ML20140B878
| ML20140B878 | |
| Person / Time | |
|---|---|
| Site: | Beaver Valley |
| Issue date: | 12/31/1996 |
| From: | Burg H, Holland W OHIO EDISON CO. |
| To: | |
| Shared Package | |
| ML20140B855 | List: |
| References | |
| NUDOCS 9706060369 | |
| Download: ML20140B878 (36) | |
Text
Ohic Edicen 1996 Annual Report
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Corporato Profilo r
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t Ohio Edison Company is headquartered
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in Akron, Ohio, and its subsidiary, F
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based in New Castle Pennsylvania.
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We provide electric service to more than j
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merger with Centerior Energy Corporation j
-holding company of The Cleveland Electric illuminating Company (CEI)
E and The Toledo Edison Company-t would create a new enterprise called
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FirstEnergy Corp. Headquartered in
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Akron, FirstEnergy would serve 2.1 million customers throughout a 13,200-square-
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About Our Report p
i This report focuses on our efforts f
to grow our business in the future f
by achieving profitable sales, j
building strategic alliances, y
promoting continuous improvement, and exploring new ventures.
,_t Tho Year at a Glance
- Achieved common stock carnings Announced agreement to merge Received Pennsylvania Public of $2.10 per share - an increase with Centerior Energy under Utility Commission approval of 5 cents per share over 1995's new holding company called of Penn Power's plan to freeze results FirstEnergy Corp.
electric rates until at least June 20,2006 Produced fourth consecutive
- Received Public Utilities year of record retail sales, which Commission of Ohio (PUCO)
- Restructured Ohio Edison's increased 3.2 percent to reach approval of FirstEnergy's Rate five operating divisions into new mark of 27.2 billion Reduction and Economic three regions kilowatt-hours Development Plan for customers of CEI and Toledo Edison
- Added 12,223 new customers, including 2,139 industrial and Formed an alliance with three commercial businesses other utilities - Allegheny Power, Virginia Power and Centerior -
to operate a regional transmission system
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' N I e h I I e' h t a 1000 1005 L
Operating Performance; N
. Kilowatt-Hour Sales (Millionsp[
'.34,262 ;
33,276 =
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- Average. Annual Residential kWh Usage
- 8,861-c 8,787 n
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. Cost Of Fuel Per Million Stu -
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$1.13
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F Customers Served 1,107,895 -
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i Numtit Of Employees
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'4,8125 s
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Customers Py Employee -
-259 228
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- Financial Perfonnance,
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. $2,469,785,000.
52,465,846,000 ?,
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Cash Provided Fmm Operations '
$760,317,000 -
$753,214,000 -
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. Earnings Per Common Share '
$2.10
' $2.05 '
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Dividends Per Common Share 1 '
$1.50
$1' 50 -
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Book Value Per Common Share':
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Dividend Payout Ratio
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- 73%.
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94 95 90 94 95 96 94 95 96 Earnings Kilowatt-Hour Employee Productivity Per Share Sales 1
Meocaya to Sharoholdars 1996 was a landmark year for your Company -
Continuous Improvement highlighted by our agreement to merge with As we move forward with the merger, we're Centerior Energy under a new enterprise called working hard to promote positive change that FirstEnergy Corp.
will help ensure our future success. Right now, We're confident that the merger will provide teams of employees working on the merger signifiaant benefits to all of our stakeholders:
transition are identifymg the best practices at Shareholders would own a larger, stronger both companies that will help us achieve the compimy with greater prospects for dividend ambitious, but reachable, financial goals we've and earnings growth.
set f r urselves through the merger.
Customers would benefit as the best strategies One of Ohio Edison's key strengths is our and resources of our companies are combined ia commitment to continuous improvement. It's more ways tnat will help us offer better ser ice at than a slogan -it's how we do business. Our lower prices.
progress can be measured by the savings we've Employees would have more opportunities achieved in recent years in virtually every area of workmg for a company that will be better posi-car operations.
tioned to compete and succeed in tomonow's energy market.
bt year u as no exceptiom We reduced operation and maintenance The merger would enable us to grow our business expenses by $77 million from 1995 and in ways that we could not achieve on our own.
achieved a $50-million reduction in capital FirstEnergy wockl become the natica's lith largest spending.
utility based on total electric sales - doubling our We lowered annual expenses by more than customers, revenues and cash flow. We expect sav-
$35 million through the refinancing or redemp-ings of $1 billion over ten years to result from new tion of $780 million in securities, efficiencies throughout our shared operations. And We're also saving $10 million annually through our financial position should continue to improve the restructuring of otr field operations into as we deliver on our commitment to cut debt by three regions.
40 percent through the year 2000.
Along with record retail sales of 27.2 billion Much work remains before we can begin to realize kilowatt-hours, these savings helped us achieve the many benefits associated with the merger. Along earnings of $2.10 per share of common stock, an with approval by Ohio Edison and Centerior share-increase of 5 cents per share over 1995 6 results.
holders, our merger is being reviewed by several Earnings results included the effects of increased federal and state regulatory agencies. We're work-amortization and depreciation of facilities -
ing to complete the merger by the end of 1997-totaling $178 million for the year - under our rate We took an important step toward that goal in reduction and rate freeze plans in Ohio and January of this year when the PUCO approved I#""8F *"*"'
I FirstEnergy's Rate Reduction and Economic We expect earnings and cash flow growth begin-Development Plan for customers of CEI and ning in the fin,t year of the merger as we realize Toledo Edison. Similar to Ohio Edison's rate plan, new efficiencies throughout our sharedsperations.
it will enable us to reduce, and eventually elimi-At the same time, we're s:udying key areas of our nate, an additional $2 billion in costs that could business - such as energy sales and service, power pose a significant clunenge to our business in a supply and fuel service - to identify growth more competitive enm onment. The plan provides opportunities that will produce significant profits customers of CEI and Toledo Edison with reduc-and enhance shareholder value over the long term.
tions in base rates totaling $400 million over the next eight years, including an average reduction of This report desen.bes major achies ements that 15 percerit for all customers in 2006. It also offers undascon our determination to become a top more than $ m0 million in economic development paf nner m. tonmow s energy Mnen We and energy efficiency support for the companies
- believe the merger offers us the best opportunity to business md residential customers.
reahze this usion m the years ahead.
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Future Challenges
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Certainly, we'll need our best efforts to succeed j
in the future. As a result of state legislation passed in 1996. Pennsylvania is implementing its plan f
to enable retail electric castomers to purchase j
electricity from any supplier - a concept known as retail w heeling. In Ohio, the General Assembly
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has formed a 12-member, bipartisan committee to study electric utility deregulation. In addition,
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As new proposals are debated, we will remain a
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strong advocate for our shareholders and cus-provide fair compensation for utility ins estments in
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tomers. For exranple, we are urging lawmakers to e
power plants, transmission lines, substations and s
other facilities that ensure reliable electric service
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for all customers. These investments have been deemed prudent by regulators under existing rules i
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moves forward. We also believe that a truly com-f
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petitive market should give every supplier a fair i
opportunity to compete for customers. To do this, j
law makers and regulators would have to ensure that all energy providers are treated equally with
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environmental requirements and other utihty-l related costs.
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Likewise, industry changes should benefit all cus-
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tomers - not just a privileged few. Unfortunately, most proposals u e've seen are simply designed to shift fixed costs from large electricity users to small business and residential customers.
- 11. Peter Ilurg Willard it. Ilolland We will continue to share our concerns about President, Chairman and proposals that hold greater risk than reward for our Chief Operating Officer Chief Executive Officer shareholders and customers. Meanw hile, we are and Chief Financial Officer moving forward with bold strategies that will help us meet the challenges that lie ahead, w hatever the February 28,1997 future brings.
We've already maJe significant progress through our ongoing efforts to cut costs, improve our efficiency and generate new revenue. This progress is a tribute to the hard work of our etoployees -
and their dedicated efforts and innovative spirit will help make our Company a strong competitor in the years ahead.
With your approval, we will take our perfonnance to a new level as FirstEnergy - a company with greater resources and opportunities to enhance the value of your investment.
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La,wn Lshun. ad Profitable Sales As the major events of 1996 illustrate, we're We introduced several new programs in 1996 pursuing every opportunity to grow and thrive in that should serve both our customers and our our rapidly changing industry. One of the best Company well in the years ahead:
ways we can secure our future success is by
- Polymer companies are among the fastest increasing profitable sales-growing and most energy intensive businesses Our marketing strategies recognize that we sen e. To help them succeed in a highly long-standing relationshi; s with customers are competitive, global marketplace, we developed Percent vital to our success: By he', ping customers grow, the Polymer Growth Fund - a source of capital we will grow our business. Toward that end, for investments in energy-saving electrotech-i o we're continuing to develop pnxlucts and services nologies such as high-efficiency injection that provide added value to customers.
mold machines and motors. We're setting aside up to ten percent of the monthly electric payments For residential customers, greater value can from participating pdymer companies to create mean more responsive service that exceeds their the fund, w hich they can use to help improve the expectations. Large manufacturers may find value cf.ficiency of their operations.
in electrotechnologies - such as infrared dryers or robotics - that can help them save energy and
+ Through a state-funded program called improve their productivity. And small businesses SchoolNet, thousands of Ohio schools are value the Lind of energy-related expertise that beginning to install new technologies that include can give them a competitive advantage in a new, voice, video and data communications and e4 es se emerging market.
Internet access. We're a partner in this effort Average interest on Det>t through our PowerNet program, which offers schools total project management -- from 4
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the installation of wiring and fiber optics to These programs reflect our Customer Value maintenance, consulting and other support Improvement Promise to deliver superior value to ser ices. In the future, the program will be our customers - beyond what they expect.
extended to businesses that need help installing All of our sales efforts are supported by our com-and managing new technologies.
mitment to provide customers with decreases m,
. Lighting costs can become a major factor as base rates totaling approximately $600 million companies grow or facilities begin to age. Our through 2005, including a reduction that will resp (mse is the Lighting Program, which offers average 20 percent for all customers in 2006.
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energy audits and installation and maintenance A similar program is ic place at the operating
,,,,,E" services for high-efficiency lighting to customers companies of Centerior, our partner in the such as larger retailers, govemmental facilities FirstEnergy merger. Approved by the PUCO in and universities.Through this "one-stop January 1997, FirstEnergy's Rate Reduction and shopping" approach, customers benefit from Economic Development Plan will provide interim lower overall energy costs while relying on us for rate reductions after the merger becomes effec-the total management of their lighting systems.
tive. Beginning in 2006, base rates for all 4
customers cf CEI and Toledo Edison will be We're also developing new bill payment pro-reduced by approximately 15 percent from grams that offer greater convenience to business current levels.
and residential customers, as well as providing financing programs, project management support, These efforts will make our companies more consulting services for the installation of new competitive w hile supporting our goals for eA es Book Value electrotechnologies, and many other programs future growth.
Per Share that benefit business and residential customers.
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Strategic A lli a n c e s We're continuing to build strategic alliances -
'We re pursuing other alliances that represent the t
both within oar industry and with the communi-best interests of our shareholders, customers and ties we serve - that are positioning our Company employees. In 1996, w e reached an agreement for future success.
with three midwestern and eastern electric systems - Allegheny Pow er, Virginia Power and The most obvious example is our proposed Centerior - to operate a regional transmission merger with Centerior Energy. The merger will system. The transmission alliance is designed to combine our resources and the expertise of our better coordinate the bulk flow of electricit'v
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among utilities. It also will keep the control and y
nearly doubling our customer base, resenues and ou nership of transmission facilities at the hical cash flow. FirstEnergy is expected to achieve I
level, w here there is greater awareness of condi-earnings and cash flow growth beginning in the tions that affect system reliability and efficiency.
first year of the merger and is committed to cut The Southern Company and Ontario Hydro will debt by 40 percent through the year 2(XX), which join the alliance for a two-year test scheduled to m,
will add greater value to shareholder investments begin in April 1997.
over the long term. In fact, the rate plans already in place for Ohio Edison, Penn Power and We're also looking outside our industry to Centerior will enable FirstEnergy to reduce develop stronger alliances with the communities customer rates by $1 billion and our costs of we serve. Over the years, we've worked hard to nuclear investments and regulatory assets by an earn the goodwill of our customers and communi-additional 543 billion through 2005.
ties. Much of this goodwill comes from providing copnai an essential service, reliably and respcmsively.
