ML20198S284
| ML20198S284 | |
| Person / Time | |
|---|---|
| Site: | Beaver Valley, Perry, 05000000 |
| Issue date: | 12/31/1985 |
| From: | Ginn R, Miller R, Williams H CLEVELAND ELECTRIC ILLUMINATING CO. |
| To: | |
| Shared Package | |
| ML20198S250 | List: |
| References | |
| NUDOCS 8606100380 | |
| Download: ML20198S284 (51) | |
Text
{{#Wiki_filter:~ h I. The Cleveland Electric Illuminating Company 1985 ANNUAL REPORT l l pr = = ige
l CONTENTS 1985 Ilighlights, Financial liighlights, Report of Independent Accountants 20 l Earnings and Dividends and Fmancial Statements and Notes 21 ; Quarterly Stock Prices 1 Combined Pro Forma Summary l Letter to Share Owners 2 Financial Information 37 l The Centerior Commitment 4 Financial and Statistical Review Commitment to Customers 6 1975-1985 38 3 Commitment to Share Owners 10 Inflation Accounting 40 t Commitment to Community 14 Board of Directors 42 Management's Discussion and Principal Officers and Executives 42 Analysis of Financal Condition Committ.es of the Board and Results of Operations 17 of Directors 43 Management's Statement of GeneralInformation 44 Responsibility for Financial Service Area Map 45 '
- Statements 20 i
g e COUR Our c.5N emj 14ces
" are lhe ll!ummanna
_- Ccmpuny ic the p>ccyle clNertheast Cinc. Scmc swrh as ime mcchamcs, engmetrs,
, _ secrcuries, y lant i
tcchmcuns er j i . L L acccununts. Others ac
! maer readas, ccmpact ,
preg?ammen, clearual tes: cts, enur:nmenul sfYL u!)sts Cr custCrner scrYKt relYistnu!!Wh. On thejck cur empixecs arc ccm natcJ ta prcfesseralcaellence. Off ti:ejch they puruatute m ccm-mwmv scrtuc. kr thtst tea 5Cns, cur emys!sccs are t i:e l C:mpuny's m:st imperunt rescurs c. l. i
1985
- On June 25, the Company and The a Perry Unit 1 and common facilities Toledo Edison Company announced plans construction and testing were essentially HIGHLIGHTS
- to affiliate under a newly formed hA'ing completed in 1985. The unit is expected to company, Centerior Energy Corporation. begin providing electnc service to our Share owners of both companies over- customers later in 1986.
whelmingly approved this plan at special . A record 583 million was raised through meetings held on November 26. the Dividend Reinvestment and Stock
- Common Stock quarterly dividend Purchase Plan, including over $14 million per share was increased 3< effective on from nearly 6,400 IRA investors. Total November 15. Total payment of 52.55 per Plan participation reached 73,260, or 53%,
e share represents a 4.9% increase over 1984. of Company share owners.
- Earnings increased 8.4% in 1985, reaching
- A $195 million (1.6%) retail electric rate 5269 million. Howeve:, earnings per share increase became effective in March 1985; -
for the year were $353, down slightly an application for a 5210 million (16.8%) from 1984's rect >rd high. electric rate increase was filed in July. a Percent 1985 1984 Change 4 FINANCIAL Earnings Per Share of Common Stock 5 3.53 5 3.64 (3.0) HIGHLIGHTS Dividends Paid Per Share of Common Stock 5 2.55 5 2.43 4.9 Book Value Per Share of Common Stock-Year End __ $ 22.46 5 21.51 4.4 Common Stock Share Owners-Year End 131,684 131,998 (0.2) Common Stock Shares Outstanding-Year End 78,522,668 74,040,175 6.1 Operating Revenues (000) 51,253,990 $1,215,353 3.2 Operating Expenses (000) $ 994,841 5 953,242 4.4 Net income (000) $ 310,703 5 291,632 6.5 Earnings Available for Common Stock (000) $ 269,236 5 248,279 8.4 Return on Average Common Equity 16.0 % 16.8 % (4.8) Kilowatthour Sales (Millions of Kilowatthours) Residential 4,408 4,446 (0.9) Commercial __. 4,516 4,397 2.7 Industrial 7,981 7,997 (0.2) Other 414 433 (4.4) Total 17,319 17,273 0.3 i Employees-Year End 6,484 5,830 11.2 l l l ! Quarterly Earnings and Dividends Per Share of Common Stock Quarterly High and Low Prices of Common Stock s' m sa w
?Yo p e =7 g4
~
1 ,, if g.: b*3% g is - g. p ig , 40 - 16 16 ;
'4 -
a - - - - - Z
,2> < ,,,< ,a>< ,i,. ,2 , .
, i s. ,2><
l LETTER TO SHARE OWNERS i .: . , ; ' * * , 7 9 , ,, - 7 x - ~-
.1 - _ a.
f* '- - . ., f J J ,- . ' , .,./,_.,., "[z _f,_.'f],, ] . . K.; v' f Nineteen eighty-five was one or the most
.e " ' ;; , _ e 4 'c ;; 0 cventtul years in Company history We
;.l l.: . ' . : 'l . y ..f 7 { - '
essennalIy tompleted construttion on the
.-;, .: - , .i .
hrst unit of the Penv Nuclear Power Plant
.. t ; , . . .. ,(; / rg' and began the testing program leading 4
^
, , . y .s j'. . up to tuel load We made signihcant
' .. F f , 1 ; <f stndes in improvmg customer services and l
..gg, .,,;j> _
2 "
.;1
. % our community relations We mcreased l the dividend for the 27th consecunve I 5 e . W] . L -
4f.f/ 4 '
'. A.g ,, y . fc p.., c y vear. Crowning these achievements was J ..; , -f -
W announcement of our plan to athhate
> ..%. . . .. . : ~ ,. f 1., g . m. .. .t# . with The Toledo Edison Com1>anv O. ,., . . ... ' . i[
; The announcement attracted national
' } + ;' [ ' {' . ;
.1 . - attention in the energy industry and the
,. i l. . , . , ./. . ;_ -[ !.' ,
h'y. hnancial community In the eves < >t many experts. the athhation has estab I
< .... . . . . .J j . :.',< , . v. 5s,.
hshed our Company and Toledo Ed >n
; ll'. . ' } "f ' ,g,; f i 'fi as h)ierunners in 3D Inevitable trend l
'I.E' .
, , . f ((> ward tewer, larger electrit systerns
'.if,[N ( . S -
2 l ;.(( Haecu Rd magazine predicts that l
'l' ' * ,~ '[ our alh[iation Will betome a model h d
.,i
.. 8 .< < x . n
'.3 , ()theI utility c()mbinati()ns.
s
. These res;w)nses were notew(uthy M)re 0 . 3 . - 5 [ , ; 3 . '. gratt[ying [() us. h(> wever. was y(>ur vilid
(-
'? %
~.U-- - '
{',2 endorsement of the athhation Ct the shares v()ted last November at spc<ial
;, _[ .- ,' . . . ,[- '$, meetings ()r ()ur bompany and Il>led()
./,.f;..' , 7 ; i .L ' Edison. more than 96 percent tavored
, F '- ' *-
~# . .- .
,.- the attiliati(>n
- . , a- g. -
{ ~1 3 ,.L. . , .
- 4; <3 .
At this wnting, we aie awaiting approval
; .. .a _ ~ i' - - .? J . :l .T '
or the athliation trom the Secunties and s-
'. t.
j ;- .? .r... : -; .
;f_f -
' $! Exchange Commission We have urged l the SEC to att as soon as possible so that we can have the athhanon in ettc<t by
. .. s- = , f..
.i :.t the end of the hrst quanci or 1%h On<c gh,,; ~ .-. ,.3., -q . y.. .g. y r ;.q llL t. z. . that
' occurs. our Company and Toledo
..,.J. g ~e . g.i Edison will become wholly owned
..?, 2; %._ .
- . . f f,.y 6 subsidianes or a holding <ompany i '. v; h.T . ; Centenoi Energy Corporation. Share S ':? 1 4 n
.., -j ' , ": ; J .
c.
> ' i' owners or Company common stod will
,.....,..z.,.
.f, '. -[ y 'I l "?!- (4 1 ,.
become owners of Centenor Energv with msen or mom than smhmn.
. c, pg .. ..s
. '. , p
, '[ "'E f \ ' d {- ('enterit>r [nergy will rank dm()ng the
%G@
7.Q;... ;. 1 . top 2n elettn< utihties in the nation a n. . , t :- :: ,. . m
. . . ' ,. ': + , ~ ' .
q-3 'Q
,' i Q._L --
-f _
._f .;. ._
. . w_ . . ,
. . a. n. - '
, .f f
.l {l ?y '
. . .. w ,
$, 5., - . .' . .
r ..'..*
.' I',$ -
4:
"1 .
.g w
. ,W -C-X g
L
.<p lq *. .( 2 -
.__g,
[ -' .
,7 . . .' _ M '
I' .f l . . ' . ,) $? * ' ' . , . i
The affiliation is our management's care- These highlights and others of 1985 are fully considered response to a dilemma discussed in more depth on the pages facing many electric utilities nationwide that follow. We believe this Annual Report We must continue to ensure reliable electric reflects the prudence, flexibility and service at an affordable price in the face innovative thinking that have been the of increased costs, uncertain regulation trademark of your Company's manage-and unpredictable environmental ment team. You may be sure of that same demands. We believe that pooling our quality of management when you human expertise and physical resources become owners of Centerior Energy. with those of Toledo Edison will allow The Illuminating Company has recorded greater efficiencies and significant cost many successes in its 105 year history. savings impossible for either company t We attribute those successes to our achieve alone In documents filed with unswerving commitment to excellence the SEC in November, we estimated that in dealing with our customers, our share the atfiliation would save the equivalent owners and our community. You have of $90 million a year over the next our assurance that those traditions will 15 years. be the cornerstone of Centerior Energy The affiliation was the big news of Corporation. 1985, but it should not overshadow two other achievements. Sincerely, One is the completion of Unit 1 of the Perry Nuclear Power Plant. Construcuon on this 1,205 megawatt unit consistently gg; M 79 j g,ja ' has been a success story in today's Robert M. Cinn troubled nuclear energy industry. We give C/ramnan equal credit to our fine nuclear manage- d- s. ment team, the employees assigned to the Gh/ y', M,& ' Perry Project and all other Company people whose extra effort allowed us to Richard A. Miller
&csuknr concentrate so many resources on Perry.
Company employees also deserve the g % / f ff % credit for another major success of 1985. Thanks to them, our customers and our Harold L Williams community believe in us. Among those Eumtra viu nesuknr customers are more than 60,000 Company share owners. Employee responsiveness February 20,1986 to customer needs has improved the quality of our service As one indicator, the Company in 1985 again had the lowest rate of customer complaints before The Public Utdities Commission of Ohio of any major electric utility in the state Increased employee involvement with community organizations is proving to Northeast Ohioans that their electric company is more than an energy supplier. We're also a neighbor and a friend. 3
Commitment to customers. Commitment to share owners. Commitment to the community of Northeast Ohio. ! These are the cornerstones of The Illuminating Company. Translating these commitments into action each day of
- the year are 6,500 Company employees. They bring to the task their own brands of professionalism. They share their Company's commitment to excellence.
l l THE CENTERIOR COMMITMENT A momentous announcement the Company's share owners are to . On June 25,1985, our Company and receive 1.11 Centerior Energy common The Toledo Edison Company announced shares in exchange for each Company , plans to affiliate under a holding com. common share.
- pany. It was named Centerior Energy Representatives from our Company and l Corporation later in the year. Centerior Toledo Edison have worked to obtain Energy's projected assets of more than 59 regulatory approvals of the affiliation. At
' billion will place this corporation among this writing, only one step remains-the top 20 electric utilities in the nation. approval from the Securities and Exchange The affiliation symbolizes our commit. Commission. An affiliation between ments to custoniers, to share owners and electric utilities rec,uires a positive finding to the communities we serve. A two. by the SEC that it is in the public interest.
company pooling of facilities and We are confident our affiliation meets resources will help assure our customers that criterion. of continued service reliability with costs kept lower over the long term than would Structure is defined be possible without the affiliation. A Centerior Energy Corporation, through reliable, financially strong utility organi. its service company, will provide overall zation will help Northem Ohio achieve management from headquarters in the business and industrial growth. Share Greater Cleveland area. Our Company owners will benefit from the ultimately and Toledo Edison will be wholly. owned stronger position of an affiliated enter. subsidiaries of Centerior Energy. They i prise serving a larger and more diverse will function as separate operating com. l geographic area. panies. Each will have its own electric Common stock share owners of our rates. Each will retain responsibility for m st operadons, customer semes Company and Toledo Edison expressed and marketing. their overwhelming support at special meetings in November when they voted The Centerior Energy organization will [ . their shares more than 19 to one in favor enable customers and share owners to l of affiliation. Once it becomes effective, enjoy all the benefits to be gained from a l
- j. 4 L -. .___, , _ _ - - - - --.
larger enoty Our Company and Toledo have helped us maxinuze the benetits we Edison wdl tononue to serve their expett to realize trom athhanon respeenve terntones This wdl enable cath company to ret.un the high level of The Centenor Energy management team responsiveness mherent in exisung tustomer relanons. has the expenence abihty and expernse needed to make the enterpnse succeed A third subsidiary. ( enteri< >r 5crvi<c ComIunv C.ha.rman Robert M Ginn (;ompany. will pro cide the two operating will be C:hairman and Cniet Execunvc
<ompanies those servi <cs that can best Othccr or Centenor Energy and all three < -
be performed by a single enntv or its subsidianes Company President in August 1985. om Company and Richard A. Mdler wdl he P' resident of the l , Toledo Edison retained the management holding company and the service com tonsulung hrm McKinsev & Company pany Expenenced execunves from our
- _ . - to help plan and implement the athhanon Company and Toledo Edison wdl head the pnncipal tuncnons or the service
.Esk forces ot key management people wmpany we e formed to studv key issues and make recommendations in the tolh>wmg Centenor Energy rnanagement wiU be areas: adnunistration, engmeenng and kept lean and its strutture suthcientiv operanons. legal. governr'nent.d and flexible to rneet changmg condinons and enable guck responses to new thaHengn pubbt attaus. hna'nce and accounung.
and snategic planning The task torte Thde Mr Ginn wdl remain Chairman approach enabled the direct involvement and Chiet Executive Othccr of The of the 3 K) emplovees from our Company Illum : anng Company. Robert J Farhng, and Liedo Edison most famihar with turrently Vite President -- Admmisnanve those areas The ettorts of these people Services, will become President g _- 7 . " ..g.> 7
; p..
_;L
. . 4 i .
.. f I ppH 1 - V .s fy p ini.
e . L g - ry ; q[
; ; y (. p '. ; .
., y, m
,L ; l1 .
.Wf -
.. , g ,
s b
' [' *
. e.g (. k
- f. Q Q d p y y
.G ~ f ~xQ.} ',
.u.~
y._ f . ,.
. _ _ .xp ; . ;. . , . y! ,g
' ~- 4 4 ,.
- . = , * * . s ;
-f . . , }. * '
, , g .: . - .; ..
,3 . - . : , . ' . '..
.y. .
~ .
.3 ,., .
4 "
%;;p . ' ; -...S -
7- ; _ , . . :' . ~; ..- n- .'
" q.,
l '.- l,'Q ~ yl- ; ,
._.79.,;
**' l.j;
,. - y ..- - - .. r-
.'} .' . [ ., - .;-
! q. .s .
. . . .4 . a',1 . - . ... .,
, 4- .l f __ y *1 . . _ ' , . . ' ' *. ., g 9 . . , . . , .: ' .
= '.g,".- e +
,E
- .f
" ' " - vly ~_.<
^
g; , j
,, 'l _ _ .
. . , . .' - f l'
..f.? $ [,NS.
,#, '+,.i
- lP . i
'f+.',.' -..s ,+.,y
. . .- , y 7 = -- / , . . .
'~~ 'h '
.c.,
,..'.-t' # ., **1-
.. ..a.. -.,. t . . . '_ .[ . ' -
i - $ 4$. 1 1 5
COMMITMENT TO CUSTOMERS pr ject. wide shutdowns. Perry reflects Perry Unit I highlights the skill and dedication of many hundreds nuclear program of Company people and thousands of We promise our customers reliable engineers and crafts workers. electric service Helping us keep that We are confident that expenditures at promise is Unit 1 of the Peny Nuclear Peny have been prudent in light of the Power Plant-the largest construction . inflation, high interest rates and regulatory project in Company history. Construcuon changes that have prevailed since we is essentially complete on the 1,209 began construction. A study of Peny costs megawatt unit. At presstime for this by The Public Utilities Commission of Report, we were awaiting permission t Ohio is scheduled to be completed in load fuel.The equipment testing and mid.1986. Nuclear Regulatory Commission staff review necessary before fuel can be loaded Our generating capacity will be increased were nearin completion. Perry Unit 1 later by Beaver Valley Unit 2. We own a soon will he p serve some seven million 25 percent,204 megawatt share of that people unit which is being built in Pennsyh>ania by the Duquesne Light Company. One Those people are our customers and of our key construction executives from those of Perry's co. owners, the four other the Perry Plant now is on loan to this utilities in the Central Area Power Co-project. Beaver Vall Unit 2 is about 91 ordination Group. Our Company is the percent complete T e unit is scheduled plant's builder and operator and owns a for completion around the end of 1987. 31 percent, or 375 megawatt, share of the output. The CAPCO companies continue to defer a decision on the second unit of the Throughout 1985, Peny Unit 1 continued Perry Plant on which construction has , to pass all required tests and inspections. been suspended. We are keeping open On January 31,1986, the unit passed this option for serving future energy one unexpected test. On that date, North-needs. The 1,205 m watt unit is 58 east Ohio was shaken by an unusually percent compkte,in uding its share of strong earthquake for this area, but one facilities in common with Perry Unit 1. well within the capabilities of the Perry (See Note M of " Notes to Consolidated Plant. The plant suffered no significant Financial Statements" for a discussion of damage Readings from seismic mstru-ments in the plant will afford our industry Per'Y Unit 2.) the unique opportunity to confirm Power supply is reinforced carthquake design criteria for nuclear As one of the main benefits of our power plants. affiliation with Toledo Edison, we expect The construction of Perry Unit 1 has been to pool our generating capacity, thus one of the success stories of the nations delaying the need for new generating nuclear energy industry. Our construction units beyond our current construction has consistently received good marks from program. Also helping to delay future the NRC. Our quality assurance program construction requirements are our power is one of the best in the nation. We have supply employees who continue a com-not been subject to any regulatory fines, prehensive testing and maintenance massive re. inspection: of equipment or effort to keep existing generating units in good operating condition. We spent $16 million on this effort in 1985. It is no small task. Nearly 30 percent of our 6
l generating tapattty u)mes th>m units 3) has intreased the 6S megawatt unit's years old or more Even the most inten availabihty to produ<e ele tn<ity A new swe ettorts by our people tannot always precipitator allows Avon v to operate at prevent lengthy maintenance downnme tull <apacity whde keepmg tiv ash for those units We were torted to purchase emissions below government knuts power trom other unhties to serve our Ltal mst or this project was 590 mdhon. tapacity needs on more than 90 days m nearly equal to the 59? mdhon it wst 19E5 Our shortage ot avadable tapacits to budd Avon v whi..h began operanng wdl be great!v reheved when Perry Unit in 1970 1 1 got s into mmmeraal operat on The Company vm 5M mdhon on
--enn,-- n- - +_ n ,,
projea on linit 9 ot the Avon Like Plant tect the air and water around our power also will help inacase available capaatv plants That bnngs to sno nulhon the l Avon 9 is our largest generaung taahty amount we have spent on envuonmental j Conversion to a balanced draft operation unprovement in the past dozen vears. , T his (j >mpany and its emph> vees are ( m comnutted to protecting the environment !
- . y: d i ~ :. ..
; .g.a. _ey ,..
. f.i g.,.t c.),' r ,- 'S~
y g. . : * . , , :. ; -.; j
)s x --. -- .'.4-.Aj . , , +-4_ ./. 4 , .,9 , .: .-7
+
j
.4g'
- -c..
'.:.W
.c . 43 , . ,, . . ,: ,
, , ' . 'V*., ...m
.z ,
, , , . .j
., .m I
- 4. p .J ...
Dans Besse NuJear "ower Stanon whwh
. .g'i .c . pgg{gr 2
"L d we mown with Ecdo Edison The p.
s $m was tmmea ott hne ,n mid-year v , ., ,7 $% 5. , / _ " "
- 2. .;
to!!ow ng a senes of equipment radures 4 7 s .- No escape at radiation no mjunes and no Q...,a. signiticant equipment damage occuned 4.,
. . s . ., -
M* b l.
.4 . y.._. . . ,
g , v - ;, ((. a..f k"n" - - > . ,c. .k L '. s. : ?, a "c
'*:- : a p.' f$j.
',j _ . n ,.~ c
- .. , . . .'; j j ' " ' c.._ ? ' .
, - 3 , y .q. _
^a ,._
e- ;" .; }+ . ...g .: '.
;y -
'_j'.d- 1 :,'
, }- (Q M ,*-y"
- o;a
. [.. ' . .}e g . ,y3l ',. [ ;l 4 , f.?
;y,,, . '< , q j g:,%,
; t.
u .v. , 4. .:": .- .y .?. . (.x.3 v
,:; 4.3, .: l-, k. g.v,:
' ' n ... .
.c. . ; y y_ k1,.gy . b & A -- +,
- + s :..
g , /:.y >
- v. .
;s. , 4 x . - ... ^
. ; .. %: N/
- y. .- ii l ; r,f p : , ,
- s. M^ ,
{l _ $ ,' ' .l ' ~Qh - ,lI/. .. ,..,.. , g f; ,. Q , ' ~ ~ f_ -jj ~ j '^ - s . .; . ~ .. l', u . . ; ., s; ,, . .
^
U.'
*.
- 4 . . ] . .. ;. . .#, ., ..
- ' ^
'h [ ,
- .i
m
.4 - ; p.,
~
9 ., .-. .
..Y. . *
, -p.e_ k i ., ;
; j.;. . . _ gy$UQ$g 3 [ K.'
",.~ _'s n
?, .4c. 7 1, h ,'- ' - 7 ;:[,$. g.NMQ$
- p. .' .; .
3 , .. -[ $> I , y f .:.s::
,A. y .,. y g,p'*:ygf73.py w :x:y m w .:i. x9 0.c. A w ,*
e
-y g u.
~ .i > ,, . r x* <
L.p-
*n .Y i ^-' .+ y. * *. .w .,
... e.e .
5 l I
, , g fg { ;-r - /
. g
. . - 9t >
- e. .- . . ' ' . . ,
,,i'.,.' .i -
~.
g <.
- i ,, 4 " -
,p
.'..~.77., ' - - l ".
m . j
-.i -- .,.4 a
.,'8 a g'hA> q..e , '. : ', , .
- . .i - qg -
\
- ' % a v: ..
1. i -
... . o :: . . e-- v.? .- -
~ . ~ . - -r *...-.. - '
1 i l l
. c: # .<
") ..
,_ :- ,- :.; . . 4p ; .
- y _.
. - - - . $ ,y .:
6., .- - , . g. . m y -*f
. '.,9 ' ' ' / f / d:',. '
., 7. :.1 4 . 3: ~
4 Y _* ' q k '. } ;..
+
4 p 3..x 37 . y : -,s . L .
,, i s .. : .
~
.,. ,.:.= ,w . ~..,4. .
