results of their operations and their cash flows for and es 468,850 447,353 462,573 432,161 ~ each of the three years in the period ended Operating income 132,398 1'38,075 151,817 134,964 December 31,1995, in conformity with generally other income 2,255 3.534 5,032 5,638 Net Interest and accepted accounting principles. Other Charges 66,723 67,569 68,624 67,266 As discussed in Note 2 to the consolidated Net income $ 67,930 $ 74,040 $ 88,225 $ 73,336 financial statements, ef f ective January 1,1993, the Company changed its method of accounting for Earnings on Common Stock $ 62,329 $ 68,681 $ 82,869 $ 67,973 unbilled revenuns. Earnings per Share of Common Stock $.44 $.48 $.58 $.47 L pm, 3 ARTHUR ANDERSEN LLP Cleveland, Ohio February 8,1996 30

Conoolidated Financial And Operating Statistica Ohio Edison Company 1995 1994 1993 1992 1991 1990 1985 GENERAL FINANCIAL INFORMATION l (Dollars in thousands) Operating Revenues $2,465,846 $2,308,191 $2.369,940 $2,332,378 $2,358,946 $2,240,646 $1,764,668 Operating income $ 566,618 $ 557,254 $ 525,330 $ 522.115 $ 550,452 $ 510,279 0 380.354 Earnings on Cornmon Stock i $ 294,747 $ 281,852 $ 59,017 $ 253,060 $ 240,069 4 254448 $ 318,073 SEC Ratio of Eamings to Fixed Charges 2.32 2.24 1.12 2.01 1.95 1.97 2.26 Net Utility Plant $5,695,449 $5,834,903 $5,877,676 $5,938,410 $5,985,415 $6,049,219 $6,644,750 Capita! Expenditures !. $ 196,041 $ 258,642 $ 263,179 $ 252,592 $ 235,622 $ 270,993 $ 826,9N Total Capitalization $5,565,997 $5,852,030 $5.656,295 $5,943.913 $6,034,935 $6,067,469 $6,343,339 ! Capitalizaton Ratros: Common Stockholders' Equity 43.3 % 39.6 % ' 39.7 %' 40.5 % 39.3 % 41.9 %' 35.2 % Preferred and Preference Stock: Not Subject to Mandatory Redempton 3.8 5.6 5.8 0.0 5.9 5.9 7.4 Subject to Mandatory Redemption 2.9 0.7 0.8 1.0 1.1 1.0 2.8 3 Long-Term Debt 50.0 54.1 1 53.7 52.5 53.7 51.2 54.6 Total Caortalization 100.0 % 100.0 %' 100.0 % 100.0 % 100.0 % 100.0 %' 100.0 % Average Capital Costs: Preferred and Preference Stock 7.59 % 7.15 % 6.86 % 7.32 % 7.60 % 8.59 %' 10.00 %' Long-Term Debt 8.00 % 8.17 % 8.27 %. 8.53 %' 8.75 % 9.28 % 10.88 %: COMMON STOCK DATA Earnings per Share' $2.05 $1.97 $1.82. $1.70 $1.60 $1.67 $2.45 Retum on Average Common Equity

• 12.5 %

12.4 %' 11.4 % 10.8 % 9.9% 9.9% 15.2 % i DMdends Paid per Share $1.50 Dividend Payout Ratio' 73 %. $1.50. $1.50 $1.50 $1.50 $1.73 $1.88 76 %' 82 % 88 % 94 % 104 % 77 % ( DMdendYield 6.4 % 8.1 % 6.6% 6.5 % ' 7.3 % 8.8% 11.5 % Price /Earrungs Rat:o* l' $16.73 $16.15 $14.70 $15.78 $15.55 $16.68 $16.30 11.5 9.4 12.5 13.6 12.8 10.3 6.7 Book Value per Share Market Pnce per Share $23.50 $18.50 $22.75 $23.125 $20.50 $17.125 $16.375 f Ratioof MarketPncetoBookValue 140 % 115 % 155% 147 % 132 A 103 %' 100 % 'Before not nonrecumng charges in 1993. KILOWATT-HOUR SALES (Millions): Residential 8,546 8.201 8,237 7,685 7,908 7,527 6,791 Commercial 7,151 t.,885 6,787 6,479 6.608 6,370 5,266 Industnal 10,513 9,841 9,874 9,750 9,598 9.872 8,751 ! Other 146 144 144 145 143 144 161 Total Ret 51 26,356 25,0f1 25,'042 24;~059 '24,257 23,9'13 ~ 20,969 TotalWholesale '6',920 5,879 7,162 8,126 7,456 8.210 8,'3'52 Total 33,276 30.950 32.204 32.185 31.713 32.123 29.321 CUSTOMERS SER'ED: Residential 978,118 968,483 957,867 944.927 935,547 928,026 888,107 Commercial 111,978 109,832 107,401 105.792 104,462 103.297 96,048 lodustnal 4,268 3.786 3.685 3,467 3,361 3,032 2,021 Other 1,308 1,226 1,199 1,151 1,094 1,061 892 Total 1,095.672 1.083I327 1.070.152 1.055.337 '1.044.'464 '1.035316 ~ 987.068 Average Annual Residental kWh Usage 8,787 8,524 8.660 ' 8,182 8,498 8,159 7,682 Cost of Fuelper MAon Btu $1.18 $1.21 $1.26 $1.26 $1.27 $1.27 $1.47 Peak Load-Megawatts 6,332 5.744 5,729 ' 5,247 5,513 5.394 4,084 Number of Employees 4,812 5,166 5,978 6,263 6,481 6,792 7,496 1 31