Expenditures But we've also shown a willingness to move beyond this core mission in ways that help improve our region's quality of life - from part-6
i nerships with local employers and govemments approximately $5 million over the next several that attract new jobs and investments, to the years for projects that encourage the wise use of f;nancial and volunteer support that employees electricity while providing vital support to offer charitable agencies and community-based residential customers on low incomes and the
- services, agencies that serve them. One effort brought teenage volunteers to the Youngstown area to Business, governmental and residential customers weatherize homes. Through another, we improved throughout our service area benefit from the the energy efficiency of shelters for the homeless
$87 million in loans and grants we've committed and transitional homes for abused women and through our rate and economic development plans children.
at Ohio Edison and Penn Power - funds that help customers improve the efficiency of their Other programs that help us maintain strong rela-energy use or the productivity of their operations.
tionships with customers and kical communities Based on the success of these efforts, we're their radio-equipped vehicles to assist k>callaw offering a similar program through FirstEnergy's enforcement officih's; Gatekeeper, w hich trains rate reduction plan for customers of CEI and employees to identify elderly citizens who may Toledo Edison - a $75-million economic need special assistance; and Project Reach, which development loan / lease program to help business provides one-time financial help to low-income and governmental customers enhance their and unemployed customers who have exhausted productivity and energy efficiency. The plan also aid from other sources t > pay energy bills, includes a residential program that would make available up to $30 million in loans, leases or Whether we're meeting the energy needs of a grants to help residential customers use electricity major employer or supporting kical charities, more efficiently, we will continue making every effort to help our communities grow and thrive in the years As part of our rate plan, Ohio Edison's ahead - u hich, in turn, will help ensure our Community Partncrs Program is targeting Company's future success.
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Continuouc improvomont in any industry, the top performers share a involving our Information Systems Department dedication to continuous improvement. That's and the W. H. Sammis Plant were completed in why we've made this characteristic an essential 1996, and we're now beginning to apply VBM part of our efforts to become the best performing principles to all areas of our Company.
energy service company in our region. Employeo Continuous improvement also is the guiding force are meeting this challenge by bringing a spirit of behind our new Work Management System, a cooperation and innovation - as well as a wide computerized process that prioritizes, schedules range of new technologies - to the workplace, and tracks projects such as new service installa-Continuous improvement involves a commitment tions and maintenance work. The system was to positive change - and a willingness to move developed using input from a cross-functional beyond outmoded work practices to come up with team of employees - including line supenisors, more effective ways to Fet the job done.
foremen and engineers - looking for a better This commitment is reflected in our effons to Management brings these functions together, implement Value Based Management (VBM) ensuring more efficient coordination of con-u hich is designed to maximize shareholder value struction and maintenance projects through by promoting accountability and a better technologies such as Customer Request Work understanding of the true and full costs of doing Scheduling (CREWS), which serves as the central business. VBM will help us direct our resources repository for all work requests, and Automated i
- both employees and capital - to areas that Mapping and Facilities Management ( AM/FM),
offer the best opportunities for success in a more which pinpoints the location of streets, addresses, competitive environment. Pilot programs poles and major facilities. As we implement
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i Our customer service representatives are committed to Work Management throughout our operations, the practices of Ohio Edison and Centerior. Focusing Providing customers with superior service system will become a fundamental, day-to-day on areas ranging from human resources to
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tool that employ ces can use to provide more generating assets, these teams will recommend responsive services to customers.
the operating strategies and identify the sy nergies from combining our operations that will produce Throughout our organization, teams of employees significant cost savings and enhance cash flow for are des eloping cooperative efforts that can help our debt-reductiou program.
($ Miluons) us reduce costs and enhance our productivity.
i Last fall, employ ees from ses eral pow er plants in fact, we expect savings in excess of 51 billion joined together to more efficiently complete work m er ten y ears from new efficiencies throughout b
during a planned outage at our New Castle Plant.
our shared operations. We'se also set an appres-j All employees were trained in various skill areas sise goal of reducing debt by at least $2.5 bi!! ion j such as yard, operations, maintenance and electri-through the y ear 200(), u hich will low er our com-l cal - using this approach to successfully make bined. annual interest costs nearly $240 million l
repairs and imprm ements that increased the effi-by 2001.
l ciency and reliability of the plant.
,m Other cross functional teams hase been created as to maintain a culture of positise change, which part of our merger transition process, looking at will help ensure our competitive cdpe in the s
ways to shme our emplo)ees' skills and the best mdustry of ti.e future.
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New Ventures Beyond the immediate growth we plan to achieve the gypsum from recycled scrubber coproduct, through the merger, we're studying five key areas using an innovative oxidation pmcess developed of our business that offer the greatest potential for by Ohio Edison and Dravo Lime Company.
profitable growth in the years ahead. Our goal is When the facility reaches full production, we will to provide competitively priced, high-quality work with National Gypsum to pmduce and prodsets e.ad value-added services in the areas of recycle some 450,000 tons of gypsum annually energ) sales and service; energy delivery; power into a product with steady demand in the U.S.
supply; fuel service; and an expanding range of and Canada. While creating some 150 jobs, regulated and non-regulated supplemental the facility will greatly extend the life of the services related to our core business. All of these Mansfield Plant's waste disposal system, business activities will be aggressively pursued Another project h>cated near the Mansfield Plant both inside and outside our sersice area.
brings together OES Ventures and United Our subsidiary, OES Ventures, Inc., is involved in Kingdom-based BPB ple as equal partners in a two new businesses that will transform materials new company called Eastroc. The project will from our Bruce Mansfield Plant's environmental demonstrate and commercialize a new technology system into quality products.
that will recycle calcium sulfite - a coproduct of In early 1998, the National Gypsum Company is the Mansfield Plant's Unit 3 emission control sys-expected to start construction of a state-of-the-art tem -into a high-quality alpha plaster that can facility near the Mansfield Plant that will feature be used for a variety of applications, including building materials, ceramics, medical / dental and one of the largest wallboard production lines in the world. Gypsum for the wallboard will be gif: ware products. Eastroe is building a 10,000-purchased from Penn Power, which will produce square-foot facility near the plant that is expected to be completed in late 1997, with full production scheduled for mid-1998. While creating a 10 i
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OES Ventures is a partner in Eastroc, which will recycle a
~~ -~~
coproduct of the Mansfield Plant s emission control beneficial use f or pimer plant topnidusis the
\\s w e pursue Ic\\ cilue chm th in these alhi othei system into high quahty alpha plaster la,Ilit) wIll pro \\ kle th w ith new tes enue through areas a c're t untinuing to hu1IJ on aiut leader ship the sile of alpha plastel.
tide in tulning waste priglucts nti, encipy Iiir i
ebill!plC. w e'lC buf fllhp a \\ arlCt) 4'l used til}s lil 541 filee', tbc fleCds til J t hanging enef p) Illalket.
high tcInpelature hiillers at sc\\ cral of tiur piiw et we'f e study ing the helictits iit partnering w ith plants a plak en that icJuses luel o nts and tilhCI Ltillipafllts til IC[hlw el M'llle til oui pellef al plant einhsloth w h:le helpulp chnunate the need Inp unlis I he fltst pro lct t helnp Cudied is a joint iti! thCd iill dispe nsal ch stilthilp lin M Mile esti-s enture wIth the National Pow cr Conipani. a fnales. lusile than I -l hilhiill pa!hith t >l used i>ll
($ Bdhon han Malco. Cahlof nt.i based !!hlependent ptm er are penclatcJ c\\ cry ) car ni the 1
- 5. anJ only ph klut e! lt the proies I h decriicJ f e,hihle athi E pelLctll a!c Icc)sicJ Me h >pe to naicase tius profitable. ()hio I divin and Natli nal Paw cl wIll i
a ltilntl) !cpilw el, tipciate allJ lilaintain units siin!!!! cit lal anJ iriJustri il s usti iner s thatsharc
- l. 2 and i at the R I. Iturper Plant. thing 6io! si'nulutniellt lii crit litin!!ientails u iund 11uiJi/cJ hed boilers that sould sleanly anJ cificleritly huin h>w test luels sus h as petit d cu fli coke and w aste s oals Pow ci f rom the uruts u ou!J hC M dJ istt s) stetii. w ith ( )hi ) l'Jisiitl ict ci\\ ing a portion of the retenue trolil those siles l
l 94 95 96 Longterm Debt l
Management Report Report cf Independent Public Ac:ountrnt:s The consolidated financial statements were prepared To the Stockholders and Board of Directors by the management of Ohio Edison Company, who of Ohio Edison Company:
takes responsibility for theirintegrity and objectivity.
The statements were prepared m conformity with gen-We have audited the accompanying consolidated erally accepted accounting principles and are consistent balance sheets and consolidated statements of capital-with other hnancial information appearing elsewhere in ization of Ohio Edison Company (an Ohio corporation) this report. Arthur Andersen LLP, independent pubhc and subsidiaries as of December 31,1996 and 1995, and accountants, have expressed an opimon cn the the related consolidated statements ofincome, retained Company's consolidated financial str.tements.
earnings, capital stock and other paid-in capital, cash Hows and taxes for each of the three years in the period The Company's internal auditors, who are ended December 31,1996. These financial statements responsible to the Audit Committee of the Board of are the responsibility of the Company's management.
Directors, review the results and performance of Our responsibility is to express an opinion on these operating units within the Company for adequacy, financial statements based on our audits.
effectiveness and reliability of accounting and reporting systems, as well as managerial and operating controls.
We conducted our audits in accordance with generally accepted auditing standards.Those standards The Audit Committee consists of four nonemployee require that we plan and perform the audit to obtain directors whose duties include: consideration of the reasonable assurance about whether the financial state-adequacy of the internal controls of the Company and ments are free of material misstatement. An audit the objectivity of financial reporting; inquiry into the includes examining, on a test basis, evidence supporting number, extent, adequacy and validity of regular and the amounts and disclosures in the financial statements.
special audits conducted by independent public An audit also includes assessing the accounting accountants and the internal auditors; recommendation principles used and significant estimates made by to the Board of Directors ofindependent accountants to management, as well as evaluating the overall financial conduct the normal annual audit and special purpose statement presentation. We believe that our audits audits as may be required; and reporting to the Board of provide a reasonable basis for our opinion.
Directors the Committee's findings and any recommen-dation for changes in scope, methods or procedures of In our opinion, the financial statements referred to the auditmg functions. The Audit Committee held four sove present fairly, in all material respects, the finan-meetings during 1996.
cial position of Ohio Edison Company and subsidiaries as of December 31,1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31,1996, in confor-mity with generally accepted accounting principles.
H. Peter Burg President, Chief Operating Officer and gtf Chief Fmancial Officer ARTilDR ANDERSEN LLP Cleveland, Ohio February 7,1997 Harvey L Wagner Comptroller l
l 12
Sel2cted Financl:1 D ta Ohio Edison Company (in thousands. except per share amounts) 19 %
1995 l
1994 1993 1992 Operating Revenues
$2,469,785
$2,465,846
$2,368,191
$2,369,940
$2,332,378 Net Income
$315,170
$317,241
$303,531
$82,724
$276,986 Earnings on Common Stock
$302,673
$294,747
$281,852
$59,017
$253,060 Earnings per Share of Common Stock
$2.10
$2.05
$1.97
$0.39
$1.70 Dividends Declared per Share of Common Stock
$1.50
$1.50
$1.50
$1.50
$1.50 Total Assets
$8,965,372
$8,823,934
$8,993,964
$[918,267
$7,830,026 Capitalization at December 31:
Common Stockholders
- Equity.
