ML20204J675
| ML20204J675 | |
| Person / Time | |
|---|---|
| Site: | Beaver Valley, Davis Besse, Perry |
| Issue date: | 12/31/1998 |
| From: | CENTERIOR ENERGY |
| To: | |
| Shared Package | |
| ML20204J640 | List: |
| References | |
| NUDOCS 9903300143 | |
| Download: ML20204J675 (44) | |
Text
1998 ANNUAL REPORT g,
i'
_3 s
y d
5 en
.se O
[.
, 1
-l...<.-
k
- 4..
- Apr 4
-v-
...o,
. ~ ' " + i 3 *,
g, s.
4..
. 96
' ' 88 t
5 e..*
FirstEnergy STRATEGIES FOR SUCCESS 9903300143 990317 I PDR ADOCK 05000334 J
PDRj 1
1998 ANNUAL REPORT g
9 - ~' t&d3 Mg g.
r g g g g' (...
>)
- 4
....: s
~
[..
s f
?
^
.g 3
e a
Y. l
'l 4
~
W T
A 3
w
.p
. JA
~
B 4
,,g
,j.-..
n.. m-<
2,,g*
s
...... ~.
+.<Tp..
't-a
+ +
3 l
RrstEnergy STRATEGIES FOR SUCCESS 9903300143'990317 '
PDR ADOCK 0500033 J
l
. N gf b ' ' " '
%p
'W' o
ay
, 3-o<
s q
o g
hd[,
lh (k1 v
M e.9 gme a
? a'g Q Cor orate m
3 g-9 i
d6 W 15 <
ag$dN s.
g g.e %w
,, w;uho
+
(3...gg qu Om g
u m[m na3e,% s em By p ly;s y
, m r
J @3
- Qqg j FirstEnergy Corp. is a diversified energy services i Md gM 6 holding company headquartered in Akron, Ohio. Our y
.~
[ qgg;y@J electric utility operating componies - Ohio Edison and its Pennsylvanio Power subsidiary, The Illuminating y@pf#
77 ', @[
Company and Toledo Edison - comprise the notion's pj f l
12th largest investor-owned electric system, serving O d'
~
ggjg 2.2 million customers within 13,200 square miles of g
<y WJ TO J northern and centrol Ohio and western Pennsylvania.
>> M $.
' f
,a"'bF W %, mg FirstEnergy produces nearly $6 billion in annual revenues 5i n
rV mW1 h' adwadap:%, 2, dy and owns more than $18 billion in assets, including a Oper m
'~w m
s; 4 M ownership m 19 power plants.
b yco m..,m tmpJn!io'hN,#
FirstEnergy companies provide a wide range of M
Nh80itPMastinisfespeiwM((. d energy and related products and services. Our MARBEL
/aMNAmmeni M N M Nk 9 Energy Corporation subsidiary, based in Conton, Ohio, yg
- m "samamsaga A==ye, <W W 7 m?
f is o fully integrated natural gas company involved in man muti,lyny pause-j;etos h==l=34 '. i W W i the exploration and production of oil and natural gas, 4m3
- m 3
e and the transmission and marketing of natural gos.
- l q;ifsheenas hemirand.. men ~ spavil g Wp our 11 mechanical construction, contracting and energy e w gm.v hd ee Nehopees TagedierNeiYuisconh, c '
y management companies-part of FirstEnergy Facilities 4
, qg
- wm % ~hWbs4 she 19EP
~w 9
Services Group, Inc. provide heating, ventilating, A
a spent' deal, me wS oir conditioning, refrigeration, electrical and facility J5
,, u m wu mea nasigergyshe Ak.,sistiedkNMh contr01 systems, plumbing, process pipi g and energy asessmae a ileading ensey andjeleted %)
management, in addition to other produ
^.s and services.
N s
, eersecas sappierin OxfMineasters ;e I
/$saQdwused % f' s
m ipen d.C 1 Nuay;N E%3
, MA'*("$l" pad"88" r, ne,
-c w-3 w na rinjapi,em my: win caeninue..
y?
% nube ed deadsuiendakiyamy k
l nM..,4 commer)n(ar@s m
_ _ (
g dy 1,
s
- pa6 mee,needmsW_eak g
M_ ment lme=J,ecasep.nyl.aiio anne J.
4 o
w!
.yv m,
- y r-- q R ' $@n possuaqg time egebgles pl0~lt are unpscenes y.
42 Q f ~Vomi cesesor i j, u &_)and %
M FirstEnergy Companies wh., eniismenness.
.N.
,m
.y e
ms ad EN m
,y
,awo m
4 71[4 Y M <,cgy@g,g "Q$g'
- g NR q 3j
- 1. Ancomo, Inc., Rochester, NY 4
.W
- 2. Colonial Mechanical Corporation, Richmond, VR
)
M M
- 3. Dunbar Mechanical, Inc., Toledo, OH
&e
[. M.M"? $? p *1
- 4. Edwards Electrical C Mechanicol, Inc., Indionopolis, IN
'[,
L.
- 5. filiott-Lewis Corporation, Philadelphia, PR N l h, ~ ' s
- y
- 6. The Hottenbach Company, Cleveland, OH f
g, n p y
,3}M[d;f6 y
gl D>g,,g4d M, [%,
. y
- 7. L. H. Cronston C Sons, Inc., Timonium, MD M
- 8. MARBEL f nergy Corporation, Conton, OH g'
dv
- , ;g+_
+
y j
- 9. Roth Bros., Inc., Youngstown, OH 4
Os
>ha lg"g'M
- 10. RPC Mechanicol, Inc, Cincinnati, OH y@rMih J5 E M, " ~
4 d
- 11. Spectrum Control Systems, Inc., Cincinnati, OH Ot, NO m hh k
[
" 9 "'"
~
W%'
g
/
@, w * ~g NCF j.
W
'b}
S m Ohio Edison a Penn Power al The Illuminating Company a Toledo Edison e
% "hO p>- %1f '[f b M(> r
$$ ' [d '
,G Cover: we provide a wide range of products and services inside end outside ct Q
of our operotmg companies' traditional service terntones, includmg mojor
%ygA
,37 $.V P3
, 4dn _
metropolitan oreos such as Cleveland,0hro, and Philodelphio.Pennsylvonio.
- s:;
gy 3
e 4o;,m w 9, g%
s i
_y m <, p t 9
Highlights 1996 1997 Operaning Perfbrmance' Retail Kilowatt-Hour Sales (Afillions) 56,545 55,864 Electric Customers Served 2,166,912 2,159,636 Number of Employees 8,765 10,020 Electric Customers Per Employee 247 216 i
Financi.d Performance" Earnings Per Common Share
{
Before Nonrecurring Charges
$1.95
$2.16 After Nonrecurring Charges
$1.82
$1.94 Dividends Per Common Share
$1.50
$1.50 Book Value Per Common Share
$19.37
$18.71 l
Dividend Payour Ibuio Before Nonrecurring Charges 77%
69%
After Nonrecurring Charges 82%
77%
hiarket Price Per Common Share
$32.5625
$29.00
- Ercludes Facilities Sertices Group andM4RBEL "Financialperformance includes resultsfor The Illuminating Company and Tbledo Eduonfrom the Notember 8,1997 acquisition date through Decrmber 31,1998.
2.10 1.95 204 184
?
'95
'96
'97
'98
'95
'96
'97
'98 f aRNIwGs PER SunRE BE70RE f MPLOYEE PRODUCTIVITY NONRECURRING (HaRGES
([LECTRIC (USTOMERS SERVED (D0LtaRs)
PER EMPLOYEE)
I
SH ITa e to OurEHO DERS A M ss We changed the face of our Company in 1998.
he market-driven event occurred last June when From the continued success of our post-merger integra-a regional electricity shortage during a period of heavy tion to our expansion into new energy-related businesses and customer demand caused drastic increases in wholesale geographic markets, we're achieving our vision of becoming electricity prices, and, as a result, the default of outside a leading regional energy and related services supplier.
power suppliers to FirstEnergy and other electricity Our progress in 1998 and future success are rooted providers.
in our ongoing commitment to:
The default of suppliers, and severe weather condition Maximize the value of our core electric business that temporarily shut down two of our large power plants,
- Invest in and grow new and profitable businesses forced us to buy electricity when market prices reached Improve our fmancial strength and shareholder value record levels. The resulting increase in purchased power
- Prepare our Company for competition costs and credit and trading losses reduced 1998 camings E'
Commitment to Excellent Performance Overall, we camed $410.9 million, or $1.82 per share Among our greatest accomphshments m 1998 was of common stock, after a one-time charge affecting Penn our progress in integrating our operating companies, joined Power, compared with $305.8 million, or $1.94 per share by the 1997 merger of Ohio Edison and Centerior Energy.
m 1997. That charge resulted from a Pennsylvam. Pubh.
a c
Through aggressive cost cutting, we exceeded our 1998 Utility Comm..ission decision in June that essentially merger savings goal of $140 million by $33 million.
deregulated Penn Power,s generation business, reducing We also took several steps that will help us significantly net income by $30.5 million, or 13 cents per, hare. Despite improve the performance of our core electric business.
the year's financial disappointments, Wall Street continues Ee reached separate agreements with Duquesne light resp nd positively to the progress we've made since t
Company and General Public Utilities, that once completed. our merger, as evidenced by the 12.3 percent increase in t and appmved by regulators, will give us exclusive ownership market value of our common stock in 1998.
and control of six generating plants that we jointly own i
with these two companies. We also formed a new sub-Improving Financial Strength j
sidiary, FirstEnergy Nuclear Operating Company, under We also took the necessary steps in 1998 to continue which we are consolidating responsibility for our nuclear improving our financial strength, which is essential to plant operatbns.
achieving our vision and enhancing the value of your These developments better position our employees investment.
to make further improvements in operating efliciencies that For example, we used our cash flow to redeem or will help maximize the value of our genenting assets.
refinai.cc approximately $659 million in securities, which Oar employees' ongoing commitment to excellence will produce annual savings of nearly $42 million. And, was demonstrated in operational improvements achieved recognizing that our Company's common stock represents in 1998, a good value, our Board of Directors authorized the For instance, the Perry Nuclear Power Plant achieved repurchase of up to 15 million shares of the Company's the best performance in its history, including an availability outstanding common stock over a three-year period Lctor of 99 percent. And, our company-wide emphasis on beginning in 1999.
sat ty resulted in a 35-percent improvement in a key While our equity ratio is currently 43 percent, our Occt pational Safety and Health Administration target is to move it toward the 50-percent level, which measurement.
should help improve our credit ratings.
Unusuol Events Reduce Earnings Positioning for Future Growth While we're proud of our 1998 accomplishments, We're also achievupur vision by purchasing new they were accompanied by some disappointments, energy-related businesses in a 13-state region in the includmg a temporary setback caused by last summer's northeastem quadrant of the U.S. that we have targeted Midwest power supply crisis.
for growth.
2
h b
Y
,' s;y; b
J
.4,
! )
- 'jh%
?
v x
Y f
Y S
k, hk
'k,#'
In 1998, we added nine more leading mechanical con-U y
a struction, contracting and energy management companies.
b4 l
@if l Along with Roth Bros., Inc., of Youngstown, Ohio, and GNy ' " *, % < 4
.s RPC Mechanical, Inc., of Cincinnati, Ohio, which we E'h;p
,'. L g,
'~u c..
acquired in 1997, these companies fonn the premier M'
~
provider of mechanical construction, contracting and g(
'W/
([y ; L p/,
y energy management services in our region, with annual sales in excess of $425 million.
F Jn j f'
[ gh
' q They give us name recognition and new customers p g in markets we've targeted for growth. As restructuring efforts JJQ g] l f"r
! k (Mb,& 4 open energy markets, these businesses ' vill serve as hubs from which we can expand our sales of other energy-related i-
,'*,O y
v%p @, 4 pa w m products and services, as well as electricity and natural gas.
M O,F,DM W
We,re providing natural gas services to business and ya o,<
c q
T y gjgg
"% *([',M / '
' l$
residential customers for the first time in our history headquartered in Canton, Ohio. MARBEL owns interests
' %^
l through our acquisition of MARBEL Energy Corporation,
'd in more than 1,800 od and gas wells a,d has oil and gas (j
rights to more than 200,000 acres in northeastem Ohio.
Ws Q
- c Preporing for Competition
N We're taking other steps to prepare for more
%P competition.
We created a new subsidiary, American Transmission W;
s Systems, Inc., to hold our transmission assets. Our strategies include a plan with American Electric Ibwer, Consumers y
Energy and Virginia Power to seek approval from the f[
Fedet.. Energy Regulatory Commission to create
- p a
a for-profit transmission business. It would ensure non-d U
discriminatory access to transmission services in a more
",, f 3, a competitive market, while optimizing the value of our l' %
transmission assets.
And, we continue to help shape the electric utility w,
$y industry restructuring debate in Ohio.
a Leadership of the Ohio General Assembly has
.k M identified passage of restructuring legislation as a top Dt priority this year. We are working aggressively with other 5 ']
g investor-owned electric utilities to ensure that the state's e
1 final plan protects the interests of our shareholders, j
cmployees and customers.
.J[ /
We continue stressing our industry's need for a reason-p Q,
able amount of time to recover govemment. mandated
.{
~
~
costs, or transition costs, that would not be recouped in a w
> > ; Em A 1 Lq b<
competitive market. These include expenses associated
/O/
J with methods the govemment required us to use to recover I
$j$ O EYW MJ wmano R. r,ouano financing and other costs related to major facilities, environ-Gatamaa ano cane tricunn orricia l))
mental protection equipment and payment assistance pro-g i
grams for low-income customers.
I p
We intend to continue leading and leaming from
};
.g s
industry change. With your support, and the hard work of g fjo R
Ji. '
H. PETan Bunr, 4,
- aamA, our employees, we'll continue improving the competitive-b7
", q painoinmo on, caiaam orricia
~_ 'i'
+
ness of your Company and the value of your investment.
p.g?j g.7
'4 4 k@m -
I*?
1 March 1,1999
,t
+
- h. ),l i.
,_a s
? V ;b e
1
q l
STRATEGIES FOR SUCCESS In 1998 - our first full year os FirstEnergy-we made significant strides in our effort to build a leading regional energy and related services company.
Through pursuit of oggressive strategic objectives, we entered new energy-related
)
businesses, improved our core electric business and better prepared our Company to succeed in the rapidly changing energy marketplace.
i t
Max' in
.i t gP Our Core V
r T
Jsau 2
a Our success is directly linked to the improvement in the number of electric performance of our core electric business, customers served per employee. In 1998, this where we reaGed several milestones in 1998. number increased to 247 customers served Per emP oyee from 216 in 1997.
l Higher Retail Sole, and Merger Savings Achieved Our operating companies' retail kilo-Agreements to Give Us Exclusive Ownership watt-hour sales grew for the sixth consecutive and Control of Our Generation Assets year with a 1.2 percent increase. Commercial During the year, we reached separate and residential sales rose 2.4 percent and 2.0 agreements with Duquesne Light Company percent, respectively, offsetting a 0.1 percent of Pittsburgh, Pennsylvania, and General decline in sales to industrial customers. Total Public Utilities (GPU) of Morristown, New sales decreased 2.6 percent because oflower Jersey, that once completed and approved sales to other utilities.
by regulators, will give us exclusive owner-Through aggressive cost cutting, we ship and control of six plants we jointly own exceeded our 1998 merger savings goal of with the two companies.
5140 million by approximately $33 million.
Under the pending agreement with In addition, we redeemed or refinanced Duquesne, we'll acquire its n.inority share of approximately $659 million in securities, 1,436 megawatts (MW) in eight generating which will produce annual savings of nearly units at five plants. They are Unit 7 of tha l
I
$42 million.
W. H. Sammis Plant; Unit 5 of the Eastlake Part of the year's cost savings resW-d Plant; Units 1,2 & 3 of the Bruce Mansfield from the net reduction of 1,255 positions at Plant; Units 1 & 2 of the Beaver Valley Power our operating companies. The sotfing reduc-Station; and the Perry Nuclear Power Plant.
tions eliminated duplicative positions and in exchange, we'll transfer to made staffing levels at our companies consis-Duquesne ownership of our Avon Lake, j
tert. These reductions ultimately will pro-New Castle, and Niles plants, which have duce approximately $80 million in annual total capacity of 1,328 MW. Duqucsne savings, and contribute to the ongoing intends to include the p%nts in its planned auction ofits generating asets.
4
y sp y
t
\\
V
\\
': n.
f
, %;:., m.
- g 4-
.. F5
'q
- {
,.y ff gd
[' n&g *fgr s
Q n{,' -4,jpf[ff
$yk h
. )s Q'hpM y ;.
e ea gj F
s j
i m
a w N' g,,.[^lA
+
w YhN ~ # d kf J.
j 5e yfNQhqN jW< w' 4
a(g N
f s
4
$y
,f 4
M el
?
u;,..::
$q..
.(
h7s'kyp.
- n L
%,gmmhs..
hW
- 4.,m ih
+y u$
p e
w&, > f.
f<'s,.
4w
..A g,u 4g c Y.
mxg-Y,
- a s
~
Ygg[.
2V:y1 s
,, y_ + c n
5 W'
+
a 3'y'y p$
4 Q)y~ m4 ap9
[%
NE
?gw;k%' psy g y$$
g,hk
'.h p, yh 4n[f?($.
gg M a3
.s N m
v m
O
,g.
N 4 s-
.u g #
f ykc. w&j). 4,:@,i' h,h r
s, m
7
\\
eb e;hsd y$
f q
&::^,
/
't#
k k',
g L
Y jh'uk', '-
, gy Y
S p
,s:R;,
Xr
?'g
,;s.a
' y; s
- u e
I
'gj g yk
, *Q_m 40 q8 3:
q h
5~ y. ll' mk l M
- U q/,
w f)$_
g@; ',g pw ~.
J 8
sg J y
- .7;
- 4 g
e.
g
_ a0 Q
- e.
d
- %q
- a. '
- ^
> w' $.
i s
4N.p;
+
v 3
' m_ gh :;$
9
~3f
. sggM
- , x L.f.
b [>c:
~
m b
hl~
' ;m. R.' *
'3
,#,y
_h w:nk?.g 4
M.k h ;]
6~
4 q,
s is y
.{0.
%s '
p,.
t 3
^
- t'.
_ e6c.
'+,g x.
+
/
//f3
I i
Under our agreement with GPU, New Labor Agreernents Help Us we're purchasing its 87 MW of capacity at Achieve Our Goals the Seneca Pumped-Storage Hydroelectric We're achieving additional improve-i Generating Station. We already own the ments in safety, as well as productivity, l
remaining capacity at the 438-MW plant.
throughout our Company under six new labor agreements reached in 1998 and three FirstEnergy Nuclear Operating Cornpany Enhancing Productivity and Safety that were approved this year.
Formation of the FirstEnergy Nuclear The agreements cover approximately Operating Company (FENOC) also is help. 2,500 employees represented by 11 union ing improve the performance of our core I cals. The agreements provide the flexibility electric business.
and performance initiaivet necessary to suc-Under FENOC, we're consolidating ceed in the evolving energy market.
management of our Davis-Besse and Perry We have not reached an agreement on plants. Beaver Wiley will become part of a new contract with Utility Workers Union FENOC upon completion ofour asset trans.
f America Local 270, which represents line fer with Duquesne Light. Centralizing man. and power plant employees at our Illuminat-i agement better positions us to further reduce ing Company subsidiary. Our contract with nuclear operating expenses and improve pro-L cal 270 originally expired in April 1997.
i ductivity and safety at the plants.
Following numerous meetings, first with Centerior Energy and then with Improvements made in 1998 are get, ting FENOC off to a good start. Perry FirstEnergy following the merger, a final offer 1
achieved the best performance record in its was submitted to union leadership. Union hhq, and was recognized by the Nuclear leadership rejected that offer without a Regulatory Commission and the Institute on membership vote.
Nuclear Power Operations. Its improvements We declared an impasse and imple-include achieving an availability factor of mented a contract in May that is comparable 99 percent. In addition, employees worked to agreements approved by other union 2.8 million hours without a lost-time accident.
I cals that represent employees.
Our Davis-Besse plant also achieved Local 270 is challenging our decision, significant accomplishments in 1998,includ-and a hearing before the National Labor ing the completion of one million hours Relations Board (NLRB) is expected to be worked without a lost-time injury.
scheduled this year. The hearing is standard Safety improvements were not limited procedr.re in situations where the parties to our nuclear plants. We're proud to report with issues before the NLRB dispute the that our Occupational Safety and Health facts. We remain committed to resolving our Administration incident rate of 2.5 per differences with union leadership through 103 employees represents a 35-percent neg tiation.
improvement over 1997.
i 6
- N l.N lf,
_ 'll ' ?
l t
V O
.. Q. ~.0;]
/#
) - -: 3l.'
G "" ' '~
- ~:
'+'
b
~ )..f.i }.., jp
- .[o. f '.) ! ' {v,;
,.., J Me.metrUely steinth T
. l.
- 1 C
u.
-a n....
...; ?
- lh l'. ' ;.. -
'h:Y"
.~
Eb R
t.-
'l....'
6'
'. f. ',,
,y :::
3 Q 9r.
- .; a
~;.g
- 3
.,.. ~
J F v[+ '.[ r..,
- i..V. c:l.f..
- a.
^
9 P.. ?.1. eW Gtyteettr 4
, 7:~
.;.;; a u
. - - /..:..~. --.
. G. V. P'
.y
,;.. 4:, y.
" 3Mr Wy,;;,,D,...
. ' '.f -
g
.,.y... <;.y C7 -;:llokstO.M downtown M.::
- s Y
~,
-?
- J..s-
'.* l i '
a%-&...
- D.-
+.
g3
.u
.. L l'. ',
- 3. y.;.; _.. _..,,
A-
, p. :: -
.yw, m.~ ;;.- ;.
M
.,vy y3. _.
, y y. 7 y ; f...
, M_
- ,ff
- ..
.~..:, tmyppews> ; ; b f L v
-.aptry v.t..-
.,~....
v..
c..., -
s.,.
c.
y
'.
- iBChieve t eiI[Ih.-.
th
'[L
.( h,.
',N[' ' 'L' F Y'. Il f+->:.
a.'
s
. ~... -
w f,y
., CO bl'k. 8 Sk g
' ;j,
\\..
'J
';. ; ' [
I
.. k,..
,a
's
- ... w ' "
Y ;*. 0. ' :.
..'.., ht$. +..... c :: : n
' ' [:>",
J
..,i.
J e
es....
i
,p.
. k
' j.
. - '; ';; + 0 ;
/_g. l 3., 4..,
fL v. 3.
y,.
\\._. _ -:. ;
.,, f ;,..;. :_
,;g
.; e '
, [.
.~.?;...
E: -. '.
. y :, ' ;
^
~
' 7:, & y,
}_.
s 1
,, p.
- l. Y ' '.. ) '. '" t '
, f 1,. ' - f" t$J O' '6g.n,..,
..,,9 [ gg
, 1, ;; Q * '
' / :.
,..pj.
,y
.,f
}
i_ ^ '. '
z'.
g:
- ..L,..
h.,
7 g'.,.
. w-f,g',.,.. 7.
... ;,4, -.,., j., _.;
,,,d.
'.,e.._>.
j
- * ^
.,l:. :.._.[.h., '..
}
'%.j
. -- e ;
_,g.*,..'..,;~
_..a
-s, u.,.,
',. p,..,,-
.p v.
7.... ;-
-,, -w
.(
..f. s.'
. ' 7 l ',
y...
y)w n '. _, *.j - $ -.' ;
{'_.
'.L.-s' yy
.{;.+'
.. ' Ji ~..'
