ML20207E061
| ML20207E061 | |
| Person / Time | |
|---|---|
| Site: | Beaver Valley |
| Issue date: | 12/31/1985 |
| From: | Cole A, Rogers J PENNSYLVANIA POWER CO. |
| To: | |
| Shared Package | |
| ML20207E052 | List: |
| References | |
| NUDOCS 8607220255 | |
| Download: ML20207E061 (28) | |
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[ l Contents Financial liighlights . . . . I Message to Stockholders. .. ..... .2-3 Operating Statistics ..... . ... 4 Selected Financial Data . . ....... . .. .5 Management's Discussion and Analysis. . .67 Balance Sheets . . ... . . .. . .8-9 Statements of income. .. . . ., . . 10 Statements of Capitalization. .. . . . 11 Statements of Retained Farnings. . . .. . 12 Statements of Capital Stock and -
Other Paid In Capital . . . . . . . . 12 Statements of Sources of Funds for-Property Additions . . . . .. .. 13 Statements of Taxes . .... ... ... 14 Notes to Financial Statements?. . . . . . 15 23 Auditors' Report. . . .. . .. . . .24 Directors and Officers . . . . Inside Back Cover e
The Company-
- Pennsylvania Power Company (Penn Power or ^
the Company) provides electric service to _
approximately 127.900 customers in Western Pennsylvania.The Company furnishes electric -
service in 139 communities as well as rural areas, and also sells electric energy at wholesale to five municipalities.The Company's service area has an estimated population of 350.000.The _
Company. with headquarters in New Castle. ;
Pennsylvania, is a wholly-owned subsidiary of ;
Ohio Edison Company e (Edison). ['
~
m PENN POWER Financialliighlights f or the Years I nded December 31, NET INCOME t98 3 1981 Change (millions Of dollar $)
g.:. ,.] Depreciation
- Adiustinent (In Millions)
Kilowatt llour Sales . L717.2 :1.805 ti - 2.:l't.
Operating ilevenues . 5221_7 $21:t2 &
5.17.
fuel I:xpense . 1H 9 5(i i +
5 Ot.
OperatingIncome . . .. 51.5 11.5 + 20.2't.
Allowance for l'unds !! sed During ConstrtKlion. Net . 259 21.l t (i. l T. 546.6 Interest I..\ pense. 12.9 :19.8 + 7.8 t, 346 4i Net Income (i) . 16 fi 15.l + 2.(i't, . ?!::
1:arnings on Common :5:!:
Stolk (l) . .Iti h :sti 1 + 0. 5 't,
$34.3 Dividends on Capital Stock 5 11b $ 29 8 + l 2.H't. .gg 4 Lapital I..spenditures:
Construction of latilities .
- SI i $ 80.9 $24.9 Nutlear l'uel. . Hi (:1. l Other Capital leases. Qi 1.1 5 'it ) I $ 95 l - 5 :l't.
Internally Generated I unds . lIN :ll . l + :19 5't, Net Iinancing Actisities . 5t1 S 55.0 - 7 Jit, lleturn on Aserage Common Iquity(i) 111: 16 01 (i) 1981 includes a noncash depreciation adjustment of Sti.7 million Milltll illtreased net inloille and earnings on (omtilon sto(k Uncludes $38 7 mmion plus $6 7 mWeon depreciation adrustment (see Note 2) 1
1 l
Message to Stockholders
-- , r.~ , wwwp---,-n r-y, m-r-,gwwm l bLu _m s
--- w a L1 %sah s- e -Q l Ihe Company performed well in 1985. Perry Unit I full operation expected t he construction of the Perry Nuclear Plant with the Central
- Net income increased for the /Ifth straight year, cren Area Power Coordmation Group (CAPCO) constitutes the greater l though there nas a decline in sales. part of our construction activities.
" Operating revenues increased by fire percent due to new Perry 1: nit I is essentially completed and the Cleveland l rates uml an increase in our contracted hulk p<mcr lleuric illuminating Company. the builder of the umt. is in dehreries. the process of securing the final regulatory approvals needed
- Reduced operatmy and inaintenance c3penses, earluding in order to begin operation. Ihe Company nill seek to recover fuel, more than off: set increased net interest charges, its investment in the unit, based on our 5.21 percent onner-spurring a three percent increase in net income. ship. through nen rates.
Sales donn Ilonds sold to Japanese llanks Our sales are highly influenced by steel produt oon which in I!)H5. the Company sold $55 million in securities and wnunues to lag recovenes bemg made by other industries. issued $14.3 million in pollution control notes to help finance total kilonatt hour sales detlined by two percent mainly the construuion pnyram. A portion of the proceeds will fund because a donnturn in electric use by our steel producers !!)M6 capital requnements.
adversely impacted saim in industry Commercial (ustomers Ino of the transauions. totali increased their use by three percent. indicating the emnomic issuance of first monxaxe !=>nd,(Nn .c U.S.JAdm > $40 ! japanese million, inv climate is improsing for retailers and sersites. Itesidential banks below prevaihng U.S. market rates. ihese transauions use hekt lirm. were the hrst of this type for the Company. We also sohl Ilulk power s. des to other utilities under long-term contrac ts increased sizably and auounted for !! penent of the total 3.7 billion kilowatt-hours sok! in I!)M5. TOTAL SALES REVENUES
'ffulh005)
Resenues up m A 3.5 percent increase in retail rates. elleune March 15. -
Mr I!)M5. wntributed to an $11.5 million inuease in operating revenues.
(M m'.
Operating wsts down
%(.
~
Cost control programs produced positise results. A third $207.7 wnsecutise redutnon m maimenance wsts. a decrease in . _s 198.2_.T"-- g other operating expenses, and our short term. hulk poner "~"
sales together wntributed to a six percent reduuion in total
] 1
. "i 4
M operating and maintenance expenses. enluding fuel.
Our parual onnership in Unn I at the llea,er udley poner N sl6e 4 2
I t . < t.
p.
Station prosides our most economical soune of energy t he
- [QM[ , k_.4 s1530 (T
y.
M ^
nutlear unn performed well in I?)S5 with an operaung'avad- ,T7 '
Q -
abihty of ?)2 percent. Addnionally. the two wal bred poner g 1 J plants operated by the Company exceded avadabilny targets gg, S lor the year. -
E ;3_; . (_. '
i -
Interest expense up M '
W :v .
Net interest expense int reased by ten per(ent due manly 9 O, -
Gj to wnunued demands for capital to knante the company's wnstruuion program Interest on long-term debt and obliga-ps
~
a Q _ "xhi !.y I h3-l; h [; )) _
tions increased by $3.3 mdhon As of July I.15185. the ,
L 1 L d ,
N N' Company stopped in(ludmg in net inwme an allowant e for y!. ( fl"" ' _ "
lunds used dunngwnstruuion for l' nit 2 at the Perry Nuclear i Plant. Work on that unn has been haked by the parutipanng 36 1 wmpanies penthng the outwme of a reuen there is no ~w '
delmed sc hedule for wmpleung the unit.
Construction of faulmes retpured 581 mdhon m U)H5 4 d h-[' '~4 4 O l'ropeny adthoons and improsements are esumated at '"'
thh milhon for l')M6 and $207 million for the Ine-sear penod I'lHb through I'P10. Oser the last Ine scars the ion-struumn program retpured $152 mdhon
?
4Ck PENN POWER D
$15 million of preferred stock and issued pollution control notes in the lLS. market at competitive rates.
For the fourth year in a row. the Company had no short-term debt outstanding at the end of the year.
Innovative marketing gets results Fnterprising and innovative marketing programs like our economic development rider to industrial rates have lonefited the Company. its customers and the area we serve. Since March 1984.our economic development rider to industrial rates has been an incentive for 21 manufacturers to expand or kicate within the Penn Power service area creating more than 455 jobs. We will continue to offer this incentive through 1986.
Our residential customers have responded well to an inter-ruptible, optional rate for radio controlled service to electric water heaters. add-on heat pumps and dual fuel resistance heating systems.W intend to oIIer this option to commercial customers ttus ) ear.
T he new business we added to our knes in 1985 represents ELECTRIC PLANT a p>tential increase in annual revenues of $7 million, exceedmg CONSTRUCTION EXPENDITURES our target. imiinonse While we foresee only a slight increase in sales within our service area for 1986, the Ohio rdison System will aggres-l sively pursue an ambitious goal for sales to other utilities.
Accomplished safety record Penn Power employees worked safely in 1985. exceeding 90 -
our gnal. The number of accidents. lost work days and medical s80.9 $8];j _-
cases were reduced significantly Of particular note.cmployees worked one million consecutive hours without a lost time 80 YD r -1 .
accident last year for the hrst time in ten years and only the 70 873 0 i'~i! q ses 4" third time in the Companys history The coveted mark was -se8.5 - :
reat hed again on Ichruary 9.1986. p
_: -- ]M[ { ] ]_
_; ],IL, loyees meet the (hallenge 1:mbree siolent tornadoes touched down within the Penn
, 'I k Ij[
I , ; d f f 80 ~! ~ 1 [ .
I
,]p . jj~ ' Af Power service area on May :11.1985.leaung a path of death and destruction in their wake. T he tornadoes did more damage w i p~ i .i {b to lines and equipment than any storm in the Company's 140 m 1J L.h g 10 .4 '
history ) . .! 11 a J We're extremely iroud of the way Penn Power employees t1 ,1 responded to the asaster I:nder trying (irt umstantes. they
- 7
- p b 7 P
[t i : hd , 4 proved their mettle. Their swift response was a credit to the j [~ il Company and was dearly appreciated by our customers (hallenging years lie ahead for the Company Wre confident l20 y [L d; o
-Q l f' " (( 4. i almut the f uture. honeser. luause we know that our employees :*
t i
!i 3a g g "i 1 . r--
1 will wntinue to meet eac h (hallenge with the same dnve and l-i d' i 1 1
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dethcation that has singled them out in the past. ! - -
~
y r.
Chairman of the lloard hp President 'ExciudM Nonutihty Property Nuclear Fuel and capital teases "E stimated New Castle. Penns)l\ania/ March 11.1986 3
I Operating Statistics 1985 1984 1983 1982 1981 Revenue from Electric Sales (Thousands):
Residential . . $ 71.316 $ 69.133 $ 63.994 $ 61.628 $ 52.649 Commercial. 39.266 35.542 36.841 36.068 30.225 Industrial 77.803 77.210 61.959 61.611 64.787 Other. 6.916 6.963 6.989 7.082 5.347 1 Subtotal . . . . 198.301 188.848 169.783 166.389 153.008 1 Sales to Utilities. . . 9.415 9.305 4.277 20 24 Total. .. $207.716 $ I 98.153 $ I 74.060 $ I 66.409 $ I 53.032 l l
Revenue from Electric Sales-L Residential . 15 81 3 4.9't 3 6.7't 37.0L 3 4.4't Commercial. . I M.9 I 7.9 21.2 21.7 I 9.8 Industrial . . 37.5 39.0 35.6 37.0 42.3 Other. 3.3 3.5 4.0 4.3 3.5 Subtotal . . . 9 'i 5 95.3 97.5 100.0 100.0 Sales to Utilities. I5 4.7 2.5 - -
Total. 100 O t. I 00.0t. I OO.Ot i 00 Ot i OO.Ot Kilowat(4 tour Sales (Millions).
Residential . , , 89IJ M90.7 876.0 865.0 862.4 Commercial. . . 5 6 'i 'i 548.4 589.5 578.2 566.1 Industrial , 1.7059 1.849.7 1.627.3 1.487.7 1.915.8 Other. . . . I218 125.9 123.7 125.5 13I.5 Subtotal . . 3.290 5 3.414.7 3.216.5 3.056.4 3.475.8 Sales to Utilities. . 126 7 390.9 I80.0 I.O I.O Total. 3.805.6 3.396.5 3.057.4 3 717] 3.476.8O +e Customers Served at December 31:
Residential . . I13.697 113.368 112.768 I I I.931 111.121 Commercial. I1768 13.601 13.474 12.994 12.902 Industrial . 281 285 104 106 109 Other. 13-1 128 129 122 IIH Total. . 127.882 127.382 126.475 125.153 124.250 Residential Customer Averages:
Average Kwh Used per Residential Customer . 7.885 7.884 7.804 7.755 7.813 Aserage Price per Kwh-Residential (Cents) . H .11 7.76 7.30 7.12 6.10 Kilowatt ilours Generated (\1illions). .I012 9 4.063.5 3.563.7 3.546.7 3.834.6 Peak load (Megawatts). . . . . . 'in 9 597 567 562 577 Cost of Coal per Million 111U . $ I 50 $ 1.50 $ l.57 $ I.66 $ l.66 Generation Capability:
Coal 77 7i 7 7.7't. 7 7.7't 7 7.7't 7 7.7:t Oil. . 6l 6.I 6.I 6.I 6.I Nuclear . Ih 2 16.2 I 6.2 16.2 16.2 Total. _ l_00 ty i 00 Ot. 100 O t. I 00 O t. I 00 Or, Sources of Electric Generation:
Coal 71x 79.3 t, 7 7. I 't. 8 6.7 't. 7 8.3't, Oil. . - -
O.I O.2 Nuclear . 26 2 20.7 22.9 13 2 21.5 Total. , l_00 0 I 00 O t. I 00 Ot. 100 Ot i 00 Ot, Number of imployees at December 31 _i790 1.H 28 1.838 1.868 1.779 4
A%%
W PENN POWER Selected Financial Data IIEM2!: "T@KfMM3C@! ism $#1[if3$MPi': MWF 5!EffdM55%D 5 NYfdMME" _"
1985 1984 1983 1982 1981 (Dollars in Thousands)
Operating Resenues. $
2 21_hilh $213.150 $ 191.17 2 $ 18 5.883 $ 174.4 88 Operating income {}l]l I $ 44.519 $ 41.977 $ 10.590 $ 37.412 Net income (i) .
5 ltj i4 i
$ 15.404 $ 34.343 $ 29.392 $ 2 1.9 3(i l arnings on Common Stoc k (i). $
t h. 7 7 h $ 3(i.439 $ 27.017 $ 23.291 $ 19.331 Cash Unidends on Common Stock 5
.' 1 ihO $ 20.H fi2 $ 19.203 $ 1 H.324 $ I 5.87(i lotal Assets at December 31 ( 979.I10 $87 5.fiO I $ 79 7.180 $ 7 I O.HH(i $(il7.8io7 l'tility Plant . $ 1 00 i .9 91 $923.4 20 $H29.9 I 5 $ 7 33.39 5 $(i4 9.350 Depre(tation Resene . I 90.7 lb i 7 I .183 157.329 137.01(i 121.115 l Net l'ulity Plant.
5 H I l 2 IN
= - - . =_
$ 7 51.917 Sti72.5H(i $ 59(i.37 9 $ 52 5.23 5 1
Property Additions. +
90 1.! p $ 95.383 $ 83.337 $ H(i.HH9 $ 52.858 Iong-term Obligations.
- 16.7 17 $ 52.179 $ 41.351 $ 22.817 -
CAPil Al I/ Allo %
Common Stockholder's Iquay. 5 2hD I 11 $ 24 7.09(i $ 219.4 71 $ 199.(iHO $ 191.fifiti Preferred Stock-Not Subject to Mandatory itedemption Il 907 11.905 11.905 11.905 11.905 Subl ett to Mandatory itedemption. '70 b h 2 5(i.5(i2 47.471 33.395 2(i.298 long-lerm Debt. 179l28 317.7(i l 123.3(i3 295.40; 2(i2.O I I lotal Capitah/ation . 5 7ilS2h
$(ifil.127 $(i32.213 $ 570.38 5 $521.880 CAPIIAlI/AlION RAllOS Common Stoc kholder's Iquay . 1Io: 37.31 31.7% 3 5.0 t, 3 7. I 't.
Preferred Stock-Not Subject to Mandatory Redemption >b (i 3 (i (i 7.3 8O Subl ett to Mandatory Redemption. 9 -i H.5 7.5 59 50 l ong-lerm Debt . 70 1 17.9 51.2 51.8 19.9 100 0: 10001 100 O1, Total Capuali/ation . _ _l00 0- _
100 0 t, (i) 1981 includes a nontash depreuation resene adjustment of 5(i.751 AKK) which increased net inwme and earnings on wmmon stock (see Note 2) 5
Management's Discussion and Analysis of Results of Operations and Financial Condition im >; i i si ii 4 4 1 =m ii si u q p- . .a .:.i .i.i . .i . .. 4 . . im- -i r .. .d-s i - m i 1 Results of Operations itesults of operations refle(t the eflect of rate increases ahi(h contributed to slightly higher earnings on common stoc k in 1985 despite a $ti.751 AKK) adjustment in 1984 made to the Company's depreciation reserve which increased income in that year. In addition. as of July 1.1985. the Company stopped including Allowance for Iunds !! sed I)uring Construcuon (All:DC) related to Perry Unit 2 in net inwme as described in Note 8. AlUI)C applicable to Perry Unit 2 included in net income during the last hall of 198 I amounted to approximately
$2.tiOOAKK).
Increased operating revenues of 5.4't,in 1985 compared to 198 i resulted principally Irom the full effect of a
$ 15.4 00.000 rate increase ellectise in April of 1984. a
$tiAKKTAK)O rate increase ellectise in March 1985 and an TOTAL ELECTRIC SALES
"'# # #" *" '"'# " " " " "'"N I I Res' dent al rate increase ellects was an oserall d'ecrease of 2.3't,in total imal,ons of biowart.noursi 1 1 noustnai kilowatt-hour sites during 1985. the 1984 operating revenue increase of Il.5't, resuhed primarily from me rate increase I I commercial that was ellective in April of 198-1 and an overall increase AH Other of 12.O't,in total kilowau hour sales. Industrial kilowan-hour sales decreased 7.8't, in 1985 following an increase of 13.7't. in 1981. I he decrease in sales to industrial customers in 1985 reflects the downturn in the basic steel industry in the Company's sersi(e area.
Reported luel wsts increased in 1985 and 1981 by 5 0 t.
and 17.7't., respectively. due to the following factors:
1985 1984 3500 Inueased (decreased)
Iuel wnsumption . . $( l.5(i9 AK K)) $ 7.930AKK)
% Inc reased (decreased) prices . l.151 AKK) (2.2(iG AKK))
!)illerence in net 2500
\ ~ deferred fuel wsts. 2.9131XK) 2.793 AKK)
\ $2.7 9 51XK) $8.4 58 AXX) 2000 Other operation expenses decreased 7.3 t. in 1985 Irom 1981 due primarily to a credit oIapproximately $2.900AKK) l 1500 l I f rom a retroac tise hilling to other CAI CO wmpanies for prior l period llrute Mansfield i lant wsts. Also wntributing to this l det rease were reduced pension expenses resulting primarily 1000 from a (hange in attuarial assumptions in the third quarter
~ ,
of 1985 (see Note 1) Other operation expenses increased 19 ti't,in 1981 mer 1983 due primanly to increased employee 500 %
benelits. injuries and damages. legal wsts asso(tated with a senled antitrust case and expenses relaung to rate cases 0 Int reases in interest on long-term debt and preferred sto( k 1981 (hvidend requirements in 1985 and 198 4 rcliett the elletts 82 1983 1984 of inan ng r the Compann ongoing wnMmWon program.
19 " Allll)C applicable to the Company's ongoing tonstru(llon projects is capitalized unul the proje(ts are plated in sersi(e m order to provide for future reuwery of the appropriate 6
1
A3Gk
= PENN POWER D
financing costs which are not currently recovered through rates. AFUDC increased in 1985 and 1984 as a result of the increased level of construction work in progress. However.
.\FUDC for the last half of 1985 decreased, reflecting the effect of the suspension of AFUDC relating to perry Unit 2 in net income as discussed above.
Information with respect to the estimated effects of inflation upon the Company is given in Note 10.
Capital Resources and 1.lquidity lhe 1986-1990 construction program and capital lease requirements are currently estimated to be $207AKKMKK)
(excluding costs of nuclear fuel); the issuance of additional ELECTRIC SALES I I Reudent ar tommon stoc k and other securities will be necessary to lund REVENUES , , ,
a portion of this construction. Maturities of. and sinking ("""' "5 ' d "d'$ l fund requirements for. long-term debt.long term obhgations (excludmg nutlear f uel)and preferred stot k during the same AU Other live-year period will require expenditures by the Company of approximately $H7AKKMKK).
Insestments for additional nutlear luel dunng the lise years 1986-1990 are estimated to be apprmimately $33AKKMKK).
During that same penod, long-term obligations related to nuclear fuel will be reduced by approximately $69AKKMKK) ===="""
as the Company recovers sut h (osts through its elet tric rates Ihe Company's (urrent budget forecast relletts expenditures of approsimately $661XKMKK) for new constrth tion in 19H6. 200 '
Also. apprmimately $4000.000 of first mortgage bonds mature in 1986 pursuant to sinking fund requirements. the y5 -
gJ N Company expetis to finance its 1986 capital requirements through the issuante ol additional first mortgage bonds and (ommon sto(k. Additional imestments in nuclear fuel of 150
/ l N approumately $51XKuKK)in 1986 are expetted to be lunded through the incurrente of additional long-term obhgations.
At thember 11.19H3. the Company had available approxi- 125 ~
mately $17AXKMKK)in temporary cash imestments. Iunds in estron at Detember 31.1985 of approximately $31XKUKK) were also av.nlable for lunding the Compan/s ownership 100 interest in the (onstru(non of pollution control facihties at certain of its generating plants. Ihe Company also has 75 #
$101XKUKK)of short term bank lines 01(reda asadable for interim finanting purposes. All of the (tirrent lines expire -
December 31.1986 honeser.any unused knes may be (an- 50 teled by the banks at any time.
/
p-llased upon camings as of December 31.1985. the L,ompany would be permitted. under its first mortgage indenture, to 25 -
Issue approumately $791XMMKK) prinupal amount of first mortgage londs assuming an interest rate of Il.5 t.. or. Under its (harter, would be permitted to issue approximatelV 198'
$351XMMKK)of preferred stock assuming a dnidend rate of 1982 3933 115 t.. or to issue some lesser combinanon of both first 1984 39 mortgage Imnds and preferred sto(k 7
Balance Sheets Assets At I)ecember 31. 1985 1984 (in Thousands)
Utility Plant:
In service, at original cost. ....... .. . . .. . . $650.826 $61 1.6 I 5 less-Accumulated provision for depreciation . . . 190.756 171.4 H3 160.070 440.132 Construction work in progress-Electric plant (Note H). . . . . . 312.298 265.139 Nuclear fuel . . . , . . .... .. .. . ,. .. 11 H70 16.666 154.168 3 l l .805 H I 1.23H 751.937 Other Property and Investments . . . . . . . . 902 2.706 Current Assets:
Cash. . .. ... .. ..... 768 621 Temporary cash insestments, at cost. whic h approximates market value , . . :17.220 21.900 iteceivables Customers (less actumulated prosision ol $139.(KX) and
$112AKK). respectively, for uncollectible accounts). , I si. I 23 15.963 Parent company. , , . . . . . 21.965 18.135 Other.. ... .... . . . . 20 6'11 12.020 Materials and supplies, at average cost-l'uel . . . 7.67I i1.209 Other... .... .. . 5.9 si 1 5.19 1 Prepayments . . . . . NhD Hl7
_ I_1, I . 502 86.462 I)cierred Charges:
Deferred Quarto coal and other energy uwts (Note H) . . , . .. I2711 I O.902 I?namorttred (osts of terminated (onsttu(tion projects (Note 3) . . I 'l 201 14.H I H Other. _ h.x51 H.7 79 12.798 3 l.199 59 59 .l h} $87 5.601 8
- PENN POWER 4
4 Capitalization and Liabilities At December 31, 1985 1984 (In Thousands)
Capitalization (See Statements of Capitalization):
i Common stockholder's equity. ... . $ 260.13 I $217.096 Preferred stock-Not subject to mandatory redemption . . -1l.905 .I1.905 Subject to mandatory redemption. . 70.662 56.562
- 1.ong-term debt. . . . .
179.I28 317.761 j 7"31.826 663.327 i
Term Obligations:
Longlear Nuc luel(Note 6) . . . 36.737 17.129
- Capitalleases(Note 1) . .. . .. 9.800 5.050 46.517 52.179
} Cutrent Liabilities:
i- Currently payable preferred stock, long-term debt and i
long-term obligations . . .. . I -1.H 61 3 l.01 l Notes payable to banks (Note 7). . .
Accounts payable-Parent company. . 2.552 3.879
- Other.. . '15.54I -10.002 Accrued taxes. .
6.598 1.603 Accrued mterest . .. . 9.599 H.06H Other. . . . 9.081 H.161 H H.2.5 H 9H.730 Deferred Credits:
I Accumulated deferred income ta.ses . ... 10.906 16.93I Accumulated deferred imestment tax credits . . 2H.219 19.I13 Other. .
1641 .l.991
- 72.814 61.368 i
Commitments. Guarantees and Contingencies (Notes l and H).
$959 l 10 $H7 5.601 The accompanying Notes to Iinancial Statements are an integral part of these balante sheets.
I 9
Statements ofIncome ,
A ,
's : l-For the Years Ended December 31, 1985 19M4 19M3 (In T housands) l Operating Revenues. $
_2_2_IM 6 $213.150 $ I 91. I 72 Operating Expenses and Taxes:
Operation-I uel. . ... .. ... ... 3M.9 I 9 Sti. I 21 17.fi(ifi Purc hased and interc hanged pimer. net. (ih-lI) (1.l10) (3.81H)
Other operation expenses . 10 f(n 13cl77 3ti.339 lotal operation . 91(HI 95.I91 80.I87 Maintenance . . ... I 7.5 2H I H.2(i3 1 Helfi7 ,
Prosision for depreciation and amorti/ation.20-111 1 H.H 10 l (i.H IS ,
General taxes. I1 M l 1 15.733 13cl75 i income taxes. 11 'W5 20.ti31 I H.22 I lotal operating expenses and taxes . 171182 I fiH.til l 117.195 -
Operating income. _5j l..} ini. l -l.519 13.977 Other income and l>cductions: ,
Allowante for equity f unds used ;
during construction . . I 7.-l;I l 5.997 l 2,219 Miweilaneous, net (Note 2) . 2fi N H. I (i7 892 !
Intome taxes-creuil. _
7,722 H.150 ti.1 19
'lotal other income and deductions . 27.509 32.31l I 9.2tiO lotal Intome. NI 021 7(i.H13 (i3.237 Net Interest:
Interest on long-term debt . 15501 33tilO 30.300 Interest on nuclear fuel obligations . . L195 5.030 2.93 l Alhmance for horrowed funds used during construction. net of deferred income taxes. (Mcl9 I) (8.357) (ti. I 73)
Other. 42h 1.1 f (i 1.83ti Net interest . I1 130 31 cl29 28.H91 Net intome. 16.591 15.10 1 31.313 Preferred Staxk Dividend Requirements. _ J o o I 7_ H.9(i5 7.29ti l'6stnings on Common St<xk. $ th 7/h
$ 3ti.139 $ 27.017
'Ihe auompanying Notes to linancial Statements are an integral part of these statements.
10
A'%
. PENN POWER Statements of Cap.tah.zation i % :r
.m _w QMd
-- ,. ., , ,. . _ = ' '
D,n w =. -
M Y- . - yi;2d7 L w -
At December 31. 1985 19H4 (in thouunds)
Common %xkholder% Fquity:
Common sto(L $;10 par value. 6.5(K)1)OO shares authorized 5.M901KK) shares outstandmg . *I in it o $ 17 6.700 Other paid in capital . ... Jl1 200 Retained earnmgs (Note Sa). si120 70.196 total wmmon sitskholder's equity . loo I ii 217.096 Optional Redempnon Prke Number of $ hares Aggregate Outstanding (in 1985 198i Per share T housands)
Preferred %x k (Note 5b)-
Cumulatne $1(K) par value Authorized - 1.2t K)AK K) shares Not $ublett to Mandatory Redemption:
1.2 I t., S 11 111.019 I 11.0 19 $ 102 98 105 00 $ 1 1.6 l l iIIOi 11.105 7.h-11 H 00 t i I H 000 1 I H AKK) IOI. l's 105 27 i117 I i l N x) I1.800 H 1M19.161 160 OLK) I 60 (KK) 105 20-10h 87 16.966 ,.
IotKh) 16 00()
Iotal not subjeu to mandatory redemption -119 019 .I 19 O l9 $ 11%I i I 'n n 51.905 Subl et t to Mandatory Redemption (Note 5()-
H 2 I L. NOAKK) M5(KK) $lOS 2 I $ H.6 "> 9 %tkk) M.500 10 501. lOOTKK) 1(K)1XX) LOX hH 10.N 68 I ti t u x) IOLKK) 1 1 OO t. . 51.528 M6 t h 10550 5.751 ~, 1; I 5.562 ll.501. lSOAKK) 1503X X) 10.129 I Scl9 I litkM) iSAKK)
I 1.50t; 11. I50AKK) -
111.50 16.725 Ii(xx) -
1:l(Kir. IOOTKK) lOOAKK) 112,.{5 l 1.215 liit x n > IO OLK) 15 001 HO (K K) NO(KK) 1 I l 12 9.15I stMwi M(KK)
Retlempnon within one 3 car . Ii9I) (500) lotal subjet t to mandatory redempnon 570616 $77 888 7t > bo 2 56.562 71l.5.]
f ong term Deb INote 5d)
I erst mortgage bonds-1159 L weighted nerage mierest rate, due 1996 through 1990 . 7 i wo 97 890 9.11I neighted .ncrage interest rate. due 1991 through 1995 % 890 61.890 9.26% neighted .nerage mierest rate. due 1996 through 2LKK) . 17 o I 0 2 t.9-lO h 2 I L weighted average interest rate. due 2(K)I through 2tK)5 t's 212 51.210 9 22 i neighted aserage interest rate. due 2006 through 2t x)H lti t x x) .I 1.0 to total brst mortgage bonds . _l i l_ o 12 279(KK) set ured notes and ohhg.illon-6 7 5 t ncyhted .ncrage imcrest rate, due 1986 through 1990 l 11 12s I l 081 neighted .nerage mterest rate. due 1991 through 1995 ;tv2nO 9.201 7.69 r weighted .nerage mterest rate, due 1990 ihrough bKK) 10 ',9 l 9 261 lO O Ii neighted ner. ige interest late. due 2thil through ax15 lei / I s 16 098 7.2 i t. ucighied .ncrage mterest rate. due bK16 through 2010 9 loo 12.720 9 95 L neighted ncrage mierest rate. due 201 I through 2015 _lh 9 TO l 2.7th) l ll lll MO.ll!
Amount held by Irustee ( I 19 J ) (I LtO5) total secured notes and obhganon I to s I 9 67 000 Net unamornied dntount on debt 1913 (x I ll long term debt due unhm one war ia t7N (27 12x) lotal long term debt J i ')__I f s t i 7.76 I lotal t apitah/ anon 5/11516 $601 il7 lhe auompanyng Notes to Iinanti.il statements are an nuegral part of these statements 11
Statements of Retained Earnings
.' .' i. .' .1 b t N
~
.. z . . .' b- . h! .- i D "N For the Years Ended December 31, 1985 1984 1983 (in Thousands)
Halante at beginning of period . 5 70.I % $ 54.597 $ 46.820 Net income 16.591 45.401 34.313 116.789 100.001 H l .163 Deduc t:
Lash distdends on common stock . 23,560 20.862 19.203 Cash dividends on preferred stock . _1O 009 H.94 3 7.363 13.569 29.805 26.566 Italante at end of period (Note Sa). 5 83 220 $ 70.196 $ 54.597 Statements of Capital Stock and Other Paid-In Capital Preferred Stock Subject to Not Subjc(t to Mandatory Common Stock Mandatory Redemption Nedemption other Number Par Paid In Number Par Number Par of Shares Value Capital of Shares Value of Shares Value (Dollars in Thousands) llalance January 1.198.1 5.090AKK) $ 152.700 $160 419.019 $41.905 338.951 $33.895 Sale of Common Stock . 400AKK) 12.000 - - - - -
Sale of IIf>Ot Series of Preferred $tock . . . - - - - -
I50AKK) 15AKK) l' referred Stock Sinking f und Hedemptions-H. 211. Senes - - - -
(5AKK)) (500) 1I AK)t. Series l7 (l.243)
(124) llalant e Det ember 31.1983. Ol90TKK) 161.700 177 119.0 l9 11.905 179.708 -17.971 Sale t.f Common Stock . . lOOAKK) I 2AKK) - - - - -
Sale of I 3 00 r, Series of Preferred Stock . . . - - - - -
1OOAKK) 1OAKK)
Preferred Sto(k Sinkmg lund Hedemptions-H.2 l't. Series - - -
(500)
(5 AK K))
i I Akit. Senes -
23 (l.092)
(109) llalan(e De(ember 11.1981. 5.H 90A K K) 176.700 200 119.019 11.905 570.616 57.062 Sale of I l.50 f. Series !! of Preferred Sto(k . . - - - - -
I50AKK) i SAKK)
Preferred Stock Sinking i und Hedemptions-H 21 t. Series - - -
(500) l I AK)'t, Series ( 5 AXX))
1I - -
_( 1.088) (109) llalance December 11.1985. 'i.H'H ) A K x ) $176]OO $2II .I I 9.019 511.905 71 l.52H $71.153 Ihe auompan)ing Notes to linan(tal 5tatements are an integral part of these statements.
12
A M:- PCNN POWER w
Statements of Sources of Funds for Property Additions For the Years Ended December 31, 1985 1984 1983 (In Thousands)
Internally generated funds-Net inwme . .. .
$ -16.593 $ 4 5.101 $ 31,313 Principal noncash items-Depreciation and amortization. 29.6 lh I7.112 21.325 Deletred income taxes, net. I l .62 5 15.052 13.585 investment tax credits. net . ..... H. hob 4.264 3.182 Allowance for equity funds used during construction . (l7 451) (15.997) (12.219)
Delerred fuel and energy costs, net. ( l .H .19) (.l.592) (6.924) 77.182 61.243 53.292 1ess-Dividends on common stock . 23.560 20.862 19.203 Dividends on preferred stock . IO009 H.94 3 7.363 11.811 31.438 26.726 Financing activities-Common stock .
I 2.lKKI I2lhKI Preferred stock I 5.(KK) 10.000 15.000 I.ong term debt . 6L961 21.776 27.955 Iong term obhgations . . .... ...
9.2 18 17.013 13.156 llepayment of prelerred stock. long term debt and long term obligations . _[17.1I 9) (5.779) ( l O.7 76) 50.792 55.010 57.335 Net thange in current assets and current liabilities culuding currently payable preferred stock,long term debt and long term obligations-Cash and temporary cash investments. (15.-lh1) 1.101 (15.036) lleceivables . . .. ( l 2.60 I ) (997) 2.898 Materials and supplies. 3.Oh 8 (2.760) 3.917 Accounts payable. 'l 2 15 202 1.896 Actrued taxes I.995 -11 (2.350)
Au rued interest. 1,531 1.090 217 Miscellaneous, net . H71 2.786 1.037 jl h. N2) I.166 (7.42l)
Other, net-Allowance for equity lunds used during wnstruuion. . . I 7.'3 0 I I5.997 l 2.2 I 9 Deferred inwme taxes on allimante lor bornmed funds used during wnstruuion . (H.82 I) (H.87 2) (6.559)
Mist ell.meous, net. L45" 314 I.037 12.081 7.439 6.697 Total Sources of I unds for Property Additions. (40 1/6 $ 95.383 ' N.I.3 3 7 Property Additions-Ileunc plant.
- Hl l 3h ' 80.862 $ 71.592 Nuclear luel . . H ilh 13.-I29 H.7 67 Other capital leases. 320 1.023 2.966 Nonutthty property I II 69 12 yo t/f; $ 9 5.3H I $ HI337 Ihe auompanying Notes to f inancial Statements are an integral part of these statements 13
4 Statements of Taxes
,)
I'or the Years Ended December 31 1985 1984 1983 (In Th<.,usands)
General Tases:
State gross receipts . .
$ M 911 $ H.503 $ 7.727 Iteal and personal property . 2.159 3.669 2.212 State capital stoc k. . 2 067 1.788 1.902 So(lal security and unemployment . 1I2 1.713 1.587 Miwellaneous. . 75 60 47 lotal general tases . s i 1H11 $ 15.733 $ 13.4 7 5 Prosision for income lases:
Currently payable-lederal $ 1.896 + 614 $ 647 State 2.770 1.426 1.217 1666 2.040 1.864 Deferred, net (see behm)-
l'ederal !O I96 12.079 IO 708 State 1.429 2.973 2.877 11.625 15.052 13.585 Investment tas (redits, net of amortization . H 806 4.264 3.182 Total proviuon for income tases . $2r097 $21.156 $ 1 H.631 Income Statement Clawili(ation of Prosision for income Tases:
Operaung espenses . $21995 $20.634 $ 18.221 Other income . (7.722)
Allowance for borrimed funds used (8.150) (6.149) during (onstruction . H 824 H.H 7 2 6.559 total prmision for income tases . $25097 $2 I .3 56 $ 1 H.G3 I sour (es of Deferred income Tases:
Alkman(c for borrimed funds used during (onstru(non. u hhh is (redited to plant .
- x 82 i $ H.H72 $ 6.559 Lwew of tas user book depreciation. net. 4 951 4.096 4.145 Cost of terminated construction projects, net. (N23) (609)
Delerred fuel and energy costs. net . .. (43) 886 2.365 3.567 Delerred interest on leased nutlear fuel. net (l .57 I) (2.089) (608)
Nutlear luel disposal (ous . (209) 1.786 Other. net (575)
( l 1 t) 6 11 540 Net deferred mcome tases $ I I .62 5 615 052 813 5H5 Retontillation of lederalIncome Tas I% pense at Statutory Mate to Total Prmision for intome Tases:
llook inwmc before prmision for intome tases. $71690 $66.760 $ 52.9 74 lederal intome las espense at statutory rate . $32977 $30.710 $24.368 Inc reases (redut tions) m tases resulung from.
Allowante for eqtuty funds used dunng tomtruction. which does not (omtitute tasable in(ome . . ... .. .. (M O2 7) (7.359) (5 62I)
Dilleren(e between luok and tas depre(lation. net. I?7 (22.1) (839) state in(ome lases. net ol lederal inwme tas beneht . 2 2nd 2.375 2.211 Imeument tas (redit-amortiration. (l J 75) (808) (H94)
Depreti.llion reserse adjtistment (Note 2). -
[l.106) -
Other net h>ial prou uon h,rin(o m e tases.
_Q (231) (594) mm7 _
$2i.356 $is 63 : !