,- . : ,,,.t.,
y . n
- o .,d.k! :4 ,9 *L
; a 5,j .,. -,; h. _:' ^ . ' y.
r ,, j .# .R . ' . .k . ( -
;d
~, , . ,
} \,hl N- -
,. f
- h. 3 s .
* .3.-*
.. ,;b ~.). - - .~ . t;. .
y: *- Q : .. +#. .'
' J Tff" ~{. . yi
-t
'( .
4g ..
. J' '-;. ' .{. - i p../ .
e, y a s s 2< ps_3.g 3 i ,' . <
-g .; , wg t j ., s p ..-
y y , - 4A .a ? '; 3 n ,4 f
., c ~ i. ; ,..
pyJ .' .'yp l t cy : . . ' [
- .L' ) .J * > >: $ .
Jx.: g s
-j',; & i' ~ . '
y . . e . .. L N ' :(? y P+ m ,; ' '::
? _'. a__ ;'
y . l 7.')1,y ,'
'I iz-f d d Wg 2m- 4$a -.. :,.,y .
' , _g[.. . . ..
i - - s
., y .g.
- p. .' x
_g i, ;Q 7,
' 1 g'.
.. .g. 7
,; y u3 .t.. .. < .g w., . . .., - /v ,.
f ,' ~j'
.l r+
-m'.o
- s. ;
p#a . -e a d %. < cws . .
..y.
,,4 , . nf,, . z t-L;Q i
R .$
- o . , . . . ,. ,, . .
,f ge q.,L-.ph ,. yA ..,4y .y ' ; - .
p,_g+3-i
, g .y ' ; . -ms .s . ..
ps g '; , q ,.y t
., , 1 : .3 ,
,. , ,. g ..
q .. ...
/P, , . .. . - .
1: .; 4. gm ,14 p... . .
. y .,'. ,. '..
. . ~ . , . ... . .. ,
.: , .y
} .' ,
w
. w
..>.<T F ,
. . . ; .14p '
t .3 , , ,
- j' t g<. '.
, ',*:, N 5"' s
;. ?,',
, . _&. c a x. . . n.
)' ~ ^
- f. j ~..'2..
i s b; ,;;Ay.=s;m y+;;y ,e c , 'y . _ ?~y . ; g .3.; n g w ~.: -
+,
s
.g .,* ~; - . w- ,
'_ ;.. - . . , . . 3.
ll $g .pm ' ' y ,f**
~~
V ; .).V: f.' >,,'w . .'. . _ y - ~}4. f. .
,4'Y" .. ,-
y j' pi}Y ( g- . [ q - f: '. ~ . .. ,3)%
- s. .
.g
- 3. ,
l}[ Tsh ' ,
[ $. n.. g - ( [.- A ; .. -
f f, ':.j ';-.nk ~ k,. M.:, + l 4-
,- '%. j. , ' b ,,) .4l't.
? 'I f .,-
y.
.fa-
~
.s. .
- 4. . . r ..n. < -.- e n'.,. ,
F jfy. .
,,-4 .
"a " g - , . -
g\,.., + t g.g .. - i 4
; s , .. - .
. m g w_*
t.. 9
*- ^e }. . ..s ' . W . - F).? _ .p:$ .. .j - . ~
. yp _ . - .' ,,. 1
%1- .
4..
... , n.
_% ,i.xG,s
.. , . . , , .nr -
. .y , .
= ;pr
*g gwi -.g.7.:.k.
w y.. 3 y.:3. . ;q_ , ,p
= -
s e .o - t,..:s. e; . . w- ~ .. 1
^- 't , ~
,?
['~ .f$ L. ,
~ '
;S -' ., f,. - [ - l
-4. . ., _ .: .
7- n,;- - n. , :.y... .- ., .n w, , ..wP3y. , u - ..;wW , st 5._ , .g:g .
. ;m 1
l
\
--v----
The NRC cited Toledo Edison, the plant's These people camed high praise for their builder and operator, for inattention to good work and gained valuable experience detail in the maintenance of plant equip- for use in our own service area. ment and levied a $900,000 fine against 'How thankful we are to have had one Toledo Edison-a fine which our of your crews worki on our street," Company shares as 51 percent owner wrote one Long Islan couple. "They of Davis-Besse. were wonderful. You can be very proud." Just prior to the plant shutdown, Toledo Edison had retained one of the country's Today,s workforce l leading nuclear experts, who has developed Today's employees are we.1-trained and a comprehensive improvement program. highly skilled. They also demonstrate a Toledo Edison expects that the 866 continuing commitment to self-improve-megawatt plant should be retumed to ment. Some 325 of our people attended service late in April 1986, at the earliest. college under the Company's Tuition We are confident that Toledo Edison's Refund and Loan Program during 1985 present course of action will help ensure to study toward degrees in job related future good performance fro.n Davis-Besse. subjects. More than 1,000 employees The PUCO has authorized a consultant attended Company training and develop-to determine whether the June 9 incident ment programs geared to specific job at Davis-Besse resulted from imprudent needs. Another 1,000 participated in management. The consultant also will special Perry Plant training. Under help the PUCO determine whether Company auspices, accredited degree replacement power costs can be recovered Programs in nuclear energy disciplines from customers of our Company and have been established at or near Com-Toledo Edison. Pany facilities. More than 500 employees took computer Service reliability improved training courses in 1985 to keep pace We continue seeing positive results from with the increased computerization of the preventive maintenance, tree-trimming Company activities. We recently opened and upgrading projects carried out by our a new, $2 million computer center that distribution services employees. Customers provides more efficient data processing experienced fewer service interruptions for customer services, construction in 1985 than in previous years with activities, the Perry Plant and many similar weather conditions. other functions. The Company invested $50 million in Employee cost-cutting efforts in 1985 1985 to upgrade and expand tansmission yielded impressive results. Through the and distnbution facilities. This will help Operations improvement Program, more ensure continued reliabi'ity. than 2,000 employees suggested improve-Our service crews achieved distinction ments in Company operations that represent beyond the boundaries of Northeast Ohio about $6 million in annual savings. That in 1985. Some 150 line mechanics went Program has been in place for SI years. on repair missions to Michigan and to In that time, employees have produced the East Coast to help restore electric total savings of over $60 million. service following severe storms. Com-bined, these efforts represented 22,000 working hours by Company employees. 9
y -- 3'
, COMMITMENT TO SHARE OWNERS ' >
4
~
' ~
Common dividend is raised Our market research people havr! Nineteen-eighty-five was the 27th con, expanded their monitoring of economiL-trends and customer service needs: Kided secutive year of dividend increases for out common share owners. Effective in by this infor; nation, marketing repre- , November, the Company raised the sentatives advise industries and other > busiricsses on electrical applications tht' regular quarterly dividend from 63 to 66 cents per share for a new indicated annual can boctt productivity while holding' iate of $2.64. No other electric utility in dowtotal energy costs. The Company helps local enterprises remain competitive" Ohio and only nine other major investor. owned electric utilities in the nation while incr. wing our kilowatthour sales. have a record of 27 or more consecutive in the residentu sector in 1985, we years of dividend increases. , responded aggressively to heightered etition from the natural gas industry Sales remain level 3 comp'a three-pronged approach: mass with Kilowatthour sales for 198S remained media cotmunications informed cus-about par vMh the solid levels gained in tomers of the value of electricity; a
~
1984, a year of growth. We had hoped qumter-million consumers ww Company for ccntinued growth in 1985. We are employees demonstrate the benefits of - yleased, however, that Northeast Ohio's all electric living at shows; and our economy has maintained the level marketmg specialists conducted meetings achieved after rebounding from the and seminars with builders, realtors and recession of the early part of the decade. heating contractors. Residential mnstruction Industrial sales remained about the same; is n the rise. The number of single-family homes constructed ir 1985 commercial sales were up about three increased by 45 percent over 1984. pen ent and residential sales were down about one percent. Because of mode; ate We encourage business leadainationwide temperatures in 1985, reside (tial sale < to consider our area in their relocation or did not increase as we expected. - expansion plans. As part of this effort, we sponsored a video presentation in 1985 Marketing programs promote that stresses the locational advantages and future sales business opportunities in Northeast Ohio. The long term outlook is for a moderate but steady growth in sales. We project a farninSs
.. for 1985 two percent annual increase in electricity , Eam,ings were $269 milinn, or $333 per demand over the next 20 sears. That will lham, in 1985, compared to 1984 eamings total about a 50 percer; inlrease by the of $243 rnillion, or $3.64 per share.
cud c,f that pgL. - , , Eamings per share declined mainly because of a 12 percent increase in the M babe aIomprehinsive maiketing number of outstanding common shares owth. I; Asrop one m to stimulate esmple. we have helpe economicbocal in 1985. The increase in shares helped us Snance oui construction program while adustries stay competitive by developing maintaming a balanced capital structure. special electricity rates tailored to help Prior to 1935, camings per share increased these customers minimize costs while f r f ur c nsecutive years reaching a s maximizing productivity. Our top eight rec rd high in 1984. industrial customers consume 20 percent of the Company's total kilowatthour Contributing to 1985 eamings was an increase in the allowance for funds used oistp[ut; thes customers Rate incentives in Northeast help to keep Ohio and rctai some 25,000 jobs. 1
\
r , i# 1~ 10
.g .
-----.A____________ ______r______________________
m ...
- s s.
.e -
" .< t. .
f -I, g, 1
.. tW
- _ _ .. _ . _ . _ _ l. - ( , ,
O .
...v,.; v - .
m , g ,,y. n. v..
. .~ - . "
. - . ,- . 4 ..- 4 . ..
j .s
,p ,. .y f,,. .,
- g. ..,= . . , . s ,. .
_ #>- i . .e 4 < ,
'" , : ., : . ' . . .,m 7 w': .n ,
.-.,:.3 .. s- .
,..- J .. .
[_h, . ,,s ..- . ], = { l . f y-.:.' .. - .<< - . . s - y y- c . :: - -:
. 1 i
- s. .
.m. a.
.t.
F
--A:ie- /. , ,s 3
...c -e ..
+ -
,- -- ..* ~
- s. ,
,*a. - ' -
, q
- a. . . . .
, ;7
- v. -
a e 4.7 .. ,- - y ;l , Y -
'i
~y . ' ' m'..
+
fir .- v
.i
.e .
s c .s
. .. . m -
.... *u f , yl
%ege. '
A; e_,, g. ., sg s ,- p _N
? ^>
- n.y
- )t}' .
; . e : , .. ', l l. ,.l$( c .' '. .
,'y,-h y l,4s + r ap. f.4 = .
,p. _,s.
,e - '
M 1- -J [_ i g 3, F . ' *
. i
, , .. .i g ..:r
, ., y vg... y , .; ,
,r
.,/
' ' '.s .
^
.* - t;.y -/ - . . . . +
g. , .. . j2, 3,+ p.
. -; j,
- c : ,
g -x-
- p. ,
y . *-- . g i .. , e% ,_ Q ,. tg.g,j ;: - n y, '-
; 'r, .
. _ '. ' dyy A',.
-4 .~..
y 4 : a.n,u q:.y , .m .&p" n-s . s.
. y L .f. M.,- ,' .<
gsb ' ,j e,p A$ .'- : ,m*., g r., . ,_ > . e e : .- - i h ..' , , 4 wm ., -
., - . . GR'"It . . --- [ 7., 4 . ,
pqyg , 3 . . J- g
.,9 ,,
r :n ,. : .
- 9 s x :; -
F ..; .t } , 39 - - ' .y V ', , , -
- b,.. f;; , y' '-
j, , . +,4 - , . . . c,. z... P
.~w x.:c.- ': g'. . , ,$ ,. f .&=-
=
- f. . ' . . :
i p. y,.".-5,$e s.
< .. . . '.n.. n ,. - u sc , %. \
m . y, p '( s..
P -
f,' , ,i , -
;p.
f9
). ;<s g ..s.. ,-
, ' k g;g : '<f-,
_ y,,- .-, w e' s
. ,. : s , , e_ ' ' ' ,.:(,fr b . ". g.
f
. . , .. ~- . ,, p, y , .a.
..,4
. y .. , u, -
2,
- e. , .
y
*r .t - - . , .
-- 4
- y - v, .u ys 44 %u.K4<'* '-
' 4. , . ..1 .n, .;
f.
,}*_. lI . , ,, .
?. J -.
y,Y l-l ,- .T , ^ '.
- N; .) y . gl', k, , ;. ...,-
-Q ' 1.' - ~
? -Q ' y . - : -
,+
.q., f; g -;
y' f.- ;. ' . J $ wh c.. ,,,,. - t q - . ., e fg-vg ,J [ (t . '... ;. [ } , :?
, -$
- eY ' s gj '
r +. ..u,.-; r. :'k3 .- p .s G- _ }3~%' a.- v 3. .0'-e . m
- A g-
== m- . - r
,t v,
g,. . . r ? .,, *qpq ,i ,,. v.1
, R. .,w %. ~by ,
i . .,, , . , w . p. n - j, (c - ? ' ., M a ', . . .. + , . , . p. 4 $ .,.
- c. ;. ..g '..L.
,. - . ? , s44 ,:.
.6 m
.K, ; . , .g y,
'- j
.. f,;.
,q- .," y.', ;, -: , ,. '
a~ 1, .i-': 'e r y 'k-Q . , . ,
- C .' m,
=_ ' " + .. - j K N q. n. , '*1.? .v* ,. ' . ..: .
~.,..i. . , . < -q' - 1.
s - .- 2 g ,' e- 2 g p' p.[- . . . .-- 7 F : p' ,. , 7 -, , , ,..'.,'-,i.<r m-
.. .( s >.: + - -. ...+ i f,'i'.# .I 2
',4' 4. 4.< . . .. ._ > .. g ,t.. r(s. Pi ,, +
, w ',
,~.-aJ,
. ,- , ; 4 z;?,<
- hD-;.'. h h ,- . .-
=:.
.;.: . .w .
^
%, p ' . .g
- _
- g. ..'~.,, . .. p, ,.p. g,.a
" h* b' 7, h. . ^ ' ' 5 7
R, , d , ' ' , *4.,, ..,;.-
,A ;y .+*#-
$!, f ,F.. ,b . f .: -. ' ~ ,
- vi
- [.
f,
- 4. , ;W 4 . M a';y- ., u/.* . . -, . , . . ~ .. ', .- . . . : ,; . v -
.p . 4 ,
?
A.-
' w. ; e$ " , 5 3 r !d"'
C R;p% u+ [- .-
'.~
- ),',!9< l,,[ ", [ .
.'3 ,.,0. p ". 4... .. g, ., . , . ,,y h". gj z, "'.. ,,(~ 3
,,r. , :,r+p ' . ( g,hh '
g.c;
. :. %4 ,~J , .-t u..., -
a ' 1.4, p*
.M.f g.^ 6 g . *, .c.. - J' '
= 4- ,:- %. 3 * . 'J'_ - [.?.Nhf.v .s ., -l , & '/,f $ ' . ..* :' Y ;'.[ f' ., h ,-@ &' .?q ... i- W,hh*' Y . .
.h 7
c_ h..#
. Q ?% y:.a :1.:, .,.
.c
, pyy..
?Y,.-
.9 ~r .- w9 , - o %c . ,Ne,.4- - a. . n,.yf#r.'.g .n Y .,, y L-
== =-
1 dunng tonstruction ( AFUlX:). the non About 40 percent of the increase refletts sash aedit to income that retlects the cost the anticipated annual operating costs for of tunds invested m new tauhties not yet Ferry Unit 1 Another 20 percent reflects in rate base. Also tontubutmg. to a lesser u>nstruction work in progress (CWIP) cxtent, was a 519.5 milhon, in percent for that umt We were denied CWIP m rate macase effective Marth 12.1985 the rate case deuded m March 1935. We This was a disappointing response tw the will request Perry Unit l's tull inclusion --- I'UCO to our request for a $180 milhon. m rate base m a future rmte case. 15 I>crtent rate increase. That inacase
~I he Company has not had a signihcant would have hel Iied >hase I into rates our rate mt rease since lanuary 19 eu Since
- big mvestment m new generating cajucity then, there have been several reductions On July 1.19E5. we began deternng in fuel costs and one across-the-board Al:UlX: on Perry Unit 2. the unit on rate redu non. Even with the 1.6 percent ,
whit h tonstruction has been suspended mc: case granted in March 1955, the and wnose future is untertain. The average residential onsumer of 500 ARIlX: deterral will minimicr the future kilowatthours a month is paying oniv adv rse impact on earnings should that about one pe: cent more lor clettnuty unit be cancelled and its costs not than was p.ud three years agu Meanwhile. retovered thiough rates This deterral did the cost of hving has increased about 11 not attett tash flow but did redute 1935 percent over the three-year penod camings per share bv about 23 tents Our customers have long benetited trorn
}(die tase pending the low tost generatmg units built dunng On julv 2.1935. we bled for a 162 the 1940s and '50s These units now percent. $210 milhon rate increase to go must be replaced at today's higher costs into ettett in the second quarter of 1956. An impact on rates is inevitabic.
y s. - ;c m a . - . <> .; :. , ; - p . :y .. ~; ., ,. ...; ;- (_; . ,. ,. , + 7 c.
,, j . . . ,j ;.. y(..- g..,,i
,7...p . . .g'
. : ...n1 w ... ,,a '_. .
S =- - .e sf., b x: . e. 4 ,.,.y. ' ' R.,. g, -
-- ? 1 : 1
.; f " ~
- y. .. ; : : " ; - 1. , c .= L ..m ;,. . :n :' 4. . ' .;.:3. ,a : c' . .m - , .;.' ; ,
' 'a_ cr
,;. . . e - , , -
./ . ,s u,, sq:, .=g
, y 2
.;gg2 ;v pV. ' ,.. , .. :, .., ,g. 'n ; -i.<;y y
-3 . ,. ,1 3 . s p ., . .,W. ..
p,. ..p.
.a
,lp'-..-
-. .- .1 ,
,1 , ,o 3 w4
, tr
.+ g laL . q%y; 'j,,..:*
qu
- : s -
; , z. 1
.' c % m.
. , ;s. .s s..-
s,9g .. , , . g'.. ', q :_.; '2- .;,.., . f, ~ , , -
* , j .f. e ,k+,3..:,,.
f~
',%l ' , , .ni- % - # - ", !
,..~.,,)l,
W.n- W <,-).f ..d' . ':O' _ . :.k + ' _ y , [ Q , f:l. s. - n ; ' ;(,l Y - N
=_ .
g'g,, ai ;- . . ri .y. : s,-, s_ t, g %. . y.y w ... ( < ;,. ;. - --
-s,, .x t., - P. . > g, 1, 1 ,
.. n . _e , , , , .
,.g j
- g. ; .g'AW . ~ ,. 7 ? ;- * '. . ! 'L. . j c$'g c.w -' . .,m: u -
;-s .r
. 4
.n* , g _ ', , .; jy g, tj':m,:, r qc .y ' . . . ,a , ' . . . . .?
.f. ,..,1 w i - - 3 ',. , - + . . / .'
., s t ,':u i
/ .g. . ,. ' '
;-?. . y?
c..; ; 4 L-
; . . h- lQ . u ..y
.. ~- -
,, " ; ~
;' , .- = ;, ; -
";. e.:.k* _ u- f. ' ? :- w'
- q. .f ..i; , .:.[: y. ? , ;. ; g.
;%g:
.. _ , , ; , n y . >v ,-
- y. ;
- n .
.=., .
- . . , , - ' : .: w- N ,,. y; s.k ; ~ y , . p .;=r;.,: . .
- h. _. .[},v k I h. 4."d ,
9 :; 2j[ -u c M d,.j ... m,
'.M).hi.[.f.
'.;? ,.ge ;. .
,6g '.'a,;4 _.r
;j- a
.y v';; .,.* ' 4.Q.
, 3
,.1 < j. pg a
- . s ~.~ . r * - g. .
&sy,s._ [ f. , 1 g.
,,y.
2 Q
,j.
#A %, j ; " .[...
m.a_ f. ' . L,.. ; y .. ' 3' _H. ::- .' ' ;l.LO
. 8 :
.>; . . . ,_s..
.R C .n . . . , ,.g..- .e . <..- .g - gry ,
b r ':*.- g? "[. 'T ' ,,' f Q~,';p( ~.h-y^ in ,I..Vjf ph. G. . : i A,=f, p,: 9.s ;{?. :., .
. ,.p
,41,ck, . ' - . - .y. $ .3, , 3...g. e
,,, ;', 4 ...; , ?.. < a: - .., . ... ; -- r
.' . . ,. k; p 4 , . ,,
1 ;
; , $,j : -1 ..s . c * ,
cn=. q- ,, = ..
-.~..-- ; ;a y; ;..
- . :' q
-. ." =
;X'^. j-
.?
- f. . j? ~ ,@ f. , . . ., .a f'y-
'. D^ -n.q.w , L' q:c. ) ,, gt(.. .;
'y l'u
. Q- 7 t..; . . 67.; . + p& '2Q[y
-; J.. n : b ;) J .1t ' .i '-
. . Y . . ...,~ h _ g. - ,.x. : yg : , v, -: z . . s.;z
. - ,Q y-Q %;; J.}C,, J.'.~g,7,. ,. %q' l%. .:.,7..a:4,. _,,
m n~5..u ;;:.m. q %x u. e . y .. .; _ , ~ -.,'c .y 9
.* f g. M.c
%., " ,3 :
l
We expect that impact to occur over the of preferred stock. We expect common next few years as Perry Unit 1 and stock equity needs to be answered B-aver Valley Unit 2 come on line. The mainly by the Dividend Reinvestment impact will not be comparable, however, Plan, including the customer stock to that experienced by other utilities purchase and IRA programs, and our who have full ownership in costly new employee stock plans. Once the affiliation units. The Company owns only a 31 with Toledo Edison becomes effective, percent share of Perry and a 25 percent our common equity capital needs will be share of the Beaver Valley unit. Our met through retained eamings from our limited ownership and the time lag operations and sales of common stock between completion dates will case the by Centerior Energy Corporation. impact of those units on rates. Further, Our 1985 financings included about $150 Ohio law allows a phase-in to spread the million from the sale of first mortgage cost of new facilities among separate rate bonds; about 590 million from sales by cases over a period of years. public authorities of tax-exempt bonds to Construction budget is set finance pollution control facilities and
$49 million from the public sale of Our estimated construction budget for adjustable rate preferred stock. In addition' , the 1986-1990 period ranges from $1.9 about $94 million came from our billion to $25 billion. The lower estimate Dividend Reinvestment Plan and from , assumes no significant spending on Perry employee stock purchase plans. Also in ,\ Unit 2; the higher estimate assumes resumed construction beginning in 1988.
The new 1986-1990 budget is about the same as last year's 1985-1989 forecast. Dollars Raised Through Dividend Reinvestment and Stock Purchase. Plan Decreases in spending for Perry Unit 1, now essentially complete, have been
***)
offset by increases in other major com- , ponents of the construction program and by cost increases resulting from inflation. F 1 cm ,". About two. thirds of the five-year M ***~' h.1 construction budget will be applied to m B~ [ip facilities, primarily the up. generating, grading ot fossil fuel units and completion E of Beaver Valleu Unit 2. The remainder M --
= E will go toward' transmission, distribution so b U $
and general facilities and toward pollution j f control projects. ("4 )N $ We have set the 1986 construction budget at $580 million, compared to = 'fg g
$606 million spent in 1985. g g jP n]
Financing plans for 1986 - R 8 5 $2 E We expect to raise $350 million in 1986 compared to $385 million raised in 1985.