$2,503,359
$2,407,871
$2,317,197
$2,243,292
$2,408,164 Preferred and Preference Stock:
Not Subject to Mandatory Redemption 211,870 211,870 328,240 328,240 354,240 Subject to Mandatory Redemption 155,000 160,000 40,000 45,500 59,862 Long-Term Debt l 2,712,760 2,786,256 3,166,593 3,039,263 3,121,647 Total Capitalization
$5,582,989
$5,565,997
$5,852,030
$5,656,295
$5,943,913 Prico Range of Common Stock The Company's Common Stock is hsted on the New York and Chicago stock exchanges and is traded on other registered exchanges.
1996 1995 First Quarter High-Low 24-7/8 21 7/8 21-1/2 18-1/2 i
Second Quarter High-Low I
23 20-1/4 22-5/6 19-3/4 Third Quarter High-Low 22-1/4 19-1/4 22-7/8 21-1/4 Fourth Quarter liigh-Low 23-1/4 19-3/8 23-3/4 22-1/4 Yearly High-Low 24-7/8 1 1[4 l
23-3/4 18-1/2 Prices are based on reports published in The WallStrrer Journal for New York Stock Exchange Composite Transactions.
4 Claselfication of Holders of Common Stock as of December 31,1996 I
Holders of Record i
Shares Held l
- -__.-.- l Number Number ek Individuals 104,603 81.72 47,177,789 30.92 Fiduciaries 21,952 17.15 9,445,428 6.19 Nominees l
36
.03 94,562,806 61.98 All Others j
1,413 1.10 1,383,414
.91 f
128,004 Total 100.00 152,569,437 100.00 As of January 31,1997, there were 127,051 holders of 152,569,437 shares of the Company's Common Stock. Quarterly dividends of 37.Se per share were paid on the Company's Common Stock during 19% and 1995. Information regarding retained earnings available for payment of cash dividends is given in Note 4 A.
13
Management's DI:cucci:n end Analysis of Recuits of Operctions and Financial Condition Results of Operations the second half of 1995. Excluding sales to these customers, industrial sales were 2.6% higher in 1996 than last year's Our companies continued to make significant progress level, which increased 3.8% over 1994. Sales to other utilities during 1996 in preparing for a more competitive environment were up 2.7% in 1996, following an 18.2% increase the previ-in the electric utility industry. For the second straight year, we ous year. As a result of the above factors, total kilowatt-hour achieved record operating revenues. The higher revenues, sales rose 3.0%, compared with sales in 1995, which were up combined with our aggressive cost control efforts, raised 7.5% from 1994.
earnings on common stock to $2.10 per share in 1996 com-Nuclear operating costs dropped 14.5% in 1996 due pared with $2.05 last year. The 1996 results reflect accelerated principally to lower refueling outage cost levels. During
+
depreciatmn and amortization of nuclear and regulatory assets 1995, our nuclear expenses fell 4.9% compared with the pre-totalmg approximately $178 million under the Company's g
g g;
Rate Reduction and Economic Development Plan and Penn due to corrective maintenance work at the Perry Plant.The Power's Rate Stability and Economic Development Plan.The decrease m.other operating costs m. 1996 reflects lower main-1995 results compared favorably to earnings of $1.97 per tenance costs at our fossil-fuel generating units. Expenses share in 1994' associated with scheduled maintenance cutages at those gen-Our ongoing commitment to cost control continues to erating units contributed to a 4.6% increase in other operating produce good results. Operation and maictenance expenses costs during 1995, compared with the previous year. As a decreased 6.4% in 1996. A review of the work we do was an result of those outages, we purchased more power in 1995, integni part of the Performance Initiatives program that which resulted in the increase in fuel and purchased power began in 1993 and continues as a pan of our Corporate costs. compared to 1994.
Strategy program. Efficiencies continue to be identified that Ifigher depreciation charges in 1996 and 1995 resulted have resulted in further opportunities for restructuring. In primarily from $144 million and $27 million, respectively, of 1996, we reduced our work force by 539 employees, mostly accelerated nuclear depreciation recognized under the regula-from restructuring activities in our regions and our generation tory plans referred to above. A higher level of depreciable t
group. We expect these actions to result m annual savings of utility plat,t and an increase in nuclear decommissioning costs approximately $32 million. Also, using economic valu also contributed to the 1995 increase, compared with the pre-added-based justification for capital spendmg contributed to a vious year. The comparative changes m.the amortization of
$118 million reduction in our construction expenditures in net regulatory assets were due to mereased recovery levels.m 1996, compared to our base year of 1993.
1996 under our regulatory plans and the discontinuation of For the founh consecutive year, we achieved record retail deferral accounting for postretirement benefits in the second sales. The following table summarizes the sources of changes halfof 1995.
in operating revenues for 1996 and 1995 as compared to the The increase in other income is principally due to previous year:
higher investment income in 1996--primarily through our 1996 1995 PNBV Capital Trust investment, which was effective in the third quarter f 1996. Overall, interest costs were lowerin increased retail kilowatt-hour sales 1
105.1 Reduced average ret 2il electricity price (46.1)
(23.3) 1996 than in 1995. Interest on long-term debt decreased due Sales to utilities (4.5) 16.6 to our economic refinancings arid redemption of higher-cost Other (3.6)
(0.7) debt. Other interest expense increased compared to last year Net increase
$ 3.9
$ 97.7 due mainly to higher levels of short-term borrowing. We also discontinued deferring nuclear unit interest in the second half An improving local eco mmy helped us echieve record of 1995, consistent with the Company's re gulatory plan. Total retail Fales of 27.2 billion kilowatt-hours. Our customer base Company and subsidiaries
- preferred stock dividend require-continues to grow with more than 12,200 new retail cus-ments were relatively unchanged from last year's level, taking temers added in 1996, after gaming approximately 12.300 into account $2.3 million of premiums paid on preferred stock customers the previous year. Residential sales increased 1.8%
redemptions during 1995, m 1996, following a 4.2% gain the previous year.
Commercial sales rose 1.3% and 3.9% in 1996 and 1995, respectively. Increase.; of 5.5% and 6.8% in industrial sales during 1996 and 1995, respectively, were favorably affected by the resumption of operations by Iwo major customers in 14 e
s Ccpital Resources and Uquidity Decemtu 31,1996. Our borrowing capability included
$27 million available under revolving lines of credit, and We have significantly improved our financial position
$16.5 million of bank facilities that provide for borrowings on i
over the past five years. Cash generated from operations was a short-term basis at the banks' discretion.
12% higher in 1996 than it was in 1991 due to higher rev-Our capital spending for the period 1997-2001 is expected enues and aggressive cost controls. At the same time, our to d600 Wilio@MipM'd AM average return on common shareholders' equity unproved e
approximately $135 million applies to 1997.This spendm.g from 9.9% in 1991 to 12.4% in 1996. By the end of 1996, we level is nearly $400 million lower than actual capital outlays were serving about 63,000 more customers than we were five over the past five years.
years ago, with approximately 2,200 fewer employees. As a result, our customer / employee ratio has increased by 61 %
investments for additional nuclear fuel during the 1997-over the past five years, standing at 259 customers per 2001 period are estimated to be approximately $194 million, employee at the end of 1996, compared with 161 at the end of of which about $45 million applies to 1997. During the same 1991. In addition, capital expenditures have dropped substan-periods, our nuclear fuel investments are expected to be tially during that period. Expenditures m 1996 were reduced by approximately $185 million and $43 million, approximately 38% lower than they were in 1991, and annual respectively, as the nuclear fuel is consumed. Also, we have deprecia'. ion charges have exceeded property additions since operating lease commitments (net of PNBV Capital Trust the end of 1987. In fact, our projectionr for the next five years income) of approximately $424 million for the 1997-2001 indicate that annual depreciation charges will exceed period, of which approximately $75 million relates to 1997.
construction expenditures (excluding nuclear fuel) by at least We recover the cost of nuclear fuel consumed and operating three to four times as a result of our reduced capital require-leases through our electric rates.
ments and additional depreciation in accordance with our Reference is made to Note 1 for a discussion of regulatory regulatory plans.
assets. In accordance with our regulatory plans, electric rates Over the pa<t five years, we have aggressively taken include recovery of all regulatory assets, including acceler-advantage of opponunities in the financial markets to reduce ated recovery of those regulatory assets.
our average capital costs. Through refinancing activities, we have reduced the average cost of outstanding debt from Outlook 8.75% at the end of 1991 to 7.76% at the end of 1996. Our fixed charge coverage ratios and the percentage of common We face many competitive challenges in the years ahead equity to total capitalization continue to improve. Our inden-as the electric utility industry undergoes significant changes, ture ratio, which is used to determine the Company's ability to including becoming less regulated and the entrance of more issue first mongage bonds, improved from 4.24 at the end of energy suppliers into the marketplace. Retail wheeling, which 1991 to 6.48 at the end of 1996. Over the same period, our would allow retail customers to purchase electricity from charter ratio-a measure of our ability to issue preferred other energy producers, will be one of those challenges,if stock-improved from 1.83 to 2.25, and, our common equity legislators choose to move in that direction.
percentage of capitalization rose from 39% at the end of 1991 In Ohio, the General Assembly has formed a 12-member, to about 45% at the end of 1996.
bipartisan committee to study electric utility deregulation. On Our cash requirements in 1997 for operating expenses, December 3,1996, Pennsylvania enacted "The Electricity construction expenditures and scheduled debt maturities are Generation Customer Choice and Competition Act," under expected to be met without issuing additional securities.
which residents of Pennsylvania, including customers of During 1996, we reduced our total debt by approximately Penn Power, will be permitted to choose their electric genera-
$380 million (excluding borrowings to fund the tion supplier, while transmission and distribution services will PNBV Capital Trust investment described in Note 3). We also continue to be supplied by their current providers. Customer have cash requirements of approximately $900 million for the choice will be phased in over three years, beginning in 1997-2001 period ($1M million in 1997) to meet scheduled 1999, after a two year pilot program. The new Pennsylvania maturities oflong-term debt and preferred stock-those law also establishes procedures and standards for the requirements are expected to be met with internally recovery of stranded costs over an eight to nine-year period generated cash, in the form of a transition charge on customer billings, and allows utilities to seek Pennsylvania Public Utility We had about $5 million of cash and temporary invest-Commission (PPUC) approval to securitize, or refinance, ments and $349 million of short-term indebtedness on stranded costs which have been determined by the 15
Managem:nt's Discus:bn and Analyris of Re:ults of Operctions cnd Financial Condition (Cent.)
PPUC to be recoverable. This legislation continues te provide for cost recovery in a manner which meets the criteria for i
upplication of Statement of Financial Accounting Standards k
No. 71," Accounting for the Effects of Certain Types of ReFulation."
Our regulatory plans provide the foundation to position us to meet the challenges we are facing by significantly reducing fixed costs and lowering rates to a more competitive level. For the plans to succeed, it is imperative that we build on the succeu of our Performance Initiatives and Corporate Strategy programs and continue to find ways to increase revenues, reduce costs and enhance shareholder value.
On September 13,1996, we entered into an agreement to merge with Centerior Energy Corporation under a new holding company called FirstEnergy Corp. The merger is expected to produce $1 billion in savings during the first ten years ofjoint operations through the elimination of duplict.
tive activities, improved operating efficiencies, lower capital
~
expenditures, accelerated debt reduction, the coordination of the companies' work forces and enhanced purchasing power.
A Registration Statement containing ajoint proxy statement /
prospectus was filed with the Securities and Exchange Commission and shareholders' meetings for the respective companies are scheduled to be held on March 27,1997.
We hope to receive all necessary regulatory approvals before the end of 1997.
The merger is expected to help us achieve more effective operation of the nuclear facilities we jointly own. In 1995, we increased the annual funding for our nuclear decommission-ing obligations. Also, the Financial Accounting Standardr Board (FASB) issued a proposed accounting standard for nuclear decommissioning costs in February 1996. If the standard is adopted as proposed: (I) annual provisions for decommissioning could increase; (2) the net present value of estimated decommissioning costs could be recorded as a lia-bility; and (3) income from the external decommissioning trusts could be reported as investment income. The FASB has indicated that it plans to issue a revised proposal or final accounting standard in 1997.