Ihe accompanying Notes to financial 5tatenients are an integral part of these statements.
14
. _ . _ _ _ _ _ _ . , _ _ . _ _ _ - _ . _ _ . - _. . _ _ _ _ _ _ _ _ . . - ~ . _ . . _ - . _ . _ _ _ . _ . _ _ . - - _ . . _ -- I
h
= PENN POWER W
Notes to the Financial Statements s .
... s .
(1) summary of significant Accountmg Pohcies: w a. a . . . , .o lhe Company. a wholly 4mned subsidiary of Ohio Idison * 'dao'a' P'a' = h- *-ua o-a h'e Company (Idison). follmss the accounting policies and prac- '""N!"' ' *"'
tices prescnbed by the Pennsylvania Public Utility Commission va ih- aad i (PPUC) and the rederal Energy Ikgulatory Commission (ilRC). *H-%7 ' in u . mi . u. en e ftrug WnsInkl
%* I % J and %> t h e b79 14. 0 4 i los 5 76.
Revenues- i-o w % i ia2 iu inn ^ 4u er w
"""ad'"' ~
the Company's residential and commercial cusmmers '""' '""' ' " " " " ' ' '
are metered on a cyde basis. Itesenue is recognized for ciectric senice based on meters read through the end of the month. All nuclear fuel in pmcess relates to the CAPCO units but Itevenues from the Company's largest (ustomer. Sharon is nc.t segregated among them.
Steel Corporation. amounted to approximately $25A80.(XX).
$23.891.(KK)and $22.816.(XX). in 1985.1981 and 1983. Nu(Icar ruel-resin tisely. T hese amounts represented apprmimately l l.3 A The Company amortires the wst of nuclear fuel based on i1.2% and 12.01. respectively, of the Company's total the rate of consumption.1he Company's electric rates indude operating revenues. amounts for the future disposal of spent nuclear fuel based ugun the formula used to wmpute payments to the United Deferred fuel and Energy Costs- States Depanment of Energy.
1he Company recovers luel and energy costs, not other.
wise recmered through base rates. from its customers Allowan(c for Funds Used During Construction (AFUDC)-
through an annual-levehied~ energy cost rate (LCit). Ihe iCit. AlUDC represents the net fmancing costs capitalized to i whic h includes adjustment for any mer or under wilection wnstruction work in progress during the construction period.
from mstomers, is recakulated each year. Accordingly. the lhe borrowed funds portion reflects capitalized interest pay-Company delers the difference between actual energy costs ments and the equity funds portion represents the noncash and the amounts currently recovered from its wstomers. capitalization of imputed equity costs which are charged to itelerence is made to Note 8 with respect to accounting construction. AlUDC varies acwrding to changes in the level for the wst of coal received from Quarto Mining Company of construction work in progress and in the cost of capital.1he (Quarto) Company computes Al UDC utilizing a net of tax rate, which is wnsistent with the rate treatment.The AFUDC rate related Utility Plant and Depreciation- to nudear fuel financed only through the incurrence of long-Utility plant reflects the origmal mst of construction. term obligations (see Note 6) is based on actual interest indudmg payroll and related wsts such as taxes. pensions accrued on the obligations during the period. The annual and other Innge benefits, administrative and general costs and rates used by the Company for all other construction projects allowance for f unds used during construction (see Af UDC) ranged from 9.251, to 9.51't, during the three years ended
. ihe Company prmides for depreciation on a straight- December 31.1985.
line basis at vaiious rates over the estimated lives of property included in plant in service. The annual wmposite rate income Taxes-for electric plant was 3.11. dunng the three years ended Details of the total provision for inwme taxes are shown December 31.1985 (see Note 2) The Company provides on the Statements of Iaxes. Ihe deferred income taxes result for the estimated cost of dewmmissioning the radioactive from timing di!Ierences in the recognition of revenues and components of its only nuclear generaung unit in senice. expenses for tax and accountmg purposes.
consistent with the rate treatment. Amounts wilected from lhe Company alkicates the income tax benefit which resuhs customers for decommissioning are accumulated in escrow from mterest e.ipense related to construction work in progress acwunts. to income taxes-credit included under other income and deductions on the Statements of income.
Common Ownership of Generating Facilities- Ior income tax purposes. the Company daims hberalized the Company and other Central Area Power Coordmation depreciation and. to the extent permitted for ratemaking Group (CAPCO) companies own. as tenants in common. purposes, provides delerred income taxes. In April 1985 the various power generating facilities. Fach of the mmpanies Pennsylvania Supreme Court ruled in fawr of the consumer is obligated to pay a share of the construction costs of any Advocate of Pennsylvania in an appeal taken from a 1983 jointly owned latility in the same proportion as its ownership Commonweahh coitri decision. which upheld the Company's interest. The Company's portion of operating expenses 1982 PPrc retail rate case decision allowing normalization associated with these jointly owned facilities is induded in of inwme taxes associated with certam liberalized deprecia-the corresponding operating expenses on the Statements of tion benehts. The supreme Court has remanded to the PPUC income. The amounts reflected on the Balance sheet under for further study the practice of lederal income tax normal-utility plant at December 31.1985. indude the following: iration and has disallowed state income tax normalization.
Ihe ppt C is expeaed to hold hearings to determine whether 15
t t
Notes (continued) refunds to customers are appropriate and. if so. to u hat extent. The alwe total actuarial present value of accumulated Such refunds,if any,would not have a significant impact on plan benefits reflects pension benefits applicable to eligible ,
the Company's resufts of operations.The Company expects that employees based upon present salary !evels and past years l deferred raws whi< h have not lwn proviileef will be collected of service accumulated throuah the valuation date. The l from its customers when the taxes become payable. based Company's past contributions to the plan. however, considered upon the established ratemaking practices of the PPUC and estimateil ultimate salarv increase.s due to inflation and other the FFRC. As of December 31.1985, the cumulative net factors and the estimated total service expected to be accumu-amount of income tax timing differences for which deferred lated by employees.This is consistent with the new pension income taxes have not been prosided were approximately accounting standard adopted by the financial Accounting
$ 100.000.000.
~
5tandards Board (FASI4 which will be effective for the Company The Company defers investment tax credits utilized and in 1987. unless the Company elects to adopt the standard amortires these credits to income over the estimated life of earlier. Based upon the new standard.the Company's reponed the related property At December 31.1985.approximately pension costs will be significantly reduced.
$4.000.000 0f unused investment tax credits were available The Company pnwides a minimum amount of noncon-to oIIset future Federal income taxes payable. These credits tributory life insurance to retired employees in addition to expire at the end of the following years: optionalcontributory insurance features. Ilealth care benefits.
1999. ' '. ~ ' $ l .OMMXX) which indude certain employee deductibles and co payments.
2W)O . $. . 3XXKMKK) an' lso vada e to reured employees, their dependents and.
under certain circumstances, to their survivors. The company
$4.000.0m) pays insurance premiums to cover a portion of these benefits in excess of set limits: all amounts up to the limits are paid Retirement Henefits- by the Company. Expenses associated with health care and 1he Company's trusteed, noncontributory pension plan life insurance benefits for retirees amounted to $339.000 in covers most full-time employees. Upon retirement. employees 1985 and $456.000 in 1984 and are charged to income receive a monthly pension based on length of sersice and during the applicable payment periods.
compensation. Pension costs accrued in 1985.1984 and 1983, were $3.305.000, $4.393.000 and $3.397.000. Significant Parent Company Transactions-respectively of those amounts.$1.887.000. $2.566A100 and Operating revenues for 1985.1984 and 1983 include 02.088.000 in 1985.1984 and 1983. respectively. were $11.804.000. $lo.693AKK) and $12.745.000 respectively.
primarily billed to the other CAPCO companies or charged to attributable to transactions with Edison. Such revenues construction; the balances were charged to operating expenses. resulted primarily from Edison's purchase of capacity from the in addition. pension costs for 1985 were further reduced by Company's ownership interest in Beaver Wiley Unit No.1.
$1.422.000 due to retroactive billings to the other CAPCO Purchased and interchanged power. net, reflects credits of companies.Such costs include the amortization of unfunded $6.011.000. $7.973.000 and $8.290.000 due to the past service costs on an actuarial basis over 30 years. Company's net delivery of interchanged power to Idison Prior to July 1.1985. the Company funded pension costs during 1985.1984 and 1983, respectively in addition, other accrued using the frozen initial liability actuarial funding operation expenses for 1985.1984 and 1983 include method. Effective July I.1985 the Company changed to the $3.502mo. $3.535mo a id $2.794.000, respectively.
projected unit credit method for funding purposes. Accordmgh:~
primarily attributable to data processing services rendered the Company is not required to make pension contributions by Idison to the Company during the 1986 plan year. Contributions of $2.239.000 were made during the first six months of 1985. Pension costs in (2) Depreciation Reserve Adjustmcnt:
1985 were reduced by approximately $ 1.300AK10 due primanly in the third quarter of 1984, the Company made a noncash to a change from 7.0't to 8.5't in the assumed average annua'l depreciation reserve adjustment of $6.751.000 as required by earnings rate of plan assets and other assumptions. a PPUC rate order. T he adjustment resulted in an increase to A comparison of accumulated plan benefits and plan net other income and a decrease to the Company's reserve for
~
assets Imm the two latot attuatial reports is as follows: depreciation and reflects previously recorded depreciation not recovered in retail rates but which will be recovered in June 30. future rates.
1985 1984 (3) Terminated Construction Projects:
n ula I n fas: In January 1980. the Company and all other CAPCO com-Vested. .. $27.0801)o0 $21.879.000 panics terminated plans to construct four nuclear generating Non cued G 229 000 4 6nhtnio umts. Costs (including settlement of all asserted claims
$32.309 Axx) $29.185Axx) resulting from termin tion) unrecovered by the Company as of December 31.1985, applicable to these units amounted Net assets avadable for benefits . to approximately $13.203.000.lhe Company is recovering
$62.17 I Axx) $16.952 Ax10 these costs from customers as an operating expense allowance.
Assumed raic of retum for There is presently an appeal by the Office of Consumer at tuarial p.esent se of Advocate before the Pennsylvania State Supreme Court accumulated plan benefits. 8 r. 81.
16 8
[
O_
W
~ - PENN POWER regarding the recowry of costs of terminated projects through (b) Preferred Stock-rates from PPUC jurisdictional customers. Although manage- At the Company's option. all preferred stock may be ment cannot predict the outcome of this appeal, it believes redeemed in wholc or in part. at any time upon not ! css the PPUC order permitting recovery of such costs is lawful than 30 nor more than 60 days notice. unless otherwise noted.
and should be allowed to stand.The Company is not earnin 5 Redemption of all preferred stock issued within the past five a retum on the unamortired investment.The remaining perit years is subject to certain restrictions regarding refunding of recovery is approximately ciR ht years. Reference is made to operations. The optional redemption prices shown en the Note 8 with respect to a proposed amendment to Statement Statements of Capitalization will decline to eventual mini-of Financial Accounting Standards No. 71 (SFAS No. 71)in mums per share according to the Charter provisions that connection with terminated construction projects excluded establish each series.
from rate base.
(c) Preferred Stock Subject to Mandatory Redemption-(4) Leases: Annual sinking fund provisions for series of the Company's The Company leases a portion of its nuclear fuel require- preferred stock, which are retired at $100 per share plus ments, certain transmission facilities. computer equipment. accrued dividends, are as follows:
I office space and other property and equipment under cancel-I able and noncancelable leases. Consistent with the regulatory series shares Dr.te lleginning treatment, rental payments for capital and operating leases 8.24% 5AXX) December I (i) are charged to operating expenses on the Statements of income. I I AX)t 4.000 January I (i)
Such costs for the three years ended December 31.1985 are 15.00% 3.200 July 15 1988 summarized as follows: 11.50% 15.000 July 15 1989
,,, ,,,, ,,,,, 13.00t. SIXX) July 1 1990 11.50111 301XX) September 1 1991 i'a"" = "d4 10.50% IOOAXX) April 1 2010 inwerms clenu-ns ed s apulued Iraws 82 512 eiaf4 e 1 gu m)
Annawatme <d t aptal leews . I4.16 4 MlM 4 J19 (i) Retirements of this series have begun.
All aithre lesws 14J7 I JIM i 417 w ,rnwi n r. .i s. 2 . 1o . 3%
zg,ggggsggggg gggggg g ge gy g ,
years are:
Certain leases entered into prior to January I.1983, which would be reflected as capital leases on the llalance Sheets. 1986. . .$ 79iAXX) have not yet been capitalized as permitted by SFAS No. 71. 1987- 90" P If they had been capitalized. total assets and liabilities 1988. 1.220.u would have increased by $5.295AX)0 and $5.488AX)0 at 1989. 2.720AXX)
December 31.1985 and 1984 respectively. 1990. 3.2201XX)
T he future minimum rental commitments as of December 31.
1985. lor leases reported as capital leases and noncancelable (d) Long Term Debt-operating leases are: Ihe mortgage and its supplements. which secure all of the Company's first mortgage bonds. serve as direct first mortgage >
capital Operating liens on substantially all property and franchises, other than Icases teases specifically excepted property. onned by the Company.
1986. $ 5.136Axx) $ l.131 Axx) liased on the amount of bonds authenticated by the Trustee 1987. 4.213 Axx) I,121 Axx) through December 31.1985. the Company's annual sinking was. 3.861 Axx) 1.109Axx) and improvement fund requirements for all bonds issued 1989. 1.273Axx) 1.095Axx) under the mortgage amounts to $2.3671XX). The Company 1990... ... 6011xx) 1.072Axx) expects to satisfy these requirements in 1986 by certifying i1623 AXX)
~
Years thereafter . 9.3 50AK)0 unfunded property additions at 166 2:31 of the required Total minimum lease pannents . 21.436 000 $ l 8.154 JKK) amount.
Executory costs . 2.915Axx) As of December 31.1985. the Company's sinking fund Wet minimum icase payments. 21.521 A)oo requirements for certain series of first mortgage bonds and Interest portion . 7.120Axx) maturing long term debt for the next five years are:
present value of net minimum Icase payments $l4A01Axx) 1986. . $ 2.37 8 AX)0 1987. 2.378 AXX) 1988. 5.44 I AXX)
(5) Capitalization: 1989. 60.4 931XX)
(a) Retained Earnings- 1990. 5.632AXX)
Under the Company's Charter. the Company's retained earnings unrestricted for payment of cash dividends lhe weighted average interest rates shown on the Statements on the Companys common stock were $55.182.000 at of Capitalization relate to long-term debt outstanding at December 31.1985. December 31.1985.
[
17 1
Notes (continued)
Total secured notes outstanding at December 31.1985 The Company maintains a cash balance on deposit with and 1984 exdude $3.592AKK)and $13.305AKK). respectively a bank to provide operatin i funds and to assure availability of certain pollution control notes, the proceeds of which were of a $3AKK)AKX)line of crc it and for other banking arrange-then in escrow pendmg their disbursement for construction ments. T his compensating balance is expected to be maintained of pollution control facilities.The Company's obligations to at an average of approximately $2OOAKK) and is not subject repay certain pollution control notes are secured by series of to any contractual restriction against withdrawal.The Company first mortgage bonds. is required to pay commitment fees that vary from 3 8% to I/21 to assure the availability of $27AXX)AKK) of the lines (6) Long Term Obligations: of credit.
Pennsylvania Power Fuel Corporation (a corporation in uhk h the Company has no ownership interest) prmides funds (8) Commitments, Guarantees and Contingencies:
for the procurement of nuclear fuel on behalf of the Company Construction Program-The Company also participates in arrangements uherein the lhe Company's current budget forecast reflects expendi-
' Central Area Inergy Trust (CAET) finances the acquisition of tures oI approximately $207AKK)AKK) for property additions nuclear material that will ultimately be used to fuel various and improvements from 1986 through 1990.of which approxi-CAPCO generating units. Under ordinary circumstances. the mately $66AKK)1XX)is applicable to 1986. In addition. the Company will make payments for nuclear fuel as it is consumed. Company expects to invest approximately $33AKK)AKK) for Financing on behalf of the Company of up to $48AKK)AKK) nuclear Iuel during the 1986-1990 period oInhkh approxi-is currently available through the Pennsylvania Power fuel mately $5AKK)1XX)is applicable to 1986. A major portion of Corporation. cither through revolving credit arrangements or the Company's construction activities during this five-year the issuance of commercial paper. which is supported by a period relates to the CAPCo companies' program for the joint bank letter of credit. or a combination of both, financing development of power generation and transmission facilities.
of up to $29AKK)AKK)is available to CAET on behall of the Reference is made to Common Ownership of Generating Company. subject to certain limitations. Facilities" included in Note I with respect to the Company's The Company accrues interest applicable to the nuclear investment in Perry Units I and 2.both CAPCo nuclear units.
fuel obligations (for fuel which is not included in utility plant Peny Unit I is substantially complete: the status of Perry Unit 2 in service) which is subsequently capitalized. net of income is discussed below.1he Company will be requesting in a rate tax cifect. No direct borrowings hase been or are expected case recovery for its investment in Perry Unit 1. but it cannot to be made against the line of credit available to the fuel predict with any degree of certainty the outcome of the corporation: the fuel corporation has issued and has out- regulatory process.
standing commercial paper supported by the line of credit. T he CAPCO companies are continuing to review the status To the extent that borrowings are less than the $48AKKuxx) of Perry Unit 2.The only significant work that had recently available under this credit line. the fuel corporation must been performed on Unit 2 was that necessary to enable Perry pay a commitment fee of Il8T. to 1/2't on the available Unit I to be placed in senice.That work uas essentially com-ponion of the line of credit. It also pays a fee of 5:H% to pleted in the second quarter of 1985. As of July I.1985.the 7/8% for the letter of credit on the aggregate amount of Company stopped including AF UDC relating to Unit 2 in net outstanding commercial paper. Interest on CAET purchase income and instead began crediting AFUDC capitalized to commitments is at rates uhich vary from I 1,8% to 1-1,2% Unit 2 to a reserve account established for that purpose. Prior over the interest rates applicable to certain dealer placed to this change, the Company's AFUDC related to Unit 2 had commercial paper. The effective average annual interest rates been included in net income at the rate of approximately applicable to nuclear fuel obligations were 9.5%. I1.9% and $460AKK) per month.
10 6% during 1985,1984 and 1983 respectively. Until review of the status of Perry Unit 2 has been completed.
The Company presently expects to make payments appli- there will be no defined schedule for the completion of Unit 2.
cable to these obligations during the next five years as follows: Possible alternatives being reviewed with respect to Unit 2 include indefinite suspension of construction on the unit.
1986. . $7.093AKK) resumption of work on the und and termination of the unit.
1987 7.479 A100 in accordance with the CAPCO arrangements. none of these 1988. 4.607 AKK) alternatives may be implemented without the approval of each 1989. 4.4 53 AKK) of the CAPCO companies.
1990. 5.261 AKK) As of December 31.1985. the Company had invested approximately $60.400AKK) applicable to Perry Unit 2. Delay (7) Notes Payable to Hanks and I.ines of Credit: in the completion of the Unit can be expected to increase its lhe Company has lines of credit uith banks that provide total cost by amounts ahich are not presently determinable.
for borrowings of up to 430AKK)AKKlat the prevailing prime ll a decision were made to terminate Unit 2. certain costs or similar interest rate. Short term borrowings may be made which are currently assigned :o Unit 2 would be reassigned.
under these lines of credit on the Comnany's unsecured notes. where appropriate. to Unit 1. Ilowever. cancellation charges All of the current lines expite December 31.1986: however. payable to contractors and other costs of termination could any unused knes may be canceled by the banks at any time. be incurred. Pending completion of the CAPCO review, the 18
A
-~ PENN POWER MF Company is unable to predict whether the construction of Environmental Matters-Perry Unit 2 will wntinue or. il(ontinued. on what basis Various Federal, state and local authorities regulate the such continuation would proceed.Hased on its experience to Company with regard to air and water quality and other emiron-date. the Company would expect to recover its investment in mental matters.The Company estimates that compliance llnit 2 through its rates if the [] nit were terminated. though requires additional capital expenditures of approximately this issue is before the courts in Penns>hania (see Note 3). $4 AXXMXX). which is included in the construction estimate Reference is made to the proposed amendment to SFAS given above under " Construction Program" for the period No. 71 discussed behm. 1986 through 1990.
On December 5.1984.the Federal Environmental Protection Quarto Mining Company Project- Agency (EPA) denied a petition from the Commonwealth oI T he Company, together with the other CAPCO companies. Penns>lvania and the states of New Wrk and Maine. which has entered into a long-term coal supply contract with Quarto. sought to force the EPA to make findings under Section 126 The CAPCO companies have also agreed to guarantee severally. of the Clean Air Act. Section 126 provides a remedy for a and not jointly. their proportionate shares of Quarto's debt d(mnwind state that can show adverse impact because air and lease obligations incurred while developing and equipping pollution in an upwind state causes nonattainment of air the mines. As of December 31,1985. the Company's share quality standards in the dowmvind state.1he petition com-of the guarantee was $27.083AXX). plained of excessive particulate and sulfur dioxide (SO2 )
Under the terms ol the coal supply contract. which expires emissions from a number oI sources in Ohio and other states.
December 31.1999, the Company must reimburse Quarto potentially including Sammis Unit No. 7.Seven northeastern for its share of the costs of operating the Quarto mines, states hase appealed the LPXs decision to the 11 S. Court of including those costs associated with mine construction. Appeals for the District of Columbia. asking that the decision whether or not it receives coal from Quarto.These payments be reviewed. reversed. modified or set aside. Edison. along will permit Quarto. over the life of the contract. to meet the with other electric utihties and others, has intervened in the debt and lease obhgations it incurred while developing and case. Ihe Company is unable to predict the outcome of these equipping the mines. The Company's total payments under proceedings.
this contract including amounts related to mine construction On March 20.198 l. a number of states. together with costs. amounted to $6.916.000. $8.995AKK) and $ 10.708 000 various emironmental organizations and individuals. Iled suit during 1985.1981 and 1983. respectively. l'nder the coal in the LL S. District Court for the District oIColumbia asserting supply contract the Company's future minimum payments that the LPA has siolated a mandatory duty to determine whith related solely to mine construction costs are: states are contnbuting to air pollution which is alleged to endanger public health and welfare in Canada and to order 1986. $ 2.H l 3 AKK) cutbacks in SO2 emissions in these states under the section 1987. 2.7 27 AKK) of the Clean Air Act dealing with international air pollution 1988. 2.61 I AKK) (Section !!5). On July 26.1985. the Court granted summary 1989. 2.555AK)O judgment to Plaintiffs on their Section 115 claims and ordered 1990.. .. 2A69AKK) the EPA to begin a process that could eventually lead to more Years thereafter. I 8.812AKK) stringent emission standards being applied to the Company's generating plants. T he Court's decision has been appealed by Following the end of the development period. the Company the EPA as well as Edison, along with other electric utility was ordered by the ppt:C to deler recovery of the cost of companies and other parties. In addition to its appeal of the Quarto coal in excess of generally prevailing market prices. District Court's decision. Idison. on September 21.1985.
pending further proceedings. As a result of that crder the remstated an appeal filed in 1981 in the LL S. Circuit Court Company twgan deIerring a portion of the cost oI Quarto coal. for the District of Columbia to challenge the validity of the rather than including such costs in its ICR. Ahhough the documents ahith form the basis for the District Court's decision PPUC subsequemly issued an order which found that the that the LPA had a duty to implement Section ll 5. In any event.
Company was not imprudent in initiating and continuing the imposition of more stringent emission standards could the Quarto project. it has prescribed a metod for recovery only happen eher extensive administrative proceedings at of the current cost of Quarto coal and the Qe rio coal costs both the state and lederal levels. T he company is unable to the Comp.my had deferred. whic h could resuh in a substantial predict the outcome of these mauers.
underreonery. As of December 31.1985. the Company's As part of the reauthorization of the clean Air Att. legislation deferred Quarto coal tosts amounted to $5.lOHAKx). The has been introduced in Congress to address the so called Company has appealed the order to the Commonweahh Court acid rain ~ problem Various bills introduced thus far would of Pennsylvania. Although unable to predict the Imal resolu- require reductions in so, emissions f rom utility pmer plants tion of this matter. management believes that its ultimate dis- and other sources located in several states. including Ohio gusition will not have a material adverse elleo upon the and Pennsylvania. Ihe Company is unable to predict whether Company's results of operations. the proposed bills will be enaaed and. il so. to what extent.
19
Notes (continued) if any. the So, emission limits at the Company's plants would respective State implementation Plans and submit to the EPA be affected. Substantial changes in the So, emission limits for approval any revised limits necessary to conform to the new could result in the need for changes in coal supph significant regulations by April 1986.Such review could result in more capital investments in flue gas desulfurization equipment or stringent emission limits for some existing plants and increased the closing of some coal-fired generating capacity to assure capital costs and operating expenses. T he Company is studying compliance. II flue gas desulfurization equipment were to be the new regulations and is currently unable to predict their installed on all of the Company's generating units to athieve uhimate effect.
compliance, a circumstance that may be physically imposs.ble because of space limitations at Sammis Unit No. 7. the Company Statement of Financial Accounting Standards No. 7I-estimates that the capital costs associated with such instal- The FASil recently proposed an amendment to SFAS No. I lation could exceed $2OOAXX1000. The Company expects 71 which.amongother things. would require the recognition i that any such capital costs. as well as ar.y increased operating of a loss in connection with the recovery of terminated con- I costs associated with such equipment. would ultimately be struction projects if it is probable that the unamortized recovered from its customers. investment would be excluded from rate base. lf adopted as In October 1983. the U. S. Court of Appeals for the District proposed. it would be applied retroactively to include the of Columbia reversed several significant portions of the I PNs four units terminated by the CAPCO companies in 1980 as regulations on the methods used by the FPA to determine the described in Note 3.The proposed amendment also imposes amount ol stack height credit for estabiishing individual source stricter standards regarding the capitalization of costs emission limitations. In July 1984. the U. S. Supreme Court associated with rate phase-in plans. disallowances by regu-denied a utility industry request to review the Court of Appeals' lators of the costs of newly-completed generating plants and decision. On July 8.1985. the EPA issued new stack height other related matters. none of which would have required a regulations to conform with the court's decision: the new retroactive adjustment by the Company as of December 31.
regulations have also been appealed to the U. S. Court of 1985. llecause the proposed amendment is subject to revision Appeals for the District oI Columbia. The Ohio Environmental and a public comment process. the Company cannot preditt Protection Agency and the Pennsylvania Department of Emiron- the ultimate impact which may result from any amendment mental Resources must resiew the emission limits under their eventually adopted.
20
== PENN POWER W
(9) Summary of Quarterly Financial Data (Unaudited):
The following summarizes certain operating results for the four quarters of 1985 and 1984.
March 31, June 30. September 30, December 31.
Three atonths Ended 1985 1985 1985 1985 (In Thousands)
Operating Revenues . . . . $56.458 $55.225 $56.272 $56.7 4 I Operating Expe,oses and Taxes 43.766 42.108 42.747 42.56I Operating income. ... I2.692 13.117 I3.525 14.180 Other income and Deductions 7.233 7.384 6.218 6.674 Net interest 8.514 8.248 8.869 8.799 Net income $ 11.4 I I $ 12.253 $ 10.874 $ 12.055 Earnings on Commoa Stock . $ 9.021 $ 9.864 $ 8.4 52 $ 9.239 March 31. June 30. September 30. December 31, Three Months Ended 1984 1984 1984(i) 1984 (In Yhousands)
Operating Revenues . . . . . $51.157 $53.89 I $54.7 50 $53.352 Operating Expenses and Taxes 40.438 42.517 42.242 43.434 Operating income. . . . . 10.719 11.374 12.508 9.9I8 Other income and Deductions 5.897 6.19I I3.263 6.963 Net inurest 7.599 7.674 7.949 8.207 Net income $ 9.017 $ 9.89I $ 17.822 $ 8.674 Earnings on Commen Stock . $ 6.937 $ 7.804 $ I 5.4 21 $ 6.277 (i) includes a noncash depreciation adjustment of $6.751.000 which increased net income and earnings on common stock (see Note 2).
l 21 I
Notes (continued)
(10) Supplementary Financial Data-Financial Reporting and Changing Prices (Unaudited)
Statement of Financial Accounting Standards No. 33
" Financial Reporting and Changing Prices"(SFAS No. 33), as amended, provides for the preparation of supplementary financial information to disclose the estimated eIIects of inflation and changes in prices on property plant and equip-ment.This data is presented in accordance with SFAS No. 33:
however. it is not intended as a substitute for earnings reported on a historical cost basis.
Results of Operations Adjusted for the Effects of Changing Prices for the Year Ended December 31,1985 (Thousands of average 1985 dollars) llistorical income from continuing operations . $ 36.576 Inflationary Effects on Common Fquity:
Capital Investments Effects-Increase in specific prices (current cost)of property held during the year (i) . .. 43.9-10 Change in general price level on property held during the year . (46.410)
Adjustment to net recoverable cost .
(3.179)
Additional provision for depreciation (23.263)
(28.912)
Advantage from the decrease in purchasing power of net monetary liabilitles. I9.326 h'et erosion of common stockholder's equity (9.586)
Income from continuing operations adjusted for changing prices (ii). $ 26.990 (i) At December 31.1985. net property, plant and equipment. adjusted for changes in specific prices (current cost) was
$1.297.827(xx). while historical cost (net recoverable cost) was 5814.578.(xx).
(ii) Income from continuing operations. adjusted for changes in specific prices (current cost) would be $13.313.(X)0. if only i the amount reportable as additional provision for depreciation was included in the adjustment. l 22
J!h
="~ : PENN POWER D
Comparison of Supplementary Financial Data For the Years Ended December 31 1985 1984 1983 1982 1981 (Dollars in Thousands)
Operating Revenues-Historical . . ... $224.696 $213.150 $ 191.172 $ 18 5.883 $ 174.4 88 Adjusted to Average 1985 Dollars . $224.696 $220.755 $206.419 $207.166 $206.388 income from Continuing Operations-llistorical . ... $ 36.576 $ 36.4 39 $ 27.047 $ 23.294 $ 19.331 Adjusted for changing prices (Average 1985 Dollars) . $ 26.990 $ 28,799 $ 21.269 $ 17.694 $ 5.345 Return from Continuing Operations on Average Common Equity-llistorical . ... I 4.4't I6.01, I 3.0 L i 1.8't i 1. I't Adjusted for changing prices . 10.6T. I 2.2't 9.57. 8.07. 2.6't rifective income Tax Rate-llistorical . ... 35.07. 3 2.OT. 3 5.2't 38.5't 2 5. I 't Adjusted for changing prices . 40.47, 36.7% 40.8% 45.6% 4 5.2't Excess of increase in the Specific Level of Prices on Property. Plant and Equipment Over General Price Changes (Average 1985 Dollars). $ (2.470) $ (22.965) $ 2.356 $ 10.881 $
(898)
Advantage Resulting from the Decrease in Purchasing Power of Net Monetary Liabilities (Average 1985 Dollars). $ 19.326 $ 19.375 $ 17.256 $ 15.051 $ 33.799 Year End Common Stockholder's Equity-llistorical . .. ...
$260,131 $24 7.096 $219.4 74 $ 199.680 $ l 94.666 Adjusted for changing prices (Average 1985 Dollars) . ... $255.783 $252.659 $233.4 76 $220.150 $223.700 Average Consumer Price Index . 322.2 3Il.1 298.4 289.I 272.4 The increase in specific prices of property held during the methods used for computing the historical cost provision year attempts to measure increasing asset values which for depreciation. No inflation adjustment has been reflected approximate dollars that would have to be spent today to for income taxes. in conformity with the reporting require-acquire property. plant and equipment identical to assets ments of SFAS No. 33.
currently owned. The Company uses the llandy4Vhitman During periods of inflat ion. the Company's net monetary Index of Public Utility Construction Costs and the llureau of liabilities (principally long-term debt long term obligations 12tmr and Statistics engineering indices to calculate the current and preferred stock) will be repaid with dollars having less cost of those assets.The indices are applied to actual dollars purchasing power than dollars had nhen the original liability spent on large construction projects according to the year was incurred. This economic benefit is portrayed on the of expenditure. For all other plant facilities. the current cost summary as the advantage from the decrease in purchasing is determined based upon the year the facilities were placed power of net monetary liabilities, which serves as an offset to in service. the inflationary effects of replacing the Company's property.
Additional depreciation expense adjusted for the change plant and equipment.
in specific prices was determined using the same rates and 23
l Auditors' Report E-ARTilUR ANDERSEN & CO.
NEW YORK. N. Y.
To the Board of Directors of Pennsylvania Power Company:
We have examined the balance sheets and statements of capitalization of Pennsyhunia Power Company (a Pennsyhania corporation and a wholly owned subsidiary of Ohio Edison Company) as of December 31.1985. and 1984. and the related statements of income. retained camings. capital stock and other paid in capital sources of funds for property addi-tions and taxes for each of the three years in the period ended December 31.1985. Our examinations were made in accor-dance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
Regulatory commissions are examining the impact on customers' rates of nuclear generating units and are raising various concerns. including the prudence of construction costs of such units and the possible existence of excess generating capacity.These concerns are likely to be addressed by the commission regulating the Company with respect to a unit in which the Company has an ownership interest. As discussed in Note 8 to the financial statements.the Company will be requesting recovery for its investment in Perry Unit I in future rate proceedings.1he Company cannot predict with any degree of certainty the outcome of the regulatory pro-cess. and accordingly. we are unable to form an opinion as i to what extent the Company's investment will be recoverable.
l In our opinion. subject to the cIIcct on the 1985 financial l statements of such adjustments. if any.that might have been l
required had the outcome of the uncertainty referred to in the preceding paragraph been known, the financial statements referred to above present fairly the financial position of Pennsylvania Power Company as of December 31.1985, and 1984,and the results of its operations and the sources of funds for property additions for each of the three years in the period ended December 31.1985. in conformity with I
generally accepted accounting principles applied on a consistent basis.
W MMG.
February 17.1986.
24 4 1
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L OFFICERS ?
DIRECTORS}
[ Robert Barensfeld : . .
..[ - justin T. Rogers. Jr.
Chai' man of the Board
- Chairman of the Board of Ellwood City For2e -
- Corporation a steel forgings manufacturet J'
( Ellwood City Pennsylvania . , A. Wayne Cole President Robert H.Carlson z , ,
- Senior Mce President of Universal Rundle Corporation. - ' james E Dunlevy e plumbir 1 fixture manufacturet New Castle. ; i - - Vice President
' : Pennsylvhma -
James R. Edgerly
' A. Wayne Cole = . . . . . .
- Vice President and General Counsel ~
' President of the Company New Ncle. Pennsylvania .
William F. Reeher -
- James E Denlevy. , ,. ,. . . .
Vice Presulent
'; Mc2 Presalent of the Company New CastleJ.
- Pennsylvanta ;
~ '
Robert P.Wushinske D. Bruce Mansfield, a director of the secretary and Treasure,
- 1 James R. Edgerly- Company, passed away on March 7.1985.
E vice President and ceneral Counset of the company ' Byron D. Burford ~ A distinguished lawyet educator and New Castle Pennsylvania Comptrolle' humanitarian. Mr. Mansfield retired in
- ?josep'h J. Nowaki . . .. . . ,. Angeline Co'mparone 1975 as Chairman of the board of the
- President of Sawhill Tubular Divisiortsharon. Assistant Secretary - Company and president of Ohio Edison Pennsylvania.and Tex 1ube Division Houston. Texas. Company. ;
both pipe and cubingdivisions of Cyclops Corporanon ' Francis A.Fazzone . We were also saddened by the passing
'. ^""' "'
JVicto' r'A.OwoC ,
of board member Walter H.Sammis on
' Executive \ ice President of the Companyt parent. ~ Clarence H.Kauffman February 3.1986. A director of the
. Assistant Comptroller Company for more than 52 years.
Ohio Edison Company Akron. Ohio _
Mt sammis was Chairman of the board Williani E Reeher ~ WilliamA Margraf
- Vic3 President of the Company New Castle.'
~ Assistant Treasure, of the Company and president of Ohio Pennsylvania . Edison for 20 years until his retirement I" I9" 0Jtistitt T. Rogers.Ji! J , . . ..
DIVISION MANAGER Chairman of the Board of the Company and President James R. Topper of ts parent. Ohio Edison Company Akron. Ohio Mercer County Dour las W.Tschappat Hz Rogers is president of the parent company Executive Vke Presidem of the Company's parent. The principal employment of all other ofhcers is with
- Ol o Edrson Company, Akron. Ohio the Company G. Leo Winger .
REGISTRAR for Preferred Stock-First seneca Bank and Trust company President and Chief Operanns olhcer of Steel
' Castings Corporation. Unitast Canada Inc., a castings Washington Centre. New Castle. Pennsylvania
. manufacturet Sharon. Pennsylvania 161o1 TRANSFER AGENT for Preferred Stock.
Ofhce of the Company New Castle.
New Boa'rd Memb'er Pennsylvama 16103 o898 4 Robert Barensfeld was elected to the Company's board oIdireCrors at the 1985 PRINCIPAL OFFICES:
- Annual Meetingof Stockholdersin March. Q'j",8,' " 5"
+
' Mt Barensfeld is chairman of the board of 3,, C,sii,. pennsvi,,n, isio3.osgi Ellwood City Forge Corporation e121652 5s1 '
Pennsylvania Power Company is an
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Financialand Operating Highlights AJnt,fTT!!ECOVER :nitnitrcup i rmrrenuru uv FINANCIAL Percent 1985 1984 Change Revenues from Customers (000) $868,815 $861,775 + 0.8 Revenues from OtherUtilities(000) $46,049 $31,439 + 4 6.5
'IbtalOperating Revenues (000) $914,864 $893,214 + 2.4 Netincome(000) $175,957 $156,794 + 12.2 EarningsIhrShare of Common Stock $2.26 $2.21 + 2.3 Dividends PaidIhrShare of Common Stock - - - - - _ - - - -
$2.06 $2.045 + 0.7 Book ValueIhrShareof Common Stock at YearEnd $ 16.36 $ 16.26 + 0.6 Shares of Common Stock Outstanding at Year End 71,488,270 64,774,591 + 10.4 Allowance for Funds Used During Construction as a Itreent of Earnings for Common Stock 64 % 60 % + 6.7 OPERATING Electric Plant (000) $4,168,993 $3,799,499
+ 9.7 MWH Sales to Customers 11,008,367 11,562,846 - 4.8 MWIISalestoOther Utilities 1,980,761 1,019,308 +04.3
'Ibtal MWilSales 12,989,128 12,582,154 + 3.2 Ibak load Megawatts 2,127 2,172
_ . . . _ . _ _ . _ . _ _ _ _2.1_
Cost of Fuel Per Million Irl'U 168.5e 165.9e + l.6 Average BTUItr KWilOutput 10,633 _ _
10,682 0.5 AnnualSystem Generation MWil 13,599,359 12,998,429 + 4.6 CONTEN"13 liighlights This Page
'Ib Our Stockholders 3 lbrspectiveon 1985 4 to 17 CompanyI&porton Financial Statements 18 Opinion ofIndependent Certified Public Accountants 18 Financial!nformation 19 to 43 Service AreaSfap 44 Tax Status ofCommon Stock Dividends 44 Form 10 K Offer 44 CAPCO 44 Boaniof Directors inside Back Cover
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s" x1, Thenexttimeyour. . . company thinks of opening up a new busine.sslocation,' -
J I hope you will seriously considdr the area Dbquesne Light serves. W j .6.l W q 1The waning of oui traditional steelindustry is well known. But even asi n*
g@ -
' I
( our daditiddal economic ban of h6avy isdustry,was declining, a parallel l p %ddril economy' was rising. Tids second bconomy now employs much M_ N k4 i[ \7' bs I f largeinumbdrs than the stest industry. As a result, the Pittsburgh ama -
'+
~
i f,is noti memly
, .. . econordicslly
.. ., - , viable', bst diso remarkably vigorous.'