1 investor Services Combining Stock Accounts Transfer Agent And Registrar if you have more than one stock account and wish to Ohio Edison acts as its own Transfer Agent and combine tnem, please wnte or call Investor Services Registrar for its stock and first mortgage bonds. and specify the account that you would like to retain as wd as N mgiskaMn of ead d your accwnh For assistance or information, shareholders and first e will either combine your accounts or contact you mortgage bondholders can wnto to investor Services, we aMonal hMah Ohio Edison Company,76 South Main Street, Akron, Ohio 4430&1890, or call the following toll-free telephone Form 10-K Annual Report number: 1-800-736-3402. The toll-free number is valid Form 10-K, the Annual Report to the Secunties and in the United States, Canada, Puerto Rico and the Virgin Exchange Commission, will be sent without charge Islands Business hours are 8 a.m. to 4:30 p m., Eastern upon written request to Nancy C. Ashcom, Secretary, time, Monday through Fnday. Ohio Edison Company,76 South Main Street, Stock Listing And Trading Ohio Edison common stock is listed on the New York InstitutionalInvestor/Socurity Analyst inquiries and Chicago stock exchanges under the "OEC Institutional investors and secunty analysts should trading symbol. Newspapers usually use "OhioEd,, direct inquines to: I in their listings. j Richard H. Marsh, Treasurer, 330-384-5318 Dividends Theodore F. Struck 11, Assistant Treasurer and Proposed dates for the payment of common stock Assistant Secretary,330-384-5202 dividends in 1996 are as follows: Gregory F. LaFlame, Manager, Investor Relations, Ex-Diudend Date Record Date Payment Date 330-384-5500 March 5 March 7 March 29 June 5 June 7 June 28 Annual Meeting Of Shareholders September 5 September 9 September 30 We invite shareholders to attend the 1996 Annual December 4 December 6 December 31 Meeting of Shareholders on Thursday, Apnl 25, at 10 a.m, in the Company's General Office in Direct Dividend Deposit Akron, Ohio. Registered holders of common stock L Shareholders can have their dividends electronically not attending can vote on the items of business by deposited into their bank checking or savings account. completing and returning the proxy card that is mailed To receivo an authorization form, contact investor about 40 days before the meeting. Shareholders Services. whose shares are held in the name of a broker can ( attend the meeting if they present a letter from the f Sharebuilder investment Plan broker indicating ownership of Ohio Edison The Company's Sharebuilder Investment Plan common stock on March 7,1996. provides an opportunity for registered shareholders to acquire or sell shares of Ohio Edison common Board / Management Cl;anges stock. Participants may invest all or some of their The Board elected Russe's W Maior, chairman and dividends or make optional cash payments of up to chief executive officer of Republic Engineered Steels, $50,000 annually. To receive an enrollment form, Inc., to serve as a director of the Company, effective contact Investor Services. December 19,1995. Safekeeping Of Shares Robert H. Carlson, a director of the Company since The Company will hold shares of common stock in 1987 and a director of Pennsylvania Power since 1983, safekeeping at the shareholder's request. To take will retire from both Boards in 1996. We greatly advantage of this service, the shareholder should benefited from his guidance and expertise dunng forward the common stock certificate (s) to the his years of service. Company along with a signed letter requesting that the Company hold the shares and stating whether Anthony N. Gorant, former senior vice president in future dividends for the shares being forwarded are charge of division operations and customer service. to be reinvested or paid in cash. The certificate (s) retired in November 1995 af ter 42 years of outstanding should not be endorsed, and registered mailis service with the Company. Daniel P. Zeno, former vice suggested. The Company will hold the shares in president in charge of governmental af fairs, retired in uncertificated form and will make certificates June 1995 following 20 years of distinguished service available to shareholders upon request. with the Company. Multiple Annual Reports Charles E. Jones, former Lake Ene Division manager, You may De receiving more than one copy of the was named president of our subsidiary, Pennsylvania annual report if you have more than one stock account. Power. Mr. Jones replaced H. Peter Burg, who had if you want to maintain separate stock accounts but been serving as interim president. eliminate multiple copies, please wate to Investor Services and request that we stop mailing an annual We are saddened to report the passing of Douglas W. report to a particular account. Be sure to provide the Tschappat, retired executive vice president and vice exact registration of the stock account for which you Chairman of the Board, in January 1996. Mr. Tschappat want the annual report mailing stopped Dividends provided strong leadership, wise counsel and and proxy material will continue to be sent for dedicated service dunng his 41-year career with each account. the Company 32 w---_____-___