,' y 4[,
}'
.. i*
. g 1
- f.. [
f.'.
t.
s
.., p;. h. 7.,
..i s
. M )es.
9,-,.,,, w,
, e,'
.T
.,g,. t j 6' c'
.g si
.,',.,.r
.f 4
, > ~. -.n.W, ",. L. x' < Q.; :,,.. ;q., _. *
,ww.,-
R+..-
.. ; ; u...'. -
- q' :,
.y,
- ?,.
.e 1
y *.
- ,.y
, g ',. a,_:.
- i ; ; :_. :, *_ _., >..
. j. -.
j. *
+?
fg i,
..f'.
p'
.f 1
l~
I
,.f.. i '..*,.
S{ - ' W ~ '
n" g :i..
- l. g p
y..,.[y 9,
',p R -
.3 f.
g
',,,.;ll =..) 4. '
h'
~
U.- & -
(
.I L.?
..,b '. E ' 4
- h'.'
i m,
Y lQ&W+d.W}Y**[.). 7 Qj ' f. : f }.f.[y
,?
.'l
's'
~*.
,' Eck.;
I. M,- c
-7_ g
?, '
..).'.P.^
'. l 1
d
't y
3 s,.'.. '. m g" p c'f,
- h [
}
.'p.,,*
.j,,
y 7
v, s.-
. '. "l, g y yy
,... g.
L. 7 ;f,, 7 7 s
- .. (,.
'm.
- .y L...
-j ll ;37,,
n
,.,. 'l l ' j ',,,,.
- , ;,,,, % g. 'ik -
,7 h ' f ' f'.f' e
,i.s (',., '
- F,.[ "g i
..g
+
7 1. g'.;.../.
-_ g q b. ' r v ,,_ ',
e Y-i + 1, i.. { %. dp,,
'", /, ',' ' ; p
'l, ' A.; '.], :
., r. M c c. n. *..; 5 g, A
.b i k'
' _W :..' Y
- [
pl~,,
f;
'.+:;.,
T t
,,3-q -
.. i,,
.,;'Y h ll L M j.. f. _. 3 - -
ghh-" _ :,f:.
Rf hh l.
k
.L {' :
I
'*b.,.'),
(
I 6:
hh.v
. V '.. ' ' ' l,_
_~?
' cl.
. h!.
r_.,,
,s*
,' +
_A
,h.
y *
-,..y y;:
' %g,
...G' <. M' -.j ? N l L ::.'
~
,, - p. L *. t :..
.J'..s, ;,
r
~
?q '
' ';? I' 7.,. I '., a ; :: W.
' E :..
7,.
t c ar.
- v-
^
Q:
'R
- Q.,: k -.., $ y. :
.... k.: : : * : -,.
- g :...; l[
<r z..-
n.
..E 8
[
y f ;,
g.,
j *,, :, ;' [ l A'
'. _. ', ~. J. '?
l,. Q i _...
1.i ' ;_ ' '
- l:.;__
q
^ ;.
'. ~L:*:,^s
?
^ -
d
,- }_
? ;. _ f'~, l
.e:p.:;, ?.; 4 ;. -
- s.<, ;,. ;.. u p.
W:,
..c
- c. y 3'
( L.- :.
.c
.y. V [.. ; ;,,L.. > b:7.,l :..
4.
i
_ ' M j ',' *,',. '. -' I.,_',,..:.-'
t
'l f "
.m,
+....;,:
- .. ',f
'b,,, i. J -
.. ~ -
'Q',
,4 ' + L._
- Q.
': y;...,. -
'..-T
(~ ;'
, '. q;{
. '. b
.. ;; ? '.
s-
~
i
.,. /,., ;_ f _
,y"~?
,l 's. l.y ' v ., J 'I.. . [ ', :.
'l4.,'/,.. { ' ],,,.
', h p / ' d'M e 'M,}
q
- t _.
- '.
- f
. ; r,
+
y.
N 1*,.
o
'Yy
- .f.
~
I' I.'
.(',-,
- f b
- .b,,*
lf '
I
' ^_Jg
', l;
.l.lYfl.
- l
. } l'
.,l ' ' ', ':., [ . -
l' 4 ;f... (r ~;.a. N "
~L
', S A -.,,.
a
.1
,/ '
~
4
' C
.,7,;
.4
. _'.9.,_
- .,[ g j,. -
v,
,}
y.- '., _._,,:.
_ [
[.
j ;
.,1 m:
l
,,; n;. '.
2:
y
.g
- e.
n
..... Q.. c 3,,;...,. c :. l '. _
',4
'?
.. {.,.,.
- ..;,. __ l.' :*
u
. ^ 1.,,.. ~ -
. g.i'~s; ; e.;,.';,, $.,;
e
.,s'..
-(
o, s
o,.q,,.> sj_..;. j, :ry
.q.
- ,,4
.., n> : ', '.
- ',f.
. c;,..__[
- lf4.,e
- :
,, [,. 7 ;_. ',
- '._.[~
g f.......: ~
v 'i *
'2 Q..
- ?.-
'v
. ' '. l,%
"..)
- [.
a
-~,.e-s
_s.
.s s.
r.,
- f.... 3
.p s.
l~
'*- ' -~
y
- v
'"'- -,. ' ' i
',' $. ' ' ' [ '.. % ' \\ ; *
~ '
y,,
_','l'
.?,
~ ~}l, - [,l.
- y. * ; p; ',,...
.-e:
.. f:, ;,.L. L. :^F.:.
J.. :.,,, g. ':.
~-I.-
s
.;.. ~ ' -
n
- +
E
?
I.
. b ';.,
.v.
r v
. - _,. s; L_ -
p
-,,.~;...
.o,-.;, _
[
[~"
s
...c
.s
.\\
y s.:.
s
, _ '.. '...=
c.. :,.. :.__
}'
I
)
\\
v k
\\
4.,[
(
- .,'-' ' g *. f g.
Minimizing Risk Year 2000 Readiness Disclosure As demonstrated last summer in the The revision and replacemer.t of com-already deregulated wholesale electricity puter hardware, software and embedded market, competition does not guarantee chips during 1998 have us on track to be lower or stable prices. In June, a regional Year 2000 ready by this fall. Without cor-electricity shortage during a period of rection, our computers and related systems i
increased customer demand drove the price may recognize the year 2000 as 1900 for wholesale electricity to record highs.
instead, which could cause computer i
To counter future price volatility on failures and miscalculations.
the wholesale market, we spent more than These systems are important to our day-
$20 million in 1998 to bring peaking units to-day operations, helping us communicate back into production or improve their reli-with customers and operate power plants and ability. To further improve our power sup-other vital facilities. The development of new ply flexibility, we're investing an additional systems and replacement of others is expect-
$60 million this year to upgrade certain ed to cost approximately $92 million,includ-generating plants and to install new peak-ing $54 million spent through 1998.
ing capacity.
We're also closely monitoring the Year in another step to minimize future 2000 readiness efforts of our vendors, sup-market risks, we implemented more stringent pliers and neighboring utilities with which credit requirements for outside power sup-we are interconnected. While we can't guar-pliers and limited our wholesale electricity antee that problems they experience will not trading activity to transactions that support affect our system, we believe that it is unlike-our sales and marketing efforts.
ly. Therefore, we do not expect the Year We're also devdoping with Automated 2000 issue to materially affect our services to Power Exchange, Inc., (APX) of Cupertino, customers.
California, an independent, computerized Protecting the Environment electric power exchange. It will provide a Our operating companies have spent more efficient regional market for buyers more than $4 billion on environmental and sellers of wholesale electricity. APX will protection since 1970.
own and operate the exchange, which But we know we'll have to do more. In should be operational by June. Registered September 1998, the U.S. Environmental participants, including FirstEnergy, will have Protection Agency ordered 22 states,includ-access to continuously updated prices for ing Ohio and Pennsylvania, to significantly wholesale electricity up to one week in reduce emissions of nitrogen oxides (NOx).
advance of delivery.
While the NOx standard will require electric utilities, including our operating companies, to reduce emissions, we are better positioned than many others because nearly 34 percent of our electricity is generated from nuclear power plants, which don't emit NOx.
H
d
((['4[f_-
s, sa
< 9,,; y 4
f( e
/ )?ch.q 1
%y.
Our natural gesi i
..k 1 %y. #WO ig., S subsidiary, NRRBit (nerfyj./
ji eg -
4 fjb;p '
VD Jg
. Corporation, owns)ntere'stsI k v
+
'. '..n.e v
g(. k
.g 9p
^
in more than 1,000 eIIl :ig c-w
+ w?;
Udf
%-~
- and gas wells'.ond hku),
f w
-y::
.;1~
~
,+.c' %
j 4
~'"
- ell and gas. rights to matej i r
+
g W
y~ a
' than 200,000 seres ;,
w, 5
ry'%
- in northAoSt6rn Ohlop ')J N
- W
- g c
4,,
w&,Q:!q x
'3 u
llf@
~
~
y
' wlogy fg;
? ;;,,.f.
y
~
j}Y-
-,- A 4 :2
$d?.hyjyV hj$
- 9..
W
,-.$ ' '(
4
, ~,
- i > b Ww A,
% ;y w:f[ Gjfy,e u
b" 7
D Wbfh Y
- 4,
^ '
% 4a; M &ggy gQ
- r., _
~; 4e>
w
- m g
.,32h ihi:
- gpp
&, ; *, )1
-Tg$tf V%?Q&p;,[
l l).;fl y$ ~ yp n,e h&?.-.
b
+
pg 3
e -
m.u ymnp n
=
~
.dblf,3?s#Whaw, hk _,j[:Gf aw
,h lkkV
,w w"
w"' w g
~.gf/:
'v.,
yg 3 VV : Xl? _ "
t anV%ifQ
^
_~.
.v l..,
,f
- fhfMlr bn
$ R&eu &w&
~
~;
~
.:g.
4 w
:, ;.
3, t' l3.$p.
- h?lf
.u....
n Y [ Q'qt gfgp g.'
";-.';-. - 4:
- R *, g J 3;.3 44,gj. %,,, ~,(. 3.} [ y.e p p ere w.k }
....;._n'
..M
.sM. p p. '.**
}-..
1.4 3
f } 8.g p.'g.3 y y 1, t u.
n pM r
e
.3.....,.*
u.;
i i
~ :
c
'6 (
c.
. f-.
$ N.,
!r tMkN tl N #' ' _'[ S.'. j Ji
't O.
,.i,"
I. Y$
Y.h..
[.-
.?,
',.. h Y * '. fW ~
Y.
L. ') ' ;
^
I'
,. ~,
1.
.'.,;y y
' g..;
_ vr
- j, f f.,
b e;
' ~.
's
. 4 y
.eA f_
\\.4j -, ? ^'
.- :.....;f
.:., } 'f[ %,..q. g # y.g 1 ' 'h '. h
. ' ' _ tt$&ts',t&' tl '
Q.y l k d'
-l
[y ': '_ - -
'\\ '. L
..,'., [ 3l'r.Q f M. > y-( f Q?;. jf..
' f '. 9' ^ st h er,s g evg J' ? ;. l. f. :
Tl.' '
'.. \\ '. ; r yL
'D
.'M
- f (p
- ' '
},, ;
['.
{..
f (j y
' ' ' - j.'.,
.,g;.;.
a'
)*,
.s..' - }, ;.,' %
}.,i. ' !.
{.
t,.
s
_,.'..l 9
.wr ' 7f,. ~ c' ). j,... ' :' ;f,_e
. - ;'.. q.
k,n p. ;! '
_;.e
'. 3'
- Y e,-
r
?'
's
- [ [. ':.
.[. ;' i,'
I
';.. l, f:.
,..,J-;,
l ;._ f, _
4.-
.c
.,b ;K '; '
A *y
-); ; _ :,_ ;.,
~ [.
._ ;... q
'n
. ? -Q -.. O' ' ~ S *. i 4 ( $,9 _ J '.'. ;,a y _[
- j. - g..,
s.
.__,.f E,1 ;; ' !.. 3.z
&[, ; y;g@$,.
_\\',.,'-
., k. : ' *.:.
l o
1
.~]",'
L, 4
!. ' j_ ',.
'/
.jc').
j'
. fi *; :
i
".i '.
'*('. j t
'. l; '
l'..
.'_{-
- \\ 'e.} '
- 3... ;:l l: - l "[ '
> h@.6. _ '
+ '.d ' f Q
.,._!,_((~~
'..l., ( : ~' ' '. '
- g. O 1
.i { ' *) : - l.. ^
T.
- l. >;;
M c,
y,.
',g ;; _
h.-
Q,.
- . l -
N
':'A r.-
l[ ' M' "k [:
j f !(. {
((, :
d.(
[I.,
l ' (( J
-l"
.f
~ l;i
.f ' +
-l
' \\.1 h&,. ' iY: ' i
- Q[.l'?+1.l:hl%'
i.
- 'L'i.I*
- b l ;.
My.
' L: -'
0 ' ' ;.< -Q
- ~ ';..
'l-T..,.:....
.:.; < g 3 2: n '. h
- j. :
1,'.J'.Y
'*i'....'.
L
-- - ^,.;.- ;, :
.).
A L:..,W ;,
'^
o.
.;,c, t i b.,
.~, ij-:_ ':,,...
g n:... g.[ ~.. 1.,.* :
.s,'
- [y,N
- ll., '. {..,;.;
c, ;,[... ;
A.
c p._ -..;,.
s
.3 9'.;., / *., y/s.-
'., ;, ;. ;., ; * ; d ' '
3'..
R ;) 4..'.:', y.. /4... j,,,
.,e D; i.' '. A
,.; l \\$. ;
'[,
EJ.h ' [q v-A ' ? -Nih.D. i, ' h. ';~ * :-,. ' '.., '..
'
- n:
.s
.. l Y '. 9 '
.' L Y
'G' -...
- f;q "
.,,l,
, ]' l '., '
I' d,
.y
(,.
l..*.._:.. ',
Q. - Q L> 4 'f; 6.: ' '.
t~- _ _..*.,, '
2-N' M ql).:'.;f*;;
O-n
. ' ~.' ' ~
4 p %.
, g g 4,ln,,h.yh >. '.I'
' : :L '.*.. ' <, : >' %
- l-S..
'.L: i
Y :b \\f l'
' 'J
' ~ '
_.?,l y Q :fy*Q:. '.
- I
- f
/..r _ ; W 'g h t'.& J i,
"y.'.'.,*,-':;,G.[
.., (_
r*.
q.y
.s p, T; ( );'. ;.. Q;j7{gg, g, 3 7.
4.g ; y%
_ ', _ }:
?..__
'b f
~-
a..
,a
_ 3 7, g 4.;.
=. g yp.g,g.
7.
' '. -'Y-y ':W
, ' 'y '.. -..g'~
.-, 1:', m 1,:
. f
- .q..;
(.5 - -
(*,. ; ..?...' :
-~.t:-
['. '_ [l, *.
- ~ '
, - m
- 7.. :. 's
'?
' ~ l;, -d.
' 6 j's)g. -.?,f. rg':; e:... '* 3 n*~
n.
u ;.
.',r- ', - :'
'.C
- - ~. '.
. 5.W[.
t V;' :: )., (.':
i,.
l '. ;'.
-l-
- f. ?;
': ~...
l
'e l... '. ' -
', '.....~..... :,
- ll
. ~. ~. '.
_.'.T
. - lQ. s
. p y t'
.x
_f
. y c
,' 'f',.s.',. :~.,::'..y_
$. ). h '~,,,,.
'[
'O.-
- g..
- 3.._.
, i..; G
,...[,
l,t i, i * [a. :.: %, ?;j f.,. _ ;.,....... '.*.... '
W'af:
, m. ' 7..'
V..
l i'
}
t
.e
..r..
r-la......~L-*
__ ;} \\..
L
., a m::
V'. [ -
A
,,-l-
.,w oc, m.
'3 ;. t '),'._'*..
+.p y','_*-
<. - '.,... > ' ". ' I f, h.; _ _ ; + ; g'.'
$, ; -[ '
-.,e,
. /:. : : -t:
v....
v,
- * ~~ -
.,u
['
- <..... ;.,.. y;.
(( '
y.; '...
.,h_,:.
' %J, V
- g.'_..*_
, ' ;. ~.,
$7.'
}. ;.
- _ ;y ; y..
- .l;. :q _..
.r 7.
t.-
e.
..a
.; ~ 0
?'
i: _
. I;,:
bi.r i
f ', ' ['
' ~..;;'
- l.. f.
l
/
~.a
. j')i.
'l,
.y
...~.
~
', ". ' ]
.;. ;, ', c,
I
- + - r
.'.['.h'..,'
k lr4',' - gyl;
.,4', S.'
r-c
, ; - s.'.- '. '~
} )^. ' ',.c j. ',1 s'
iI..*,
- f.'.....,,A ~/..';'....;. >".;',...;.p.-g
' ~
. k
- .. ; c ' '
i.g <. ;; '.. i.
..q,'
g-
,, q _. _ _.
.... a i,7..;. g./;, 'd
. ; Wf ' '
4
.p '. ;.... ',.....' w. ': o '. ~
~g,",~'.u
- j ' g.
.L,
,'...'S a,..,.
.^J-
' ~
' ^
.n.
O..
.'\\.
'.h
,$.y. r% ?;. '..-'
.l' ll*
- l
. l...,'
I
,a Y...
-. +. - ' '. '.. i.*
'b : *
^
i' I[*'
..[
. -..-. ';.i:*..:
,I
'. > - )
['
i
. g..~,_._',I.;;'r,'f
' ' A } I' ',
I
'.[
1 '.'
.4. %'
- f5I
- ,$,;N-Q'/
.A
- f; '
5_. ].^ '. ; (
- *3
' h] Q( 8:\\ n, :7. l,
- . ll)' '
's,.
. '.
.f'.
m. - u.; ; w o h,
t];F i
' L :. ' ^., ~
,-l f:C) :.;}' :'- _.. ' .. Q '
Y c.
f.,.,, k '$ V... % y s.* k.,
n:I L
_3. '
? ' V'.l. G'% '.,
.y T
- }.. " h v. l 9[:y lR. ;l.-
, ~,, Q:
s;l ', 0 _,.f,;. *
'v.
, ;., :'. ) -:: :
c h.:.
n : b..v. ;,;. 7
. :,,7
~ -
,. r.'
o'~' s.%,
??. y. 'l *.;,' ' ': '*.n u
'.'.+^:
..',.i;,,_.',yy.
..
- f)..!L '...'l' t,,,, :. -
.+
'l
.~...,
. ; '. '.
- j '.- *.._.,'_;... ;? '
'l
_ nj
' s.
f.
,,)_.., -.
^
,, y.
s,.
- ;,,,)y : ';' '..( ;
W' j\\j - %"V k. t.,.4..,_b.
$_ : 1t'. i, p..
v.'n
..p; -. ', -
4
',k ^ L i. L' ;. '. ). 7.::...:.,, '.,,.
. - ; } } ; 3"..) },. '. _ '. "3f ' q, f
}s,
.i c. n.,;
. ^ ' ~ -
.,*t_'.
Q.. :
_,3
'.l f,,
... ', " Y '.,........$. ) ' 'Y.
~
N ',.
- k., :. q.
l h.'. v::, l.. W.,. *.'.c 2.,_
s '. c... L.-
,,.e
",.._{...,AL.. ~ ;,f, l :
l.
5
'y Tv -e.
m,
,o.
s',.
f,b R, -
h.,f.[,...Q:
e:.. s -
- 7)
.'t'. f ".. ' " ;. 0,
~A
. \\ $.
- ['
^:
- [,:, Q 1 i s.i {$:.:( lf)y[.'%iJ' w.
. ',:,e-
- . '
- J c.
e
.y.
t.~.,..,a.
..~
+
v, n. :_ ~ -. %p :.
- u..
ll
[e ;....
s I ',..
c.: ;_ '; f..:..._ ::...
..z %l,.'
L,
-?
- ' f;
- - ;
- ~ s:
'l{ Y I'
,' ',; '[
_ '. - } *' :: '
[...
1
- ;. 0 t,
s.:
,[...
'O g ' ' = w - 3": y [.:.h.;.y i o.yg@p g (;. ;
- ybV L '
, y v - 4. g...
. ;.., e,.v: x... = ;x.[,i;'.7:gg
\\-
'..+ s..
_ g.,,...-:. ~_.\\. x.
n
.,_q.,
~
- u..: q=:::,,.. m..,._ :..+g.
... ~.. ~
- ls ;....,
1'., *)
~ :D. W:.2.,;.%.;..Fip. -
k :,". l (, '", ;
e
'I
[(~,
..h ;,; L
... : J: ~ '. Q ' ' '
=
s".
' ^
[... T
^
,....,.C..:. : ?. :.... x 2.. ;... -..
. :m.; -.
.an..
-. p
.s..
f' M
h.;'h,.[ '... ' -
'^1'k.'..
,_t,',. ',. h l_ R ; ;9 '-..:.: -. - - ':
.*,-:[
'; k.', *.,.,l.. 'Y
_ ',; m.
.(; ' '
..'-......- ' w.,.. fl 's j,,.,,
.et '.
Y ;
,'p*
c.; y gu. e -~- \\ 5. '.i v '... - - '
+
), ~
_ y;,,9g.7
...~
.. '. 3;-,,,;
..y e..y
. :: ~ - L. c, ' L,..~,... ;q 4
- w - ~
. -. ~-
a, q. i :
':r 7
- ~ q.,.':
- n..
.' a
.'ctl ~ ;': u :::' :. _; ';: _
a s.. t.. '. ' 's :..
t.
). :-...'
w.':::.m.yl[n..'y _.. ; :;!
.~
,;p -., _.,,
y.
?...."-
., -(;.
^
J.:., ; (,.p..
L*
~. ;. :,.
,.. -' :+ b v..:.-......
e:L-
..,.. '>...e.
,..,.,.7 '_..... _-.
- .- ? ! ;9 -,. _.
- 3y..
- e.., _ & ' ',,. '_
+
'a l'.'
~,f [ '.,. b) * '...
'.'.Y
_g;
. y,.
..f:.
. - _ ", ' :;. ~.l_ :. T.
.'l,':.]..
.:t;
< - l: - l', f '.. '.'
- .Q:
.....,,i
- [
'_ - ~ '
. - < : ';,,;.,.,,.. :...'. (.:
.~v
.. w,
- s' T,;. ' y..
.. ^
,, ' _'., '... :. ) -l. _ _,_.,.,. ; *, ;,' ];.[, ;... ' '. i [..,....H
~_ i :.
.w (.,; 4.
e i
- ,. ' ~.,. 4
- ~ ', '
.c,
, +~. _ ~,
-(
, ' _., ' ~
3.
- . ( i S j,; ;,
,1
+, v. f.
. '7 [ ' i.,,^ ( '.
, ? g,. *^,.. 'f
, :q,y.; p; e.'y : i.s c.
,=
...y (;:. >,.-
.~ ; ;g :, rg
_._.y._.._
4. 3.. ;_:..,. :;
,.c - ; ;;.- g.. ;.. (. ;-
.,..,. : 4.; - _., - _, 3 y._',' -...:._..,
..j.......,
_.n - ; -
- y.,..
'.'.i..~.~l.'
-, 6.:L.
7
. - ^ ;.,. ; '..
, u.
, ',...'f\\
-(.
'.. ~..
3,;."c _ ' y y _ u, ). - l-
- , -li
- ,, '.L
These nonregulated energy services year, and doubledigit annual revenue growth companies join Roth Bros., Inc., of over the last five years.