J
~ f. ,, ,
' 7Th' transfor.mation e has many sources. Some of ourlarge corporations ,
1 Y
? have become increasingly intdrnationaland' diversified. Several hundred C1 a ?' . .
b% technology; enterprises have develcped, many df thsm spinning off 3 1, P'y_
computer-related technologies'ddvsloped in local university reseamh. _
%L ,
i Because Pittsburgh haslong been'one'of the largest corporate and research eE .
' ? c~ enters in the courdry, we hAvs an exceptionally strong infrastructure of 3::
f)l$
jtechnological disi bdsiness shpport firms. There is a strong sense of com- ,
h munity here,' And the commOnity has had the will to bring about change. W ! ,
m
' (Especially exciting to me, because I have spent so much of my life teach- : N ,-
jing, is thiproductive vitalitj 5f the universities of the region, which are ' %'x ~-
~
l keeping us'on the' catting edge 6f new technologies. The city of the Salk : C<~
~
Nolio vaccine is alsd th'e'soureehf a continuing flow of medical advances,
^ ,~ nd, Nsuch as those in[ transplant surgery, i ;E^s .
$There's more to business than business alone, so I will offer some obser-Q @[
Ovations on the. personal side. From experience, I can tell you that Pittsburgh .
$s a citI with fine, safd neighborhoods for raising children. The public '
',' ^ . ve Tschool system is recognized nationally forits aspirations and for its '
'[n Mp rogress--and it continues to get better, I might add. The business and , ,
~
.t '
i intellectual communit'y is very cosmopolitan; no matter where in the .
(world ~you're from, you are likely to find'your countrymen here. -
9 If pu're interested in furthering your own education, local universities ~
f and colleges offerlitsrally hundmds of night and weekend courses. As for f j the arts l all the forms are presented in Pittsburgh.
. ; Finally, one more intangible. As my husband and I discovered when we
- moved he're, this place retains the old-fashioned virtue of friendliness. .
7 Newcome'rsjoin in, and fit in, as quickly as they wish. .
N
.x v
[Doreen E.Boyce iDirector,Duquesne LightCompany
To 0urStockhoklers Salesto customers dinpped s Duquesne Light enters 1986, both the Company Re-Focusing Direction 4.8 percent in 1985to11,008 economy of Southwestern Pennsylvania In order to compete with otherenergy million kilountt-hours-the and the structure of the electric utility providers and to promote growth in our service equitulent ofl982tetels. industry nationwide are in the midst of fun- area-while operating in a changing economy Industrialsalesdecreased damentalchange. and a changing industry-we must lower our 15perrent to3,522million 1985 was a crussroads year for Duquesne costs, slow down price increases and replace kilouwit-hours, thelouest Light Company. The steady decline ofindus- the sales we have lost. We recognize that these letet since1962. trial sales, rates that are relatively high, and challenges demand new approaches and non-Retenuesincreasedless a changing economy continued to affect the traditional thinking by Duquesne Light than onepercent, to $869 operations of the Company. The market we management.
million. This unsachfeted serve is taking on a whole new composition due We are responding by re-focusing the direc-largelydue toincreased rates to structural changes in the energy-intensive tion of the Company to adapt to the new realities e ndincreasedsales to com- manufacturing industries. In 1985 we began of our market place. Like many of Pittsburgh's mercialcustomers, to undertake an evaluation of Duquesne Light's heavy industrial companies, Duquesne Light Earningsimproted/mm traditional method of doing business. may have to go through a " shrinking process"
$2.21in 1984 to$2.26in Steel Lossliits Company Hard so we can more realistically match our costs, 1985. Hourter, approri- For the past few years, we have told you how operations and financial policies to a signifi-mately 7% centsofl985 the restructuring of the steelindustry has cantly lower sales base. In early 1986 we earningsuvre theresult qfa affected Duquesne Light. Of all the electric initiated measures which represent our one-timeaccounting adjust- utilities in this country that had a stake in the immediate response to the realities of our ment tocomplywith deprvet- prosperity of the steel producers, Duquesne market.These measuresinclude:
ation reserterequirements* L ght has suffered the most from their decline.
- Reducing the Company's general capital Appmrimately 64 percent of 'Ib give you some perspective, as recently as budget (excluding units under construction) 1985earningsatuitablefor 1981 our industrial customers consumed a from $117 million in 1985 to $85 million in CommonStock urre non-cash record 6,582 million kilowatt-hours. For a num. 1986. We intend to maintain this reduced earnings attrilmtable to ber of years leading up to that time, steel com. capital expenditure level, with adjustments AFUDC(allouwneeforfunds panies not only were the major consumers of f r inflation, for the foreseeable future.
used duringconstruction). electricity, they were placing orders for more.
- Furtherreducingcapitalexpendituresas Duquesne Light built toward steel's projections. the Company completes its new generating The Company owns a 13.74 percent interest capacity. Such construction expenditures, in each of two nuclear units expected to begin which totaled $ 128 million in 1985, are ex-operation in the next two years which were pected to decline to $ 113 million in 1986 and constructed primarily to meet steel demands to $36 million in 1987.
and the requirements of other heavy industry
- Reducing annual personnel and other oper-customers. ating costs by $ 12 million during 1986. In However, that anticipated load never mater _ mid-February 1986 the Company announced alized. And not only did those projections fail alayoffof100 union and management to materialize, actual sales to steel dropped employees-the first non coal mine related from 30 percent of all the electricity we sold layoff in Duquesne Light's history. Other in 1981 tojust 15 percent of our total sales in actions included: a salary reduction for senior 1985. It seems that the steel industry in our management; a salary freeze for upper and service ama may not recover what has been lost. middle management; extension of a hiring Sales to our other customers-the residential freeze; and ehmmation of paid overtime for and commercial groups-are stable or increas. non union employees except in emergency ing moderately. For more than a decade, the situations, situations of critical company economy of the greater Pittsburgh area has need or extended plantoutages.
been evolving from an emphasis on basic
- Placing, subject to regulatory approval, older metals to a more diversified mix of research or less efficient generating capacity mto a and development, advanced technology ser. reserve status, starting with 240 megawatts vices and commercial development. Unfor. (winter rating) during the first half of 1986.
tunately, this type of diversified load growth, Durmg the year we will continue to review while desirable in the long run, will not enable the status of our other generating facilities.
Duquesne Light to offset in the near term the
- Initiating, through use of available resources, unprecedented loss in our industrial load _ a selective, constructive marketing program, an almost 50 percent drop in just four years. which will include promotion of our new eco.
In fact, energy sales to our customers for 1986 nomic development rates, expanded indus-are forecast to be at the lowest level in 15 years. trial development programs and enhanced market research.
2
- Continuing effort.s to reduce capital costs i.y - a2* .1 4.x a- '.-r. % .. c v, Pw R - = g 4 i c through a financial restructuring program .
In 1985, the Company began reducing
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' -h interest costs by rede'eming $ 173 million of high coupon debt through the issuance of
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M ty - i,, . M % <
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((re securities with an average interest rate h ~ ??c. ~'.{i ,. - }.'~ s 4 y ., . ;p y ,
almost four points lower. We will continue to S.'11 -
'?.h .'. .' 3. ,.. a r -" ' ' !e
. j"W?j exanune our financial policies and to explore innovative financial rest ructuring measures.
bA-h. - [ N h , .
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- Continuing our aggressive pn> gram of selhng electricity to other utilities in order to make 3fp 4C '
p{ j, . -= ' 'Ld' p c.f#. 'f-ci'L ,at .f * "\
1
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y: g' efficient use of our capacity. Off-system sales 't -- / e, , . -. c g* '
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during 1985 totaled a recor i 1.980.761 N, ~
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megawatt hours- 15 percent of our gener
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ated out put i..f-
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- ,y The Future - - '?.T' < '
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,G " - 0 i The local wonomy will cont mue to be affected %J f Qf .c Q, j y $
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by the dechne of heavy indust ry Duquesne p .g, c
. < ...f'-.. 11 9 .t ?.J g.y n...
"h M. ,-Qj,; ; .W i Light is a mirror image of that economy t'l' .
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in addition to this permanent loss of heavy -
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.f.
)^ .s industnal and manufact uring load in Pittsburgh. . - :: .1 ; ,
s .
we believe the electric unhty indust ry is on the . ;~dv ~ i q. <s- &a .J.V'(
.~ e Y % E M _ . CyM : ...'**.! i
~' ' ;..'.- i ' t . ' 2% :7- ' <
verge of major change. What largely has been a ' -
monopolistic indust ry is c oming under increas ing competitive pressures Electric utdities now research ( enter Additionally. Pittsburgh last On Dec. / 7.19M. INguesne i face competition from other electric utilities. year became one of five university supercom- Light Cornpa ny a n non need self generation, cogeneration (production of puter centers in ihe United States- that Wesley W con & hack electricity and thermai energy from a single As you may know. Pittsburgh was named the t right). M rice president.
source) and municipal waste-to-energy proj most livaK city m America by the 19M5 Itmd A nu nce Group and chief ects(where waste is burned). While these McNaHy Places Rated Almanac. Our annual fino nant ogirer n onld forces are more active in other s< etions of the report honors six area residents who helped herome presulent a nd ch iv/
country right now, they will begin to make an make that rating happen. Their stories are in c.rern tire officer. e/]ectire impact in om service territory in coniing years dicative of t he entrepreneurship. enthusiastu . . /a n 1. loM /n hi.s neu post-Looking to the future, our objective is to re compassion and spirit of cooperatinn that wdl rion. Mr ron 9hrk surreeds main price competitive Over the next several help this area work thri mgh the current Joh n M Arthur (left). R n ho econonne t ransformation ranains n.s chnirma n yf the years we must address the effects adding new nut l ear generating capacity to our system will We share that enthusiasm for the areallong hon rd have on our prices. We must find ways to recover term prosperity However. the next several years our costs and to earn a fair ret urn on our invest wdl be the most challenging in Duquesne Light 's ment without hurting the growth and develop 105 3eac history on behalf of our management ment of our service territory and Ibant of Dm etors. we thank the many stock Cuttmg internal costs and the other meas holders. employees and customers who cont rib ures listed earlier are the first in a series of uted to our progress in the past and w ho wtll steps Duquesne Light will take to adapt to our help us meet the challenges which lie ahead.
new business environment We also are con sidering other measures to keep our prices down. such as phasing nuclear const ruction j 'j' f
costs into our customers' bills over a period of .N '4 2 years The challenges are clear, and we are moving forward to meet them as best u e can John M Arthur There are many positive things happening Chairman of the Ibard concernmg the long term fut ure of our service area Local government . univers.ty and busi ness leaders last year submitted a $ 1 9 billion Q)Q k] g -gg
'St rategy 31 proposal to rest ruct ure t b 7 region s economy. Advanced technology firms
~
l l contmue to make mroads Ground was broken Wesley W von Schm k l
in 1985 on a $ 103 m dhon federal com puter President and ('hief Execut ve ()fficer l
l
.1
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SALESMEFEXUE&EARXINGS mission (Ptn This non-recurring adjustment ' '. L . i
~ '
y J . .'. L mereased earnings for 198h hv $5.3 million.
Kilon attdam r sales to customers slu rnp to -
t 19M lecels as nulustnal sales ein>p 15 p nvnt or approxunately 7 % cents per share a nd establi,sh neu ymxlent alay lon Iminstrial sales M perrent of 19N I total Stcel Sales Continue Sharp Decline The most significant problem Duquesne Light
.i f..k =
- i E .-
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N,'. 5 Sales faces is the dramatic reduction during the last L f.P
..i . d. . .
Sales to our customers decreased 4.8 percent . four years of sales to the local steel indust rv. In "I
- i'A'N /-
from 11.563 million kilowatt hours in 1984 to 1985 we had sah s of 16 billion kilowatt hours
.[5 k i'.^, ... -i T.)s 11.008 milhon kilowatt-hours in 1985 Indus- to our largo basic steel customers. compared to i5 d/ b ' I kf'.. . "p 4 N!; ":V6d. .J 3 '
t rial sales dropped 15 1 percent to 3.522 mil a high point of 41 billion kilowatt-houm in 1981 lion kilowatt -hours, just four years after sett mg a record high of 6,582 million kilowatt hours For at least 32 years prior to 1981. t here had /W Y - . fd$ - 1l;il 1(
been a steady increase in elect ricity usage by Y' [I1l H ,s../'W .'-
Sales to steel and steel-related companies Pittsburgh area steel companies-hence our
-r. '
continued as the main area of decline Residen- optimism about ihe fut ure and our commit -
tial sales decreased by 2.4 percent to 2.848 mil ment to new generation However the strong .
,- D.N
,R g~ 5 j ,
lion kilowatt hours. However, in line with t he dollar, increasing foreign im ports. decreasing '2 V"A :: zi.L ;
transformation of t he local economy from an use of steel m auto manufacturing and other . a"9b -T.\g" 4
industrial base commercial sales continued factors caused local steelmakers to instit ute ,
s ? -- 4;.
on an upswing. increasing 3 3 percent to 4.537 major cutbacks in their operations 3M.bi.a -
million kilowatt-hours-an all time high- In n cent years. about 35 steel and steel related :
d,g -.. - '
.,..s
'I 9b, , . .-. ~y Revenues Earnings plants have been shut dow n in the Pittsburgh ?. .7. l . l9 W
Duquesne Light 's revenues from customers area Likewise, steel's share of the Company's . . , a~. ' . .r.'%. J ~ .: Q . % s tutal elect ric sales has dropped from the 1981 .. [ ,"
rose about one percent . from $862 million to
$869 million. This was achieved largely due to high of 30 percent to 15 percent in 1985 .;,.;'.- . L A- [ 8l. ; < .~ 1 p increased rates and improved sales to commer- While conunarcial load. as detailed in ihe fol k). ~'
.. Y U , 2lc h : "
cial customers lowing paragraphs, is expected to continue to [J.:"" f i . f ,
- l~ ~
I Earnings per share of common stock w ere grow it is no substitute for the precipitous drop in the basic steel load. 'lb offset this large drop
?
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$2.26 in 1985 compared to $2.21 in 1984.
when there was a lower average number of in demand we have increased efforts to cut ' " ', - .. .
,. -p W.c, shares outstanding. Because Duquesne Light m costs internally and to improve efficiency w e <-
- - ' .- s -f,.;'- f. ~ '
mid year discontinued credit mg to income an have increased sales to ot her utilities; we are / . - ? } % ? J.1. ',
allowance for funds used during constructmn developing marketing programs aimed at par V*' .
J .- .J. E - -
ofibrry Unit 2. earnmgs were lowered by about ticular customer segments: and through our , ....[ ^ P .
d..- -'
Economic Development Department , we con-11 cents per share The five cent overallim provement from 1984 to 1985 was ach:eved. tinue to encourage industries of all types to
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in part, through cost reductions and austerity expand or lomte ni eur service territory '; .< ' i f i^ ,. . h 2 ' .
g.g measures. meluding a hiring freeze durmg t he Downtown Construction Update 2
5..~ Ne fourth quarter During 1985 the Company also Work began m 1985 on two major office towers V ' ' [.$ E . U ((A * <. ,..- [ fuO E $
'C"*~ .d.'r I
- made a one-time accounting adjusunent to and a $137 nulhon hotel office commercial i. t comply wit h the depreem. tion reserve require v,. .
A a complex m downtown Pittsburgh The com i .o e - ..%.b '
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' plans-anduon his recent
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n bined load of these t bree projects. w hen com in their reinvestment account any previously pleted is expected to be nu>re than Ih.300 issued Common Stock ihev hold.
kilowatts. In addition. millions of dollars an- Bond, Stock Issues being simnt on renovations of existing fiv" Our net capital experulit un s for the year canm to 10 ston buildings in the downtown area to $245 milhon. Ab%t 2S preent of this fa New Subway GetsOff to Wst Start amount was generated internally The balance v+ ' - The Ibrt Authority Transit 's elect ric downtow n was raised by outside financing, including-q s light rail t ransit subway began operation in $39 milli m principal amount of 11 % percent
_g July. drawing ridership far atnive t hat achiertut tax exempt pollution contn>l reverme bor.ds for
- $ 7 - by the alw>ve gnnmd trolley systen, it replaced Ibrry l'mt No.1. issued March 21,1985, by the l' M 6 --
MN l sual 30 minute trips now take seven to eight ()hio Water Development Authority ami the
'_= minutes. A positive side effect of flu project Ohio Air Quality Development Authoritt with is the stimulation of n al estate and business net proceeds of approximately $37.9 million development around transit lines in many of ( t hese bonds are secured by an e(pial amount t he comnunuties serviced by t he system of the Company's First Mortgage Ihnuis t three Suburban Commercial Growth Also St rong mdlion shares of Common Stock issued June Thousands of square feet of office space are 20.1985 by the Company, with net pnmeeds
- being const ructed aror" 1 Pit tsburgh --largelv of approximately $47 fi million; and $50 mil
, between downtown arut tu Greater Pittsburgh hon principal amount of 10% percent First Mortgage Boruts issued June 20.1985. by the International Airport ()ne local develoier plans
" Company with net pr >ceeds of approximately
$20 million worth of real estate const ruction and development in 198ti, primarily m the went< rn $49 3 I"ill!""-
section of our service an a near t he airport Innovative Financings Such commercial pmw th can be found in ( Jn Oct 24.1985. t he Beaver County Indust rial y -
of her sections of our territory as w ell. Gromul 1)evelopment Authority issued $44.25 million was broken in t he summer of 1985 on a one principal amount of 30 year adjustable fixed million square foot retail ;hoppmg mallin the rate tax exempt pollution cont rol revenue bonds
-~
northern set tion of our territory w hich even far Beaver Valley Unit No 2. with net proceeds tually will require 10.000 kilowat ts ofload arul of $43 5 million The boruis wdi bear interest at will generate est nuated annual revenues of t he rate of T h percent per year t brough Oct .1.
$2.3 milhon for Duquesne 1.ight 1990 After that date. the intcrest rate on the bonds will be adjusted annually. unless t he rate FIXANCIXGS is fixed by t he Company for t he remaining term Th irtti percent of o u r stwkholden ta ke pa rt 1" of the bonds. Holders of the bomis have the thridemiIVuo estruent Pla n In l>ugnesr"' right to tender them for mandatory purchase Light 's contin a mmitons to cut cost.s. the under cert am corulit ions.
l'ornpin!, butts h<ut $ I% nollum at first ()n Dec 1& 19H5. the Company announced mort <pv/c lu on/s irith lugh interest rates o mi it had purchased $123 milhon prmeipal amount
_ nses a n ad/n.stah/c /urd rote in the issmince of it s First Mortgage ih mds, represent mg 94 o/344 nnllu,n ofpo/Intu m < ontml hond^ percent of Ihe $ti5 million prmeipal amount of t he Company s outstaruimg ltit4 percent bonds Dn hiend Reinvest ment Plan Approximately 30 percent of our stwkholders aml 7X percent of the $80 nullion principal
~
are participating in t he Company's Dividend amount ofIhe Company 's outsta uhng Iti per Reinvestment Plan hi 19X5 Dmpiesne 1.ight cent bonds The Company had previoudv mmounced it wouki redeem $50 milhon prin issued 3.tinti.923 shares of('ommon St ock as
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part of the remvestmem plan. with net prweeds cipal amount of its outstamling 14 % percent of approximately $54 nulhon Effective Jan 1. bonds These t ransactions were financed 198ti. the Divuleiul R invest ment Plan was prunarily from proceeds of $200 million ;>rm
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amended to change the discount on remvested cipal amount of First Wrtgage Bomis issued dn idends from five percent to t bree percent .1o lie < 15.1985 at a weighted average mterest rate of 11 11 percent The t ransact ion is
- mcrease ihe maximinn opt tonal cash payment
~
frotu $5 000 to $ 15ml irr quarter. and to ap ,w expected to redui e annua! mterest costs by stoi kholders partinpating m the Plan to dep< sit nearly $x milhon 1
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REGULAMRYMATTERS amt thus be in a bener posinon ni brmg n ve J-- ' '
hte iricrm.ses totalirig SU million put into nues in luu' wn h costs After a sernes of hear '
ct]ect . Ele nfo nd nrom mem/atum nmtestol ings. t he Pl'C gave its final approval of t he EnerW 'ost Mte rnimv<l $64.2 nulhon increase in April of 1982 .'....,
In 1983. a commernal customer imsuccess .
$42.2 Million in Rates Added in 1985 Oa Jan. 25.1985. the Pl T eruered a final onfer to
" "d #" ,"I U # "" "" I** i"" '" "D""" " rd e r e sung onunonwean Court. liowever.
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al!owing $31.4 miHion of a request for a $42 - ' '*
Ma upn nud ourt later ruled the option : .m ar .
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million increase in armual revenues filed on April 27.1984 The order allowed contin med "".b;r w as invalid and ret urned the case to t he
( l he adminisaaWe law jmWe assiglo d Mgg + - g6
_ .g f 7 recovery by t he Company of t he const ruction costs of four nuclear units a hich w ere can
<viled in 1980 io We maner recommendeni that the Pl T order a retund of approxiinately $32 million. w hh h gi m ..ZQ" ,
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Un ( )ct 21.1985,1)uquesne laght reached represents all revenues oillected ulufer t he -T M gpg4#O - ,Q _- - -
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agreement w ith the Pli . the ()ffhr of the Con e on order rates from .hd3 lin 19S 1. to.lan . _ .
sumer Adorate arul other part u s on a settle S. phis int erest
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e maner < urrent13 is aw ait nig final com .,
ment of our rate request . filed on May 17.19S5 inission action. b believe t he option order ; } .) ll w hich permu ted ihe Company to unplenient a Mes at au t unes uvre just arnt reasonable - , s ., . .. -
I 2 ercent.
l or $ 10.8 milhon, increase in elect ric @
..g-
,E" servtce rates en Nov 1.19S5. instead of Feb Energy Cost Rate Reduced %t
- jJ fr i"q/ ,a 7. W , . a..*/ %
15.19S6 % had sought an increase of $54 3 t )n March 29.198Tn t he Pl T approved t he Com y ,
nulhon or 6 4 percent. The settlement enabled pany s projecte ilevehwd Energy Cost Rate of ' N .m ~ * * - -
%- V.
1)uquesne Light to recover athlitional revenue 0 6363 cents per kilow at t hour for ihe 12 mont h N.- ,[ w ' ,
's for part of 19S5 and for t he full year of 1986 peru xl erating March 31.1986 The new E('R GT ,.. (2.(- '[ ,
, ' ,.s d 1981 Rate Ca.se Contested li h" I""I ""* P""""I "f " ' "st ome r's bill ) if reduced t he mont hly bill for t he average residen -LQ{
e x . 7.. ,h . 7 An admimst rative law judge ofihe Pll' has # wQ; p .. ' -
hai cuMomer who uses 500 kdow an hours by . 4
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3 reconunended t hat I)uquesne Light refmul to as customers approxituately $32 nullion. phis Shents De new projected rate represented '
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a 20 5 percent reduction frorn the ralc in effect y ..
mierest . as a result of a com mercial rustomer's ,
for the previous 12 month period The reduc g. l 4 - ( [ t C. Jl .
appeal of a 1951 rate case non w as due to anticipated decreases m t he y .y hi April 19S1.1)uquesne Light filed for a unn cost of fuel consumed and anticipate d off j',f,'."'G,'r
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$100 4 milhon rate merease The Pll' offered t he Com pany an option to ( hange its request to
$64 2 million The alternative w as ta suspend systeni sales of pow er io neighboring utilities.
As part of the rate case settiement w luch he canu efkive Nov 1.19S5. an additional amount y.
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l - ' #! ' %fyt Company felt n couldjusufy the entire $ 1001 Energy ('ost Rate to o 1951 cents per Lilowau
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y.; W' ,* .S(* k4A, .. ; ... i n 5, had virt ually no ef fect on a cuntomeri total hill ,,e , ,
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ouglasDanforth heads Westinghouse QM
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Etoctric as chairman, mises Christmas trees and .
m llamason thefarm he hteson,
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in communityqffairs.
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$3g;agassup i rescue mission: thePittsbutyh
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Pimtes 'eseballclub uns up 3
(* forsale, andallefforts to mise enough money to keepit here hadfailed. Attheumingof otherencitites and the mayor; Dartforth ucrkedout afinanc-ingplan tchich aimed togitt allsectorsof thecommunity a stakein the team. It tapyxi etery sourufo* cash orcon-cessions: twosets ofpritute
- h$ intestors, thecity, theBoarti y' ofEducation, the county, the
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- state, and local corpomtions.
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This as yet unresolted effort to keep thePimtesin Pittsbutyh is oneof the bestcamplesof thestmngsenseofwmmunity
' " hem. Publicofficials, cor-pomteleadersandpritute citixns hatejoined mnks to keep the Pimtes in Pittsbu>yh.
. Nice catch, Doug.
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CONSTRICTION OPERATIONS Hvar er lhlten /burrStation Iint % J min qu Nestem sales impressir e neu vornputer His tipenrnt noinplete IVnyt I' nit I pnyarvs ixd pu reluisi rap a rul trwter nw!iny systern.s
} nftwl laufiny IVn?1 l' nit J n rrun n.s on holil (ypify cost rjfeetiie steps tfu> ('omjx1ny is Significant Progress at IWPS Unit No.
- I"k'*/ to rinproiv its dficiency LU nvick Significant progress w as inade during 1985 u t M""'"'"P "#"'N l ""'t sa fer unpnwe pn ular l'"I# d"' " hill"y Ibn er Sto tum I ' nit No 1 I he const curt ion of Ileaver Vallev lbw er Stat ton
"' ho>, es rworSyemmition l' nit No 2.of which Diopiesne laght ow ns 114 megaw atts. or 13 74 [n nrnt physical plant MPANYWIDE completion reached M16 pern nt This w ork Off-System Sales at Ih cord level was n onpletof as scheduksi aruf w ithin the estabhshed nudget
()ff systein sales during 1986 totahul 1,98R761 J H M) kilowatt hours. This record Approximately 55 percent of the phuit's dehnu y. which amounted to 15 percent of our systerns have been t urned over to our start up generatol out put , resulted from our aggressive and testinggroup The steam generators wvre marketing effort in response to t he loss of hydrostatically tested and t he emergency irulustrialload over the past fiv sears This diesel generators w ere started durutg tru, record was inade possible by the excellent per uninth of Dnvmber. flushing and hydrostatic fonnare of our generating units and t.he needs testing of t he major piping s3 stems were in pro of our neighboring utihties There is no guaran gress at year end The majority of plant systems t ee we can continue off system sales at this and equipment w ill be rested during 19x6 in lend in cause of the changing market for and preparat ion for fuel hiadmg in t he spring of 1987. follow ed by commercial operation of supply of elect ric energy from our system However. w e will cont inue our aggressive mar I'mt No 3 at about the end of 1987 The Pil' selected a consultam to perform a keting effort and st rive to maintain our prices com truction management audit ofI'mt No 3 at a comimtitive level The audit . w t och began in August . w dl review Computerized Meter Ih ading management decisions. t he mut 's cost and 1 he A reduct ton in the time required to process and Corn pany's cont ract mg practices durmg con updat e cust onn r billing records is one of many st ruction This type of aiuht has become nor efficiency unprovements gained tbrough the mal pract in for t he nuclear indust ry I)uquesne mt roduction of portable microcomputers 1.ight beheves it s effort s during const ruct ion of w hich record. compute and store customer t he plant have been prudent and justified in moer reading information m the field This information is t ransferred easily and qmekly
- view ofIhe man > factors w hich han affected j nuclear pow er n mst ruct ion propets over t he to t he ('om pany N main computer system past decadt sui h as double digit mGat ton high in addition to elinunating the daily cost of M . processmg vohnnes of paper document s.
inter est rat es. incr"asmilabor aiul material costs and changing regulatory re:purement3 itu computerized system reduces the need A final audit n port is expected in nuo 1986 for rereads and clinunates hulky rout e books M Perry l' nits I and 2 Com put erizmi Purchasing System e~d a ('onst ruct ion hs The l'Im eland Elect rie llhnni A con puterized purchasmg system designed nat mg('ompany ofIbrrs I rut No 1.ofw ha h and progranuned by ('ompany personnel Duquesne iaght ow ns w, nn.gau ans. or m Ta becann.operanonaDn March 1985 nus new lH'n '*'llt . lH'an 91 tl u n jih't i+ ul lli l!m5 flo'l ls syat t'In hedps 5InWnliin'iluT llun haSing syS sched,ded Io be loaded .mo t he reactor in i76 tem. pros ides addit ional information to evalu lt is est unatni h3 (' level.uul Elect ro ihat about ate t he performance of wmiors and makes it six mont hs ofIesting and isi ending power easy to take advantage of invoice payun nt dis
< >perat ion aft er fuel biading w dl h+ rn pured n iunt s It is est unated that over 16MH) pur before t he urut can he eleclared conunercial i hase orders w ere pn x vssed t brough t he t 'onst rue t ion h3 ('im elatul Eh u t ru ot ibrrs system in 1985 I mt 2 of w hu h I hupu sne 1.ight also ou ns New lludgeting Procedures Net th sults n T 1 percent . remains suspended pmuhn4 I hupu sne laght has unph un ntninew corpo furt her st ml3 hv it s y unt .iw nors ram budgeting procedures designed 1o more effn tiwl3 cont rol t osts by plarmg account abiht s l<ir oists at lower levels in the orgt u zat o ,n t 'ost center supervisors usually 11
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$20tMHX) Furt her efficiency changes pl;uinni < 'hesw ick Ibu er Stanon. our largest (iG U N H) r w ill add approxunately $S0.000 to Ihat annual sm ings t otal kilow an iof f hree w holly ou ned coal fired generanng stanons. operated at an avadahihr3 g%{
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efficientlv At its 19M Annual Meenng. t he ,
II'nllsylvania Elis t ra Assi n iat uiti i>ri~ uitt ul I)uquesne I.ight employees a plaque for achies
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previous t h ree years) among lbu nss luu ua ^ """ l"ng t enn fh ash ihsposal fanin 3 Ult'et rit' lit tllt ieS w It h n u iri' t hari < u n' inillo a t I'"'illl' d' ari I M a, r.' t r;u t a!w int f< >u r nuh a work hours of exposure annuall3 In lux 1. If"in ('hesu n k Pow er Stanon u ill pros nie a safe. em iron mentally accept able repository
, I)uquesne l.ight ex pc. ienced om lost unn, .
L acenlent for every 100 em pit S res 6ir r he planiis fl3 ash. bot n un ash and ps rin s I-N,ew ,Fransportation Building I ':f rli' lit is . I t h Ils asll !s [ililllln Ml i!tti > a lif Nt rl$
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NUCLEAR Ihrtly because of our continned good perfor mance in such drills. Duquesne Light was BVPS Unit No.1 Achieves Record Generation selected to be the sole utility participant m t he The Company operated Beaver Valley l' nit No 1985 Ih location hble Top Exercise. sponaon d I without a major outage during 1985 achiev by the Federal Enwrgency Mamigement Agency ing a record generation of more than h 9 billion kilowatt hours for the year. The unit's impres This national exercise. held in December was designed to help federal and state agencies for sive 919 percent availabihty-one of the best marks in the country for pressurized water tuulate policy which would govern n' entry mto evacuated areas in the unlikely event of reactors-led to the lowering ofits production costs to less than 20 mils per kilowatt -hour for a radiological emergency. the year. The cost decrease is attributable RESEARCHANDDEVELOPMENT mainly to the use of a new fuel design which s Wot unMer nwn-h M nfj en16 requires refueling once everv 18 months. The "" "" """" **I""' ""I" ' "' ""' h original fuel design required' annual refuelings The performance indicators used by man Pilot Scrubber Dst Results Promising agement to evaluate the success of programs Scrubbers remove sulfur dioxide and partic to operate and maintain the plant properly show favorable t rends indicating a steady ulates from flue gas emitted from coal fired improvement m the Company's ability to power stations In an effort to reduce t he oper ating costs and improve the efficiency and operate the plant efficiently. reliabihty of our scrubbing systems. Com pany A major portion of the plant modifications required as a result of the Three Mile Island personnel conducted a series of tests during
< ccident have been completed. Management t he year on a pilot scrubber at our Elrama f%wer Station Several new scrubbing additives expects minimum capita! expendit ures will be required to nuuoLuo tin p!st in accordance and reagents anti scalants and equipment con. - with existing regulator., requirements. figurations wer evaluated as part of t he tests The results look promising and offer t he poten-The Company received the highest rat mg m five of eleven categories in t he annual N uclear tial for significant savings. The most favorable Regulatory Commission Systematic Assessment materials will now he tested on the full scale of Licensee Ibrformance report . The deficiency scrubber system to determine more accurately whic h caused a single low rating has since been their impact on efficit acy, reliability and cost .
corrected Power Station Water May Heat Greenhouses Duquesne Light is helping to fund a study to deter-Emergency I)till Expertise mine the feasibility of using warm water result - The Nuclear Regulatory Commission partic; ing from the condensation of turbine exhaust pated in Beaver Valley Umt No. l's annuai emergency planning drill for the first time steam at Bruce Mansfield ibwer Station. one of our local CAPCO coal fired units. as a heatmg The NRC's lead evaluator praised t he Com source for nearby pnvately owned greenhouses. pany's t raming program as excellent , noting that the participants were quite knowledge If the study proves to be favorable.100 jobs able of their duties and functions; may be created over the next four years HIGH U E mMMON S1bCK 1%4 x 1* 18 16 in -
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ADMINISTRATION dollar a month vohmtarily added to the electric Newpresident named...Reorgani.eution bills of about 20,000 Duquesne Light customers completed- over the past two ye9 a has added up to over von Schack Named President, CEO half a million dollars donated to the Dollar On Dec.17,1985, the Company announcad Energy Fund. This non-profit group, which that Wesley W. von Schack,42, vice president, Duquesne Light helped to establish, aids low. Finance Group, and chief financial officer, income households with their winter heating would become president and chief executive bills. Duquesne Light dor ated $ 125,000 in officer, effective Jan.1,1986. In his new posi. matching funds in 1985. tion, Mr. von Schack succeeds John M. Arthur, - Employees DoingTheir Part'Ibo 64, who remains as chairman of the board. Duquesne Light was one of17 employee Mr. von Schack also was elected to the Board pacesetter groups which set an example for ofDirectors. other companies in the region by raising their Reorganization Results United Way donation goals by 20 percent and The corporate reorganization was essentially by conducting their 1985 campaigns before the completed in 1985. An entirely ne v corporate traditional start of the fund-raising effort. Our organizational structure was designed and employees dug extra deep to meet that goal and implemented during 1984 and 1985. Staffing donated more than $450,000. In addition, since of the new structure is near completion. The March 1983, Company employees have donated reorganization will provide Duquesne Light $170,000 to a Salvation Army food fund for un-with the flexibility required to respond to a employed workers through a volunteer payroll rapidly changing marketplace. deduction plan. Supporting the Community OURCUSIUMERS Our Community Relations Department New economic development mtesfor indus- nitiated a series oflow-cost /no-ct.st energy trial customen. . . Residential customers add awareness and weatherization seminars
$500,000 to encryyfu nd. . . Low-income cu3- forlow-incomecustomers Anothermajor tomers learn about energy conservation / effort involved developing and implementing weatheri.:atmn. a customer assistance and education program MARKETING using community-based resources. The depart-New Economic Development Rates ment also kept tabs on the pulse of the commu-In December, Duquesne Light introduced two n ty through regular contacts with various new industrial economic development rates business, civic and religious organizations.
which will lower electric costs for qualifying Speakers"Ibam Passes 100,000 Mark new and existing industrial customers. The The Corporate Speakers"Ibam, formed in 1974 new rates are intended to stimulate industrial to help increase public awareness of the critical production and to createjobs. issues confronting t he electric utility ind ust ry, Economic Development Department passed the 100,000 mark in attendance. From Adds Computer its inception through the end of 1985, the In 1985, our Econotr.ic Development Depart- Speaker's 'Ibam, composed of empluyee volun-ment added a computer which will allow quick teers, made 2,137 presentations to a total of 116,330 customers. updating ofinformation concerning properties available for industrial and commercial devel- SHAREHOLDERRELATIONS/ l cpment. Duquesne Light has operated a full- COMMUNICATIONS time Economic Development Department for 7bil-free telephone iriformation lirws e,stablished., more than 25 years. Our representatives work StockholderInformation Digest...Q)st savings in cooperation with local businessmen and at annualmeeting. F government officials to expand and diversify the local economy and to increase employment ,1bil-Free'Iblephone Lines opportunities in our service area. In 1985, the ,1b expedite inquiries, our Shareholder department worked with 166 prospective Relations Department established two toll-free employers and secured 44 commitments t h for use by stockholders. expand or relocate in our service area. The Stockholders calling from outside Itnnsylvania result was 1,511 jobs added or retained. should use 1-800-247-0400. In ibnnsylvania, except for the immediate Pittsburgh area, COMMUNITYRELATIONS stockholders should dial 1 -800-367-6400. Customem Support Dollar Energy Fund Pittsburgh stockholders should use 393-6167. One dollar does not stretch very far. But one 16
StockholderInformation Digest were continuing efforts to obtain both public Shareholder Relations has developed an and private financing for this key project. Information Digest designed to provide Advanced 'Ibchnology Continues Upswing answers to the questions most frequently asked Construction began on the prestigious Soft-by stockholders. While produced mainly for ware Engineering Institute-the first feder-new stockholders, a limited supply is available ally-funded research and development firm to for existing stockholders. 'Ib obtain a free copy, be established in over 20 years. More than 250 write: " Stockholders Digest," P.O. Box 20, Jobs will be created by this project. But more Pittsburgh, PA 15230-0020. im portantly, this $ 103 million computer re-Shareholder Relations Dept. Cost Savings sean-h center will encourage support services. A savings of approximately $85,000 in annual spin-off enterprises and the additional employ-meeting-related costs was achieved through a ment of professional and nonprofessional variety of meth(xis, including sending the annual personnel. report and proxy material in one envelope via Duquesne Light now serves 331 advanced bulk rate, handling the broker proxy material technology companies employing approxi-mailing in-house and redesigning the pmxy card. mately 40,000 people-nearly 20 percent of In addition, Shareholder Relations began a the region's manufacturing workforce. The computerized program to eliminate duplicate annual increase in the number of new high mailings of annual reports and other informa- technology firms and in the overall number of tional communications. 'Ib date, this program persons employed by this emerging industry has eliminated unnecessary mailings to 8,500 both have averaged 20 percent in recent years. stockholder accounts. Since 1980, at least 80 new regional firms have In another cost-savings measure, Duquesne been founded in various advanced technology Light did not publish a 19854th Quarter Report. fields such as robotics, elect ronics, computer Ibrtinent fourth quarter 1985 financialinfor- hardware, software and automation mation can be found in Note L to the financial A new advanced technology support center, statements, page 35. affiliated with Carnegie-Mellon University, was established in the western section of our service LOOKING70THEFUTURE area to help revive a commercial and industrial Major steel losses will contin ue to q[fect economic base racked by steel cutbacks. overall sales.. 51.9 billion plan to restructure Carnegie-Mellon also is actively pursuing the economy... Advanced technolgj industW development of a National Center for Robotics continuestogmwlocally...Softwa eInstitute in Manufacturing and a Western Itnnsylvania to attmet additional high tech nolsjfirms" Biotechnology Center on a 51-acre site near Unnmtty supercomputercenter, downtown Pittsburgh which was formerly Pittsbush No.1. occupied by a large sieel prcduction complex. Plan for Restructuring Economy Universities Acquire Supercomputer As discussed earlier, Duquesne Light has A $40 million grant from the National Science experienced a major loss of steel related load. Foundation will enable a partnership between We don't anticipate sales to this market seg- Carnegie-Mellon University and the University ment to approach the record 1981 levels. This of Pittsburgh to become one of five supercom-report has discussed the many steps Duquesne puter centers in the nation. Capable of per-Light is taking to offset this significant decrease forming 840 million arithmetic calculations per in demand. Inoking to the future, we will con- second, the supercomputer has solidified Pitts-tinue to support efforts to expand t he region's burgh's standing as a leading scientific research economic base. center. Along with the Seftware Engineering One such program is " Strategy 21," a $1.9 Institute, the supercomputer will serve as a billion plan for restructuring the region's econ- magnet for attracting new advanced technol-omy. Local government, university and busi- ogy businesses and industries to the area. ness leadersjoined forces to propose Strategy Pittsburgh No. I 21, which is a compilation of 25 ongoing and Pittsburgh was named the most livable city new economic development projects. The key-in America by Rand-McNally's Places Rated stone of the program is the expansion of the Almanac. A totalof 329 metropolitan areas Greater Pittsburgh International Airport-a were rated in nine qualit y-of-life categories:
$400 million project which would add substan_ arts, recreation, economics, education, t rans-tially to the airport's electrical usage in addi, p rtation, crime, healt h care and environment ,
tion to spurring a conimercial building boom housing, and chmate and terram. in theimn,ediatearea. Atyearend, supporters were continuing efforts to obtain both public and private financing for this key project. 17
gx y- .. . MCompany Report;on Financial Statements The Company is responsible for the financial information and accounting control and tests of transactions to the extent mpmsentations contained in the financial statements and they considemd necessary to provide reasonable assurance other sections of this Annual Report. The Company believes - that the financial statements are not misleading and do not -
.1 that the financial statements have been prepared in conform- contain materialerrors.