The Clean Air Act Amendments of 1990, discussed in Note 6, require additional emission reductions by 2000. We are pursuing cost-effective compliance strategies for meeting the reduction requirements that begin in 2000, 16
Censolidated Strt:msnts ofincoms Ohio Edison Company (in tlwusands, except per share amounts)
For the Years Ended December 31, 1996 l
1995 1994
-I OPERATING REVENUES
$2,469,785
$2,465,846
$2,368,191 OPERATING EXPENSES AND TAXES:
Fuel and purchased power 456,629 465,483 440,936 Nuclear operating costs 247,708 289,717 304,716 Other operating costs 420,523 446,967 427,133 Total operation and maintenance expenses 1,124,860 1,202,167 1,172,785 Provision fordepreciation 355,780 256,085 220,502 Amortizatian of net regulatory assets 27,661 l 5,825 (884)
General taxes 241,998 i 243,179 237,020 income taxes 189,417 l 191,972 181,514 Total operating expenses and taxes 1,939,716 1,899,228 1,810,937 q
OPERATING INCOME 530,069 566,618 557,254 OTilER INCOME 37,537 14,424 16,459 TOTALINCOME 567,606 581,042 573,713 ETINTEREST AND OTilER CilARGES:
Interest on long-term debt 211,935 243,570 259,554 Deferred nuclear unit interest (4,250)
(8,511)
Allowance for borrowed funds used during j
construction and capitalii.ed interest 28,211 l; (3,136)
(5,668)
(5,156)
Other interest expense 22,944 18,931 Subsidiaries' preferred stock dividend requirements 15,426 7,205 5,364 Net interest and other charges 252,436 263,801 270,182 NETINCOME 315,170 317,241 303,531 PREFERRED STOCK DIVIDEND REQUIREMENTS 12,497 22,494 21,679 EARNINGS ON COMMON STOCK
$ 302,673
$ 294,747
$ 281,852 WEIGilTED AVERAGE NUMBER OF COMMON SilARES OUTSTANDING 144,095 143,692 143,237 EARNINGS PER SilARE OF COMMON STOCK
$2.10
$2.05
$1.97 DIVIDENDS DECLARED PER SilARE OF COMMON STOCK
$1.50
$1.50 l
$1.50 The accompanying Notes to Consolidated Financial Statements are an integral pan of these statements.
l 17 1
Consolidated Balanco Cheets Ohio Edison Company (In thousands)
At Decem_ber 31, 1996 I995 ASSETS UTILITY PLANT:
In service, at original cost
$8,634,030
$8,556,722 Less-Accumulated provision for depreciation 3,315,344 3,051,148 5,318,686 5,505,574 Construction work in progress-Electric plant 93,413 150,262 Nuclear fuel 5,786 39,613 99,199 189,875 5,417,885 5,695,449 OTIIER PROPERTY AND INVESTMENTS:
PNBV CapitalTrust (Note 3) 487,979 Letter of credit collateralization (Note 3) 277,763 277,763 Other 323,316 252,005
~~
1,089,058 529,768 CURRENTASSETS:
Cash and cash equivalents 5,253 29,830 Receivables-Customers (less accumulated provisions of $2,306,000 and $2,528,000, respectively, for uncollectible accounts) 247,027 274,692 Other 58,327 54,988 Materials and supplies, at average cost-Owned 66,177 68,829 Under consignment 44,468 41,080 Prepayments 75,681 82,257 496,933 551,676 DEFERRED CHARGES:
Regulatory assets 1,703,111 1,786,543 Unamortized sale and leaseback costs 100,066 103,091 Property taxes 100,802 104,071 Other 57,517 53,336 1,961,496 2,047,041
$8,965,372
$8,823,934
(
CAPITALIZATION AND LIABILITIES CAPITAll7ATION (See Consolidated Statements of Capitalization):
Common stockholders' equity
$2,503,359
$2,407,871 Preferred stock-Not subject to mandatory redemption 160,965 160,965 Subject to mandatory redemption 20,000 25,000 Preferred stock of consolidated subsidiary--
Not subject to mandatory redemption 50,905 50,905 Subject to mandatory redemption 15,000 15,000 Company obligated mandatorily redeemable preferred securities of subsidiary trust holding solely Company subordinated debentures 120,000 120,000 Long-term debt 2,712,760 2,786,256 5,582,989 5,565,997 CURRENT LIABILITIES:
Currently payable long-term debt and preferred stock 333,667 376,716 Short-term borrowings (Note 5) 349,480 119,965 Accounts payable 93,509 100,536 Accrued taxes 142,909 131,432 Accrued interest 52,855 57,462 Other 131,275 196,482 1,103,695 982,593 DEFERREL) CREDITS:
Accumulated deferred incorne taxes 1,777,086 1,772,434 Accumulated deferred investment tax credits 199,835 213,876 Other 301,767 289,034 2,278,688 2,275,344 COMMITMENTS, GUARANTEES AND CONTI5GENCIES (Notes 3 and 6)
$8,965,372
$8,823,934 The accompanying Notes to Consohdated Financial Statements are an integral part of these balance sheets.
18
Consolidated Et:t:m:nts of Retainod Earnings Ohio Edison Company (in thousands)
For the Years Ended December 31, 1996 l
1995 1994 Balance at beginning of year
$471,095
$389,600
$322,821 Net income 315,170 317,241 303,531 786,265 706,841 626,352 Cash dividends on preferred stock 12,497 20,234 21,926 Cash dividends on common stock 216,126 215,512 214,826 228,623 235,746 236,752 Balance at end of year (Note 4A)
$557,642
$471,095
$389,600 Consolidated Statements of Capital Stock and Other Paid-in Capital Preferred Stock Not Subject to Subject to Common Stock Mandatory Redemption Mandatory Redemption g
Other WOP Par or Par or Number Par Paid-in Common Number Stated Number Stated ofShares Value Capital Stock of Shares Value ofShares Value (Dollars in thousands)
Balance,Januar3,1994 152,569,437
$1,373,125
$727,865
$(180,519)l 6,782,399
$378,240 463,016
$ 46,362 1
Minimum liability for i
unfunded retirement tenefits (3,053)
Allocation of ESOPShares 36 10,143 Redemptions-Market Auction Series (500.000)
(50,000)I 11.00% Series (3,616)
(362) 13.00% Series
! (60,000)
(6,000)
Balance, December 31,1994 152,569,437 1,373,125 724,848 (170,376) 6,282,399 328.240 400,000 40,000 Minimum liability for unfunded retirement benefits 2,446 Allocation of ESOPSharet, 1,274 7,720 Sale of 9% Preferred Stock 4,800,000 120,000 Redemptions--
7.24% Series (720)
(363,700)
(36,370) 7.36% Series (609)
(350,000) (35,000) 8.20% Series (932)
(450,000) (45,000)
Balance, December 31.1995 152,569,437 1,373,125 726,307 (162,656) 5,118,699 211,870 5,200,000 160,000 Minimum liability for unfunded retirement l
benefits (51) l Allocation of ESOPShares 1,346 7,646 Balance, December 31,1996 152,569,437
$1.373,125 j $727.602
$(155.010) 5,118.699
$211.870 5,200,000
$160,000 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
19 I
Consolidated Ctst m:nts of Cepitalizztlon Ohio Edison Company I
(in thousands, except per sharr amourun At December 31.
_ _1996_l 1995 COMMON STOCKilOLDERS' EQUITY:
l Common stock 59 par value, authorized 175,000,000 shares-.152,569,437 shares outstanding
, $1,373,125
$1073,125 Other paid-in capital 727,602 726,307 Retained earnings (Note 4A) 557,642 471,095 Unallocated employee stock ownership plan common Stock-
~8.259,053 and 8,663,575 shares, respectively (Note 48)
(155,010)
~ (162,656)
Tota comn$n Atodi5oIciNs5ciuit[
~
~
_U03,359 ! _.U_UU__7I l
Number of Shares Optional
-. - Outstanding.- -
- -. _ - -Redemption Price _.
1996 1995 Per Share AggreFate
~
PREFERRED STOCK (Note 4C):
Cumulative, $100 par value-Authorized 6,000,000 shares Not Subject to Mandatory Redemption:
3.90 %
152,510 152,510
$103.63
$ 15,804 15,251 15,251 4.40%
176,280 176,280 108.00 19,038 17,628 17,628 4.44 %
136,560 136,560 103.50 14,134 13,656 13,656 4.56 %
144,300 144,300 103.38 14,917
_ 14,430
_ 14,43_0 609,650 609,650 63,893 60,965 60,965 l
Cumulative, $25 par value-
{
Aethorized 8,000,000 shares l
Not Subject to Markory Redemption:
{
7.75 %
4,030,000 4,000,000 100,000 100,000 Total not subject to mandatory redemption 4,609,650 4,609,650
$ 63,393 160,965 160,965 Cumulative, $100 par value-Subject to Mandatory s
Redemption (Note 4D):
8.45%
250,000 250,000 25,000 25,000 Redemption within one year (5,000)
PRI!FERRED STOCK OFCONSOLIDATED l
SUBSIDIARY (Note 4C):
l I
Pennsylvania Power Company j
Cumulative, $100 par value-1 Authorized 1.200,000 shares Not Subject to Mandatory Redemption:
i 4.24 %
40,000 40,000
$103.13
$ 4,125 4,000 4,000 4.25 %
41,049 41,049 105.00 4,310 4,105 4,105 4.64 %
60,000 60,000 102.98 6.179 6,000 6.000 7.64 %
60,000 60,000 101.42 !
6,085 6,000 6,000 I
7.75 %
250,000 250,000 I
25,000 25,000 8.00%
58,000 58,000 102.07 5,920 1 5,800 !
5,800 Totalnot subject to mandatory redemption 509,049 509,049
$ 26.619 50,905 50,905 Subject to Mandatory Redemption (Note 4D):
7.625 %
150.000 150.000 I
j 15,000 15,000 COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES l
OFSUBSIDIARY TRUSTHOLDING
}
l SOLELY COMPANY SUBORDINATED i
i l
j DEBENTl'RES(Note 4E):
{
j l
Cumulative,525 par value-i l
i P
Authorized 4,800,000 shares i
Subject to Mandatory Redemption:
i I
9.00%
l 4,800,000 l 4,800,000
{
j 120,000 l 120,000 20
c Consolidated Statements of Capitalization (Cont.)
Ohio Edison Company un thousands)
At December 31_,
_ 1996_
_ 1995_ l _ _ _ _ __
1996
_ 1995_ I _ 1996
_ 1995 _
LONG-TERM DEBT l
(Note 4F):
i First mortgage bonds:
Ohio Edison Co.-
Pennsylvania Power Co.-
l 1
8.500% due 1996 I
150,000 9.000% due 1996 50,000 !
8.750% due 1998 150,000 150,000 I 9.740% due 1999-2019 20,000 20,000 I 150,000 l 6.3759 due2(04 7.5009 due 2003 40,000 40,000 l l
6.875% due 1999 l 150,000 6.375% due2000 80,000 80,000 -
37,000 50,000 7.375% due 2002 120,000 120,000 f 6.6259 due2004 20,000 20,000 7.5004 due2002 34,265 34,265 8.5004 due2022 27,250 27.250 8.250% due2002 125,000 125,000 !