=
h h 4 f o We plan the sale of about $200 million C L L 1 of first mortgage bonds in at least two separate issues. Further, we expect to raise about $50 million through the sale 13
1985, the Company completed a $150 lowered its ratings on our first mortgage million back-up, revolving credit arrange- bonds and secured pollution contui notes , ment with 17 participating banks to to BBB, our preferred stock to BBB-ensure that funds will be available to and our commercial paper to A3. complete our construction program. At this time, we have no plans to use this Company cited for investor relau,ons arrangement. We ended 1985 with a capital structure A continuing source of pride to the of 41 percent common equity,48 percent Company is our investor relations debt and 11 percent preferred and prefer. program. Twu recent successes are the ence stock. We are continuing to obtain customer stock purchase program started favorable terms for our borrowings thanks in 1983 and the IRA program started late to this balanced structure and to the in 1984. They have helped increase to innovative strategies of our fmance people. some 60,000 the known number of cus-tomers who own shares of Company Credit ratings remain stock. These individuals now take a dual investment grade interest in their local electric company. The Company's securities remain above Many of them lend their voices to ours minimum investment grade. Ilowever, when utility-related issues come before two major agencies lowered their ratings public forums. on our bonds and preferred stock in In November, our Company received the reaction to the disappointing rate increase prestigious Arthur R. Roalman award we received in 1985. from the National Investor Relations Moody's lowered to Baa2 its ratings on Institute in recognition of these twu our first mortgage bonds, secured highly innovative and successful pollution control notes and preferred programs. The award is a tribute to all stock. They did not change our P2 com- employees involved in the various phases mercial paper rating. Standard & Poor's of investor relations. COMMITMENT TO COMMUNITY Company tradition takes on residents. A Streetlight I fotline hastens new dim'ensions streetlight repairs and keeps neighboth(xxis Your Company traditionally has recognized well-lighted and safe. An outdoor lighting prom tion improves the security around that a corporation sustained by the com-homes and businesses. A Safety Watch munity owes some contnbutions to the pn> gram encourages our empk>yees to well bemg of that community. For decades, make immediate reports of safety hazards we have wurked vigorously for com-and emergencies using the Company's munity betterment. Nineteen-eighty-five, co munications network when appropriate. however, was a banner year. Much of the credit rightfully belongs to our Energy is an important subject in today's 6,500 empkyyees. On the job and off, they dassrmm. The Company in 1985 provided helped win new friends and new respect a combined total of 120,000 lxx>klets, for The Illuminating Company team. films and computer programs to teachers
. for classroom use. We gave to school Special services benefit our children 30,000 book bags with electrical service area safety coloring books and 100,000 book We began several new programs in 1985 covers printed with emergency telephone specially targeted to the well-being of area numbers. We helped provide parents with 14
5.",,,~~,,^,* ...' ,5
,1 .
[* [% ' [ [-' S, , 7,. ' '
<* b, ' :.. . ;-
r i'. i f ~4 i'~i #
.4,,' i ,' . . . . . ' * ' '
's . .-[w _,,s - ,% -;
,j , , ,,y - . , , . }, 4- , ,e . ; -s
- g. . v:, .. , :
,,__.-L, --, -
, _ - . .; r ,- , .
, 4 _ . ,9 9 :
n , ; e'
-c.,,-4 1' 1
.F.- , (:l-!
l: . ., 9, a ., .:-' ;
. ,; . ; - t. .
-l. ,
- - . . . . . . ,: . . . , ~ . . . ,
a> f .: .. . fs j,"- 1- . ", !i . ' *
<, ...,3 .
, , "' i . ,' , , . . , g
- _._e: . Q F; ,' ; : =:: s is , : :- - nu '
,; ,> 'O_.-
- .c T_" a- .,
c .- +
..., +
_.. '.,,.-','._'m - -- - - ._?
. . ;.' Y ?L' f. ._, .,l.
l--.= ..,",y.
< . . . . .,4.. .' ..
+
...~,
- ' ., }. ' ., . l., .. ,. ; lJi t -. :.+ g ' _
--';}
. . . s . .
1 '
-*'.".P,,
,, , [ ,.
r fi-
- 1: ..
.w . , . v . . .
,2 ,. , I ,, . ,, 'r ; >.I..:" e .+..
h.
+T.M f.i ~
, \: ,'
.,; -- . < , ..y..:
k ; ' (, -[ .-- a
~ * - t 't, .,
) 4 .' . .
3 18 .
* . '*y- " _, .
'#~
hh.ww.Ifbl.@% n M &N
; .o p . l@ ,Is[y[.~b.l.7d$
m mh e w.M
- c. N.US."AI$$Nt't)? .
QMpgW:::: ; L f-k .
, we..a
'e -;
.a. : ..
- g. ...' . . 'c. . .... :..,'.cm.a
*>., .'?
' ^^. *
.::.~ ' ' ' 3 x
tV*
,, .a. { _. .m.
*'-'c .
= = Em
<: e e.... ., _
~
N n.y
' ~
L hich(.
. 99 -
vgv y . u .., ., .
- - >. ;:.,t e > , :: . .c
~ - 1, ..
s-muss
. ~ . .%
[ . m*E h #*
^
r- . - _ _ _ . s-'
.~
_ f ' _ '-. . : p . -
.- *c *-
- n, . .
I ' f_' :,,. ; * ' { $t;
*? useum L
g i . *f # - e
$g ;
=asse Waur p.4 n
-G p ,%: n, 'r w L .
4 : .,
..n p .. - sg $
h j
+ e
, . : , . * . .r
[ a m :,. . . . a ry. +. # ' . ; ;:c. c. V:
+
9' K.' r.s ' 4'\ l',y J-l 7.'1 k' ., + . ;~ 't Li':: :Lt.p$. 4/,f? ,-'. % 9 e GA: y9 % trb, %, . .,:p}s&.4 1 u . ,. c.; . ,-; .4 . @a. 9 ' n, ' S F -
identification cards for their youngsters community. The challenge before us all in case a child becomes lost or is missing. is to build on the spirit of cooperation, Employee volunteers took special demon- keep it burning and keep it working" strations to some 800 classrooms in 1985 Making news nationwide in 1985 were to help teach 20,000 elementary school the 26 Company employees who repre-students how to stay safe around electricity. sented Creater Cleveland in a national The Company has increased its contacts " Corporate Sports Battle to raise money with senior citizens. We provided them for charity. Our athletes outscored all with 20,000 calendars and songbooks in other Gmter Cleveland companies in a 1985. V'e have expanded communications local competition and placed a respectable with seniors through a new newsletter, eighth in the national competition at CEI Connution. It contains tips on energy South Padre Island, Texas. management, household econo. Our employees further demonstrated mies and other news of interest. The their community commitment in 1985 newsletter is being distributed to 30,000 by donating $1 million to the area's United senior citizens throughout our service area. Way campaigns. The Company made a Workin8 or f a better communit>, t tal C rPorate contribution of more than
$1.3 million to various civic, educational, Many Northeast Ohioans know our em- cultural, health and welfare organizations.
ployees for their involvement in service organizations, hospitals and senior citizen Extra effort wins recognition centers, and for their work as volunteer fire Our community commitment camed fighters, paramedics, Little League coaches special rec itions in 1985. One was a and tutors for disadvantaged youngsters. corporate dership award from the The Company continues its Community Creater Cleveland Council for Economic Involvement Program to encourage such Opportunities. The second, a human volunteerism. The program provides Com. relations award from the National pany assistance to service projects in which Conference of Christians and Jews, was employees are involved. In 1985, more presented to Company Chairman Robert than 100 service groups received help. M. Cinn for being in the forefront of the More than 200 employees attended some m vement to combat prejudice and 25 neighborhood festivals during the pr m te equal opportunity. Mr. Ginn accepted the award on behalf of the summer of 1985 to meet directly with residents and answer their questions Company's officers, employees and about our electric service. Among other retirees whom he credited for being long-time activists in that movement. items, the employees distributed 25,000 packets of literature to customers and Our Company also was named 'Ilmployer 50,000 balloons to youngsters. of the Yed' by the Vocational Guidance Wrote one festival organizer: "I want to and Rehabilitation Services agency for a thank The Illuminating Company for its Program to help train handicapped Persons and, when possible, place them support of our festival. Over 6,000 people attended and your donation of balloons in Company ]obs. for our youths helped make it a most The Company is strengthening its stature colorful day" in the Northeast Ohio community thanks As we responded to a similar letter,"We to outstanding support from employees. We are proud to be recognized as a value working with groups of citizens leading corporate citizen. It is a role the who are doinggood things for the Company mtends to maintain. 16
l MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cap u Re e v 1 Lmety expect to finance about one third to one half of our construction program over the 1986-1990 period through the issuance of Our on-going program of constructing new facilities to meet secunties, with larger proportions in the earlier years. anticipated demand for electric service, to replace aging
's Investors Service and Standard & Poor's Corporation facilities and to comply with pollution control regulations requires a substantial investment of capital. Over the years lowered their ratings on certain of our secunties during the 1983-1985, the capital requirements for our construction year. This increased our borrowing costs in 1985. These down-program totaled approx.imately $1.7 billion, excluding nuclear ratings are discussed elsewhere in this Annual Report.
fuel. This amount includes an allowance for funds used dunng We continue to seek fair rate levels from The Public Utilities construction (AFUDC) which is explained in Note A of " Notes Commission of Ohio (PUCO). Our ability to finance is contingent to Consolidated Financial Statements." See Notes M and N of upon obtaining sufficient and timely rate increases from the
" Notes to Consolidated Financial Statements" regarding risks PUCO. Without adequate rates, we cannot earn a fair return for associated with the construction of nuclear generating units our common share owners. Inadequate rates also would and the recovery of costs *hrough the regulatory process. impair our ability to generate funds internally and could result We finance our construction program through funds generated in even lower ratings on our secur, ties. In March 1985, the internally as well as from funds obtained from extemal sources. PUCO granted us an increase in electric rates of $19,500,000.
Over the past three years, about 55% of the money used for or 1.6%. We had requested an increase of $180,000,000. In construction was raised externally through bank borrowings July 1985, we filed an application with the PUCO for an increase and secunty sales. At year end 1985, we had on hand about in elactric rates of $210,000.000, or 16.8%. An order is expected
$85,102,000 of cash and temporary cash investments. in the second quarter of 1986. See "Results of Operations" and Note N of " Notes to Consolidated Financial Statements" for Expenditures for our 1986-1990 construction program, as discussions of our recent rate increases and other rate matters.
discussed elsewhere in this Annual Report, are estimated to . be $1.9 billion (including AFUDC, but excluding nuclear fuel). Our financing plans are designed to ach.ieve a capitalization However, assuming construction of Perry 2 resumes in 1988 structure of 40-42% common equity, a maximum of 48% debt with completion in 1994, this estimate increases to $2.5 billion. and 10-12% Preferred and Preference Stock. At year end 1985, The construction program does not take into account any our capitalization structure was 41% common equity, 48% changes which might be made after the proposed affiliation debt and 11% Preferred and Preference Stock. with The Toledo Edison Company (Toledo Edison) described We sold Common Stock at prices below book value in 1983, in Note B of " Notes to Consolidated Financial Statements" 1984 and the first half of 1985. We did this because we needed becomes effective. Substantial additional expenditures may be to raise new capital and still maintain a good balance of debt necessary, however, if we are required to modify or add to and equity. These sales resulted in the dilution of the bcok value our existing facilities to comply with future pollution control of outstanding common shares. However, from about mid year regulations Assuming adequate and t.mely rate relief, we 1985, sales of stock through our share owner, customer and Construction Expenditures Construction Work in Progress and including AFUDC Net Utility Plant in Service (milhons) (bilhons) su W Espenoewes v, - . _ ,, a =~ uuoc
, jsj M I' c -
n' q E
, , ,,, [] E I R R ,,
I;
,1
[] ]l , d [ HH;W
=;
dnNHz. m n bHh f E 1E1 ddb , N..... S tE at Pony M 17
employee stock purchase plans have been at prices above Rc ; *; of Ope e r book value due to strengthened market prices for our Common The chart below shows the factors which have affected our Stock. If and when our affiliation with Toledo Edison becomes electric revenues in each of the last five years. effective, our future requirements for common equity capital will be met through retained eamings from our operations and g5 Common Stock sales by Centerior Energy Corporation. Northeast Ohio's economy remained steady in 1935 after Financing plans for 1986 are discussed elsewhere in this rebounding strongly in 1983 and 1984 from the recession earlier Annual Report. Specific financing plans beyond 1986 have not in the decade. This stability resulted in our total kilowatthour been determined. sales in 1985 being about the same as in 1984. Over the 1986-1990 period, in addition to our construction After two years of growth, kilowatthour sales to our industrial program financing needs, we must refinance $349,205,000 of customers in 1985 were about the same as the 1984 level. maturing debt and Preferred Stock. Also, we are required to Although we experienced increased sales in the automobile offer to purchase $108,200,000 of Preferred and Preference and aircraft parts and equipment sectors, this growth was offset Stock during the same period. See Notes F. H and I of " Notes by a decline in sales to the primary metals industry. to Consolidated Financial Statements" for further information Sales to our residential customers declined 1% in 1985 despite regarding our First Mortgage Bonds and Preferred and Pref:rence Stock. A portion of the securities maturing in the a slight increase in the number of customers. Expected growth , did not materialize because of moderate temperatures in the r:3xt five years will be refinanced with higher cost funds which could raise our embedded cost of capital. second and third quarters of 1985. We had the coolest summer in 13 years. The amount of First Mortgage Bonds we can issue is limited Even with the cooler summer, sales to our commercial by our Mortgage and Deed of Trust. See Note F of " Notes to Consolidated Financial Statements" for a discussion regarding customers increased 3% in 1985. This increase was due to a the amount of additional First Mortgage Bonds we were modest growth in the number of customers, primarily office permitted to issue at December 31,1985. There are no restric. buildings and medical facilities. tions on the issuance of additional authorized Preferred and Earnings per share were $3.53 in 1985, a decline of 3% from Preference Stock. However, as part of our June 25,1985 1984. The primary reasons for this decline were a 12% increase agreement to affiliate with Toledo Edison, we have agreed that, in the number of common shares outstanding during the year prior to March 16,1986, we will not issue more than $60,000,000 and an accounting deferral of AFUDC for Perry 2 which began of additional Preferred and Preference Stock, of which we sold July 1,1985. The AFUDC deferral did not affect cash flow, but
$50,000,000 of Preferred Stock in November 1985, and will it did result in 1985 eamings per share being about 23 cents not have more than 81,600,000 shares of Common Stock out- lower than they otherwise wculd have been. The impact of standing. At December 31,1985, there were 78,522,668 shares of outstanding Common Stock. Sources of Electric We use short-term financing such as bank lines of credit and Revenue Increases the sale of commprcial paper to give us flexibility in timing our (millions) long range final,aings. Money raised through these short-term Ratio of Market Price arrangements is primarily used to finance temporanly our to Book Value(Year End) ,
construction program. We have a total short-term borrowing m m - gg y ca c= ,. capacity of $186,300,000 in the form of bank lines of credit and E s= i m' '= cus-revolving loan commitments. Generally, these lines are held in reserve to ensure that we will be able to pay off commercial ,, 99 . ,, paper when it becomes due. In addition to these short term
- borrowing arrangements, a $150,000,000 revolving credit
- m facility was put in place in 1985 to serve as a back-up source u of funds for our construction program. See Notes F and K of
" Notes to Consolidated Financial Statements" for details of our , _ _ _ ,
credit arrangements. ,33 ,ai vis 50 - - - - 40 40 - - - 20 03 g. 20 - - - .gn _ -
,0 _ _ _ _ .
0 -
-80 9999 1982 1983 1904 t986 19At 1982 1983 1964 1985 18
these items on our 1985 earnings per share was offset, in part, year of 1% and 3%, respectively. The improving economy by the 1.6% increase in electric rates which the PUCO granted along with harsh weather in early 1984, which offset the effect us in March 1985 and by continued growth in AFUDC (aside of a relatively mild summer that year, contributed to the increases from that deferred for Perry 2) resulting from increased invest- in the resioential and commercial sectors. ment in construction work in progress, principally for Perry 1 Earnings per share in 1984 reached a record level of $3.64, and Beaver Valley 2. AFUDC was 82% of our 1985 earnings. up 11% from 1983 earnings. Contributing to this increase were For a further discussion of AFUDC and information conceming higher kilowatthour sales, higher AFUDC and the impact of a the status of AFUDC accruals for Perry 2, see Notes A and M, cost control program which we implemented in early 1983 respectively, of " Notes to Consolidated F.inancial Statements." and which continued into 1984. Increases in AFUDC, which Fuel and purchased power expense in 1985 was up 12% from amounted to 69% of our 1984 earnings, were partially offset by the 1984 level, accounting for about 35% of our total operating increases in payments of interest and Preferred Stock dividends expenses. Total fuel expense for the year increased 9% over and a greater number of outstanding common shares. 1984 because we used more costly fossil fueled generation to in 1984, our fuel and purchased power expense was 6% replace some of the lower cost nuclear generation lost due to lower than in 1983. The primary reason for this decrease was an outage at the Davis-Besse Nuclear Power Station and an an 11% reduction in total fuel expense resulting from lower unit increase in the net deferred fuel component. Nuclear generation fuel costs, greater efficiency in generating unit operations and accounted for only 6% of our total net generation in 1985 versus a decrease in the net deferred fuel component. Davis-Besse 13% in 1984. See Note A-Fuel of " Notes to Consolidated
. contnbuted 13% of our total net generation that year. Partially Financial Statements" for a discussion of deferred fuel costs. offsetting the lower fuel expense in 1984 was an increase in in 1985, our net purchased power expense was up 40% from net purchased power expense due to increased demand for 1984 pnmarily because of our need to replace a portion of the energy and generating unit outages during the year.
generation lost due to outages at major generating units- The ratio of earnings to fixed charges (SEC method) declined including Davis-Besse. slightly to 3.1 in 1984 from 3.2 in 1983. Increased interest payments also reduced earnings per share. The ratio of earnings to fixed charges (SEC method) in 1985 1983 decreased to 2.6 from 3.1 in 1984 The economic recovery in our service area which began in 1983 contributed to a 6% increase in our kilowatthour sales to D84 industrial customers. The improved economy, as well as an Total kilowatthour sales in 1984 were up 4% over 1983. The extremely hot summer in 1983, also benefited our residential recovery in our local economy in 1984, particularly in the and commercial sales. Sales to our residential and commercial manufacturing sector, was a significant factor in that year's 6% customers were up 2% over 1982. Total kilowatthour sales for gain in sales to our industrial customers. In addition, we also the year were up 3% from the previous year. experienced gains in residential and commercial sales in the in January 1983, the PUCO granted us a 7.4% increase in electric rates. Subsequently, our electric rates were reduced Fuel Costs 1% in October 1983. Our net rate increase and higher kilowatt-(per lulowatthour) hour sales in 1983, in conjunction with the cost control program we implemented that year and higher AFUDC, helped push 2" earnings per share to $3.28, a 9% increase over the 1982 level. n Total fuel and purchased power expense in 1983 was up
,g slightly from 1982. Despite the impact of higher kilowatthour
" sales in 1983, total fuel expense declined 3% because of lower
,, unit fuel costs. Fifteen percent of our total net generation was nuclear in 1983. The decrease in fuel expense was offset by an is increase in net purchased power expense that year over 1982.
,. AFUDC accounted for c5% of our 1983 earnings. The ratio of earnings to fixed r ta'ges (SEC method) rose to 3.2 in 1983.
For a discussiori of how we are affected by inflation, see 40 " Supplementary information Concerning the Effects of Inflation." 00 - OS - 04
- l-l-l-l-19
MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL STATEMENTS The management of The Cleveland Electric illuminating We have an internal audit program which monitors the internal Company is responsible for the consolidated financial state- accounting controls. This program is designed to examine ments which appear in this Annual Report. The statements were whether the controls are adequate and effective. Also, an prepared in accordance with generally accepted accounting examination of the financial statements is conducted by Price principles. Under these principles some amounts must be Waterhouse, independent accountants, whose opinion appears recorded based on estimates. Such estimates are based on below. an analysis of the best information availabla The Board of Directors of the Company is responsible for We maintain a system of internal accounting controls. The determining whether management and the independent control procedures are designed to assure that the financial accountants are carrying out their responsibilities. The Board records are reasonably complete and accurate. They also are has appointed an Audit Committee, compnsed entirely of designed to help protect the assets and their related records. outside directors. The responsibilities of the Audit Committee We make an effort to ensure that the costs of our control are described elsewhere in this Annual Report. procedures do not exceed the benefits < REPORT OF INDEPENDENT ACCOUNTANTS
$ViceIlEltel5IOllSe To the Board of Directors and Share Owners of in our opinion, subject to the effects on the 1985 and 1984 The Cleveland Electric illuminating Company: financial statements of such adjustments, if any, as might have We have examined the consolidated balance sheet and the been required had the outcome of the uncertainty referred to statement of capitalization of The Cleveland Electric liluminating in item (a) of the preceding paragraph been known and on Company and its subsidiaries at December 31,1985 and 1984 the 1985 financial statements of such adjustments, if any, as and the related consolidated statements of income, retained might have been required had the outcome of the additional camings, and of changes in financial position for each of the uncertainties discussed in item (b) of the preceding paragraph three years in the period ended December 31,1985. Our been known, the financial statements referred to above examinations of these statements were made in accordance present fairly the financial position of The Cleveland Electric with generally accepted auditing standards and accordingiy Illuminating Company and its subsidiaries as of December 31, included such tests of the accounting records and such other 1985 and 1984, and the results of their operations and the auditing procedures as we considered necessary in the changes in their financial position for each of the three years in circumstances. the period ended December 31,1985, in conformity with As discussed in Note M to the consolidated financial statements, generally accepted accounting principles consistently applied.
the Company cannot now predict: (a) when, if ever, or at what cost Perry 2 will be completed; and, if not completed, whether The Public Utilities Commission of Ohio will allow recovery of costs Cleveland, Ohio Price Waterhouse associated with the Unit; and February 10,1986 (b) whether regulatory actions by The Public Utilities Commission of Ohio with respect to the Company's investment in Perry 1 and/or Beaver Valley 2 will have a mater;al adverse effect on its financial position or results of operation. 20
Tired of Paging High Income Taxes? - e O Looking for a w More Energetic Investment? Plug into a Company IRA You May Also Participate in , The Dividend Reinvestment Plan c_c c> $4 ( lIi[ /4jEr, . # tp'l' ) [g-
. y I
jk, )b ' ' f b' g lgyj lfk IIk ., f g )# 'p ' ) ) W g' . - r t ;e r a ,1 ' . ' j .n s . , 4 4 4 .i ,.i" ',3= !+'+
- C O
tr er i H o. - g e [ )r 1 .' , "g"- . r'- *.t,tt,* ' r.r r e i j e .'+ r e , t f*t.,
- er '
, 1. i' !
.s.o .a .