~
7 ity with generally accepted accounting prmeiples appropriate The Board of Directors has an Audit Committee composed
; in the circumstances to reflect, in all material respects, the of four non-officer directors which met four times in 1985.
- 2 substance of events and transactions that should be included - The Audit Committee has the following duties and responsi-
; and that the other information in the Annual Report is con- bilities: (1) recommending the independent public accountants; -
sistent with those statements. In preparing the financial (2) reviewing the planned scope and results of their audit and ' l istatements, the Company makes informed judgments and other services to be performed; (3) reviewing the financial estimates based on currently available information about the statements and the related report of the independent public
' effects of certain events and transactions. . accountants; (4) reviewing with the officers, internal auditors
~ The Company maintains a system 'of internal accounting and the independent public accountants the adequacy of the control designed to provide reasonable assurance that the Company's system of internal accounting control, including 7 Company's assets are safeguarded and that transactions are their recommendations with aspect themto; and (5) review-
- 1 executed and recorded in accordance with established proce- ~ ing the planned scope and results of the internal audit func-dures. There are limits inherent in any system of internal con- tion. The independent certified public accountants arid inter--
- trol based on the recognition that the cost of such a system nal auditors have full and free access to the Audit Committee
~ _ thould not exceed the benefits to be derived. The system of and meet with it, with and without management being pre-
~ internal accounting controlia supported by written policies - sent, to discuss internal accounting control, auditing and fand guidelines and is supplemented by a staff of internal - financial reporting matters.
- tuditors. The Company believes that the internal accounting control system provides reasonable assurance that its assets
~ are safeguarded and the financial information is reliable. [ b b# go_o, t' 1The accompanying financial statements have been audited by Deloitte Haskins & Sells, independent certified public Wesley W. von Schack James O. Ellenberger accountants, whose appointment was approved at the 1985 - President, Chief Controller and Principal n Annual Meeting of Stockholders. Their examination was Executive Officer and - Accounting Officer J made in accordance with generally accepted auditing stan- Chief Financial Officer dards and included a review of the system of internal JOpinion ofIndependent Certified Public Accountants
~ DELOITTE HASKINS & SELIE Certified Public Accountants
-2400 One PPG Place Pittsburgh, Pennsylvania 15222 1TO THE DIRECTORS AND STOCKHOLDERS OF DUQUESNE LIGHT COMPANY:
- We have examined the balance sheets of Duquesne Light tions and the changes in its financial position for each of the Company as of December 31,1985 and 1984 and the related three years in the period ended December 31,1985, in con-statements of income, retained earnings, capital surplus and - formity with generally accepted accounting principles con-changes in financial position for each of the three years in sistently applied during the period except for the change,
. the period ended December 31,1985. Our examinations with which we concur, in 1984 in the method of accounting wtre made in accordance with generally accepted auditing for leases as desenkd in Note H to the financial statements.
. standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our o, pinion, such financial statements present fairly the financial position of Duquesne Light Company at g f4 December 31,1985 and 1984 and the results of its opera- February 13,1986 18- =
- Duquesne Light Company 1
- Statement ofIncome-
' Year Ended December 31,
- (Thousands of Dollars, Except Per Share Amounts) .
_ 1983 _. 1985 1984 OPERATING REVENUES:
$868,815 . $861,775 - ~ $800,345 ~-
- Customers 46,049 -31,439 - 10,471- M Other utilities 914,864 893,214 > 810,816 Ibtal Operating Revenues OPERATING EXPENSliS: 234,910: 192,512 249,212 Fuel 4,094 4,802 3,141 -
Purchased power Other operation 155,592 - -149,477 - - 1136,188 80,462 73,214 -65,016 -
- Maintenance (Note K) 81,066 -77,532 .73,682 :
Depreciation and amortization 72,614 70,279 60,651-Taxes other than income taxes (Note K) 100,707 97,266 92,954 Income taxes (Note E) 723,747 -707,480' .624,144
'Ibtal Operating Expenses 191,117 - 185,734 186,672 OPERATING INCOME
_ OTHERINCOME: 72,782 -60,133 -50,709 - Allowance for equity funds used during construction 28,267 22,666 16,760
- Income taxes--elit(Note E) 5,304 -- -
Insurance and other recoveries (Notes K and L) 5,497 - 4,594 246 Other income and deductions-net 111,850 87,393 . 67,715-
'Ibtal Other Le 302,967 273,127 254,387
. INCOME BEFOREINTERl!NT CHARGES INTERl!NT CHARGES: 146,884 -133,431 118,813 Intenst on long-term debt 6,357 - 3,611 5,736 -
Otherinterest Allowance for borrowed funds used during construction, net of income taxes (26,231) . (20,709)- (15,388) 127,010 116,333 109,161 IbtalInterest @=rges 175,957 156,794 145,226
- NET INCOME 21,250 21,955 -- 22,411 DIVIDENDS ON PREFERRED AND PREFERENCE STOCK
$154,707 $134,839 - - $122,815 EARNINGS FOR COMMON STOCK o8,543 61,054 - 55,883 l
~ A TERAGE NUMBER OF COMMON SHARES OUTSTANDING (000)
- $2.26 - $2.21- - $2.20 EARNINGS PER SHARE OF COMMON SFOCK
$2.06 $2.06 $2.00
! - DIVIDENDS DECLARED PER SHARE OF COMMON SIDCK See Notes to Financial Statements. I 1 i I 19
- - - . ~ , . _ _ -
~
buquesne Light Company Balance SheetL . As of December 31,
- (Thousands of Dollars) 1985 1984~
1ASSEI'S - -- PROPERTY, PLANT AND EQUIPMENT: Electric plantin service 82.G31,622 < $2,537,398 - Construction workin progress - 1,307,162 1,077,992 Pmperty held under capital leases (Note H) __2's2,209 -184,109 Ibtal --- 4,16S,903 . 3,799,499 Less accumulated depreciation and amortization - 74&fM10 659,745 Property, Plant and Equipment-Net 3,420,133 3,139,754 OTHER PROPERTY AND INVEETMENTS 37,516 32,358 CURRENT ASSETS: Cash and temporary cash investments (at cost which approximates market) 59,953 50,416
- Accounts receivable: .
Customers (less allowance for uncollectible accounts of $3,686 and $2,976, respectively) 80,845 -70,467 Other(including tax claims in 1985 of $16,841) 36,157 32,094 - Materials and supplies (generally at average cost): Coal 40,197 55,708 Other operating and construction 40,031 37,528 Other current assets 13,888 12,291
- Total Current Assets 271,071 258,504 DEFERRED DEBITS:
Extraordinary pmperty losses (Note B) 28,501 32,526
- Unamortized loss on reacquired debt (Note J) 37,889 -
- Deferred coal costs (Notes D and I) 14,938 22,635 Other deferred debits 44,440 44,533 Total Deferred Debits 125,748 99,694
'Ibtal Assets $3,854,468 $3,530,310 See Notes to Financial Statements.
20
. - _ _ . . ~
~
1985 1984
-CAPITALIZATION AND LIABILITIES CAPITALIZATION (Note J):
Common Stock (authorized-90,000,000 and 75,000,000 shares, respectively;- x outstanding-71,488,270 and 64,774,591 shares, respectively) $ 71,488 $ 64,775 900,391 804,377 Capital Surplus 197,952 184,313 - Retained Earnings - TotalCommon Stockholdent Equity 1,18'931 1,053,465 Non-ndeemable Preferred and Preference Stock ^ W7 156,137 119,653 127,414-Redeemable Preferred and Preference Stock - 1,246,222 1,149,547 First Mortgage Bonds 313,986 278,384 Otherlong-term debt (9,209) (10,896) Unamortized debt discount and premium-net 2,996,620 2,754,051 Ibtal Capitalization 142,489 119,335 OBLIGATIONS UNDER CAPITAL LEASES (Note H) CURRENT LIABILITIES- 20,700 700
- Ieng-term debt maturing within one year (Note J) 22,029 25,582 Lease obligations due within one year (Note H) 110,185 116,262 Accounts payable 7,264 3,139 Accrued income taxes 14,646 17,363 Def:rred income taxes and other accrued taxes 36,592 35,131 Accrued interest 42,113 38,808 Dividends declared 16,174 16,423 Sinking fund and purchase requirements (Note J) 774 9,131
- Spent nuclear fuel 270,477 262,539 Total Current Liabilities DEFERRED CREDITS: 185,270 165,802 Investment tax credits unamortized 253,389 222,633 Accumulated deferredincome taxes 6,243 5,950 Other deferred credits 444,902 394,385 Total Deferred Credits COMMITMENTS AND CONTINGENCIES (Notes B, D, E, F, H, I and J)
$3,854,468 $3,530,310
'1btal Capit=11*mtion and Liabilities 21 ,
l
_ rg _ _ r - g WDuquesne Light Company l WStatsment of Changes in Financial Position -
@ [ Year Ended December 31,'
7 (Thousands of Dollars) 4 1 1985 1981 1983
? CASH PROVIDED FROM: ~
- Operations:
=
Netincome -
$175,957 $156,794 $145,226
- ~ Depreciation and amortization 109,755 i 92,810 79,800 Changes in working capital (see below)
(2,933) 7,172 18,467 Investment tax credits unamortized 19,4ti8 22,038 17,317
= : Income taxes deferred-net (noncurrent portion) 30,756 28,984 21,049 i
=- m - Deferred coal costs - 7,697 (292) (4,005) ~
- Allowance for equity and borrowed funds used during construction (99,013) (80,842) (66,097)
-- Insurance and other recoveries (5,304) - -
'Ibtal Cash Provided From Operations 236,383 226,664 211,757
~
Financing: -
- Sale of bonds 289,000 50,000 110,000 Issuance of Common Stock 102,910 - 86,466 80,485 7 - Obligations under capitalleases 35,911 12,258 -
Nuclear fuel obligations 4,307 4,269 6,125 - Construction costs reimbursed from pollution control financings 39,235 35,453 19,680 Total Cash Provided From Financing 471,363 188,446 216,290 Total Cash Provided 7(rl,746 415,110 428,047 CASH USED FOR: - 1 Construction expenditures (net of allowance for equity and borrowed funds used during construction) 244,859 250,522 224,280 Property held under capitalleases 35,911 - 12,258 - Dividends on CapitalStock 162,318 148,419 134,628
- Reduction of long-term obligations (including current maturities) 196,935 29,197 12,935 Spent nuclear fuelobligations 8,357 -- -
Reduction of Preferred and Preference Stock 7,078 - 4,808 - 4,261
- Premium on reacquired debt 35,415 - -
Other--net 5,336 (6,759) 11,855
'Ibtal Cash Used 698,209 438,445 387,959 Increase (Decrease) in Cash and Temporary Cash Investments $ 9,537 $(23,335) $ 40,088 -
CASH PROVIDED FROM (USED M)R) CHANGES IN WORKING CAPITAI Accounts receivable $(14,441) $(12,942) $ (2,651) M terials and supplies 13,008 952 8,970 Other current assets (1,597) 3,858 4,967 Accounts payable - (6,077) 21,232 (13,343)
- Accrued income taxes 4,125 (2,639) (625)
Deferred income taxes and other accrued taxes (2,717) (2,067) 5,772 Accrued interest 1,461 (5,259) 10,908 Dividends declared 3,305 4,037 4,469 Cash Pmvided By (Used Ebr) Changes in Working Capital $ (2,933) $ 7,172 $ 18,467
- See Notes to Financial Statements.
22
- Duquesne Ijght Company LStatement of Retained Earnings
_ ' Year Ended December 31, (Thousands of Dollars) - 1985 ~ 1984- 1983
- $184,313 $175,938 $165,340 BALANCE AT BEGINNING OF YEAR
~ 175,957 156,794 145,226 NETINCOME FOR THE YEAR 360,270 332,732 - 310,566 Total-DEDUCT:
Cash dividends declared: Preferred Stock: 1,100 1,100 ~ 1,100 4% Series 3.75% Series 281- 281 281
'291 291 291 4.15% Series 210 210 210 4.20% Series 246 246 246 4.10% Series 336 336 336
$2.10 Series 2,116 2,168 2,219 ~
$8.64 Series 2,520- 2,520 2,520
$7.20 Series 2,337 2,437 . 2,512
$8.375 Series Preference Stock:- 1,769 1,859 1,944
$7.50 Series 488 646- 891
$2.75 Series 2,778 2,778 2,778
- $2.315 Series 2,520 - 2,520 2,520
$2.10 Series 4,259 4,563 4,563
$9.125 Series 141,067 126,464 -112,217 Common Stock (Per Share: 1985-$2.06; 1984-$2.06; IS33-$2.00) 162,318 148,419 134,628
'Ibtal Cash Dividends Declared
~ $1177,952 $184,313 $175,938 BALANCE AT END OF YEAR Statement of Capital Surplus
- Year Ended December 31, (Thousands of Dollara) 1985 1984 1983
$804,377 $724,147 $649,376
- BALANCE AT BEGINNING OF YEAR 96,197 - 80,111 75,342 Premium on Common Stock issued 0 83) 119 (571)
Other
$900,391 $804,377 $724,147 BALANCE AT END OF YEAR See Notes to Financial Statements.
23
4 Duquesne Light Company;
$ Notes to Financial Statements A[
SUMMARY
OF ACCOUNTING POLICIES pally with respect to interest charges related to CWIP. ; Property, Plant and Equipment - . . Investment tax credits are deferred and amortized over the ! Properties are carried at original cost and generally are sub- lives of the related facilities. ! c ject to a first mortgage lien. Cost includes direct labor, mate- At December 31,1985 the cumulative net amount of timing i rials, indirect costs and an allowance for funds used during differences for which deferred income taxes have not been
= iconstruction (AFC) of properties. AFC is included in construc. provided was approximately $169 million. These timing differ- 3
~ f tion work in progress (CWIP) and credited to other income ences relate primarily to accelerated depreciation, certain .{
E for AFC attributable to equity funds and to interest expense taxes, the debt portion of AFC, pensions and certain other
~ for AFC attributable to borrowed funds, net of income taxs. employee benefits.
- AFC is a non-cash item computed using a composite rate, Deferred Fuel Costs
- which is applied to the balance of CWIP and assumes that The Company defers the difference between actual fuel costs-
. funds used for construction are provided by borrowings and and base fuel costs until the period in which such costs are by preferred, preference and common stock equity. The aver- billed to its customers through its energy cost rate. The
=
age annual rate was 9.5%,9.4% and 9.6% in 1985,1984 and energy cost rate is based on projected costs, with provisions 1983, respectively. This procedure results in the inclusion of for subsequent adjustments to actual cost. Any overcollec-amounts in property, plant and equipment that are considered tions of revenues are refunded to customers with interest. by regulatory authorities as appropriate costs in establishing rates for utility charges to customers. Nuclear Fuel Costs
- Maintenance and repairs and replacements of minor units The Company's share of nuclear fuel costs underlease agree-of property are charged to mcome and replacements of retire- ments is charged to fuel expense based on the quantity of
. ment umts of property and betterments are cap,talized. The electric energy generated. In 1982 the Company began capi-i talizing acquisitions of nuclear material through a trust costs of depreciable property umts retired, plus removal . arrangement that is intended to finance a portion of the Com-costs, less salvage, are charged to accumulated depreciation.
pany's requirements for nuclear fuel. In 1984 all nuclear fuel Revenues leases were capitalized. Customer meters are read monthly or bimonthly and bills are Under the Nuclear Waste Policy Act of 1982 (the Act), the rendered on a monthly basis. Revenues are recorded when United States Department of Energy (DOE) is responsible billed. _ for the ultimate storage and disposal of spent nuclear fuel
~ Depreciation removed from reactors. Under the Act the Company is
, The Company provides for depreciation of electric plant, required to pay a quarterly fee to DOE of one mill per exclusive of coal properties, on a straight-line basis deter. kilowatt-hour on nuclear generation occurring after April 6,
" mined in a manner consistent with applicable Pennsylvania - 1983 and a one-time fee for nuclear generation which law and with methods applied by the Pennsylvania Public occurred through April 6,1983. The one-time fee of approxi-
- Utility Commission (Commission) in the determination of mately $8.9 million was paid in June 1985. The Company
- depreciation in rate proceedings. Provisions for depreciation, began recovering the one-time fee in rates in February 1983.
amortization and depletion of other Company property are The Company also is recovering the fees for generation after made on various bases such as amount of nuclear fuel April 6,1983 and is making payments to DOE en a quarterly burned and tons of coal mined. basis. The Company provides for decontamination and disman- Other tling costs for Beaver Valley Unit No.1 in accordance with Other property and investments are stated principally at cost, the provisions of the orders of the Commission. The Company less accumulated depreciation where applicable. Other oper-currently estimates ita' share of the total cost of dismantling ating and construction inventories are stated at average cost the Unit to be $G6 million. The Company is allowed to recover and include certain general and administrative costs related through current rates annual decommissioning annuity to operating the Company's storerooms. General and admin-payments to provide for its share of the decommissioning of istrative costs remaining in inventory at December 31,1985 the Unit's radioactive components only, the cost of which is and 1984 were $3.9 million and $4 million, respectively. Debt currently estimated to be $48 million. The Company expects discount or premium and related expenses are amortized over to recover the remaining decommissioning costs through the lives of the issues to which they pertain. rates in effect subsequent to the dismaatling of the Unit. Reclassifications The Company deposits applicable revenues m segregated The 1984 and 1983 financial statements have been reclassified accounts which have been established to pay for such costs. to conform with accounting presentations adopted during At December 31,1985 $2.5 million was included in such 1985. The principal changes relate to the reclassification in accounts. the Statement of Income of sales to other utilities from "Pur. Income Taxes chased power (sales)-net" to " Operating Revenues-Other Deferred income taxes are provided principally for differ- utilities" (1984-$31.4 million; 1983-$10.5 million) and the ences between depreciation for federal income tax purposes presentation of a cash flow Statement of Changes in Finan-and depreciation for accounting purposes, to the extent per- cial Position. mitted by the Commission for ratemaking purposes, and for
- fuel expense, extraordinary property losses and losses on early retirement of debt, deferred for accounting purposes but deducted currently for federal income tax purix>ses. In compliance with regulatory accounting, income taxes are allo-cated between operating expenses and other income, princi-u
+ - B. EITRAORDINARY PROPERTY LOSSES In December 1980 the Commission instituted an investiga-In 1980 the CAPCO companies cancelled the construction of tion into the reasonableness of the cost of coal supplied by four nuclear generating units, and in 1982 the Shippingport Quarto. In a 1981 Interim Order the Commission directed - Atomic Power Station was removed from commercial opera- that, pending conclusion of the investigation or further order tion.The Company received approval from the Federal of the Commission, the Company limit its recovery of the cost
- Energy Regulatory Commission and the Commission to of Quarto coal through its energy cost rate to approximately amortize and recover from its customers its share of the the prevailing market price of similar coal rather than the accumulated construction costs of the cancelled units, which actual cost of Quarto coal. As required by the Interim Order amounted to $34.5 million, and a portion of the undepreciated and by the fmal Commission Order, as more fully described icost of the Shippingport station over a ten year period which below, the Company is deferring the excess of the actual cost began January 29,1983. The unrecovered costs of the can- of Quarto coal over the cost allowed to be recovered through celled units and the Shippingport station as of December 31, its energy cost rate.
1985 were $24.4 and $4.1 million, respectively. The Commis- A Stipulation Agreement between the Company and the rion's order approving the amortization and recovery of the Commission staff which set forth a method intended to permit - accumulated construction costs, which was appealed by the the eventual recovery of the unrecovered cost of Quarto coal Pennsylvania Consumer Advocate to the Pennsylvania Com- was the subject of hearings during 1983. An administrative monwealth Court, was affirmed by the Court in 1985. Peti- law judge issued a recommended decision concluding that the tions for allowance of appeal filed by the Consumer Advocate Company was prudent in initiating and continuing the Quarto and certain intervenors with the Pennsylvania Supreme Court project and that the Stipulation Agreement was in the public - are pending. See Management's Discussion and Analysis of interest and was a fair and reasonable resolution of the Fmancial Condition and Results of Operations-Capital investigation into the reasonableness of the cost of Quarto 1 Resources and Liquidity-Accounting Matters. coal. Exceptions to the recommended decision were filed by The Company is not earning any return on the unamortized the Commission staff and the Consumer Advocate. In 1984
- costs of either of the extraordinary property losses. the Commission entered its final order which (a) allowed the Company to apply the methodology of the Stipulation Agree-C. SHORT-TERM BORROWING AND REVOLVING CREDIT ment retr actively to the period June 1980 through December ARRANGEMENTS 1983 and (b) required the Company to apply a revised method-At December 31,1985 the Company had a $5 million line of I gy to Quarto coal costs commenemg January 1,1984. - credit with a bank, all of which was unused. The range of ~ interest rates under this line of credit is from prime rate less ne Company be,lieves that the revised methodology pro-vided in the Commission's final order may not, under certam - one half of one percent to a special rate as may be offered by circumstances, permit full recovery of the deferred coal costs the bank from time to time. There is no commitment fee or by the scheduled expiration of the Quarto coal sales agree-compensating balance requirement associated with this line ments m 1999. Fluctuations in the deferred coal costs may f iedi result during this period depending on actual Quarto costs, In addition, the Company has two revolving credit agree- market price of other coal, amount of Quarto coal burned and ments with two groups of banks totaling $225 million, availa- 0" " # 8' ble to May 15,1988 and December 15,1988 in the amounts of $125 mi!Iion and $100 million, respectively. At December 31, . On January 8,1985 the Company appealed the Comm.is-si n's rder to the Pennsylvam,a Commonwealth Court. On 1985 no loans were outstanding under these agreements. March 19,1985 the Company filed a new energy cost rate Under certain conditions, borrowings outstanding under the which the Commission approved on March 29,1985 and per-two agreements may be converted to term notes. Interest m tted the Company to recover about $9.8 milh,on of the rates fluctuate during the revolving and term periods, accumulated deferred Quarto coal costs over a twelve-month depending on the period of borrowings, at prime rate and at penod which began, April 1,198a.
l - percentages in excess of prime, Euro-rnte and tertificate of ne Company telgves that the balance of the deferred coal i deposit rates. Interest rates under the $100 million agree- e sts was prudently mcurred and that it is probable that all ment also include a component cost of funds rate. There is a r substantially all of such costs ultimately will be recovered. ! commitment fee of %% per annum on the average daily At, December 31,1985 the unrecovered cost of Quarto coal unborrowed amount of each commitment. The commitment paid by the Company, exclusive of the costs permitted to be fee on the $125 million agreement increases to %% per ree vered through the energy cost rate, was approximately annum on the average daily unborrowed amount upon the
$11.3 milhon.
first borrowing against this commitment. , , In accordanm wie a 1m Commission rate order, the cost During 1985,1984 and 1983, the maximum amount of f c al mm, ed at the Company a wholly-owned Warwick mine
- short-term borrowings outstanding was $23 million, $25.5 mil- in excess of the average market price of simd, ar quality coal lion and $48 million, the average amount of daily short-term purchased by Pennsylvama utilities may not be passed borrowings outstanding was $3.6 million, $4.6 million and through the energy cost rate, but may be deferred and $12.3 million, and the weighted average daily interest rate recovered to the extent that the cost of Warwick coal falls l
cpplicable to such short-term borrowings was 8.2%,11.5% below such market price. Such deferred costs amounted to and 9.4%, respectively. $3.6 million at December 31,1985. Additionally, the Commis-D. DEFERRED COAL COSTS sion eliminated the Warwick mine from the Company's rate The CAPCO companies have long-term coal supply arrange- base for ratemaking purposes. The exclusion from rate base ments with Quarto Mining Company (Quarto), an unaffiliated is approximately $48 million. company, to supply coal for the Bruce Mansfield Plant. 25 l
~~
..= M. - f?. W. M._ R f. M. = 3 f= i 9__. - 1 -
~l M-12Duquesne Light Companyt ~
~~
M! Notes:(continuedf# -. hi5hE. IN00DEE TAXEB ['- . . w .
~
j MTotal income taxes in 1985,~ 1984 and 1983 were comprised of the following components:- 1 fgg4=+E = _ - 1986' 1984 1983 2 4 =..-. E m (Thousands of Dollars) F - EIncluded in operating expenses; - E iM~- Currently payable: - M { ~ Federal- S 37,765 $ 38,004 $ 33,931 4g-: State 13,230 16,042 14,295 w-~ -Income taxes deferred-net:
- = Federal = -
29,034 - 16,577 22,955 FA -c ; State - - 743- 4,893 5,555 6 _ ~ = hvestment tax credit deferred-net 19,936 21,750 16,218 1 Total: 100,707 97,266 92,954 NAIncludedin otherincome:
." Currently payable:
~ R = Federa (23,015) '(18,060) (13,354) cgz - State - -
(5,252) - (4,606) - (3,406) g-_ g. : Total' -(28,287) (22,666) (16,760)
~'~
iTotalincome tax expense $ 72,440 $ 74,600 $ 76,194 y.# 3 Taxes' currently payable-federal and state $ 22,728 $ 31,380 $ 31,466
- r - Taxes deferred-net 29,777 21,470 28,510
.- - - Investment tax credit deferred-net - 19,935 21,750 16,218 Totalincome tax expense $ 72,440 $ 74,600 $ 76,194 i Totalincome taxes were less than the amount computed applying the statutory federal income tax rate of 46% to income
. . - before income taxes. The reasons for this difference in each year were as follows:
- J Computed ' federal income tax at statutory rate $114,282 $106,441 $101,853
' Increase (decrease) in taxes resulting from:
_ Allowance for funds used during construction (45,546) (37,187) (30,405)
- Excess of book over tax depreciation - 6,215 4,979 3,246
- State income taxes, net of federal income tax benefit 4,700 8,828 8,880
~
' - Amortization of deferred investment tax credits (4,818) (5,750) (5,266)
..__ Other-net (2,382) (2,711) (2,114)
' Totalincome tax expense $ 72,440 $ 74,600 $ 76,194
~ Sources of income taxes' deferred and the tax effects were:
Excess of accelerated over straight-line depreciation S 23.338 $ 24,281 $ 20,920
--IAss on early retirement of bonds expensed on tax -
return and deferred on books - 19,362 - - Fuel costs expensed on tax return and deferred on books (4,149) (3,683) 9,786 E7traordinary pro losses expensed on tax return
- and deferredon (1,703) (1,703) (1,562)
- Other - (7,071) 2,575 (634)
Totalincome taxes deferred-net $ 29,777 $ 21,470 $ 28,510 The Company's income tax returns are settled through 1970 and income tax returns for 1971 through 1983 have been examined. The Company's management believes that the settlement of federal and state taxes will not have a material effect on the Company's fmancial position or results of operations. 26
- -- ~
g
=pagg3=g .
M~ ; - 7
- 41. J= ~ -
_- .1 WE
~^
-~
December 31,< ' W = - F EMPIMEEBENEFflB
- 11983 e -?W - : The Company has trusteed retirement plans to provide pen- 1984:
sions for all employees, except coal mine employees who are . #===- +
'1 Thousands of Dollars) -
covered under a plan administered by the United Mine Actuanalpresent value of _
~-
Workers of America (UMW). Since it is a multi-employer plan,- accumulated plan benefits:- ..
. g Vested- $15a,564 = $189,312 = r information concerning the UMW plan is not determinable by Nonvested = - 7,595 i :11,945.-
the Company and is not included in the table below. Pension
' costs are funded as accrued and include amortization of most 'Ibtal - $184,15e $201,257 - f --
prior service costs over 30 years and prior service costa Net asseta available for benefits _ related to the early retirement program over 15 years. Pen. 8145,817 $141,235F ~ ~= H (at fair value)
'sion costs charged to expense or construction for 1985,1984 and 1983 were $13.4 million, $14.2 million and $10.8 million, . .
. ..E-
. respectively. The increase in pension costs in 1984 was due The Company is liable under federal and state laws for the - x principally to the impact of the refund of employee contribu- . payment of benefits to coal mine employees disabled by M *M
- tions in 1983 and the early retirement program supplemental " black lung" disease and to their survivors and dependents. =
benefits. In 1983 the Company adopted an early retirement The estimated costs of providing such benefits, including H = TM program under which certain benefits are being paid from the . amortization of prior service costs over the remaining esti-? assets of the retirement plans. mated life of the Warwick mine, are actuarially determined .
. Accumulated plan benefits and net assets available for ben- and accrued on the basis of mine payroll costs and are depos 1
- efits for the trusteed plans are presented as of the December ited with a trustee. Such costs were $1.5 million, $1.7 million .~ W 31 benefitinformation dates. The assumed rate of return and $1.6 million for 1985,1984 and 1983, respectively. AtJuly. __
used in determining the actuarial present value of accumu- 31,1985 (the date of the latest actuarial valuation), the : lated plan benefits was 8% for 1984 and 5%% for 1983. The unfunded prior service cost for these disability benefits was - ~ decrease in the actuarial present value of accumulated plan approximately $3.9 million. The decrease of $14.9 million in - benefits as of December 31,1984 was caused primarily by the unfunded prior service cost from July 31,1984 was --
- thh change in r.ctuarial assumptions. caused primarily by changes in the investment and assumed claim rate assumptions.-
=
G. JOINTIX. OWNED GENERATING UNTIE The Company, together with other electric utilities, primarily the CAPCO companies, has an ownership interest in certain - ~ jointly-owned units. Information regarding the Company's share of such jointly-owned units as of December 31,1985 is as
- f:llows(Thousands of Dollars): Company's Interest Percentage Utility Plant Accumulated Construction .
' Unit Ownership Megawatts in Service Depreciation- Workin Pn.gress -
50.0 276 $ 49,527 $ 17,174 - 4 2,197 Fort Martin No.1 CAPCO Units: .2,199 31.2 202 50,879 13,897 Eastlake No. 5 31.2 187 72,920 13,610 587. Sammis No. 7 29.3 228 73,301 19,266 83 Bruce Mansfield No.1 8.0 62 20,407 4,409 90 Bruce Mansfield No. 2 13.74 110 71,775 11,496 - 2'l Bruce Mansfield No. 3 Bruce Mansfield Common and 64,121 16,110 246 Shared Facilities 47.5 385 371,128 74,131 5,654
- Beav:r Valley No.1 13.74 114 - - 391,521 Beavtr Valley No. 2 70,900 9,193 90,320 Beav:r Valley Common Facilities 13.74 165 - - 406,325 Perry No.1 13.74 165 - - 153,798 Perry No. 2
- - 163,062 Perry Common Facilities
$844,958 $179,286 $1,216,096 Total -
l Under terms of the arrangements with the other owners of these jointly owned units, the Company is required to provide its share of financing the cost of such units. The Company's share of the direct expenses (fuel, maintenance and other operation expenses) of the jointly-owned units is included in the corresponding operating expenses in the Statement of Income. l-
- Duquesne Light Company
. 30teS (continued)
- H. IRASES L COMMITMENTS AND CONTINGENCIES In 1984 the Company capitalized all of its capital leases. This , Construction ; change had no impact on 1984 net income. Leased property The Company presently estimates that it will spend on con-consists of the following: struction, exclusive of nuclear fuel and AFC, $623 million dur-December 31' g 3g ing the period 1986 through 1990, assuming construction on Perry Unit No. 2 does not resume dunng this penod.
(Thousands of Dollars)
$206,377 Perry Unit No. 2 Nuclear fuel $164,001 .
Electric plant (principally buildings In September 1983 several groups filed a petition with the and data processing equipment) 25,832 20,108 Public Utilities Commission of Ohio (Ohio Commission) and
- Total 232,209 184,109 the Power Siting Board of Ohio (Board) against The Cleveland Less accumulated amortization 67,711 39,192 Electric Illuminating Company, Ohio Edison Company and Property held under capital The Toledo Edison Company (respondents) requesting that leasee-net $164,498 $144,917 the Ohio Commission and the Board jointly and/or individu-ally investigate the public need for Perry Unit No. 2, pres-Leased property is amortized in conjunction with the amor- ently under construction by the CAPCO companies. The peti-tization of the related lease obligation. Leased nuclear fuelis tion also requested that the Ohio Commission and the Board tmortized as the fuel is burned. The amortization of electric order the cessation of construction of the Unit and of the ' plant is based on the rental payments made. Amortization of accrual by the respondents of AFC with respect to the Unit leased property amounted to $24.9 million and $10.9 million and a declaration that the issuance of securities by the for 1985 and 1984, respectively. respondents, the proceeds of which will be used to finance Lease payments in 1985,1984 and 1983 amounted to $43.6 construction of the Unit, not be approved.The respondents million, $26.2 million and $30 million, respectively, and $41.2 have filed a motion to dismiss the petition filed with the Board million, $35 million and $32 million (including deferred nuclear and an answer to the petition filed with the Ohio Commission fu:1 lease payments), respectively, were charged to operating requesting that the petition be dismissed.
expenses. Rental payments are made monthly during the An order in this proceeding requiring that construction of terms of the leases based on the amount of nuclear fuel the Unit be terminated could have the effect of cancelling the leased and the amount of nuclear fuel burned. Unit. In such event, the Company would seek regulatory The nuclear fuel leases may be terminated by the lessees or approval for the recovery from its customers of its then lessors with notice as defined in the agreements or by casu- investment in the Unit, together with any related cancellation alty or certain other contingencies, including default by the costs. Based on its present knowledge of the proceedings, lessees. In certain situations involving a termination, the management of the Company has no reason to believe that lessees may be required to purchase the leased nuclear fuel at the proceedings will result in decisions adverse to the CAPCO the higher of fair market value or unamortized cost. At companies, and the Company believes that the ultimate reso-December 31,1985 the Company's share of the lessors' lution thereof will not have a material effect on the Com-unamortized cost of the leased nuclear fuel was $142.2 mil- pany's financial position. lion, and the Company expects to finance an additional $42.9 While the Company is not a party to the proceedings, it has million of such costs under current leasing arrangements. a 13.74% ownership interest in the Unit. The Unit, exclusive of The Company has certain buildings or portions thereof common facilities required for the operation of Perry Unit No. under lease, including its corporate headquarters, subject to 1, is about 44% complete. The Company's net investment in renewal options and in certain cases purchase options. the Unit, including AFC and excluding common facilities Future minimum lease payments for capital leases are required for the operation of Perry Unit No.1, was approxi-related principally to building leases and the estimated usage mately $154 million at December 31,1985. of nuclear fuel, including a trust arrangement. Minimum In March 1984 the CAPCO companies agreed to minimize lease payments for operating leases are related principally to construction work and cash expenditures on Unit No. 2. The the cogorate headquarters lease. Future minimum lease CAPCO companies presently are reviewing their options with payments at December 31,1985 were as follows: respect to the Unit. The alternatives include resumption of construction, with a new estimated cost and completion date, l 0 ng or cancellation. It is not certain when this decision will be g g made. The Company has been accruing AFC during the con-(Thousands of Dollars) struction period. Beginning July 1,1985 the Company began 1986 $ 25,419 $ 11,153 providing a reserve against subsequent AFC accruals on the 1987 33,938 9,950 Unit until construction is resumed. At December 31,1985 the 1988 31,687 9,136 reserve amounted to $7.3 million and is included in "Construc-
,1.8,465 8,820 tion work in progress" in the Balance Sheet. This deferra! of 1989 AFC did not affect cash flow, but it reduced reported earnings 1990 27,154 7,968 by the amount of such deferral, or approximately $.11 per 1991 and thereafter 123,207 88,067 share in 1985.