Youngstown. Ohio, and RPC Mechanical, In 1998, their impressive list of nation-Inc., of Cincinnati, Ohio, which we acquired al customers expanded with the addition of new clients, including Pep ' Boys of
)
in 1997, as part of our retently formed FirstEnergy Facilities Services Group, Inc.,
Philadelphia, Pennsylvania, the nation's subsidiary. Together, they are the premier leading automotive aftermarket retail and provider of mechanical construction, contract-services chain, and fmancial services giant ing and energy management services in our First Union Corporation, headquartered in region, with sales in excess of $425 million a Charlotte, North Carolina.
Pre arinI)for.M EIT11 We continue to play a major role in the And, we continue urging the state to electric utility restructuring debate in Ohio.
resolve a potential tax revenue shortfall of Vital issues that we raised when electric $750 million. This shortfall will occur once restructuring was first comidered in the state Ohio's investor-owned electric utilities are are at the forefront of discussions in the taxed like other businesses, as required b3 Ohio General Assembly, whose leaders have state law when regulated utilities compete made enactment of a customer choice plan a with unregulated entities.
top priority.
We're already gaining valuable experi-To protect the interests of our share-ence in the competitive electric generation holders, we continue stressing our industry's business through our participation in need for a reasonable amount of time to Pennsylvania's Electric Choice Program.
recover govemment-mandated costs, or tran-FirstEnergy Services and Penn Power Energy, sition costs, that would not be recovered in a two of our marketing services companies, are competitive market. These include expenses competing with other electric generation associated with methods the government suppliers for customers inside and outside required us to use to recover financing and our Penn Power service area.
other costs associated with major facilities, environmental protection equipment and payment assistance programs for low-income customers.
r' l2 l
._,. i..,>
1 c
('.'.
.ur,. :,.
p
..; ~ - >
- e,'.... *......
.:s c
.f,
..r
,.. +
v.,; _ _
c
..a, _..,
_..g
-a
.v..
,y
..y...
,L.
- . e. ;__
- .,,....,s;../,...e.,
_r
.o. <.
,,,7 w
- . p.;
t z
c.
+
o..,...,- <.-. _.
y,.
. ?... _. : -., _ : :;. :. -,....
. ~.., ~ _., - s Le q
g 7....-. -..
,c
.s y
.,ys....p.:..
,....c-
.c._-
.y
-,...a
(.I
,./ j l.
1
.v.
.7 l.
(gh jght,yg'g f e
...,.. g..-.
.. p
. YN..
. l
.. * < l.
Y.; J Y
' :f.f I b f. '.;. e.. - '. -.
_r,[ Y - - ~ ;'
~~ '
?.- v..l.
MU-. s ~ ' ;D.. ' 2 ;.3$5 M M,.]
y u4
\\... :
c.
9 :. 5.
,.,-: *, 7. j....
7 7
.f.' [,.
.. ], j,;,'
[ j y73
.A.;]. ; sy. c..
,c..7-..s
.,;,' ]2
.;s..7,..
,,g..
,,.;-.n c
[.. h / ;'.. < ', '
s g
[
[ [ _ -)}' [
.[ Tgh,,.. t. a.
p '.. ',
((
T.,
'l-v'..s.'
. 1' j.,..f. -.. -
^
,..9 y,,.,.
n>
s,yo
- '. f;j
? ^l.% :l' l. ?.. i' ~
~-
- Y;. '?0
.h., ff
, - - 'g7,,
,s c\\
4.
..: : L. > :. r :., ;
rv
.?
'.?
3,.}.
..;.,.. -, } :;.
d:
q.
()
..,c;
.)
r
~'
5
- ~., :...
.... m;
- c. v. > <
n..,_ f i.l[
, '.s. Y e..
}; "~ - -.
I... ;.....[. "
a 7-
[-
^
... ;, ' l _ - I,(..,.. ' ~ -
. 4., C' '....)
- m..c....
- m..n
.c
,,,..g-.,.
c ;..,
g;. l f.- -.~ '} - :.
~. -
. '. '. ~..,....',....[ i.. * ;g,
_,, _ '...l t*.L,
[_.; j v;. lg g ggyj!'
,[
r....
_..... 4
,), ; ; -. c... - /.
,,:,,.,,j;.,,,; 7._-
y
,[.
f ;.' : ' 1.5 ' : /) k
,1 g
?
4g
..(
f.. -
.. l
,; J&!
. l je.'.l .;.} ; : /.
I l nl.. ;".l,l..'y; f. ~(.,},'.
+
y.' '. l ' _.
l,....'.:
l }.
).
,J..'_.. ^.,
o.
"^,';........,....,.*
.-.n r
- ^
r
.t-..L
- .. ; L '...-:. e...
..'.:.'L,..'.+.', . ? '.
L. V. *, : '...
I',
n....,..,-_q.-
,,m,
....r
- .t ;
,s4 1
..... '... ' ~ ' ~
.-*V2' w
s.w,:~.
}. s. : G.1.....:.. x.....'
.. 'w
^.....
y.'
.k. " ~. f, - : '
- h ' e
~..:,'*,,... O. L;. ;
&; ff:l 'i kb
_._. r :...
,w'
+ ; :; :....
o y,
.._n 7...,...,:,, : ;(
gy.
\\;. 4. w.y; t:;y. ~,,.,.. y Qa..sv
...,.., ~..,
.- +
-:. y
., ;. : y.,. -- ;.. '.
..~
,(
rs
_ :. _ j e~ ~~ :. [ : - ~,
s v;
.,. 7;..:
s v S,
, i
.> s.,$y c;.......
y
.;).
e., y R.c y
.tr, s.~
- .,;.['.J _, ?'J; ' 8j. t..[..',.,.
- &.,y,_
- .'['l.g -g p.g ()r,. w f
- ' " Oy:l; Q). :. :j' :,
' +-
....<L,:','....:.
, y
..; [o g
..: x l4.;j :.*,
- jfp)g,}f ;lGQf'
.$ [. r} [ }
l:..:. _ '. '-[ ; }) f ~ : l ': _
J, :;, i {;, ~ f [ j : [-,
- / ;
- Q
.,.ty, w,.-
-.,gp&,,,
~.......
s m :e. t :
- . ;.. A.... a.. y ~..
.s
\\,y mp.
s..,.
v
.,.,;y -
y
,4, \\
,4 _ 4;j 3:
7
+.+,o..
.* s ', _,
_ _j 4, 9 _
n...
-;&, Q>y% u
.- a A->
h'.,
e A.
i+
yy:
.~..
a
.. ;. ;,., ; y.. ". 7 y......-
y; z
.p,c
.L
.p....:..
2.. :, >
yyy,;
w y.
y
,. _,. _ _._ ; <.. ; 3,,;-
.,,..s,.......
4 y,., -,,t. ; ;. ;..,....,.
. y -
..,..s.
1-..
s.4.,.
n
. ;m e.:
t a
i o,,
,s
.. y.:
%. ~
~x > v,e.g>.
i
- p
.5
+
v.
,,.. ' g f
- y*
.w.
t'.
..; a
.4
.,. - -. ( :._',t
- y., f j fR4 l
_.,_'..,9...,.....f.,.,...,.',,.y.5w
.... 'ln,
.-.:>:....'....3 l *
._.Q [
t..
y_
.y s.
4
- ...- 3
.,.y 0
.-s
...e-
- s.... -. -..:..,.:.,
L.
,, s
...'.n..
.a.
-l
, s.
.J.4 f 3...'..
.n: l u..;
,.,,1.
s,3*
1 s,
.,,....,.. m, ; y....,.
,,c..,
,p
.. -. -,,, m
-g,,..'.','..,;,'
e'
,, -.'i,...
,!,,,ag 4
....... 1. m.,. - 1
,+,o, 1c n,c
,,...;.r.
-p
.y ye y,,1 7<,
f.
..,,.., y y. [.; _
...,...-.7 y
3
- ,;...,s ' -
.. - J. ;;. <, : ; _ m. ;
- 1 44
- r m
,. _, ; a
... ? ;,.- : y h,..
.cn 4
4
- j; e.5,9 v. f ~';f
^ o% 1
,,,.... s hc L
'o
?': I..;. /J k>.' g, :l l ~ ',.; > ; ):',3 :. u,. } l % ', w,
,i ;.,, p -..'.:..-
L
.m
/,. - ). <4..
.; -.. '; '. :?.
c....g...i.u.,......
..,a..~...f...>:....,e.....,
.5, t (
c...
~,..,,
j.,
-u
, e.e,,jg 3 3. :C
's;
.4.. l,.i.,:y :
!. ;.w.' :t.,-
.f ;. :(.,.. ',
+y-ww u
~
9,y r
v.
. s ~, F. a. n, c. p eg, 3
..,r a ;.-
... <........ f. r..A,
^
...y. c, s
' ' I' ' j.
~
'{.Q,';!./ '.? * *. T. )
._ '. O : Ll^...,;;j;.. J.'.:l.l. ll,;.?
'y. ;Q.), l. : * ?.~.,l, ' ': 3.. ; u. %. '.. : v" V: *.'.i.F! l.j.f,
. 'Q.:]
...,n, p.. ~w ;
$ gg;;, <
^
- p.c
,. s n..,,..,,.n....u..,,. :.. g,....,.,.
- . ; o _ f.' s.. y,
s y:
,c..,.
.w
- m.,
J*.. :.....
,.,3...
.a
,. y ' * '. ': :, ; m,,s e, -
t u
4+..,;
&rc"Q v;,
- N >,
%y, :-<
.x
<~.n'
. _.i;.,, *
'..s 4 : fw: <,*. ?, a.
.,,:.r
. :, L ' '
y, :+3
- i..
3,5. z :g:,;."c;.n e,,,,ij
- y....: ;. 7... e..
. : - ::. ~. ~,
v,; c.
.s:.
p,f'n$';,}..l.,;Q;;.,.,. ~.. m ; w....., :.y..~.,...
y,.)
'm t kw; l... ~..,l..' f* 'f..} L w
e.
~
~
- w
_.f ' ),..,,.;..i.(f ),;b ^ l / - )
- .}f,
';[.f,_.y Q.@ : i (f
- ^ l ;.[,;
?]h
(,
4 u h.,.n. ? l+ ~', *Q.f:y ;; ' :t.,gllVw...2, a'*y l
_.Q.~9r,..;y; e.;,
-3 5 y@G.. A, ' /.,.f. 3 t,.. :., (,,,; (;..::.? ::q. h. 'L.
y
+ j ) fu.
,....-a;'.;a'f y:.
c;;,
,c,.
e:.*, p... -.
s
~,e
.. y r,,
_-o..a. w y..v.,.,-
y,.
m..;
w,... ( 3,,, ; _.
e.
z r
3:..
.l ' ;'e.r:%; < - > a :v.(. k,sn, Hi j
t.
4:
.,.c:,.:.
. ~.,
.. s..
j,c
_.,-s
..v., s g >
,f.~..,+.:......:....:.
c., ~.7:;c.. y :,.
.m
- m. ~
s,
.. -v
.oV,; p
.c.
9+
.. a,.
i.c ;
,l A:. V' m...:.. =. M, <. ;.
L r,.. s:g:..
...r i.
t; a is t
,g..., ;z - ^ : e. '.c.. ; - -
y ~,::
v.,.9, y..,,;,* n.e.. w.p.b. y 3 :,
...y
,n s
A-;;)
. x.,..
1 w:g y
~..
_ y.3.y, g,q;. y;..v..... x.7 3 t,.
.p,.,c. > 7.y._,....; w..n., :
.-.,.. 7 5,.. 3.,:.; ; >
cc
-..+
e.
a 3,:
s..(;. -
. ~,.
e a.
n
- q a.
y.y
.,.s
,, y... m,.:.. :.
K.:t c..Q..c
.... qm. 3 ;%. 9. 3 4
%)y 1,.. z..,
.;.;4 p.,:
3
, y. _,.9
, a S.
ca..
4 v.:.. ;.:
.-l
.,4
..yy.... ;;f v-
- ac', c -..
3 3
... p y
. ',..,s,.', 4, ;.. w ;... ;.....
j.
p
.y e.
c s
a...
.. y t n m
f.)
...l[,.]f. [ [:f'
.._[
~.
y
~
f.. f.{ ;h,
/.,,
1,..%s..:
.a
. y.t. f W 7,
(,"
y ly
{&
l,
... y.); :.
Tek u b-s.'..
r q.', ; L, *;;;g _,. - * -
. } ' ; p'? %. '.,f. '. Q s
A
- f f;.
g
}
? L[W I.* [ ).Q :.Q ;,'[ 3...._ %.Q.i.] l a '..'l.f..,,.'._
.] :.'.
. ~ ;.' Y:
g _
la.2 y
m...R.._.'3..,....._.:g)hgu::3g
- q
.::,i -4.,l,. *
.s
.T...,.,. -....
. ],'^s...~...,
s m.
4
.:c'
- :.i ;.
- &;~.j(
,. /. '. c..1 V-.. *
'l
,,., :.. f.l,g e g......j. ',. M,:,p#(:. '. W" >,_.'. :......t,
- a
.6,..
s..".':
l. u, '. ;
y'.'. : _
- :.. S, '
.~-)g ':
...c.
2,c.,
. n.... y
.c,.
n#
si y GA.
+
- p
...a.'.
7, < : W! :
- r. ;
.A
.. p
~. r : w..........,.:.
. w. +
a a
..,,...t,..,.,,., -L. '.,= 3 ;. 7...
..x, t 3:,...1
. c
.. ~
g, *
.J *.,,.
- e. _
'.]>,.
e.x...,.,..
.c.,.
....v<<
e
.u
.,.}_.
w:
s.m.
~.,.,
7 g.......c.,.,
u j<
.. g, _
.'.8,.,,..
r o..
...?
.u
..*E.
}
...,......y)y y,l, Y
y,,
r
,a m~}
ni 4
}
1
<~
,r..;
.,.9..
p g
.,.. a :... s.e. :
s 3
9, a.,... ~. -
3 :.
z g.....
q,..,.
\\
. }:. ::.. ((
- 4g w m.u.m m e.y y awn.w -
/ -.v. w~ u n w y w w e~s.
.... /. :..
g.
~
(<.fyp c
.u.
..,s.<.
n: ~. ; ;
.. ' _ _,.,r ; Y.-
i.
... f. : ; y.~.
_g,....
_.,)d,..
....,,. a g ( v.; q:._.,.;..
he Q
+
n
.... :.. a.,..; ; V. _, -
.y.
- .;.g.. L _....
..a..,.i,.-
,a
.g
~..
,a~
....w~...
u.._..
n.'.....~l
- j.} []. 'll.... ;., -
.c:
g9....-., g
-.- ^ ;. h. :, '
s.
.y, d,"
Y'? ', s.ys
[
.f;,
. f.lm' ) ;, t,
lpl.,Q j,
l l l;.
's,'
Q
,,,.i t g,
3a
,..,s.
.,. g. n.
.,,c : Is s.,z3.. ~#..,
.s.....o.:........
g
.,...s...
..t' r
.s ~. ;
a.
r -
17 i;,.., *;Mo}'),
r, 3 < y.
- ',,l
- ".._
'f_,
- ,,,, ;. p -
'f,..'..'*.'1y'.
,.,r,,
\\p
.}
%6
, ;..j'. t
_" l
- f.l
, 2.*.;.y y R.,;; A_W h,..
m 3,.
p
'; -_ ', )
. ' s,....
.g ~.. L.,..,y,.;1;!,?li l'>.; %,5LJ.
..,..t,.;
7.",,s
,j,
\\
_7, p
.j. 4
- 3. ~f. '(.lmll.9.. M ' +;.i.2.;;M.
- N %jl_;:jn ;.l
,..y,m ~
.., 'y?f.7,@w.yl.k.f
'*G %aWr @Y., h,,~..,
.J., % :)
.'i' N.
. ;.g:.
.x;, '. _ <
y m~
_p.
.O a. y 7. ; :
W.
..,'k..,,1 d:; T
,-:s'- ;. a e-. ^W., %,,. r : O :f... M. c.i:L..* a.
- V.b7 + *. - ' : h.
'...-p...: Y.,
'.n ?, s e.:p
. u s :. \\
-h-
- v
,< r
"-... q
?...
-q 4.,%h u
. J :,. M.... c.....,...'9.;. '
.e. L u
-a.
- s..
y?
+m.
e 0).
.. y;;..
&...>%,.+ *. ',p
.-..g u',%w,:% '3, e p" i
4.,
y s,.
a y y. :t 5 c4
/
1.yM
.. (
Ne.
?.-
c
.,X.,f ?.
- i i-
.gy; 5 ;. --..
f.
W+
uf,7....f.. s... E M::g. Y. %._,. ; z,..7. n.7p. g:'jf.,f (l.('f@[:.; ? u 4 L?,
9
. a 3
e.d'
' 4_. m.
e w
. n e
c
..'[:f k.,,
j f '.
.[ 6.Q,.: %
p X~'
L'
[.. '.:,'_ ; g.,
.g.;.
'3' i
-Q
'.Q;'y}:;7&tfqQ(,
y ;y::3[Q ' y.
.g & -
~
+
Our preparation lor a more competi-independent regional transmission company.
tive marketplace spans beyond our electric Along with American Electric Power, generation business. For instance, we took Consumers Energy and Virginia Power, we're several significant steps in 1998 to prepare working on a proposal to the Federal Energy our transmission business for a more com-Regulatory Commission to form such an i
petitive market, including creation of organization. The for-profit business we American Transmission Systems,Inc.
envision would provide non-discriminatory We're transferring our transmission access to the transmission grid while assets to this new subsidiary, which we enhancing the value of the transmission intend to ultimately become part of a larger, business.
Sharelo der Increasin"I'E Our cost-cutting and other perform-annual dividends, produced a total share-ance improvement initiatives increased our holder retum of 18 percent. Our retum financial flexibility and improved sharehold-exceeded the Edison Electric Institute Utility er value in 1998.
Index for the second straight year.
We continued to realize the benefits Considering the market value of our of our merger by consolidating our work company, our Board of Directors authorized forces, eliminating duplicative functions the repurchase of up to 15 million shares of and enhancing operating efficiencies. our outstanding common stock over a three-These efforts contributed to $173 million year period beginning this year. We expect to in savings for the year.
repurche. approximately 2.5 mil' ion shares These accomplishments are improving in 19, depending on our casa flow and shareholder value. In 1998, the value of our market conditions.
stock increased 12.3 percent, common which, combined with the reinvestment of 14
Management Report The consolidated financial statements were prepared by the management of FirstEnergy Corp., who takes responsibility for their integrity and objectivity. The statements were prepared in conformity '.ith generally accepted accounting principles and are consistent with other financial information appearing elsewhere in this rcport. Arthur Andersen llP, independent public accoun-tants, have exprrssed an opinion on the Company's consolidated financial statements.
The Company's internal auditors, who are responsible to the Audit Committee of the Board of Directors, review the results and performance of operating units within the Company for adequacy, effectiveness and reliabil;ty of accounting and reporting systems, as well as managerial and operating controls.
The Audit Committee consists of five nonemployee directors whose duties include: consideration of the adequacy of the internal controls of the Company and the objectivity of financial reporting; inquiry into the number, extent, adequacy and validity of regular and special audits conducted by independent public accountants and the internal auditors: recommendation to the Board of Directors ofindependent accountants to conduct the normal annual audit and special purpose audits as may be required; and reporting to thc Board of Directors the Committee's findings and any recommendation for changes in scope, methods or procedures of the auditing functions. The Committee also reviews the results of management's programs to monitor compliance with the Company's policies on busine.,s ethics and risk management. The Audit Committee held four meetings in 1998.
Richard H. Marsh Harvey L Wagner Vice President and Controller and Chief Financial Officer Chief Accounting Oflicer Report of Independent Public Accountants
)
To the Stockholders and Board of Directors of FirstEnergy Corp.
We have audited the accompanying consolidated balance sheets and consolidated statements of capitalization of FirstEnergy Corp. (an Ohio corporation) and subsidiaries as of December 31,1998 and 1997, and the related consolidated statements ofincome, common stockholders' equity, preferred stock, aish flows and taxes for each of the three years in the period ended December 31,1998. These fmancial statements are the resp (msibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall finaricial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of FirstEnergy Corp. and subsidiaries as of December 31,1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31,1998, in conformity with generally accepted accounting principles.
h Ar4v L-ARTHUR ANDERSEN 11.P Cleveland, Ohio February 12,1999 m
' ' ' ly..-
N. l
~
'?0 l
I. .
i
- i.
' - ^
._ ) ;_ '....:, _.::
..J,
,b J'-
. 'i. -
u g.'.,..;.. :..;..
_._ on v,,Q"v...".,:).i:
..,, l;
'.,f,','.,'.r,fn._ f,.
__ L:
x,'.-
...:& '. c '..
}. _~;i, '. : j. ;.-- -. :..
[-...... _._;...qt..
c i >
r-t,f.. -..;;'.
- _ q - '
ev j
- c.. :. _ '. y ';,
s.:
f..__,,s
3
', 0, '.'l,',,'_..t
<-. l.l i
_l _(;:*?',e,,
Q-}
'.,.,' J I '.^. c'
. ', Ti
,'-'I: ':;
--'"_l'l'l ;_'..,... "'.:.
s.-
'.4 ;
e b.
.c'
- (
.,.:.,, l.'_.*, r, *:
- y
- ~.
lN. N.'. '
.l',.
. f.
- l. l
^,, _ ' _...
....',,'.,~:. "..,..
)
- r :
- f... },V,
..s:::.,
. _. ~ ;..,.
+ -
.~L., (, htvy..^- ' :
.. '. g.
3
./.-.'J i c..
- s. }: < [.
_ 7; ( ;
.(..,4 y _,;
y,*
. - ' gbr tienM90n g,~
. ', V.r.... -.,, n. - -.. _.... '.,, -... * -
-.g
-o 4
- .u
+
1
- ,. \\.
0, ~. 'L. L - '. ][. '.,
- ".. {f' '.l.
y b
' ', '[ ; '. :.L. ): :,,,
..,., ').
T._
f tem; wt.tt 14ensitQing_
1
. c. [?,... ;_.
. ::. _ c ;-
.,7:..
k y, '.. '
- ' ' ' ~ _.
. *-., t :.
.'.=
i..
^
^
.,. N.... ',I,%.d.
.,f
-. ;-,"..e,:g.
- ?-.
...--' y -
.. p-.,
1.............
Stif tien$miSSi$n' b5ei5
..g g.y c.',.',.
+ -.
' y...:
7 ",,; f. ;;, } <.. : q
- f. ;f. '
.c.,.'i.;;
. -...,.:....*,....7 y,;.;'
q nto e' new.wbsidiery,..,
,.r.
,-...,..i :;.s..,
- s....~; ;
e:
c-c -.j...,...; <,.;,',..,..,
._.,l
- 3 j ;.
Amersd.en Tronsfntssio'n.
^
4 g :
j.
t
"'. : g,.,
? t
^
.,',;.-. e,.:i
. $ystems: Inc We. intend.
4
.S '. ' ' 'l' l;.,9
_, ',.' y.f f..e
,f.
?
..,l f,,-
' - l ^
1
-,,, c
.c,.
.l...
a L
-.. a: : ;
for it tp %ecome pert of n,
s
..t,g,,
,.[ '. ;:...l-
-_:>K..-;
.y.
.+
g j J d...,;.....'
,...,.s-8
,\\
+'. -,
", --.;' 1 3.'.. '.., ;.,; : --... ', ',...
'.. *. (Ompgny.
"[
)..,f,[,
.j'J.
'. '. _ ',p t"
0
.d w.
-.c'..' -,
.a' 2.9,:,,,,f,c,'.
-.'?