7.6259 due2023 6,500 19,500 I
8.625% due2003
. 150,000 150,000 6.8759 due2005 80,000 80,000 f 9.750% due 2019 35,300 8.750% dae 2022 50,960 94,210 I
7.625% duc2023 l
75,000 75,000 I
__7.875% dse 2023 l 100,000 100,000 l
Total first mogage bonds'~ f 1,115,225 1,343,775 150,750 226,750 l 1,265,975 j 1,570,525 SEEdinses:
i i
Ohio Edison Co.-
Pennsylvania Power Co.-
i 8.380% due 19%
16,464 4.750% due 1998 850 850 l
7.930% due2002 60,467 69,579 6.0809 due 200()
23,000 { 23,000,
7.680% due 2005 200,000 200,000 5.400% due2013 1,000 j 10,600 ll 1.600 6.750% due2015 40,000 40,000 5.400% due 2017 10,600 j i
7.450% due2016 l
47,725 47,725 7,150% due2017 17,925 ! 17,925 7.100% due2018 j
26,000 26,000 5.900% due2018 16,800 ' 16,800 7.050% due2020 l
60,000 60,000 8.100% due2018 10,300 10,300 7,000% due 2021 69,500 69,500 8.100% due2020 5,200 5,200 14,482 l 14,482 l 7.1509 due 2021 443 443 7.150% due2021 7.6259 due 2023 50,000 50.000 l 6.150% due2023 12,700 12,700 8.100% due2023 30,000 30,000 6.4509 due2027 14,500 j 14,500,
108,000 ;l 7.750% due2024 108,000 5.450% due2028 6,950 6,950 l
5.0259 due2029 50,000 50,000 6.0009 due2028 14,250 14,250 l
, -~ l l'
5.950% due2029 j
56,212 56,212 5.9509 due2029 238 238 5.4509 due2033 l
14,800 14.800 813,147 838,723 148,795 148,795 l 961,942 987,518 OES Fuel-5.869 weighted average i l
interest rate 1
84,000 97,162 Total secured notes 1,045,942 1.084,680 Unsecured notes:
i Ohio Edison Co.-
I j
l 7.430% due 1997 j
l 100,000 l 100,000 8.735% due 1997 l
j j
50,000 l 50,000 6.0884 due 1999
=
j 225,000 l 4.900% due2012 i
j 50,000 ;
50,000 4.350% due2014 l
50,000 '
50,000 3.950% due2015 l
j 50,000 50,000 4.4(09 due2018 j
56,003 56,000 3.8001 due 2018
{
57,100 4 57.100 i
4.300% due2032 i
j 53,400 '
55,400
'lbtal unsecured notes l 691,500 ! 466,500 Capitailease oNigations l
I (Note 3) 43,775 I 48.221 Net unamortized discount l
on debt l
- _(5,765)l j6,954) long-term debt due within l
l l
{
one year __ __
(328,667)
_ 376,716)
(
_ Totallong-term debt i
i l
2,712,760, __ _25.6 2,786, TOTALCAPITALIZA!10N j j
$5,582,989 l $5.565,997 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
21
1 Consolidated Statements of Cash Flows Ohio Edison Company (in tlwusands)
For the Years Ended December 31, 19 %
1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
$315,170
$317,241
$303,531 Adjustments to reconcile net income to net cash from operating activities:
Provision for depreciation 355,780 256,085 220,502 Nuclear fuel and lease amortization 52,784 70,849 72,141 4
Other amortization, net 25,961 5,885 8,422 Deferred income taxes, net 41,365 53,395 21,156 Investment tax credits, net (14,041)
(9,951)
(8,036)
Allowance for equity funds used during construction (5,277)
Receivables 24,326 (20,452) 32,113 Materials and supplies (736) 12,428 6,865 Accounts payable 962 3,545 (18,261)
Other (41,254) 64,189 61,908 Net cash provided from operating activities 760,317 753,214 695.064 CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-Preferred 6tock 120,000 Long-term debt 306,313 254,365 -
434,759 Short-term borrowings, net 229,515 70,516 Redemptions and Repayments-Preferred stock 1,016 117,528 56,362 Long-term debt 438,916 499,276 483,347 Short-term borrowings, net 54,677 Dividend Payments-Common stock 218,656 217,192 216,782 Preferred stock 12,560 20,623 21,483 Net cash used for financing activities 135,320 534,931 272,699 bSH FLOWS FROM INVESTING ACTIVITIES:
Property additions 148,189 198,103 258.249 PNBV CapitalTrust investment 487,979 Letter of credit collateralization deposit 277,763 Other 13,406 13,641 22,752 Net cash used for investing activities 649,574 211,744 558,764 Net increase (decue) in cash and cash equivalents (24,577) 6,539 (136,399)
Cash and cash equivalcuts at beginning of year 29,830 23,291 159,690 Cash and cash equivalents at end of year
$ 5,253
$ 29,830
$ 23,291 SUPPLEMENTAL CASH FLOWS INFORM ATION:
Cash Paid During the Year-Interest (net of amounts capitali7ed)
$224,541
$254,789
$267,319 income taxes 157,477 178,643,
143,202 1
The accompanying Notes to Consolidated Financial Statements are an integral pan of these statements.
22
ConsoHdated Ctr.t:monts of Thxes Ohio Edison Company (in thousands)
For the Years Ended December 31, 1996 1995 1994 GENERALTAXES:
Real and personal property
$ 115,443
$ 118,707
$ 113,484 State gross receipts 104,158 100,591 100,996 Social security and unemployment 14,602 15,787 14,822 Other 7,795 8,094 7,718 Total general taxes
$ 24?,998
$ 243,179
$ 237,020 PROVISION FOR INCOME TAXES:
Currently payable-Federal
$ 164,132
$ 145,511
$ 161,219 State 9,839 10,352 14,547 173,971 155,863 175,766 Deferred, net-Federal 37,277 50,631 20,796 State 4,088 2,764 360 a
41,365 53,395 21,156 Investment tax credit amortization (14,041)
(9,951)
(8,036)
Total provision forincome taxes 5 201,295
$ 199,307
$ 188,886 INCOME STATEMENT CLASSIFICATION OF PROVISION FOR INCOMETAXES:
Operating income
$ 189,417
$ 191,972
$ 181,514 Other income 11,878 7,335 7,372 Total provision forincome taxes
$ 201,295
$ 199,307
$ 188,886 RECONCILIATION OF FEDERAL INCOME TAX EXPENSE AT STATUTORY RATE TO TOTAL PROVISION FOR INCOME TAXES:
Book income befcre provision for income taxes S 516,465
$ 516,548
$ 492,417 Federal income tax expense at statutory rate
$ 180,763
$ 180,792
$ 172,346 Increases (reductions)in taxes resulting from-Amortization ofinvestment tax credits (14,041)
(9,951)
(8,036)
State income taxes net of federal income tax benefit 9.053 8,525 9,690
^
Amortization of tax regulatory assets 26,945 19,690 14,503 Other, net (1,425) 251 383 Total provision forincome taxes S 201,295
$ 199,307
$ 188,886 ACCUMULATED DEFERRED INCOME TAXES AT DECEMBER 31:
Propeny basis differences
$1,086,533
$1,047,387
$1,024,737 Allowance for equity funds ured during construction 233,345 263,465 278,172 Defened nuclear expense 262,123 271,114 277,951 Customer receivables for future income taxes 191,537 204,978 237,826 Deferred sale and leaseback costs 78,607 82,381 87,068 Unamortized investment tax credits (72,663)
(77,777)
(82,491)
Other (2,396)
(19,114)
(23,939)
Net deferred income tax liability
$1,777,086
$1,772,434
$1,799,324 The accompanying Notes to Consolidated Fmancial Statements are an integral part of these statements.
1 I
i 23
Mstas ta Consolidated Financial Stat:msnts i SUMMAfWCFSIGNIFICANT The Companies provide for depreciation on a straight-line ACCOUNTING POUCIES:
basis at various rates over the estimated lives of property The consolidated financial statements include included in plant in service. The annual composite rate for Ohio Edison Company (Company) and its w holly owned electric plant was appmximately 3.0% in 1996,1995 and subsidiaries. Pennsylvania Power Company (Penn Power) is 1994, in addition to the straight-line depreciation recognized the Company's principal operating subsidiary. All significant in 1996 and 1995, the Companies also recognized additional intercompany transactions have been eliminated. The capital recovery of $144 million and $27 million, respec-Company and Penn Power (Companies) follow the account-tively, as additional depreciatior, expense in accordance with ing policies and practices prescribed by the Public Utilities their regulatory plans. Such additional charges in the accumu-Commission of Ohio (PUCO), the Pennsylvania Public lated provision for depreciation were $171 million and Utility Commission (PPUC) and the Federal Energy Regu-
$27 million as of December 31,1996 and 1995, respectively.
latory Commission (FERC) The preparation of financial Annual depreciation expense includes approximately statements in conformity with generally accepted accounting
$9.2 million for future decommissioning costs applicable to principles requires management to make periodic estimates the Companies' ownership and leasehold interests in three and assumptions that affect the reported amounts of assets, nuclear generating units.The Companies' share of the future liabilities, revenues and expenses.
obligation to decommission these units is approximately Revenues -The Companies' principal business is
$410 million in current dollars and (using a 2.8% escalation pmviding electric service to customers in central and north rate) appmximately $865 milhon m future dollars. The esti-eastern Ohio and western Pennsylvania.The Companies, -mated obligation (based on site-specific studies) and the retail customers are metered on a cycle basis. Revenue is escalation rate were developed using information obtamed recognized for unbilled electric service through the end of fmm e nsuhants. Payments for decommissioning are,
expected to begm, m 2016, w hen actual decommissmmng e ivables from customers include sales to residential, work begins. The Companies have recovered approximately commercial and industrial customers located in the Com-mini n f rdecomnussionmg through theirelectne rates panies' service area and sales to wholesale customers. There from customers through December 31,1996; such amounts was no material concentration of receivables at December 31, are reflected in the reserve f r depreciati n n the Consoh-1996 or 1995, with respect to any particular segment of the dated Balance Sheet. If the actual costs of decommissiomng Companies' customers.
the units exceed the funds accumulated from investing amounts recovered from customers, the Companies expect Regulatory Plans -The Company's Rate Reduction that additional amount to be recoverable from their cus-and Economic Development Plan was approved by the PUCO tomers.The Companies have approximately $83.5 million in 1995 and Penn Power's Rate Stability and Economic invested in extemal decommissioning trust funds as of Development Plan was approved by the PPUC in the second December 31,1996. Earnings on these funds are reinvested quaner of 1996. These regulatory plans maintain current base with a corresponding increase to the depreciation reserve. The electric rates for the Company and Penn Power through Companies have also recognized an estimated liability of December 31. 2005 and June 20,2006, respectively, and approximately $16.6 million related to decontamination and revised the Companies' fuel cost recovery methods. As part of decommissioning of nuclear enrichment facilities operated by the Company's regulatory plan, transition rate credits were the United States Department of Energy (DOE), as required implemented for customers, which are expected to reduce by the Energy Policy Act of 1992.
operating revenues by approximately $600 million during the The Financial Accounting Standards Board (FASB) regulatory plan period.
issued a proposed accounting standard for nuclear decommis-All of the Companies' regulatory assets are being recov-sioning costs in February 1996. If the standard is adopted as ered under provisions of the regulatory plans. In addition, the proposed: (I) annual provisions for decommissioning could PUCO and the PPUC have authorized the Company and increase;(2) the net present value of estimated decommis-Penn Power to recognize additional depreciation expense sioning costs could be recorded as a liability; and (3) income related to their generating assets and additional amortization from the external decommissioning trusts could be reported of regulatory assets during the ten-year regulatory plan as investment income. The FASB has indicated that it plans to periods of at least $2 billion and $358 million, respectively, issue a revised proposal or final accounting standard in 1997.
more than the amounts that would have been recognized if the regulatory plans were not m effect. These additmnal amounts Common Ownership of Generating Facilities-are being recovered through current rates. Among other The Companies and other Central Area Power Coordination provisions, the Company's regulatory plan also limits the Group (C APCO) companies own, as tenants in common, Company's annual earnings on common stock to a 13.21 %
various power generating facilities. Each of the companies s di to pay a share of the costs associated with any return under a formula adopted by the PUCO; any amounts otherwise earned m excess of the limitation would be credited jointly owned facility in the same proportion as its interes.,
to the Company's retail customers in a future period.
The Companies' portions of operating expenses associate d with jdntly owned facilities are included in the correspos ding Utility Plant and Depreciation - Utility plant reflects operating expenses on the Consolidated Statements of the original cost of constmetion, including payroll and related income. The amounts reflected on the Consolidated Balane costs such as taxes, employee benefits, administrative and general costs and financing costs (allowance for funds used during construction).
24
Sheet under utility plant at December 31,1996, include the The assets of the plan consist primarily of common following:
stocks, United States government bonds and corporate bonds.
Net pension costs for the three years ended December 31, companies.