Total minimum lease payments 269,870 $135,091 Less amount representing interest 78.640 Quarto Mining Company (Quarto) Present value of net minimum The CAPCO companies have made long-term coal supply lease payments $191,230 arrangements with Quarto, an unaffiliated company, to supply coal for the Bruce Mansfield Plant. As part of these arrange-ments the individual CAPCO companies are severally, and not
jointly, guaranteeing their proportionate shares of Quarto's request initially filed. In 1982 the Commission adopted its final debt and lease obligations incurred in connection with the order in the rate proceeding which determined that the option dev;lopment and equipping of Quarto's coal properties. At rate increase of $64.2 million was just and reasonable. The December 31,1985 the Company had guaranteed the obliga- final order was appealed to the Pennsylvania Commonwealth tions of Quarto with respect to approximately $53 million of Court by a commercial customer, and in 1983 the Court indebtedness and lease obligations relating to approximately affirmed the Commission's final order. The commercial cus-
$19.5 million of capital equipment for the mines. In general, it tomer then appealed the Commonwealth Court's order to the is contemplated that the purchase prices to be paid for the Pennsylvania Supreme Court.
coal to be received under the foregoing arrangements will In 1984 the Supreme Court ruled that the Commission's include amounts sufficient to service the guaranteed 1981 option order was invalid under the applicable provisions obhgations. of the Pennsylvania Public Utility Code on the basis that the Under the terms of the coal supply contract, which contin- $64.2 million rate increase was a prohibited temporary rate, ues until December 31,1999 with an option to extend for ten and remanded the case to the Commission. The Company's additional years, the CAPCO companies must reimburse application for reargument with the Supreme Court was sub-Quarto for their proportionate shares of the costs of operat- sequently denied. ing the Quarto mines, including those costs associated with On November 15,1985 the Commission's administrative law ) mine construction, whether or not they receive coal from judge, who had been assigned to the matter on remand, with-Quarto. The Company's total payments under this contract out an evidentiary hearing issued a recommended decision amounted to $29.4 million, $30.7 million and $28.5 million for ordering a refund to the Company's customers of all revenue 1985,1984 and 1983, respectively, collected under the option rate order from July 15,1981 The Company's estimated future minimum payments under through January 28,1982 (approximately $31.8 million), plus the coal supply contract attributable to payment of Quarto's interest. long-term debt and lease obligations as discussed above are: The Company has filed exceptions to the administrative law judge's recommended decision. If such exceptions are denied, Year Ending December 31, the Company will seek a stay of the Commission's order and ffhousands of Dollars) will file an appeal with the Commonwealth Court. 86 $ 8,2h The Company continues to believe that the option order 1987 8.025 rates, even if considered prohibited temporary rates, were at 1988 7,772 all times just and reasonable and that a refund would be inap-1989 7,520 propriate and inequitable. The Company believes that there is 7,267 a reasonable possibility that no refund to its customers will be 1990 miuired and that, if a refund is ultimately ordered, such After 1990 55'447 refund would be based on the difference between the amounts Total $94,308 collected under the option rates and the amounts which the Company otherwise would have been authorized to collect as
, The current price of Quarto coal to the CAPCO companies just and reasonable under the original $100.4 million miuest.
is based principally on the actual current production cost 3 If a refund were based upon this difference, the Company's plus amortization of certam production expenses incurred dur- best estimate is that it would total $13 million, plus interest; mg the development penod. See Note D to the financial however, offsetting credits may be available which could fur-ttatcments. ther reduce any such refund either in whole or in part.
"# ""** " " """"'Y U * ** "
Beaver Valley Replacement Power approving a $31.4 milhon rate mercase for the Company, the In 1981 the Comm.ission found that the Company had not Consumer Advocate has filed an appeal with the Common-proven that the costs of replacement power during the 1979 wealth Court with regard to the recovery of the accumulated outage of Beaver Valley Unit No. I were prudently incurred. construction costs of four cancelled generating units (see In 1982 the Commission ordered refunds of $12.5 million plus Note B to the financial statements) and certain other issues mterest over a two-year period, less a $1 million offset from involving approximately $10 million of operating expenses enother proceedmg. The Company appealed the Commission's allowed by the Commission. While the Company also has filed order and filed an application with the Pennsylvania Common- an appeal, it believes that it is reasonably possible that the wealth Court for a stay of the final order. In 1983 the Com- Commission's order will be upheld by the Court. Argument on monwealth Court granted the application. the appeals has been scheduled for May 1986. The Company does not agree with the Commission's order, Although the outcome of these rate matters cannot be pre-and no provision has been recorded by the Company for any dicted with certainty, the Company's management is of the such refunds. Management of the Company believes that the opinion that it is reasonably possible that their ultimate reso-replacement power costs were prudently incurred and that lution will not have a material effect on the Company's finan-the eventual outcome of this matter will not have a matenal cial position or results of operations. See Management's Dis-effect on the Company's financial position or results of cussion and Analysis of Financial Condition and Results of operations. Operations-Capital Resources and Liquidity-Rate Matters. Rate Matters In 1981 the Company was permitted to increase its rates by e pproximately $64.2 million annually in accordance with an option order of the Commission,in lieu of the $100.4 million s i
= = .. w:- =-~__._L ~
~~
M= 7Duquesne Light Company
- 5 -
fNotes (consues
?NuclearInsurance '
"J.. ; annual tonnage, the Company would 'make up the shortfall .
The CAPCO companies maintain a nuclear insurance program 1(plus a 63,000 ton shortfall in 1982) by purchasing additional v ~ to the maximum extent available. This pmgram currently : tons during the mmaining term of the contract or by extend- -
- pmvides $585 million of primary and excess pmperty insur. ing the term of the contract. This shortfall clause was
_ J ance and $550 million of decontamination liability and excess extended to include 1985 and 1986. % contract also provides - E property insurance coverage for the companies' investment of that any shortfall can be sold to purchasers other than the .
- j $4 billion (at December 31,1985)in Beaver Valley Units Nos. Company. The total shortfall under the contract at December
" ' 11 and 2. The companies also have $500 million of property . 31,1985 was appmximately 717,000 tons.
- insurance for their investment of $5.4 billion (at December 31, . The Commission has directed an outside consultant to per.
H 1985)in Perry Unita Nos.1 and 2. An additional $85 million of form a construction management audit of Beaver Valley Unit
! excess property insurance and $550 million of decontamina- No. 2 to (1) determine whether project costs are reasonable
. tion liability and excess pmperty insurance will become esee- and pmper, (2) review and evaluate the project management tiva for Perry Unit No. I upon commencement of fuel loading,J process for the remainder of the project, and (3) identify
- presently scheduled for 1986. Under the current program, the - opportunities to improve the overall project management.N CAPCO companies are subject to various retrospective pre- Company is unable to predict the results of the audit or what mium adjustments in the event of accxlents at these units or - action the Commission will take after completion of the audit. .
ct certain other utilities' nuclear plants. Based on its curmnt The Ohio Commission has ordered The Toledo Edison Com-interest in one operating nuclear reactor, the Company's . pany (Toledo Edison) to analyze the feasibility of reducing the share of any such assessment would be approximately : CAPCO companies' generating unit construction program and
- $3 million per year. Toledo Edison's participation in it. The Ohio Commission also The Company is also a member of an insurance program - has_ ordered an investigation of the cost of Perry Unit No.1 to J which provides coverage for the expense of purchasing determine whether any such costs are excessive. While the
- replacement power during prolonged accidental outages of Company is not a party to these proceedings, the Pennsylva-
? Beaver Valley Unit No.1. The current policy would provide nia Commission is monitoring the Ohio Commission's investi-the Company with weekly pa ents of up to $670,000 for one gations. Continuation of the CAPCO construction program -
yrar after a deductible pe of 26 weeks, and up to $335,000 ; depends on the continued ability of each CAPCO company to for an additional year. The Company would be subject to a provide its share of the funds required for construction. If retrospective premium of approximately $1.6 million per year any of the companies fails to pay its share, the pmgram could if the insurer's losses exceeded its reserves, be interrupted in whole or in part unless the share is raised The Price-Anderson Amendments to the Atomic Energy - - from among the remaining companies or from another Act limit liability to third parties to $650 million for each source. The Company is unable to predict what further action nuclear incident. Coverage for such liability is provided by the Ohio Commission may take in these proceedings.
$160 million of insurance and $490 million of retmactive The Company is involved in various other legal proceedings.
assessments against each operating nuclear reactor. Based on In the opinion of management of the Company such legal pro-
' its present ownership interest in one operating reactor, the ceedings will not have a material effect on the fmancial posi-Company's maximum potential assessment would be $4.8 tion or results of operations of the Company.
million peryear. Other In connection with coal supply arrangements for its wholly-owned generating units, the Company has contracted with an unaffiliated coal supplier to purchase a minimum of 750,000 tons of coal per year through December 31,1986. In 1983 the contract was amended to provide that if the Company requested deliveries in 1983 and 1984 below the minimum 1 30
J. CAPITAm4T10N December 31,1985 December 31,1984 Call Price Shares Shares Per Share Outstanding Amount Outstanding Amount Co==on Stock-$1 par value (1) 71,488,270 $ 71,488,270 64,774,591 $ 64,774,591 CapitalSurplus:
$907,643,839 $811,446,733 Premium on Common Stock (7,095,109) (7,536,995)
Capital Stock expense 441,857 467,941 Other
$900,390,587 $804,377,679 Total Capitel Surplus
_ Non-redeemable Preferred and Preference Stock: Preferred Stock-$50 par value (cumulative) (1):
$ 51.50 549,969 $ 27,498,450 549,969 $ 27,498,450 4% Series (2) 51.00 150,000 7,500,000 150,000 7,500,000 -
3.75% Series (2) 51.73 140,000 7,000,000 140,000 7,000,000 4.15% Series (2) 51.71 100,000 5,000,000 100,000 5,000,000 4.20% Series (2) 51.75 120,000 6,000,000 120,000 6,000,000 4.10% Series (2) 51.84 100,000 8,000,000 160,000 8,000,000
$2.10 Series (2) 102.50 350,000 17,500,000 350,000 17,500,uu)
$7.20 Series (3)
' Preference Stock-$1 par value (cumulative) (1):
26.00 1,200,000 1,200,000 1,200,000 1,200,000
$2.315 Series (4) 26.40 1,200,000 1,200,000 1,200,000 1,200,000
$2.10 Series (4) 80,898,450 80,898,450 Total 75,238,700 75,238,760 Premium on Non-redeemable Preferred and Preference Stock
$156,137,210 $156,137,210 Total Non-redeemable Preferred and Pmfennce Stock
$155,998,450 $155,998,450 Involuntary Liquidation Value Redeemable Preferred and Preference Stock:
Preferred Stock-$50 par value (cumulative)(1):
$104.00 244,872 8 12,243,000 250,872 $ 12,543,600
$8.64 Series (3) 112.00 276,000 13,800,000 288,000 14,400,000
$8.375 Series (3)
Preference Stock-$1 par value (cumulative) (1): 105.00 232,700 232,700 245,320 245,320
$7.50 Series (3) 26.50 165,000 165,000 192,665 192,665
$2.75 Series (4) 105.76 466,700 406,700 500,000 500,000
$9.125 Series (3) 26,908,000 27,881,585 3
Total 99,250,140 105,354,240 L Premium on Redeemable Preferred and Preference Stock Purchase and Sinking Fund Requirements (6,505,000) (5,821,625)
$119,653,200 $1El,414,200 I .
'Ibtal Redeemable Preferred and Preference Stock
$119,653,200 $127,414,200 Involuntary Liquidation Value
{ (2) $50 per share involuntary liguidation value.
$ (1) Authorized shares: Common Stock-increased from 75,000,000 to 90,000,000 on May 13,1985; Preferred (3) $100 par share involuntary,hquidation value.
i s Stock-4,000,000; and Preference Stock-8,000,000. (4) $25 per share involuntary hquidation value. P c Common Stock Dividends may be paid on the Common Stock to the extent The numbers of shares of Common Stock reserved at Decem- permitted by law and as declared by the Board of Directors, ber 31,1985 for issuance under the Dividend Reinvestment subject to the provisions of the Company's Restated Articles Plan and the Employee Stock Ownership Plans were 3,913,365 which restrict the payment of cash dividends or other distri-and 680,263, respectively, butions on, or the purchase of, its capital stock ranking junior The Company has paid a regular quarterly Common Stock to the Preferred Stock, dividend on January 1, April 1, July 1 and October 1 in each No dividends or distributions may be made on the Common year beginning in 1953 after becoming publicly owned. The Stock if dividends or sinking or purchase fund obligotions on quarterly dividend related to the first quarter of 1984 was the Preferred Stock or Preference Stock are accumulated and paid at the rate of 50 cents per share. Quarterly dividends unpaid. Furthermore, the aggregate amount of junior stock related to the last three quarters in 1984 and to each quarter payments which may be made in any 12-month period are in y I of 1985 were paid at the rate of 51% cents per share. 31 5
Duquesne Light Company Notes (conunuem
. general limited to (1) 50% of net income for any period of 12 than 20% or (2) 75% of net income if the effect would be to consecutive calendar months within the 15 preceding months reduce such ratio to 20% or more but less than 25%. No por-
- if the effect of such payments would be to reduce the ratio of tion of Retained Earnings at December 31,1985 was
- common stockholders' equity to total capitalization to less restricted by virtue of this provision.
i The following summary indicates the changes in the number of shares of Common Stock outstanding during 1985,1984 and Year Ended December 31, [ 1985 1984 1983 i Common Stak: l Shares outstanding at beginning of year 64,774,591 58,419,659 53,276,525 t Issuances: [ Common Stock sales 3,000,000 2,500,000 2,475,000 i Dividend reinvestment plan 3,656,923 3,793,836 2,524,407 i Employee stock ownership plans 56,756 61,096 143,727 Shares outstanding at end of year 71,488,270 64,774,591 58,419,659 I Preferred and Preference Stock a non-cumulative basis retire an additioral 55,000 shares in ! The Preference Stock is entitled to quarterly cumulative each such year. The $9.125 Preference Stock is subject to a i dividends except that no dividends may be paid if dividends on cumulative sinking fund which will retire 33,300 shares on E any series of the Preferred Stock are accumulated and January 1 in each year through 1997 at $100 per share. The unpaid. If six quarterly dividends on any series of Preference Company may on a non-cumulative basis retire an additional i Stock are in default, the holders of the Preference Stock are 33,300 shares in each such year, provided that the Company
- entitled to elect two directors until all dividends in arrears may not redeem through the exercise of this option more than have been paid. an aggregate of 150,000 shares.
i r The Preferred Stock is entitled to quarterly cumulative The $8.64 Preferred Stock is subject to a non-cumulative dividends. If four quarterly dividends on any series of Pre. purchase fund under which the Company offers to purchase [ i ferred Stock are in default, the holders of the Preferred Stock annually up to 6,000 shares at not more than $100 per share. P are entitled to elect a majority of the Board of Directors until The $8.375 Preferred Stock is subject to a cumulative sinking ! all dividends in arrears and current dividends have been paid. fund which will retire 12,000 shares on April 1 in each year at E The outstanding Preference Stock and Preferred Stock gen. $100 per share. The Company may on a non-cumulative basis erally are callable on not less than thirty days' totice at the retire an additional 12,000 shares in each such year. [ E prices stated in the above table plus accrued dividends. Cer. The maximum combined aggregate sinking fund and man-I tain call prices decline in future years. The $9.125 Preference datory purchase requirements for the next five years as of ) series is not red'eemable prior to January 1,1989 through cer. December 31,1985 were as follows: tain refunding operations; however, it is otherwise redeemable [ at $100 plus a redemption premium which decreases from Year Ending Sinking Fund and Mandatory g December 31, Purchase Requirements o $5.76 m 1986 to $.48 in 1997. 1986 $7,805,000 The $7.50 Preference Stock is subject to a non-cumulative [
- m. purchase fund under which the Company offers to purchase 1987 7,805,000 I annually at $100 per share up to 4% of the number of shares 1988 7,805,000 s originally issued. The $2.75 Preference Stock is subject to a 1989 6,430,000 K cumulative sinking fund which will retire 55,000 shares by 1990 6'430'000 August 1 in each year at $25 per share. The Company may on
( The following summary indicates the changes in the number of shares of Redeemable and Non-redeemable Preferred and g Preference Stock outstanding during 1985,1984 and 1983: Year Ended December 31, f Preference Stock: 1985 1984 1983 Shares outstanding at beginning of year 3,337,985 3,426,490 3,533,940 F Purchases and redemptions -$2.75 Series (27,665) (77,905) (94,450) h -$7.50 Series
-$9.125 Series (12,560)
(33,300) (10,600) (13,000) { Shares outstanding at end of year 3,261,460 3,337,985 3.426,400
~
E Preferred Stock: y Shares outstanding at beginning of year 2,108,Mi 2,126,841 2,132,841 2 Purchases-$8X/5 Series (12,000) (12,000) - f -$8.64 Series Shares outstanding at end of year (6,000) 2,090,841 (6,000) 2,108.841 (6,000) 2,126,841 p Gains on the redemption of Capital Stock are recorded in Capital Surplus; losses, to the extent they exceed cumulative gains, are charged to Retained Earnings. L 32 =
Principal Amount Outstanding at
- First Mortgage Bonds (amount authorized is unlimited by indenture): December 31, 1985 1984- , Series due April 1,1986 (3%%) $ 20,000,000 $ 20,000,000' Series due April 1,1988(3%%) 15,000,000 15,000,000 Series due March 1,1989 (434%) 10,000,000 10,000,000 Series due March 1,1991(13%%) - 50,000,000 - 50,000,000 Series due December 1,1992 (10%%) 75,000,000 -
Series due June 1,1995(10%%) 50,000,000 - Series due February 1,1996 (5%%) 22,800,000 22,800,000 Series due February 1,1997 (5%%) 24,000,000 24,600,000 Series due February 1,1998 (6%%) 34,700,000 34,700,000 Series due January 1,1999 (7%) 30,000,000 30,000,000 Series due July 1,1999 (7%%) 28,947,000 28,947,000 Series due March 1,2000 (8%%) 30,000,000 -30,000,000 Series due M .rch 1,2001(7%%) 35,000,000 35,000,000 beries due December 1,2001 (7%%) 26,461,000 26,461,000 Series due June 1,2002 (7%%) 28,470,000 28,470,000 Series due January 1,2003 (7%%) 32,670,000 32,670,000 Series due July 1,2003 (7%%) 35,000,000 35,000,000 Series due April 1,2004 (8%%) 44,100,000 44,100,000 - Series due March 1,2005 (9%%) 50,000,000 50,000,000 Series due June 1,2006 (9%) 80,000,000 80,000,000 Series due April 1,2007 (8%%) 97,400,000 97,400,000 Series due February 1,2009 (10%%) 100,000,000 100,000,000 Series due January 1,2010 (12%%) 60,000,000 60,000,000 Series due September 1,2010 (14%%) - 50,000,000 Series due June 1,2011(16%) 17,906,000 80,000,000 Series due May 1,2012 (16%%) 3,777,000 65,000,000 Series due April l,2013 (12%%) 60,000,000 60,000,000 Series due December 1,2013 (13%) 50,000,000 50,000,000 Series due February 1,2015 (11%%) 39,000,000 - Series due December 1,2015(11%%) 125,000,000 - Total 1,275,801,000 1,160,148,000 Irss: Current maturities-Series due April 1,1986 (3%%) 20,000,000 - Current sinking fund requirements 9,068,910 10,601,480 l Total First Mortgage Bonds 51,246,222,000 $1,149,546,520 in December 1985 the Company redeemed $50 million principal amount of 14 %% First Mortgage Bonds, Series due Septem-ber 1,2010, and i. ,uired through tender offers $62 million principal amount of 16% First Mortgage Bonds, Series due June 1,2011, and $61.2 milhon principal amount of 16%% First Mortgage Bonds, Series due May 1,2012. Funds used to reacquire the bonds were obtained primarily from the proceeds of the ir.suance and sale of $75 million principal amount of 10%% First Mortgage Bonds, Series due December 1,1992, and $125 million principal amount of 11%% First Mortgage Bonds, Series due December 1,2015. The difference between the purchase prices and the net carrying amounts of the bonds in the total amount of $37.9 million has been included in Deferred Debits in the Balance Sheet as " Unamortized loss on reacquired debt." The Company believes it will receive approval from the Commission to amortize and recover the loss from its customers. The Com-pany cxpects to reduce its annualinterest expense as a result of this refinancing. 33
i bbDuquesne Light Co'mpany - '
, LNotes (continued)
. Other Iong-Term Debt: __
7.j Pollution Control Obligations: Serial Maturity PringAmount - Average or Mandatory O
. Date of Interest Redemption - Decemb 1*
_ Final . Issuance Rate Beginning Maturity . 1985 -1984 September 21,1972 5.49% 1983 2(,02 8 22,500,000 $ 23,000,000 - June 21,1973 5.685 % 1984 -2003 11,000,000 11,800,000 October 25,1973 5.755% 1984 2003 15,000,000 15,000,000
' August 13,1974 7.97% 1989 2004~ 14,000,000 14,000,000-- -
April 2,1975 7.50 % 1993 -2005 17,000,000 17,000,000
= - October 29,1975 8.40% 1991 2005- 16,000,000 18.000,000 September 29,1976 ' 6.90% 1904 -2011 15,000,000 : 15,000,000 March 24,1981 12.00% 2002 2011 50,000,000 ~ 50,000,000 -
November 1,1983 10.50 % - 2013 20,500,000 ~ 20,500,000 ' December 19,1984 11.625% - 2014 51,000,000- -51,000,000 October 24,1985 7.75% -- 2015 44,250,000 --- Total 278,850,000 235,300,000
- Less current maturities 700,000 700,000
'Ibtal Pb11ution Control Obligations 278,150,000 234,600,000 Nuclear Fuel Obligations 26,732,384 34,614,888
- 5% Sinking Fund Debentures (authorized-$20,000,000) due March 1,2010 9,104,000 9,169,000 -
Total Other Iong Term Debt $313,986,384 $278,383,888 The pollution control obligations arise from arrangements Sinking fund requirements and maturities for the next five between the Company and governmental authorities whereby years for long-term debt outstanding, exclusive of nuclear. the construction of certain pollution control facilities is fuel obligations, as of December 31,1985 were as follows: financed through the sale of bonds by those authorities, and the Company is obligated to pay to the authorities amounts Year Endin Sinking Fund December 3$, Requirements Maturities equal to the principal of and interest on such bonds. The mterest rate on the $44.25 milhon of pollution control 1986 $10,558,910 $20,700,000 obligations issued on October 24,1985 is fixed at 7%% for the 1987 12,933,910 800,000 five year period ending October 1,1990. After that date, the 1988 13,087,910 15,800,000 interest rate on the bonds will be adjusted annually, unless 1989 13,408,910 10,900,000 the rate is fixed by the Company for the remaining term of 1999 13,4og,910 - 900,000 - the bonds. There is a commitment fee of %% per annum in connection with an irrevocable letter of credit which expires The sinking fund requirements in each year relate primarily on October 15,1990 which is available for the payment of cer- to the First Mortgage Bonds, which requirements may be tain interest on or redemption of the bonds under certain cir- satisfied by the certification of property additions at 166%% of cumstances. The bonds are subject to the right of the holders the bonds required to be redeemed, and the pollution control to tender for mandatory purchase under certain conditions. obligations. The remaining sinking fund requirement relates The Company's sharv of the cost of certain pollution control to the 5% Sinking Fund Debentures. At December 31,1985 facilities at Perry Unit No. I was financed through the issu- sinking fund requirements for the 5% Debentures had been ance of $39 million of State of Ohio 11%% tax-exempt pollu- satisfied for 1986 and 1987, and the 1988 sinking fund require-tion control revenue bonds, Series due February 1,2015, ment had been partially satisfied. which are secured by an equal amount of First Mortgage Total interest costs incurred during 1985,1984 and 1983 Bonds which mature on that date. were $169 million, $152.3 million and $131.2 million, respee. The nuclear fuel obligations result from a trust arrange- tively, of which $115.6 million, $96.7 million and $73.3 million ment for the procurement of a portion of the Company's were capitalized or deferred, including AFC. requirements for nuclear fuel. Interest applicable to the trust b capitalized and included in CWIP, at rates ranging from 1%% to 1%% over the trustee's commercial paper rate. Trust obligations will be paid by the Company as the related nuclear fullis withdrawn from the trust. 34
=g;y =; g. -
- =_
- =_.
. 2_ . - . .
~
.. C , _
H E.~ SUPPIEMENTARY INCOME STATEMENT INFORMATION
-Year Ended December 31,
~~ ~- ~
'1985 1984 -1983
= -
(Thousands of Dollars)
- Maintenance -
870,839 $83,914 $75,947 : re - Amortization of extraordinary property losses 4,025 4,033 6,099 J i Taxes other than payroll and income taxes: Gross mceipts - 38,788 38,349 35,576 . Property 18,491 16,604 14,374 Capital stock - 8,901 8,901 5,501 Insurance and other recoveries . 5,304 - ---
. Under the system of accounting followed by the Company, a portion of maintenance expenses and of taxes other than payroll and income taxes represents amounts charged to coal inventories. The inventory accounts are relieved and operation expense .
charged as the coalis used. In 1985 the Company made a one-time transfer of the excess of insurance and other reimbursements over property losses . from " accumulated depreciation" to "other income". This non-recurring addition to income resulted from action by the Com-mission authorizing the Company to begin to use adjusted book depreciation reserves for ratemaking purposes. This change increased earnings for the year ended December 31,1985 by $5.3 million, or $.075 per share.
- I. QUARTERLY FINANCIAL INFORMATION (Unaudited) -
The f111owing is a summary of selected quarterly financial data (Thousands of Dollars, Except Per Share Amounts): Operating Operating Net Earnings Per Revenues Income Income Share
~ QuarterEnded March 31,1984 $223,590 $50,989 $42,611 $.63
' June 30,1984 219,118 45,301 37,473 .53 September 30,1984 230,640 49,773 42,919 .61 December 31,1984 219,865 39,671 33,700 .45
. March 31,1985 230,772 50,102 45,378 .61 June 30,1985 220,364 48,451 44,493 .59 September 30,1985 238,858 50,168 44,088 .55 December 31,1985 - 224,870 42,396 41,998 .51 During the fourth quarter of 1985, the Company made a one-time transfer of the excess of insurance and other reimbursements over property losses from " accumulated depreciation" to "other income". This non-recurring transfer increased fourth quarter earnings by $5.3 million, or $.075 per share. See Note K to the financial statements.
i 35
'Duquesne Light Company
- ; Notes (continued)
- M. SUPPLEMENTARY INFORMATION 'IV) DISCIX)SE THE EFFECIS OF CHANGING PRICI!E (Unaudited)
The following supplementary information is supplied in operations. The data provided are not intended as a substitute accordance with the requirements of Statement of Financial - for earnings reported on a historical basis. These disclosures
~- Accounting Standards No. 33, " Financial Reporting and may offer some perspective of the appmximate effects of infla-1 Changing Prices." This Statement requires adjustments to tion; however, they do not provide a precise measurement of historical costs to estimate the effects that changes in specific these effects.
prices (current cost) have had on the Company's results of FTATEMENT OF INCOME ADJUSTED FOR CHANGING PRICES
' ForThe Year Ended December 31,1985 (Thousands of Dollars)
Conventional Current Cost Historical Average Cost 1985 Dollars Operating revenues $914,864 $914,864 Fuel 249,212 249,212 Purchased power 4,094 4,094 Other operation and maintenance expenses 216,054 216,054 Depreciation and amortization 81,066 191,316 Taxes otherthanincome taxes 72,614 72,614
- Income taxes 100,7M 100,707 Otherincome and deductions-net (111,850) (111,850)
Interestcharges 127,010 127,010 Total expenses-net 738,9M 849,157 Net income (excluding adjustment of property, plant and equipment to net recoverable cost) $175,957 $ 65,7M
- Increase in specific prices (current cost) of pmperty, plant and equipment held during the year * $167,577 Adjustment of property, plant and equipment to net recoverable cost 14,773 Effect of increase in general price level (179,731)
Excess of increase in specific price level over increase in general prices after adjustment of property, plant and equipment to net recoverable cost 2,619 Gain from decline in purchasing power of net amounts owed 79,483 Net $ 82,102
*At December 31,1985, current cost of property, plant and equipment (exclusive of capitalized leases), net of accumulated depreciation, was $5,370,204, while historical cost or net cost recoverable through depreciation was $3,257,798.
36
- FIVE, YEAR COMPARISON OF SEIEFED SUPPLEMENTARY FINANCIAL DATA ADJUFFED FOR EFFECTS OF CHANGING PRICEE
_ ~ (InTh--ds, Except Per Share Amounts) Year Ended December 31, 1985 1984 1983 1982 1981 Current costinformatiom Income from continuing operations (excluding adjustment of property, plant and equipment to net recoverable cost)(1) $65,707 $50,099 $48,353 $25,435 $25,294 Income (loss) per share from continuing operations (after dividend
- requirements on preferred and preference stock)(1) 8.65 $.45 $.43 -
$(.04)
Excess of increase in general price level over increase in specific prices after adjustment of property, plant and equipment to net recoverable cost $(2,619) $(3,347) $2,865 $(256) $130,102 Net assets at yearend at net recoverable cost $1,151,251 $1,000,702 $1,034.607 $967,372 $898,058 Generalinfo.Tdium Gain from decline in purchasing power of net amounts owed $79,483 $74,674 $73,110 $69,219 $159,809 Cash dividends declared per share of common stock $2.06 $2.13 $2.16 $2.11 $2.18 Market price per share of common stock at year end $16.25 $15.66 $14.57 $16.44 $15.68 Average consumerpriceindex 322.2 311.2 298.5 289.1 272.4 Histo ical basis. Operating revenues $914,864 $893,214 $810,816 $775,148 $792,479 Cash dividends declared per share of common stock $2.06 $2.06 $2.00 $1.90 $1.85 Marketprice pershare atyear-end $16.25 $15.125 $13.50 $14.75 $13.25
/lbns of proven and probable coal reserves at beginning of year 22,000 23,200 25,100 26,300 28,100 Tonsef coalmined 819 860 785 942 680 Average cost per tan of mined coal 835.12 $34.65 $36.59 $31.62 $35.10 (1) Amounts for 1982 are before extraordinary gain.
The current cost of property, plant and equipment, which The Company, by holding assets such as receivables,
. includes land, land rights, intangible plant, property held for prepayments and inventory;affers a loss of purchasing power future use, construction work in progress and nuclear fuel in during periods of inflation because the amount of cash received process, represents the estimated cost of replacing existing in the future for these items will purchase less. Conversely, by plant assets and was determined by indexing surviving plant owing monetary liabilities, primarily long-term debt, the Com-by the Handy-Whitman Index of Public Utility Construction pany benefits because the payments in the future will be made Costs. The current cost of property, plant and equipment does with nominal dollars having less purchasing power. The Com-not include capitalized leases. The current year's provision for pany has significant amounts of long-term debt outstanding depreciation and depletion of the current cost amounts of prop- which will be paid back in dollars having less purchasing power erty, plant and equipment was determined by applying the and, therefore, for purposes of these calculations has a net Company's composite depreciation and depletion rate to the gain from holding monetary liabilities in excess of monetary indexed plant amounts. assets.
' Fuel inventories, the cost of fuel used in generation, and pur- The regulatory process limits the amount of depreciation chased power have not been restated from their historical cost expense included in the Company's revenue allowance and lim-in nominal dollars. Rate regulation limits the recovery of fuel its utility plant in rate base to original cost. Such amounts pro-and purchased power costs through the operation of adjust- duce cash flows which are inadequate to replace such property ment clauses or adjustments in basic rate schedules to actual or preserve the purchasing power of common equity capital costs. For this reason fuel inventories are effectively monetary previously invested. While this eifcet is partially mitigated by assets. the benefit derived from holding long-term debt, the Company As prescribed in Statement 33, income taxes were not has a net purchasing power loss which is experienced by the
! adjusted. common shareholders and can only be overcome by adequate The regulatory process limits the Company to the recovery rate relief.The Company will continue to seek rates which will of the cost of service in its rates. Therefore, any excess of the ultimately recover the increased costs of new plant. 3 valu] of plant at current cost must be reduced to the net recoverable cost, which is historical cost. The amount of this i cxcess that accumulated as a result of inflation in the current year must be reduced to net recoverable cost. l l l 37
, __ _. =
: z
9= J Duquesne Light Company - . . kSelected Financial Data and Statistical Summary
- 11 J~ Ihousands of Dollars, Except Per Share Amounts) 1985 1984~ 1983 1982 1981 1980 h
SUMMARY
RESU13SOFOPERATIONS: f Residential revenues -
$286,280 $280,647 $267,110 $238,496 $223,146 $196,400 i Commercial revenues -335,012 314,129 290,370 263,374 243,501 209,871
- Industrial revenues 225,692 - 244,970 221,107 225,292 300,066 250,295 -
, - Other revenues 21,851 22,029 21,758 19,300 19,516 18,178 Total revenues from customers 888,815 861,775 800,345 746,462 786,229 674,744
" Revenues from other utilities 46,049 31,439 - 10,471 28,686 6,250 - 5,502
=_ Totaloperating revenues 914,864 893,214 810,816 775,148 792,479 680,246
~
. _ Operation and maintenance expenses 469,360 462,403- 396,857 428,213 - 441,839 386,475
~ Depreciation and amortization - 81,066 - 77,532 73,682 62,939 60,854 53,316
~
. Taxes other than income taxes 72,614 70,279 60,651 57,476 57,694 47,637
-Income taxes - 72,440 74,600 76,194 53,307 57,801 50,643
- Interest borrowedcha$es net of allowance fornds127,010 used during construction 116,333 109,161 100,344 92,968 75,629 Other income, principally allowance for equity funds used during construction 83,583 64,727 50,955 44,328 28,086 26,749 Income from continuing operatians before extraordinary gain 175,957 156,794 145,226 117,197 109,409 93,295 Imss from discontinued steam heating operations - - - 9,924(1) 538(1) 333(1)
~ Income before extraordinary gain 175,957 156,794 145,226 107,273 108,871 92,962 Extraordinary gain - - -
9,609(2) - - Net income 175,957 156,794 145,226 116,882 108,871 92,962 Dividends on Preferred and Preference Stock 21,250 21,955 22,411 22,701 22,976 23,353 Earnings for Common Stock $154,707 $134,839 $122,815 $ 94,181 8 85,895 $ 69,609 Average number of common shares outstanding (000) 68,543 61,054 55,883 48,236 41,764 38,267 Earnings per share of Common Stock: , Income from continuing operations $2.26 $2.21 $2.20 $1.96 $2.07 $1.83 Earnings for Common Stock 2.26 2.21 2.20 1.95 2.06 1.82 Dividends declared on Common Stock 2.06 2.06 2.00 1.90 1.85 1.80 Property, plant and equipment $4,188,993 $3,799,499 $3,293,481 $3,024,554 $2,809,753 $2,604,333 Accumulated depreciation and amortization 748,800 659,745 555,641 504,680 477,009 424,653 Property, plant and equipment-net $3,420,133 $3,129,754 $2,737,840 $2,519,874 $2.332,744 $2,179,680 Total Assets $3,854,468 $3,530,310 ^ $3,145,811 $2,883,424 $2,668,577 ' $2,447,163 (1) loss from Company's steam heating subsidiary which discontinued steam service effettive May 31,1983. (2) Extraordinary gain of $9,609,000, or $.20 per Common Share, resulting from the exchange of 1,406,898 shares of Common Stock l for approximately $29,852,000 prmeipal amount of First Mortgage Bonds. 38
5
. . +
1985 1984 1983- 1982 1981 1980
.CAPrFAIRATION:
'8 71,488 $ 64,775 $ 58,420 $ 53,277 $ 45,303 $ 40,166
~ _ Common Stock J Capital Surplus 900,391 804,377 724,147 649,376 550,244 494,228 ,
165,340 163,705 155,102 I - f. Retained Earnings 197.952 184,313 175,938 L Non-mdeemable Preferred and Preference . 156,137 156,137 156,137 156,137 156,137 156,137
-Stock 119,653 127,414 134,979 140,829 143,924 146,867 Redeemable Preferred and Preference Stock
. First Mortgage Bonds 1,246,222 1,149,547 1,100,147 1,006,637 983,870 918,230 313,986 278,384 234,019 199,934 176,682 126,981
; Other long-term debt L Unamortized debt discount and premium-net t9,209) (10,896) (10,967) (9,488) (9,453) (7,161)
$2,996,620 $2,754,051 $2,572,820 - $2,362,042 $2,210,412 $2,030,550 Total capitalization AVERAGE REVENUE PER KIII)WA'IT-HOU"-ALL CUS'IV)MERS 7.832, 7.389, 7.215v 6.708v 5.715v 5.019v SAIB OF EIKTRICITY:
Average annual residential kilowatt-hour use 5,621 5,768 5,752 5,668 5,698 5,770 - Electne energy sales billed (millions of kilowatt-hours): 2,848 2,918 2,905 2,853 2,858 2,876 Residential , 4,537 4,393 4,257 4,163 4,069 4,024
- Commercial 3,522 4,148 3,717 3,902 6,582 6,272 Industrial 101 104 111 120 125 129
- Other 11,008 11,563 10,990 11,038 13,634 13,301 Total sales to customers 1,981 1,019 327 917 206 175 Sales to other utilities 12,989 12,582 11,317 11,955 13,840 13,476 Total sales ENERGY SUPPLY AND PRODUCTION DATA:
Energy supply (millions of kilowatt-hours) 13,590 12,983 11,900 12,352 13,914 13,485 Net generation system plants 184 216 163 228 616 716 Purchased and net inadvertant 13,774 13,199 12,063 12,580 14,530 14,201 Total energy supply Imses and Company use (785) (617) (746) (625) (690) (725) 12,989 12,582 11,317 11,955 13,840 13,476
- Net energy supply 3,148 3,148 3,148 3,144 3,177 3,179 Generating capability (thousands of kilowatts) 2,127 2,172 2,184 2,158 2,522 2,474 Peak load (thousands of kilowatts)
Cost of fuel per million BTU 168.450v 165.868v 167.140s 167.865v 159.660s 149.768v 10,633 10,682 10,635 10,853 10,931 10,811 BTU per kilowatt-hour generated Average production cost per kilowatt-hour 2.4624 2.559, 2.541, 2.575v 2.354v 2.202e_ NUMBER OF CUSTOMERS-At End of Year: 507,824 506,883 505,781 503,987 503,044 500,466 Residential 49,927 49,837 49,493 49,320 48,859 48,308 Commercial 1,981 1,990 1,984 1,999 2,016 2,005 Industrial 1,817 1,588 1,633 1,647 1,713 1,725 Other 561,549 560,298 558,891 556,953 555,632 552,504 Total customers 2
3 -
- _NDuquesne Light Company -
RManagement's Discussion m ;and Analysis of Financial
~
Condition and Results-
=
#of 0perations:
=
CAPITAL Rl!BOURCES AND LIQUIDITY Funds provided to the Company under its Dividend Rein-Construction vestment Plan in 1985 amounted to $54.4 million, and an addi-
- Construction expenditures dur:ng 1985, exclusive of allow- tional $12.7 million was reinvested on January 1,1986.
lance for funds used during construction (AFC) and nuclear Portions of the net proceeds from these transactions were
' fuel, wem $245 million. These expenditures were primarily used to pay short-term indebtedness incurred principally for
. for the construction of two CAPCO generating units, Perry construction purposes, and the balance is being applied to -
~ Unit No.-1 and Beaver Valley Unit No. 2, in addition to construction expenditures. The Company anticipates at this improving and expanding production, transmission and distri- time that a majority of the funds required for its 1986 con-
. bution systems and pollution control equipment. struction program will come from outside financing.