- jI. ',;.. ;., ? :
E 5
- .'c
reporiOkt'rgns'ms$ ion '.
, '. '. -;:- ;.. dm
..;4 ~.
z. :...',.: '_ ',. _.. ;,.'
...; i;. - -.
..b
_j'..
.,L_}:
-,. _ };
z.
...., ~, ~;.,.' - ' -
,Y,
s,.
~.., _ _.. ' ';_- ~...,:: - :
..t
,.....". : q. :. '.. ' l [.,..".
} ;_-[
^
^.; [. l.., f '_..,
, }..;q :;., :. ',.,,,.f, '... s.
_3
',...'N.
.,-4,.,
a,. -
.-c
._ ;;f ^ _
~'
%,; ',;.'.,, '. J
. Q; 2,
-_9
- g _
/ : 'c : -,. _ ';;, ; ;
4 s y,.,,.;......
... s,. _ _ -
- :.':...,.:. - s c.,
'*J.,,......,,.l..
.n, t-
.,, fg i f,
- ~,. ;.;; ;. ^... ;
,..s,..
c.,.,
',.,.( : y,,,, -l. h.:....;
..y..
L.
'}.
j.; ; ;
3...
- t
- -,,-.5
~. -
-$ ;l.,...,,..
m :f'.: ?.......
y.-
. '.'.e ? 7. ~r.
Q ;;...,-
_ '....i,..1.
- . )
,.! 7 ".:
- =
l
^ '
- .. y., :
- ' '.. 'l- ; '.i,'._..,.... *. 3: -^ :c..,,
'./
'n.
6 p ', ';. * % '. ~...[: :;t :Va '.. _,'. < ',..*
'- './;'^... -
..r,',.,:,.
l',..
(.
r.
v.
Y.',-
~- ( 3.,, '^
' Y
- .;l
- yo
~~
- 4. !;. l *
- _ '} _l ' l {..'.
,(,
l.;' ', _ ; _ ' ':
l-l _f.',..
.l
^'
- .f,
- ' _ :'._*.-
',.'?-.. '.
9, et 3, ' si:
.T._..?, ;k_ : _. '-.: '..,
..: f ' ;
'.?' ',..;
_._..s' f
+ '-
a.:>'_...;'..',_*..
- ,;. [
y
.' ';., ' c... r Y.:e...,.,-\\
t
.--. >.. ~. '
...:..'.*e.._,..
.'. : -, *;-. y,,. Q i., _,
% - aq
\\.
l a
..o
~
-,,s.
...... ':Q -.._.;, _,
.;. [._7,:.Q
'.y;,,
_. '. -.~
y;..
.,i,
's
..:.uj _, [,,' f '. ' :.,, ;,,.y.
..'. - ' 'y. ; -
- . ;.)
k.", l , f :. ),'. <,j.:. <: pl;; ::- -
,u.,q ;,, y.._., -
a l: ll 2.; ~,;g.L f l. ;' N g _,
.[' '
' [.
'. ' _ ' '_ ',\\[
- l ly.
l,
... Q:,..
4 ', :., l',;..- -,*; *:l
':, _. ':: l '
f
'l 3'
,..._..,.,.,_e;...:'y t...
..s.
...n,...
..:...,s.,-
. K '.*.,'..:.,
- y; _. :
.. l ' ',:, i 3., e;;?; '... *.
s..
,f,....,
.m g_.,..
p.-.
.. g 3.,-
- :;..:.:4.<. +, $...V' *,c. \\ ?.iN. C-i...s.
- , e u.g
, f ' *.,. E '. :., w. -,:.
+q 3.,,-
....; ) ;..
~
q -
.,;..-":1. :
. := ' -
- { l _ ' s.i.,;_, E 'Y;f..i.' ?. <:...ll ?.?:..
', V. } I ; ' ;.
_.h *: -
I '(& % '.' ' &.:.,:,$:. '. ?,'... -.:
h.
e.+.
.::..? :
'.; 7 f ; n
. ?, '.,.P., ;. (.
.,.:: 1lc.,:;:-
_ ;. ' (',l-
- n:
. ::.:-r',
...,',['_;,".'..J'c....;
- o. '
y '.;:.. ;
t.
- j
- ' J :". N.", '::, a' P
- ' g.'.
+
,., y. r !
". q. ; ',,9., g /..'. ;,; ;.-l.".-'.
,e:,
.,Y
- '*. ~ f..
.C s
- ..'%.L'.5.-..
e,
.' n,.. v i s;j N.., [.,',,.. _',.'. [.(,,._: '.
m, 'L.
- ,. + -
- .f in~.
,j.,..,.... '. '.J.,;fl.i.',. i,y j i.. : ' 's;-
- j.'.'(
l....,
'. 14
, : :4
,,,e,'.
"f -
,, i
.. (g,..
.,.t i.
f
,,y
.-,,,g.
,,,y&& '.. ? ^.S-, y' n..,
.,.y
,t
.s,,,,
[hf'r.jL.
- 47,_
, :s '
~
%:}.':(.q. ;
..,j.:..
Jl ' V;;A.lQ, l','-l.'e '. ',S.' t.
h
~. '.
W S
I
) '-
- - ~..,,,
Y'.:I, d,h [i...k N[.,ft't W 4, '. ? :\\['%'I'[ " '
,J
- I 'i','./.. Ik ', hg:
[-
- 'im,,
h #.
Y%
L' 4
k
.; A
- a y m :4,,*..;.,.
/ J'
- 4
..Q.,
' (.1,
' ' $. l
.g L.-
[
.l, '
a;9" g'
.[ ',
.. [l
-f. '
.., /
,i
- M
?.._
j.,
w;y
- w.,
?
- y,.
.jM f
'J S,'{i.Y, i
..>,w
,a....
go.
,, ' _ __ j':
j,4 y. f
,'I } : y';.(
.l yf
' ~
~ '
1 4
o..
t
.. i -
w
., g ; u........-.
n
(.c...,,_ _,
...... ; c
..a.
P 0
m h
+
1
'O e
r -
j r
l_ '.
,1
,,. _.g v.
h s,
, g
- j.,
r_
4 J.
9
- 9 t
., - ~' -.
Y _
h y...
- j. ;% '
p
~
=
W -...
, _. i 1:,,
[=
'o
~
4' 4',,.
.,e
- i...,
~
_L~
[
..}_.
[ _ :,,'_ : '.
l
'.: _ ~.. '.,.
}
. m
Management's Discussion and Analysis of Results of supply and heavy custorner demand in the latter part ofJune Operotions and Finonciol Condition 1998, combined with unscheduled generating unit outages, This discussion indudes forward-looking statements based on resulted in spor market purchases of power at prices which sub-
. formation currently available to management that are subject t stantially exceeded amounts recovered from retail customers.The m
certain risks and uncertainties. These statements typically contam' recovery shortfall reduced 1998 net income by approximately are nm hnmed m, the terms a@au,pd p.
$50 million or $.22 per common share. Finally, unprecedented belicm estimateand simdar words. Actual results may differ mate-market prices for electricity in June 1998 contributed to credit nally due to the speed and nature ofm. creased competition and losses totaling $27 milh.on after taxes or $.12 per common share.
deregulan.on m the electnc unh.ry mdustry, economic or weather Four power marketers with which the C,ompany's FirstEnergy condnions affectmg future sales and margins, changes m markets Trading & Power Marketing, Inc. (FETPM) subsidiary had for energy senices, changing energy market prices, legislan.ve and transactions under contract defaulted as a result ofJune,s pn.ce gg gg regulatory changes, and the availabihty and cost ofcapnal and other sm.ular factors.
charges, primarily resulting from merger-related staffing reduc-tions, which decreased basic and diluted earnings by $.22 per common share.
Results of 0perations Revenue in 1998 increased by $2.9 billion over the previous FirstEnergy Corp. (Company) was formed when the year, primarily reflecting a full twelve months of results for the merger ofOhio Edison Company (OE) and Centerior Energy f rmer Centerior companies in the Electric Utility Operating Corporation (Centerior) became effective on November 8,1997.
Companies (EUOC) business segment compared to seven weeks The merger has been accounted for by using purchase accounting in 1997. The EUOCs represent our vertically integrated electric under the guidelines ofAccounting Principles Board Opinion utility operations. As discussed later, we anticipate future dianges No.16, "Busin:ss Combinations." Under purchase accounting, m our business segments to align with our strategy as the electric the results ofoperations for the combined entity are reported from utility industry restructures. The sources of the increases in reve-the point ofconsummation forward. As a result, our financial nue during 1998 and 1997 are summarized in the following table.
statements for 1997 reflect twelve months ofoperations for OE 1998 s997 and its wholly owned subsidiary, Pennsylvania Power Company vmmm)
(Penn), but indude only seven weeks (November 8, to December Ucaric $ ales 31,1997) for the former Centerior companies, which indude OE mmPania-The Cleveland Electric Illuminating Company (CEI) and
$"**l" *"$j'*
'[)
Nei oE mmpanies 40.2 (6.4)
CEI and TE. On June 8,1998, we acquired MARBEL Energy centerior aaiuisition 2,196.4 350.6 Corporation (MARBEL), an integrated natural gas company.
Intercompany sales (31.9)
(3.8)
Also, during 1998, FirstEnergy Facilities Services Gmup, Inc.
Total clearic des 2,204.7 340.4 (FE Facilities), a wholly owned subsidiary of the Company, other electric utility revenues 102.3 54.6 acquired eight companies which principally provide heating, ven-scaric utility operating companies 2.307.0 395.0 tilating and air-conditioning services. See Note I for additional FETPM 367.6 43.1 information. All acquisitions in 1998 were accounted for using other businemiuisitions 226.5 0.3 purchase accounting and are induded in our consolidated results Net Revenue Increase
$ 2,901.1
$ 438.4 from their respective acquisition dates.
Retail kilowatt-hour sales for the OE companies in 1998 We continued to take steps in 1998 to better position were approximately the same as the previous year at 27.3 billion FirstEnergy as competition continues to expand in the electric kilowatt-hours after setting a new record in 1997. Residential and utility industry. The acquisitions completed in 1998 reflect our commercial kilowatt-hour sales increased 1.7% and 3.5%, respec-strategy to provide customers an expanded portfolio ofenergy-tively, from 1997, offset by a 3.6% decrease in industrial sales.
related products and services. We aho invested in new information Residential and commercial kilowatt-hour sales benefited from systems with enhanced functionality which also address Year 2000 continued growth in the retail customer base, with over 11,000 application deficiencies. Cash savings of $173 million were new retail customers added in 1998 compared to approximately captured in 1998 from initiatives implemented during the year in 4,900 new retail customers in 1997. The closure of an electric arc connection with our merger. About one-halfof that amount furnace by a large steel customer in the latter part of 1997 and a resulted from staHing reductions, general decline in electricity demand by steel manufacturers due to Basic and diluted earnings per share ofcommon stock were intense foreign competition contributed to the lower industrial
$1.82 for 1998 compared to $ 1.94 for 1997. Results for 1998 sales. Sales to wholesale customers by the OE companies increased were adversely affected by a one-time, extraordinary charge of 8.9% contributing to an increase in total kilowatt-hour sales of
$30.5 million after taxes, or $.13 per common share, related to 1.4%. In 1997, commercial and indusuial kilowatt-hour sales Perm's discontinued application of Statement of Financial increased 1.2% and 1.0%, respectively, from 1996, partially offset Accounting Standards No. 71 (SFAS 71), " Accounting for the by a 0.8% decrease in residential sales resulting in a 0.5% increase Effects of Certain Types of Regulation", to its generation business, in retail kilowatt-hour sales. A decrease in kilowatt-hour sales to as discussed later in this report. Additionally, sharp increases in the wholesale customers contributed to a 5.0% dedine in total spot market price for electricity occasioned by a constrained power kilowatt-hour sales in 1997 compared to 1996.
IB
Selected Financial Data FIRsTENE R GY COR P.
(in thousands, exceptper share amounis)
~
For the Years Ended December 31, 1998 1997 1996 1995 1994 Revenues
$ 5,861,285
$ 2,960,196
$ 2,521,788
$ 2,500,770
$ 2,390,957 Inqome Befqre Extraordinary ltem
$ 441,396
$ 305,774
$ 302,673
$ 294,747
$ 281,852 Net income
$ 410,874
$ 305,774
$ 302,673
$ 294,747
$ 281,852 Earnings per Share of Common Stock:
Before Extraordinary item
$1.95
$1.94
$2.10
$2.05
$1.97 After Extraordinary item
$1.82
$1.94
$2.10
$2.05
$1.97 Dividends Declared per Share of Common Stock
$1.50
$1.50
$1.50
$1.50
$1.50 Total Assets
$18,063,507
$18,080,795
$ 9,054,457
$ 8,892,088
$ 9,045,255 Capitalization at December 31:
Common Stockholders' Equity
$ 4,449,158
$ 4,159,598
$ 2,501,359
$ 2,407,871
$ 2,317,197 Preferred Stock:
Not Subject to Mandatory Redemption 660,195 660,195 E11,870 211,870 328,240 Subject to Mandatory Redemption 294,710 334,864 155,000 160,000 40,000 Long-Term Debt 6,352,359 6,969,835
_ '.,712,760 2,786,256 3,166,593 Total Capitalization
$11,756,422
$12,124,492
' 5,582,989
$ 5,565,997
$ 5,852,030 Price Range of Common Stock FirstEnergy Corp.'s Common Stock is listed on the New York Stock Exchange and is traded on other registered exchanges. Trading of the common stock began on November 10,1997. Prices represent Ohio Edison Company Common Stock before November 10,1997 and FirstEnergy Corp. Common Stock beginning November 10,1997.
1998 1997 l
First Quarter High-low 31 5/8 27-7/8 23-7/8 20-7/8 l
Second Quarter High-low 31-7/8 28-1/2 22 19-1/4 Third Quarter High-low 31-5/16 27-1/16 23-5/8 21-3/4 Fourth Quarter High-low 34-1/16 29-3/16 29 22-13/16 l
Yeady High-low 34-1/16 27-1/16 29 19-1/4 Prices are basedon reportspublishedin The WallStreerJournalforNew York Stock Exchange Composite Transactions.
Holders of Common Stock As of December 31,1998 and January 31,1999, there were 197,741 and 196,337 holders, respectively, of the 237,069,087 shares of the Company's Common Stock. Information regarding retained earnings available for payrnent ofcash dividends is given in Note 3A.
17
Total expenses increased $2.4 billion in 1998 compared to the redemptions oflong-term debt. Other interest expense increased prior year primarily due to the indusion of a full twelve months of as a result ofincreased short-term borrowings.
expenses for the former Centerior companies compared to seven weeks ofexpense in the 1997 results. Fuel and purchased power costs were rp $497.5 million in 1998 compared to 1997.
Capitol Resources ond liquidity Exduding the former Centerior companies, fuel and purchased Savings fram improved efficiency helped to fund the strategic power costs for the OE companies increased $74.4 million. Most investments we made in 1998 while strengthening our fmancial ofthe increase occurred in the second quarter and resulted from a position. We continue to streamline our electric utility operations, combination of factors. In late June 1998, the midwestern and as evidenced by the 50% increase in our customer / employee ratio southem regions of the United States experienced electricity over the past five years, from 165 at the end of 1993 to 247 as of shortages caused mainly by record temperatures and humidity and December 31,1998. We also continued to reduce our capital unscheduled generating unit outages. During that period, the costs. During 1998, net redemptions oflong-term debt and Beaver Valley Plant was out ofservice and the Davis-Besse Plant preferred stock totaled $430 million, induding $176 million of was removed from service as a result of damage to transmission optional redemptions. In addition, we completed $230 million of facilities caused by a tornado. Also, Avon Lake Unit 9 experienced refinancings. Combined, these actions will produce annualized an unscheduled outage during the period due to lightning-related savings of $42 million. The average cost oflong-term debt wu transformer damage. As a result, the EUOCs purchased significant reduced to 7.83% in 1998 from 8.02% at the end of 1997.
amounts ofpower on the spor market at unusually high prices, causing an increase in purchased power costs. In 1997, exduding in the first quarter of1998, we formed an alh.ance wah British the results of the former Centerior companies, fuel and purchased Permleum (BP) to help ensure the long-term viabihty of BP s power costs were down $ 19.4 million from the previous year due
'*b*ry perati n in theTE service area while also generating to lower total kilowatt-hour sales.
addin.onal revenue for our Company. Bay Shore Power Company, a FirstEnergy subsidery, will build a new state-of-the-art steam-Other expenses for the EUOCs irv med in 1998 and 1997 as generating plant fueled by a waste by-product from a new a result of the indusion of the Centerio. sults. Exduding the former Centerior companies,1998 nonnudear costs decreased lower-cost refinery process at BP's Oregon, Ohio facility. Steam from the plant will supply both the refinery and a Bay Shore
$34.8 million from the previous year due primarily to the absence generating unit. To fund the project, Bay Shore Power issued ofexpenses related to a 1997 voluntary retirement program and
$147.5 million ofsolid waste-disposal revenue bonds during the estimated severance costs which increased other expenses for that first quarter of1998. As of December 31,1998, approximately year. For the OE companies, nudear costs increased $12.2 million
$88 million of he funds from the revenue bonds were invested for in 1998 and $20.0 million in 1997 reflecting higher costs at the financing future construction.
Beaver Valley Plant. Expenses for the facilities services companies in 1998 reflect costs incurred from their respective acquisition We had about $77.8 million ofcash and tempor.uyinvest-dates. Other expenses for electric trading and power marketing ments and $254.5 milh_on ofshort-term mdebtedness on activities increased in 1998 compared to 1997 due to a substantial Decernber 31,1998. Our unused borrowing capabihty mduded expansion ofactivity at FETPM.
$146.5 milh.on under revolving lines ofcredit and a $2.0 million bank facility that provides for borrowings on a short-term basis at Depreciation and amortization increased compared to the the bank's discretion.
prior year in both 1998 and 1997. Exduding the effect of the former Centerior companies, depreciation and amortization in Our cash requirements in 1999 for operating expenses, con-1998 decreased $14.2 million from the prior year due primarily to stmen n expenditur-s and scheduled debt maturities are expected be met wnhout issuing new securities. Durmg 1998, we the net effect ofthe OE and Penn rate plans.The Pennsylvania t
Public Utility Commission's (PPUC) authorization ofPenn's rate reduced our total debt by approximately $278 million. We have restructuring plan in the second quarter led to discontinued appli-cash requirements ofapproximately $2.6 billion for the 1999-cation ofcertain regulatory accounting procedures (i.e. SFAS 71) 2003 period to meet scheduled maturities oflong-term debt and to Penn's teneration business, resulting in a write down ofits Preferred stock. Of that amount, approximately $712 milhon li 8PP es to 1999. On November 17,1998, we announced our nudear generating unit investment and the recognition ofa portion ofsuch investment, recoverable through future customer intenti n repurchase up to 15 million shares of the Company's rates, as a regulatory asset. Net of the Centerior contribution to c mm n st ck over a three-year period begmrung in 1999.
results in 1997, the increase in depreciation and amortization Our capital spending for the period 1999-2003 is expected to resulted fmm accelerations under the regulatory plans. General be about $2.2 billion (exduding nuclear fuel), ofwhich approxi-taxes increased for the OE companies in 1998 compared to 1997 mately $556 million applies to 1999. Investments for additional in part because ofgross receipts taxes on increased electric sales nudear fuel during the 1999-2003 period are estimated to be revenue. This followed a decrease in 1997 due to lower property approximately $399 million, ofwhich about $46 million applies taxes and an adjustment in the second quarter ofthat year which to 1999. During the same periods, our nudear fuel investments reduced the OE companies' liabilities for gross receipts taxes.
are expected to be reduced by approximately $438 million and Interest expenses increased due to the indusion of the former
$93 mE n, respectively, as the nudear fuel is consumed. Also, we Centerior companies for both 1998 and 1997. Exduding the have operating lease commitments, net of trust cash receipts, of impact of the merger, interest on long-term debt for the OE 8PProximately $765 million for the 1999-2003 period, ofwhich companies continued to trend downward due to refinancings and 8Pproximately $159 million relates to 1999.
19
Nine acquisitions were completed during 1998, representing In a final step to achieve complete ownership and operating stmtegic investments designed to expand our portfolio of energy-control over our power plants, we signed an agreement to purchase related products and services.The acquisition ofMARBEL, a fully from G PU, Inc. its 20 percent interest in the Seneca Pumped-integrated natural gas company based in Canton. Nio, was Storage Hy.iroelectric Plant (87 megawatts). The added capacity completed in June 1998. FE Facilities acquired eight additional will enhance our ability to meet our customers' demand for elec-facilities services companies during the year bringing the total tricity during peak periods.
number of facilities services acquisitions to ten companies by the end of 1998. For 1998, our facilities services companies provided N
revenue of $198 million with more than 3,000 employees.
During 1998, we established a national sdes group within Our exposure to fluctuations in market interest rates is FirstEnergy Services Corp. to pursue sales in the unregulated mitigated since a significant portion ofour debt has fixed interest electric utility market.The national sales group began selling in rates, as noted in the table below. We are subject to the inherent the Pennsylvania market following the restructuring which opened interest rate risks related to refinancing maturing debt by issuing the generation business to increased competition.
new debt securities. As discussed in Note 2, our investments in capital trusts effectively reduce future lease obligations, also FirstEnergy signed an agreement in principle with Duquesne reducing interest rate risk. Changes in the market value ofour Light Company (Duquesne) that would result in the transfer of nuclear decommissioning trust funds are recognized by making a 1,436 megawatts owned by Duquesne at five generating plants in corresponding change to the decommissioning liability, as exchange for 1,328 megawatts at three plants owned by our described in Note 1.
EUOCs (see " Common Ownership of Generating Facilities" in Note 1). Final agreements relating to the exchange of assets, which will be structured as a tax-free transaction to the extent possible, are being negotiated.The transaction benefits the Company by providing exclusive ownership and operating control of all gener-ating assets that are now jointly owned and operated under the Central Area Power Coordination Group agreement.
The table below presents principal amounts and related weighted average interest rates by year of maturity for our investment portfolio, debt obligations and preferred stock with mandatory redemption provisions.
1999 2000 2001 2002 2003 THeRenFTeR T0 Tnt FarRYntue (Dollarsin Millions)
Investments other than Cash and Cash Equivalents:
Fixed income
$ 98
$ 91
$ 55
$ 84
$ 97
$1,406
$1,831
$1,942 Average interest rate 6.9%
5.1%
7.7%
7.7%
7.7%
7.7%
7.5%
Liabilities long-term Debt:
Fixed rate
$420
$373
$105
$724
$459
$3,921
$6,002
$6,464 Average interest rate 7.6%
7.0%
8.7%
7.9%
8.0%
7.6%
7.6%
Wriable rate
$252
$4
$ 3
$2
$1
$ 519
$ 781
$ 783 Average interest rate 6.0%
6.3%
6.3%
6.2%
6.3%
3.8%
4.6%
Short-term Borrowings
$254
$ 254
$ 254 Average interest rate 5.7%
5.7%
Preferred Stock
$ 40
$ 38
$ 85
$ 20
$2
$ 139
$ 324
$ 340 Average dividend rate 8.9%
8.9%
8.9%
8.9%
7.5%
8.8%
8.E %
20
do the job right the first time. Currendy, the working group, entity would be designed to meet the goals of reducing trans-comprised oflegislative leaders, representatives of the electric mission costs that result when transferring power over several utility companies and other interested stakeholders are meeting to transmission systems, ensuring transmission reliability and discuss and mold these proposals. Most recendy, placeholder bills providing non-discriminatory access to the transmission grid.
containing statements ofprinciple (that will be replaced by specific proposals as they are agreed upon) have been introduced. Legisla-tive leaders have placed a high priority on enacting a deregulation Hew Accounting Standard bill by mid-year.