4,r PLUS
. , .i . ,.;. r t .e *
,a e I' + t r ,i, ',1 ;.i '
1 e4, ,er p ai . ;r . r - r ,1 r .*e r .r'*'"c' g O v, t, .sa,. r r
- r sut', .Ra r r, - *i : 1e >r , ' ! je .<J> mir* 'tr ,
' ' ' '+
6 .u t ' 'n - rc 1 ' e< < 1e( '1 .; t e+u'
,te ' n e ' e. il l;r , r ). P
- e+ r int',
! , e je . ' ] 's e 6 i ,t' .n T', ,
i f. - J N. . + , e l P, c i u. , [ b e.,1 ,e4, ,
,, , , , ,< < ,.c, ,"
~
w o
,r r .r er , c ;+ i ; g e a .c.,,, r
.f" ! ,, je > ,
r ; c- - i. c
' in 1 t' ,
. L '
e c4, ,e- < . t ,'
-( e(ne' - .
u ,* %
, {
e( c. ! c (1 e 1 ' ; 5 ir , ~ , , . ,, a o CL 7 . lS' o y " Z e ; ),3 i r ., er
- 2'8 A'" T S
(nl ,, l' &
- l "+ l / Ic" " 85 a
u n n O P1 ..ci# r , r
,1 lH A ,e * + ,m' +
.g , t,. ; e
<. t.n s , R a . s ' "4 z u ' ' u 'L 9, , ,
,,g, .ag, .
" y u E
F. , ,;.e'e er y,p- ,ew ",e i;,r r r
.ro .' ' ' j
<r >, c ' . i, ' e< ' ,r:1 pn1 ,1 s . c+ , r e , r ,.c + r1 '
' [t M, ' '
; t j ti n. j i, n .cc .t,, n'e<! . t s t <- r ce r ; 2
" 2r e ,
n ]' 4tf'
g. r.,'. w,, , , .
. . .P
- : - gA '.
~. . . . . . .
.~...:, , ,
t - 2:' ;. . : 1; .s 4 ' [I, A. ., 4 ,,., , ' . . . .. p +
. . 3
,,g , . . - .?
..a- m. ..
g - r
.', s R
s_
.v
; ' yJ.,, /. -.
^f a x (j) 4 y O f, I Q E
,'-g.;
I ' M 43 , I. (p; . m_ w m a C 3. ; ' > x - L .l 7.>l - -i
".g C/)
]O O <<ii p. ;$: - '. .- -
- y. C. w e m - ,,
..& O D 5 .'. <
' 3- OoQD FTl
..s. .
;Jt xO g a. (n .{ '};: .. - ;-,,"., ' ' ;- '
\ O mm
' (f) ..: - , .
.'.r.
L.s ( pv .-
.e.. 1 .
E.- s r 2 n a O-m a. ,-* i
&.;c. ,c . . , . ... , s,.*
L - O - d,> y ' .. - g.
" WO I'Il ',Jf
'I.
/,
, ,t
* ' . , ./ 2 r
- r\)
O c ] v. ,, ' I '~. 'e .\ ' ; 9' O O a> f ,,
+ .
y D d-~ -
+,
'.n - -
': 4. '1'
. m . '
~
3 a ' .. '
, .- 3
. t .?
I,7 f 'O )> .'.,yL.
'.m ,
g g - I i
. . , . /-
y! '- O r , . J- ?, ,
.' .,,",,4',
1 .." g,. U
.s . w s..
e
.p3 ,
a 3 L/. , - -
. '_ lr
', . G. .y,c;2e-. ..w
. . , 4. .
. g ,. T, . .
N. l ;
~ a ,l-
>. f,
.~ ;j , ..
g }. ss-.. A ' .,._<-*-;, . .
- ,n z, g.', , r- <
. V$, ." ., %.e' r w ', .
-~ ., % . r g , : w. w
,1 ? . ~ - ."} ' ' .::. .
~ d' * .
- Me , . . - ., - .
. e. , -
s- ,!^ l '.
@. q, .7e- w . . s +, . c : . , ..
9v N: q; . . . . & .. '3/,
. g . . : ;,' 4: - <,4 , gv , .
- 4. ,
+4 y ?
5.
.. ,w ._, . . . . .
,.r.'
y.mm,# .
<- N..
.w . ' ? . ., ,
- f' e ..: , ~x- , . ' " . , . . _,_ _
Ls ,. ::
- -;J
?~ re; \? .e' , , , _ ,
.. . 6- ..s r . c y , ,U
,.,.a, q c. ': ,~ , .
a '*'**-. :' ;- - , f . r == p. . - -
.m '; e e
,f c r-s...e*
./ 1 g- : - ,.-u .g,.
,.N 'W,. ' , q ' , w .:.,'y-s. A's p_8
.l g.ys- .. - %. a e ^,- Vy g l M,st..h, .'s .ry
.. y.: <
* ,1, a ' %
).H ' r .7 s f5
, 'ff. .,*.. . f Y .
'\ d ' [ f. ., -
- "E
, '^ d . . ; ,{ s i
, ?f .., [J J'
'] ; , ,.
,. , ' h } T'
'['
k'.pis
' 2 /~-
I] 3 ,
, ' /'-{ -, /',
' i
'" .[,y g* , 7.} /;'.^' ' . ' - l - J,
,, j .- -
9 ,' , (, - !,k. ,p . , ' ' , j ' j - 3' ;..g, p _f* - g ,
'. 2:, j', ,t q 4 ', ; .,
. *4 <y,;~ ? s'7 3. - v, %p-]. .. - s a - -, ccr ,
- ' , +. .. ..;~. '. , > ~ - a ,.s n , . ..' c - . .
u ; . Q.'g' ,(:l l. '-
- x. ,. r F >, . . . .
' . % ' 7 ;_ .. ,; @ >.fiJ g: , . '4
~*
' -[y b .y.Q ' w -
. .. Q ,'__ _' yl .:' :
? .* ,:: y ' . - ', p - j,)Y s.'.-
, . . ,s
..f .*, h ,- < f, : \ s)y - l". C .*i q .. g' e
^
h+ 5 -
*.w'*_ * , *
-**)'. ,s,,' l
'3 / ..
>. ,,, - . , , 'g .A . .. g,..4';. ,s; '*
*. .g -) ,y; y * ,- - .-,. <+. . .,
.c. n -
4, s
'f
. .a~. ,& ,-
...( -- '.;. .
.: , e - v" ,, .,,.: _
, '" ! , $ h , , 3 W ('
l t,. i f r.j .P .. - ,- ';. a
' f ,,
J, J V, g .-
,t
# +
, -" 4'h6 . ."v ,y '., - . . . # . ;.'-5(y, ,- . .- ..s, e _
. s . ' sO, p, . .'v. '. %"- ->
,7- L. . , , ' .'
x- .> . -.;: > r
->.s m ' $3* s, v..
4 r.Y. ..; '. . ,. f . .s - #.' + u ~; . . 3 t .' c. 1 .. .u q ,.
, ,, s <
C l .h.f, ys,
-{ ' %. >:
y W& f..t,g &. ~f. f,ff.?.p& ,Sy' p {+; 5 s a e
+ ..I
...,a , n J.
1 Y* .;Q,r.f,f,.9S
> , i,..
.+ a. a ,,, ?y 3
&(.$.
.' j ,..? ,
..f,.
V] 4
',j
, i q +* . : 7 f'... -, ' e. e. d -. ~ .; &.<f:,*
i = ,.r ;-.. ,1. , ,
').
,l b i e n. . ,s, t.s c.*Q Q * ,
e .. -
,; ' c.. ,- F - ,. g, 2. n, , .
, , . ~ .) %, !
.)
,.- . 2 ;. 7 % .
- v. .w . .h. J.; ~. x. >. . .w.: - - : . . . . >v.. . w... ,- # .
, .l - - - Au - .. si , . i : p g. ,} .a p 4..
W
..,M',,'.'.' s, . ,N. :
z[u, .2.)
- e. (1 .,*c,
,i I- v" M. , . E ( d.' . s $ :.'..',m.,~I E .w e:[ .: v' .1, t[i [ .
,.*$ h s a
[dc - r . .M. _ <[n$ 9... ,
. , . , .. . [
.J -
. 9.w ,- ,, .e :.y ,, -- e.. s. t t . . < '.
I
,. a 4 }.*e
.t ,,p , , y, 4
" # 'd - ' . I, $ '.
-#,n.E ' .. ,,
'4 _, ,' $ c^
e
.a ,
+g [.~' ,, .,6 j
',-[.'.. s,.e ~ . . n , '. , e *
'* g
, .e
' ' ', ' , , , , . i 't ;.n
= ,
. ,d e" x;p* r : , 4m[ . .,f[') -
# m, +,'~.'
W.A < .'.. c. g,y,: ll .;.': .. y .Q p.
.. 1 .
y('d- . .n - 5. .3. : 5,. 2 &- s
? s. l. .. .,p a. s.,m f,v;y i
.~E,y, y. .p , w s ,- -.
.. .r N:)..9 u g 'p,p, _ ;,. .; ,e ..e.c...... s, ,; 3,:_, ,,:
,,.,b., q, . y s. .. g$.. h .W.z. .". 4 . g
~ > .
i .
,9 .y . . ,
. r 4 s g .. . . , ., ,
p .y4., m . .:
,. % 9 nq*J[yt e ,
?' f.' / y.,W, + 3 ^j 3. ' A'?j r.* g; ...p+, t,A..% , 6,.*
Q) V ll3. *g.. , l,...-, V. , . p ..Qi PT.' . ,
., . f $p(.v7 hf .' * ,# f.. . N .%,i .R,. . , , . j., ,;,
f ,.". j),,9@. '[g Mt .M. g g
')f,i - , ,. "a ?? ' .;.q .
1 g s. ; i.. r ,. 4, , A g , _g, - 4, . j.
' 4 *j 3+
s -*
., /,e,.
3
. , , . .. p . - , '. a w,3a>,,S.,'u, 7
. *i ,3.*
'-; ,. ... $, .s'[ _f . . .: % :,, .. - . . .
vg i e' *
's L, - '
,. . .,7, *+,
. '.. .?
6 , ,
, . ., co 1y ,.,
.;d /'
. ;gli .h,. ,,[ .. '_,". s,9,.f . , ',r.b, ..a 3 . [..h f., .,' ., .h . . [p,;y , .. ' ,,r.
1, '*[ f6 ,g i,hj _ pj f .,{;4,f.. ,
,4 1.
. . , . v, g r. s, .g.. ..
j ..p
, h, . , , .3 . .
,5y. ,..
y, f,( ,._
; ,; 7
.,.y n.,.,
, , ;. y .s c w,,;' ;! }4,,s y ., t ,<, g - c
.) . ' s,\," [y-',A, ,
a
.. s... , -
.', -y ,. .' . . f;; . - l? ,.g ., . , ' . f * ;' .,,
f v_l' ,f: , g . . -E. ' ' , * . .T.rr- 7.' w u. : . f ' 'yf. . *'. z: .p.n ;; s
~ < :: y.; :.; G 'f,! p y,'N . . , .y , .p .e,~
' ~3 -
' \ l3a., ;W; , h; . ^~
> c-
-m ye n .
- c. - ..
- . 4 -s -.I, y * , pt -p. ;,c.;- yy Ay .. m .w*
.f e ,' 4. -
"e *
- .g . . . .* s" .g v , _ r.9?. G , ;,
3- R. w.y q
. 4 ,, ..g ' ,- - e . , 7,:. + . . " ;; .; f 'J, ,. , ; f.
, . , , .- . q'.a<4 n r. , A.o e, ,-
. - 3. . , y s. ., , ,e u_ s.
j
- - 8 .
Y J. 1l.1,. ? ; .'.
* ,I - -
<:..,:.e._
, , ' , f *, j ,
. i- , , ,
.-Q *[ ^ _.[ { .-
t l. [ , ;y , ' . ,- * %f;r . 9 .? , ..
4,- s x - _ <. ,, (.
,i . 7.
, .,.. -- .- ~~;
.?.- E
.'4 5
. ., i 7. - % )4 ..
.. g *,s
("h s g ,
- f. s, z a -
[ 3.: . hg, ,. . - ,' f
. ,a - , . p
. . .~
r a >< r < 1, 1 1.t . LF ' , <.i
% J -- - s, n'. **
L. s' -' . < ' . . - f , h I ' g.., 7
- . ,r- ; e W
,- q" .c .. .C , * ,.o,-- . '- .,' .
4 . t- 'r '
- .: . .i +..
- fc
<.O , ' ; [ .4 9.
f % ,,.1 ' . ss , , . y , . <. . - ,
+ ..
c ' ._ > h- f '6 , t;
- q.
'S
~ \ '-" '
.rr ? . ,' . e, - -
- , :. . . 2. .- .
g, 4i * ,, . , m, -
. . v
. i V. ,1
.^,
S' ' Do not return this form if you presently receive only one copy of each (j - 1 4 ; mailing in your household. 'i
. 2 e
. '. lk . ' f-
--+
. a .
- - . ,' , , h ,3 ,i _-
' , f & %
. . . ,t
.'l i t!.
- f. :- - . ,..,, ,. 4 ,'-' .e',. . . - --. -
.,e % . r g
~~
.i a., 3
-.- . , _- e g.r. , _
*C t.
4 i.,
. -. _%. . 1 . . 3.
'. . ..' - - L4 ,,"
. I i I .g +:
s ... ,,-
'i 8 .
. y.
* * < .,. l -'.,
* ' d. . s ,g '.3 ..
' . ' e
.y bt ,
*1 'f
, i .. - ) ' . .- } .i .
'..14i. ~'. .
4'. .m %./ hM
.' . t.
'I.
$n i
- . , . , ..' /% ..
5-f j .. ; ,,
,Y ,
i-'..e + f JI l a..,. . .
.l. ,
t ', o J. e 9
.,N'..E':
! . e i ; M. . -
Mail this card today No postage necessary j. . ',. 'Y j. . y r ,.; g,
- 9 li - . " ' ' , -
- r. *-
- k *< *
.,e y n ' . .. , ' p,' y - * , a.,. n. , . , I S .A.>.'
,g..'.
J . r .. - y; q* .s ' . e, .
' '. F
[4
.,; ,a
. ' ,, .' 4. ' {
b./ O_ ' .; ~ ' q',.A 3.. ' _..' , t '
.M. t
'<W. 4 # t,= ,'"j,' 'p 9
.a.p. . , 4 u.
'.s . ee <,) t.a. ,:y. .. . . y. .y.>. ..-,: , + a n g., .- .:~. ' v.9 9 59"' .} ,: s., w.R,* t,g:p'.' ms*,: ;,.
~s $
uq_.p;_;.4 3.? .. . 'y ,.. p\ ,;w,..n,
, . . - n. .. s . .- ,. .
,. t, , .
r ; .. O.:s. ,, .-:7-: e;s -.x,
. e
,. , *,- , -. . , ..-s g. A g : .
.. +
-,n' . . _ ,
~q ,e
? , - m #to' ~ ,
s n:. . - , et
-, - . 2,
. ; .- ., ,.n ,.- : ., , k. , g, z.
- ,: ..A,
... c ,, . , . - - . , . -, -
,.,p .s.,,,.-.3 ,. .,
.-.,,p h , ,p, .2 ~i /g. f s
.4 a ' $ s. <.. i
;. ,y <,
.j , . ,p,g, 'N-sN** , * ' + -
r , ; - .
, - > .-3,
*7 N , .j ( 4, ,g
, j - 4
,e,i,
' ,,,-.,..g
" ,' ,..' b-) . ,'.i -
*- 'y[ -. .
.... ,.. g .s,
,4 O I' ,* '
. 3
,?h.n r." k g* * * * ( I .., '-
[ .# " ' e',' f 'l
- h. ,, ' ,$.
4
. e "u h,' - ' ' . ' ',y
.,.4
,e m r. .:
- . i ...,.
~
,, . ':,3.
-c, p .i . v ,. , .
. . s.,
4
..v x,.,. , , . * ?.,
_ :. e,. . .
.#. .. s- , p:v
=
g s.,
.*{,
, f e,. p. [ }. s-. ...; e c. s o--
-- s s
.e , e y
.+c-, , , . ( , .;, . .
4
,,,,e e
v
,a .,
,- . 4 , , ,
(,s. r
, ;; 9, . .
%s/g - 9.-
-i r) .,,F c . 3 , * ,. 2
.,i .
, af =
p ..,c-
..-i i% g .F -
. . t . y2 9 o, , .. , ,
1.,* . e&. . ,.t
-yM g' - -Egj. Q -~- g- f 4 +7 . (3 p ; y -H*p-p' .p't.iQ. -p % /. 4 - . ' 7. --l .2 ,..q .; 7 *-- , , - , .y .' <m '-
y 2 ypr.6% M ~.4 -
.e. e N,9 -P. p Q- J i , . . - . .... 4. ,.* . '%. .r- . . . '- .
1-
,.g,, r' 6
i ' y*
*i
' , , ,. -1
- n. ,.
jQ'. .
*'e , ,
g ;
,
- 6 y
n'
.y t , . g ' y',,",-y .c
+.e, ,' y
,g.,.,,"4 s,-
3 .
*.'r
.e
,,t
^
7r ,, 4
..,..,,),<
,p Q. ij' . .
c.,
. - i ,7 1
1r n
.s 4
) '- '
j T j~
.1 ' '
'+g
, , 3, , .
Y' g,* .
- p.*
a" ,' , ' . ,. y t ..* ( 5 '- , .,',- , , 0, ^
.' " , j 'r- '% *; E4 . ".-
' F .4,..,,
.,.[',. -
e p
. ' , - . 4,
;5 3 f . ' ,".n.., .,- .:-
s
- r *_. =. t,..
.q
.,* rh " , ' ' , L~
- 4. e .% 3
- a j . ,
s , ., , , '
,' e
- 1,,. +5 I e
.t
.,e. .....,..f, - ,.
.,w o ,, ..
. . :. e -
3 ..r -, . = * . . ;.- .;; - . c.3. r.
, e .r , s . .
,. ~
wt
.,y. .. 2, a...: -, o eon,.
. . e
-- i ha g. .%.&gu.g .. . ., . ,. ,. . ,
. s,
. . o. . s, s-- -u-s -
.t . . . .
r-
~. ,~,. c. . .
, f, i -
. , ' , ' ., . - . . . - ' . .. ,; .', , =
~ , ' ' . ..~.. ',-. :-~ .: -
. i , * ,. t ,
R- ,1 t <. _.'a# ) - ' ms - - S. ,-
, r. . - , 1
~ . .,
...q .. i . <_ ..c.
. . .. : , - ., p sq. , - ;
n? < p,.. 3. 4 + .f, . .. m '.,.y3 @.s, ? ., - ,: , > p., , u s * . < m. .,; .= s - L: ;; .m - -- , . ...p,..
.F .. .~.1 y! ,. . . w.r , . . . , . x. ,.':, d.h ., k. ,,,.. - 8 ,
i - ,. ' ..* v ,-, .., . - . &
. . . , =.1. ., . ,-; .w
, v . ., ~
v .. . . t.;A , J y. ,.,
' ..i ' , * - * , . ,
-.+ < .
M p ,; g
! " - .." et .
/- . , .
- t.,-
^
r 4" - .
,l ., - . - * ,
f- .! ' ,
. *, 4- , * ., A
'3 , * .
- s. , , ,
- t. .
, -/y ( ,!.*
- I -
t t *
, , . 4. - - E , f'4, , , . ' 'w . . .. -
r' 4
- + 'y,
.# 6 s.
J. ' < +. 4*.
'%9;;' ; . .l ..
.,r
,v, * '
. (s , g.),,). .'. f* ( J ^ k ~
e . . . ' - . ' ' , ' ' . ' .Q-j '. 'Q.q,'. , ' z ,, ,'
- q 1 :. - h a ' . , , . r- '. ' . =,',f .. . '.y. ' s r
.- $ ,s - ., . .
-s ,., ,r ,-
g;x . L .. g . . . -
._,y y , 1 - .
,'9
..a a<.
.1g :s
+
.. . - ,. +.4 ,\ . t.: ':
+, . e.. 'e3 ,w t .
~ ' .,,.-
.,,. r.,
. , ,.,c,.. , ,
,"z,.- ... v en - ,.. ..
g..
.,1 ,3 . -4 .. . .,. ,e -.. ,~ _- ..
. -6 , y_
,. - -._3, .. .i ..v & s.s, n, . , /.r.. 4 i.:.=.,.,,t .
s M ,.,.y. . ... , . . , . n. ,.. , .g
- 4. . j . . . .s- +y ,p., .4. . , . - q,. . . 7. 76 - , . . ,'
g,-- ..
.,s. .. < > . .. ,5- a. . .:.,, ,, , :. ,.,..es 7, y ,
s i,..;. , , , . , ,3 .
--5 e .....~..,?.
- - f .- "
/,,-u -,,6.i,,,,,,.-..
.., .;,- ..si ,. 7. e' , t., , 4, f, t. . ;, . . , . . c.s... , , . * , , -t. 4r ....--. -,* - .,.,.
y ';. _q
. ,.)
. P ',5. . .9
. 3 , , , . " , .s.4 ; g,...t.
,. 3 V . e - s a- 1 r ..v ..
t,, j - .
* , , 5 .',x .-
. g ,. . 4 i,* i4-., * ',a .
e ,. ,s \..eu4, ,wc.
. ,.:., p, +.. +- , .
. . i
,q,...
,u : . d , s , . , ..
g,,-..., .. v . ' s $. , s, , . , ,* , , , . . , .
.', - , , . *.,* ...>.-* 4,
,a 3
't 21 g.7 c ' ' ,
- 1 t
y I' , _, ' ,,yi' y . ,g ,, . i
^
v' - . 4 g-
-7
,e.
71, e
- a. 3...
3, , j.y g - g'
. ; *w y
,*a_
q-
, ,4 4 = . / , . '
+.s
'O
' :3* t . , , , , ' . t, y ( k. , 3 ., _ f' g'.'
C
*.ce .L .. J
.a ..!