The Company curmntly estimates that it will spend, In addition to the above financings, on December 18,1985 cxclusive of AFC and nuclear fuel, $198, $124, $98, $100 and the Company sold $75 million of 10%% First Mortgage
. $103 million for each of the years 1986 through 1990, respec- Bonds, Series due December 1,1992, and $125 million princi-tively.The foregoing estimates assume that construction of pal amount of 11% First Mortgage Bonds, Series due Perry Unit No. 2 will not resume during this period. See Note December 1,2015. Proceeds from these sales were used,~
..I to the financial statements. together with other funds, to reacquire $173.2 million princi-The amount which the Company must spend for its con- pal amount of the Company's outstanding high-interest First struction program is reviewed regularly and is subject to Mortgage Bonds originally issued in the early 1980's. The -
changes influenced by business and economic conditions and Company expects to incur lower interest costs as a result of other factors, such as escalation of labor, material and equip- this refinancing. See Note J to the financial statements. ment costs, rate of construction progress, the development of The Company finances its nuclear fuel requirements pri-environmental and nuclear safety regulations, service reliabil- marily by leasing and other arrangements pursuant to which ity and system efficiencies. In addition, this review must con- it may finance up to $208 million of nuclear fuel. As of
- sider difficulties ir obtaining rate increases sufficient to gen- December 31,1985 the Company's share of the cost of crate adequate earnings, possible changes in load growth nuclear fuel financed under these arrangements was $169 trends and, in the case of the CAPCO construction program, million, including interest, storage and other costs.
the ability of each of the CAPCO companies to finance its In addition to the funds required for the construction pro-capital requirements, gram, $7.8 million was required in 1985 for maturities of long-term debt and sinking fund and purchase requirements. Financing It is anticipated that $28.5 million will be required in 1986 for The Company anticipates that funds for planned construction similar purposes. cxpenditures in the next several years will be provided from Interim financing will be through bank borrowings and cash becoming available from operations and from the issu- sales of commercial paper. See Note C to the financial state-ance of additional equity and debt securities to the extent ments for short-term borrowing and revolving credit arrange-
. required. ments. Variable market nnd general economic conditions may On March 21,1985 the State of Ohio issued $39 million of affect the Company's selection of financing alternatives and 11%% pollution control revenue bonds, Series due February its ability to raise capital. In order to maintain earnings ade-1,2015, to finance the Company's share of the cost of certain quate to finance construction expenditures and funding pollution control facilities at Perry Unit No.1. The bonds are requirements, the Company requires rate increases sufficient secured by an equal principal amount of the Company's First to offset increased costs and provide a fair rate of return to Mortgage Bonds. its stockholders.
On June 20,1985 the Company issued and sold 3 million The Restated Articles of the Company require that as a chares of Common Stock. Net proceeds from the sale of Com- condition for the issuance of Preferred Stock, earnings (after mon Stock were $47.6 million. Also on June 20,1985 the Com- income taxes) available for interest charges be at least 1.5 pany sold $50 million of 10%% First Mortgage Bonds, Series times the sum of interest charges on all indebtedness plus due June 1,1995. Preferred Stock dividend requirements. This restriction cur-On October 24,1985 the Beaver County Industrial Develop- rently precludes the Company from issuing Preferred Stock. ment Authority issued $44.25 million of 30-year adjustable There is no similar restriction upon the issuance of the Com-fixed-rate pollution control revenue bonds to finance the Com- pany's Preference or Common Stock, pany's share of the cost of certain pollution control facilities tt the Beaver Valley Power Station. See Note J to the finan-cial statements. 40
m L 1%rry Unit No.2 - . believes that there is a reasonable possibility that no refund L h March 1984, the CAPCO companies agreed to minimize to its customers will be required and that, if a refund is construction work and cash expenditures on Perry Unit No. ultimately ordered, such refund would be based on the differ-
- 2. The CAPCO companies presently are reviewing their ence between the amounts collected under the option rates options with respect to the completion of the Unit. The alter- and the amounts which the Company otherwise would have natives include resumption of construction, with a new esti- been authorized to collect. If a refund were based on this dift _
imated cost and completion date, or cancellation. It is not cer- ference, the Company's best estimate is that it would total
- tain when this decision will be made. If it is ultimately $13 million, plus interest; however, offsetting credits may be determined to cancel the Unit, the Company would seek reg- available which could further reduce any such refund either
- ulatory approval for the recovery from its customers of its in whole or in part. See Note I to the financial statements.
investment in the Unit ($154 million at December 31,1985), Also during 1985 the Company reached an agreement with
- together with any related cancellation costs. the Commission, the Consumer Advocate and other parties on The Company has been accruing AFC during the construc- a settlement of the Company's request for an increase in
- tion period. Beginning July 1,1985 the Company began pro- rates which was filed in May 1985. The settlement permitted 1 viding a reserve against subsequent AFC accruals on the the Company to increase its rates by $10.8 million or 1.2 per-Udt =:ilmnstruction is resumed. This deferral amounted to cent annually effective November 1,1985. The Company had JT.0 men i-igt 1985 and is estimated to be $15.2 million in sought an increase of $54.3 million or 6.4 percent. -
- 198G. This deferrabf AFC did not affect cash flow, but it c-duced reported ear tings by $7.3 million, or $.11 per share, Extraordinary Property Losses in 19M. Saa Eta ! u) the financial statements. In 1983 the Commission approved the recovery of the Com-pany's share of the accumulated construction costs of four Rate Matters cancelled CAPCO generating units from its customers, but In 1981 the Company was permitted to increase its rates by did not allow any return on these costs. Petitions for allow-
$64.2 million annually in accordance with an option order of ance of appeal filed by the Consumer Advocate and certain the Commission. In 1982 the Ccmmission adopted its final intervenors with the Pennsylvania Supreme Court are pend-order in the rate proceeding which determined that the option ing. See Note B to the financial statements.
rate increase of $64.2 million was just and reasonable. In
-1984 the Pennsylvania Supreme Court ruled that the Com. Deferred Coal Costs mission's 1981 option order was invalid under the applicable In a 1981 Interim Order, the Commission directed that the provisions of the Pennsylvania Public Utility Code on the Company limit its recovery of the cost of Quarto coal through basb that the $64.2 million rate increase was a prohibited its energy cost rate to approximately the prevailing market temporary rate, and remanded the case to the Commission. price of similar coal rather than the actual cost of Quarto In 1985 the Commission's administrative law judge who coal. Pursuant to such Interim Order and a Final Order had been assigned to the matter recommended that the Com- entered in September 1984 the Company is deferring the pany refund $31.8 million, plus interest, to its customers. The excess of the actual cost of Quarto coal over the cost being Company has filed exceptions to the administrative law recovered through its energy cost rate. See Note D to the ' judge's recommended decision. If such exceptions are denied, financial statements.
the Company will seek a stay of the Commission's order and will file an appeal with the Pennsylvania Commonwealth Beaver Valley Replacement Power In 1981 the Commission found that the Company had not Court. If the Commission confirms the administrative law judge's proven that the costs of replacement power during the 1979 recommended decision, the Company's management, its outage of Beaver Valley Unit No. I were prudently incurred. In 1982 the Commission ordered refunds of $12.5 million plus counsel and its independent auditors will have to consider the effect cf such an action on the Company's financial interest over a two year period. The Company has appealed the Commission's order to the Pennsylvania Commonwealth statements. The Company continues to believe that the option order Court. See Note I to the financial statements. rates were at all times just and reasonable and that a refund would be inappropriate and inequitable. The Company 41
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= =:.- : -- (hAccountingMatteed N k N1 ~ mission does not allow these deferred costs to be^completelyi 2 Mf In December 1985 the Financial Accounting Standards Board - recovered within 10 years, the proposed changes to State-MM MM(FASB) issued Statement'No. 87 which provides for changes - ment 71 would require the Company to' expense immediatelpF ~ W G in_the way companies recognize and measure retirement i ~ all such deferred costa. If the Commission were to disallow aW M2~icosts,"mquires some bmployers to record liabilities.for benefit ; portion of the costs of the new units from rate base, the pro-M yiMobligations and specifies additional pension' disclosures to be . 7 posed amendments would require the Company to mcord as aE
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QfMiffective for the Company in 1987.The Company has not'yet : Additionally, the CAPCO companies have not yet reached a 5 9-M determined the. impact of the Statement on its financial state- - decision as'to the future of Perry Unit No. 2 (see Note I tok i Mgments; however,' management of the Company expects that . the financial statements). If it'were decided to cancel theT M f=H4 the new accounting rules will not have a material effect on its- Unit, the proposed amendments would requi e the Company? 7 m financial position or results of operations. to w rite down its $154 million investment in the Unit to thel
- 54. = The FASB has also proposed amendmerits to Statement - _ amount determined by the Commission to be recoverable - _
W 1No_71 which would require regulated enterprises to write . through future rates. If the Commission were to disallow a : @ M down the carrying value of certain abandoned assets. The return on the unamortized balance, the investment would bei
=M51 proposed amendments wouki also restrict companies' ability -
further adjusted to reflect the discounted ve.lue of the futureb 7 mf to capitalize operating costs of new plants brought into rate - revenues related to the recoverable amount. Both of these L-f 4 { base under phase-in plans. Additionally, the proposal would - adjus'tments to the Compan/s investment wouki have an ' R
~
mM mquire utilities to mcognize as a loss any costs of a new . immediate hepact on earnings but wobid not affect cash flow. 5 plant disallowed from rate base. The amendments, if It is uncertain what actioh the Commission will take with 4 1 JJ f approved,- would be~ effective in 1987 and would apply to all - respect to these issues.'further, the proposed amendments tdc_ + a then-existing and future phase-in plans, abandonments and - Statembnt 71 have not yet been appmved by the FASB, and .
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a - : : disallowances. _ _ ~ the proposal could be modified prior to its becoming effective. ~ LIf the proposed rules had been in force during 1985, they . . Because of allof these uncertainties,~the Company.is_ unable ? ~
- would have required the Company to adjust the carrying . to predict what effect,if any, these propwals will have on thei _
=a vzlue of its unrecovered investment of $28.5 million in four . Company's financial statements.
~
L ~ : cencelled generating units and the Shippingport Atomic .
,x = : Power Station (see Note B to the financial statements) to the Outlook ~
7
- Idiscounted value of future revenues expected to recover the The extent to which funds from operations will continue to be ~
M ! balance of such investment. Because this adjustment w6uld available to pay dividends and finance the Company's capital:
. neess depends upon its financial condition, earnings, business 1 e have been recorded retroactively, the Company's Retalried 3
? Earnings as of December 31,1985 would have been reduced - prospects and other relevant factors. The Company is con- _
- j by approximately $8 millien. It is estimated that such an - ' cerned about possible unfavorable decisions in rate-related
; 1 adjustment would not have had a significant effect on 1985's- proceedings (see Notes B, D and I to the financial state-
- earnings 7 . . .
i ments), proposed changes in accounting principles (see "Ac-i
. The Company is entering into the final stages of its curre' n t counting Matters" above), the erosion of its industrial load,
~
construction program and will be filing requests with the the demarx! for electriciti as compared to the Company's .
~
. Commission to recover the costs of the Company's invest. available~ generating capacity, and other problems which the
- : ments in Perr3 Unit No. I and Beaver Valley Unit No. 2. It is electric utility industry is experiencing in bringing new g ner.
- likely that the Company will request the Commission to grad. ating capacity on line and fully into rate base. -
- ually al!ow the inclusion of these units into rate base in order These issues could significantly affect the Company's cash
* - to avoid sudden large increases in rates. Such phase-in plans flow and earnings. The, Company's management is consider-will require certain operating and capital costs to be deferred ing various business an'd financial strategies in onier to - -
and included in rates in later years. These plans will have the widgas these concerns. effect of deferring cash from operations to subsequent periods and will, therefore, increase the Company's reliance - - on other sources to satisfy its cash requirements. If the Com-9e
. 42 '
=
. + - - .
- REBUI2S OFOPERATIONS to 1984 because of the scheduled maintenance and refueling Operating Revenues . .
outage of Beaver Valley Unit No.1 which occurred during -- Operating revenues increased (decreased)in the years 1983. 1984. These expenses increased in 1984 as compared to 1983 -
- through 1985 over the respective preceding years, for the fol- because of increases in various generating outage expenses. - 7--
lowing reasons: 1965 ~ 1984 1983 Taxes other than income taxes increased in 1984 compared to M (Millions of Dollars) 1983 primarily due to increased state gross receipts taxes, - ~1
- General rateincreases 8 27.3 $ 26.9 $ 88.4 which vary in direct relationship to revenues from sales to ~- .
customers, and as a result of increases in state capital stock - Electrical consumption (19.4) 12.8 (10.0) and public utility realty taxes principally relating to legislac
. Energy clause revenues .6 18.3 (31.0) tive changes implemented in 1984. Fluctuations in income St~te tax adjustment and other (1.4) 3.4 6.5 taxes were primarily due to changes in taxable income. The effective income tr.x rate for 1985,1984 and 1983 was 29%,
Revenues from other utilities 14.6 21.0 (18.2) 32% and 34%, respectively. See Note E to the financial - Total $ 21.7 8 82.4 $ 35.7 - 1-statements.
=
Other
~
- The operating revenues of the Company are based on rates
- authorized by the Commission. These rates are designed to The increases in allowance for equity and borrow-! fus ---
- recover the Company's operating expenses, plus a rate of used during construction were primarily due to the increased cost of construction. These increases were partially offset by return on the investment in utility rate base. The Company also has an energy cost rate which generally allows it to a $7.3 million deferral of AFC on Perry Unit No. 2 which -
recov;r the difference between actual fuel costs and fuel began July 1,1985. See Note I to the financial statements.' costs included in base rates. Any overcollections of revenues During the fourth quarter of 1985, the Company made a are refunded, with interest, to customers. one-time transfer of the excess of insurance end other . In 1985 the Company was permitted rate increases in Jan- reimbursements over property losses from " accumulated uary and November whkh were estimated to increase annual depreciation" to "other income". This non-recurring transfer revenues by $31.4 million and $10.8 million, respectively. In increased fourth quarter earnings by $5.3 million, or $.075 c 1983 rate increases were permitted in January and Septem- per share. See Notes K and L to the fmancial statements. .. E ber which were estimated to increase annual revenues by The increases in other income and deductions-net in 1985 .
. $106 million and $21 million, respectively. See Note I to the and 1984 were primarily due to increases in interest income - - financial statements. which resulted from increases in cash available for temporary' The decrease in electrical consumption in 1985 was primar- investments. Interest expense for 1985,1984 and 1983 was ily due to a decrease of 15% in kilowatt hour sales to indus- higher due to increased borrowings to finance the Comnany's trial customers. Favorable capacity situations and the capital expenditures.
requirements of neighboring utilities resulted in increased The Company has prepared information on the effects of 2 sales to other utilities in 1985 and 1984. inflation and changing prices as prescribed by the FASB. Such information has been included in Note M to the financial Operating Expenses statements. Total operation expenses (fuel, purchased power and other operation) increased in 1985 sa compared to 1984, primarily Earnings Per Share 1 due to the increased generation of dectricity which resulted The increases in earnings for Common Stock for 1985,1984
' from substantial increases in sales to other utilit;es. This had and 1983 were due to the factors discussed above; however, - the effect of increasing expenses even though kilowatt-hour earnings per share of Common Stock were adversely affected ? sales to customers decreased. Total operation expenses by increases in the average number of shares outstanding, increased in 1984 as con pared to 1983 due to increases in which reduced earnings per common share by 8.27, $.20 and def rred energy expenses, increased generation of electricity $.35, respectively.
and increased administrative and general expenses, including a one-time charge of $5 million for an early retirement pro-gram. Maintenance expenses decreased in 1985 as compared 4 43
- = .
+
- - m BUSINESS 0FTHECOMPANY FEDERALINCOMETAXSTATUS0F CAPCO
- Duquesne Light Companyis engaged - : COMMONS'IDCK DIVIDENDS In 1967, Duquesne Lightjoined four in the production. transmission, distri- Duquesne Light expects all dividends otherelectric utilities to form the
- - butionandsaleofelectricenergy.The paid on Company stock durir.g 1985 will Central AreaIbwerCoordination ~~
Company serves an areaof approxi- be fully taxable, flowever, eli/ible indi- - (CAPCO) group.
~~ ~ mately 800 square milesin Allegheny viduals who participated in our Dividend Prior to 1980,10generatingunits and Beaver counties. This area, which Reinvestirent Plan during the year may werecommitted under theCAPCO. .
includes the City of Pittsburgh, is 10- . elect to exclude from incoms, for federal arrangements, which provided forjoint -
- cated in Southwestern I%nnsylvania - tax purposes, up to $750 of the dividends ownership interests based on individual _
and has a population of about 1,430,000. reinvested ($ 1,500 in the case of a joint requirements. 'Ib date, seven units are - The executive offices of Duquesne return). in service and three units are under _ Light arelocated at: construction. Duquesne Light shares _ _ OneOxfordCentre FDRM 10-KOFFER in the ownership of nine of theCAPCO : 301 Grant St. If you are a holder or beneficial owner - units. . Pittsburgh, PA 15279 of any class of the Company's stock as Since 1980,each CAPCOcompany -
- Duquesne Light Companyisan Equal of Feb. 26,1986, the record date for the hasbeenresponsibleforestablishing , _ ; _
i Opportunity Employer. 1986 AnnualMeeting, the Company its own level of reserves and generating : willsend you, upon request and at no . capacity needs beyond thejointly-SERVICE AREA MAP charge, a copy of the Company's Annual owned units still under construction. Report on Form 10-K filed with the Duquesne Lght has ashareinthe
$ Securities and Exchange Commission CAPCO unitslisted below:
~ et ~
for the year 1985(including alistof ( exhibits). All requests must be made * $ %e T tcom w ,,
- inwritingto: Nuclear-1 6 Nuclear-1 78*
k Corporate Secretary (17-6) 8 d 8 ( @*[*gtY4j;",000 D LKWQ : @*[*o,Y4,$
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Duquesne Light Company D.L Share: 385 Share: 114 One Oxford Centre *Itansylvania PowerCompany 4'
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i 301 Grant St. $$9T# L c
. Pittsburgh, PA 15279 canacav:7so.cooKw capacar:780.cooKw - -
D L ownarship 29 3% > D L Uwnership: 8 U% . D.L Share: 22s, KW: D L Share: 62,000 KW -
. TRANSFER AGENT AND REGISTRAR
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g Common, Preference and Prefernxl gg g, s Stock. p.g owner 3 nip:33.745 y The FirstJersey NationalBank D L share i10.000Kw _ _ _ 5 Jersey City, NewJersey *0hio Edison Company - FAvgTft --
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$ ANNUALMEETING0FSIDCKHOLDERS ${y l'onmod 87 Y The AnnualMeetingof Stohkholders @t n*,,"."$P$N r 24 will be held at 10 a.m. , Pittsburgh time, *The Cleveland Electric
__ _-_a , f.e w on'lhesday, April 22,1986, in the David niuminati gCompany
,-1. ni L. Lawrence Convention Center, Pitts- Q,7,l'_igge. .
1975-1985DIMENSIONSMAGAZINE burgh,Ibnnsylvanii capacity: 1.20s.000 Kw - car acity; i.206.000 Kw In mid year 1986, the Company plans to The approximate numberof holders PM*g g3QS @grs,hgig4sw - publish Duquesne Light DIMENSIONS, f Common Stock as of the Feb. 26,1986 - ,, ,3
- containing in-depth information con-
- M*#* g i{yG43,ooggw
, 4' -
cerning the Company. DIMENSIONS D L ow nership: 3i.2s will include an 11-year statist ical re. D L ShaCO2 000 KW . view and a discussion of some of the im- . % g hg g g " W "7 portant issues affecting Duquesne Light * 'construcuon schedule under review Company. Fbra copvof DIMENSIONS
- write:
Duquesne Light Company Corporate Communications (30-5) One Oxford Centre 301 Grant St.
- Pittsburgh.PA 15279 f
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- On DeE 17,'1985."the Board of Directors FH : elected Wesley W. von Schack a Director. _ Lawrence P. Gah.e-ass 2stant Drasurrr
=~ ? MemberofAudit Committee r -- _
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. Ot MemberofCompensationCommittee . . .- - - .
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- MemberofEmploymentandCommunity: ~ Joan S. Senchyshyn 1:
'AssistantSecrriary L . IklatbnsCommittee = - . '-'
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. Jh&=l ;=: :" - AssistantSern'tary _
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*On Dec.17,1985, the Board of Directors r O.m _-- :J= = " elected Wesley W. von Schack President. -
_ ,- ; n r __,g _ effective Jan 1.1986. In addition, the Board - designated Mr. von Schack Chief Executive =~55ErZ-G g;; =. - - -
- - . Officer. Mr. von Schack previously was
- - m -
Vice President, Finance Gmup. f 1~b '. 7#:== * *On Oct. 22.1985, the Board of Dirretors 3- - ciected Gary L. Schwass Treasurer. Prior L 7mr :p _ - . q. = = _ . . _ , m- to this appointment, Mr. Schwass was Executive Director of Financial Planning f 4- ~ :: =~ and Pmjects for Consumers R wer Company ofMichigan..
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$MId nyfa %# W @ entre One Oxford C Pittsburgh, PA 15279 Pittsburgh, PA I&rmit No.1125 4
f I t Ein D m , OHIOEDISON AnnualReport 1985 t w. i I V*" :
Chio Edison Cystem The Ohio Edison Systern is the 17th laryjest in vestor-owned electric system in the United States, based on total kiloucatt-hour sales. It in-cludes the Ohio Edison Company, headquartered in Akron, Ohig and theIbnnsylvania Itnrer Com-pany, in New Castle, Ikunsylvania. 7bgether; the Companies pmoide electric service to more than 987,000 customen within an arta of ap-pmrimately 9,000 square miles in central and northeastern Ohio and western Iknnsylvania. l l l l l
Financial Highlights l l For the Years Ended December 31 1985 1984 Change (In molhons except per st'are amounts)
- Kilowatt-Hour Sales 28,885.7 26,764.2 +7.9%
l Operating Revenues $1,754.7 $1,637.1 +7.2% l Fuel Expense 499.2 422.8 + 18.1% l Operating income 380.4 342.7 + 11.0% Allowance for Funds Used During Construction, Net 287.7 256.9 + 12.0% t Interest and Other Charges 410.2 371.6 + 10.4% Net income 370.7 339.3 +9.2% Earnings on Common Stock 318.1 290.7 +9.4% Earnings per Common Share $2.45 $2.50 -2.0% Dividends per Common Share" $1.88 $1.84 +2.2% j l Dividends on Capital Stock $297.1 $263.0 + 13.0% ; Capital Expenditures: Construction of Facilities $765.6 $800.4 Nuclear Fuel 52.8 60.8 Other Capital Leases 8.6 6.9 ,
$827.0 $868.1 -4.7%
internally Generated Funds 265.8 222.1 + 19.7% [ Net Financing Activities 507.0 581.6 - 12.8% Return on Average Common Equity 15.2% 15.9 %
- The quarterly dmdend was oncreased to 48 cents per share ($192 on an annual bases) l begrnning with the dmdend payable on March 31,1986 Retum on Average Operating Revenues Emmings per Share Common Equity (In haltions)
E Extraonlinary E Onlinary _ _ _ _5M _ _ _$3e" _ _ _ _15" i JI>0 II) 1
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' j I'O 3 3 President's %tessage ! ! , j _ _ _ _ _.3 s 1
{ , 4 lu view of Op rattons ;
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4 18 FinarmialIh view - t 1 ! j 3 ' ' l O O " , 40 Stakholder information 41 ihnrtors and Stanagement 198119M 1981-19M 1981-19 0 1
Prcsid:nt's Massago g generation, which we expect effects on our sales, we are later this year, we will begin aggressively working to in-
, receiving nearly $42 million crease our overall sales base.
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through electric mtes to Pricing incemives and other cover a portion of financing progmms, combined with
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costs for our ownership share. The Public Utilities some improvement in our area economy, added more Commission of Ohio estab- than $35 million of new busi-N. , lished this initial recovery ness ta our 1985 revenues. Yk plan for us when it ruled on pienning for the Future
* \ '
d4 our rate case in October 1985. Cons.dering i what was accom-jg 4 0-The Comm.ission s decision is an important first step in pl shed in a tough operating
.e ,
recovering our investment dMe fm dih we view
\
b 1985
. through future electric rates
.~%\
with some satisfaction. At
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- strong sales to other Utilities the same time, we know we
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$J Selling power to other utilities must focus our attention not on past achievements, but on c was one of the key reasons for the future. Accordingly, this t 1^ our earnings performance in year's annual report empha-1985. Taking advantage of sizes objectives we intend to In 1985, earnings per share these sales opportunities, meet for improving sales, ,
of common stock came close to which represented $159.3 opemtions,employeedevelop , matching 1984's nmniivsults. million of 1985 revenues, was ment and service to customers. ! Earnings were $2.4()per shart possible because our people Meeting these objectives and compared with $2.50 in 1984. have been getting good per- others requires that we stay We achieved this near-record formance from our power on top of national and k> cal financial performance despite plants. issues which could have long , an 18-cent-per-share earn- The 50.9 percent increase in term consequences for stock-ings reduction in the second kilowatt-hour sales to utili. holders and customers. half of 1985 when we stopped ties was especially important One issue that appears likely . j meluding in net income the because :t more than offset to become more sensitive is allowance for funds used lower sales to our own cus- the question of adequate during construction for Unit tomers. Residential use was power supply. Although our 2 of the Ibrry Nuclear Ibwer relatively nat as a result of sales growth has slowed since! Plant. As we reported in the mild weather, and industrial the economic and energy ' l past, the future ofIVrry Unit sales were down 4.5 percent, turmoils of the 1970s, there l 2 is under review. inainly because oflower is no question that the power' The good news at Ibrry was st"el production. Energy us" from Itrry Unit I and Beaver, achieving'that stage of Unit by commercial customers Valley Unit 2 will be needed I construction where fuel was up 3.2 percent, but not in the years ahead. Despite ' loading and start-up is the enough to compensate for a slowed rate of growth in next step in the licensing the drop in sales to our other customer demand, that de- ! process. When the unit customers. mand is still increasing. i reaches a 20 percent level of While weather and the busi. What this continued growing ness swings of high-consump- demand will be beyond the ! tion industrial customers year 2000 is one of the many. can cause significant cyclical things being weighed in the i review ofIbrry Unit 2. While no one can predict the future with absolute certainty, l 2 i
we recognize that the eco- President Ronald Reagan and the scrubbers that were re-nomic health of the area we Prime Atinister Brian Afulmney. quired at the Alansneld Plant. serve must be considered in They inspected the plant's We've also teamed up with making any decision about $370 million scrubber and other utilities in the Living energy supply. We want to waste-removal system and Lakes Project. This program's make sure there's enough were given appropriate cost aim is to mitigate acidic con-reliable power to . sustain and operating data. ditions in up to 100 targeted growth in our area. .\fter considering this and lakes and streams, regardless Promoting Reasonable other important information, of whether the problem is Environmental solutions the envoys issued in January natural or man-made. Our Another issue of continuing of this year a joint report to belief is that this approach, concern is the " acid rain" President Reagan and Prime which has been very success-controversy. Electric utili- Alinister Atulroney. While we fulin Sweden, may well prove ties, particularly in the Alid- disagree with many of the to be the most cost-effective west, have paid billions of basic assumptions made in way-at an estimated total dollars to meet clean-air their report, we fully agree cost of $25 luillion-to treat requirements. Ohio Edison's with their conclusion not to lakes that are susceptible to investment alone is approach- recommend scrubbers for acidification. ing $1 billion. But new legis- existing power plants. And, improved outlook lation, if enacted, could cost we do agree with their as-Our financial performance is utilities and customers many sumption of the need for billions more. considerably better than it development of more cost-has been in some time. Earn-Our nation is already suffering effective ways to burn coal ings have been up from their the effects oflow-cost foreign cleanly. The report recom- depressed levels prior to 1981. competition. Widening that mends expanding and ac-Our balance sheet is stronger. competitive gap with costs celerating research projects 51 ore of our construction pro-that industry would have to similar to those we already gram is behind us. Financing pay to support more expen. have under way at two of rm longer presents the prob-sive controls doesn't make our power plants. Iem it did several years ago. sense as long as there are One of these projects, in doubts about whether the And, equally important, we cooperation with the U.S,. new controls would provide have the people and resoumes Department of Energy and the intended results. tc do the job ahead-as well the Dravo Lime Company' as,if not better than, we have 'Ib underscore the cost, com- inv lves a new process we n the past. That's important plexity and new environ. helped develop which adds bocause continued success mental problems associated lime to plant nue gas to re-takes the kind of support we with adding scrubbers to all duce sulfur-dioxide emissions. have been fortunate to get coal burning plants, I invited Another project mvolving to s as well as the American and Canadian the U.S. Environmental Pro-stockholders, all of whom envoys on " acid rain" to our tection Agency, the state of
' appreciation and Bruee Afansfield Plant in Ohio and the Babcock &
. si n e k h August. U.S. Special Envoy Wilcox Company is also in Drew Lewis, former Secretary progress. Successful results of Transportation, and Cana. of these projects would mean dian Special Envoy William a better solution than costly 'p, Davis, former Premier of and complex equipment like Ontario, were appointed by Justin T. Rogers, Jr.
President 51w h 1 1986 3
b increasing sales through aggressive marketing programs .. W ' -u nk t ;tr u illl+ r n '< i in i ;til n ilu tt &
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' 'l among the cost-savmg optrons developed to add more homes with electnc water heat-Wit? morial success mg and space heat m ftber-optic and mg to our Imes Chenucallaboratory services. we are pur a
sumg new ventures m bill payment pro cessmg and other Income-producmg opportumites L_ _ . _ _ . _ . . _ _ _ _ _ . _ _ _ _ _ _ _ _ _ _ _ _ , _ ___ _, __ _
l l Programs like these itelped panies, which are investing Warren and Eungstown areas us in getting electric heating $1.4 billion in equipment to a telecommunications com-installed in 35 pement of and facilities, are adding pany. By the end of the year, homes built in our service $35.3 million to our annual contracts for use of the cable area in 1985. This represents revenue. totaled $172,500 annually, ,
$15 million in new annual Including new business nd mom wem in negotiation.
"""""' growth, our goal is to add a 'Ib maximize new business '
sales to Other Utstles Economic Development total of $50 million in new opportunities, we have formed On bilhons of kWh) Efforts Get Results annual revenue in 1986. the New Ventums Study Gmup - We have intensified our eco- svhich is enduating additional Entering New Afarkets 7.r, nomic development efforts ways to utilize our facilities
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to retain and attract bus . One of seveml promising
, and people toincrease mvenue ness to the area, with g(xxl new business opportunities and improve profitability. We '
results. An especially effec _ for us is fiber optics. This ad-6.o can offer highly specialized tive incentive is a five-year vanced technology improves skills and resource: act pricing plan that gives new the transmission of data and readily available to area busi-or growing businesses a sig_ v ice signals and, in addi- _ _ _ _1.r> nesses without significantly , nificant savings in energy tion to our own use, has increasing our overhead ex-costs. many applications for the , penses. For example, our
'3'o electronics and communica-Introduced in 1984, the plan tions indust n"s. mm S s p ng a is being used by 27 companies mmp ny n lyze the effects IIII whichhaveadded1,153 jobs We began installing fiber- of emissions from its plants, to the area and about $5.1 optic cable along some of our while the people at one of l million in revenue from elec. distribution lines in 1985, our laboratories are running ,
tric sales. Another 33 com. nd we are providing use chemical analyses for seveml ' o panies have applied for the f the cable in the Akron, companies. 1981-1983 special pricing plan. We also help state and local . officials develop their plans to strengthen the area eco-nomy. In addition, our people ~ work with hundreds of busi-nesses to offer technical as-sistance on electric systems ; and energy management. In 1985,111 companies staited or expanded operations in - our service area. These com-s - Specialeconomic _.,, development rates f ' helped attract 300 > Jobs and $800,000 '[ in annualelectric ? ",\ sales when Camage : , Ilillchose Salem, , .E Ohio, overIndiana ; ' '; forits meatproc- % Qil l essing plant. Q&,
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improving overall performanco, cost controls and use of our facilitics Advanced technology, new our industry has projected - - maintenance techniques and generating units to last an p " better employee training average of 35 to 40 years. Ilut enabled us to improve gener- today Ihe high costs of build-ing new plants, plus regula-L( ating unit perfonnance. In 1985 an average of more tory uncertainties, may make
] i M L than 79 percent of the gen-erating capacity we operate it practical to extend the lives of aging plants. M k L Average Cost of Coal Bumed was available throughout tgle m !
gm , year to pnxluce electneity Emphasis on Nellability .h M - While the cost of achievmg Ihis level of perfonnance is b 1985 we s ent $764 million o new plant construction % / e
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d system improvements k .J ' ~~ sigmficant, we were able to to help maintain reliable keep our operating expenses \l senice to our customers. Ilut
$4 million under budget assuring reliable service in 1985 takes more than new build-30 We reduced fuel costs-our ings and equipment. It takes largest expenditure-by the efforts and know-how of making timely purchases in thousands of employees.
_ _ _ _ 20 the spot market for coal aml A go< 1 measure of how our gaining greater nexibility in peo le perfonn is their re-coal contracts. Since March sponse to a major emergency. . % g'
; _ _ _ _ _l2 1983, Ohio Edison has had the On May 31, we had such an , /
low est average coal costs of engncy when a series of all eketne utilities m the state. tornadoes struck eastent Ohio 19si-19sr, We also expect to save more and western Ibnnsylvania, _y" than $1.8 million in annual leaving more than 120,000 - operating costs by consoli- of our customers without dating some operations. T) service and causing $6.6 mil-reduce the costs of coonli- lion in damage to our system. nating h> cal distribution of Our employees mobilized electricity and repair work, quickly and worked around . in 1985 we began combining the clock to restore service nine area dispatching offices to nearly all of the affected into central h> cations. %brk customem within 24 hours. is also under way to consoli-o her special measure of date our meter testing and performance came in late repair facilities. Se tember when our people T> detennine the most eco- helped utilities on the East nomical methods to keep our Coast following Ihtrricane existing power plants running Gloria which left 4.3 million efficiently up to the year customers without service. 2015, we initiated a life ex- We sent 200 employees to tension study. Traditionally, assist long Island Lighting Company Ik>ston Edison y Company, and Nort heast ' Utilities Service Company in Connecticut. 8
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( II I la i < t 151 < >ll le 'I's. ' I, l H 'l't llI - r ;HHilllllllll Company President Justin T Rogers. Jr. tiett) gave Ohio Governor Richard F Celeste tright). U S Representattve Douglas Applegate (center) and other members of govern-ment and the news media a first-hand The Company s loos at the S438 new $9 million million atr-quality computer center is oroject at the W H designed to handle Sammis Plant the growing use of data processinq for more etticient and fellable operations 9
of those who experienced an shares the electric industry's i e Ls interruption of service said view that more fact-finding they felt service was restored study is needed to properly a g\ hff E \I\ E l as quickly as possible. Of all respondents,96 percent be-identify the causes and ef-fects of " acid rain." d k~~
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lieved we provide satisfactory We are already involved in e service. And 97 percent of all two research projects that customers rated ek>ctricity a have the potential to reduce go<xl to average value. plant emissions more eco-In August, Ibnnsylvania cus- nomically. In August 1985, tomers gave equally positive the U.S. Department of Energy evahiations, with 97 percent selected Ohio Edison to test rating the value of service as a new technology we devel-above average or average. oped with the Dmvo Lime - Company to reduce sulfur-EnvironmentalResearch dioxide emissions. Earlier, ' Focuses on Costs , we began working with the y vu+b - Although all of our power C., U.S. Environmental Protection ,, plants comply w.ith the Clean < Air Act, we are now faced
. Agency, the state of Olu.o and w I k IWM & W Icox Com- 'N, with legislative proposals any to test the effectiveness that could further increase of other process to reduce our costs dramatically and bot dhdioxide ad unnecessarily.
i owe mission It' The most significant and con- successful, either technology troversial issue is " acid rain." would be far less expensive Advocates of new " acid rain" than adding huge scrubber legislation claim that sulfur- systems to plants, which dioxide emissions from power would be required by many plants in the Midwest are " acid rain" proposals. causing acidification oflakes A much simpler, more cost-in the Northeast and Canada. effective solution could be to What those people seem to simply add lime to lakes that ignore is mounting evidence are susceptible to acidity. % that the new controls they determine the benefits of this an' demanding would do option, we are participating little more than add further with other ekttric compa-financial burden on eketric nies in a five-year, $25 million _ . , customers. An influential "Living Lakes" project to Nx and growing body of people sek et and treat hundreds of N in the scientific community lakes in the Northeast.