Utility Accumulated Construction Ownersnip/
1996, were computed as follows:
Plant Provision for Workin Leasehold Generating Units in Sennce Depreciation Progress Interest 1996 e995 1994 (In millions)
On m&Ms)
W.H. Sammis #7
$ 305.5 $ 95.8
$.1 68.80 %
Service cost-benefits earned Bruce Mansfield #1, during the penod
$ 14.2
$ 12.8
$ 15.2
- 2 and #3 782.9 360.1 1.2 50.68 %
Wemst a projected benefit Beaer V4 obligation 49.3 48.1 45.3 Retwn on Nan assets (W)
(W) 8.3
- 1 and #2 1,853.7 665.9 3.7 47.11 %
Net deferral (amortization) 52.7 118.7 (89.3)
Perry 1.632.9 541.2 1.4 35.24 %
Voluntary early retirement Total
$4.575.0
$1.663.0
$6.4 program expense 12.5 37.3 Gain on plan curtailment (12.8)
Nuclear Fuel-Nuclear fuel is recorded at original Net pension cost
$ (25.7)
$ (14.9)
$ 16.3
^
cost, w hich meludes matenal, enrichment, fabncation and interest costs incurred prior to reactor load. The Companies The assumed discount rate used in determining the amortize the cost of nuclear fuel based on the rate of con-actuarial present value of the projected benefit obligation was sumption. The Companies' electric rates include amounts for 7.5% in 1996 and 1995 and 8.5% in 1994. The assumed rate the future disposal of spent nuclear fuel based upon the of increase in future compensation levels used to measure this formula used to compute payments to the DOE.
obligation was 4.5% in each year. Expected long-term rates of income Taxes - Details of the total provision for return on plan assets were assumed to be 10% in each year.
income taxes are shown on the Consolidated Statements of The Companies provide a minimum amount of noncon-Taxes. Deferred income taxes result from timing differences tributory life insurance to retired employees in addition to in the recognition of revenues and expenses for tax and optional contributory insurance, llealth care benefits, which accounting purposes. Investment tax credits, which were include certain employee deductibles and copayments, are deferred when utilized, are being amortized over the recovery also available to retired employees, their dependents and, period of the related property. The liability method is used to under certain circumstances, their sunivors. The Companies account for deferred income taxes. Deferred income tax lia, pay insurance premiums to cover a portion of these benefits in bilities related to tax and accounting basis difTerences are excess of set limits; all amounts up to the limits are paid by recognized at the statutory income tax rates in effect when the the Companies. The Companies recognize the expected cost liabilities are expected to be paid, of providing other postretirement benefits to employees and
- E#
Rstirement Benefits -The Companies' trusteed, non-contributory defined benefit pension plan covers almost all empi yees are htred until they become eligible to receive those benefits, full-time employees. Upon retirement, employees receive a monthly pension based on length of service and compensa.
In accordance with Statement of Financial Accounting tion The Compames use the projected unit credit method for Standards (SFAS) No. 88 " Employers
- Accounting for Settlements and Curtailments of Defined Benefit Pensica funding purposes and were not required to make pension con-tributions during the three years ended December 31,1996.
Phms and for Termination Benefits," the net pension costs shown above and the postretirement benefit casts shown on The following sets forth the funded status of the plan and an ounts re gnized on the Consolidated Balance Sheets as of the following page include curtailment effects (significant changes in projected plan assumptions) relating to the pension and postreurement benefit plans. The employee terminations 1996 1995 reflected in the Companies' 1996 voluntary early retirement Onmmons) program represent a plan curtailment that significantly Actuarial present value of benefit obligations:
reduces the expected future employee service years and the f,
Vested benefits
$562.0
$546.9 related accrual of defined pension and postretirement benefits.
Nonvested benefits 38.9 36.6 In the pension plan, the reduction in the benefit obligation Accumulated benefit obligation
$600.9
$583.5 increases the net pension asset and is shown as a plan Plan assets at fair value
$946.3
$858.0 curtailraent gain. In the postretirement benefit plan, the 4
Actuarial present value of projected benefit obligation 688.5 685.2 unrecognized prior service cost associated with service years
(
n longer expected to be rendered as a result of the termina-Plan assets in excess of projected benefit obligation 257.8 172.8 Unrecognized net gain (106 2)
(43.6) tions is shown as a plan curtailment loss.
Unrecognized prior service cost 20.1 24.7 Unrecognized net transition asset (33 9)
(41.8)
Net pension a5et
$137 8
$112.1 25
NOTES Ccntinusd -
The following sets forth the funded status of the plan and stock subject to mandatory redemption and investments other amounts recognized on the Consolidated Balance Sheets as of than cash and cash equivalents as of December 31:
December 31:
3993 3993
- ~~
1996 1995 Carrymg Fair Carrying Fair Value Value Value Value Accumulated postretirement benefit U# **"8I obligation allocation:
Long-term debt 5 2.919
$ 2,963
$ 3,025
$ 3,152 Retirees
$155.5
$148.2 Preferred stock
$ 160
$ 160
$ 160
$ 163 Fully eligible active plan participants 10.1 12.6 Investments other than cash L}
Otheractive plan participants 75.5 77.5 and cash equivalents:
kcumulated t tirementbenefitobligation 241.1 23
- M tur ( 0 years) $ 364
$ 364
$ 278
$ 318
-Maturity (more than Accumulated postretirement benefit 10 years) 387 390 obligationin excess of plan assets 239.1 237.0 Equity securities 14 14 Unrecognized transition obligation (133.5)
(152.3)
Allother 104 102 75 76 Unrecognized netloss (7;4)
(17.0)
$ 869
$ 870
$ 353
$ 394 Net postretirement benefit liability
$ 98.2
$ 67.7 The fair values of long-term debt and preferred stock Net periodic postretirement benefit costs for the three reflect the present value of the cash outflows relating to those years ended December 31,1996, were computed as follows:
securities based on the current call price., the yield to maturity 1996 1995 1994 or the yield to call, as deemed appropriate at the end of each gnmmions) respective year.The yields assumed were based on securities Service cost-benefits attributed with similar characteristics offered by a corporation with to the period
$ 4.3
$ 4.5
$ 4.9 credit ratings similar to the Companies' ratings.
Interest cost on accumulated The fair value of investments other than cash and cash benefit obligation 17.4 2L1 19.3 equivalents represent cost (which approximates fair value) or Amortizationof transitionobligation 8.8 10.2 10.2 the present value of the cash inflows based on the yield to ou ear y t ement
- '"I 'Y: Tim yields assumed were based on financial instru-ments with similar characteristics and terms. Investments program expense
.5 2.8 Loss on plan curtailment 13.1 other than cash and cash equivalents include decommission-ing trust investments. Unrealized gains and losses applicable Net periodic postretirement benefit cost $44.2
$35.9
$38.0 to the decommissionmg trust have been recognized in the The health care trend rate assumption is 6.0% in the first trust investment with a corresponding offset to the reserve for year gradually decreasing to 4.0% for the year 2008 and later.
depreciation. The debt and equity securities referred to above The discount rates used to compute the accumulated postre.
are in the held-to-maturity category. The Companies have no tirement benefit obligation were 7.5% in 1996 and 1995 and securities held for trading purposes.
8.5% in 1994. An increase in the health care trend rate Regulatory Assets - The Companies recognize, as assumption by one percentage point in all years would regulatory assets, costs which the FERC, PUCO and PPUC increase the accumulated postretirement benefit obligation by have authorized for recovery from customers in future approximately $29.9 million and the aggregate annual service periods. Without such authorization, the costs would have and interest costs by approximately $3.2 million.
been charged to income as incurred. All regulatory assets are Cupplemental Cash Flows Information - All being recovered from customers under the Companies' temporary cash investments purchased with an initial matu.
respective regulatory plans. Based on those regulatory plans, rity of three months or less are reponed as cash equivalents on the Companies believe they will continue to be able to bill and the Consolidated Balance Sheets. The Companies reflect tem.
collect cost-based rates; accordingly, it is in sprobable that the parary cash investments at cost, w hich approximates their Companies will be required to terminate application of SFAS market value. Noncash financing and investing activities No. 71 " Accounting for the Effects of Certah Types of Regu-included capital lease transactions amounting to $2.0 million, lation" in the foreseeable future.The Companies also
$1.0 million and $3.6 million for the years 1996,1995 and recognized additional cost recovery of $34 million and 1994, respectively. Commercial paper transactions of
$11 million in 1996 and 1995, respectively, as additional OES Fuel (a wholly owned subsidiary of the Company) that regulatory asset amonization in accordance with their have initial maturity periods of three months or less are regulatory p;ans, reponed net within financ'ing activities under long-term debt and are reflected as long-term debt on the Consolidated Balance Sheets (see Note 4F).
All borrowings with initial maturities of less than one year are defined as financialinstruments under generally accepted accounting principles and are reported on the Consolidated Balance Sheets at cost, which approximates their fair market value. The following sets forth the approximate fair value and related carrying amounts of all other long-term debt, preferred 26
Regulatory assets on the Consolidated Balance Sheets are
- 3. LEASE 2:
comprised of the following:
The Companies lease a portion of their nuclear 1990 1995 generating facilities, certain transmission facilities, office gone,ng space and other property and equipment under cancelable and Nuclear unit expenses
$ 733.4
$ 758_4 noncancelable leases.
Customer receivables for future income taxes 523 0 559.7 The Company sold portions of its ownership interests in Sale andleaseback costs 220.8 231.5 Perry Unit I and Beaver Valley Unit 2 and entered into Loss on reacquired debt 95 8 96.7 operating leases on the portions sold for basic lease terms of Employee postretirement benefit costs 29.2 32 4 approximately 29 years. During the terms of the leases the Uncollectible customer accounts 29.8 32.5 Company continues to be responsible, to the extent ofits Perry Unit 2 termination 40.4 39 6 combined ownership and leasehold interest, for costs associ-deconIa ated with the units including construction expenditures, a o costs 18.0 19.3 Other 12.7 16.4 operation and maintenance expen;ses, insurance, nuclear fuel, property taxes and decommissionmg. The basic rental pay-Total
$1.703.1
$1.786.5 ments are adjusted when applicable federal tax law changes.
The Company has the right, at the end of the respective basic lease terms, to renew the leases for up to two years. The On September 13,1996, the Company and Centerior Company also has the right to purchase the facilities at the Energy Corporation, an Oh,o corporatmn, entered into an expiration of the basic lease term or renewal term (if elected) i Agreement and Plan of Merger. Under the Merger Agreement, at a price equal to the fair market value of the facilities.
the Company and Centerior will form FirstEnergy Corp., a holding company which will directly hold all of the issued and OES Finance, incorporated (OES Finance), a wholly owned subsidiary of the Company, maintains deposits outstanding common stock of the Company and all of the pledged as collateral to secure reimbursement obligations issued and outstanding common stock of Centerior's direct relating to certain letters of credit supporting the Company's subsidiaries, which include among others, The Cleveland obligations to lessors under the Beaver Valley Unit 2 sale and Electric illuminating Company (CEI) and The Toledo Edison leaseback arrangements. The deposits pledged to the financial Company (Toledo). Penn Power will remain a wholly owned institution providing those letters of credit are the sole subsidiary of the Company. As a result of the Merger, the property of OES Finance. In the event ofliquidation, respective common stock shareholders of the Company and OES Finance, as a separate corporate entity, would have to Centerior will own all of the outstanding shares of satisfy its obligations to creditors before any of its assets FirstEnergy Common Stock. All other classes of capital stock could be made available to the Company as sole owner of of the Company and its subsidiaries and of the subsidiaries of OES Finance common stock.
Centerior will be unaffected by the Merger and will remain Consistent with the regulatory treatment, the rental outstanding.
payments for capital and operating leases are charged to oper-The Merger has been approved by the respective Boards ating expenses on the Consolidated Statements ofincome.