, , , . - , . - ,' , , . f a 7_ '-
*.(
- f, .t
.-,y , .- .t t ..,-
g:,,<w .:.;,"... t , i,.,}. , - ' .'i. _9 m c
.-y
- .- + ',/
s 2 . . ..= -_e.-
...t.- ,J - '. , m.
p.. , r,-
. . , _2 .. e ,
.; v ,', . . ,
,f -"
y e
E BUSINESS REPLY MAIL The Cleveland Electnc Illuminating Company Share Owner Services PO Box 5000 Cleveland. Ohio 44101-2000
. c o sh es BUSINESS REPLY MAIL The Cleveland Electnc llluminating Company Share Owner Services PO Box 5000 Cleveland Ohio 44101-2000
INCOME STATEMENT The Cleveland Elecinc Illuminating Company and Subsidiaries For the Year Ended December 31, 1985 1984 1983 (Thousands of Dollars) OPERATING REVENUES Electric S1 240 885 $1.200,465 51,194,162 Steam 13 105 14.888 16,154 Total Operating Revenues 1.253.930 1,215,353 1,210,316 OPERATING EXPENSES Operation Fuel 312.229 285,188 320,792 Purchased power 39 625 28.224 12,185 Other 214 246 190,563 182,439 StE 100 503,975 515,416 Maintenance 96 448 90,325 88,029 Depreciation and amortization 96 995 95,274 94,196 Taxes, other than Federal income tax 133 348 132,313 126,883 Federal income tax 101.950 131,355 127,430 Total Operating Expenses 99: 841 953.242 951,954 NET OPERATING INCOME 259 149 262,111 258,362 NONOPERATING INCOME Allowance for equity funds used during construction 162.907 130,421 87,052 Other income and deductions, net (4 844) 3,680 3,805 Federal income tax - credit 48 6 % 35.099 23,291 Total Nonoperating income 2'M 671 169,200 114,148 INCOME BEFORE INTEREST CHARGES 465E20 431,311 372,510 INTEREST CHARGES Long-term debt 210 891 177,246 151,257 Short-term bank loans, commercial paper and other _
- 300 3,618 2,717 Allowance for borrowed funds used during construction (57 173; (41,185) (27,490)
Total Interest Charges 155 117 139,679 126.484 NET INCOME 31J A 291,632 246,026 Dividend requirements on preferred and preference stock 41 467 43,353 38,426 EARNINGS AVAILABLE FOR COMMON STOCK E 2ryg $ 248.279 $ 207.600 EARNINGS PER COMMON SHARE S 3 53 $ 3.64 S 3 28 DIVIDENDS DECLARED PER COMMON SHARE i 2 55 $ 2.43 $ 2.31 RETAINED EARNINGS STATEMENT For the Year Ended December 31. e 1984 1983 (Thousands of Donars) BALANCE AT BEGINNING OF YEAR - :71 m $ 388,217 $ 325,463 ADDITIONS Net income <0 291,632 246,026 DEDUCTIONS Dividends declared Preferred stock 39,799 33,636 Preference stock < 4,197 4,418 Common stock ',: 164,690 145,077 Costs of issuing equity secunties , - 141 Total Deductions 208.686 183.272 BALANCE AT END OF YEAR $ 471.163 5 388.217 The accompanying notes are an integral part of these financial staten ents 21
BALANCE SHEET AT DECEMBER 31 The Cleveland Electnc illuminating Company and Subsidiaries December 31 ASSETS 19a5 1984 PROPERTY AND PLANT (Thousands of Dollars) Utility plant (Restated) Electric in service 9 043 525 $2.864,332 Steam in service 45360 44.561 3 089.105 2,908,893 Less accumulated depreciation and amortization 674 366 798,979 2 214 739 2.109,914 Construction work in progress 2 16: 50: 1,791,662 Perry 2 15t! %6 321.988 4.m3 %6 4,223,564 Nuclear fuel lease and trust arrangements ' ?OU3 260,819 Other property, less accumulated depreciation 15Zd 27.859 6 07 7? 4.512.242 POLLUTION CONTROL CONSTRUCTION FUNDS - unexpended 'o '
. 61,422 CURRENT ASSETS Cash and temporary cash investments >,*o 130,711 Amounts due from customers and others, net .i1 s 116,477 Materials and supplies, at average cost / Al 31.028 Fossil fuel inventory, at average cost ,W 78,033 Taxes applicable to succeeding years '03 J1 101,678 Other yp 3.802 4 '* 4 461,729 DEFERRED CHARGES Unamortized costs of terminated projects . : 0"1 46,089 Accumulated deferred Federal income taxes 6m 7,597 Other dw 30.763
ie 84,449 N WD : a
~ $5'119'842 CAPITALIZATION AND LIABILITIES -
CAPITAllZATION (See statement of Capitalization) Long-term debt o iN 1 $1,883,648 Senal preferred stock With mandatory redemption provisions EU V/ 247,218 Without mandatory redemption provisions 4 144,021 Serial preference stock with mandatory redemption p ovisions u o ' ', i; 45,600 Common stock equity jdUn 1,592,810 4a ml 3.913.297 OTHER NONCURRENT LIABILITIES, primanly nuclear fuel lease and trust obligations + 257,166 CURRENT LIABILITIES - Current portion of long-term debt and preferred stock Uk 49,483 Notes payable to banks and others 19,100 Accourts payable !" 143,378 Accrued payroll and vacations ; t. 17,904 Federal income taxes , G 7" 10,860 Other taxes ':e C 129,402 Interest 45 mit 40,272 Current portion of nuclear fuel lease obligations J< - 17,596 Other 9 i- - 6.932
. u a .a 434.927 DEFERRED CREDITS Unamortized investment tax credits W + 265,365 Accumulated deferred Federal income taxes 1e '
21E362 Reserve for Perry 2 allowance for funds used dunng construction _ Other 33.725
- 'o 514.452 COMMITMENTS AND CONTINGENCIES - See Note M
$5,119.842 The accompany,ng rotes are an rotegrf put of these franc & statements 22
CAPITALIZATION AT DECEMBER 31 _ The Cleveland Electric lituminattng Company and Subsidiaries 1985 1984 1985 1984 (Thousands of Dollars) f P regnt LONG-TERM DEBT (a) First mortgage bonds - maturing through 2020 at rates of 3% to 16%% (Less $30.000,000 in 1985 and $43.291,000 in 1984 classified as current) _ $1.868 970 $1,609,800 Collateral pledge notes (b) - 47,120 Term bank loans - maturing 1986-1993 at variable rates that averaged 9.59% in 1985 and 11.49% in 1984 (Less $10,000.000 in 1985 classified as current) 165 000 175,000
' Pollution control notes - maturing through 2012 at rates of 5 6% to 6.7% (Less $410,000 in 1985 and 1984 classified as current) 56 610 57,020 Other - net 9.080 (5.292)
Total Long-term Debt' 2 009.6CO 1.883.648 ~ 48 48 SERIAL PREFERRED AND PREFERENCE STOCK - cumulative, without par value, 4,000,000 and 3,000,000 authorized shares, respectively Preferred Stock without mandatory redemption provisions Annual 1985 Dividend Shares Series Rate Outstanding A $7.40 - 500,000 50.000 50,000 B $7.56 450,000 45 071 45,071 L (c) 500,000 48 950 48,950 Preferred and Preference Stock with mandatory redemption provisions (Less $7,751,000 in 1985 and $5,782,000 in 1984 classified as current) Annual Mandatory Redemption Provisions (d) Shares to be 1985 Redeemed Annual Shares Shares at Dividend Out- Beginning to be Holders' Series Rate standing on Price Redeemed Option Preferred. C $ 7.35- 220,000 8-1-84 $ 100 10,000 - 22 000 23.000 E $ 88.00 42,000 6-1-81 $1,000 3,000 - 42,000 45,000 F $ 75.00 50,000 11-1-85(e) $1,000 - 16,667 50.000 50,000 G $ 80.00 24,000 8-1-84(e) 51,000 - 8,000 24 000 32.000 H $ 145.00 24,936 6-1 85 $1,000 1,782 - 24 936 26,718 ! l $ 145 00 29,531 6-1-86 $1,000 1,969 - 29 531 31,500 J $ 113.50 29,000 6-1-87 $1,000 5,800 - 29 000 29,000 K $ 113.50 10.000 6-1-91 51,000 10,000 - t o 000 10,000 M (f) 500,000 11-1-91 $ 100 100,000 - 49 000 - 200.467 247,218 Preference; i 1 $ 77.50 34,200 4-1-84(e) $1,000 - 11,400 34.200 45.600 I Total Preferred and Preference Stock 458 688 436,839 11 11 COMMON STOCK EOUlTY Common shares, without par value, 105,000,000 authorized; 78,522,668 and 74,040,175 outstanding in 1985 and 1984, respectively 1 216.049 1,121,647 Retained earnings (g) 547 671 471.163 Total Common Stock Equity 1363 /20 1,592.810 4t 41 TOTAL CAPITAllZATION $4 322 C68 $3.913.297 100 100 _ _ __ _. === (a) Long term debt matures dunng the next five years as follows. $40.410.000 in 1986 (class.f.ed as a current habihty on the consolidated Batance Sheet).
$13,410.000 in 1987, $14,410.000 in 1988. $124 510.000 in 1989 and $94 510.000 in 1990.
(b) The collateral pledge notes shown as outstanding in 1984 were exchanged for first mortgage bonds in November 1985-(c) The dividend rate is adjustable based on the highest of ce'ta.n factors but it cannot be more than 13% or less than 7% The average rate was 10 78% in 1985 and 12 89% in 1984 (d) Amounts to be patd for preferred stock which must be redeemed dunng the next five years are. $7,751.000 in 1986 (classif.ed as a current kabdity on the conschdated Da!ance Sheet) and $13 551.000 in 1987,1988.1989 and 1990 in add. tion. the Cortpany must offer to purchase preferred and preference stock having a total redemption pnce up to $36.067.000 in both 1986 and 1987, $36,066.000 in 1988 and none in 1989 and 1990 (e) This is the date the Company must offer to redeem Any result,ng rederrption would occur four months later. (f) The dividend rate is adjustable based on the highest of Certain factors but It Cannot be more than 13 50% or less than 7 00% The average rate was 9 27% in 1985 (g) As of December 31,1985 and 1984 there was no restnction on the ngh' of the Company to pay dividends in any amount up to all of the eamings reta ned in the business The aCCompanytng notes are an integralpart of these financial statements. 23
-. - ~ _ _ _ - . - - - - . -
w-CHANGES IN FINANCIAL POSITION The Cleveland Electric illuminating Company and Subsidiaries 1 For the Year Ended Decerrber 31 1985 1984 1983 (Thousands of Do!!ars) , FINANCIAL RESOURCES PROVIDED (Restated) (Restated)
; nit income $ 310.703 $ 291.632 $ 246.026
< - It:ms not affecting working capital t Depreciation and amortization 98 209 95.625 94,336 Deferred Federal income tax 68,218 73.467 89,125
#JIowance for equity funds used during construction (162,907) (130.421) (87.052)
Other 1 340 783 620 Total financial resources provided from operations 315 563 331,086 343,055 Sales of securities First mortgage bonds 238,950 337,900 125,000 Preferred stock 49,000 - 48,950 l Common stock 94 401 154.377 65,638 Total sales of securities 382.351 492.277 239,588
. Term bank loans and collateral pledge notes 3.100 72,750 37,270 L Nuclear fuel lease obligations 39 704 44.211 70.553 Pollution control funds expended 96 918 66,196 -
R: serve for Perry 2 AFUDC 17,962 - - Working capital decrease (a) 50.807 - 59,957 Other 13.780 - 7.591 Total Financial Resources Provided $ 920185 $1.006.520 $ 758.014 FINANCIAL RESOURCES USED Additions to utility plant $ 005,705 $ 582.288 $ 490,705 A!Iowance for equity funds used dunng construction (162.907) (130.421) (87.052) 1 442.798 451,867 403.653 Ritirement of debt and preferred stock 87.933 78,810 99,105 Dividends 234,189 208.686 183,130 1 Pollution control construction funds deposited 88 950 109.000 840 , Defstred fuel costs - 9,790 - ! Nuclear fuel leases 39< 704 44,211 70.553
- Decrease in short-term debt and other borrowings - -
40
- Working capital increase (a) 84,560 -
l Other 26 561 19.596 693 ! Total Financial Resources Used 5_ 920 185 $1.006.520 $ 758.014 'r
SUMMARY
OF CHANGES IN WORKING CAPITAL (a) Cash and temporary cash investments 5 (45 609) $ 88.018 $ (16.624) Amounts due from customers and others, net 15 065 4,549 10,070 Fossil fuel inventory (26 792) 19,163 (16.533) Taxes applicable to succeeding years 3 443 1,794 12,754 Accounts payable and accrued payroll and vacations 10 422 (23.965) (30.782) Federal income and ottier taxes payable (1.040) (2,945) (17,157) Other (6 290) (2 054) (1,685) Change in Working Capital $ {50 837)
$ 84,560 $ (59.957)
(a) Other than short-term borrowings, current portion of long-term debt and current portion of nuclear fuel lease obligations The accompanying notes are an ontegral part of these financial statements. 24
L NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A -
SUMMARY
OF SIGNIFICANT termined by a formula set by the FERC. The rate repre-ACCOUNTING POLICIES sents an average of the cost of money paid on funds tied Our accounting records are maintained in conformity with up in construction. The rate is compounded semiannually. the Uniform System of AJcounts as prescribed by the The part of the rate which represents interest is reduced Federal Energy Regulatory Commission (FERC) and to recognize that interest is tax deductible. adopted by The Public Utilities Commission of Ohio The amount of AFUDC is reflected in two parts of our in-(PUCO). come statement: an addition to Nonoperating income as the Allowance for Equity Funds Used During Construction Consolidation and a reduction of Interest Charges as the Allowance for Our financial statements include the accounts of wholly- Borrowed Funds Used During Construction. On the bal-owned subsidiaries, which in the aggregate are ance sheet, the AFUDC becomes part of Construction immaterial. Work in Progress. Property and Plant The amount of AFUDC recorded in each accounting Electric and Steam Utility Plant is carried on the books at period varies. The variation occurs because of (1) the original cost as defined by the FERC. The costs of main, number of dollars spent on construction both during and t: nance and repairs are charged to Operating Expense prior to the a,ccounting penod, (2) the length of the con-as incurred. The cost of replacing or improving property struct, ion penod and (3) the rate used in computing is charged to Property and Plant. The cost of property re. AFUDC. The rates were 10.73% in 1985,10.66% in 1984 tired, plus any removal cost, less any salvage realized, is and 10.35% in 1983. i charged to Accumulated Depreciation and Amortization. Federal income Tax
- The depreciation expense we report on our income state-i We report depreciation expense on our income statement ment is different from the depreciation expense we use to as a current cost of doing business to account for the calculate Federal income tax. There are several reasons normal using up of our property. Depreciation is de- for this difference. First, AFUDC and certain overheads ducted in equal amounts over the estimated useful life of are excluded from the cost of assets which we are the property. For example, if we estimate that an item will allowed to depreciate for tax purposes. However, these be useful for 10 years, we charge one-tenth of its cost to costs are included in the cost of assets we depreciate on
! d:preciation expense each year. However, in the case of our income statemont (book depreciation). Second, the the Davis Besse Nuclear Power Station (Davis-Besse), we portion of depreciation expense representing nuclear unit utilize the units-of production depreciation method which decommissioning costs (see Note D) is not deductible for bases depreciation ,on the ratio of the amount of electrical tax purposes until cash payments are made. Third, the cnergy it produces in the accounting period to its total period of time over which the Intemal Revenue Service estimated energy production during its useful life. We (IRS) allows the cost of assets to be depreciated is short-i intend to use the units-of-production depreciation method er than the period of time (useful life) we use. Finally, the on our investment in Perry 1. IRS allows some of the depreciation we are entitled to in future years to be used early. Beginning with property ad-Terminated Proj.ects
. ditions made in October 1976, the tax reductions resulting Costs associated with terminated nuclear generat.ing units from these differences are not applied to reduce tax ex-are being amortized over a period approximating 15 pense on the income statement in the penods we obtain years. which began in 1983. See Note E- them. They are deferred for a!!ocation to income over the Allowance for Funds Used During Construction useM hfe of property through an accounting procedure called normalization. At December 31,1985, the cumu-The PUCO and the FERC allow us to include as part of lative net amount of income tax timing differences for - the total cost of constructing new assets the cost of which deferred income taxes have not been provided money paid on funds which are tied up in construction amounted to about $500,000,000.
ro e ts his ca Allowance for Funds Used During When we place new property in service during the year, the IRS allows us a credit against taxes due for 10% of When a construction project is completed, or to the extent the investment we have made in the new asset. This is the PUCO allows it in rate base after it is at least 75% called the investment tax credit. We record Federal in-completed, the funds invested in it are no longer consid- come tax on our income statement as though it were not ered tied up in construction and we stop recording reduced by this credit. We recognize the tax savings from AFUDC. The cost of the project at that time, including this credit over the hfe of the property involved through AFUDC, is treated as a new asset and is included in a the normalization procedure. Subsequent rate case to determine the rates we charge Our Federal income taxes are lowered because we can our customers for service. Because the resulting rates in- deduct our interest charges from income. This reduction cludo a factor for all these costs, we are being allowed to of taxes is split between Not Operating income and Total recover in cash all costs of the property including Nonoperating income. The tax reductions resulting from AFUDC, over the useful life of the propeny. interest actually paid on funds invested in property cur. The amount of AFUDC for an accounting period is deter- rently being constructed are recorded in Total Non-mined by applying a rate of AFUDC to the funds tied up operating income. The tax reductions of interest paid on in construction. The annual AFUDC percentage rate is de- all other funds are recorded in Net Operating income. 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Revenues Accounts Receivable ' Custom:r meters are read or estimated and billed on a Amounts due from customers and others was reduced by monthly basis. Operating revenues are recorded in the the allowance for uncollectible accounts of $4,426,000 accounting period during which the meters are read. and $3.226,000 in 1985 and 1984, respectively. A fuci factor is added to our base rates for electric serv-ics. This fuel factor is designed to recover from custom. NOTE B - PENDING AFFILIATION crs what we actually pay for fuel. It is changed every six We and The Toledo Edison Company (Toledo Edison) months after a hearing before the PUCO. Our steam fuel entered into an agreement on June 25,1985 to affiliate rate is adjusted each month for what we paid for fuel in under a new holding company, Centerior Energy Cor-tha preceding month. poration (Centerior). Centerior will provide overall man. agement, planning and policymaking for the :No electric Fud utilities. The affiliation was approved by the Common When we make a payment for coal or oil, it .is recorded on Stock share owners of both companies on November 26, th3 balance sheet as Fossil Fuel Inventory. When we 1985. Under the terms of the agreement, our share own-mak3 a lease payment for nuclear fuel, we record it on - ers will receive 1.11 shares of Centerior's Common Stock th3 balance ,s heet as a deferred charge. As the, fossil and in exchange for each share of our Common Stock held. nuclear fuel is used, we transfer the cost to the incom? Holders of Toledo Edison Common Stock will receive one stat:m:nt as fuel expense. Nuclear fuel exp share of Centerior's Common Stock in exchange for each clud:s a factor for the cost of the ultimate d,ense isposal of also in-share of Toledo Edison Common Stock held. Other than sp:nt nuclear fuel and interest which is being recovered Common Stock, no other securities or financial obligations through rates. of ours or Toledo Edison's will ce affected. Approva! of Any difference between the cost of fuel actually used and the affiliation by the Securities and Exchange Commission th3 amount collected from customers through the fuel fac- (SEC) is pending. We expect that the SEC will act on the - tor in rates is deferred. The deferred amount is taken into affiliation by late March 1986. See " Combined Pro Forma account to adjust the fuel factor for a subsequent six- Summary Financial Information" for selected historical pro month period, forma data. NOTE C - FEDERAL INCOME TAX Fed:ralincome tax, computed by multiplying the income before taxes by the statutory rate of 46%, is reconciled to the cmount of Federal income tax recorded on our books as follows:
% of % of % of Pre-Tax Pre-Tax Pre-Tax 1985 Income 1984 income 1983 income (Thousands (Thousands (Thousands of Dollars) of Dollars) of Dollars)
Book income before Federal income tax $364,045 $387,887 $350.165 Tax on book income at statutory rate 167,461 46.0 178,428 46.0 161,056 46.0 Decreases in tax due to: Allowance for funds used during construction _ 101,237 27.8 78,939 20.4 52,689 15.0 Oth:r items 12.882 3.5 3.233 0.8 4.228 1.3 114,119 31.3 82,172 21.2 56.917 16.3 Total Federal income tax expense $ 53.342 14.7 $ 96,258 24.8 $104,139 29.7 Fed:ral income tax expense is shown in the income statement as follows: 1985 1984 1983 (Thousands of Dollars) Op: rating Ex])enses Current tax provision S 45,531 $ 56,029 $ 38,309 Changes in accumulated deferred Federal income tax: Accelerated depreciation and amortization 20,077 23,957 20,727 Nuclear fuel interest charges 10,118 - - Other items 6 234 4,594 3,387 inytstment tax credit deferred, less amounts amortized 1&990 46.775 65.007 Total charged to operating expenses 101,0 0 131,355 127,430 Nonoperating income Current tax provision (46,239) (33.240) (22,763) Deferred tax provision (2.369) (1.859) (528) Total Federal income tax expense $ 53.342 $ 96.256 $104,139 The income tax we paid in 1985 and 1984 was reduced by investment tax credits of $30,013,000 and $54,881,000, r:spectively. Investment tax creoits which are available and have not been used are approximately $13,000,000. These unus;d credits may be used to reduce tax liability through the year 2000. 26
)
[ . I t , i NOTE D - DEPRECIATION NOTE F- FIRST MORTGAGE BONDS AND OTHER $ We compute book depreciation on all of our utility plant, BGMEMEEMS with the exception of Davis-Besse, using the =traight-line Condensed information on outstanding First Mortgage { method of deducting from revenue the total cost of prop- Bonds is as follows: ) erty in equal installments each year over its estimated i useful life. The amount depreciated takes into account our At Decerrber 31, i estimate of the money expected to be received when we Year of Matunty Interest Rate 1985 1984 dispose of the property (salvage) and our estimate of the (Thousands of Dolta s) j cost of dismantling and removing it (removal cost). 1985 2.75 % $ -
$ 25.000 .
1985-A 11.50 % - 18,291 When a nuclear plant is retired from service, we will have 1986 3 375% 25.000 25,000 additional costs called decommissioning costs. For Davis- jgA ano a g2j% , Besse, decommissioning is assumed to occur in 2011 1989-A 15 25 % 40.000 40 000
- when the radioactive components and structure are 1989-8 14 375% 50.000 50.000 expected to be sealed in a vault-like enclosure. At a later 1990 7.125 % 60.000 60.000
-2 date, the entire facility would be removed from the site.
The depreciation for Davis-Besse which we currently 2001 through 2005
]Q 10 93 % (a) 24 169.020 93.675 record on the books and recover in rates includes a fac- 2006 through 2010 9 23 % (a) 239.190 228.845 tor for our share of these decommissioning costs. The 2011 through 2020 10 68 % (a) 1.026.966 835.900
- . factor used during the 1983 through 1985 period was au. 1.898 970 1.653.091 thorized by the PUCO in 1980 and is based on an esti- Uss am unts dassied as mnent 30 000 43 291 i mate of $27,000,000 representing decommissioning costs $t609 800
$t868 97]
j erpressed in 1980 dollars. The PUCO allows us to update (a) Percentages are weighted average rates for the 9enod. periodically the cost estimate and the depreciation factor. An adjustment to these items is under review in con-The First Mortgage Bonds are issued under our Mortgage nection with our current rate proceeding (see Note N). which places a first lien on almost all the property we own At December 31,1985, the reserve for Accumulated and franchises we hold to secure the repayment of the Depreciation and Amortization includes $4,556.000 for First Mortgage Bonds.
! such decommissioning costs. There are no restrictions on The issuance of additional First Mortgage Bonds is limited
- the use of amounts currently being recovered for decom-by two provisions of the Mortgage. This amount fluctuates missioning from customers through rates' depending upon the remaining amount of bondable prop-l Annual depreciation provisions as a percentage of the erty and upon eamings and interest rates. In adoition, depreciable cos' of plant are as follows
- disa'lowances or cancellations might affect this amount.
- Under the more restrictive of these provisions, we would i 1985 1984 1983 have been permitted at December 31,1985 to issue approximately $1,013,000,000 of additional First Mortgage Electnc Plant 33% 33% 34%
l Bonds. If Perry 2 had been cancelled at the end of 1985,
- Steram Piant 26% 26% 26% this amount would have been about $251,000,000 less.
1 i NOTE E - TERMINATED PROJECTS In November 1985, we arranged a bank revolving credit ! agreement providing for borrowings of up to in January 1980, the Central Area Power Coordination $150,000,000. This agreement serves as a back-up Group (CAPCO) companies terminated their plans to con- source of funds for our construction program. Interest , struct four nuclear generating units which were in various rates on borrowings under the agreement will vary de-stages of construction start-up. Our rate case orders pro- pending upon the amount of the current borrowing, total vide specific revenue to recover these costs through the borrowings then outstanding and, at ot.r option, may be method used to calculate the allowed rate of retum on based upon the prevailing prime rate or certain other in.
' rate base and authorize us to amortize the unamortized terest measurements. We must pay commitment fees cf terminated unit costs. Ohio law does not permit recovery approximately 0 3% on the average daily unused portion of these costs through rates as an operating expense. of the credit agreement. At our option, all obligations out-The unamortized costs of the terminated units are not in- standing at March 31,1988 may be converted into an cluded in our rate base. amortizable three year term loan.