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&J groups enabled em-playees to restore Q, powerin one day to .:
nearlyallof the 120,000 customers affected by torna- Q M f does that hit our m**2 area on May 31. Erf ATer . 10
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Achiaving ths most timely and cost cffective completion of nuclear plant construction in cooperation with our utility partners With preparation for fuel n> mains under nmiew. The only w - .
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loading and initial start-up, significant work on the unit I ' Unit 1 of the Ibrry Nuclear in 1985 was that necessary N ' '1 Ibwer Plant moved nearer to to place Ibrry Unit 1 in opera-the completion of construc- tion. As of July 1.1985, Unit M tion. The Nuclear Regulatory 2 allowance for funds used - Conunission (NRC) has given during construction was no 1
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$n# n N * *" Mnancing hs klining 19 % insa m uai a well-built, efficient plant.
i9 sins 9 en.pu.si Ohio Edison and Ibnn Ibwer As our construction program /, E'" own about 35 percent of the winds down, so does our , y 1,205-megav att unit, which need for new financing. With 1 i 63r> is being built by the Cleve. the completion of the $510 million environmental im-
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Providing for some of the beginning of the year and { Ibrry Unit I nearing comple-costs of Ferry Unit 1 in our tion, our construction costs y,-- electric rates was an impor~ are now projected to fall tant development. In October, from $764 million in 1985 to _29) the Public Utilities Commis- an estimated $444 million in sion of Ohio said that we can 1989. At the same time, our I g 123 g begin recovering nearly $42 nullion for financing costs when the unit reaches a 20 percent level of generation. expected in the second quarter of 1986. need to raise funds from in-vestors for new projects should decrease from $597 million in 1985 to $190 million in 1989. While this downturn in con-The NRC also reported in struction will pmvide welcome 1985 that the quality of con- relief to financing pressures, struction at Unit 2 of the we still face a sizable con-Beaver Valley Ibwer Station stniction and system improve-was good and that indepen- ment program. dent quality assurance audits and daily inspections were In funding these projects, effective. Ohio Edison owns we will continue to pursue 1 about 42 percent of the 833 ptions that will keep financ-megawatt unit, which is ing costs to a minimum. For about 91 percent complete. example, during 1985 we i Duquesne Light Company is raised $50 million with the unit's builder. adjustable-rate preferred stock that can take advan-The future of Ibrry Unit 2, tage of falling interest rates about 44 percent complete, and puts a ceiling on the rate we will have to pay. We also were able to raluce financ-ing costs by redeeming $50 million of high-interest first mortgage bonds.
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We have well under way a conunitment to equal oppor- reduce our annual operating
. comprehensive human re- tunities was recognized in and maintenance costs by sources program that places October with a citation from more than $130,0(X1 For their
, major emphasis on strength- the Ohio Bureau of Vocational ideas, employees received l ening overall management. Rehabilitation for our work cash awants of about $33,(XXI ; ! Through formalinstruction, in hiring disabled individuals Employees further contribute l job rotation and special as- in Akron. to pnxluctivity and a better signments to problem-solving Programs improve work envinmment by fully task force groups, we are Productivity supporting our safety pro-building the skills we believe .\lany of our incentive and grams. Over thelast fiveyears, are necessary to guide and benefit prognuns are aimed our accident rate was reduced { speed our growth. at increasing productivity by 41 percent. Employees in l Affirmative action and equal anmng eniployees. Through our Springtield Division won employment opportunity also stock ownership and savings national and industry recog-are important to our develop- plans, employees build retire- nition in . lune for working inent savings and become one million safe hours. In ment programs. We continue to pursue every avenue in ownem io Edison stock, September, Ibnn Ibwer em-meeting the requirements of en bling them to participate ployees were also recognized existing laws and regulations m ur fin ncial performance. for reaching the one million covering the recruiting, hir- Employee suggestions also mark for the thini time. ing, training and promoting help to increase productivity. of qualified employees. This Suggestions in 1985 should i Uf '~N
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! Cles Of SUSQlCloOS dCIIV!tleS 17
E M:na :tn:nt's Ci:curi:n cnd An:Iysia cf Rruit3 cf Cpar:ti:na cnd Fin nci:IConditi:n Results of Operations increased kilowatt-hour generation from the Companies' Results of operations continued to improve and simngthen the pnxluction facilities was resp <msible for the increase in fuel Companies' financial position in 1985. Earnings available for consumption in 1985 and 1984, and resulted in the 45.6% conunon stock increased by 9.4% over 1984, although earn. reduction in purchased and interchangedl ever in 1985. ings per share ami return on average conunon equity showed Earnings were also affected in 1985 by a $4.5 million reduc-slight declines due to an 11.8% increase in the avemge number tion in pension costs, included in other operation expenses. of shares of common stock outstanding in 1985. This increase As discussed in Note 1, this raluction was due primarily to a in earnings occurred, even though the Companies stopped change in actuarial assumptions in the thini quarter of 1985. including allowance for funds used during construction The Companies' ongoing constniction progrmus, requiring (AFUDC) relating to Ibrry Unit 2 in net income as of July 1, the continuation of debt and equity financing, resulted in a 1985 (see Note 7); inclusion of this AFUDC in the last half higher level of interest expense anl preferred dividend re-of 1984 provided earnings of $.18 per share. Results for quirements in 1985. During 1985, the Companies increased 1984 also included a $6.8 million noncash adjustment to their net long-tenn debt outstanding by $85 million, consist-Ibun Ibwer's depreciation reserve, which increased earnings ng of $214 million of new long-term debt with an effective per share by $.06. Excluding the effect of this adjustment, annual interest rate of 11.3% offset by long-tenn debt ma-the return on average common equity in 1984 would have turities of $129 million which carried an effective annual been 15.5%. nterest rate of 10.8%. Ibrtially offsetting Ihe effect of this Operating revenues have shown steady growth over the past net increase was a decline in interest on long-term obligations two years. The following summarizes the sources of the in. resulting from lower interest rates in 1985. The Companies crease in operating revenues during 1985 and 1984: also raised $85 million through the issuance of additional 1985 1984 preferred stock. Except as noted above with respect to Ibrry gn ,n,y,any Unit 2, as the Companies' construction projects proceed and Sales to Resdential. Commercial until the projects are placed in service and/or included in rate a k a ur sales $ 50.8 base, total AFUDC will continue to increase in onter to capi-5 (11.3) Increased base rates 37.8 87 6 talize those financing costs not being recoveral through rates. Change in fuel recovery rates 42.4 (44.3) Total 68.9 94.1 Information with respect to the estimated effects of inflation Sales to utaties 41.9 41.2 upon the Companies is given in Note 9. Sales to all other customers 6.8 (11.4) Other revenues - (2.6) Capital Resources and Liquidity Totahncrease $'17 6 5121 3 Capital requirements in 1985 for the Companies' construction prop. rams, capital leases and nuclear fuel were approximately 'Ihtal kilowatt-hour sales for 1985 were 7.9% higher than $827 million, of which approximately $507 million was 1984. This resulted primarily from a 50.9% increase in sales financed externally. Over the hist five yeam these require-to other utilities, reflecting the Companies' continued success ments were approximately $3.8 billion, of which approxi-in the bulk sales market. Although kilowatt-hour sales to mately $2.7 billion was provided from external sources. l'he conunercial customen increased by 3.3% in 1985, a 4.5% 1986-1990 construction pmgram and capital lease require-decrease in industrial sales offset that increase. ments are currently estimated to be $2.6 billion (excluding costs of nuclear fuel); the issuance of additional common The increase in fuel costs m. the last two years is attributable stock and other securities will be necessary to fund a major to the following factors: Imrtion of this new construction. The Companies have ad-1985 1984 ditional cash requirements of approximately $122 million in 1986 and approximately $1.1 billion for the 1986-1990 period increased fuel consumption $ 49.7 5 31.7 Reduced prices (10.3) (11.1) to meet maturities of, and sinking fund requirements for, Difference in net deferred fuel costs 37.0 (18 1) long-tenn debt, long-term obligations (excluding nuclear Total increase $ 76.4 $ 2.5 fuel), and preferred and preference stock. Investments for additional nuclear fuel during the five years 1986-1990 are estimated to be approximately $204 million. During that same peri (x1, long term obligations related to nu-clear fuel are expected to be reduced by approximately $339 million as Ihe Companies recover such costs through their electric rates. 18
Management Report The Companies' current financing plans for 1986 include the The consolidated financial statements were prepared by the issuance of up to: 5. I million shares of common stock through management of Ohio Edison Company, who take responsibility the Dividend Reinvestment and Stock Purchase Plan,7.0 for their integrity and objectivity. The statements were pre-million athlitional shares of common stock through public pared in conformity with generally accepted accounting sales; and $180 million of other long term debt. A<hlitionally, principles azul are consistent with other financial informa. investments in nuclear fuel of approximately $35 million will tion appearing elsewhere in this report. Arthur Andersen & be made in 1986 through the incurrence of additionallong- Co., independent public accountants, have expressed an term obligations. opinion on the Company's financial statements, as shown
"" E"#
liased upon earnings for 1985, and after giving effect to the sale of $100 million of first mortgage bonds in January 1986. The Company's internal auditors, who are responsible to the the Company wouhl be permitted, under its list mortgage Amlit Committee of the lloani of Din'etors, review the results indenture, to issue, on the basis of property achhtions, at mul performance of olerating units within the Company for least $393 million principal amount of first mortgage bomls adequacy, effectiveness and reliability of accounting and re-at an assumed interest rate of 11.5%, or under its Charter to porting systems, as well as managerial mul operating cont rols. issue at least $694 million of preferred stock at an assumed The Audit Conunittee consists of four nonemployee directors th.vu. lend rate cf ' l.5,1, or to issue some lesser comb.mation . . . of both first inortgage bonds and prefernxl stock. IfIbrry yhose duties melude: consideration of the adequacy of the mternal controls of the Company and the objectivity of finan-l! nit 2 were to be terminated, the ralaction m available cial reporting; inquiry into the mimber, exterit, adequacy bondable property would reduce the amount of bonds the and validity of regular and special audits conducted by inde-C,ompany couhl issue against prolerty additions to approxi-pemient public accountants and the internal auditors; the mately $207 million. The Company is able to issue $436 recommendation of mdependent accountants to conduct the million principal amount of first mortgage bonds against
. . normal annual audit and special purpose audits as may be previously retmxl bonds without the turd to meet earnings required; and reporting to the lloard of Directors the L,om-coverage requirements; $175 m.llion i of th.is amount is re- .
nuttee.sfindings and any recommendation f.or changes m. served for issuance pursuant to the Company.s revolvm.g scope, methods, or procedures of the auditing functions. The credit agn ement referred to below. Audit Committee held three meetings during 198a. At December 31,1985, the Companies had approximately
$128 million of cash and temporary cash investments, and approximately ^119 million of futuis held in escrow from "
previous pollution contml financings. The Companies also have $50 million of short-term bank lines of credit, in addi- - - tion to a $500 million revolving credit agreement available to V. A. Owoc W. A. Daniels Comptroller the Company, which could be used for interim financing $yQej}jlyident purposes. On October 29,19S5, the Company was granted a retail base rate increase which will be implemented in two steps. In Novemimr 1985, rates were increased by approximately
$58 million on an annual basis. Subsequently, once Ibrry l? nit I achieves significant positive net generation (defined as 20% power generation from the unit), the Company's rates will be inen'ased to pnxtuce additional annual revenues of approximately $42 million. This additional increase, which is expected to be implemented approximately three months after fuel hxuling begins, represents the inclusion of Ibrry l' nit I construction work in progress in rate base at the maximum level permitted under Ohio law. The combined increase (approximately $100 million on an annual basis) represents about 75% of the Company's original $135 million rate inemase request.
19
Selectrei Fin:nci:1 Ccta omocoison 1985 1984 1983 1982 1981 (In thousands except per sha e amounts) Operating Revenues $1,754,749 $1.637.104 $1.515.852 $1,429.626 $1.279.649 Operating income 380,354 342,713 302.751 269.640 252.381 Income Before Extraordinary items 370,685 339.333 272.400 195.571 183.020 Net income 370,685 339.333 272,400 215.729 197.062 Earnings on Common Stock 318,073 290,694 227,843 181,496 163.892 Earnings per Share d Common Stock (based on weighted average number of shares outstanding dunng the year) Before Extraordinary items 2.45 2.50 2.22 1.89 2.10 Earnings on Common Stock 2.45 2.50 2.22 2.13 2.30 Dividends Declared per Share of Common Stock 1.88 1.84 1.80 1.76 1.76 Total Assets at December 31 7,290,417 6.690.C98 5.960.374 5.247.138 4.460.274 Preferred and Preference Stock Subject to Mandatory Redempt:on 176,694 158.483 158.112 152.560 151,141 Longterm Debt 2,691,615 2.449.502 2.132.137 2.005,436 1.759.771 Long-Term Obhgations 739,291 822.234 759.843 656.655 447.484 Common Stock Data The Company's Common Stock is hsted on the New York and Midwest Stock Exchanges and is traded on other registered exchanges. Price Range of Common Stock 1985 1984 First Quarter High-Low 14-7/8 13-1I8 13-3/4 11-3/4 Secorid Quarter High-Low 1 5-518 14 12 9-3/8 Third Quarter High-Low 1 6-118 1 4-318 12-1/8 9-7/8 Fourth Quarter High-Low 1 6-112 1 4-112 14-1/8 11-5/8 Yearly High-Low 1 6-112 1 3-118 14-1/8 9-3/8 Pnces are based on reports put%shed in The Wa# Streer Joumal for New York Stock Ex:hange Composde Transacbons Classification of Holders of Common Stock as of December 31,1985 Holders of Record Shares Held Number % Number % Individuals 182.086 88 57 57,799.915 42.16 l Fiducianes 19.665 9.57 4.599.496 3.36 l Brokers 81 0.04 1.289.012 0.94 Nominees 340 0.17 70.547,087 51.46 Banks & Financial Institutions 20 0.01 31.083 0.02 insurance Companies & Other Corporations 1,547 0.75 1.663.776 1.21 i Chantable, Rehgious & Educational Institutions 441 0.21 238.946 0.18 Pensions, Profit Shanng & Other Investment Trusts 1.396 0 68 919.956 0.67 Total 205.576 100 00 137.089.271 100 00 As of January 31,1986, there were 204.563 holders Quarterly dividends of 47c and 46c per share were paid on the of 138.248.854 shares of the Company's Common Stock. Company's Common Stock dunng 1985 and 1984. respectively. Information regarding retatned earnings available for payment of cash dividends is given in Note 4b. l l 20
Crn=Ild:t:d St:tzm:nta cf Incamo onc eoison For the Years Ended December 31 1985 1984 1983 (in thousands, except per share amounts) Operating Revenues $1,754,749 $1.637.104 $1.515.852 Operating Expenses and Taxes: Operation-Fuel 499,159 422,805 420.336 Purchased and interchanged power net 30,802 56.659 50.026 Other operation expences 271,142 267,288 234.526 Total operatron 801,103 746.752 704.888 Maintenance 129,295 129.313 121.544 Prowsion for depreciation and amortization 143,377 131.340 124.572 General taxes 136,206 136.880 126.818 income taxes 164,414 150.106 135.279 Total operating expenses and taxes 1,374,395 1,294.391 1.213.101 Opercting income 380,354 342.713 302.751 j Other income and Deductions: Allowance for equity funds used dunng construction 176,471 152.567 121.814 l Miscellaneous, net 27,458 28.928 20.812 income taxes-credit 85,365 82.383 64.923 Total other income and deductions 289,294 263,878 207.549 Totalincome 669,648 606.591 510.300 Net interest and Other Charges: Interest on long-term debt 321.017 267.391 233.626 Interest on long-term obligations 74,207 89.780 73.177 Allowance for borrowed funds used dunng construction, net of deferred income taxes (111,240) (104.351) (81.901) Other interest expense 4,962 5.473 5.702 Subsidiary's preferred stock dividend requirements 10,017 8.965 7.296 Net interest and other charges 298,963 267.258 237,900 Net income 370,685 339.333 272.400 preferred and preference Stock Dividend Requirements 52,612 48.639 44.557 Earnings on Common Stock 8 318,073 $ 290.694 $ 227.843 Weighted Average Number of Shares cf Common Stock Outstanding 129,926 116.171 102.414 Earnings per Share of Common Stock (based on weighted average number of shares outstanding dunng the year) 82.45 $2.50 $2.22 Dividends Declared per Share of Common Stock $1.88 $1.84 $1.80 The accompanyng Notes to Consobdated Financa! Stataments are an actegralpart of these statements l 1 21
I C:n :Ildstad C:lznco Shsats ls omo coison N At December 31 1985 1984 Utsty Plant: hsets Vn Mnds) in service, at onginal cost $4,248,800 $4,043.391 LRss-Accumulated provision for depreciation 1,279,373 1,161,565 2,969,427 2.881,826 Construction work in progress- _ Electnc plant (Note 7) 3,349,998 ' . 2,785.977 Nuclear fuel 289,771 277,746 3,639,769 3,063,723 6,609,196 5.945,549 Other Property and invesiments 41,104 69.560 Current Assets: Cash 2,051 5,147 Temporary cash investments, at cost, which approximates market value 126,382 115,930 Receivables-Customers (less accumulated provisions of $1,319.000 and
$1310,000, respectively. for unco lect:ble accounts) 147,875 135.322 Other 31,722 20.169 Matenais and supplies, at average cost-Fuel 58,117 87,499 Other 45,953 44.822 Prepayments 50,635 46,990 4 462,735 455.879 Deferred Char 9es:
Deferred Quarto coal and other energy costs (Note 7) 12,741 38.542 Property taxes 56,064 57.601 Unamortized costs of terminated construction projects (Note 2) 73,783 84,378 Other 34,794 38,589 177,382 219,110
$7,290.417 $6.690,098 Capitalization and Liabilities Capitalization (See Consohdated Statements of Capitahzaton):
Common stockholders' equity $2,234,156 $1,947,357 Preferred stock-Not subject to mandatory redemption 376,035 363,585 Subject to mandatory redemption 72,000 56,000 - Preference stock-Not subject to mandatory redemption 50,000 50.000 Subject to mandatory redemption 34,032 45,922 Preferred stock of consolidated subsidiary-- Not subject to mandatory redempt:on 41,905 41,905 Subject to mandatory redemption 70,662 56,561 Long-term debt 2,691,615 2,449,502 5,5_70,405 5.010,832 Lon9-7lerm Obol 9 ations: Construction energy trust (Note 5) 400,000 500,000 Nuclear fuel (Note 5) 284,740 290,323 Capitalleases(Note 3) 54,551 31,911 739,291 822,234 Current UmbNiit s: Currently payable preferred and preference stock, long-term debt and long-term obhgations 157,543 79.124 Notes payable to banks (Note 6) - - Accounts payable 147,212 171,796 Accrued taxes 55,590 52.915 Accrued interest 94,627 83.107 Other 48,137 61.975 503,109 448.917 Deferred Credits: Accumulated deferred income taxes 181,247 178.440 Accumulated deferred investment tax credits 201,345 145,4C9 Property taxes 56,064 57,601 Energy costs recovered in advance 24,618 9.094 Other 14,338 17,571 477,612 408.115 Commitments, Guarantees and Contingencies (Notes 3 and 7) _
$7,290,417 $6,690.098 The accompanyong Notes to Consohdated Fonanaal Statements are an sntegralpart at these ba:ance sheets 22
C:nc lid:t:d St t:m:nta cf C: pit:liz:ti:n owo eoison At December 31 1985 1984 Common Stockholders'Egitys (In thousands) Comthon stock, $9 parvalue. authonzed155,000.000 Shares-137.089 271 and ".22.236.636 Shares outsianding, respectively (Note 4a! S1,233,604 $1.100.130 Other paid in rapdal 609,117 529.596 Retained earnings (Note 4t0 391,235 317.631 Total common sto inolders' equity 2,234,156 1.947.357 Optonal Redempton Pnce Number of Shares Outstanding Aggregate 1985 1984 Per Share On thousands) Preferred Stock (Nute 4c) Cumulative. $100 par value- Authoreed 6.000,000 shares Not Subsct to Mandatory Redemption-390%-724% 973.350 973 350 $103 38108 00 $102.034 97,335 97.335 7.36 %-8 20 % 800.000 800.000 $104 68105 35 84.046 60,000 80.000 864%-912% 850.000 850.000 $106 48106 84 90.670 65_,000 85.000 Total not subsct to mandatory redempton 2.623.350 2.623.350 $276.750 242,335 262.335 Sublect to Mandatory Redempton (Note 4d)- 10 48 % -13.50 % 737.970 576.810 $105 38113 50 $ 80 081 73,797 57.681 i - ! Redempton within one year (1,797) (1.681) Total subject to mandatory redemption 72,000 56 000 Cumulative. $25 par value- Authonzed 8.000.000 shares Not Subi ect to Mandatory Redempton
$350 Senes 2.000.000 2.000.000 $28.75 5 57.500 50,000 50.000 Senes A 548.000 2.050.000 $25 00 13.700 13,700 51.250 Senes B 2.000.000 -
$25 75 51.500 50,000 -
4 548.000 4.050 000 $122.700 113,700 101.250 Preference Stock (Note 4c)- Cumultive. no par va'ue- Authonzed 8.000,000 shares Not Subpct to Mondatory Radempton:
$392 Senes 2.000.000 2.000.000 $3142 $ 62.840 50,000 50.000 Subtert to Mardatory Redempton (Note 4e)
S95 A-$102.50 Senes 23.400 26.100 $1.06100-1.070 00 $ 24,973 23,400 26.100
$180 Senes 981.491 1.56 1 096 $15 58 15.287 14,645 24.035 Redempton within one year -
(4,2_13) (4.213) Total subject to mandatory redempton 1.004.891 1.615 196 $ 40.260 34,032 45.922 Preferred Stuck of ConsoNdated Subsidiary (Note 4c) Cumulative. $100 par value- Authonzed 950.000 shares Not Subject to Mandatory nufempton. 424%-916% 419.049 419.049 $102 98-106 87 $ 43.954 41,905 41.905 Subject to Mandatory Redemption (Note 4d). 8 24 % -1500 % 714 528 570.616 $103 29-114 42 $ 77.888 71,453 57.061 Redempton within one year (79_1_) (500) Total subrect to mandatory redemption 70,662 56.561 Long-Term Debt (Note 4f) First mortgage bonds. Oho Edison Company-7 87% weighted average interest rate, due 1986-1990 96,114 170.829 14.70% weighted average interest rate, due1991-1995 472,717 442.717 1017% weeghted average interest rate. due 1996-2000 126,263 126.263 6 06% weighted average interest rate, due 2001-2005 146,343 146.343 10 50% weighted average interest rate, due 2006-2010 424,310 424.310 14 50% weighted average interest rate, due 2011-2014 50,000 50 000 1,315,747 1.360.462 Pennsylvarua Power Company-10 72% weighted average interest rate. due 1986-2008 251,6_22 279 000 Total first mortgage bonds 1,567.369 1.639 462 Secured notes and obhgarons: Oho Edison Company-1004% veghted average interest rate, due 1986-2015 613,125 484.172 Amount held by Trustee (66,51_9) (106.138) 546,606 378.034 Ohio Edison Finance N V-1738% weighted average interest rate due1987-1988 15_0,000 150 000 i Pennsylvania Power Company-1002% weighted awrage interest rate. due 1986-2015 134,411 80.311 l Amount he'd by Trustee (3,592) (13.305) 130,819 67.006 Total secured notes and obhgatons 827,425 595.040 Unsecured notes of Ohio Edison Company.10 71% weighted average interest rate. due 1986-2014 376,000 402.000 Amount held by Trustee (46,755) (114.823) [ Total unsecured notes of Oho Edison Company 327,245 287.177 I Net unamortized discount on debt (20,343)
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(18 987) long term debt due within one year (1[0,061) (53.190) Totallong term detA 2,691,615 2.449.502 l Total CapitaNzation $5,570,405 $5 010 832 The accompanyong Notes to Consoinsared Funancial Statements are an integralpart of these statements 23
Canz: lid t:d Stat:m:nt cf R:tain d Ecrnin:3 onio saison For the Years Ended December 31 1985 19f>4 1983 (in thousanas) Balance at beginning of penod $317,631 5241,314 $200.'439 Net income 370,685 339,333 272.400 688,316 580.647 472I839 Deduct: Cash dividends on preferred and preference stock 52,573 49.100 45.468 Cash dividends on common stock 244,508 213,916 185,309 Capital stock expense - - 748 297,081 263,016 231.525 Balance at end of penod $391,235 $317.631 $241.314 Consolidated Statements of Capital Stock and Other Paid-In Capital Preferred and Preference Stock Not Subject to Subject to Comrnon Stock Manda*ary Redemption Mandatory Redemphon Number Par Other Paid- Number Par or Number Par or of Shares Value in Captal of Shares Stated Value of Shares Stated Value (Dollars In thousands) Balance. January 1.1983 96.081,844 $ 864,737 $423,195 5.042,399 $354,240 2.887,762 $155,023 Safe of Common Stock 5.000.000 45,000 33,350 - - - - Dividend Reinvestment Plan 7,138.575 64.247 33,056 - - - - Conversion of $1.80 Preference Stock 239.635 2,156 1,332 - - (239,635) (3,624) Sale of $3.50 Senes of Class A Preferred Stock - - 3,140 2,000,000 50,000 - - Sale of 11.5% Preferred Stock - - - - - 150,000 15.000 Preferred Stock Sinking Fund Redemptions-8.24% Series - - - - - (5.000) (500) 10.48% Senes - - 270 - - (24.630) (2,463) 10.76% Senes - - 160 - - (20,000) (2.000) 11.00% Senes - - 17 - - (4.243) (424) Balance, December 31,1983 108,460.054 976,140 494,520 7,042,399 404.240 2,744,254 161,012 Sale of Common Stock 3.673.400 33.061 13,599 - - - - Dividend Reinvestment Plan 10.067,071 90.604 23,333 - - - - Employee Stock Ownership Plan 2.661 24 12 - - - - Conversion of $180 Preference Stock 33,45C 301 187 - - (33.450) (506) Capital Stock Expense - - (2.548) - - - - Sale of Senes A Class A Preferred Stock - - - 2.050.000 51,250 - - Sale of 13% Preferred Stock - - - - - 100.000 10.000 l Preferred and Preference Stock Sinking Fund Redemptions-8.24% Series - - - - - (5.000) (500) 10.48% Senes - - 252 - - (18,190) (1,819) 10.76% Senes - - 218 - - (20,000) (2,000) 11.00% Senes - - 23 - - (4.092) (409)
$102.50 Senes - - - - -
(900) (900) Balance, December 31,1984 122.236.636 1,100,130 529.596 9.092,399 455.490 2,762,622 164.878 Sale of Common Stock 6.076.659 54.690 37,846 - - - - Dividend Reinvestment Plan 5.102.413 45.922 31,098 - - - - Conversion of $1.80 Preference Stock 549,403 4.945 3.080 - - (607.605) (9.190) Conversion of Senes A Class A Preferred Stock 3,124,160 28,117 9.433 (1,502.000) (37,550) - - Capital Stock Expense - - (2,427) - - - - Sa;e of Series B Class A Preferred Stock - - - 2.000.000 50.000 - - Sale of 13.5% Preferred Stock - - - - - 200.000 20.000 Sale of 11.50% Preferred Stock - - - - - 150.000 15.000 Preferred and Preference Stock Sinking Fund Redemptions-8.24% Senes - - -- - - (5,000) (500) 10 48% Senes - - 259 - - (18.840) (1,884) 10.76% Senes - - 221 - - (20,000) (2,000) 11.00% Senes - - 11 - - (1,088) (109)
$9500 Senes - - - - -
(1,800) (1,800)
$102.50 Senes - - - - -
(900) (900) Balance December 31,1985 137,089.271 $1.233.804 $609.117 9.590.399 $467.940 2.457,389 $183.495 The accompanyrng Note: to Consoinwed Finanaal Statements are an untegralpart of these aanmers 24
C:nariid t d Stat:m:nta cf S urcac cf Funds 1:r Prap:rty Additi:ns onto eoison For the Years Ended December 31 1985 1984 1983 Internally generated funds- (in thmsands) Net income $370,685 $339,333 $272,400 Pnncipal noncash items-Depreciation and amort;zation 174,107 142,260 139,978 Deferred income taxes, net 97,287 113,551 80,814 investment tax credits, net 55,936 38,026 53,670 Allowance for equity funds used during construction (176,471) (152,567) (121,814) Deferred fuel and energy costs, net 41,325 4,471 23.009 562,869 485,074 448,057 Less-Dividends on common stock 244,508 213,916 185,309 Dtvidends on preferred and preference stock 52,573 49,100 43.468 265,788 222,058 217.280 Financing activities-- Common stock 169,556 160,633 175,653 Preferred stock 85,000 61,250 68.140 l Long-tarm debt 328,316 375,154 252,800 Long-term obligations 69,124 82.329 88.224 Repayment of preferred and preference stock, long-term debt and long-term obligations (145,017) (97,790) (88,191) 506,979 581.576 496,626 Net change in current assets and current liabilities excluding currently payable preferred and preference stock, long-term debt and long-term obligations-Cash and temporary investments (7,356) (5,303) (51,462) Receivables (24,106) (3,107) (11,475) Matenals and supplies 28,251 (17.617) 22.446 Accounts payable (24,584) 17,069 20,951 Accrued interest 11,520 15.216 10,155 Miscellaneous, net (14,808) 12,448 13,912 (31,083) 18,706 4.527 Other, net-Allowance for equity funds used during construction 176,471 152,567 121,814 Deferred income taxes on allowance for borrowed funds used dunng construction (98,316) (92.502; (76,982) Miscellaneous, net 7,155 (14.306) 7,866 85,310 45,759 52,698 Total Sources of Funds for Property Additions $826,994 $868,099 $771,131 Property Additions-Electnc plant $?63,727 $799.572 $689,646 Nuclear fuel 52,762 60,842 55,751 Other capitalleases 8,657 6,855 24,614 Nonutility property 1,848 830 1.120
$826,994 $868,099 $771,131 The accompanyong tuotes to Consoldated Fnnancsal Statements are an ontegral part of these statements l
l l 25
Cancalid:t d Stat:m:nt: cf Taxac omo eoison For the Years Ended December 31 1985 1984 1983 General Taxes: l'" '" "S** I State gross receipts S 71,369 $ 71,044 5 65,495 Real and personal property 47,415 48.717 47,099 Social secunty and unemployment 12,545 12,649 10,097 Miscellanecus 4,877 4,470 4,127
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Total general taxes $136,206 $136,880 $126.818 Provision for income Taxes: Currently payable-Federal S 19,546 $ 5,778 $ 10.119 State 4,382 2,616 2,507 Foreign 214 254 228 24,142 8,648 12,854 Deferred, net (see below)- Federal 93,585 108,154 75,947 State 3,702 5.397 4,867 97,287 113,551 80,814 investment tax credits, net of amortization 55,936 38,026 53.670 Total provision for income taxes $177,365 $160,225 $147.338 4 income Statement Classification of Provision for income Taxes: Operating expenses $164,414 $150,106 $135,279 Other income (85,365) (82,583) (64,923) Allowance for borrowed funds used dunng construction 98,316 92,502 76,982 Total provision for income taxes $177,365 $160,225 $147,333 Sources of Deferred Tax Expense: Allowance for borrowed funds used dunng construction, which is cred.ted to plant S 98,316 $ 92,502 $ 76.982 Excess of tax over book depreciation, net 29,814 25.045 23,081 Pensions and taxes charged to utility plant, net 3,530 4,923 4.153 Deferred fuel and energy costs, net (19,055) (1,805) (10.202) Deferred interest on leased nuclear fuel, net (5,488) (5,824) (3,165) Cost of terminated construct!on projects, net (4,075) (3.952) (3,258) Other, net (5,755) 2,662 (6,777) Total deferred tax expense, net S 97,287 $113,551 $ 80.814 ReconclNation of Federalincome Tax Expense at Statutory Rate to TotalProvision forincome Taxes: Book income before provision for income taxes $548,050 $499,558 $419,738 Federalincome tax expense at statutory rate $252,103 $229.797 $193.079 Increases (reductions) in taxes resulting from: Allowance for equity funds used dunng construction. which does not constitute taxable income (81,177) (70,181) (56,034) Excess of book over tax depreciation 14,534 10,163 9,115 Other, net
- 8,095) (9.554) 1,179 Total provision for income taxes $177,365 $160,225 $147,338 The accompanyrog Notes to Consohoated Finanaal Statements are an integral part of these statements i
26
N: tea to C::nzalid teel Fin:nzi;;iCtatzm:nta 1-Summary of Significan. acounting Policies: Common Ownership of Generating Facilities-The consolidated financial statements include Ohio Edison The Companies and other Central Area Ibwer Coonlination Compmy (Company) and its wholly owned subsidiaries, Group (CAPCO) compmies own, as tenants in conunon, var-Ibnnsylvania Ibwer Compmy (Ibun Ibwer) and Ohio Edison ious power generating facilities. Each of the companies is Finanw NX All significant intercompany transactions have obligated to pay a share of the construction msts of any jointly been eliminated. The Company and Ibnn Ibwer (Companies) owned facility in the same pmportion as its ownemhip interest. follow the accounting policies ami practices pmscribed by The The Companies' portions of operating expenses associatal Public Utilities Conunission of Ohio (PUCO), the Ibnnsylvania with these jointly owned facilities are included in the corm-Public Utility Commission (PPUC) amt the Fedend Energy sponding opemting expenses on the Consolidatal Statements Regulatory Conunission (FERC). ofIncome. The amounts reflected on the Consolidated Balance Sheet under utility plant at December 31,198T), include the Renues- follow ng: The Compmies' msidential and conunercial customers are meteral on a cvele basis. Revenue is recognized for ekxtric ucumuiaiea construem companies service based on meters read through the end of the month. Utsty Ptart ProwsK)n for Work in Ownershp ceneratng units in serwce oeprecaton Progress Irterest Defemed Fueland Energy Costs- cin tnousands) W H. Sammes #7 $ 229.351 $ 38.490 $ 581 68 80 % The Company recovers fuel relatal costs from its retail cus- Bruce Mansf: eld tomers through an elect ric fuel component (EFC). The EFC is #1. #2 and #3 707.138 160 242 731 50 68 % an estimated fixnl rate p>r kilowatt-hour included on customer Beaver Valley #1 (i) 604.738 151.734 33.820 52.50 % Bea v Y" bills for a six-month period and is basal upon fuel-relatal 1.270.049 41 88 % { e5 - - msts for the praeding six-month period. Any over or under Perry #1 and #2 - - 1.956.748 35 24 % collection resulting from the operation of the EFC is included Total $1.541.227 $350.466 $3.261.929 as an adjustmellt to the EFC rate in a subsequent six-month g incruces common r, cues appicarse to se,yer v, fey ,2-period. Accontingly, the Company defem the difference be-All nuclear fuel in process relates to the CAPCO units but is tween actual fuel related costs incurmd and the amounts currently recovered from its customers. n t segregatal among them. Ibnn Ibwer recovem fuel and energy costs from its retail Nuclear Fuel-customem through an annual "levelizal" energy cost rate The Companies amortize the cost of nuclear fuel based on the rate of consumption. Tho Companies' electric rates include (ECR). The ECR, which in(ludes adjustment for any over or under collection fmm customers, is recalculated each year. amounts for the future disposal of spent nuclear fuel based Acconfingly, Ibun Ibwer defers the difference between actual upon the fonnula used to compute payments to the Unital States Department of Energy. energy costs and the amounts curmntly recovemi from its customem. Reference is made to Note 7 with resinwt to Ibun Allowance for Funds Used During Construction (AFUDC)- Ibwer s accounting for the cost of coal receival from Quarto AFUDC represents the net financing costs capitalized to Mining Company (Quarto). construction work in progress during the construction period. AFUDC is not capitalizal on that portion of any construction Utility Plant and Depreciation-Utility plant retkcts the original cost of construction, including project included in rate base. The borrowed fimds portion reflects capitalized interest payments and the equity funds payroll and relatal msts such a3 taxes, pension 3 md othen portion represents the noncash capitalization ofimputed fringe benefits, administrative and general costs and allow. e<piity costs which are charged to construction. The Com-anee for funds uml during constnation (see AFUDC). pany also charged AFUDC to certain projects which were The Companies provide for depreciation on a straight-line completal but not yet included in rate base during 1983 and basis at various rates over the estimated lives of property in- 1984, in acconlance with a PUCO onter. AFUDC varies ac-cluded in plant in service. The annual composite rates for conting to changes in the level of wnstruction work in progress eh etric plant were 3.id in 1985 ami 1984, and 3.4", in 1983. The Company's depreciation rates include provisions for the estimatal decommissioning costs for its only nuclear generating unit in service. Ibnn Ibwer provides for the cost of decom-missioning radioactive components only, consistent with the rate treatment. 27
Note 3 (nwuA and in the cost of capital. The Companies compute AFUDC Retirement Benefits-utilizing a net of tax rate, which is consistent with the rate The Companies' trusteed, noncontributory pension plans treatment. The AFUDC rate related to assets fimmced only cover almost all full-time employees. Upon retirement, em-through the incurrence of long tenn obligations (see Note 5) ployees receive a monthly pension txtsed on length of service is based on actual interest accrued on the obligations during and amp,ensation. Ibusion costs accrued in 1985,1984 and the period. The ammal rates used by the Company for all other 1983 were $14,986.000, $20,483,000 and $16,904.000, re-construction projects approximatal 11 % during the three years spectively. Of those amotmts, 39,829,000, $14,369,000 and ended December 31,1985. Penn Power's rates applicable to $ 11,913,000, reslectively, were charged to operating expenses; such projects ranged from 9.2549.51% during that period. the balances were charged primarily to construction. Such costs include the amortization of unfunded past service costs income Taxes- on an actuarial basis over 30 yeam. Details of the total provision for income taves are shown on Prior to July 1,1985, the Companies funded pension costs the Consolidated Statements of Ttxes. The defernxl income acennt using t he frozen initial liability actuarial funding meth( xl. taxes msult from timing differences in the recognition of revenues and expenses for tax and accounting purposes. Effective July 1,1985, the Companies changed to the lym-jectal unit credit meth(xl for funding purposes. Accordmgly, The Companies allocate the income tax benefit which results the Companies are not required to make pension contributions from interest expense relatal to construction work in progress during the 1986 plan year. Contributions of $10,300,000 were to income tavs-credit included imder othar income and made during the first six months of 1985. Rnsion costs in daluctions on the Corsolidated Statements of Income. 1985 were n11uced by approximately $6,500,000 due pri-marily to a change from 7.0% to 8.5% in the assumed average For i 'come tax purposes, the L,ompanies claim libemlized tumu[tl earnings mte of phtn assets and other asstunptions. dep. 'ation and consistent with the mte treatment, generally provioe defernsi income taxes. The Companies expect that A comparison of acemuulated plan benefits and plan net assets deferral taxes which have not been provided will be collected from the two latest actuarial reports is as follows: from their customen when the taxes lxxume payable, basal upon the establishal rate making practims of the PUCO, the At June 30. 198d 1984 PPUC and the FERC. As of December 31,1985, the ettmitla- Actuanal present value of tive net income tax timing differences for which deferred accumulated #an benehts Vested $209.898.000 $194.518.000 income taxes have not twen providal were approximately Nonvested 22.466.000 20.987.000 $600,000,000. $232.364.000 $215.505.000 Proceeds from the sales of certain tax benefits in acconlance Net assets available for benehts $407.476.000 $316.537.000 with pmvisions of the Economic Recovery Ttx Act of 1981 are Assumed rate of return for actuanal vI f I t d pan being amortizal over the life of the related property. Procents s 8% m attributable to investment tax crnlits were nxonfed as addi-tional defernxl investment tax entlits; the remaining amounts The above total actuarial present value of accumulated phm wem nxxmkxl as nsluctions to utility plant in service. d k - kdkM W wdogs The Companies defer investment tax enxlits utilized and basal upon present salary levels and past years of service ae-amortize tbese cralits to inanne over the estimatut life of the cumulatal through the valuation date. The Companies' past related property. As oflkeember 31.1985, there were no un- contributions to the plans, however, considenxl estimatal usal investment tax enslits available to offset future fedend ultimate salary increases due to intiation and other factom income taxes payable. and the estimated total service expected to be accumulated by emplo:ves. This is umsistent with the new pension ac-counting standant adopted by the Financial Accounting Stan-dards Boani (FASB) which will be effective for the Companies 28
in 1987, unless the Companies elect to adopt the standaril 3-Leases: earlier. Based upon the new standani, the Companies' re- The Companies lease a p>rtion of their nucli ar fuel nxtuire-partal pension costs will be significantly rvduced. meats, certain tmnsmission facilities, computer equipment, ffice space and of her property and equipment under cancel-The Companies provide a minimum amowit of noncontributory able and noncancelable leases. Consistent with the regalatory life insurance to retired empkiyees in addition to optional treatment, the rental payments for capital and operating contributory insumnce features. IIcalth care benefits, which lean am charged to opemting expenses on the Consolidated include certain employee deductibles and copavments, am Statements ofincome. Such costs for the three years ended
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also available to retirul employws, their dependents and, December 31,1985, am summarized as follows: under wrtain circumstanws, to their survivors. The Companies 1985 1984 1983 pay insunmce pmmlums to cover a portion of these benefits in excess of set limits; all amounts up to the limits are paid by Irterest on capitalized leases $ 9.909 5 2 $10.325 the Companies. Expenses associated with health care and life Amortization of capitalleases 12.704 15.283 12.808 insurance benefits for retimes amountal to $3,785,000 in All cher temcs 10.764 12,120 11.645 1985 and $3,597,000 in 1984, and am chargal to income Tdal rental paymerts $33.377 $40.927 $34,778 during the applicable payment periods. Certain leases enterwl into prior to January 1,1983, which 2-Emainated constmotion Preifects: woul I be reflectal as capital leases on the Consolidatal in Jarmary 1980, the Companies arut all other CAPCO com- Ikdance Sheets, have not yet been capitalized as germitted by panies terminatal plans to construct four nuclear generating SFAS No. 71. If they had been capitalizal, total assets and units. Costs (including settlement of all asserted claims result- liabilities would have increased by $35,554,000 and $37,665,000 , ing Imm termination) unrecovered by the Company and Ibnn at December 31,1985 and 1984, respectively. Ib ver as of December 31,1985, applicable to these units The future minimum rental commitments as of December 31, amounted to appmximately $60,580,000 and $13,303,000, , for am mpmal as caphal ases ami noncamdaNe respectively. The Commmy is mcovering these costs fmm its PFCO jurisdictional customers thmugh an increment to the "P"'"' i"N !""*"* "#" allewed rate of return in rate cases and Ibnn hver (arut the capnai operanng Company with mspect to its FERC jurisdictional customers) teases teases is recovering these costs as an operating expense allowance. 1986 $ 19.570.000 $ 7.715.000 1987 20.695.000 6.953,000 Derv is presently an appeal by the Office of Consumer Advo-cate befom the Ibnnsyhania State Supmme Court regarding the recovery of costs of terminatal projects thmugh mtes from 1990
'f6k000 6.587.000 6.249.000 PPUC jurisdictional customers. Although management carmot Years thereafter 71.456.000 99.254.000 Tdai minimum iease payments 146,761.000 $133.179.000 pralict the outcome of this appeal, it believes the PPUC onler permitting recovery of such costs is lawfut and shouki be Executory costs 21.931.000 allowed to stand. Neither company is earning a rvturn on the Net minimum lease payments 124.830.000 interest p m n 56 m 000 unamortized investment. The remaining periods of mcovery
' P tue of net minimum lease for the Company and Ibnn Ibwer am approximately 7 and 8 years, respecthely. Reference is made to Note 7 with respect to a proposed amendment to Statement of Financial Accounting Starulards Nu 71 (SPAS No. 71)in connection with terminated construction projects excluded from mte base. 29
Note 3 !cwnwl) 4-Capitalization: The Convertible Adjustable Series A Preferre i Stock is c<m-vertible into the Company's common stock only during a (a) Common Stock-Through the Dividend Reinvestment and Stock Purclutse specified Imriod each quarter and will be converted, based Plan, holdem of conunon, preferred and preference stock can upon market price at the time of conversion, to not more acquire additional shares of the Company's common stock than 6.15 shares nor less than 2.08 shares of conunon stock by automatically reinvesting all or a portion of their dividend; for each share of preferred stock surrendered for conversion. and by making optiomd cash payments. Purchases are made The Company may, at its option, elect to purchase for cash, at a price equal to 100% of the average closing price for the in lieu of delivery of common stock, any Convertible Adjust-able Series A Preferred Stock surrendered for conversion, Company's common stock for each ofIhe five Nnv Erk Stock Exchange trading days ending on the investment date. At subject to certain limitations. December 31,1985, the Company had 723,735 shares of (d) Preferred Stock Subject to Mandatory Redemption-common stock reserved for issuance under this plan (subse- Annual sinking fund pmvisions fbr series of the Companies' quently increased by 8,000,000 shares in January 1986), preferred stock, which are retired at $100 per share plus 1,250,000 shares reserved for issuance under a continuous accrued dividends, are as follows: shelf registration program,981,491 shares reserved for pos- Senes Shares Date Beginning sible conversion of the $1.80 Preference Stock, 1,875,840 Ohio Edison-shares reserved for possible conversion of the Convertible 10.48 % 20,000 December 1 (>) Adjustable Series A Preferrnl Stock and 497,280 shan's 10.76 % 20.000 January 1 (i) reserval for issuance through the payroll-based employee Penn Power-stock ownership plan- 8.24 % 5.000 December 1 (i) 11.00 % 4,000 January 1 (i) (b) Retained Earnings- 15.00 % 3.200 July 15 1988 Under the Company's indenture, the Company's consol- 11 50 % 15.000 July 15 1989 idated retained earnings unrestricted for payment of . 3 September 1 1 cash dividends on the Company s common stock were 10.50 % 100.000 Apnl 1 2040
$319,188,000 at December 31,1985. p;g ,,,, men,3 ,,,n,33,n,3 ,,,,,3 , gun (c) Preferred and Preference Stock- The sinking fund requirements for the next five years are:
At the Compames' option, all pn ferred and preference stock may be re<kemed in whole, or in part, at any time upon not 1986 52.588.000 less than 30 nor more than 60 days notice, unless otherwise 1987 4.900.000 notal. Redemption of all prefi'rred and preference stock issual within the past five years is subject to certain restrictions 1990 7.220.000 reganling refunding operations. The optional redemption prices shown on the Consolidatal Statements of Capitalizat ion (e) Preference Stock Subject to Mandatory Redemption-will decline to eventual minimums per share acconting to The $102.50 Series and $95.00 Series each include provisions the Charter provisions that establish each series. for a mandatory sinking fund to retire a minimum of 900 and 1,800 shares, respectively, on July 1 in each year at $1,000 per share plus accrued dividends. The $1.80 Series includes a provision for a mandatory sinking fund to retire a minimum of 100,000 shares on October 1 in each year at $15.125 per share plus accrued dividends. The annual sinking fund re-quirements are $4,213,000 for 1986 through 1989 and
$2,413,000 for 1990.