~
of Directors of the Company and Centerior and is expected to Such costs for the three years ended December 31,1996, are close promptly after all of the conditions to the consummation summarized as follows:
of the Merger, including the receipt of all necessary regulatory approvals, are fulfilled or waived. An important condition gg already met was the PUCO's approval of FirstEnergy's Rate U" ""#*"#
Reduction and Economic Development Plan for CEI and Operating leases Toledo in January 1997. This regulatory plan, which is similar
$eystelement
$1 to the regulatory plan approved by the PUCO for the 39 Capitaneases Company, provides for a $310 million reduction in base interest element 6.5 7.0 7.5 electric rates for CEI and Toledo in 2006.The plan also Other 6.3 6.6 7.0 requires additional depreciation (or revaluation) of generating Totair~ ental payments
$138 7
$132.1
$130.0 assets and additional amortization of regulatory assets of at least $2 billion more than the amounts that would have been recognized through December 31,2005, without the plan, and limits annual carnings on common stock for CEI and Toledo.
Shareholder meetings to vote on the Merger are scheduled to be held in March 1997. The receipt of all necessary regulatory approvals, including approvals from the FERC, the Securities and Exchange Commission and the Nuclear Regulatory Commission, are expected to take approximately 12 to 18 months from the date of the Merger Agreement.
27
NOTES Ccntinued The future minimum lease payments as of December 31, (C) Prsf:rred Stock - Penn Power's 7.625% and 1996, are:
7.75% series of prefened stock have restrictions which operatmo Leases prevent early redemption prior to October 1997 and July Capital Lease PN8V Capital 2003, respectively. The Company's 8.45% series of preferred Leases Payments Trustincome Net stock has no optional redemption provision, and its 7.75%
vnmens) series is not redeemable before April 1998. All other preferred 1997 5 14.9 $ 113.9 $ 38.7 $ 75.2 stock may be redeemed by the Companies in whole, or in 1998 13.1 120.8 38.4 82.4 part, with 30-60 days' notice.
1999 11.2 125.7 38.0 87.7 (D) Preferred Stock Subject to Mandatory f00 Redemption -The Company's 8.45% series of preferred 17 Yearsthereafter 85 1 2.110.4 283.9 1.626.5 stock has an annual sinking fund requirement for 50,000 Yotal minimumlease payments 143.6 $2.723.2 $4723 $2.250.4 shares beginning on September 16,1997. Penn Power's 7.625% series has an annual sinking fund requirement for Executory costs -
37.6 7,500 shares beginning on October 1,2002.
Net minimumlease payments 106.0 The Companies' preferred shares are retired at $ 100 per interest portion 62.2 share plus accrued dividends. Annual sinking fund require-Present value of net minimum ments for each of the next five years are $5 million.
lease payments 43.8 (E) Company Obligated Mandatority Redeemable Less current portion 5.7 Preferred Securities of Subsidiary Wust Holding Noncurrent portion 5 38.1 Solely Company Subordinated Debentures -
The Company invested (through funds available under Ohio Edison Financing Trust, a wholly owned subsidiary of various credit facilities)in the PNBV Capital Trust in the "E""Y' "* ". sued $120 million of 9% Cumulative "E""'
np nypurchased third quarter of 1996. The Trust was established to purchase a all f the Trust,s Common Secunties and s.imultaneously portion of the lease obligation bonds issued on bchalf of issued to the Trust $123.7 milhon pnncipal amount of 9%
lessors m.the Company's Perry Unit I and Beaver Valley Um.t 2 sale and leaseback transactions.The PNB V Capital Trust Junior Subordinated Debentures due 2025 in exchange for the proceeds that the Trust received from its sale of Preferred and income shown m the table above effectively reduces the Common Securities.The sole assets of the Trust are the Company's lease costs related to those transactions.
Subordinated Debentures whose interest and other p>ayment
- 4. CAPfTALIZATION:
dates coincide with the distribution and other payment dates on the Trust Securities. Under cenain circumstances the (A) Hetained Earnings - Under the Company's first Subordinated Debentures could be distributed to the holders mortgage indenture, the Company's consolidated retained of the outstanding Trust Securities in the event the Trust is earnings unrestricted for payment of cash dividends on the liquidated.The Subordinated Debentures may be optionally Company's common stock were $490.8 million at December redeemed beginning December 31,2000, by the Company at 31,1996.
a redemption price of $25 per Subordinated Debenture plus (B) Employee Stock Ownership Plan-accrued interest, in which event the Trust Securities will be The Companies fund the matching contribution for their redeemed on a pro-rata basis at $25 per share plus accumu-401(k) savings plan through an ESOPTrust. All full-time lated distributions. The Company's obligations under the employees eligible for participation in the 401(k) savings plan Subordinated Debentures along with the related Indenture, are covered by the ESOP. The ESOP borrowed $200 million amended and restated Trust Agreement, Guarantee Agree-from the Company and acquired 10.654,114 shares of the ment and the Agreement for expenses and liabilities constitute Company's common stock through market purchases.
a full and unconditional guarantee by the Company of pay-Dividends on ESOP shares are used to service the debt.
ments due on the Preferred Securities.
Shares are released from the ESOP on a pro-rata basis as debt (F) Long-Term Cebt -The first mortgage indentures service payments are made. In 1996,1995 and 1994,404,522 and their supplements, which secure all of the Companies' shares,412,914 shares and 532,250 shares, respectively, were first mortgage bonds, serve as direct first mongage liens on allocated to employees with the corresponding expense rec-substantially all property and franchises, other than specifi-ogmzed based on the shares allocated method. The fair value cally excepted property. owned by the Companies.
of 8.259,053 shares unallocated as of December 31,1996, Based on the amount of bonds authenticated by the was approximately 5187.9 million. Total ESOP-related com-Tmstee through December 31,1996, the Company's annual pensation expense was calculated as follows:
sinking and improvement fund requirement for all bonds 1996_.
1995 1994 issued under the mortgage amounts to $30 million.
gn mmens)
The Company expects to deposit funds in 1997 that will be
. Base compensation
$ 9.0
$ 9.0
$10.2 withdrawn upon the surrender for cancellation of a like Dwidends on common stock principal amount of bonds, which are specifically authenti-held by the ESOP and cated for such purposes against unfunded property additions used toservice detit (2.9)
(2.5)
(2.0) or against previously retired bonds.This method can result in Net expense
$ 6.1
$ 6.5
$ 8.2 minor increases in the amount of the annual sinking fund requirement.
28
Sinking fund requirements for first mortgage bonds and
- 6. COMMITMENTO, GUARANTEES AND maturing long-term debt (excluding capital leases) for the CONTINGENCIES:
next five years are:
Construction Program - The Companies' current U""*""U forecasts reflect expenditures of approximately $600 million 1997
$323.0 for property additions and improvements from 1997-2001, of 1998 211.5 which approximately $135 million is applicable to 1997,
[00 investments for additional nuclear fuel during the 1997-2001 2001 14.5 period are estknated to be appmximately $194 million, of which approximately $45 million applies to 1997. During the The Companies' obligations to repay cenain pollution same periods, the Companies' nuclear fuel investments are control revenue bonds are secured by several series of first expected 'o be reduced by approximately $ 185 million and mortgage bonds and, in some cases, by subordinate liens on
$43 million, respectively, as the nuclear fuel is consumed.
the related pollution control facilities. Certain pollution Nuclear insurance -The Price-Anderson Act limits control revenue bonds are entitled to the benefit of irrevocable the public liability relative to a single incident at a nuclear bank letters of credit of $338.8 million. To the extent that power plant to $8.92 billion. The amount is covered by a drawings are made under those letters of credit to pay princi-combination of private insurance and an industry retrospec-pal of, or interest on, the pollution control revenue bonds, the tive rating plan. Based on their present ownership and Company is entitled to a credit against its obligation to repay leasehold interests in the Beaver Valley Station and the Perry those bonds. The Company pays annual fees of 0.55% to Plant, the Companies' maximum potential assessment under 0.875% of the amounts of the letters of credit to the issuing the industry retrospective rating plan (assuming the other banks and is obligated to reimburse the banks for any draw-CAPCO companies were to contribute their proportionate ings thereunder.
share of any assessments under the retrospective rating plan)
The Company had unsecured borrowings of $225 million would be $102.8 million per incident but not more than at December 31,1996, which are supported by a $250 million
$ 13 million in any one year for each incident.
long-term revolving credit facility agreement which expires The Companies are also msured as to their respective December 30,1999. The Company must pay an annual facil-interests in the Beaver Valley Station and the Perry Plant ity fee of 0.20% on the total credit facility amount. In under policies issued to the operating company for each plant.
addition, the credit agreement provides that the Company Under these policies, up to $2.75 billion is provided for maintain unused first mortgage bond capability for the full property damage and decontamination and decommissioning credit agreemen'. amount under the Company's indenture as costs. The Companies have also obtained approximately potential security for the unsecured borrowings.
$315 million ofinsurance coverage for replacement power Nuclear fuel purchases are financed through the issuance costs for their respective interests in Perry and Beaver Valley.
of OES Fuel commercial paper and loans, both of which are Under these policies, the Companies can be assessed a maxi.
supported by a $225 million long-term bank credit agreement mum of approximately $16.5 million forincidents at any which expires March 31,1999. Accordingly, the commercial covered nuclear facility occurring during a policy year which paper and loans are reflected as long-term debt on the are in excess of accumulated funds available to the insurer for Consolidated Balance Sheets. OES Fuel must pay an annual paying losses.
facility fee of 0.1875% on the total line of credit and an The Companies intend to maintain insurance against annual commitment fee of 0.0625% on any unused amount.
nuclear risks as described above as long as it is available. To
- 5. SHORT-TERM BORROWINGS AND the extent that replacement power, propeny damage, decon-q BANK UNES OF CREDIT:
tamination, decommissioning, repair and replacement costs Short-term borrowings outstanding at December 31, nd other such costs arising from a nuclear incident at any of 1996, consisted of $229.5 million of bank borrowings and the Compames plants exceed the policy limits of the insur-
$ 120.0 million of OES Capital, Incorporated commercial
""Ce in effect with respect to that plant, to the extent a nuclear s
paper. OES Capital is a wholly owned subsidiary of incident is determmed not to be covered by the Compames the Company whose borrowings are secured by customer insurance p licies, ri the extent such insurance becomes accounts receivable. OES Capital can borrow up to $ 120 unavailable in the future, the Companies would remain at risk f r such costs.
million under a receivables financing agreement at rates based on certain bank commercial paper and is required to pay an Guarantees - The Companies, together with the other annual fee of 0.31 % on the amount of the entire finance limit.
CAPCO companies, have each severally guaranteed cenain The receivables financing agreement expires in 1999.
debt and lease obligations in connection with a coal supply The Companies have lines of credit with domestic banks contract for the Bruce Mansfield Plant. As of December 31, that provide for borrowings of up to $52 million under 1996, the Companies' shares of the guarantees (which various interest rate options. Short-term borrowings may be approximate fair market value) were $58.3 million. The price made under these lines of credit un the Companies
- unsecured under the coal supply contract, which includes certain notes. To assure the availability of these lines, the Companies minimum payments, has been determined to be sufficient to are required to pay annual commitment fees that vary from satisfy the debt and lease obligations. The Companies' total 0.22% to 0.50%. These lines expire at various times during payments under the coal supply contract were $113.8 million, 1997. The weighted average interest rates on short-term bor-
$120.0 million and $99.8 million during 1996,1995 and rowings outstanding at December 31,1996 and 1995, w ere 1994, respectively. The Companies' minimum annual pay-5.779 and 5.67%, respectively.
ments are approximately $35 million under the contract, which expires December 31,1999.
29
NOTES Centi Md Envircnm:nt:1 Matters - Various federal, state
- 7.
SUMMARY
OF QUARTERLY FINANCIAL DATA and local authorities regulate the Companies with regard (UNAUDITED):
to air and water quality and other environmental matters.
The following summarizes certain consolidated operating The Companies have estimated additional capital expendi-results by quarter for 1996 and 1995.
tures for environmental compliance of approximately.
um si.
u.m sememwa ommher31.
$14 million, which is included in the construction forecast Three Months Ended 199F 1996 1996 1996 provided under " Construction Program" for 1997 tm mam engtm,w,,moums; through 2001.