27
~
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) ; NOTE G - LEASES NOTE H-SERIAL PREFERRED AND PREFERENCE
- Wa hava existing agreements for the leasing of certain v:hicl:s, unit trains, other equipment, buildings and
. nucl:ar fuel. We have assured the owners of our Series F Preferred Stock a minimum dividend retum of 6.96% on their in-During 1985, we implemented the provis. ions of State- vestment after c'educting any Federal income tax on the ments of Financial Accounting Standards (SFAS) No.13 dividends received on the stock. If certain income tax cnd No. 71 which require that we account for certain laws are changed such that their after-tax return is lower, I:: sed assets as though we owned them. Our nuclear fu- we would have the option to do one of two things: buy el 1:asing arrangements resulted in an increase in the as- back the Series F at $1,000 per share plus accrued divi-sets and liabilities reported on our balance sheet. We re- dends or exchange Series F for a new series of preferred stited the balance sheet for prior periods to reflect this stock with a dividend rate high enough to provide a adjustm:nt. These adjustments had no effect on the re- 6.96% after-tax return.
sults of operations. We have the right to buy back and retire shares of Serial Wh:n the PUCO determines what rates are to be charged Preferred and Preference Stock which have mandatory to our customers, it treats the rents on leases as an oper- redemption provisions. The redemption prices (plus divi-cling sxpense. Accordingly, we record those rents as an dends accrued to the redemption dates) are as follows: operating expense on the income statement. All the rental pryments we make for nuclear fuel and unit trains are Price at record:d initially in balance sheet fuel accounts. As the December 31 Eventual fuel is used, these costs are transferred to fuel expense Series 1985 Through Minimum on tha income statement. We paid rent of $7,345,000 in Preferred: 1985, $14,767,000 in 1984 and $12,388,000 in 1983 for C $ 103 00 7-31-88 $ 100 00 nucl:ar fuel and unit train leases. Lease payments under E $1.088 00 5-31-86 $1.000 00 til othar leases were not material. F $1.015 00 2-28-86 $1.000 00 G $1.017.78 11-30-86 $1,000 00 Some of our leases have noncancellable terms of more H 5-31-91 31.000 00 (a)
' than one year. We have to make the following payments I (b) 5-31-92 $1.000 00 und:r these leases after December 31,1985: J 5-31-87 $1.000 00 (c)
M $ 109 27 10-31-86 $ 100 00 Year Amount (Thousands of Dollars) Preference: 1986 $ 3.038 1 $1.012 92 7-31-86 $1.000.00 1937 2.564 1988 (a) Beg nning Jure 1.1990 at $1,068 68 1.736 1989 (b) Beginning June 1,1991 at $1.068 68. 1.576 1990 (c) Beghning June 1,1986 at $1.050 44 1.576 Later Years _ 3 184 Tuai $ 13 674 We can exercise our right to buy back Series E Preferred Stock before June 1,1986 only under certain conditions. Series E cannot be redeemed prior to June 1,1986 as We did not include in the above table the payments we part of a refunding involving the use of proceeds of sales must make under our nuclear fuel leasing arrangements. of debt, other preferred stock or stock ranking higher than Since the payments are made when fuel is used, we do the Series E with an effective annual cost of less than not know the exact timing or total amount of the rental 8.8%. In addition, we may not refund through the sale of . p:yments. See " Nuclear Fuel" under Note M for a de- stock which is junior to the Series E. ! .scription of our nuclear fuelleases and commitments and j an estimate of lease payments over the next five years. 28
i
'Th3 following shares of Serial Preferred and Preference NOTE J - COMMON STOCK Stock with mandatory redemption provisions were bought i Shares of Common Stock sold during the three years back and retired during the three years ended December ended December 31,1985 were as follows:
31, 1985: Series 1985 1984 1983 Public Safe - 5.000,000 - Preferred C 10.000 10,000 - Dividend Reinvestment and Stock Purchase Plan (a) 3.922.080 3.329.015 3.021,125 E 3,000 3.000 3.000 Employee Savings Plan 393.842 419.318 298.584 G 8.000 8,000 - Employee Thrift Plan 95,961 92,538 71,767 H 1,782 - - Key Employee incentive Preference: Stock Plan 31,427 335 20.471 1 11,400 11,400 - 1978 Key Employee Stock Opton Plan 39.183 880 11.560 During the three years ended December 31,1985, we Total Shares 4.482.493 8.842.086 3.423.507 sold only one series of Serial Preferred Stock with manda-(a) includes shares sold under the customer stock purchase and IRA
, tory redemption provisions. We sold 500,000 shares of ****~
Seri:s M priced at $100 per share in November 1985. Th:rs are no restrictions on our right to issue and sell With the exception of the Employee Thrift Plan which was ' terminated as of December 16,1985, the various stock authorized shares of Serial Preferred or Preference Stock aft r March 16,1986, plans listed above will continue after the pending affili-ation, Thrift Plan participants are now eligible to par-i ticipate in the Employee Savings Plan. NOTE I- SERIAL PREFERRED STOCK WITHOUT MANDATORY REDEMPTION PROVISIONS Stock options held by employees to purchase unissued shares of Common Stock under the Key Employee incen-In December 1983, we sold 500,000 shares of Series L tive Stock Plan and the 1978 Key Employee Stock Option Prtfarred Stock which did not have mandatory redemp- Plan are granted at 100% of the fair market value on the tion provisions. Series L cannot be redeemed prior to date of the grant, The shares which were actually bought January 1,1989 as part of a refunding involving the use during the three years ended December 31,1985 were I of tha proceeds of sales of debt or preferred stock with sold at option prices ranging from $15.63 to $20.25. 1 an effective annual cost of less than the annual dividend Shares under outstanding options held by employees of the Senn L. were as follows: Wa have the right to buy back and retire Serial Preferred Key Employee Stock which does not have mandatory redemption pro. Incentrve Stock Plan (a) 1985 1984 1983 visions. The redemption prices (plus dividends accrued to the redemption dates) are as follows: Optons outstanding at December 31 Snares 52,718 87,645 122,601 ! Price at i December 31, Eventual Option Price $18 59 to $18 59 to $17 63 to Senes 1985 Through Minimum $22.43 $22.43 $22.43 1978 Key Employee A $102.50 11-30-86 $10100 B $103 78 7-31-87 $102 26 L $100 69(a) 12-3185(a) $100 00 l (e.) The redempton pnce of Series L changed on January 1,1986 to at December 31 i $108 02 which remains in effect until December 31,1986 Shares 541,672 519.727 389.007 Option Price $15 63 to $15 63 to $15 69 to
$23 00 $20.25 $20 25 (a) Under the terms of the Key Employee incentive Stock Plan, no further optons may be granted Accordingly, only those shares re-lating to options outstandrng at December 31,1985 may be issued 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Und:r the terms of the agreement to affiliate, our share NOTE L- PROPERTY OWNED WITH OTHER own:rs will receive 1.11 shares of Centerior's Common UTILITIES Stock in exchange for each share of our Common Stock . held. Some of the generat.ing units which we own or are build-ing are owned with other utilities. Each company owns an W3 c lculate earnings per share based on the average undivided share in the entire unit. All the owners are ten-number of shares outstanding throughout the year. The ants in common. This means that each company has the weighted average shares outstanding in each of the last right to a percentage of the generating capability of each three y:ars are as follows: unit equal to its ownership share We are obligated to pay for our share of the construction and operating costs of 1983 63.213.562 each unit. We are not responsible fer the other owners' 1984 68.190.548 shares. See " Construction Program" under Note M. 1985 76.289.172 Utility Plant at December 31,1985 includes the following Our agr ement to affiliate prohibits more than 81,600,000 facilities owned as tenants in common with other utilities: shir:s of Common Stock to be outstanding prior to March 16,1986. Company ownersn p Electric Construc-Plant tion Work NOTE K - SHORT-TEHM BORROWING Facdity Percent in Service in Progress ARRANGEMENTS Unousands of Doirars) Availabla bank credit arrangements are as follows: ru e M stieid 1 At December 31
* *** 0 '
TYPE 1985 1984 Beaver Valley 2 24 47 - 796.692 (Thousands of Dollars) Perry 1 and Common Facihties 31.11 - 1,279.681 Bank lirts of credit 'borrowings at Eastlake 5 68 80 2,187 115.471 or noir pnme interest rate) $156.300 $156.300 Eu oil evolving credit Sem MW SW 56,421 1,793 Hydroelectric Plant 80 00 00 VIrk"ble interest nate agreements -
$20.000
$940.783 $2J00.381 Any borrowings under the Eurodollar agreement are We also have a 31.11% ownership in Perry 2. Our mids and paid back in U.S. dollars. There are no require- investment in Perry 2 was $358,666,000 at December 31, ments that minimum cash balances (compensating bal- 1985. As described in Note M. construction activities Encts) be maintained at the banks involved. However, a were suspended in 1985.
fee of Es% to %% per year is paid on any unused part of this borrowing agreement. The interest rate on borrowings Separate depreciation records are kept for Davis-Besse is %% to %% (depending on usage) above the rate which property and Seneca property, The accumulated depreci-cpecified banks pay for Eurodo!!ar deposits in tho London ation for Davis-Besse at December 31,1985 was int:rbink market. $85,317,000. The accumulated depreciation for Seneca at December 31,1985 was $14,456,000. Depreciation on all Commercial paper outstanding is backed by at least an other in-service property owned with other utilities has equil amount of unused bank lines of credit to ensure our been accumulated on an account basis along with all ability to repay them. There were no such borrowings at other depreciable property rather than by specific units of Decimber 31,1985. depreciable property. Our share of the operating expense of properties owned with others is included in our income Most borrowings under short term bank lines of credit do statement. not require compensating balances but do require a fee of approximately 0.3% per year to be paid on any unused We have entered into an agreement with Ohio Edison portion of the lines of credit. For those bank lines without Company (Ohio Edison) whereby they will make firm fee requirements, the average daily cash balance in our power purchases of 80 megawatts of our 375 megawatt bank accounts satisfied informal compensating balance ownership interest in Perry 1 over an 18 month period, trrcngements under which we maintain balances at commencing with initial commercial operation of the unit. banks d:pending on what we borrow. 30
NOTE M - COMMITMENTS AND CONTINGENCIES in operating license proceedings, the Atomic Safety and Licensing Board of the NP,C has decided in our favor on Construction Program all issues raised by intervenors. Intervenors have ap-W3 carry on a continuous program of constructing facili- pealed portions of the decision to an appeal board of the ti:s needed to meet anticipated demand for electric NRC. While we cannot give assurances as to the outcome service, to replace aging facilities and to comply with pol- of the appeals,we believe that the appeals should be re-lution control regulations. We project a 2% annual solved in our favor. incr:ase in peak electrical demand in our service area. Compounded over the n0xt 20 years, that growth would On January 31,1986, an earthquake occurred which r sult in about a 50% increase in demand. The major part measured approximately 5.0 on the Richter scale and of our construction program is our share of three nuclear which was centered about 10 miles south of the Perry Nu-gen: rating unit projects-Perry 1 and 2 and Beaver Valley clear Power Plant. Inspections of Perry 1 have found no
- 2. They are being constructed by the five CAPCO com- damage to any safety systems, structures or components.
panirs, including the Company, Duquesne Light Com- Based on preliminary investigations, the earthquake did pany (Duquesne), Ohio Edison, Pennsylvania Power Com. not exceed the Plant's seismic design capability. We filed pany and Toledo Edison. The scheduling, voluntary delay a report with the NRC detailing an analysis of the earth-or cancellation of a project must be approved by 41 of quake. ths CAPCO companies. We are responsible for construc-ting Perry 1 and 2 and Duquesne is responsible for con. Subsequent to the earthquake, several groups separately structing Beaver Valley 2 for the CAPCO companies. As petitioned the NRC to investigate the adequacy of the dcscribed below, construction of Perry 2 has been sus. seismic design of Perry 1. One of the groups also re-pended. Our share of these three units and the amounts quested the NRC to review our proposed affiliation with ws invested in them (including AFUDC) at December 31, Toledo Edison relative to the two companies' financial qualifications under 10 CFR Part 140 of the NRC's regu-1985 are set forth in Note L. lations. We cannot predict what actions, if any, the NRC For the 1986-1990 period, our estimated construction might take. However, we believe that the seismic design budget is $1,900,000,000. However, assuming construc- of Perry 1 complies with NRC regulations and, although tion of Perry 2 resumes in 1988 with completion in 1994, we cannot give assurances, we believe that an operating this estimate increases to $2,500,000,000. In addition to license should be issued. completing Perry 1 and Beaver Valley 2, we are studying various alternatives to meet future generation capacity The cost (including AFUDC) of our 375 megawatt share of needs. The attematives include, among others, combina- Perry 1 and the common facilities is $1,280,000,000 as of tions of the following: completing Perry 2, our share of December 31,1985. We estimate that the cost will in-which is 375 megawatts; constructing new generating crease about $600,000 each day in 1986 until it achieves units using new technologies currently being developed; commercial operation. cxt:nding the usefullife of some existing generating ca-pacity and utilizing long-term power purchases The cur. Beaver Valley 2 - Beaver Valley 2 is about 91% com-r:nt construction program does not take hto account any plete and is scheduled for completion around the end of changes which might be made after the proposed affili. 1987. In October 1985, Duquesne advised us that its ation with Toledo Edison described in Note B becomes current review of the estimated cost of Beaver Valley 2 effective. indicates that the cost, including AFUDC, of our 204 megawatt share will increase from about $1,000,000,000 Pev 1 - Construction of Perry 1 and the facilities to be to about $1,087,000,000. No change is expected to be used in comme with Perry 2 is essentially complete. The made in the scheduled completion date. While we cannot equipment testing and Nuclear Regulatory Commission give assurances, we believe that an operating license will ! (NRC) staff review necessary before fuel can be loaded be issued. are nearing completion and we are awaiting permission to load fuel. Additional time (a minimum of six months after Perry 2 - Perry 2, exclusive of the common facilities, is th3 commencement of fuel load) will be required before about 44% complete. Including its share of the common the unit achieves commercial operation. (See Note N for a faciMies, Perry 2 is about 58% complete. Construction of discussion of the potentini ratemaking and financial re. Perry 2 was suspended in 1985 by the CAPCO compa-porting implications of this event.) The experience of the nies pending future consideration of several alternatives circtric utility industry has shown that events can occur which include resumption of full construction, with a which could significantly delay achievement of any of the revised estimated cost and completion date, mothballing st ps in the start up process. or cancellation. Many factors will be taken into account in 31
'l NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) making the decision. These include the increasing costs Other Nuclear Construction Program Risks - Nuclear of construction, the high cost and difficulty of financing, generating projects in the electric utility industry have the incr:ased risks associated with nuclear construction experienced substantial cost increases, construction cnd lic:nsing, including the future stability of NRC regu- delays and licensing difficulties. These have been caused lations, the regulatory climate as it will a'fect the, ability to i by vanous factors, including inflanon, required design recovir the unit's costs through rates on a timely casis ( < changes and rework, alegedly faulty construction, objec-
' and tha altemative means of providing generating (' tions by groups and governmental officials, limits on the capacity. Also being considered are the potentially ability to finance, limits on the use of proceeds of security gr :t:r capacity needs nationwide, particularly in our issues, difficulty in obtaining needed rate increases, region, due to larger-than-anticipated demand and can- reduced forecasts of energy requirements and economic ,
c ll:tions of generating projects by other electric utilities, conditions. This experience indicates that the risk of sig- l the probable high cost of retrofitting fossil fuel units to nificant cost increases, delays and licensing difficulties satisfy possible acid rain pollution control regulations and remains present through to completion of any project, the incr: mental cost of comp'eting Perry 2. The timing of including Perry 1 and 2 and Beaver Valley 2. A major , a d: cision on Perry 2 will depend on developments re- accident at any nuclear plant could have a material l lating to the above factors and possibly others. adverse effect on the operation, construction or licensing f the nuclear units of the CAPCO companies. i Wa continue to capitalize AFUDC for Perry 2 because we beli:ve that cost should be recovered through rates if and The successful completion of the CAPCO construction wh:n tha unit is completed. However, if Perry 2 is can- program requires the continuing ability of the CAPCO c:ll d, recovery of AFUDC for the unit would be less cer- companies to pay for their shares. To do so, each
~ t in. Th:refora, we started on July 1,1985 to credit CAPCO company must continue to obtain adeuate and AFUDC for Perry 2 to a balance sheet deferred credit timely rate increases. There can be no assurance that r: serve instead of continuing to credit it to income. Such such rate increases always will be forthcoming or that def rral does not affect cash flow, but it does cause an some other event will not adversely affect financial mar-equal reduction in reported earnings from what they kets or nuclear projecs generally, or a CAPCO company othirwise would be. Eamings were reduced by about or nuclear project ip par'icular so as to impair the ability
$18,000,000, or 23c per share, in 1985 and will continue of a CAPCO compMy to pay for its share. If any CAPCO to be reduced by about $3,000,000 per month in 1986. company does not pay its share, any or all of the other CAPCO companies could, as a practical matter, be if P:rry 2 is cancelled, we will seek authorization from the forced to accept a solution involving substantial losses or i PUCO to recover ourynvestment in that unit in rates over additional financial burdens.
a period of years. Ohio regulation currently allows recov. gry of such costs as described in Note E. Other methods The PUCO issued an order on Apnl 30,1985 to
. of recovery also may be available. However, we Pave no investigate whether generic criteria should be established
! assurance that recovery would be allowed il Perry 2 were fcr determining whether excess gere<ating capacity canc:lled. If, at the time of such a cancellation, it appears eWsts in an electric utility's system W9, the OCC and 1 unlikely that recovery would be allowed, then our in- other interested parties have submitteo comments on this 4 vestment in Perry 2 would have to be writtan off, after ad- maher to the PUCO. In addition, the PUCO continues its . justment for taxes. The amount to be written off would be study of statewide central dispatch for Ohio's regulated reduced to exclude equipment usable for Perry 1 or else- electric utilities focusing on the long-term effects of wh:re for other purposes and the deferred credit reserve central dispatch and methods for implementation. discussed previously. We estimate such a write-off as of December 31,1985 would have been about Regulatory authorities in other jurisdictions have
$225,000,000, after taxes. Based on our current financial increasingly undertaken proceedings to determine
, position and level of annual income, a write-off of such a whether recovery in rates of part of the cost of completed magnitude would have a material adverse effect on in. construction projects should be disallowed or deferred. Some have usa' lowed significant portions of costs based ! com3 in the period in which it were to occur tain:d camings, but our ability to continue paying divi- and on re. on audits which alleged imprudent management. Some d:nds would not be impaired solely because of such a have disallowed or deferred costs on the basis that new write-off' capacity was not needed (excess capacity). Some have deferred costs, in part, so as to mitigate the size of rate in September 1983, the Ohio Office of Consumers' increases by ordering " phase-in" plans. In other cases, Counsel (OCC), the City of Cleveland, the Commissioners these actions are only proposed and have not been of Geauga County, Ohio, and certain community groups ordered.
- petitioned the PUCO and the Ohio Power Siting Board to investigate the need for Perry 2. Under some circum-stances, the request of the petitioners, were it to be granted, could require cancellation of the unit.