In June 1998, the Financial Accounting Standards Board The Clean Air Act Amendments of 1990, discussed in Note 5, issued Statement of Financial Accounting Standards No.133 require additional emission reductions by 2000. We are pursuing (SFAS 133), " Accounting for Derivative Instruments and Hedging cost-effective compliance strategies for meeting these reduction Activities".The Statement establishes accounting and reporting requirements.
standards requiring that every derivative instrument (induding certain derivative instruments embedded in other contracts) be On September 24,1998, the Federal Environmental recorded on the balance sheet as either an asset or liability Protection Agency issued a final rule establishing righter nitrogen oxide emission requirements for fossil fuel-fired utility boilers in measured at its fair value. The Statement requires that changes in Ohio, Pennsylvania and twenty other castern states, induding the the derivative's fair value be recognized currently in earnings unless District of Columbia (see " Environmental Matters" in Note 5).
specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset -
Controls must be in place by May 2003, with required reductions related results on the hedged item in the income statement. SFAS achieved during the five-month summer ozone season (May through September). The new rule is expected to increase the cost 133 is effective for fiscal years beginning afterJene 15,1999. A of producing electricity; however, we believe that we are in a better company may implement the Statement for any fiscal quarter position than a number ofother utilities to achieve compliance beginning after June 16,1998. We have not yet quantified the impacts of adopting SFAS 133 on our financ:al statements or due to our diversified nudear and hydroelectric generation capacity.
determined the method ofits adoption. We, nticipate adopting the new Statement effectiveJanuary 1,2000.
CEI and TE have been named as "potentially responsible parties" (PRPs) for three sites listed on the Superfund National Yeor 2000 Readiness Priorities List and are aware of their potential involvement in the cleanup ofseveral other sites. Allegations that CEI and TE The Year 2000 issue is the result ofcomputer programs being 3
disposed of hazardous waste at thae sites, and the amount written using two digits rather than four to identify the applicable involved are often unsubstantiated and subject to dispute. Federal year. Any of our programs that have date-sensitive software may law provides that all PRPs for a particular site be held liable on a recognize a date using "00" as the year 1900 rather than the year joint and several basis. If CEI and TE were held liable for 100% of 2000. Because so many ofour computer functions are date the deanup costs ofall the sites referred to above, the cost could be sensitive, his could cause far-reaching problems, such as system-as high as $313 million. However, we believe that the actual wide computer failures and miscalculations, if no remedial action cleanup costs will be substantially lower than $313 million, that is taken.
CErs and TE's share of any cleanup costs will be substa-' !!y less W
M M
6 000 than 100% and that most of the other PRPs are financially able to contribute their share. CEI and TE have accrued a $5.8 million c mpliance that consists of an assessment ofour systems and liability as of December 31,1998, based on estimates of the costs operations that could be affected by the l, ear 2000 problem; ofcleanup and their proportionate responsibility for such costs.
remediation or replacement ofnoncompliant systems and com-We Eclieve that the ultimate outcome of these mat:ers will not ponents; and testing of systems and components following such main o lacemem. We have focused our Year 2000 have a matenal adverse effect on our financial condition, cash review on three areas: centralized system applications, noncen-flows or results ofoperau.ons.
tralized systems and relationships with third parties (induding in connection with the regulatory plans of our electric suppliers as well as end-use customers). Our review ofsystem utility operating companies to reduce fixed costs and lower readiness extends to systems involving customer service, safety, raus, we continue to take steps to restructure our operations.
shareholder needs and regulatory obligations.
We announced plans to transfer our transmission assets into a new subsidiary, American Transmission Systems, Inc., with the transfer We are committed to taking appropriate actions to eliminate expected to be finalized in 1999. The new subsidiary represents a or lessen negative effects of the Year 2000 issue on our operations, first step toward the goal ofestablishing or becom.mg part ofa We have completed an inventory of all computer systems and larger md pendent transmission company (TransCo). We believe hardware including equipment with embedded computer chips g
gg g
that a TransCo better addresses the Federal Energy Regulatory Commissions (FERC) stated transmission obj.ectives ofproviding replaced to become Year 2000-ready and are in the process of non-discriminatory service, while providing for streamlined and remediating them. Based on our timetable, we expect to have all cost-efficient operation. In workm.g toward the goal offorming a identified repairs, replacements and upgrades completed to larger regional transmission entity, FirstEnergy, Amencan Electric achieve Year 2000 readiness by September 1999.
Power, Virginia Power and Consumers Energy announced in Most ofour Year 2000 issues will be resolved through system November 1998 that they would prepare a FERC filing during the replacement. Of our major centralized systems, the general ledger first quaner of 1999 for such a regional transmission entity.The system and inventory management, procurement and accounts 22
Market Risk -Commodity Prices least $2 billion more than the amounts that would have been recognized if these regulatory plans were not in efTect.These We are exposed to market risk due to fluctuations in electricity and natural gas prices. To manage the volatihty relating to these additional regulatory charges will be recognized over the rate plan period. The FirstEnergy regulatory plan does not provide for full exposures, we use a variety ofderivative instruments, induding forward contracts, options and futures contracts. These derivatives recovery of CEI's and TE's nudear operations. Accordingly, regulatory assets representing customer receivables for future are used principaUy for hedging purposes and to a lesser extent, for income taxes related to nudear assets of $794 million were written trading purposes. A sensinvity analysis has been prepared t offprict to consummation of the merger in 1997 since CEl and estimate our exposure to the market risk ofour commodity position. A hyoothetical 10 percent adverse shift in quoted market TE ceased application of SFAS 71 for their nudear operations when implementation of the FirstEnergy regulatory plan became pnces m the near term on both our trading and non-trading probable. At the consummation of the merger in November 1997, instruments would.ot have had a material effect on our consoli-dated fmancial position, results ofoperations or cash flows as ofor CEl and TE recognized a fair value purchase accounting adjust-for the year ended December 31,1998.
ment, which decreased the carrying value of their nudear assets by ap roximately $2.55 billion.The fair value adjustment recognized for financial reporting purposes will ultimatdy satisfy the Outlook
$2 billion asset reduction commitment contained in the CEl and TE regulatory plan.
We face many competitive challenges in the years ahead as the electric utility industry undergoes significant changes, induding Based on the cunent regulatory ern imnment and our changing regulation and the entrance of more energy suppliers regulamry plans, we believe we will continue to be able to bill into the marketplace. Retail wheeling, which has begun in our and c llect c st-based rates relating to CEI's and TE's nonnudear Pennsylvania service area, allows retail customers to purchase elec-operations and all ofOE's operations. As a result, we will continue tricity from other energy producers. Our regulatory plans have the application of SFAS 71. However, changes in the regulatory provided a solid foundation to position us to meet the challenges envir nment appear to be on the horizon for electnc unhues m we are facing by significandy reducing fixed costs and lowering Ohio. As further discussed below, the Ohio legislature is in the rates to a more competitive level.
discussion stages of restructuring the State s actnc unhty industry. Although we believe that regulatory changes are possible OE's Rate Reduction and Economic Development Plan in 1999, we cannot currendy estimate the ukimate impact.
was approved by the Public Utilities Commission of Ohio (PUCO) in 1995 and FirstEnergy's Rate Reduction and Econors.7evel.
F r Penn, application of SFAS 71 was discontinued for the opment Plan for CEI and TE was approved in January 1997.
generation portion ofits business in June 1998 following PPUC These regulatory plans maintain base dectric rates for OE, CEI appmval f the rate restructuring plan. Customer choice will be h
P ased in over two years with 66% ofeach customer dass able to and TE through December 31,2005.The plans also revised the OE, CEI and TE fuel cost recovery methods. Penn's Rate Stability choose alternative suppliers ofgeneration on January 2,1999, and and Economic Development Plan, which was approved by the au remaining cust mers having choice as ofJanuary 2,2000.
PPUC in the second quarter of 1996, ended in 1998 with the Under the plan, Penn continues to deliver power to homes and PPUC's authorization ofPenn's rate restructuring plan.
businesses through its transmission and distribution system, which remains regulated. However, Penn's rates have been restructured to As part of OE's regulatory plan, transition rate credits establish separate charges for transmission and distribution; gener-were implemented for customers, which are expected to reduce ation, which is subject to competition; and stranded cost recovery, operating revenues by approximately $600 million during the In the event customers obtain power from an alternative source, regulatory plan period, which is to be followed by a base race the generation portion of Penn's rates will be exduded from their reduction of approximately $300 million in 2006. The base rate bill and the customers will receive a generation charge from the freeze for CEI and TE is to be followed by a $310 million base rate alternative supplier.The stranded cost recovery portion of rates reduction in 2006; interim reductions which began in June 1998 provides for recovery ofcertain amounts not otherwise considered of $3 per month will increase to $5 per month per residential recoverable in a competitive generation market, induding regula-l customer byJuly 1,2001. Total savings of $391 million are tory assets. Penn is entitled to recover $234 million ofstranded anticipated over the term of the plan for CEI's and TE's customers.
costs through a competitive transition charge that starts in 1999 CEI and TE have also committed $ 105 million for economic and ends in 2005.
I development and energy efficiency programs.
We continue to actively pursue the enactment of fair legisla-l The PUCO has authorized OE to recognize additional tion calling for deregulation ofOhio's investor-owned electric j capital recovery related to its generating assets (which is reflected utility industry. In early 1998, a deregulation proposal was intro-as additional depreciation expense) and additional amortization duced, leading to the creation of a working group to recommend of regulatory assets during the regulatory plan period of at least legislation. As requested by legislative leadership, investor-owned
$2 billion more than the amount that would have been recognized utilities introduced a deregulation plan with objectives to (1) treat if the regulatory plan was not in effect. This additional amount is all major stakeholders in Ohio's electric system fairly; (2) protect being recovered through current rates-public schools and local governments from revenue loss; and in the regulatory plan for CEI and TE, the PUCO authorized (3) allow utilities an opportunity to recover costs of government-for regulatory accounting purposes. additional capital recovery mandated investments.The utilities have submitted proposals related to CEI's and TE's generating assets and additional amorti.
which incorporate these objectives and also recognize the com-zation of regulatory assets during the regulatory plan period of at plexity of restructuring the industry. The overlying objective is to 21
Consolidated Statements of Income fInsTEN e n cy CoR P.
(In thousandr, exceptper share amounts)
For the Years Ended December 31, 1998 1997 1996 REVENUES:
Electric sales
$4,979,718
$ 2,774,813 996
$ 2,434,633 Other-electric utilities 244,129
- 141, 87,155 Facilities services 198,336 Electric trading and power markering 410,728 43,145 Other 28,374 242 Total revenues 5,861,285 2,960,196 2,521,788 EXPENSES:
Fuel and purchased power 983,735 486,267 456,629 Other expenses:
Electric utilities 1,478,840 850,217 670,819 Facihties services 184,440 Electric trading and power marketing 517,001 44,032 Other 41,337 Provision for depreciation and amortization 740,953 475,228 383,441 General taxes 550,908 282,163 241,998 Total expenses 4,497,214 2,137,907 1,752,887 INCOME BEFORE INTEREST AND INCOME TAXES 1,364,071 822,289 768,901 NETINTEREST CHARGES:
Interest expense 542,819 284,180 240,146 Allowance for borrowed funds used during construction and capitalized interest (7,642)
(3,469)
(3,136)
Subsidiaries' preferred stock dividends 65,799 27,818 27,923 Net interest charges 600,976 308,529 264,933 INCOMETAXES 321,699 207,986 201,295 INCOME BEFORE EXTRAORDINARYITEM 441,396 305,774 302,673 EXTRAORDINARY ITEM (NET OF INCOME TAX BENEFIT OF $21,208,000) (Note 1)
(30,522)
NETINCOME
$ 410,874
$ 305,774
$ 302,673 WEIGilTED AVERLE NUMBER OF COMMON SHARES OUTSTANDING 226,373 157,464 144,095 BASIC AND DILUTED EARNINGS PER SHARE OF COMMON STOCK (Note 3C):
Income before extraordinaryitem
$1.95
$1.94
$2.10 Extraordinary item (Net ofincome taxes) (Note 1)
(.13)
Net income
$1.82
$1.94
$2.10 DIVIDENDS DECLARED PER SHARE OF COMMON STOCK
$1.50
$1.50
$1.50 The accompanyingNotes to ConsolidatedFinancialStatemenn are an integralpart ofthesestatemenn.
24
payable systems were replaced at the end of 1998. Our payroll Ue believe we are managing the Year 2000 issue in such a way system was cr.hanced to be Year 2000 compliant in July 1998; all that our customers will not experier.'ce any interruption of service, employees have been converted to the new system.The customer We believe the most likely worst-case scenario from the Year 2000 service system is due to be replaced in mid-1999.
"asue will he disruption in power plant monitoring systems, We have completed formal communica ions with most ofour thereby producing inaccurare data and potential failures in elec-key suppliers to determine the extent to w9h we are vulnerable troruc switching mechanisms at transmission Juncuons. This to those third panies' failure to resoke their own Year 2000 w uld prolong localized outages, as technicians would have to problems. For suppliers having potential compliance problems, we manually activate < witches. Such an event could have a material, are developing alternate sources and services in the event such but currently undeterminable, effect on our fmancial results.
noncompliance occurs. We are also identifying areas requiring We are developing contingency plans to address the effects of higher inventory levels based on compliance uncertainties.There any delay in becoming Year 2000 compliant and expect to have can be no guarantee that the failure ofcompanies to resolve their c ntingency plans c mpleted byJune 1999.
own Year 2000 issue will not have a material adverse effect on our The cost. of the project and the dates on which we plan to business, fmancial condition and results ofoperations.
complete the Year 2000 modifications are based on management's We are using both internal and external resources to best estimates, w hich were derived from numerous assumptions of reprogram and/or replace and test our software for Year 2000 future events including the continued availability ofcertain modifications. Of the $92 million total project cost, approxi-res urces, and other factors. However, there can be no guarantee mately $74 million will be capitalized since those costs are that this pmject will be completed as planned and actual results attributable to the purchase of new software for total system c uld difTer materially from the estimates. Spetific factors that replacements because the Year 2000 solution comprises only a might cause material differences include but are not limited to, the portion of the benefits resulting from the system replacements.
av ilability and cost of trained personnel, the ability to locate and The remaining $18 million will be expensed as incurred. As of C rrect all relev2nt computer code, and similar uncertainties.
December 31,1998, we have spent $54 million for Year 2000 capital projects and had expensed approximately $9 million for Year 2000-related maintenance activities. Our total Year 2000 project cost, as well as our estimates of the time needed to ceplete remedial efforts, are based on currently available infor-marion and do not include the estimated costs and tirne associated with the impact of third party Year 2000 issue..
1 l
l 23
Consolidated Bolonce Sheets FIRsTENE RGY CORP.
(In thousands)
At December 31, t998 1997 ASSETS CURRENTASSETS:
Cash and cash equivalents 77,798 98,237 Receivables-Customers (less accumulated provisions of S6,397,000 and $5,618,000, respectively, for uncollectible account )
239,183 284,162 Other (less accumulated provisions of $46,251,000 snd $4,026,000, respectively, for uncollectible accountd 322,186 219,106 Materials and supphes, at average cost -
Owned 145,926 154,961 2
Under consignment 110,109 82,839 Propayments and other 171,931 163,686 1,067,133 1,002,991 PROPERTY, PLANT AND EQUIPMENT:
In service 14,961,664 15,104,327 less - Accumulated provision for depreciation 6,012,761 5,668,997 8,948,903 9,435,330 Construction work in progress 293,671 200,662 9,242,574 9,635,992 INVESTMENTS:
Capital trust investments (Note 2) 1,329,010 1,370,177 Letter of credit collateralization (Note 2) 277,763 277,763 Other 812,231 596,380 2,419,004 2,244,320 DEFERRED CHARGES:
Regulatory assets 2396,762 2,624,144 Goodwill 2,167,968 2,107,795 Other 470,066 465,553 5,334,796 5,197,492 8,063,507
$ 18,080,795 LIABILITIES AND CAPITALIZATION CURRENT LIABILITIES:
Currently payable long-term debt and preferred stock 876,470 470,436 Short-term borrowings (Note 4) 254,47(,
302,229 Accounts payable 305,326 312,690 Accrued taxes 401,683 381,937 Accrued interest 141,575 147,694 Other 203,460 193,850 2,182,989 1,808,836 CAPITALIZATION (See Consolidated Statements ofCapitalization):
Common stockholders' equity 4,449,158 4,159,598 Preferred stock ofconsoliaated subsidiaries-Not subject to mandatory redemption 660,195 660,195
=
Subject to mandatory redempem 174,710 214,864 Ohio Edison obligated mandatority redeemaNe preferred securities of subsidiary trust holding solely Ohio Edison subordinated debentures 120,000 120,000 m
long-term debt 6,352,359 6,969,835 11,756,422 12,124,492 DEFERRED CREDITS:
Accumulated deferred income taxes 2,282,864 2,304,305 Accumulated deferred investment tax credits 286,154 324,200 Pensions and other postretirement benefits 525,647 492,425 Other 1,029,431 1,026,537 4,124,096 4,147,467 COMMITMENTS, GUARANTEES AND CONTINGENCIES (Notes 2 and 5 )
$18.063,507
$18,080,795 l
The acompanying Noter to ConsolidatedFinancialStatemenu are an integralpart ofthese balance sherrs.
25
Consolidated Statements Of Capitalization hasTENinGY CORP.
(Do,lars in showands, exceptper share amounn)
At December 31, 1998 1997 COMMON STOCKHOLDERS' EQUITY:
Common stock, $.10 par value - authorized 300,000,000 shares 237,069,087 and 230,207,14I shares outstanding, respectively
$ 23,707 23,021 Other paid-in capital 3,846,513
'37,522 Accumulated other comprehensive income (Note 3D)
(419)
(614)
Retained earnings (Fore 3A) 718,409 646,446 Unallocated emplo3 ce stock ownership plan common stock -
7,406,332 and 7,829,538 shares, respectively (Note 3B)
(139,d32 )
(146,977)
Total common stockholders
- cquity 4,449,158 4,159,598 Number of Shares Optional Outstanding Redemption Price 1998 1997 Per Share Aggregate PREFERRED STOCK OF CONSOLIDATED SUBSIDIARIES (Note 3E)
Cumulative, $100 par value-Authorized 6,000,000 shares Not Subject to Mandatory Redemption:
3.90 %
152,510 152,510
$103.63
$15,804 15,251 15,251 4.40%
176,280 176,280 108.00 19,038 17,628 17,628 4.44 %
136,560 136,560 103.50 14,134 13,656 13,656 4.56 %
144,300 144,300 103.38 14,917 14,430 14,430 609,650 609,650 63,893 60,965 60,965 Cumulative, $25 par value-Authorized 8,000,000 shares Not Subject to Mandatory Redemption:
7.75%
4,000,000 4,000,000 100,000 100,000 Total Not Subject to Mandatory Redemption 4,609,650 4,609,650
$63,893 160,965 160,965 Cumulative, $100 par value -
l Subject to Mandatory Redemption (Note 3F):
8.45 %
150,000 200,000 15,000 20,000 Redemption Within One Year (5,000)
(5,000) 150,000 200,000 10,000 15,000 Pennsylvania Power Company Cumulative, $100 par value -
Authorized 1,200,000 shares Not Subject to Mandatory Redemption:
4.24 %
40,000 40,000 107.13
$ 4,125 4,000 4,000 4.25%
41,049 41,049 105.00 4,310 4,105 4,105 4.64 %
60,000 60,000 102.98 6,179 6,000 6,000 7.64 %
60,000 60,000 101.42 6,085 6,000 6,000 7.75 %
250,000 250,000 25,000 25,000 8.00 %
58,000 58,000 102.07 5,920 5,800 5,800 Total Not Subject to Mandatory Redemption 509,049 509,049
$26,619 50,905 50,905 Subject to Mandatory Redemption (Note 3F):
7.625 %
1'0,000 150,000 106.86
$16,029 15,000 15,000 OE OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARYTRUST HOLDING SOLELY OE SUBORDINATED DEBENTURES (Note 3G):
Cumulative, f 25 par value-Authorized 4,800,000 shares Subject to Mandatory Redemption:
9.00 %
4,800,000 4,800,000 120,000 120,000 26
Consolidated Statements of Capitalization (Cont'd) f rasitutacy cone.
(DoHars in thousands, exceptpershare amounts)
At Decernber 31, 1998 1997 Number ofShares Optional Outstanding Redemption Price 1998 1997 Per Share Aggregate PREFERRED STOCK OF CONSOLIDATED SUBSIDIARIES (Cont'd)
Cleveland Electric !!1uminating Company Cumulative, without par value -
Authorized 4,000,000 shares Not Subject to Mandatory Redemption:
$ 7.40 Series A 500,000 500,000 $ 101.J0 $ 50,500 50,000 50,000 5 7.56 Series B 450,000 450,000 102.26 46,017 45,071 45,071 Adjustable Series t 474,000 474,000 100.00 47,400 46,404 46,404
$42.40 Series T 200,000 200,000 500.00 100,000 96,850 96,850 Total Not Subject to Mandatory Redemption 1,624,000 1,624,000
$ 243,917 238,325 238,325 Subject u Mandatory Redemption:
$ 7.35 Series C 100,000 110,000 101.00 $ 10,100 10,110 11,110
$88.00 Series E 6,000 9,000 1,003.83 6,023 6,000 9,000
$91.50 Series Q 32,144 42,858 1,000.00 32,144 3,144 42,858
$88.00 Series R 50,000 50,000 55,000 55,000
$90.00 Series S 74,000 74,000 79,920 79,920 262,144 285,858 48,267 183,174 197,888 Redemption Within One Year (33,464)
(14,714)
Total Subject to Mandatory Redemption 262,144 285,858
$ 48,267 149,710 183,174 Toledo Edison Company Cumulative, $100 par value-Authorized 3,000,000 shares Not Subject to Mandatory Redemption:
$ 4.25 160,000 160,000 104.63 $ 16,740 16,000 16,000
$ 4.56 50,000 50,000 101.00 5,050 5,000 5,000
$ 4.25 100,000 100,000 102.00 10,200 10,000 10,000
$ 8.32 100,000 100,000 102.46 10,246 10,000 10,000
$ 7.76 150,000 150,000 102.44 15,366 15,000 15,000
$ 7.d0 150,000 150,000 101,65 15,248 15,000 15,000
$10.00 190,000 190,000 101.00 19,190 19,000 19,000
?
900,000 900,000 92,040 90,000 90,000 Cumulative, $25 par value-Authorized 12,000,000 shares Not Subject to Mandatory Redemption:
$ 2.21 1,000,000 1,000,000 25.25 25,250 25,000 25,000
$ 2.365 1,400,000 1,400,000 27.75 38,850 35,000 35,000 Adjustable Series A 1,200,000 1,200,000 25.00 30,000 30,000 30,000 Adjustable Series B 1,200,000 1,200,000 25.00 30,000 30,000 30,000 4,800,000 4,800,000 124,100 120,000 120,000 Total Not Subject to Mandatory Redemption 5,700,000 5,700,000
$ 216,140 210,000 210,000 Cumulative, $100 par value-Subject to Mandatory Redemption:
$ 9.375 16,900 33,550 100.00 1,690 1,690 3,355 Redemotion Within One Year (1,690)
(1,665)
Total Subject to Mandatory Redemption 16,900 33,550 1,690 1,690 2,
Consolidated Statements of Capitalization (Cont'd)
FIRsTENERGY CORP.