bed ofr ectors Officers manager s Division Donald C. Blasius,66 Russell W. Maler,59 Willard R. Holland Guy L Pipitone Retired, formerly President Chairman and Chief President and Chief Akron Division of White Consolidated Executive Officer of Republic Executive Officer Industnes, Inc., Cleveland, Engineered Steels, Inc., Thomas A. Clark Ohio (home and commercial Massillon, Ohio (specialty AnthonyJ. Alexander Springfield Division appliances, outdoor and steel bar). Member, Nuclear Senior Vice President and industrial products). Committee. Elected 1995 General Counsel R. Joseph Hrach Chairman, Nominating Stark Division Committee; Member, Glenn H. Meadows,66 H. Peter Burg Finance Committee. Retired, formerly President Senior Vice President and Gary M. Stair Elected 1981 and Chief Executive Officer Chief FinancialOfficer Western Division of McNeilCorporation, H. Pater Burg,49 Akron, Ohio (manuf actured Robert J. McWhorter Douglas S. Elliott Senior Vice President and products) Chawman, Audit Senior Vice President Youngstown Division Chief Financial Officer of Ohio Committee, Member, Edison. Member, Finance Compensation and Nuclear Earl T. Carey Committee. Elected 1989 committees. Elected 1981 Vice President Robert H. Carlson,69 Paul J. Powers,61 Arthur R. Garfield Retired, formerly President Chairman of the Board and Vice President and Chief Executive Officer Chief Executive Officer of of Universal-Rundle CommercialIntertech John A.Glil Corporation, New Castle, Corporation, Youngstown, Vice President Pennsyfvania (plumbing Ohio (engineered metal fixtures). Member, Audit components). Member, Barry M. Miller and Nuclear committees. Compensation Committee Vice President Elected 1987 Elected 1992 David L Yeager Robert M. Carter,45 Charles W. Rainger,62 Vice President Partner, Carter & Associates, President of Sandusky Cleveland, Ohio (law firm). International Inc., Sandusky, Nancy C. Ashcom Member, Audit Committee. Ohio (centnfugal castings). Secretary Elected 1994 Member, Nominating and Nuclear committees. Richard H. Marsh Dr. Carol A.Cartwright,54 Elected 1987 Treasurer President, Kent State University, Kent, Ohio. George M. Smart,50 Harvey L. Wagner Member, Nominating Chairman of the Board and Comptroller Committee. Elected 1992 President of Phoenix Packaging Corporation, Theodore F. Struck 11 Willard R. Holland,59 North Canton, Ohio Assistant Treasurer and President and Chief Executive (easy-opening lids). Member, Assistant Secretary Officer of Ohio Edison and Finance Committee. Chairman of the Board and Elected 1988 Howard J. Tuber Chief Executive Officer of its Assistant Comptroller subsidiary, Pennsylvania Jesse T. Williams, Sr., 56 Power. Chairman, Finance Vice President, Human Committee; Member, Resources Policy and Nominating Committee. Employment Practices of Elected 1991 The Goodyear Tire & Rubber Company, Akron, Ohio (tires Robert L Loughhead 66 and rubber-related products). Retired, formerly Chairman of Member, Compensation the Board, President and Committee. Elected 1992 Chief Executive Officer of Weirton Steel Corporation, Weirton, West Virginia (steel products). Chairman, Compensation Committee, Member, Audit Committee. Elected 1980 Ohio Edison on the World Wide Web at http://www.ohloedison.com @ Pnnted on recycled paper 10% post consurner waste

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