02
On April 30,1985, the PUCO issued an order starting an change in the current PUCO rate treatment of such costs inv:stigation to determine whether any Perry 1 costs are (see Note E). cxc;ssive due to imprudent management. The OCC has The changes might require immediate recognition of dis-int:rvened in th,!s proceeding. The PUCO has hired the allowance of costs, if any, of Perry 1 or Beaver Valley 2 consulting firms of Touche Ross & Co. and the Nielson- which may be determined by the PUCO to be imprudently Wurster Group to help in its investigation, which is incurred. Also, a reduction might be required in reported cxpected to be completed in mid-1986. ncome in the future should the PUCO adopt phase-in As with other nuclee units started 10 to 15 years ago, plans for Perry 1 or Beaver Valley 2 which do not meet PJrry 1 has undergone major design changes and retro- specific cost recovery criteria (see Note N). fits necessary to satisfy constantly changing NRC require- In summary, the likelihood of a significantly adverse event ments. This has taken place over a period in which or regulatory action occurring in any of the above risk substantialinflation of construction and financing costs areas described in connection with our construction pro-also occurred. We believe that expenditures for Perry 1 gram varies. So does the potential severity of any adverse h:va been prudent in the light of these c,rcumstances. i impact. Any such event or regulatory action could have a material adverse effect on our financial position or results Th3 Pennsylvania Public Utility Commission (PaPUC) has ord: red that a consultant, Canatom, be retained to of operations. inv:stigate for the PaPUC whether any costs of Beaver Davis-Besse Nuclear Power Station Outage Vill:y 2 were imprudently incurred. Beaver Valley 2 is cmong the highest cost nuclear units in terms of cost per Davis-Besse, which is operated by Toledo Edison and kilowatt due, in part, to its extended construction period. owned jointly with us, was shut down June 9,1985 due to W3 believe the delays in the completion of Beaver Valley the failure of the plant's main and auxiliary feedwater sup-2 from its original schedule were prudently incurred in ply system. There were no injuries or radiation leaks and ord:r to meet the changing generation requirements of the shutdown resulted in negligible damage. Toledo Edi-tha CAPCO companies or were of a nature that were son must receive NRC approval prior to resuming oper-beyond our control, including changing NRC require- ations. ments. Any PaPUC order will not directly apply to us. However, it is possible that the PUCO also will investigate Both the NRC and Toledo Edison undertook extensive th] prudency of the costs of Beaver Valley 2 (and Perry 2, investigations to determine the causes of the June 9 if completed) incurred by us. event and corrective actions to be taken. The NRC issued a report on the June 9 event with the major conclusion Th3 PUCO has not indicated whether it will make any being that the underlying cause of the event was Toledo d tarmination from its Perry 1 investigation in a generic Edison's inattention to detail in the maintenance of plant h:aring or whether it will make its determination in a equipment. The significance of the event from a safety futura rate case in which Perry 1 costs are being consid- standpoint was that multiple equipment failures involving cred. Similarly, we cannot predict when the PUCO might back-up safety equipment occurred. The NRC staff has mak3 any determination with respect to Beaver Valley 2. proposed a fine to emphasize the seriousness with which The earliest rate case when the issues of disallowance or the NRC views the occurrence of the violations and to deferral of recovery of our investments in eacn unit might ensure that Toledo Edison maintains an effective and b) considered is in the first rate case filed after each unit aggressive management system to prevent such is in service. We also cannot now predict what regulatory viola' ions. cction, if any, the PUCO might take with respect to our Toleco Edison submitted an extensive report 'o the NRC investment in Perry 1 or Beaver Valley 2. stating the results of its investigation and describing cor-In accordance with current generally accepted account. rective action that has been and is being taken to correct ing principles, a disallowan::e of property costs from rate the problerns identified by the NRC. The report stated that basa may not, in itself, require an immediate charge to an electrically powered, la ger feedwater pump will be income. Rather, such an event would be reported as a installed to provide an additional source of coolirg water. d: crease in incomo over the life of the property. However, Additional capital improvements are to be comp;eted to ths Financial Accounting Standards Board (FASB) cur. improve Toledo Edison's training and maintenance pro-r:ntly is considering changes, which are proposed to be grams. Also, a new organizational structure with up to 240 r troactive in nature, in SFAS 71. The changes relate to additional employees will be installed with more emphasis accounting for the valuation of plant abandonment costs, on training, maintenance and planning activities. disallowances and gradual allowances (phase-in) of new On February 6,1986, an official of the NRC stated that plant construction costs and operating costs by regu- the earliest the plant will be approved for restart is late lators. We do not know what changes, if any, will be April 1986. However, it is possible that the plaat may be made in SFAS 71, However, certain changes might re- out of service longer. quira us to record a loss with respect to terminated projects we are currently amortizing, unless there is a 33
O ^ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) We are replacing the output we normally would receise Nuclear Fuel from our 445 megawatt ownership share of Davis-Bess with more costly generatbn from our own non-nuclear We have lease and trust arrangements to finance nuclear F material and fuel including the commitments stated generating units, supplemented by wholesale power pur-chases a2 necessary. We believe we will have or will be above. We believe that our nuclear fuel will provide an able to obtain sufficient power to meet our service are adequate supply lasting into the mid-1990s. Substantial y needs until the unit is back in service. Whether we will be additional nuclear material will have to be obtained in the able to recover the additional power costs will be deter- future to supply fuel for the remaining usefullife of Perry mined by the PUCO in a fuel clause hearing which at the 1, Beaver Valley 2 and Davis-Besse. More nuclear material and fuel will be required if Perry 2 is completed. earliest will be held in December 1986. In Toledo Edison's fuel clause proceeding in the fall of The maximum amount which can be financed by us under one leasing arrangement is $280,000,000. It is a i985, the OCC requested the PUCO !0 disallow recovery long-term lease that allows the lenders to cancel their of such additional power purchase costs on the ground
~
that the June 9 event was the result of imprudent inan- financing commitments after three years notice. One of the lenders with a $65,000,000 commitment has can-agement by Toledo Edison. The PUCO has approved a stipulation among Toledo Edison, ourselves, OCC end the celled effective in November 1988. Our share of the other staff of the PUCO to postpone cons: aeration of the OCC's a[rangement, which includes leases and a trust com-request until late 1996 In the meantime, a consultant will bined, is $90,000,000. subject to cancellation by the lend-m ak one year s nh 3 be engaged by the PUCO to evaluate whether the June 9 y event and the ensuing outage was caused, in whole or in The lease and borrowing rates are based on bank prime r part, by imprudent management by Toledo Edison. The and commercial paper rates. The amounts capitalized in-consultant will also determine the cost of the added fuel cluced charges incurred by the lessor amounting to and purchased power incurred because of the outage $22.019,000 in 1985, $25,212,000 in 1984 and Y and the extent to which those costs alreaoy have been $16,477,000 in 1983. Under the leases, rental payments a recovered from our customers and those of Toledo are made as the fuel is bumed in a reactor. Estimated Edison. The consultant's report is to be filed with the teace paymcnts are $33,000,000 in 1986, $44,000,000 in [ PUCO by August 15,1986. The report will not be binding 1987, $49,000,000 in both 1988 and 1989 and on the PUCO or any of the parties. $53,000,000 in 1990 As these payments are made, the The stipulation also provides that if the PUCO finds that amount of credit available to the lessor is renewed and some or all of the resulting fuel and purchased power becomes available to satisfy other nuclear fuel commit-ments. e costs should be refunded to customers due to imprudent management, then interest would be added to the costs At December 31,1985, a total of $300,523,000 has been to be refunded. The refund would be made by reducing invested under the leases and the trust in nuclear material the fuel factor allowed over a period about equal to the and costs of processing it into fuel. This includes nuclear period over which the costs were collected. Final resolu- fuel in the Davis-Besse reactor wuh a remaining cost of o tion of this matter is not expected to have a material $38,173,000 as of December 31,1985. Rental payments adverse effect on future results of operations. are being made when the fuel is consumed in the reactor. 5 Purchases Guarantees h Construction materia!s and services must be ordered in Under two long-term coal purchase arrangements, we L advance so !nat they will be on hand when needed. At have agreed to guarantee the loan and lease obligations December 31,1985, such commitnients amounted to: of two mining companies. At December 31,1985, the principal amount of the mining companies' loan and lease E Construction program (including Perry 1 and 2 obligations guaranteed by the Company was - and Beaver Valley 2) $250.000,000 $84,137,000. Under one of these arrangements, we are Nuclear material acquisition and processing required to pay the mining company any actual out-of- - into fuel $200,000,000 pocket idle-mine expenses, as advance payments for E coal, when the mines are idle for reasons beyond the These commitments can usually be cancelled. Often the control of the mining company. manufacturers must be paid for labor and materials already spent and sometimes a penalty also must be paid. F h t b L 34 l'
Nuclear Unit Uability Under Ohio law, the PUCO has discretion to include CWIP in rate base for construction projects which are at The owners of Davis-Besse maintain a nuclear insurance least 75% complete. The amount includable for all program to the maximum extent currently available. The projects is limited to 10% of rate base excluding CWIP, maximum coverages at February 10,1986 for a nuclear incident at Davis-Besse included $650,000,000 of nuclear except that up to 20% can be encluded for certain pol!u-tion control projects. When the project is completed and liability coverage for injury to persons and their property included in rate basc, an amount equal to the CWIP is ex-and $1,135,000,000 for damage to the owners' property, . ciuded from rate base for a period equal to the time it including leased fuel and clean-up costs The Price- had been included, resulting in lower revenues than Anderson amendments to the Atomic Energy Act limit the would otherwise be the case during that period. During owners' nuclear liability to the amount of the nuclear liabil-the period of exclusion, the equivalent of AFUDC accrues ity coverage. The current Price-Anderson legislation ex-on the excluded portion to be recovered in rates over the pires in 1987 and bills to amend it, including preposals to useful life of the completed project. The effect of this pro-substantially increase or eliminate the limitation on liability vision is to phase into rate base the total cost of a project provisions, have been introduced in Congress. Damage over a period starting when CWIP is first included in rate to our property, leased fuel and clean-up costs combined base and ending when the exclusion period ends. If a cou!d exceed the property insurance by a substantial project is cancelled or is not completed within the allow-amount and could have a material adverse effect on our able period (usually 48 months) after inclusion of its CWIP financial condition. The owners also are obligated to pay has started, then CWIP must be excluded from rate base. retrospective premiums up to $10,000,000 per year to Any revenues which resulted from prior inclusion must be cover any liability insurance claims arising out of a nucle. offset against future revenues. ar incident at any nuclear unit in the United States and up to $8,030,000 per nuclear incident to cover any property On July 2,1985, we filed an application with the PUCO damage insurance claims. It is our intention to obtain sim- requesting an increase in our electric rates of approxi-ilar insurance for Ferry 1 and 2 and Beaver Valley 2. mately $210,000,000, or 16 8%. Any resulting rate increase would be effective in the second quarter of We have insurance coverage of $1,341,000 per week for 1986. The request includes an increase in base rates of the cost of any replacement power purchased during the $230,000,M0 oHset W $20,000,000 in projected fuel sav-52-week period starting 26 weeks after the occurrence of ings from the operation of Perry 1. The requested certain types of incidents at Davis-Besse and $671,000 increase includes a request for Perry 1 CWIP which would per week for the next 52 weeks. The cost and duration of produce $40,000,000 of annual revenue. It also includes replacement power could substantially exceed the insur- annualized operating expenses, such as operation and ance coverage. Also, we are obligated to pay retro- maintenance expenses, depreciation and taxes for Perry spective premiums up to $2,818,000 per nuclear incident 1, which would produce annual revenue of $96,000,000, ! to cover any replacement power insurance claims arising some or all of which may be disallowed. out of a nuclear incident at any nuclear unit in the United States. It is our intention to obtain similar insurance for A request will be made in 1986 to defer, for subsequent Perry 1 and 2 and Beaver Valley 2. Replacement power inclusion in rate base and recovery as an element of cost purchased due to the June 9,1985 avent at Davis-Besse of service, ongoing financing costs calculated on a basis is not covered by such insurance because the plant's similar to AFUDC for Perry 1. Such deferral would begin continued shutdown is due to NRC order. at the time Perry 1 is placed in service and continue until Perry 1 is included in rates as a component of rate base Lawsuits in a subsequent rate case. The PUCO has allowed this Several lawsuits and governmental actions are pending in procedure in orders issued to other Ohio utilities. Further-additiot, to those described above. We believe, based on more, to the extent the Pl'CO denies recovery of certain the opinion of our counsel, that the ultimate disposition of Perry 1 operating expenses in our pending rate request, we will also seek authority to defer them until they are in-these other matters will not have a material adverse effect on our financial condition or results of operations. cluded in rates. Deferral of financing and operating costs tends to maintain the level of reported earnings but asso-ciated cash flow does not occur until a subsequent peri-NOTE N - RATE MATTERS od when such costs are recovered in rates. The pro-Effective March 12,1985, the PUCO granted us an visions of the FASB's proposed amendments to SFAS 71, increase in electric rates of $19,500,000, or 1.6%. We had discussed in Note M, would require that all deferred requested an increase of $180,000,000. The allowed rate amounts be recovered in a period no longer than 10 of retum is 12.99% on rate base and 16.85% on common years. Currently, the PUCO allows recovery of the post-in-stock equity. The PUCO did not allow any construction service financing cost deferrals over the life of the plant work in progress (CWIP) in rate base for Perry 1. Pre- and has not yet addressed the issue of deferring oper-viously, we had been receiving approximately ating expenses. If the PUCO denies our requests or if the
$30,000,000 of annual revenue for Perry 1 CWIP which FASB proposal were adopted as is and the PUCO did not had been included in rate base. allow recovery in the 10-year period, the deferral of 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continu:d) oper ting expenses and the post-in-service financing cost takes into account estimated increases in employees' would not be permitted. In such an event, our results of future earnings in an effort to levelize the funding of pen- l operations would be adversely impacted from the time sion benefits over their working lives. The liability of the l P rry 1 goes in service until rates become effective which plan as of January 1,1985 determined under this method r flect the inclusion of Perry 1 in rate base and cost of was slightly more than the value of the assets in the plan servic3. We cannot predict either the outcome of the on that date. FASB's review or future actions of the PUCO. SFAS 36 requires us to disclose accumulated pension plan liability without consideration of future increases in NOTE O-PENSION AND POSTRETIREMENT employees' eamings as though the plan were terminated HEALTH AND LIFE INSURANCE BENEFITS at the dates shown in the table below. Therefore, the dis-W3 pay the full cost of a pension plan for our employees. Closures below, required by SFAS 36, compare liability of Und:r the plan, an employee who has worked at the the plan determined on one basis with assets accumu-Company at least 5,10 or 20 years (depending on the lated on a different bas,s. i We and our pension consul-p;rson's age when leaving the Company) can begin tants believe that SFAS 36 disclosures are very rec:iving a pension benefit at or after age 55. The misleading because they understate the amount which (Jnount of the person's benefit depends on length of serv- the entry age normal method tells us should be ,n i the ics and earnings. The benefit is reduced by a portion of fund now to provide pension benefits as they become soci:1 s:curity benefits. The benefit of an employee who payable under a plan intended to continue indefinitely. r:tir:s after age 65 is determined as if the individual were We are making the following disclosures only because we ag) 65, except in the case of a retired employee who has are required to do so. been rahired. If the person retires before age 62, and in 1985 1984 c:rtain cases before age 65, the employee's benefit is reduced. The plan also pays benefits when an employee Actuanal present va!ue of accurnulated (Maons of Donars) di:s or is disabled. plan benef,ts under SFAS 36: Vested $172 $167 Wa annually deposit money into the plan to fund the cost Nonvested 16 16 of benefits arising from employee service and earnings in the current year. We also deposit money to fund each Total $188 g Value of assets held in the plan $350 $296 yrar a portion of the cost of future benefits arising from - past s:rvice and eamings because of amendments to the Under both methods of determining the plan's liability, the plin. In 1985, our total payment to the fund was one whiQ we use and the SFAS 36 method, we esti- $17,400,000. We deposited $15,300,000 in 1984 and mated tb the earnings of the plan would average about 1983. Of these amounts, we recorded on the income 6%% per year over the life of the plan. statem:nt $10,196,000 in 1985, $9,570,000 in 1984 and $10,211,000 in 1983. The remainder was recorded on the in addition to providing pension benefits, we provide cer-balance sheet, mostly as construction costs. tain health care and life insurance benefits for substan-tially all employees when they retire with pension benefits. Th3 amount we deposited into the pension plan is deter. The cost of retiree health care and life insurance benefits mined by a method known as the entry age normal meth- is recognized as expense as premiums are paid. Those od. It is used by many private pension plans. This method costs totaled $894,000 in 1985 and $823,000 in 1984. NOTE P-QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) Th3 following is a tabulation of the unaudited quarterly results of operations for the two years ended December 31,1985.
~
Quarters Ended March 31 June 30 Sept 30 Dec.31 (Thousands of dollars. except per share arnounts) 1984 Total operating revenues $298,597 $298,009 $333,183 $285,563 Nit operating income $ 67,710 $ 60,244 $ 81,814 $ 52,343 N:t income $ 72,878 $ 65,344 $ 87,637 $ 65,772 Earnings available for common stock $ 61,978 $ 54,396 $ 76,762 $ 55,143 Avsrage common shares 65,693 66,709 67,722 71,919 Earnings per common share $ .94 $ .82 $ 1.13 $ .77 1985 Total operating revenues $316,357 $299,472 $341,588 $296,572 N:t operating income $ 67,068 $ 54,304 $ 80,014 $ 57.763 N:t income $ 78,580 $ 71,972 $ 90,555 $ 69,596 Eamings available for common stock $ 68,165 $ 61,550 $ 80,580 $ 58,941 Av: rage common shares 74,576 75,747 76,876 77,969 Eamings per common share $ .91 $ .81 $ 1.05 $ .76 36 !
COMBINED PRO FORMA
SUMMARY
FINANCIAL INFORMATION OF THE CLEVELAND ELECTRIC ILLUM!NATING COMPANY AND THE TOLEDO EDISON COMPANY cuneuestee; The following tables present selected historical and pro forma combined financial information for CEl and Toledo Edison. Tha CEI and Toledo Edison historical data are taken or derived from audited financial statements of CEI and Toledo Edison. The pro forma data is unaudited and has been based on accounting for the affiliation as a pooling of interest. The selected pro forma data are not necessarily indicative of the results of operations or the financial condition which would have been reported had the affiliation been in effect during those periods or which may be reported in the future. This data should be read in conjunction with the audited financial statements of both CEI and Toledo Edison. December 31, 1985 1984 1983 (Amounts in millions, except per share data) CEI - Historical Income Statement Data for the 12 months ended: Operating revenue $ 1.254 S 1,215 S 1,210 Total AFUDC $ 220 $ 171 S 115 Net income S 311 S 291 $ 246 Earnings per common share S 3 53 $ 3.64 S 3.28 Dividends declared per common shP.e S 2.55 S 2.43 $ 2.31 Balance Sheet Data as of: Total assets S 5.651 $ 5,120 S 4,425 Long-term debt S 2,100 $ 1,884 $ 1,519 Preferred and preference stock: With mandatory redemption provisions S 314 S 293 $ 318 Without mandatory redemption provisions S 144 $ 144 S 144 Common stock equity S 1 764 S 1,593 $ 1,355 Book value per common share $ 22.46 $ 21.51 $ 20.79 Toledo Edison- Historical income Statement Data for the 12 months ended: Operating revenue 5 595(a) S 551 $ 504 Total AFUDC S 138 $ 118 S 91 Net income S 173 $ 154 S 128 Earnings per common share $ 3.54 S 3.70 $ 3.50 Dividends declared per common share S 2 01 S 2.52 $ 2.46 Balance Sheet Data as of: Total assets S 3 365 S 2,936 $ 2,501 Long-term debt S 1.339 S 1,110 $ 985 Preferred and preference stock: With mandatory redemption provisions 5 154 $ 158 $ 94 Without mandatory redemption provisions S 230 $ 200 $ 200 Common stock equity S 950 $ 814 S 716 t$ook value per common share $ 24 44 S 23.76 S 24.12 Pro Forma - CEI and Toledo Edison Combined Income Statement Data for the 12 months ended: Operating revenue $ 1647(a) $ 1,764 $ 1,712 Total AFUDC S 358 $ 289 $ 206 Net income $ 484 S 445 S 374 Earnings per common share (b) S 3 29 $ 3.41 S 3.11 Dividends declared per common share (b) S 2 20 $ 2.29 S 2.19 Balance Sheet Data as of: Total assets S 9.004 S 8,050 $ 6,922 Long-term debt S 3 439 $ 2,994 S 2,504 Preferred and preference stock: With mandatory redemption provisions S 468 S 451 $ 412 Without mandatory redemption provisions S 373 $ 344 S 344 Common stock equity 5 2.714 S 2,407 $ 2,071 Book value per common share (b) S 21 53 $ 20.67 $ 20.30 (a) includes $19 5 milton of revenues subject to refund. (b) After mutt: plying CEI snares by 111. 37
FINANCIAL AND STATISTICAL REVIEW 1975-1985 The Cleveland Electric Hluminaung Company and Subsidiaries 1984 198's 1982 TOTAL OPERATING REVENUES i 753 W 1 215 353 1 210 316 1.108 571 Residential Y' H9 375 597 385 076 348 757 Commercial NUd 338 625 334 660 304 801 Industr:al 6'S5 441 285 430 209 393 794 Omer Electnc (inctodes Sa'es for Resa:e) O 24J 44 958 44 217 43 702 Steam Heat,ng 'T M 14 888 16 154 17 517 TOTAL OPERATING EXPENSES W484' 953 242 951 954 879 644 Fuel and Purchased Power 3P %4 313 412 332 977 329 279 Other Operating Expenses 3% W 280 888 270 468 250 591 Depreciat:on and Amortzaton %W 95 274 94 196 86 588 Tames Other Than Feceral income Tax '32 m 132 313 126 883 106 804 Federal income Tan - 9 131 355 127 430 106 382 NET OPERATlNG INCOME a + '4j 262 111 258 362 228 927 NONOPERATING INCOME . oC 169 200 114 148 % 669 Ado *ance for Eau Funds Used During Construction < C' 130 421 87 052 76 8 % Omer inc me and uctors uu 38 779 27 096 19 773 Income Statement 4e m 431 311 372 510 325 5 % INCOME BEFORE INTEREST CHARGES (Thousands of Dollars) INTEREST ' > . i 139 679 126 484 116 632 Long and Short-term Interes* '"M 180 864 153 974 144 072 Ano*ance for Borrowed Funds Used Durrg - Construction . 5 m (41 185) (27490) (27440) NET INCOVE (a)(b) ? - M 291 632 246 026 208 964 PREFERRED AND PREFERENCE DIVIDEND REQUtREMENTS 4* r 43 353 38 426 38 295 EARNINGS AVAILABLE FOR COVMON STOCK _ .+92> 248 279 207 600 170 669 TOTAL EARN:NGS PER SHARE (a)(b)(c) 1 ;3 $ 3 64 5 3 28 $ 3 01 DIVIDENDS PER SHARE (c) 1 S $ 2 43 $ 2 31 $ 2 19 RETURN ON AVERAGE COMVON EOulTY N TU 16 8 16 1 15 3 TOTAL ASSETS 5 W SG 5 119 842 4 425 436 3 966 213 Utaty Plant - Tota > N 3 i7J 5 022.543 4 454 788 4 010 532 Accumulated Utaty Plant Depreciaton and Amort.zaron _ Nada (798 979) (722.492) (679 890) Omer Property 3E - 288 678 228 153 157 520 Current and Other Assets M e1 607 600 464 987 478 051 TOTAL CAPITALIZATION AND LIABILIT ES _ 5 E' C 5 119 842 4 425 436 3 966 213 Long term Debt <W62 1 883 648 1 518.883 1.441 822 Preferred and Preference Stocu Win Mandatory Redemption Prov.s. ors WW 292.818 318 000 322 000 W thout Mardatory Redempt:on Prors'ons M4C' 144 021 144 021 95 071 Balance Sheet Common Stock Equity m312 1.592 810 1.355 488 1.227.095 Deterr '-M R 480.727 411 072 322 188 Year end Owe, tiabat ed Federat es andincome Cred:tsTaxes m C. 725 818 677 972 558 037 (Thousands of Dollars) UTILITY PLANT ADDITIONS (d) t% ~ 582 288 490 705 422 170 UTILITY PLANT RETIREMENTS A '4 TS 14 533 46 449 22 533 NUMBER OF COMVON SHARES (c) i 3 U2 W 74 040 175 65 198 089 61.774 582 BOOK VALUE PER SHARE (c) : .: 4 $ 21 51 $ 20 79 $ 1966 MARKET PRICE RANGE (c) H.gh 5 T $ 20w $ 23 $ 20 Low s "
$ 13h $ 16w $ 14n KWHR SALES (Thousands) ' m ' '3 17 273 057 16 637472 16 165 157 Res,dential 44 '"L 4 446 352 4 412.154 4 335 605 Commerc=at 45 5 e 't 4 396 395 4 265 023 4 194 177 Industrial ~S m 7 997 000 7.513 673 7 082.261 Omer (!ncludes Sa'es for Resa'e) 4'4W 433 310 446 622 553 114 ELECTRIC CUSTOMERS - YEAR END >eM 714 768 712 833 711 222 Resider!.at N?i42 644 904 643 065 641.705 Commercial 6i'- 61 934 62 075 61.861 Indust iat 'O 7 521 7 274 7 235 Omer 4' 409 4?9 421 RESIDENTIAL SALES DATA Average Kehr per Customer ( 9_ 7 6 646 6 608 6 490 Average Revenue per Customer 5 > 1 - $ 563 60 $ 579 49 $ 524 63 Average Revenue per nwbr dW 8 48e 8 77: 8 08c ELECTRIC PRODUCTION Op: rating Statistics Net Avadab'e for Serytce A ea (Thousards of Katr) ' Jr 12 U 19 096 414 18 461 867 17 677 831 Net Generat on (Thousands of K*er) 'cE5a 16 818 455 17.152 981 17 032 759 Net Received f'om Omers (Thousands of Kwhr) 'N4 s 2 277 959 1 308 886 645 072 BTU per Kwhr of Net Output < ; - 10 416 t o 452 10 475 Fuel Cost per M thon BTU f 4 163 28e 169 08c 174 72c Coa: Cost per Ton ! C +
$ 44 25 $ 46 66 $ 45 51 Annua! Net 60 M.n Van Load - KW <
3 371 000 3 404 000 3 090 000 Net System Capabuy at Time of Peau - KW (e) _ JA: 4 329 000 4 441 000 4 699 000 STE AM HEATING Sa es Pounds (Thousands) 1 306 626 1 281.499 1.501.077 Customers Yea
- End '
256 274 312 EYPLOYEES - YEAR END 4 5 830 5 339 5 41 t (a) The 1978 net ecome and eammgs per sha e ca.csated on a p o for a bas s to *e rect tre un:ts of product on remod of deprec.abon a e $102 942 503 and $2 31 respeckve'y The p o to-ra e*ect of me acept on of m+s cep<ec a5on rremod or 1977 *as not mater.a: (b) The 1979 ret income and eamcgs per sha'e a e increased oy $4125 000 aro $ 11 respechefy to ecyce tre effect on pr or pereds of the 1979 charge e cep<ec aton memed (c) Actusted for the 3 fo -2 stoca spot. e"ect>ve DeceTber 16 1977 38
1981 1980 1979 1978 1977 1976 1975
] 012 930 893 566 824 267 717 092 659 290 543 148 523 165 310 409 268 787 237 612 213 520 200.765 160 015 154 020 263 608 220 677 194 899 172 251 -65.049 129 286 121 653 386 805 323 764 322 909 278 405 251.181 197.189 180 890 39 912 65 273 55 799 42 831 31 611 45 730 55 679 12 1 % 15 065 13 048 10 085 10 684 10 928 10 923 820 226 743 051 688 788 599 289 542 871 441 401 433 614 351.410 360 347 349 027 307 429 265 771 234 107 246 984 224 299 194 881 162 636 140 996 127.330 102.794 94 539 85 294 64 619 69 443 56 774 43 307 35 874 33 046 91 648 81 630 79 455 68 756 58 807 5t 925 48 735 l 67575 41 574 38 227 25 334 47656 16 701 10 310 l 192 704 150 515 135 479 117 803 116 419 101 747 89 551 75 112 62 440 47621 42 226 49 484 26 346 17 681 48 970 40 873 33 432 29 890 35 265 24 706 16 983 26 742 21 567 14 189 12 336 14 219 1640 698 268 416 212 955 183 100 160 029 165 903 128 093 107 232 112 682 87572 69 566 61 016 54 175 46 413 42 464 146 712 112 623 85 299 72 071 67 889 56 750 50.511 (34 030) (25 051) (15 733) (11 055) (t3 714) (10 337) (8 047) 155 734 125 383 117 659 99 013 111 728 81680 64 768 34 917 27 711 25 587 23 575 22 907 18 005 14 6 %
120 817 97672 92 072 75 438 88 821 63 675 50 072
$ 2 52 $ 2 26 $ 2 42 $ 2 20 $ 2 91 $ 2 38 $ 2 11
$ 2 08 $ 2 00 $ 1 92 $ 1 84 5 1 76 $ 1 71 $ 1 65 12 6 11 3 12 0 11 2 15 5 13 7 13 1 3 406 075 3 094 462 2 678 786 2 33t 541 2 117 135 1 842 999 1 513 247 3 610 895 3 215 339 2 842 253 2 523 996 2 232 111 1 955 701 1 693 614 (621 353) (557 859) (521 175) (476 983) (429 150) (3 % 338) (373 85t) 23 870 21 137 19 503 t 5 034 13 753 12 849 9 942 392 663 415 845 338 205 269 494 300 421 270 787 183 542 3 406 075 3 094 462 2 678 766 2 331 541 2 117135 1 842 999 1 513 247 1.328 404 1 211 528 973 991 920 973 885 899 747.392 673 003 325 000 260 500 232 000 232 000 185 000 135 000 75 000 95 071 95 071 95 071 95 071 95 071 95 071 95 071 1 002 206 912 731 820 411 708 883 633 744 511 333 419 990 236 481 192 452 162 122 140 677 119 299 72 318 63 267 418 913 422 180 395 191 233 937 198 122 281885 166 916 409 277 398 088 329 869 300 765 286.739 275 524 181 673 13 721 25 002 11 612 8 880 10 329 13 437 14 718 5 054 503 46 288 629 41 271 574 35 995 365 32 388 055 28 347 544 24 351 499
$ 19 63 $ 19 72 $ 19 88 $ 19 69 $ 19 57 $ 18 04 5 17 25
$ 164 5 18 4 $ 19% $ 23 4 $ 22% $ 22% $ 18 %
$ 13% $ 13W $ 15 4 5 16 % $ 22% $ 17% $ 15W 17.507 864 18 159 754 19 030 453 18 364 437 18 006 428 18 070 291 18 133 826 4 375 732 4 463 147 4 352 983 4 288 865 4 200 116 4 045 158 3 984 004 4.178 459 4 148 990 4 041.134 3 933 586 4 007.123 3 808 897 3 685 878 8 279 700 8 062 172 9 268 600 8 992 919 8 874 796 8 475 983 7 822 419 673 973 1 485 445 1 367 736 1 149 067 984 393 1 740 253 2 641 525 71 t 325 710 557 708 219 702 538 6 % 547 693 425 689 133 642 925 642 845 641 856 637 609 632 740 630 581 627.719 60 714 60 070 58 690 57.310 56 241 55 178 53 765 7 261 7 210 7232 7.167 7.t 12 7 206 7.190 425 432 441 452 454 460 459 6 548 6 686 6 557 6 517 6 412 6 187 6 116
$ 466 55 $ 405 09 $ 357 86 $ 324 91 $ 307 11 $ 245 16 $ 23702 7t2e 6 05e 5 48e 5 00e 4 80e 3 97c 3 88e 18 936 567 18 722 616 19 645 001 19 254 857 19 098 231 18 331 384 ,17271 169 17 297.523 15 325 948 17.069 914 16 882 669 18 123 528 16.747 626 16 213 012 1 639 044 3 396 6f4 2 575 087 2 372 188 974 703 1 583 758 1 058 157 10 582 10 635 10 634 10 536 10 401 10 322 10 454 17514c 156 92c 142 51c 13180e 117 Soc 105 55e ill 14e
$ 46 70 $ 39 31 5 35 20 $ 30 73 $ 25 72 $ 23 98 $ 24 93 3 447000 3 325 000 3 233 000 3 327 000 3 381 000 3 140 000 3 022.000 4 667.000 4 353 000 4 509 000 4 462 000 4 088 000 3 797.000 3 569 000 1 612 151 1 979 397 2 004 680 2 210 886 2.374 510 2 359 677 2 263 645 337 348 365 369 372 385 399 5 189 4 991 4 963 4 831 4 790 4 840 4 947 (d) Enctoes $56 022 606 of te-reatec p<o;ects ectassied to Oe'e~ec Crarges <n ?979 (e) In 1985 Avor Laae Ur:t 9 (644 000 KW) aad Dav's-Besse 1445 000 <W) *ere not ava <ac<e becasse ct rerovaton arc irrvovemeris 39 E I . .