LONG-TERM DEBT (Note 31I) (Interest rates reBect weighted average rates)
(In thousandr)
FIRST MORTGAGE BONDS SECURED NOTES UNSECURED NOTES TOTAL Ar December 31, 1998 1997 1998 1997 1998 1997 1998 1997 Ohio Edmon Co. -
Due 1998-2003 7.60%
$ 659,265
$ B09,265 7.52%
$ 144,261
$ 146,201 5.34%
$ 566,500
$ 531,500 Due 2004-2008 6.88%
B0,000 80,000 7.68%
106,995 104,445 Due 2009-2013 Due 2014-2018 7.12%
113,725 113,725 Due 2019-2023 7.99%
225,960 225,960 7.32%
209,943 209,943 Due 2024-2028 7.49%
121,522 108,000 Due 2029-2333 5.75%
121,012 121,012 Total-Ohio Edmon 965,225 1,115,225 817,458 003.326 566,500 531,500
$ 2,349,183
$ 2,450,051 Cleveland Electric Ilieninating Co. -
Due 1998-2003 7.54 %
295,000 295,000 7.94 %
424,150 490,180 6,600 Due 2004-2008 8.72%
425,000 375,000 7.51%
400,150 400,150 23,000 Due 2009-2013 200,000 7.62%
230,280 237,630 17,000 Due 2014-2018 6.59%
412,630 413,915 Due 2019-2023 9.00%
150,000 150,000 6.58%
291,8'4 341,860 Due 2024-2028 7.59%
143,843 142,850 Due 2029-2033 4.56%
104,895 Total-Clevcland Electric 870,000 1,020,000 2,012,808 2,026,585 46,600 2.882,808 3.093,185 Toledo Edison Co.-
Due 1998-2003 7.47%
120,325 146,725 7.90%
214,500 253,150 8.62%
138,720 139,020 Due 2004-2008 7.88%
145,000 145,000 7.51%
100,000 100,000 10.0 0 %
150 150 Due 2009 2013 4.98%
31,250 31,250 10.00 %
730 730 Due 2014-2018 Due 2019-2023 7.88%
334,000 334,000 Due 2024-1028 5.90%
13,851 10,100 Due 2029-2033 Toral-Toledo Edison 265,325 291,725 693,601 728.500 139,600 139,900 1,098,526 1,160,125 Penruylvania Power Co.-
Due 1998-2003 7.72%
44,383 44,383 6.08%
23,000 23,850 Due 2006.-2008 4.88%
39,370 39,370 Due 2009-2013 9.74%
4,870 4,870 5.40%
1,000 1,000 Due 2014-2018 9.74%
4,870 4,870 6.28%
45,325 45,325 Due 2019-2023 8.37%
34,757 34,757 6.91%
32,382 32,382 Due 2024-2028 5.63%
47,734 46,000 Dve 2029-2033 5.95%
238 238 m
Total-Penn Power 128,250 128,250 149,679 148,795 277,929 277,045 OES Fud 5.97%
79,524 80,755 79,524 80,755 Bay Shore Power 7.12%
147,500 147,500 MARBEL Energy Corp.
6.40%
12,418 12,418 Facilities Services Group 7.38%
10,237 8.52%
3,917 14,154 Total 2,228,800 2,555,200 3,923,225 3,787,961 710,017 718,000 6,842,042 7,041,161 Capitallease obbgarmns 199,491 204,213 Net unamortized premium on debt i27,142 153,518 long-term debt due within one year (836,316)
(449,057)
Totallong-term debt 6,352,359 6,969,835 TOTAL CAPITALIZATION
$ 11,756,422
$ 12.124,492 The accompanpng Notes to ConsolidatedFinancialStatements are an integralpart ofthese statements.
28
Consolidated Statements of Common Stockholders' Equhy FIRsTENERGY CORP.
(Dollarsin usands)
Accumulated l Unallocated Other Other ESOP Comprehensive Number Par Paid-in Comprehensive Retained Common bcomeNetr3D ofShares
%!ue Capital Income-Nore3D Earning Stock Balance, January 1,19%
152,569,437 $1,373,125
$ 726,915 (608) $471,095
$(16?,656)
Net income
$ 302,673 302,673 Minimum liability for unfunded retirement benefits, net of$27,000 ofincome taxes (51)
(51)
Comprehensive income
$302,622 AJiocation ofESOP Shares 1,346 7,646 Cash dividends on common stock (216,126)
Balance, December 31,1996 152,569,437 1,373,125 728,261 (659) 557,642 (155,010)
Net income
$ 305,774 305,774 Minimum liability for unfunded reurement benefits, net of 526.000 ofincome taxes 45 45 Comprehensive income
$ 305,819 Centerior acquisition 77,637,704 (1,350,104) 2,907,387 Allocation ofESOP Shares 1,874 8,033 Cash dividends on common stock (216,770)
Balance, December 31,1997 230,207,141 23,021 3,637,522 (614) 646,646 (146,977)
Net income
$ 410,874 410,874 Minimum liability for unfunded retirement benefits, net of $53,000 ofincome taxes 175 175 Comprehensive income
$ 411,049 Business acquisitions 6,861,946 686 203,496 Allocation ofESOP Shares 5,495 7,945 Cash dividends on common stock (339,111)
Balance, December 31,1998 237,069,087 $ 23,707
$3,846,513 (439) $718,409
$(139,032)
Consolidated Statements of Preferred Stock F2RsTENEa u Ca n (Dollarsin ek -inds)
Not Subject to Subject to Mandatory Rede mption Mandatory Redemption Par or Par or Number Stated Number Stated ofShares Wlue ofShares Value Balance, January 1,1996 5,118,699
$211,870 5,200,000
$160,000 Balance December 31,1996 5,118,699 211,870 5,200,000 160,000 Centerior acquisition 7,324,000 448,325 319,408 201,243 Redemptions -
8.45% Series (50,000)
(5,000)
Balance, December 31,1997 12,442,699 660,195 5,469,408 356,243 Redemptions -
8.45% Series (50,000)
(5,000)
$ 7.3% Series C (10,000)
(1,000) 388.00 Series E (3,000)
(3,000)
$91.50 Series Q (10,714)
(10,714)
$9.375 Series (16,650)
(1,665)
Balance, December 31,1998 12,442,699 f
$660,195 5,379,044
$334,864 The accompanying Notes to C' nsolidazedFinancialStatemenn are an integralpart ofthese statemenn.
o 29
Consolidated Statements of Cash flows FIRsif Nf R GY CORP, (in thousands)
For the Year: Ended December 31, 1998 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income
$ 410,874
$ 305,774
$ 302,673 Adjustments to reconcile net income to net cash from operating activities:
Provision for depreciation and amortization 740,953 475,228 383,441 Nuclear fuel and lease amortization 94,348 61,960 52,784 Other amortization, net (13,OJ7)
(1,187)
(1,700)
Deferred income taxes, net (5,8:1)
(29,642) 41,365 Investment tax credits, net (22,070)
(16,252)
(14,041)
Allowance for equity funds used during construction (201)
Extraordinary item 51,730 Receivables 35,515 21,846 24,326 Materials and supplies (14,235)
(18,909)
(736)
Accounts payaole (73,205) 57,087 962 Other (49,727) 733 (41,317)
Net cash provided from operating activities 1,155,325 856,437 747,757 CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-Common stock 204,182 1,558,237 Long-term debt 499,975 89,773 306,313 Ohio Schools Counch prepayment program 116,598 Short-term borrowings, net Redemptions and Repayments-229,515 Preferred stock 21,379 5,000 1,016 long-term debt 804,780 335,909 438,916 Short-term borrow' gs, net 48,354 47,251 m
Common Stock Dividend Payments 339,111 237,848 218,656 Net cash provided from (used for) financing nctivities (392,869) 1,022,002 (122,763)
CASH FLOWS FROM INVESTING ACTIWTIES:
Centerior acquisition 1,582,459 Property additions 652,852 203,839 148,189 Cash investments 47,804 8,934 487,979 Other 82,239 62,237 13,406 Net cash used for investing activities 782,895 1,857,469 649,574 Net increase (decrease) in cash and cash equivalents (20,439) 20,970 (24,577)
Cash and cash equivalents at beginning of period' 98,237 77,267 29,830 Cash and cash equivalents at end et year 77,798 98,237 5,253 SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash Paid During the Year-Interest (net of amounts capitalized)
$ 536,064
$ 281,670
$ 224,541 Income taxes
$ 326,268
$ 265,615
$ 157,477
- 1997 beginning balance includes Centerior cash andcash equivalents as ofthe Novem'cer 8,1997 acquisition date.
The accompanying Notes to ConsolidatedFinancialStasemenu are an integralpart ofthese statemenn.
30
Consolidated Statements of Taxes FIRsTENE R GY CORP.
(in thousands)
For the Years Ended December 31, 199a 1997 1996 GENERALTAXES:
Real and personal properry
$ 292,503
$ 137,816
$ 115,443 State gross receipts 217,633 118,390 104,158 Social security and unemployment 27,363 16,551 14,602 Other 13,409 9,406 7,795 Total general taxes
$ 550,908
$ 282,163
$ 241,998 PROVISION FOR INCOMETAXES:
Currently payable-Federal
$ 313,960
$ 235,728
$ 164,132 State 14,452 18,152 9,839 328,412 253,880 173,971 Deferred, net -
Federal 3,356 (23,716) 37,277 State (9,207)
(5,926) 4,088 (5,851)
(29,642) 41,365 Investment tax credit amortization (22,070)
(16,252)
(14,041)
Total provision for income taxes
$ 300,491
$ 207,986
$ 201,295 RECONCILIATION OF FEDERAL INCOMETAX EXPENSE AT STATUTORY RATE TO TOTAL PROVISION FOR INCOME TAXES:
Book income before provision for income taxes
$ 711,365
$ 513,760
$ 503,968 Federal income tax expense at statutory rate
$ 248,978
$ 179,816
$ 176,389 Increases (reductions) in taxes resulting from -
Amortization ofinvestment tax credits (22,070)
(16,252)
(14,041)
State income taxes net of federal income tax benefit 3,409 7,947 9,053 Amortization of tax regulatory assets 40,365 30,402 26,945 Amortization ofgoodwill 17,868 2,685 Preferred stock dividends 19,250 5,956 5,993 Other. net (7,309)
(2,568)
(3,044)
Total provision for income taxes
$ 300,491
$ 207,986
$ 201,295 ACCUMULATED DEFERRED INCOMETAXES AT DECEMBER 31:
Property basis differences
$1,938,735
$ 2,091,207
$ 1,319,878 Deferred nuclear expense 436,601 454,902 262,123 Customer receivables for future income taxes 159,526 262,428 191,537 Competitive transition charge 135,730 Deferred sale and leaseback costs (61,506)
(121,974) 78,607 Unamortized investment tax credits (102,085)
(116,593)
(72,663)
Unused alternative minimum tax credits (190,781)
(243,039)
Other (33,356)
(22,626)
(2,396)
Net deferred income tax liability
$ 2,282,864
$ 2,304,305
$1,777,086 j The accompanying Notes to ConsolidatedFinancialStatements are an integralpart ofthese statanents.
31
Notes to Consolidated Financiol Statements customers through separate energy rates. In accordance with the respectue regulatory plans, OE's, CEI's and TE's fuel rates will be
- 1.
SUMMARY
0F SIGNIFICANT ACCOUNTING POLICIES:
frozen through the regulatory plan period, subject to limited The consolidated fmancial statements indude FirstEnergy PeMc aSustmenu. k pan oMEi anhtEneps regulamry Corp. (Company) and its principal electric utility operating sub-plans, trans ti n rate credits were implemented for customers, sidiaries, Ohio Edison Company (OE),The Cleveland Electric
"'***P*'
""**P**"P'""**
by Illuminating Company (CEI), Penmylvania Power Company 2Pproximately $600 million and CEI and TE'by approximately (Penn) and HeToledo Edison Company (TE). The Company
$391 milli n during the regulamry plan period.
and its utility subsidiaries are referred to o coughout as in June 1998, the PPUC authorized a rate restructuring plan
" Companies."The Company's 1997 results ofoperations indude for Penn, which superseded the regulatory plan which had been in the resuhs of CEI and TE for the period November 8,1997 place for Penn since 1996 and essentially resulted in the deregula-through December 31,1997.The consolidated financial state- -
tion of Penn's generation business as ofJune 30,1998. Penn was ments also indude the Company's other principal subsidiaries:
required to remove from its balance sheet all regulatory assets and FirstEnergy Facilitic Services Group, Inc. (FE Facilities);
liabilities related to its generation business and assess all other FirstEnergy Trading & Power Marketing, Inc. (FETPM); and assets for impairment. The Securities and Excharu;e Commission MARBEL Energy Corporation. FE Facilities is the parent (SEC) issued interpretive guidance regarding asset impairment company of several heating, ventilating, air conditioning and measurement which concluded that any supplemental regulated energy management companies. FETPM markets and trades elec-cash flows such as a competitive transition charge (CFC) should tricity in nonregulated markets. MARBEL is a fully integrated be exduded from the cash flows of assets in a portion of the natural gas company. Significant intercompany transactions have busin ess not subject to regulatory accounting practices. Ifthose been climinated. The Companies follow the accounting policies assets are impaimd, a regulatory asset should be established if the and practices prescribed by the Public Utilities Commission of costs are recoverable through regulatory cash flows. Consistent Ohio (PUCO), the Pennsylvania Public Utility Commission with the SEC guidance, Penn reduced its nuclear generating unit (PPUC) and the Federal Energy Regulatory Comrnission (FERC).
investments by approximately $305 million, ofwhich approxi-The preparation of financial :,ntements in conformity with mately $227 million was recognized as a regulatory asset to be generally accepted accounting principles requires management to recovered through a CTC over a seven-year transition period; the make periodic estimates and assumptions that affect the reported remaining net amount of $78 million was written off. The charge amounts of assets, liabilities, revenues and expenses. Certain prior of $51.7 million ($30.5 million after income taxes) for discontin-year amounts have been redassified to conform with the current uing the application of Statement of Financial Accounting year presentation.
Standards (SFAS) No. 71, " Accounting for the Effects of Certain R eve nu e s -The Companies' principal business is providing Types of Regulation" (SFAS 71), to Penn's generation business was electric service to customers in central and northern Ohio and rec rded as an extraordinary item on the Consolidated Statement western Pennsylvania.The Companies' retail customers are metered on a cyde basis. Revenue is recognized for unbilled All of the Companies' regulatory assets are being recovered electric service through the end of the year.
under provisions of the regulatory plans. In addition, the PUCO Receivables from customers indude sales to residential, com-has authorized OE to recognize additional capital recovery related mercial and industrial customers located in the Companies' service
- N" 8"*'**
8 "'*".(w hich is reflected as addmonal deprecia-area and sales to wholesale customers. There was no material con.
a n expense) and addmonal amortization of regulatory assets centration ofreceivables at December 31,1998 or 1997, with during the regulatory plan period of at least $2 bilhon, and the PPUC had authonzed Penn to accelerate at least $358 milhon, respect to any particular segment of the Compam,es, customers.
gg CEI and TE sell substantially all of their retail customer regulatory plans were not in efTect. These additional amounts are accounts receivable to Centerior Funding Corp. under an asset-being recovered through current rates. As of December 31,1998, backed securitization agreement which expires in 2001. Centerior OE's and Penn's cumulative additional capital recovery and regula-Funding completed a public sale of $150 million of receivables-tory asset amortization amounted to $696 million (including backed investor certificates in a transaction that qualified for sale Penn's impairment discussed above). CEI and TE recognized a fair accounting treatment.
value purchase accounting adjustment of $2.55 billion in connec-R eg ulotory Plans -The PUCO approved OE's Rate ti n with the FhstEnergy merger; that fair value adjustment Reduction and Economic Development Plan in 1995 and recognized for fmancial reporting purposes will ultimately satisfy FirstEnergy's Rate Reduction and Economic Development Plan the $2 billion asset reduction commitment contained in the CEI for CEI and TE in January 1997. These regulatory plans initially and TE regulatory plan For regulatory purposes, CEI and TE will maintain current base electric rates for OE, CEI and TE through rec gmze the accelerat rd amortization over the rate plan period.
December 31,2005. At the end of the regulatory plan periods, Application ofSFAS /1 was discontinued in 1997 with OE base rates will be reduced by $300 million (app roximately respect to CEI's and TE's nudear operations (see Regulatory 20 percent below current levels) and CEI and TE base rates will be Assets" below) and in 1998 with respect to Penn's generation oper-reduced by a combined $310 million (approximately 15 percent atiom (as described above). The fdlowing summarizes net assets below current levels).The plans also revised the Companies' fuel induded in property, plant and equipment relating to operations cost recovery methods. The Companies formerly recovered fuel-for which the application of SFAS 71 was discontinued, compared related costs not otherwise induded in base rates from retail with the respective company's total assets at December 31,1998.
32
SFAS71 C0mmon Ownership of Generating Facilities-The Q j" 'd Companies and Duquesne Light Compa,y (Dt.quesne) consti-tute the Central Area Power Coordination Group (CAPCO). The CEI
$1,o64
$6,318 CAPCO companies own and/or lease, as tenants in common, vari.
TE 579 2,739 ous power generating facilities. Each of the companies is obligated Ivnn 146 978 to pay a share of the costs associated with any jointly owned Property, Plant and Equipment -Propeny. plant and facility in the same pr p stion as its interest.The Companies' equipment reflects original cost (except for CErs,TE's and Penn's P "
"8 f Perating expenses associated with o, tly owned facil-Jm r.adear generating units which were adjusted to fair value),
nues re mduded in the corresponding operating expenses on the induding payroll and related costs such as taxes, employee Consolidated Statements ofIncome.The amounts reflected on the e
benefas, administrative and general costs, and interest costs.
Consolidated Balance Sheet under property, plant and equipment at December 31,1998, indude the following:
The Companies provide for depreciation on a straight-line companies' basis at various rates over the estimated lives ofproperty included Accmnulated construction ownership /
in plant in service.The annual composite rate for OE's and Penn's P' "i'i"" f '
- "'k i" 1*h"Id electric P ant was aPProximatel 3.0% in 1998,1997 and 1996.
I" U'"
I " *"
l Y
CErs and TE's composite rates were both approximately 3.4% in (f,,y;;,,,
1998. In addition to the straight-line depreciation recognized in
{
$ 303.3
$ toL3
$ 2.0 6s.80%
1998,1997 and 1996, OE and Penn recognized additional capital
- 2 and a3 895.1 433.9 11.2 a3.01%
recovery of $ 141 million (exduding Penn's impairment),
stay,,ucy
$ 172 million and $ 144 million, respectively, as additional depreci-el and a2 2,052.3 619.6 11.8 69.46%
ation expense in accordance with their regulatory plans. Such Davi&Beue 404.4 4.s 10.3 100.00%
additional charges in the accumulated provision for depreciation 2j,74 7 2
1 2
were $422 million and $343 million as of December 31,1998 and Seneca 64.3 25.4 0.1 80.00%
' re8PcOe4 Total
$6,054.6
$2,092.0
$55.2 Annual depreciation expense indudes approximately
$30.9 million for future decommissioning costs applicable to the The Seneca Unit is currendy joindy owned by CEI and a Companies' ownership and leaschold interests in four nudear en-n n-CAPCO company.The Company has agreed to purchase the crating units. The Companies' share of the future obligation to-remaining 20% sharein 1999.
decommission these units is approximately $1.3 billion in current On October 15,1998, the Company announced that it dollars and (using a 4.0% escalation rate) approximately signed an agreement in principle witn Duquesne that would result
$3.4 billion in future do!!ars.The estimated obligation and the in the transfer of 1,436 megawatts owned by Duquesne at eight escalation rate were developed based on site specific studies.
CAPCO generating units in exchange for 1,328 megawata at Payments for decommissioning are expected to begin in 2016, three non-CAITO power plants owned by the Companies. A when actual deummissioning work begins. The Companies have definitive agreement on the exchange of assets, which will be struc-recovered approximately $284 million for decommissioning tured as a tax-free transaction to the extent possible, will provide through their electric rates from customers through December 31, the Companies with exdusive ownership and operating control of 1998. If the actual costs of decommissioning the units exceed the all CAPCO generating units. Duquesne will fund decommis-funds accumulated from investing amoums recovered from sioning costs equal to its percentage interest in the three nuclear customers, the Companies expect that additional amount to be generating units to be transferred. The asset transfer is expected to recoverable from their customers. The Companies have approxi-take twelve to eighteen months to close.
mately $358.4 reillion invested in external decommissioning trust funds as of December 31,1998. Earnings on these funds are rein-Nuclear Fu el - OE's and Penn's nudear fuel is recorded at -
original cost, which indudes material, enrichment, fabrication and vested with a corresponding increase to the decomnussiomng liability.The Companies have also recognized an estimated interest costs incurred prior to reactor load. CEI and TE severally liabihty of approximardy $32.5 million related to decontamma-lease their respective portions of nudear fuel and pay for the fuel as ton and decommissionmg of nudear enrichment facihnes it is consumed (see Note 2).The Companies amortize the cost of operated by the Umted States Department ofEnergy (DOE), as nudear fuel based on the rate ofconsumption.The Companies' required by the Energy Policy Act of 1992.
electric rates indude amounts for the future disposal of spent nudcar fuel based upon the formula used to compute payments to The Financial Accounting Standards Board (FASB) issued a the DOE.
proposed accounting standard for nudear decommissioning costs m 1996. Ifthe standard is adopted as proposed: (1) annual pr -
In c om e To x es - Details of the total provision for income caxes are shown on the Consolidated Statements ofTaxes.
vmons for decommissiomng could increase; (2) the net present value ofestimated decommissioning costs could be recorded as a Deferred income taxes result from timing differences in the recog-J liability; and (3) income from the external decommissioning trusts nition of revenues and expenses for tax and accounting purposes.
could be reported as investment income. The FASB subsequently Investment tax credits, which were deferred when utilized, are expanded the scope of the proposed standard te indude other being amortized over the recovery period of the related property.
dosure and removal obligations related to long-lived assets. A The liability method is used to account for deferred income taxes.
revised proposal may be issued by the FASB in 1999.
Deferred income tax liabilities related to tax and accounting basis differences are recognized at the statutory income tax rates in effect n
=
2
when the liabilities are expected to be paid. Alternative minimum Net pension and other postretirement benefit costs for the tax credits of $191 million, which may be carried forward indefi-three years ended December 31,1998 were computed as follows:
nitely, are available to reduce future federal income taxes.
c,a,,,
R e tir e m e n t B e n e fits -The Companies' trusteed, noncontributory defined benefit pension plans cover almost all sHs :n7 1n4 1He sn7 :na full-time employees. Upon retirement, employees receive a
, g, g, j",""%.$ u $ u g _.
monthly pension based on length of service and compensation. In Interest coar 92.5 55.9 49.3 37.6 20.4 17.4 1998, the Centerior Energy Corporation (Centerior) pension plan Expected return on plan ameu (152.7) (99.7) (83.2) (0.3) (0.2) (0.1) was merged into the FirstEnergy pension plans. The Companies Amoruzation of transition use the projected unit credit method for funding purposes and obligation (anet)
(8.0) (8.0) (8.0) 9.2 8.2 10.1 were not required to make pension contributions during the three 2j)
"I***
"' ' "'a 2
2.3 48) 0.3
)
years ended December 31,1998. The assets of the pension pin y,i,,,,,7,,g y
consist primarily ofcommon stocks, United States government program expense 54.5 12.5 1.9 0.5 bonds and corporate bonds.
Plan curtailment lon (gain)
- (12.8)
- 13.1 The Companies provide a minimum amount of noncontribu.