Operating Revenues
$611.6
$599.3
$646.9 $611.9
- The Companies were in compliance with the sulfur Operating Expenses and Taxes 481.1 471.7 500.0 486.8 dioxide (SO ) and niuogen oxides (NO ) reductmn require-Opemting income 130.5 127.6 146.9 125.1 2
ments for 1996 under the Clean Air Act Amendments of 1990.
Otherincome 7.0 10.7 7.1 12.7 SO reductions through the year 1999 will be achieved by Net interest and Other Charges 64.1 61.7 61.5 65.1 2
burning lower-sulfur fuel, generating more electricity from Netincome
$ 73.4
$ 76.6
$ 92.5
$ 72.7 lower-emitting plants, and/or purchasing emission allow-ances. Plans for complymg with reductmns requurd for the Earnings on Common Stock
$ 70.3
$ 73.5
$ 89.4
$ 69.5 year 2000 and thereafter have not been finalized. The Earnings per Share of Environmental Protection Agency (EPA)is conducting addi-Common Stock
$.49
$.51
$42
$.48 tional studies which could indicate the need for additional y,,,,,,
3,g,,, go,,
NO, reductions from the Companies' Pennsylvania facilities Three Months Ended 1995 1995 1995 1995 by the yer.r 2003. The cost of such reductions, if required, fm
,,,,y,wum, uni,i may be substantial.The Companies continue to ev duate their Operating Revenues
$587.7
$593.8
$667.0 $617.3 compliance plans and other compliance options.
Operatmg Experses ano Taxes 453 9 454.4 508.0 482.9 The Companies are required to meet federally approved Operating Income 133.8 139.4 159.0 134 4 SO2 regulations. Violations of such regulations can result in otherincome 3.0 3.8 1.2 6.4 shutdown of the generating unit involved and/or civil or crim-Net Interest and Other Charges 65.2 66.1 67.1 65.3 inal penalties of up to $25,000 for each day the unit is in Netincome
$ 71.6
$ 77.1
$ 93.1
$ 75.5 violation. The EPA has an interim enforcement policy for SO 2 regulations in Ohio that allows for compliance based on a Earnings on Common Stock
$ 66.2
$ 71.5
$ 87.7
$ 69.3 30-day averaging period. The EPA has proposed regulations Earnings per Share of that could change the interim enforcement policy, including Common Stock
$.46
$.50
$.61
$.48 the method of determining compliance with emission limits.
The Companies cannot predict what action the EPA may take in the future with respect to proposed regulations or the interim enforcement policy.
Legislative, administrative and judicial actions will con-tinue to change the way that the Companies must operate in order to comply with environmental laws and regulations.
With respect to any such changes and to the environmental matters described above, the Companies expect that any resulting additional capital costs which may be required, as well as any required increase in operating costs, would ulti-mately be recovered from their customers.
30
Ccn:olidated Financial and Operating Statistics Ohio Edison Company GENERAll1NANCIALINFORMATION (Collars in thousands)
Operating Resenues
$2,469,785
$2,465,846
$2,368,191
$2,369.940
$2,332,378
$2,358,946
$1,758,312 Operatinp income
$ 530,069
$ 566,618
$ 557,254
$ 525,330
$ 522,115
$ 550,452
$ 392,357 Earningsc>n Common Stock
$ 302,673
$ 294,747
$ 281,852
$ 59,017
$ 253,060
$ 240,069
$ 359,825 SEC Ratio of Earnings to Fixed Charges 2.38 2.32 2.24 i.12 2.01 1.95 2.39 i
Net Utility Plant
$5,417,885
$5,695,449
$5 834,903
$5,877,676
$5,938,410
$5,985.415
$7,239,741 Capital Expenditures
$ 145,005
$ 196,041
$ 258,642
$ 263,179
$ 252,592
$ 235,622
$ 776,198 Total Capitalization
$5,582,989
$5,565,997
$5,852,030
$5,656,295
$5,943,913
$6.034,935
$6,821,934 Capitaliz ition Ratios:
f Comun Stockholders' Equity 44.8 %
43.3 %
39.6 %
39.7 %:
40.5 %
39.3 %,
37.3 %
Prefi rred and Preference Stock:
N >t Subject io Mandatory Redemption 3.8 3.8 5.6 5.8 6.0 5.9 6.7 S>bject to Mandatory Redemption 2.8 2.9 0.7 0.8 1.0 1.1 2.3 j
Long-Tenn Debt 48.6 50.0 54.1 53.7 52.5 53.7 j 53.7 I
Total Capitalitation 100.0 %
100.0 %
100.0 %
100.0 %!
100.0 %
100.0 %i 100.0 %.
Average Canital Costs:
7.59%!
7.59 %
7,15 %'
6.86 %!
Preferred aN Preference Stock 7.60%!
9.66 %
I 7.32%l I
Long-Term Debt 7.76 %'
8.00 %.
8.17 %'
8.27 %!
8.53 %
8.75 %
10.29 %l COMMON STOCK DATA l
Earnings per Share *
$2.10 j
$2.05
$1.97
$1.82
$1.70
$1.60
$2.47 Return on Average Common Fquity*
12,4 %-
12.5 %
12.4 %.
11.4 %.
10.8 %
9.9%
14 9 %
$1.50 l
$1.50 l
$1.53 l
$1.50 l
$1.92 71%j Dividends Paid per Share
$1.50 78%l [
$1.50 Dividend Payout Ratio
- 82 %
88 %i 94 %!
73 %
76%-
Dividend Yield 6.6 %'
6.4 %
8.1 %!
6.6 %i 6.5%
7.3 %'
9.8%!
I Price / Earnings Ratio
- 10.8 11.5 9.4 12.5 13.6 12 8 7.9 Book Value per Share
$17.35
$16.73
$16.15
$14.70
$15.78
$15.55
$16.97 Market Price per Share
$22.75
$23.50
$18.50
$22.75
$23.125
$20.50
$19.50 Ratio nf Market Price to Book Value 131 %.
140 %-
115 %;
155 %
147 %
132 %
115 %
- Before net nonrecurring charges in 1993.
}
KILOWA1T-ilOl'R SALES (Millions):
b Residential 8,704 8,546 8.201 8,237 7,685 7,908 7,046 Commercial 7,246 7,151 6,885 6,787 6,479 6.608 5,560 Industrial 11,089 10.513 9,841 9,874 9,750 9,598 8,533 Other 147 146 144 144 145 143 149 Total Retail 27,186 26,356 25,071 25.042 24,059 24,257 21,288 i Total Wholesale 7,076 6,920 5,879 7,162 8,126 7,456 7,707 Total 34,262 33,276 30,950 32.204 32,185 31.713 28,995 CUSTOMERS SERVED:
Residential 988,179 978.118 968.483 957,867 944,927 l! 935.547 894,164 !
Commercial 113,795 111,978 109,832 107,401 105.792 l 104,462 97,383 !
Industrial 4,590 4,268 3,786 3,685 3,467 3.361 l 2,239 l Other 1,331 1,308 1,226 '
1,199 1,151 1,094 :
802 Total 1,107,895 1,095.672 1,083,327 1,070,152 1.055,337 1,044,464 l 994,588 Average Annual Residential kWh Usage 8,861 8,787 8,524 B,660 8,182 8,498 !
7,924 Cost of Fuelper Million Btu
$1.13
$1.18
$1.21
$1.26
$1.26
$1.27 ?
$1.40 5.513 l Peak Load-Megawatts 6,067 6.332 5,744 5,729 5,247 4.243 Number of Employees 4,273 4,812 5,166 5,978 6,263,
6,481 7,383 i
31
Investor Services Combining Stock Accounts Transfer Agent and Registrar if you have more than one stock account and wish to OUc, Edison acts as its own Transfer Agent and cunbine them, please write or call investor Services Registrar for its stock and first mortgage bonds.
and specify the account that you would like to retain For assistance or information, shareholders and first as well as the registration of each of your accounts.
mongage bondholders can write to investor Services, We will either combine your accounts or contact you Ohio Edison Company,76 South Main Street, Akron, if we need additional documentation.
Ohio 44308-1890, or call the following toll-free tele-Form f 0 K Annual Report i
phone number: 1,800-736-3402. The toll-free number Form 10-K, the Annual Report to the Securities and ts valid m the Umted States, Canada, Pueno Rico and the Virgin Islands. Business hours are 8 a.m. t Ev.tange Commission, will be sent to you without charge upon written request to Nancy C. Ashcom, 4:30 p.m., Eastern time, Monday through Friday.
Secretary, Ohio Edison Company,76 South Main Stock Listing and Trading Street. Akron, Ohio 44308-1890.
Ohio Edison common stock is listed on the New York ins titutional in vesior/
and Chicago stock exchanges under the "OEC" Security Analyst inquirles trading symbol. Neupapers usually use "OhioEd" in their listings Institutional investors and security analysts should direct inquiries to:
Dividends Richard II. Marsh Treasurer,330-384-5318 Proposed dates for the payment of common stock Theodore E Struck II, Assistant Treasurer and dividends in 1997 are as follows:
Assistant Secretary,330-384 5202 Ex. Dividend Date Record Date Payment Date Gregory E LaFlame, Manager, investor Relations, 330-384-5500 March 5 March 7 March 31 June 4 June 6 June 30 Annual Meeting of Shareholders September 4 September 8 September 30 We invite shareholders to attend the 1997 Annual December 3 December 5 December 31 Meeting of Shareholders on Thursday, April 24, at Direct Olvidend Doposit 10 a.m., in the Company's General Office in Akron, Ohio. Registered holders of common stock not Shareholders can have their dividends electromcally deposited into their bank checking or sasings attending can vote on the items of business by completing and returning the proxy card that is mailed account. To receive an authorization form, contact Investor Services.
prior tu the meeting. Shareholders whose shares are held in the name of a broker can attend the meeting if Sha/ebuilder invostmeni Plan they present a letter from the broker indicating owner-The Company's Sharebuilder Investmee Plan pro _
ship of Ohio Edison common stock on March 7,1997.
vides an opportunity for registered shareholders to Management Changes acquire or sell shares of Ohio Edison common stock.
Participants may invest all or some of their dividends Willard R. Ilolland, former president and chief execu-tive officer, was elected chairman of the board and or make optional cash payments of up to 550,000 chief executive officer.11. Peter Burg, fonner senior annually. To receive an enrollment form, contact Investor Savices.
vice president and chief financial officer, was elected president, chief operating officer and chief fmancial Safekeeping of Shares officer. Anthony J. Alexander, former senior vice pres-The Company will hold shares of common stock in ident and general counsel, was elected executive vice safekeeping at the shareholder's request. To take president and general counsel.
advantage of this service, the shareholder should Guy L. Pipitone, fonnerly Akron Division manager, forward the common stock certificate (s) to the was elected vice president in the Generation and Company along with a sigr.cd letter requesting that the Transmission Group.
Company hold the shares and stating whether future The restructuring of our field operations resulted in dividends for the shares being forwarded are to be the following appointments: Thomas A. Clark, reinvested or paid in cash. The certificate (s) should manager of the Southern Region; Douglas S. Elliott, not be endorsed, and registered mail is suggested. The manager of the Eastern Region; and Charles E. Jones, Company will hold the shares in uncertificated form manager of the Northern Region. Mr. Clark formerly and will make certificates available to shareholders served as manager of the Springfield Division; without charge upon request.
Mr. Elliott formerly served as manager of the Multiple Annumi Reports Youngstow n Division; and Mr. Jones formerly served s
Y,ou may be receiving more than one copy of the as president of our subsidiary, Pennsylvania Power.
annual report if you have more than one stock R. Joseph lirach, formerly Stark Division manager, account. If you want to maintain separate stock was named president of Pennsylvania Power, accounts but climinate multiple copies, please write to replacing Mr. Jones.
Investor Services and request that we stop maihng an Barry M. Miller, former vice president in charge of annual report to a particular account. Be sure to engineering and construction, retired in December 1996 provide the exact registration of the stock account for after 23 years of dedicated service with the Company.
which you want the annual report mailing stopped.
Dividends and proxy material will continue to be sent g
for each account.
32 Ohio Edison on the World Wide Web at http://www.ohinedison.com
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