1 4 STATEMENT OF INCOME FROM CONTINUING l OPERATIONS ADJUSTED FOR CHANGING PRICES FOR THE YEAR ENDED DECEMBER 31,1985 runaudited; The Cleveland Electric illuminating Company and Subsidiaries Conventional Current Cost Historical Average 1985 Cost Donars (Thousands of Dollars) R:v:nus $1,253,990 $1,253,990 l Operation expense 566,100 566.100 I
- Mrintenance expense 96,448 96,448 Depreciation and amortization 96,995 235,255 Tax
- s other than Federal income tax 133,348 133,348 Fed:ral income tax 101,950 101,950 Nonoperating income (206,671) (206,667)
Intirtst expense 155,117 155.117 943,287 1,081,551 N t income - continuing operations S 310,703 $ 172,439(a) I Incr ase in specific prices of property and plant (b) $ 80,754 Adjustment to net recoverable cost 135,871 Incr ase in general prices (243,322) Incr:ase in general prices in excess of increase in specific prices after cdjustment to net recoverable cost (26,697) , Gain from decline in purchasing power of net amounts owed 103.122 N t price level adjustment S 76,425 (a) Including the adjustment to r'et recoverable cost, net income for 1985 would have been $308.310.000 in current cost dol lars. (b) At December 31,1985. the cuTent cost of property, plant and equipment net of accumulated depreciation was $6,817.114.000 while original (net recoverable) cost was $4.738,906,000 Supplementary Information Concerning the Effects of Inflation As required by the Financial Accounting Standards mary financial statements. No adjustments were made to Board, we have prepared information on the effects of Federal income tax expense, inflition on operations. The methods used to compute this I d ta are experimental and subject to change by the Depreciation Board. These data do not reflect the " current value" of our A restated depreciation reserve was used to compute the assets. They do not measure all the effects of inflation on current cost estimate of property and plant net of depreci- < our operations or predict our future cash requirements. ation. The reserve was obtained by applying current ' Th3 cffects described herein are not recognized for depreciation rates by account to restated property and income tax or ratemaking purposes, plant figures by vintage year. The depreciation provision was obtained by applying current depreciation rates to Gener11 the average of beginning and end-of-year restated depre-Curr:nt cost data reflects the cost of current replacement ciable property. 2 of existing assets. The current cost of assets was esti-mat:d by applying the Handy-Whitman Index of Public Materials and Supplies Utility Construction Costs to the original cost of structures Balance sheet items such as fuel in stock, materials and cnd equipment. Original cost of land was trended using supplies were treated as cash type items. Fuel inventory th3 Consumer Price Index for All Urban Consumers. Cer- is subject to rapid turnover. As such, the original cost of tain other property was trended to current cost using this item fairly represents its current cost. Other industry indices. Adjustment 10 Net Recoverable Cost Revenues and Expenses Under Ohio law, we can recover only what we paid for Revenues and expenses (except for depreciation) were plant and equipment, so the values of these items under assum:d to accumulate evenly throughout the year. No the current cost method were adjusted to reflect the adjustm:nts were made to the figures reported in the pri- original cost amount. 40
E I IE I p I l , I I l l l l ll l 1 ll l 1 III
- FIVE-YEAR COMPARISON OF SELECTED SUPPLEMENTARY FINANCIAL DATA ADJUSTED FOR EFFECTS OF CHANGING PRICES (uneueited)
The Cleveland Electric Illuminating Company and Subsidiaries Year Ended Decernber 31 1984 1983 1982 1981 (Average 1985 do"ars in thousands, except per share amounts) Revenue P as reported $1.253 900 $1,215,353 $1,210,316 $1,108,571 $1,012,930
? as adjusted 11.253 9B $1,258,717 $1,306,850 $1,235,495 $1,198,113 Net income- Continuing Operations as reported S 310 703 $ 291,632 $ 246,026 $ 208,964 $ 155,734 as adjusted S 172 m $ 165,815 $ 119,932 $ 90,512 $ 50,888 income (Loss) per Common Share as reported 5 3 53 $ 3.64 $ 3.28 $ 3.01 $ 2.52 as adjusted S ' 72 $ 1.77 $ 1.24 $ 0.85 $ 0.20 Net Assets at Year End
. as reported 31.763 720 $1,592,810 $1,355,488 $1,227,095 $1,002,206 as adjusted S'.735 707 $1,626,635 $1,439,005 $1,352,154 $1,147,108
{ Increase in general prices in excess of [- increase in specific prices after adjustment to net recoverable cost S 2G 697 $ 21,577 $ (4,201) $ (13,615) $ 145,468 Gain from decline in purchasing power of net amounts owed S 103.122 $ 99.639 $ 89,733 $ 86,256 $ 187,802 i Cash Dividends Declared per Common Share 1- as reported S 2 55 $ 2.43 $ 2.31 $ 2.19 $ 2.08
/ as adjusted S 2 55 $ 2.52 $ 2.49 $ 2.44 $ 2.46
.-- Market Price per Common Share at Year End C- as reported 5 25 50 $ 19.50 $ 18.63 $ 19.75 $ 16.00 t as adjusted $ 25 09 $ 19.91 $ 19.77 $ 21.76 $ 18.31 5 Average Consumer Price Index 322 2 311.1 298.4 289.1 272.4 Increase in General Prices in Excess of Increase in less significant now than in recent years, continues to e Specific Prices After Adjustment to Net Recoverable Cost affect our business.
= The increase in general prices as measured by the Con- Net income from operations once again increased in 1985 m sumer Price Index for All Urban Consumers during 1985 on both historical and current cost bases. Earnings per 3 exceeded the overall increase in prices of our property share declined slightly reflecting the increase in common a and plant. However, when the current cost of plant was shares outstanding.
C adjusted to reflect net recoverable cost, the difference These measures of income are different because we are between these price measures was significantly reduced. not permitted to recover the higher current cost depreci-E Gain from Decline in Purchasing Power of Net Amounts Owed at;on through rates. Ohio law restricts recovery of invest-E
=
ment through depreciation charges to the original cost of With inflation, holding cash type assets such as money plant. The part of current cost we could not recover was and receivables results in a loss in purchasing power. l Holding cash type liabilities such as debt results in a gain only partly offset by the gain from holding cash type liabilities. in purchasing power. Preferred stock and deferred tax balances were treated as cash type liabilities for this We have to raise new capital to meet growth needs at computation. inflated costs of construction and to replace wom-out items at higher replacement costs. If rate adjustments fail Effects of Inflation on the Company to compensate for the cost of new capital, especially dur-Our 1985 unit sales of electricity were about th" same as ing times of inflation, a regular erosion of the return on in 1984. Revenue for 1985 increased, primarily reflecting equity will occur. As a result, there will be a regular need the increase in fuel and purchased power cnsts. Revenue for rate relief. measured in average 1985 dollars remained about the We continue to seek proper and timely rate increases and same as in the prior year despite an increase in base a regulatory environment which !s responsive to the rates in March 1985. This suggests that inflation, while effects of inflation on our investment. 41
BOARD OF DIRECTORS Leigh Cater Executive Officer of The Standard Oil Company (Ohio), Vice Chairman of the Board and Operating Officer of The manufacturer of petroleum products, chemicals, plastics and BFGoodrich Company, a producer of rubber, tires, chemicals metals and supplier of coal and plastics. Also Chairman of Tremco, Inc., manufacturer of Herbert E. Strawbridge specialty chemical products and a wholly owned subsidiary of Chairman of the Finance Committee and retired Chairman The BFGoodrich Company and Chief Executive Officer of The Higbee Company, a Robert M. Ginn department store j Chairman and Chief Executive Officer of the Company Allan J. Tomlinson, Jr. Roy H. Holdt Former Chairman, President and Chief Executive Officer of Chairman of White Consolidated industries. Inc., manufacturer SDS Biotech Corporation, a developer of new technologies of products for the home, principally major appliances, and and products in the field of biotechnology machinery and equipment for industry Richard B.Tullis Richard A. Miller Chairman Emeritus of Harris Corporation, manufacturer of President of the Commny communication and information processing equipment Sist:r May Marthe Reinhard, SND Harold L. Williams Presid:nt of Notre Dame College of Ohio Executive Vice President of the Company Karl H. Rudolph William J. Williams Chairman of the Executive Committee of the Board and retired Director and President of the Northeast Ohio region of Chairman and Chief Executive Officer of the Company Huntington National Bank and director and Executive Vice President of Huntington Bancshares incorporat6d Craig R. Smith Former Chairman of Bendix Automation of Bendix Corporation, a wholly owned subsidiary of Allied Corporation. Bendix Ralph M. Besse Automation is a producer of machines and accessories for the Chairman Emeritus of the Board of Directers metalworking industry Elmer L. Lindseth Chart:s E. Spahr Chairman Emeritus of the Board of Directors Director of several companies and retired Chairman and Chief PRINCIPAL OFFICERS AND EXECUTIVES , Robert M. Ginn Chairman Alexander J. Kennedy Division Manager-Steam Richird A. Mi!!ar President Power Division H;rold L. Williams Executive Vice President Victor F. Greenslade General Counsel & Director of Governmental Affairs Murr;y R. Edelman Vice President-Nuclear Charles C. Chopp Controller Robert J. Farling Vice President-Administrative Services Andrew R. Felmer Treasurer John W. Fenker -Vice President-Power Supply E. Lyle Pepin Secretary Frank A. Kender Vice President-Marketing Edgar H. Maugans Vice President-Finance With deep regret, we mark the passing of Newton D. Flack. ' John J. Misic Vice President-Distribution & Services Division Manager-Steam Power Division, who died in August Al:n D. Wright Vice President-Public Affairs & Legal 1985. He will be remembered for his contnbutions to the Alvin Kaplan Vice President-Nuclear Operations Division Company and for his professional achievements. His leader-ship will be missed. 42
f COMMll I EES OF THE BOARD OF DIRECTORS Audit Committee The Audit Committee recommends to the Pension Plan and Investment Program of the Employee Savings Board the firm of independent accountants to be retained for Plan, also reviews the investment performance of the pension the ensuing year and reviews the results of their examination of fund trustee, other pension fund investment managers and the Company's financial statements and the audit practices the Employee Savings Plan trustee and establishes objectives employed by them and the Company. The Committee oversees for the investment of Pension Plan and Employee Savings the establishment and administration by management of Plan assets. effective intemal accounting controls and an accounting system Nominating Committee The Nominating Committee designed to produce financial statements which present fairly recommends to the Board candidates to be nominated for tha financial position of the Company. election as directors at the annual meeting and to fill vacancies Compensation Committee The Compensation Committee on the Board. When reviewing potential candidates, the reviews and approves the Company's overall Compensation Committee considers suggestions made by share owners. Plan, including the pension and employee stock purchase Nuclear Committee The Nuclear Committee monitors, plans and, in particular, recommends the remuneration of the consults with and makes recommendations to both manage-Chairman, President and all Vice Presidents. ment and the Board regarding (1) progress of the Perry Executive Committee The Executive Committee acts on Nuclear Power Plant and Beaver Valley Power Station Unit 2 behalf of the Board at times other than regular Board meetings construction projects and all objectives and strategies relating when it is impracticable to call together the entire Board. The to their completion and (2) the operation of all nuclear units Committee has the same authonty as the Board, except that it in which the Company has an ownership interest or other may not elect officers (other than assistant secretaries and output entitlement. assistant treasurers), fill vacancies on the Board or on the Planning Committee The Planning Committee advises and Executive Committee or authonze the issuance of first consults with management and the Board on long-range mortgage bonds. strategic planning. Responsibilities of the Committee include Fin:nce Committee The Finance Committee reviews and reviewing long-range objectives and the strategies, man-recommends long range financial policies and objectives and power and overall corporate organization appropriate to meet spscific actions to achieve these objectives. The Committee, those objectives. acting for the Company as administrator of the Company's BOARD OF DIRECTORS COMMll l EE MEMBERS Audit Compensation Executive Finance Nominating Nuclear Planning L Carter e e a R. M. Ginn a e a e R. H. Holdt a a a R. A. Miller e a Sr. M. M. Reinhard a e K. H. Rudolph e a a C. R. Smith a a e C. E. Spahr e a e a H. E. Strawbridge a a e A. J. Tomlinson, Jr. e a e a R. B. Tullis e a H. L. Williams a W. J. Wdliams a a a a e - Commatee Chairman u - Committee Marrber 43
GENERAL INFORMATION DIVIDEND REINVESTMENT PREFERRED STOCK , AND STOCK PURCHASE PLAN Series A, B and L are listed on the New York Stock Exchange. The Company has a Dividend Reinvestment and Stock Purchase Plan which provides share owners of record and REGISTRAR other investors a convenient means of purchasing shares of For Common Stock, Preference Stock and Preferred Stock Company common stock by investing a part or all of their quarterly dividends and cash payments without paying any AmeriTrust Company National Association 900 Euclid Avenue, Cleveland, Ohio 44114 fees. In addition, individuals may establish an Individual Retirement Account (IRA) which invests in Company ccmmon stock through the Plan. Information and a prospectus relating TRANSFER AGENT to th3 Plan and the IRA may be obtained from Share Owner For Common Stock, Preference Stock and Preferred Stock Services at the Company. The Cleveland Electric illuminating Company Share Owner Services Form 10-K The Company will furnish to share owners, without P.O. Box 5000, Cleveland, Ohio 44101 charge, a copy of its most recent annual report to the Secunties and Exchange Commission (Form 10 K) and, upon payment Stock transfers may be presented at Wells Fargo Securities of a reasonable fee, a copy of each exhibit to Form 10 K. Clearance Corporation,45 Broad Street, New York, N.Y 10004. Requests should be directed to the Secretary of the Company. INDEPENDENT ACCOUNTANTS Communications regarding stock transfer requirements, lost Price Waterhouse,1900 Society Build.ing, certificates, dividends and changes of address should be Cleveland, Ohio 44114 directed to Share Owner Services at the Company. To reach BOND TRUSTEE AND REGISTRAR Share Owner Services by phone, call the following numbers: Morgan Guaranty Trust Company of New York for all series. Localcallsin Cleveland area 622-9800, ext. 3700 Communications regarding bond registration requirements and lost certificates should be directed to Morgan Guaranty Elsewherein Ohio 1-800-362-1237 Trust Company of New York,30 West Broadway, New York, Outside Ohio 1-800-321-3206 N.Y.10015. Telephone Number (212) 587-6469. Please have your account number ready when calling.
^ EXECUTIVE OFFICES Manufacturers Hanover Trust Company, 40 Wall Street, Illuminating Building New York, N.Y.10015 and AmeriTrust Company National 55 Public Square, Cleveland, Ohio Association,900 Euclid Avenue, Cleveland, Ohio 44114 -
Telephone Number (216)622-9800 Co-paying agents for the
'3%% Series due 1986 3%% Series due 1993 4%% Series due 1994 Mall ADDRESS 3% Series due 1989 RO. Box 5000, Cleveland, Ohio 44101 Morgan Guaranty Trust Company of New York,30 West B dway New York, NY.10015-Paying agent for all other d ind MemWs are for the generalinformation of the share owners of the Inquiries regarding interest payments should be directed to Company and are not intended to be used in connection with either Manufacturers Hanover Trust Company or Morgan any sale or purchase of securities.
Guaranty Trust Company of New York for the series of bonds for which each acts as paying agent as noted above- The Company is an equal opportunity employer COMMON STOCK Listed on the New York, Midwest and Pacific Stock Exchanges; unlisted trading on the Boston, Philadelphia-Baltimore-Washington and Cincinnati Stock Exchanges. New York Stock Exchange symbol-CVX. 44
^*"'" #"
SERVICE The Company furnishes electnc service AREA to an area of approximately 1,700 square C miles, extending 100 miles along the south shore of Lake Erie from the Ohio- M[ pia Pennsylvania border on the east through the city of Avon Lake on the west. Total Eastlake Plant population served is approximately Avon 1,850.000. Lake Lake Plant shore Plant
, LoRAiN COUNTY A
B A. interconnectons with ohio Ed' son (from Dav:s Besse Nuclear Power station). B. Inter. connections w'tn oho Ed son (from Mansf!eid and Beavar valley Planm) and Ohio Power. C. Interconnect;on with Pennsylvania Electnc (from se%a Purnped storage Hydroelectnc Power Ptant - 80% owned by the Corepany)
;CAPCO The Company is a member of the Central Area Power Coordination Group (CAPCO),
formed by regional utility companies to assure greater reliability of interconnections, back-up in case of emergencies and better ; economies of operation. Other members The Illuminat:ng Company include Duquesne Light Company. l Pennsylvania Power Company Ohio Edison Company, Pennsylvania ,
- Ohio Edison Company i , ,
Power Company and The Toledo Edison l The Toledo Edison Company Company. The members are constructing ; Duquesne Light Company [ power generation and transmission facilities. t
}
Through interconnections shown above i ~ with CAPCO members, Pennsylvania - Electric Company and Ohio Power Company, the Company's service area is l (" part of an interconnected system linking '-(' n g . (9 continental U.S. A. and major portions of LJ Canada. This interconnection network further enhances the reliability and economy of our customers' electric service. CAPL) Expected Net Demonstrated Year of Construction GEfsi RATING Capability (Kilowatts) Scheduled and Operation UNIIB Project Total Company Share Completion Responsibility Eastlake mUnit 5 648.000 446.000 in Service The Illuminating Company Sammis munit 7 600.000 In Service Ohio Edison Company Mansfield EUnit1 780.000 51.000 in Service Pennsylvania Unit 2 780.000 223.000 in Service Power Unit 3 800.000 196.000 in Service Company Davis-Besse
- 866.000 445.000 in Service The Toledo Ed: son Company Perry
- Unit 1 1.205.000 375.000 1986 The IUuminating Company Unit 2 1.205.000 375,000 Suspended Beaver GUnit1 810.000 In Service Duquesne Vaney Unt2 883.000 204 000 1987 Light Company
M m
The Cleveland Electric illuminating Company P.O. Box 5000 Cleveland, Ohio 41101 L - - -- - - - _ _ _ _ - - - - . - - - - - - -}}