Net benefu mu
$(43.5) $ 19.1 $(25.7) $53.2 $35.2 $44.2 tory life insurance to retired employees in addition to optional in accordance with SFAS 88, " Employers' Accounting for contributory insurance. Health care benefits, which include Settlements and Curtailments of Defmed Benefn Pension Plans certain employee deductibles and copayments, are also available to and forTermination Benef.ts," the 1996 net pension costs and retired employees, their dependents and, under cenain circum-postretirement benefn costs shown above included curtailment stances, their survivors.The Companies pay insurance premiums effects (significant changes in projected plan assumptions) relating to cover a portion of these benefits in excess ofset limits; all to the pension and postretirement benefit plans. The employee amounts up to the limits are paid by the Companies. The terminations reflected in OE's and Penn's 1996 voluntary early Companies recognize the expected cost of providing other postre-retirement program represented a plan curtailment that signifi-tirement benefits to employees and their beneficiaries and covered cantly reduced the expected future employee service years and the dependents from the time employees are hind until they become related accrual of defined pension and postretirement benefits. In eligible to receive those benefits.
the pension plan, the reduction m the benefit obligation increased The follow'ng sets forth the funded status of the plans and the net pension asset and was shown as a plan curtailment gain. In amounts recognized on the Consolidated Balance Sheets as of the Postretirement benefit plan, the unrecognized prior service December 31:
mst associated with service years no longer expected to be ren-Other dered as a result of the terminations was shown as a plan curtailment loss.
1998 1997 1998 1997 (h m & m)
The health care trend rate assumption is 5.5% in the first year Change in benefit obliganon:
gradually decreasing to 4.0% for the year 2008 and later. Assumed can cm nen rates ea n cant ebn de amounts as 1
$1,327.5 $ 688.5 $ 534.1 $ 241.1 Servia: cost 25.0 15.2 7.5 4.6 reported for the health care plan. An merease in the health care Interest cost 92.5 55.9 37.6 20.4 trend rate assumption by one percentage point would increase the Plan amendments 44.3 3.0 40.1 toud service and interest cost components by $4.0 million and the Early retirement program cupense 54.5 1.9 Actuarialloss 101.6 63.3 10.7 17.0 postrettrement benefit obh.gauon by $68.1 milh.on. A decrease m.
Centerior acquisition 508.9 265.9 the same assumption by one percentage point would decrease the Benefits paid (90.8)
(61.8)
(28.7)
(16.8) total service and interest cost components by $3.2 million and the Benefu obGgation as of postretirement benefit obligation by $55.2 million.
December 31 1,500.1 1,327.5 601.3 534.1 Change in plan asseu:
Supplementcl COSH Flows Information-All Fair value ofplan aucu temporary cash investment: purchased with an initial maturity of y*gf 1]2j 946j 2j 2j three months or less are reported as cash equivalents on the company contribution 0.4 0.3 Consolidated Balance Sheets.The Compames reflect temporary Centerior acquisiron 464.0 cash investments at cost, which approximates their market value.
Benefin paid (90.8)
(61.8)
Noncash financing and investing activities included capital lease Fair value of plan asseu transactions amounting to $61.8 million, $3.0 million and as ofDecember 31 1,683.0 1,542.5 3.9 2.8
$2.0 million for the years 1998,1997 and 1996, respectively.
)
I loss (gain)
(
) (
)
36 Commercial paper transactions of OES Fuci, Incorporated rea Unrewgnized prior service cost 63.0 21.0 27.4 (13.8)
(OES Fuel) (a wholly owned subsidiary of OE) that have initial Unrecognized net transition maturity periods of three months or less are reported net withh obligation (asser)
(18.0)
(25.9) 129.3 138.9 financing activities under long-term debt and are reflected s ng-Prepaid (accrued) benefa cmt
$ 117.1 4 73.6 $ (410.1) $(382.2) term debt on the Consolidated Balance Sheets (see Note 3h, Anumptions used as of December 31:
All borrowings with initial maturities ofless than one year are Discount rate 7.00%
7.25%
7.00%
7.25%
defined as financial instruments under generally accepted an s
10.25%
10.00%
10.25%
10.?0%
acmunting principles and are reported on the Consolidated Rate of compensation increase 4.00%
4.00%
4.00%
4.00%
Balance Sheets at cost, which approximates their fair market value.
34 s
The following sets forth the approximate fair value and related SFAS 71 to those respective operations. OE and Penn recognized carrying amounts of all other long-term debt, preferred stock additional cost recovery of$50 million, $39 million and subject to mandatory redemption and investments other than cash
$34 million in 1998,1997 and 1996, respectively, as additional and cash equivalents as of December 31:
regulatory asset amortization in accordance with their regulatory l
P ans. FirstEneigy's regulatory plan does not provide for full 1998 1997 Carrying Fair Carrying Fair recovery of CEI's and TE's nudear operations. As a result, in v lue value value value October 1997 CEI and TE discontinued application ofSFAS 71
(/n mimm) for their nudear operations and decreased their regulatory assets of 1.ong-term debt
$6,783
$ 7,247
$6,980
$ 7,334 customer receivables for future incorne taxes related to the nudear Preferred stock
$ 335
$ 340
$ 356
$ 342 assets by $794 million.
Investments other than cash and Net regulatory assets on the Consolidated Balance Sheets are cash equivalena comprised of the following-Debt securities
-Maturity (5-10 years) $ 481
$ 520
$ 487
$ 512 1998 1997
- Maturity (more (In milliom) than lo years) 1,109 1,139 1,134 1,149 Nuclear unit erpenses
$ 1,164. 8
$1,224.2 Equity securities 17 17 24 24 Customer receivables for future income taxes 444.0 558.7 Allother 520 533 336 337 Rate stabilization program deferrals 440.1 460.2
$ 2,127
$ 2,209
$ 1.981
$ 2,022 Competithe transition charge 331.0 The fair values oflong-term debt and preferred stock reflect Laon reacquired debt 183.5 191.1 the present value of the cash outflows relating to those securities Emp amt me ne6t a u 28 9 g
based on the current call price, the yield to maturity or the yield to m,,ygo;a mmin,,;o, 34.7 call, as deemed appropriate at the end ofeach respective year. The DOE decomnosioning and decontamination costs 32.9 39.3 yields assumed were based on securities with similar characteristics Other 36.7 44.7 offered by a corporation with credit ratings similar to the Total
$2,696.8
$2,624.1 Companies' ratings.
The fair value ofinvestments other than cash and cash
- 2. LEASES:
equivalents represent cost (which approximates fair value) or the present value of the cash inflows based on the yield to maturity.
The Companies lease certain generating facilities, nudear fuel, The yields assurned were based on financial instruments with certain transmission facilities, office space and other propeny and similar charactensucs and terms. Investments other than cash and equipment under cancelable and noncancelable leases.
cash equivalents indude decommissioning trust investments.
OE sold portions ofits ownership interests in Perry Unit I and Unrealized gains and losses applicable to the decommissioning Beaver Wiley Unit 2 and entered into operating leases on the trust have been recognized in the trust investment with a corre.
portions sold for basic lease terms of approximately 29 yrars. CEI sponding change to the decommissioning liability. The debt and and TE also sold portions of their ownership interests in Beaver equity securities referred to above are in :he held-to-maturity
%11ey Unit 2 and Bruce Mansfield Units I,2 and 3 and entered category. The Companies have no securities held for trading into similar operating leases for lease terms of approximately 30 purposes.
years. During the terms of their respective leases, OE, CEI and TE Effective December 31,1998, the C,ompany began continue to be responsible, to the extent of their individual accounting for its commodity price denvauves, entered.
combined owership and leasehold interests, for costs associated mt specifically for trading purposes, on a marked-to-market basis in with the units induding construction expenditures, operation and accordance with Emerging Issues Task Force Issue 98-10, maintenance expenses, insurance, nudear fuel, propeny taxes and decommissiorung. They have the n. ht, at the end of the respective
. Accounting for Energy Trading and Risk Management Activines, g
with gains and lasses recognized currently m.the Consolidated ban. lease terms, to renew their respective leases. They also have c
Statements ofIncome.The contracts that were marked to market the right to purchase the facilities at the expiration of the basic are mcluded in the 1998 Consolidated Balance Sheets as Deferred lease term or renewal term (if elected) at a price equal to the fair market valu of the facih..ues.The basic rental payments are Chargeand Deferred Credits at their fair values. The impact on the consolidated financial statements was immarenal.
adjusted when applicable federal tax law changes.
Reg ulotory Assets -The Companies recognize, as OES Finance, Incorporated (WS Finance), a wholly owned regulatory assets, costs which the FERC, PUCO and PPUC have subsidiary of OE, maintains depos.its pledged as collateral to ze secure reimbursement obb.gations relating to cenain letters of authon. d for recovery from customers m future periods. Without such authonzacon, the costs would have been charged to income credit supporting OE's obligations to lessors under the Beaver as incurred. All regulatory assets are bemg recovered from Valley Unit 2 sale and leaseback arrangements.The deposits customers under the Compames iu,m,e regulatory plans.
pledged to the financial institution providing those letters of credit Based on those regulatory plans, at this ame, the Companies are the sole property of OES Finance. In the event ofliquidanon, believe they will continue to be able to bill and collect cost-based OES Finance, as a separate corporate entity, would have to satisfy rates relating to all ofOE's operations, CEI,: and TE,s nonnudear its obligations to creditors before any ofits assets could be made available to OE as sole owner ofOES Finance common stock.
operations, and Penn's nongeneration operations; accordingly, it is appropriate that the Companies continue the application of Nuclear fuel is currently financed for CEI and TE through leases with a special-purpose corporation. As of December 31, M
1998, $156 million of nuclear fuel wae fmanced under a lease shares of OE's common stock through market purchases: the fmancing arrangement totaling $175 million ($60 million of shares were converted into the Compan/s common stock in con-intermediate-term notes and $115 million from bank credit nection with the merger. Dividends on ESOP shares are used to arrangements).The notes mature from 1999 through 2000 and service the debt. Shares are released from the E50P on a pro rata the bank credit arrangements expire in September 2000. lease basis as debt service payments are made. in 1998,1997 and 1996, rates are based on intermediate-te m note rates, bank rates and 423,206 shan:s,429,515 shares and 404,522 shares, respectively, commercial paper rates.
were allocated to employees with the corresponding expense rec-Consistent with the regulatory treatment, the rentals for gnized based on the shares allocated method. The fair value of 7,406,332 shares unallocated as of December 31,1998, was capital and operating leases are charged to operating expenses on the Consolidated Statements ofIncome. Such cosu for the three 8PPmximately $241.2 milhon. Total ESOP-related compensation years ended December 31,1998, are summarized as follows:
expense was calculated as follows:
1998 1997 1996 0" "
"E Un mb,u)
Base compensation
$13.5
$ 9.9
$ 9.0 Inten se element
$201.2
$149.9
$107.6 he W e N a M Other 147.8 45.2 18.3 used to service debt (3.9)
(3.4)
(2.9)
Interest elemenc 17.6 6.1 6.5 Net expense
$ 9.6
$ 6.5
$ 6.1 Other 66.3 4.0 6.3 Totai rentah
$432.9
$207.2
$138.7 (C) Stock Compensation Plans-UnderaCenterior
,The future minimum lease payments as of December Eauity Compensation Plan (Centerior Plan) adopted in 1994, g
g 31,1998, are:
management employees. Upon consummation of the merger, Orcr2tias b'*8 outstanding options became exercisable for the Compan/s capital base capital common stock with option prices and the number ofshares ba$e5 P8Ymem8 Tnat5 Met adjusted to reflect the merger conversion ratio. A total of 329,493 g m & m) options for the Compan/s common stock were exercised in 1998
'7
[
3lh' ' 3[ ' 138 3 and 222,023 options were exercis d in 1997. Unexercised options 3
2001 37.3 307.3 146.0 161.3 totaling 117,004 shares were outstanding as of December 31, 2002 22.8 318.3 169.5 148.8 1998 and at year end 1997, unexercised options totaled 517,388 2003 13.9 326.6 176.5 150.1 shares. The plan ends when all outstanding options are exercised Years thereafter 81.6 3,936.8 1,475.1 2,461.7 or when all options lapse by February 25,2007. There will be no Total minimum lease payments 287.5
$5,487.0 $2,240.7 $3,224.3 additional grants under the Centerior Plan.
Executory costs 29.5 On April 30,1998, the Company adopted the Executive and
[(" ";rnleasepaymenu Director Incentive Compensation Plan (FE Plan).The FE Plan 2
permits awards to be made to key employees in the form of Pnxnna n
mum ggg restricted stock, stock options, stock appreciation rights, perfor-uss currem ponion 5s.6 mance shares or cash. A total of 189,491 options for the Noncurrent ponion
$122.5 ComPan/s common stock and 20,000 shares of restricted stock were granted during 1998. Options granted in 1998 are exercis-OE invested in the PNBV Capital Trust, which was able in four years and expire after 10 years. Restrictions on established to purchase a portion of the lease obligation bonds restricted stock lapse in 25% annual increments beginning in the issued on behalfoflessors in OE's Perry Unit I and Beaver Valley founh year. During 1998, options on 7,535 shares were forfeited Unit 2 sale and leaseback transactions. CEI and TE established the under the FE Plan leaving 181,956 options outstanding as of Shippingport CapitalTrust in the fourth quarter of 1997 to December 31,1998. No shares of restricted stock were forfeited.
purchase the lease obligation bonds issued on behalfoflessors in Computing compensation costs for options consistent with SFAS their Bruce Mansfield Units 1,2 and 3 sale and leaseback transac-123, " Accounting for Stock-Based Compensation," would not tions. The PNBV and Shippingport capital trust arrangements have materially affected net income in 1998 and ba ic and diluted effectively reduce lease costs related to those transactions.
camings per share are the same.
(D) Comprehensive Income -In 1998, the Company
- 3. CAPITALIZATION:
adopted SFAS 130, " Reporting Comprehensive income " and (A) Retained Earnings-Therearenorestrictionson applied the standard to all periods presented in the Consolidated retained earnings for payment ofcrsh dividends on the Compan/s Statements of Common Stockholders' Equity. Comprehensive common stock.
income includes net income as reported on the Consolidated Statements ofIncome and all other changes in common stock-(B) Employee Stock Ownership Plan--TheCompanies holders' equity except those resulting from transactions with fund the matching contribution for their 401(k savings plan 7
common stockholders, through an ESOPTrust. All full-time employees eligible for partic-ipation in the 401(k) savings plan are covered by the ESOP.The (E) Preferred and Preference Stock-Penn's7.75%
ESOP borrowed $200 million from OE and acquired 10,654,114 series ofpreferred stock has a restriction which prevents early u
redemption prior to July 2003. OE's 8.45% series ofpreferred (H) tong-Term Debt-Thefirstmortgageindenturesand stock has no optional redemption provision. CErs $88.00 series of their supplements, which secure all of the Companies' first preferred stock is not redeemable before December 2001 and its mortgage bonds, serve as direct first mortgage liens on substan-
$90.00 series has no optional redemption provision. All other tially all property and franchises, other than sp-cifically excepted preferred stock may be redeemed by the Companies in whole, or property, owned by the Companies.
in part, with 30 90 days' notice.
Based on the amount ofbonds authenticated by theTrustees Preferen'ce stock a'uthorized for the Companies are 8 million through December 31,1998, OE's and TE's annual sinking and shares without par value for OE; 3 million shares without par improvement fund requirements for all bonds issued under the value for CEl; and 5 million shares, $25 par value for TE. No mortgage amounts to $30 million. OE and TE expect to deposit preference shares are currently outstanding.
funds in 1999 that will be withdrawn upon the surrender for (F) Preferted Stoek Subjeet To Mondatory canceu tion of a like principal amount ofbonds, which are specifi-R e d emp tio n - Annual sinking ftmd provisions for the cally authenticated for such purposes against unfunded property Companies' preferred stock are as follows:
addicians or against previously retired bonds. This method can result in minor increases in the amount of the annual sinking fund requirement.
Senes Sh ms Shw Due Beginning Sinking ftmd requirements for first mortgage bonds and OE 8.45%
50,000
$ 100 (0
maturing long-term debt (excluding capitalleases) for the next five CEI
$ 7.35 C 10,000 100 (0
years are:
88.00 t 3,000 1,000 (0
91.50 Q 10,714 1,000 (0
MM 90.00 5 18,750 1,000 hovember t 1999 1999
$777.7 68.00 R 50,000 1,000 December 1 2001 2000 587.2 TE
$ 9.375 16,900 100 (0
2001 187.8 lYnn 7.625%
7S0 100 October!
2002 2002 726.4 (i) Sinking fund provisions are in effect.
Annual sinking fund requirements for the next five years are The Companies' obligations to repay certain pollution control Y"'****
" "E*E*
$40 million in 1999, $38 rril ion in 2000, $85 million in 2001,
$ 19 million in 2002 and $2 million in 2003. A liability of and, in some cases, by subordinate liens on the related pollunon
"*".E """ "# * "' " ""
$ 19 million was included in the net assets acquired from CEI and TE for preferred dividends declared attributable to the post-entitled to the benefit ofirrevocable bank letters ofcredit of merger Pedod; Accordingly, no accruals for CEI and TE preferred
$419.0 million. To the extent that drawings are made under those dividends are included in the Company's Consolidated Statement letters ofcredit to pay principal of, or interest on, the pollution Income for the period November 8,1997 through December control revenue bonds, OE, CEI and/or TE are entitled to a credit MM b
W & Co w i m
~
annual fees of 0.43% to 1.875% of the amounts of the letters of (G) Ohio Edison 0bligated Mondatorily RedeemWe credit to the issuing banks and are obligated to reimburse the Preferred Securities of SubsidiaryTrust Holding Solely banks for any drawings thereunder.
Ohio Edison Subordinated Debentures-Ohio Edison Financing Trust, a wholly owned subsidiary of OE, has issued OE had unsecured borrowings of $250 million at
$120 milhon of 9% CumulanveTrust Preferred Capital Secun..
December 31,1998, supported by a $250 million long-term nes.
OE purchased all of the'Irust s Common Secon,nes and simulta-revolving credit facility agreement which expires December 30, neously issued to the Trust $ 123.7 million principal amount of 1999. OE must pay an annual facility fee of 0.20% on the total 9% Juruor Subordmated Debentures due 2025 m exchange for the credit facility amount. In addition, the credit agreement provides proceeds that theTrust received from its sale of Preferred and that OE maintain unused first rnortgage bond capability for the Common Secunnes. The sole assets of the Trust are the Subordi-full credit agreement amount under OE's indenture as potential nated Debentures whose interest and other payment dates security for the unsecured borrowings.
coincide with the distribution and other payment dates on the CEI and TE have letters ofcredit of approximately Trust Securities. Under certain circumstances, the Subordinated
$225 million in connection with the sale and leaseback of Beaver Debentures could be distributed to the holders of the outstanding Valley Unit 2 that expire in June 1999. The letters ofcredit are Trust Securities in the event the Trust is liquidated. The Subordi-secured by firs mortgage bonds of CEI and TE in the proportion nated Debentures may be optionally redeemed by OE beginning of 40% and 60%, respectively (see Note 2).
December 31,2000, at a redemption price of 525 per Subordi' nated Debenture plus accrued interest,in which event theTrust OE's and Penn's nuclear fu purchases aie fmanced through theissu > r of OES Fuel commercial paper and loans, both of Securities will be redeemed on a pro rata basis at $25 per share plus accumulated dir,tributions. OE's obligations under the Subordi-which are supported by a $180.5 million long-term bank credit naced Debentures along with the related Indenture, amended and agreement which expires March 31,2001. Accordingly, the com-restated Trust Agreement, Guarantee Agreement and the mercial paper and loans are reflected as long-term debt on the Agreement for erpenses and liabilities, constitute a full and Consolidated Balance Sheets. OES Fuel must pay an annual unconditional guarantee by OE ofpayments due on the Preferred facility fee of 0.20% on the totalline ofcredit and an annual Securities.
commitment fee of 0.0625% on any unused amount.
37
- 4. SHORT-TERM BORROWINGS find B ANK LINES OF CREDIT:
arising from a nudear incident at any of the Companies' plants Short-term borrowings outstanding at December 31,1998, exceed the p licy limits of the insurance in effect with respect to consisted of $ 134.5 million of bank borrowings and $ 120.0 that plant, to the extent a nudear incident is determined not to be million of OES Capital, Incorporated (OES Capital) commercial c vered by the Companies' insurance policies, or to the extent paper. OES Capital is a wholly owned subsidiary of OE whose such insurance becomes unavailable in the future, the Companies w uld remain at risk for such costs.
borrowings are secured by customer accounts receivable. OES Capital can borrow up to $120 million under a receivables G u a ra n te es - The CAPCO companid have cach severally financing a;;reement at rates based on certain bank commercial guaranteed certain debt and lease obligations in connection with a paper and is required to pay an annual fee of 0.26% on the amount coal supply contract for the Bruce Mansfield Plant. As of Decem-of the entire finance limit.ne receivables financing agreement ber 31,1998, the Companies' shares of the guarantees (which expires in 1999.
approximate fair market value) were $43.2 million.The price The Companies have various credit facilities with domestic under the coal supply contract, which indudes certain minimum banks that provide for borrowings ofup to $175 million under Payments, has been determined to be sufTicient to satisfy the debt various interest rate options. OE's short-term borrowings may be and lease obligations.The Companies' total payments under the made under its line of credit on its unsecured notes.To assure the c al supply contract were $220.1 million, $135.3 million and availability of these lines, the Companies are required to pay
$113.8 million during 1998,1997 and 1996, respecthely.The annual commitment fees that vary from 0.20% to 0.50%. These Companies' minimum payment for 1999 is approximately lines expire at various times during 1999.The weighted average
$58 million.The contract expires December 31,1999.
interest rates on short-term borrowings outstanding at December E nvir o n m e n ta l M a tt e r s - Various federal, state and local 31,1998 and 1997, were 5.67% and 6.02%, respectively, authorities regulate the Companies with regard to air and water quality and other environmental matters.The Companies S. COMMITMENTS, GUARANTEES AND CONTINGENCIES:
estimate additional capital expenditures or environmental com-c P ance of approximately $400 million, which is induded in the li Capital E x p e n ditur es -The Companies' current forecasts reflect expenditures of approximately $2.2 billion for property c nstruction forecast provided under " Capital Expenditures" for additions and improvements from 1999-2003, ofwhich approxi-1999 through 2003.
mately $556 million is applicable to 1999. Investments for The Companies are in compliance with the current sulfur additional nudear fuel during the 1999-2003 period are estimated dioxide (502) and nitrogen oxides (NOx) reduction requirements to be approximately $399 million, ofwhich approximately under the Clean Air Act Amendments of1990. SO2 reductions in
$46 million applies to 1999. During the same periods, the 1999 wi!! be achieved by burning lower-sulfur fuel, generating Companies' nudear fuel investments ce expected to be reduced more elecricity from lower-emitting plants, and/or purchasing by approximately $438 million and $91 million, respectively, as emission allowances. Plans for complying with reductions the nuclear fuelis consumed.
required for the year 2000 and thereafter have not been fmalized.
N ucleor Insurance -The Price-Anderson Act limits the In September 1998, the Environmental Protection Agency (EPA) public liability relative to a single incident at a nud-ar power plant finalized regulations requiring additional NOx reductions from to $9.7 billion. The amount is covered by a combination of private the Companies' Ohio and Pennsylvania facilities by May 2003.
3 insurance and an industry etrospective rating plan. Based on their The EPA's NOxTransport Rule imposes uniform reductions of present ownership and leasehold interests in the Beaver Valley NOx emissions across a region of twenty-two states and the Station, Davis-Besse Plant and the Perry Plant, the Companies, District ofColumbia, induding Ohio and Pennsylvania, based on maximum potential assessment under the industry retrospective a c ndusion that such NOx emissions are contributing signifi-rating plan (assuming the other co-owner contributes its propor-cantly to ozone pollution in the eastern United States. By rionate share of any assessments under the retrospective rating September 1999, each of the twenty-two states are required to plaa) would be $286.3 million per incident but not more than submit revised State implementation Plans (SIP) which comply
$32.5 million in any one year for each incident.
with individual state NOx budgets established by the EPA. These state NOx budgets contemplate an 85% reduction in utility plant
, The Companies are also m.sured as to their respective interests NOxemissions from 1990 emissions. A proposed Federal m the Beaver Valley Station, Davis-Besse Plant and the Perry Plant Implementation Plan accompanied the NOxTransport Rule and under pobcies issued to the operating company for each plant.
may be implemented by the EPA in states which fail to i vise their Under these policies, up to $2.75 bilbon is provided for property SIP In another separate but related action, eight states fded damage and decontamination and decommissioning costs. The petitions with the EPA under Section 126 of the Clean Air Act Comparues have also obtamed approximately $1.22 bilhon of seelang reductions ofNOxemissions which are alleged to con-msurance coverage for replacement power costs for their respective tribute to ozone pollution in the eight petitioning states.The EPA interests in Perry, Davis-Besse and Beaver Valley. Under these suggests that the Secu.on 126 pen..nons wd. l be adequately poh..cies, the Companies can be assessed a maximum ofapproxi-addressed by the NOxTransport Program, but a September 1998 mately $39.9 million for mcidents at any covered nudear facihty proposed rulemaking established an alternative program which occurring during a policy year which are in excess of accumulated would require nearly identical 85% NOx reductions at the funds available to the insurer for paying lesses.
Companies' Ohio and Pennsylvania plants by May 2003 in the The Companies intend % maintain insurance against nudear event implementation of the NOx Transport Rule is delayed. The risks as described above as long as it is available. To the extent that Companies continue to evaluate their compliance plans and other replacement power, property damage, decontamination, decom-compliance options and currently estimate the additional capital missioning, repair and replacement costs and other such costs expenditures for NOxreductions may reach $500 million.
38
The Companies are required to meet federally approved SO2 costs of cleanup and the proportionate responsibility ofother regulations. Wlations ofsuch regulations can result in shutdown PRPs for such costs. CEI and TE believe that waste disposal costs of the generating unit involved and/or civil or criminal penalties of will not have a material adverse effect on their fmancial condition, up to $25,000 for each day the unit is in violation.The EPA has cash flows or results ofoperations.
an interim enforcement policy for SO2 regulations in Ohio that Ugislative, administrative and judicial actions will continue tc allows for compliance based on a 3041ay averaging period. The change the way that the Companies must operate in order to Companiestannot predict what action the EPA may take in the future with respect to the interim enforcement policy.
comply with environmentallaws and regulations. With respect to any such changes and to the environmental matters described It July 1997, the EPA promulgated changes in the National above, the Companies expect that while they remain regulated, Ambient Air Quality Standard (NAAQS) for ozone and proposed any resulting additional capital costs which may be required, as a new NAAQS for previously unregulated ultra-fmc particulate well as any required increase in openting costs, would ultimately matter. The cost of compliance with these regulations may be sub-be recovered from their customers.
stantial and depends on the manner in which they are implemented by the states in which the Companies cperate affected facilities.
- 6. SEGMENTINFORMATION:
CEI and TE have been named as "potentially responsible The Company adopted SFAS 131," Disclosure About parties" (PRPs) at waste disposal sites which may require cleanup Segments ofan Enterprise and Related Information,"in 1998.
under the Comprehensive Environmental Respouac, Compensa.
The Company's primary segment is its Electric Utility Group tion and Liability Act of 1980. Allegations that CEI and TE which includes four regulated electric utility operating companies disposed of hazardous substances at historical sites and the liability that provide electric service in Ohio and Pennsylvania. Its other involved, are often unsubstantiated and subject to dispute. Federal material business segment is FETPM which markets and trades law provides that all PRPs for a particular she be held liable on a electricity in nonregulated markets. Financial data for these joint and several basis. CEI and TE have accrued a liability of business segments and products and services are as follows:
$5.8 million as of December 31,1998, based on estimates of the Segment financialInformation FETrading Electric
& Ibwer All Reconciling Utilities Marketing Other Eliminations Totals 1998 (In millions)
Extemai revermes
$ 5,201 410 250
$ 5,861 Intersegment revenues 32 27 96 (155)
Total revenues 5,233 437 346 (155) 5,861 Depreciation and amortization 730 11 741 Net interest clurges 590 2
69 (60) 601 Income taxes 337 (35)
(2) 300 Extraordinaryitem:
Pennsylvania restructuring (31)
(31)
Net income / Earnings on common stock 478 (52) 1 (16) 411 Total assets 18,188 54 1,742 (1,920) 18,064 Property additions 304 64 368 Acquisitions 285 285 1997 External revenues
$ 2,843 43 74
$ 2,960 Intersegment revenues 33 106 (139)
Total evenues 2,876 43 180 (139) 2,960 Depreciation and amortization 470 5
475 Net interest charges 300 60 (51) 309 Income caxes 205 3
208 Net incorne/ Earnings on common stock 335 (1) 4 (32) 306 Totalassets 18,520 32 1,209 (1,680) 18,081 Prcperty additions 166 38 204 Acquisitions 1.582 1,582 1996 External revenues
$ 2,499 23
$ 2,522 Interseg nent revenues 33 109 (142)
Tota! revenues 2,.* 3 2 132 (142) 2,522 Depreciation and amortization 378 5
383 Net interest charges 256 57 (48) 265 Income taxes 195 6
201 Net income / Earnings on common stock 337 7
(41) 303 Total assets 9,406 1,013 (1,365) 9,054 Property additions 124 24 148 Products and Services Oil & Cas Enerks and Related Electricity Sales and Sa Year Sales Production Services Other (in millions) 1998
$ 4,980 26 853 2
1997 2,775 185 1996 2,435 87 M
- 7.
SUMMARY
OF QUARTERLY FIN ANfIAL D ATA (UNAUDITED):
- 8. PRO FORMA COMBINED CONDENSED FIRSTENERGY STATEMENTS OF INCOME (UN AUDITED):
The following summarizes certain consolidated operatmg results by quarte. for 1998 and 1997.
The Comp my was fonned on November 8,1997 by the merger ofOE and Centerior.The merger was accounted for as a y,,,
g purchase of Centerior's net assets with 77,637,704 shares of
% u-6, w im im in im Un mi&ons, exaprpersharramann)
FirstEnergy Common Stock through the conyersion ofeach out-Revenues
$1,344.2 $1,410.6 $1,633.6 41,472.9 standing Centerior Common Stock share into 0.525 of a share of Expenses 988.3 1,140.9 1,203.3 1,164.7 FirstEnergy Common Stock (fractional shares were paid in cash).
Income Before Interest Based on an imputed value of $20.125 per share, the purchase
'"dj"' Cha price was appr ximately $ 1.582 billion, which also induded g
Income Taxes 88.6
$ 5.1 115.2 62.8 approximately $20 million of merger related costs. Goodwill of 8PProximately $2.0 billion was recognizec (to be amortized on a income Before Extraordinary hem 123.7 60.0 163.0 94.7 scra:ght-line basis over forty years), which rep esented the excess of Extraordinary item the purchase price over Centerior's net assets aftei fair value (Net ofIncomeTaxes) adjustments.
(Note 1)
(30.5)
- O Net income
$ 123.7 $ 29.5 $ 163.0 $ 94.7
$59 million as ofDecember 31,1998.The merger purchase Earning per Share of accountinE ad'ustments, which were recorded in the records of I
Common Stock Centerior's ditect subsidiaries, included recognizing estimated Before Extraordinary item
$.56
$.27
$.71
$.41 Extraordsary hem severance and other compensation liabilities ($80 million).The
~
(Net ofincome Taxes) amount charged against the liability in 1998 relating to the costs (Note 1)
(.14) ofinvoluntary employee separation was $41 million. In addition, Earning per Share of the liability was reduced to approximately $9 million as of Common Stock
$.56
$.13
$.71
$.41 December 31,1998 to represent potential costs associated with Mmh si.
Ja so.
scramhedo. D==hedi.
the separation of493 CEI employees.The liability adjustment was h M=he EmlL i 1997 1997 1997 1907 offset by a Corresponding reduction to goodwill recognized in Con-Un mi&ons nreprpershareamann) nection with the Centerior acquisition.
Revenues
$626.2
$614.4
$671.2 $1,048.4 Expenses 436.9 425.4 459.5 816.1 The following pro forma statements ofincome of FirstEnergy Income Before Interest and give elTect to the OE/Centerior merger as ifit had been con-Income Taxes 189.3 189.0 211.7 232.3 summated on January 1,1996, with the purchase accounting Net interest Charges 67.0 66.2 64.4 110.9 adjustments actually recognized in the business combination.
IncomeTaxes 49.4 49.0 58.6 51.0 Net income
$ 72.9
$ 73.8
$ 88.7 $
70.4 1997 1996 Earning per Share of N" *'##" ""I'#"'#" #*""
Common 5tock
$.51
$.51
$.61
$.36 Revenues
$ 5,206
$ 5,089 Results for CEI and TE are ir duded from the November 8, Expemes 3,8H 3,671 1997 acquisition date through December 31,1998.
Income Before Interest and income Taxes 1,406 1,418 Net interest Charges 643 634 IncomeTaxes 336 316 Net income
$ 427
$ 468 Earninp per Share of Common Stock
$ 1.92
$ 2.11 Pro forma adjustments reflected above indude: (1) adjusting CEI and TE nudear generating units to fair value based upon independent appraisals and estimated discounted future cash flows based on management's estimate ofcost recovery; (2) goodwill recognized representing the excess of the purchase price over Centerior's adjusted net asects; (3) elimination of revenue and expense transactions between OE and Centerior; (4) amortization of the fair value adjustment for long-term debt; and (5) adjust-ments for estimated tax effects of the above adjustments.
40
Consolidated Financial nnd Pro Forma Combined Operating Statistics HR$Tf NE RGY {0RP.
1998 1997 1996 1995 1994 1993 1988 GENERAL f!NANCIAL INFORMATION (Dollrrsin rho, wands)
Revenues
$ 5,861,285
$ 2,960,196
$ 2,521,788
$2,500,770
$2,390,957
$ 2,399,794
$2,193,962 Net Income
$ 410,874
$ 305,774
$ 302,673
$ 294,747
$ 281,852 59,017
$ 186,170 SEC Ratio of Earrdngs to Fixed Charges 1.77 2.18 2.38 2.32 2.24 1.12 1.65 Net Property, Plant and Equipment
$9,242,574
$ 9,635,992
$5,534,382
$5,788,436 65,904,445
$ 5,930,511
$ 6,055,124 Capital Expenditures
$ 305,577
$ 188,145
$ 145,005
$ 196,041
$ 258,642
$ 263,179
$ 221,583 Total Capitalization
$11,786,422
$12,124,492
$ 5,582,989
$5,565,997
$ 5,852,030
$ 5,656,295
$ 6,190,570 Capitalization Ratios:
Common Stockholders
- Equity 37.9 %
34.3 %
44.8 %
43.3 %
39.6 %
39.7 %
40.9 %
Preferred and Preference Stoct:
Not Subject to Mandatory Redemption 5.o 5.5 3.8 3.8 5.6 5.8 5.7 Subject to Mandatory RcJemption 2.5 2.7 2.8 2.9 0.7 0.8 1.6 j
long-Term Debt
$4.0 57.5 48.6 50.0 54.1 53.7 51.8 Total Capitalization 100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.05 100.0 %
Average Capital Costs:
Preferred and Preference Stock 8.01 %
8.02 %
7.59 %
7.59 %
7.15 %
6.86 %
8.71 %
long-Term Debt 1.83 %
8.02 %
7.76 %
8.00 %
8.17%
8.27 %
10.26 %
COMMON SMCK DATA Earnings per Share *
$1.95
$2.16
$2.10
$2.05
$1.97
$1.82
$2.06 Return on Average Common Equity
- 10.3 %
12.2 %
12.4 %
12.5 %
12.4 %
11.4 %
11.8%
Dividends Paid per Share
$1.50
$1.50
$1.50
$1.50
$1.50
$1.50
$1.96 Dividend Payout Ratio
- 77 %
69 %
71 %
73 %
76 %
82 %
95 %
Dividend Yictd d6%
5.2 %
6.6 %
6.4 %
8.1 %
6.6 %
10.4 %
Price / Earnings Ratio
- 16.7 13.4 10.8 11.5 9.4 12.5 9.2 Book Value per Share
$19.37
$18.71
$17.35
$16.73
$16.15
$14.70
$16.60 Market Price per Share
$32.56
$29.00
$22.75
$23.50
$18.50
$22.75
$18.88 Ratio of Market Price to Book Value 168%
155 %
131 %
140 %
115 %
155 %
114 %
- Before net nonrecurring charges in 1998,1997 and 1993.
PRO FORMA COMBINED OHIO EDISON AND CENTERIOR STATISTICS Kilowart-Hour Sales (Millions):
Residential 15,873 15,562 15,807 15,773 15,181 15,211 14,548 Commercial 16,255 15,868 14,944 14,845 14,366 14,093 12,637 Industrial 24,039 24,062 23,367 22,681 21,910 21,561 22,665 Other 378 372 1,158 1,196 1,218 1,166 1,089 Total Retail 56,545 55,864 55,276 54,495 52,675 52,031 50,939 Total Wholesale 5,557 7,870 9,670 9,295 7,039 7,967 10,826 Total Sales 62,102 63,734 64,946 63,790 59,714 59,998 61,765 Customers Served:
Residential 1,938,259 1,929,371 1,912,850 1,907,850 1,893,827 1,882,094 1,820,340 Commercial 214,698 215,307 212,092 210,745 207,362 2C3,892 192,90 Industrial 11,888 12,918 12,974 12,763 12,618 13,298 11,984 Other 2,067 2,040 3,913 3,869 3,760 3,805 3,8(,3 Total 2,166,912 2,159,636 2,141,829 2,135,227 2,117,567 2,103,089 2,029,127 Number of Employees (Excludes Facilities Services Group and MARBEL) 8,765 10,020 10,477
!!,633 11,933 12,726 16,283 41
Investor Services Transfer Agent and Registrar InstitutionalInvestor and Security Analyst Inquiries We act as our own transfer agent and registrar for all stock issues of Institutional investors and security analysts should direct inquiries to:
FirstEnergy and its subsidiaries. Shareholders wanting to transfer Ronald E. Seehoher, Manager, Investor Relations,330-384-5500.
stock, or who need assistance or information, can send their stock or write to Investor Services, FirstEnergy Corp.,76 South Main Street, Annu01 Meetin9 of Shoreh01ders Akron, Ohio 44308-1890. Shareholders can also caU the following Shareholders are invited to attend the 1999 Annual Meeting of toll-free relephone number, which is valid in the United States, Shareholders on Thursday, April 29, at 10 a.m., at the John S. Knight Canada Pueno Rico and the Virgin Islands: 1-800-736-3402.
Center in Akron, Ohio. Registered holders ofcommon stock not leting and attending can vote on the items of business by combolders whose Stoek listings ond Tradin9 returning the proxy card that is sent to them. Share Newspapers generally report FirstEnergy common stock under the shares are held in the name of a bmket can attend the meeting if they abbreviation FSTENGY, but this can vary depending upon the news-present a letter from their broker indicating ownership of FirstEnergy paper.The common stock of FirstEnergy and preferred stock ofits common stock on the record date of March 11,1999.
electric utility subsidiaries are listed on the following stock exchanges:
Boord of Directors Changes Company Stock Exchange Symbol The Board elected Robert B. Heisler,Jr., President of Key Capital FintEnergy NewYork FE Partners, Cleveland, Ohio, and Group Vice President of Ke> Corp., to The Illuminating Company New York, OTC CVX serve as a Director of FirstEnergy, effective May 19,1998.
Ohio Edison New York OEC Robert M. Carter, a partner of Carter & Associates, Cleveland, Ohio, PhHade p,a PC I
wer t
"*Y "g*"ia
. y OTC
'ED resigned fr m the Board, efTective August 24,1998. Mr. Carter was a
,p Director of FirstEnergy since 1997 and of Ohio Edison Company
^**'I'*"
from 1994 to 1997.The Board appreciated his counsel and service.
Dividends Proposed dates for the payment of FirstEnergy commor_ srock FirstEner9E Officers Stoff 0fficers dividends m 1999 are as follows:
Willard R. Holland John P. Stetz Ex-Dividend Date Record Date Payment Date Chairman and Chief President and ChiefNuclear February 3 February 5 March i Executive Officer Officer May 5 May 7 June 1 H. Peter Burg FENOC*
August 4 August 6 September 1 President and Guy G. Campbell November 3 November 5 December 1 ChiefOperating Officer Vice President i
FENOC-Davis-Besse Direct Dividend Deposit AnthonyJ. Alexander Executive Vice President lew W. M rs Shareholders can have their dividends electronically deposited imo Vice Presipent their bank account.To receive an authorization form, contact Investor and General Counsel Services.
John A. Gill FENOC-Perry SeniorVice President John K. Wood Stock Investment Plan Vice President Richard H. Marsh FENOC Shareholders and others can purchase or sell shares of FirstEnergy Vice President and common stock through the Company's Stock Investment Plan.
Chieffinancia! Officer Regional 0fficers Individuals who are not registered shareholders can enroll with an Ead T. Cm
@n M. blier minal cash investment of $250. Parucipants may mvest all or some of Vice President ReS onal President-Eastern i
their dividends or make optional cash payments of up to $ 100,000 annually.To receive an enrollment form, contact Investor Services.
Mary Beth Carroll Thomas A. Clark Vice President Regional President-Southern 50fekeeping of Shores Kathryn W. Dindo R. Joseph Hrach The Company will hold shares of FirstEnergy common stock in Vice President President,Itansylvania Power safekeeping at a shareholder's request.To take advantage of this Douglas S. Elliott Charles E. Jones service, shareholders should forward their stock certificate (s) to the Vice President Regional President - Northern Company along with a signed letter requesting that the Company Arthur R. Garfield Stephen E. Morgan hold the shares. They should also stateyhether future dividends for Vice President Regional President -Central the shares are to be remvested or paid m cash.ne certificate (s) should not be endorsed, and registered mail is suggested. Shares held in Guy L Pipitone James M. Murray Vice President Regional President -Western safekeeping will be reported on dividend checks or Stock Investment Plan statements.
Stanley E Szwed John E. Paganie Vice President RegionalVice President-Duph. cote Mailings of the AnnualReport Nancy C. Ashcom Western Ifyou hold stock in more than one registration and do not wish t Corporate Secretary David W. Whitehead combine accounts, you cap climine duplicate mailings ofour annual Thmas C. Nain RegionalVice President-report by requestmg m wntmg to Investor Semces that the mailing of T-r Northern an annual report to a pamcular account be stopped. De sure to provide the exact registration of the account for which you want the Harvey L Wagner Controller mailing discontinued.
Randy Scilla Comb..ining Stock Accounts AssistamTreasurer Ifyou have more than one stock account and want to combine them*
Edward J. Udovich please write or call Investor Services and specify the account that you Assistant Corporate Secretary would like to retain as well as the registration ofeach ofyour accounts.
Forrn 10-K Annual Report
'FirstEnergy Nuclear Operating Company Form 10-K, the Annual Report to the Securities and Exchange Commission, will be sent without charge by writing to Nancy C.
Ashcom, Corporate Secretary, FirstEnergy Corp.,76 South Main Street, Akron, Ohio 44308-1890.
@ Printed on Recycled Peper
o..
. m....
ILCTORS
..,,y.
ny
~
mmy 7
g 7,
y.
+
eg;
~a+h
, f(-
$ ? p..:
.] l( x
.,c
/
,%Y h
r jy,_
~s
-3 w
v o
.c h
4
- j 4'
4 C
q a
su Poul J. Powers Def t);.obert B.Heisler. Jr.;
Jesse T. Williams, Sr.(left); Robert L. Loughheod; Willord R. Holland (lef t); Glenn H. Meadows; Dr. Carol R. Cartwnght; George M. Smort H. Peter Burg;.ober t C. Sovcge Wilhom r. Conway; Russell W. Moser H. Peter Burg, 52 Willard R. Holland, 62 Paul J. Powers, 64 President and Chief 0perating OMcer Chairman of the Board and Chief Chairman of the Board and Chief of First Energv. Director of First Energy Executive Omcer of FirstEnergy and Executive Omcer of Commercial Intertech since 1997 and of Ohio Edison since 1989.
Pennsylvania Power. Director of Corp., Youngstown, Ohio. Chairman, FirstEnergy since 1997 and ofOhio Edison Finance Committee Member,Compen-Dr. Carol A. Cartwright, 57 since 1991, sation Committee. Director ofFirstEnergy President, Kent State University, Kent, since 1997 and ofOhio Edison from e
ugMed,M 1992-1997 Ohio. Chair, Nominating Committee; Memtwr, Finance Committee. I)irector Retired, formerly Chairman of the Board, of FirstEnergy since 1997 and of 0hio President and Ciiicf Executive Omcer of Robert C. Savage, 61 Edison from 1992-1997 Weirton Steel Corporation, Weirton, West President and Chief Executive O$cer of Virginia. Chairman, Compensation Savage & Associates, Inc., Toledo, Ohio.
Williorn F. Conway, 68 Committee; Member, Audit Committee.
Member, Finance and Nominating com-President of Wilham E Conway &
Direct r of FirstEnergy since 1997 and of mittees. Director of FirstEnergy since Associates,Inc., Scottsdale, AriYona.
Ohio Edison from 1980-1997.
1997 and of the former Centerior Energy Chairman, Nuclear Committee; Member, Corporation from 1990-1997.
Audit C,ommittee. Director of FirstEnergy Russell W, Maier, 62 since 1997 and of the former Centerior Retired, formerly Chairman of the Board George art, H Energy Corporation from 1994-1997.
and Chief Executive Officer of Republic Chairman of the Board and President of Engineered Steels, Inc., Massillon, Ohio.
Phoenix Packaging Corporation, North Robert B. Heisler, Jr., 50 Member, Compensation and Nuclear com-Canton, Ohio. Member, Audit and President of Key Capital Partners, mittees. Director of FirstEnergy since 1997 Financecommittees. DirectorofFirstEnergy Cleveland, Ohio, and Group Executive nd ofOhio Edison from 1995-1997.
since 1997 and ofOhio filison from Vice President of KeyCorp. Member.
l 988'I 997-Compensan.on and Nominating commit.
Glenn H. Meadows, 69 rees. Director of FirstEnergy since 1998.
Retired, formerly President and Chief esse orns, Sr 59 o
Executive Omccr of McNeil Corporation, Retired, formerly Vice President ofI fuman Akron, Ohio. Chairman, Audit Committee; Resources Policy, Employment Practices Member, Compensation and Nuclear com-and Systems of The GoodyearTire &
mittees. Director of FirstEnergy since 1997 Rubber Company, Akron, Ohio. Member, and ofOhio Edison from 1981-1997.
Audit and Nominating committees.
Director of FirstEnergy since 1997 and of Ohio Edison from 1992-1997.
C
- p 2
)
z C
a l.
L 3
M m
s w
3 O
?
O N
J.
?"
?r O
'o Gn" I
.