The $1.80 Series is convertible at any time into common stock at a price of $1C 125 per share. Iloklers receive one share of conunon stock for each share of $1.80 Preference Stock converted, subject to adjustment under certain conditions. l l 30
__ .__ _ ~. (f)long-Knem Debt- . 5-Long-1lntm ObNgetions: The mortgages and their supplements, which secure all of Ohio Edison Energy Dust (OEET)- the Companies' first mortgage bonds, serve as direct first OEET, w hich finances part of the Company's investment mortgage liens on substantially all property and franchises, in Beaver Valley Unit 2, has two lines of revolving credit other than specifically excepted property, owned by the available to it for $400,000,000 and $100,000,000. The latter Companies. credit also serves as a standby facility in conneion with Based on the amount of bonds authenticated by the Trustees OEET commercial paper sales; total borrowings ander that through December 31,1985, the Companies' annual sinking credit and commercial paper outstanding may not exceed and improvement fund requirements for all bonds issued $100,000,000 at any time. under the mortgages amount to $30,375,000. The Company The Company has transferred its interest in Beaver Valley expcts to deposit funds in 1986 which will be withdrawn Unit 2 (exclusive of common facilities and transmission upn the surrender for cancellation of a like principal amount facilities) to OEET, where the assets are used to secure OEET of bonds, which are specifically authenticated for such pur- bormwings. Under the agmement, the Company presently pses against unfunded property additions or against pm- anticipates payments of $100,000,000 in 1986, $80,000,000 viously retired bonds. This method can result in minor in' in each year 1987 through 1989 and $160,000,000 in 1990. i creases in the amount of the annual sinking fund require-The Company accrues interest applicable to OEET which is ments. Ibnn Ibwer expects to satisfy its requirements in 1986 by certifying unfunded property additions at 166-2/3% subsequently capitalized, net of income tax effect. . Interest of the required amount.. on borrowings under the $400,000,000 line of credit includes a commitment fee of 1/2% on the unused Imrtion of this line. As of December 31,1985, the Companies' sinking fund No direct bormwings have been or are expected t.A made mquimments for certain series of first mortgage bonds and against the $100,000,000 line of credit, but OEET ha- issued maturing long-term debt for the next five years are: and has outstanding commercial paper supported by this facility. 'lh the extent that borrowings am less than the 1986 $ 10.081.000 $ 100,000,000 available under this line of credit, the Company 1987 111,087,000 must pay a commitment fee of 1/2%. Under the standby 3 1990 9$ 111 896.000 support, an irrevocable bank letter of credit has been issued upon which OEET pays a fee of 1/8% of the amount of com-mercial paper outstanding. The effective average armual in-terest rates on OEET borrowings ) vere 0.8%,11.8% and The weighted average interest rates shown on the Consoli-
' 10.7% during 1985,1984 and 1983, respectively.
dated Statements of Capitalization relate to long-term debt outstanding at December 31,1985. Nuclear FuelFinancing-Ohio Edison Fuel Corporation and Ibnnsyhania Ibwer Fuel lbtal secumi and unsecured notes outstanding at December 31,1985 and 1984, exclude $118,866,000 and $234,266,000, Corporation (corporations in which the Compnies have no respectively, of certain pollution control notes. !be proceeds wnership interest) provide funds for the procurement of nuclear fuel on behalf of the Companies. The Compames of which were then in escrow pending their disoursement also participate in arrangements wherein the Central Area for construction of pollution control facilities. The Companies, Energy Trust (CAET) linances the acquisition of nuclear obligations to repay certain pollution control revenue bonds material that will ultimately be used to fuel various CAPCO , are secured by several series of first mortgage bonds. A por-generating units. Under onlinary circumstances, the Com-tion of the unsecumi notes outstanding are entitled to the benefit of irrevocable bank lettens of credit of $213,885,000. panies will m ke payments for the nuclear fuel as it is con-sumed. Financing on behalf of the Companies of up to l
'Ib the extent that drawings are made under those letters of credit to pay principal of, or interest on, the pollution con-trol revenue tmnds, the Company is entitled to a credit on
, the notes. The Company pays an annual fee of 5/8% to 7/8% of the amounts of the letters of credit to the issuing banks and is obligated to reimburse the banks for any drawings themunder. i 31
Note unnem0 $303,00(),00() is currently available thnmgh the fuel cor- 6-Bank Lines of Credit and Revolving Credit Agreement: 1x> rations, either through revolving envlit arrangements or The Companies have lines of enslit with domestic banks that the issuance of commarcial paper, which is sup;x >rted by provide for lx>rnnvings of up to $r>0,fXX),(x)0 at the prevailing bank letters of credit, or a combination of both. Financing of prime or similar interest rate. Short-term borrowings may be up to $137,0(X),(WX)is available to CAET on behalf of the made under these lines of enxlit on the Companies' unse-Companies, subject to certain limitations. cured notes. All ofIhe current lines expire December 31,1986; however, all unused lines may be canceled by the banks. The Companies acenie interest applicable to tl e nuclear fuel obligations (for fuel which is not included in mility plant in Ibnn Ibwer maintains a cash balance on deposit with a bank service) which is subsequently capitalized, net of income tax t o p rovide operat ing futu ls, to assu re availabilit y of a $3,fM)0,0()O effect. No din et lx>rrowings have been or are expected to be line of enxlit and for other banking arrangements. This com-made against the lines of credit available to Ihe fuel corpora pensating balance is expected to be maintained at an average tions; the fuel corporations have issued and have outstmul- of approximately $200,000 and is not subject to any cont ract ual i ing commercial paper supported by the lines of credit. 'Ib the restriction against withdrawal. Ibnn Ibwer is required to pay extent that borrowings are less than the $303,000,000 avail- commitment fees that vary from 3 8% to 1/2% to assure the able under these en dit lines, the fuel corporations nmst pay availability of $27,000,000 of the lines of enslit. c<unmitment fees of 1/8% to 1/2% on the available gx>rtions The Company has a bank revolving credit agreement provid-of tho lines of credit. They also pay fees of r> 8% to 7/8% for ing for borrowings of up to $r>00,000,000. Interest rates on 'he letters of credit on the aggregate amount of outstanding borrowings under the agreement vary depending ulum the conunercial paper. Interest rates on (,AET purchase commit-amount of the current borrowing, total borrowings then out-ments vary from 1-178% to 1-1/2% over the m. terest rate standing and, at the option of the L,ompany, may be based apph. cable to certain dealer placed commercial paper. The upon the prevailing prime rate or certain other interest effective average annual interest rates apph.eable to nuclear
- measurements. The Company must pay commitment fees of fuel obligations were 0.5%,11.9% and 10.6,L during 1980, 1/2% on the average daily unused portion of the credit 1984 ami 1983, respectivelv. -
agreement. In certain circumstances, borrowings under the The Companies presently expect to make payments applic- agreement are required to be secured by the Company's first able to these obligations during the next five years as follows: mortgage lxinds. At the Company's option, all obligations outstanding at December 31,19S7, may be converted into
$26.382,000 an amortizable three year term loan. The Company has not 1986 1987 33.370.000 made any lxirrowings under this agn ement.
1988 40.443.000 000 7-Commitments, Guarantees and Contingencies: 999 Construction Program-The Companies' current budget forecasts reflect expenditures of approximately $2,600,0(H),000 for property additions arul improvements from 19861990, of which approximately
$719,000,(HH)is applicable to 1986. In addition, the Com-panies ex pect to invest approximat ely $204,000,(H M) for nuclear fuel during the 1986-1990 pericx1, of which approximately
$35,000,000 is applicable to 1986. A major [wirtion of the Com panies' const ruction activit ies du ring t his five-year period relates to the CAPCO cmnpanies' pn>gnun for the joint devel-opment of power generation and transmic. ion facilities.
Reference is made to "Conunon Ownership of Generating Facilities" included in Note I with respect to the companies' investments in Ikaver Valley Unit 2 and Ibrry Units 1 and 2, all CAPCO nuclear units. Ibrry Unit 1 is se' omtially complete 32
and Beaver Valley Unit 2 is about 91% complete; the status effect. The Company does not presently anticipate that a of Ibrry Unit 2 is discussed below. The Companies will be write-off of even this magnitude, if required, would affect its requesting in mte cases recovery for their respective invest- ability to pay common stock dividends at current levels, and ments in Ibrry Unit I and Beaver Valley Unit 2, but they studies indicate that the magnitude of any such write-off cannot pmdict with any degree of certainty the outcome of could be much smaller. If, despite its best current informa-the regulatory pnx'ess. tion, a much larger write-off were requinxi, depending upon
. the timing involved, such a write-off could temporarily affect The CAPCO companies are cont.mumg to review the status the Company's ability to pay common stock dividends at cur-ofIbrry Unit 2. The only significant work that had recently rent levels. Based on its experience to date, Ibnn Ibwer would been performed on Unit 2 was that necessary to enable Ibrry ex eet to recover its investment in Unit 2 through its rates Unit I to be placed in service. That work was essentially
- if the Unit were terminated, though this issue is before the completed m the second quarter of 1985. As of July 1,1980, M 1 i l's is so h me fw the Companies stopped m, eluding APUDC relating to Unit 2
_ the Company with respect to its FERCjurisdictional customers. m net income and instead began crediting AFUDC capitalized ' Reference is made to the proposed amendment to SFAS No. to Unit 2 to a reserve account establ;ished for that purpose. 71 discussed below. Pn,or to this change, the Compames AFUDC related to Unit 2 had been included in net income at the mte of approxi-mately $3'7(X),000 per month. Quarto Profect- . The ComInmies, together with the other CAPCO companies, Until review of the status ofIbrry Unit 2 has been com- have entenxl into a long-term coal supply contract with Quarto. pleted, there will be no defined schedule for the completion The CAPCO companies have also agmed to guamntee sevemlly, of Unit 2. Ibssible alternatives being reviewed with respect and not jointly, their proportionate shares of Quarto's debt to Unit 2 include indefinite suspension of construction on the and lease obligations incurnxi while developing and equip-unit, resumption of work on the unit and tennination of the ping the mines. As of December 31,1985, Ihe Companies' j unit. In accordance with the CAPCO arrangements, none of share of the guarantee was $203,795,000. these alternatives may be implemented without the approval g .d M s w i m W m t M it g b of each of the CAPCO companies. . December 31,1999, the Companies must reimburse Quarto
- As of December 31,1985, the Company and ibnn Ibwer for their shares of the cost of operating the Quarto mines, had invested approximately $370,000,000 and $60,400,000, inchiding those costs associated with mine constniction, respectively, applicable to Ibrry Unit 2. Delay in the com- whether or not they receive coal from Quarto. These pay-
- pletion of the Unit can be expected to increase its total cost ments will permit Quarto, over the life of the contract, to by amounts which are not presently determinable. If a deci- meet the debt and lease obligations it incurred while develop-sion were made to terminate Unit 2, certain costs which are ing and equipping the mines. The Companies' total payments currently assigned to Unit 2 woidd be massigned, where under this cont ract, including amounts related to mine con-appropriate, to Unit 1. However, cancellation charges pay- st ruction costs, amounted to $92,532,000, $ 103,464,000, and 2 able to contractors and other costs of termination could be .$92,644,000 dm ing 1985,1984 and 1983, respectively. Under incurred. Ibnding completion of the CAPCO review, the the coal supply mntract, t he Companies' future minimum Company is unaNe to predict whether the constnietion on payments mlated solely t<> mine constniction costs are:
Unit 2 will contmue or, if continued, on what basis such continuation will proceed. 1986 $ 24.749.000 l 1987 23.994.000 If construction ofIbrry Unit 2 is terminated, the Company 1988 23.238,000 would seek to recover its investment but cannot now predict 1989 22.483.000 whether its investment in Unit 2 applicable to its Pl'CO jurisdictional customers will be recoverable. If no means of Q yy mcovery of the costs of Unit 2, in the case of termination, , were available to the Company fnun its PUCO jurisdictional Pollowm, g the end of the development perimi, Ibnn Ibwer customers and no other basis for recovery couhl be finmd or was ontemd by die EC to defer recovery of the cost of anticipated, the Company would be required to write off the Quarto coal m, excess of generally prevailing market prices, i portion of its investment applicable to its PUCO jurisdic- lending further proceedings. As a result, Ibnn Ibwer began + i tional customers. As of December 31,1985, the Company l estimates that the maximum amount of such a write-off would be appmximately $215,000,000, net of income tax I 1 33
Notes wtwo deferring a portion of the cost of Quarto coal, rather than plained of excessive particulate and sulfur dioxide (SO 2) including such costs in its ECit Although the PPUC issued a emissions fn>m a number of sources in Ohio and other subsequent order which found that Ibnn Ibwer was not im- states, ine!uding p>tentially all of the Companies' Ohio prudent in initiating and continuing the Quarto project, it plants. Seven northeastern states have appealed the epa's prescribed a meth<xt for nwvery of the current cost of Quarto decision to the U.S. Court of Appeals for the District of coal and the Quarto coal msts Ibnn Ibwer had deferred which Columbia, asking that the decision be reviewed, reversed, could result in 1 substantial underrecovery of Quarto coal imxlified or set aside. The Company, along with other electric costs. As of December 31,1985, Ibnn Ibwer's defernxi Quarto utilities and others, has intervened in the case. The Company coal costs amounted to $5,108,000. Ibnn Ibwer has appealed is unable to predict the outcome of these proceedings. the onter to the Commonwealth Court ofIbnnsylvania. Al- i On March 20,1984, a number of states, together with though unable to predict the fmal resolution of this matter, Various environmental organizations and m. dividuals, filed management believes that its ultimate dispisition will not . . l suit .m the U.S. District Court for the District of Columbia have a material adverse effect upon the Co. .pany,s consoh.- assmmg at um M hs n. tated a mamlatoy &ny to & o dated results of operations. termine which states are contributing to air p>llution which On October 23,1985, the Ohio Supreme Court denied the is alleged to endanger public health and welfare in Canada Company's motion to dismiss an appeal by the Office of and to onfer cutbacks in SO2emissions in these states under Consumers' Counsel of a PUCO onler relating to recovery the section of the Clean Air Act dealing with international air thnnigh the EFC of a pirtion of the capitalized development pollution (Section i15). On July 26,1985, the Cou.t granted costs which are included in the price of Quarto coal. Although summary judgment to Plaintiffs on their Section 115 claims management cannot predict the outcome of the appeal, it and onlered the EPA to begin a process that could eventually believes the PUCO onier is both lawful and reasonable arul lead to moie stringent emission standards being applied to therefore believes the onter should be allowed to stand. the Companies' generating plants. The Court's decision luts been appealed by the EPA as well as the Company, along with Environmental Matters- of her electric utility companies and other parties. In addition
\itrious fi dend, state and local authorities regulate the to its appeal of the District Court's decision, the Company, companies with regant to air and water quality and other on September 24,1985, reinstated an appeal fikxl in 1981 environmental matters. The Companies estimate that com- in the U.S. Circuit Court Ihr the District of Columbia to chal-pliance requires additional capital expenditures of approxi lenge the validity of the documents which form the basis for J
mately $128,1W)o.(H)o, which is inchuhyd in the construction the District Court's decision that the EPA had a duty to im- , estimate given above under " Construction Prognun" lbr plement Section 115. In any event, the imposition of more 1956 through 1990. stringent emission standants could only happ n after exten-sive administrative pn>ceedings at both the state amt federal On December 5,1984, the federal Environmental Protection levels. The Company is unable to predict the outcome of Agency (EPA)dem.e d a petition f. rom the (,ommonwealth of - umse pnxmlings. j lbnnsylvania and the states ol New ihrk and Maine, which
; sought to Ibree the EPA to mal.e findings umler Section 120 As a part of the reauthorization of the Clean Air Act,legisla-of the Clean Air Act. Section 126 provides a remedy for a tion has been intnxiuced in Congress to address the so-
) downwind state that can show adverse impact because air called " acid rain" problem. Various bills intnaluced thus far ! pollution in an upwind state causes nonattainment of air would require reductions in S02 emissions from utility power ! (piality standants in the downwind state. The petition com- plants and ot her sources located in several states, including i Ohio and Ibrmsylvania. The Company is unable to predict whether the proposed bills will be enacted and, if so, to what
- extent, if any, the SO2 emission limits at the Compames' l plants would be affected. Substantial changes in the SO 2 i emission limits could result in the need for changes in coal i
I l 1 ) 1
supply, significant capital investments in flue gas desulfuriza. 8-Sununary of Guarterfy Financial Data (Unaudleodk tion equipment or the closing of some coal-fired generating 'I he following summarizes certain consolidated operating capacity to assure compliance. If flue gas desulfurization results for the four quarters of 1985 and 1984. equipment were to be installed on all of their generating uarcn June sesember oecember units to achieve compliance, a circumstance that may be Three Months Ended 31.1985 30.1985 30,1985 31.1985 , physically impossible because of space limitations at certain va Swsands. excep'per sha'e ammaw Operatng Rewmes $453,354 $418.498 $438.901 $443.996 of their plants, the Companies estimate that the capital costs Operating Expenses assceiated with such installation could exceed $ 1,000,000,000. and Taxes 353.444 330.808 342.433 347.710 j The Companies expect Ihat any such capital costs, as well as Operating income 99.910 87,690 96.468 96.286 1 any increased operating costs associated with such equip. Other income and d " ment, would ultimately be recovenxi fmm their customers. Nd b"e$d and Other Charges 73.780 73.467 76J 69 75.547 In October 1983, the U.S. Court of Appeals for the District of Nd Inconw $ 98.782 $ p 806 $ 90.476 $ M621 . Columbia reversed several significant portions of the EPA's regulations on the methmis used by the EPA to determine Earnings on Common Stock $ 85.866 $ ' 77.888 $ 77.188 $ 77.131 l the amount of stack height credit for establishing individual Weighted Average Number j source emission limits. In July 1984, the U.S. Supreme Court (hgs'aMg k 123.502 127.486 133.026 135.691 demed a utility mdustry request to review the Court of Eam ngs Appeals' decision. On July 8,1985, the EPA issued new stack height regulations to confonn with the court's decision; the new regulations have also been appealal to the U.S. Court March June sesember oecember of Appeals for the District of C(>lumbia. The Ohio Environ. Three Months Ended 31,1984 30.1984 30.1984 31.1984 mental Protection Agency and the Rnnsylvania Department pn thousands. except per share emounW Operatng Rewmes $420.453 $390548 $416.794 $408.309 of En rironmental Resources must review the emission limits Operating Expenses under their respective State implementation Plans and submit and Taxes 330.524 309.150 326.981 327.736 to the EPA for approval any revised limits necessary to con- Operating Income 89.929 82.398 89.813 80.573 form to the new regulations by April 1980. Such review could Other Income and L ' k result in more stringent emission limits for some existing Nd ben $and plants and increased capital costs and operating expenses. Otner Charges 62.729 64.386 66.820 73.323 The Companies are studying the new regulations and are Net income $ 83.957 $ 79.344 $ 97.134 $ 78.898 currently unable to pmdict their ultimate effect. Eamings on Common Stock $ 72.429 $ 67.827 $ 84.563 $ 65.875 Weighted Average Number Statement of Financial Accounting Standards No. 71- of Snares of Common
, The FASB recently proposed an amendment to SFAS No. 71 Stock Outstanding 11o.539 115.164 117.938 121.044 which, among other things, would require the recognition of Eamings per Share a loss in connection with the recovery of terminated construe. of Common Stock $ 66 $ 59 $ 72 $ 54 tion projects if it is probable that the unamortized investment would be excluded from rate base if adopted as proposed, it would be applied retroactively to include the four units ter-minated by the CAPCO companies in 1980 as described in Note 2. The proposed amendment also imposes stricter stan-dards reganling the capitalization of costs associated with rate phase-in plans, disallowances by regulators of the costs of newly completed generating plants and other relatal matters, none of which would have required a retroactive adjustment by the Companies as of December 31,1985. Because the pro-posed amendment is subject to revision and a public comment process, the Companies cannot predict the ultimate impact which may result from any amendment eventually adopted.
4 9 d 35 _ _ - - _ _ . _ . ~ - . _ . _ ___ _ _ _ _ _ _ ._-_ . _ _ _ _ - - _ _
N:t:3 (r ; minwnt) 9-Supplementary Financial Data-Financial Reporting and financial information to disclose the estimated effects of in-Changing Prices (Unaudited): llation and changes in prices on prolerty, plant and equip-Statement of Financial Accounting Standants No. 33, ment. This data is presented in accontance with SFAS No. 33;
" Financial Reporting and Changing Prices"(SFAS No 33), however, it is not intended as a substitute for earnings re-as amended, provides for the preparation of supplementary ported on a historical cost hasis.
Results of Operations Adiusted for the Effects of Changing Pnces for the Year Ended December 31.1985 (Thousands of average 1985 donars) Histoncal income from continuing operations $ 318.073 Inflationary Effees on Common Equity: Capital investments Effects-Increase in spec:fic poces (current cost) of property held dunng the year (i) 270.749 Change in general pnce level on property held dunng the year (393.511) Adjustment to net recoverable cost 58.822 Additional provision for depreciation (167.538) (231.478) Advantage from the decrease in purchasing power of net monetary liabilites 160.872 Net erosion of common stockholders' equity (70.606) Income from continuing operations adjt ted for cf.anging onces (n) $247.467 (i) At December 31.1985. net property, plant and equipment. adjusted for changes in specific pnces (current cost) was $11.039977.000, while histoncal cost (net recoverable cost) was $6.615.704.000 (n) Income from cont:nuing operations. adjusted for change in specific pnces (current cost) would be $150.535.000 if only the amount reportable as additional provision for depreciation was included in the adjustment Companson of Supplementary Financial Data For the Years Ended December 31 1985 1984 1983 1982 1981 (Dolors an thousands. escept per share amounts) Operating Revenues-Histor! cal $1.754.749 $1.637.104 $1.515,852 $1.429 626 $1.279.649 Adjusted to Average 1985 Dollars $1.754.749 $1195.549 $1.636.848 $1.593.400 $1.513.681 income from Continuing Operations-i Histoncal $ 318.073 $ 290.694 $ 227.843 $ 161.338 $ 149.850 Adjusted for changing pnces (Average 1985 Dollay $ 247.467 $ 231.786 $ 182.575 $ 124.654 $ 64.357 Income from Continuing Operations per Common Share-Histoncal $2 45 $2 50 $2.22 $189 $2.10 Adjusted for changing pnces (Average 1985 Dollars) $190 $2.00 $178 $1.46 $ .90 Return from Continuing Operations on Average Common Equity-Hntoncal 15 2 % 15 9 % 14 2 % 12.3 % 13 5 % Adjusted for chang!nq pnces 11 8 % 12.2 % 10 5 % 83% 49% Effective Incnme Tax Rate-Histoncal 32 4 % 32.1 % 35 1 % 32 1 % 33 5 % Adjusted for changing pnces 37.1% 37 0 % 40 8 % 38 1 % 49 4 % 1 Excess of Increase in the Specific Levelof Prices on Property, Plant and Equipment Over General Price Changes (Average 1985 Dollars) $ (122.762) $ (253.283) $ 115.191 $ 372.254 $ (43.556) Advantage Resulting from the Decrease in Purchasing Power of Net Monetary Liabilities (Average 1985 Dollars) $ 160 872 $ 150.812 $ 131.315 $ 119 238 $ 255.526 Year End Common Stockholders' Equity-Histoncal $2.234.156 $1.947,357 $1.711.974 $1.488.371 $1.229.044 Adjusted for changing pnc% (Average 1985 Dollars) $2.204 834 $1.991.918 $1.816.743 $1,640. 739 $1.408.700 Cash Dividends Declared per Common Share-Histoncal $183 $184 $180 $1.76 $176 Adi usted to Average 1985 Dollars $188 $191 $194 $197 $2 07 Year End Market Price per Common Share-Histoncal $16 375 $13 50 $12 25 $14 00 $11625 Art!usted to Average 1985 Doltars $1611 $13 79 $13 00 $15 43 $13 30 322 2 3111 298 4 2891 272 4 Avenge Consumer Price index 36
The increase in specific prices of pn>perty heki during the depreciation. No inflation adjustment luts been reflected for year attempts to measure inervasing asset values which income taxes, in conformity with the relx>rting requirements appn>ximate dollars that woukt have to be spent talay to of SFAS No. 33. acquire property, plant and equipment identical to assets currently owned. The Companies use the llandyWhitman "" "NE" " "'. nDadon, um ,onman s, net nu>netay liabilities (pnneipally 1 mg term debt, long-term obligations Index of Public Utility Construction Costs and the llureau of and prefernxi stock) will be repaid with dollars luiving less Later and Statistics engineering indices to calculate the cur-purchasing power than dollars had when the ong_nal i liability rent cost of those assets. The irulices are applied to actual was incurred. This economic benefit is p>rtrayed on the dollars spent on large construction projects acconting to the
** " * " 7 "* " # * "" "N" ""# "*"
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year of expenditure. For all other plant facilities, the current "N E'*a of net monetary liabilities, which serves as an offset to cost is determined based upm the year the facilities were the .mflationary effects of replacing the Companies property, placal in service. plant and equipment. Additional depmeiation expense adjusted for the change in specific prices was detennined using the same rates and metheds used for computing the historical cost provision for Auditors' Report 33 the Stockholders and floant of Directors of Ohio Edison currently being reviewed by the CAPCO companies. Ibssible Company: alternatives being considered include indefinite suspension, resumption of work and termination of the Unit. Because the We have examined the consolidated balance sheets and con _ solidated statements of capitalization of Ohio Islison Company Company is unable to predict the results of the review, it (an Ohio corporation) and subsidiaries as of December 31, cannot now predict if construction of Ibrry Unit 2 will be 1985, and 1981, and the related consolidated statements of terminated, and if terminated, whether the investment income, retained earnings, capital stock and other paid in applicable to its PUCO jurisdictional customers will be capital, sources of funds for property additions and taxes for each of the three years in the period ended December 31, In our opinion, subject to the effect on the 1985 consolidated 1985. Our examinations were made in acconlance with financial statements of such adjustments, if any, that might generally accepted auditing standants and, accontingly, have been required had the outcome of the uncertainty included such tests of the accounting reconis and such other n ferred to in the sennul paragraph been known, and auditing pmentures as we considered tweessary in the subject to the effect on the consolidatal financial statements circumstances. of such adjustments, if any, that might have been rnpiired Itegulatory commissions are examining the impact on luul du outconu of die unntainty in die thini paragraph Imer known, um Snancial statements referred to above customers' rates of nuclear generating units and are raising various amcerns, inchuling the pntdence 01 amstruction present fairly the financial position of Ohio Edison Company ami subsidiaries as of December 31,1985, and 1981, and the costs of such units and Ihe possible existence of excess generating capacity. These concerns are likely to be results of their operations and the sources of fmuis for addressal by the nunmissions regulating the Companies E"PN * ""* "E " *"" WS * "# P d"I with respect to units in which the Companies have an endal December 31,1985, in conformity with genemlly ownership interest. As discussed in Note 7 to the antptni acn>undng principles applied on a consistent basis. consolidatni financial statements, the Companies will be requesting recovery for their respective investments in Ibrry Unit I amiIk' aver Valley Unit 2 in future rate proceedings. 4 . The Companies cannot pnnlict with any degree of certainty AlmiUit ANDEI(SEN & Co. the outonne of the regulatory process, and accontingly, we are tinable to form an opinion as to what extent the New Erk. N Y Companies' investments will be recoverable. W"M E I"* As discussnt in Note 7 to the consolidated financial statetrents, the continued constniction of Ibrry Unit 2 is 37
Ccn:clid: tad Fin:ncizi Statistics 1985 1984 1983 1982 1981 1980 1975 General Financialinformation (Dollars o thousands, except per share amounts) Total Operating Revenues $1,754,749 $1.637,104 $1.515.852 $1.429.626 $1,279.649 $1,080.8C9 $ 593.324 Operating income S 380,354 $ 342.713 $ 302,751 $ 269.640 $ 252,381 $ 169.383 $ 89.663 Earnings on Common Stock 8 318,073 $ 290.694 $ 227,843 $ 181,496 $ 163.892 $ 101,403 $ 67,641 Ratio of Earnings on Common Stock 18.1 % 17.8 % 15 0 % 12.7 % 12.8 % 9.4 % 11.4 % to Operating Revenues 2.34 x 2.34 x 2.31 x 2.02 x 2.11 x 2.05 x 2.34 x i Times Interest Earned Before income Tax Net Utility Plant at December 31 $6,609,196 $5.945.549 $5.206,134 $4.522,733 $3.867,757 $3,435.267 $1.850 490 Property Add.tions S 826,994 $ 868,099 $ 771,131 $ 774.233 $ 568.044 $ 515,020 $ 282.892 Capitahzation at December 31: Common Stockholders' Equity $2,234,156 $1,947,357 $1.711,974 $1,488.371 $1,229.044 $1.067.524 $ 546,271 Preferred and Preference Stock Not 467,940 455.490 404.240 354,240 304,240 306,905 213,905 Subject to Mandatory Redemption Preferred and Preference Stock 176,694 158.483 158,112 152,560 151.141 156,450 88.000 Subject to Mandatory Redemption 2,691,615 2,449.502 2,132.137 2.005.436 1,759.771 1,594.384 920.932 Longterm Debt Total Capitahzation $5,570,405 $5,010.832 $4.406.463 $4,000,607 $3,444.196 $3,125.263 $1,769,108 Capitahzation Ratios at December 31: Cornmon Stockholders' Equity 40.1 % 38 9 % 38.9 % 37.2 % 35.7 % 34 2 % 30 9 % Preferred and Preference Stock Not Subject to Mandatory Redemption 8.4 9.1 9.1 8.9 8.8 98 12.1 Preferred and Preference Stock Subject to Mandatory Redemption 3.2 31 36 3.8 4.4 5.0 5.0 Longterm Deot 48.3 48 9 48.4 50.1 51.1 51.0 52.0 Total Capttization 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Longterm Ob4gations at December 31 8 739,291 $ 822.234 $ 759.843 $ 656,655 $ 447.484 $ 265.000 - Cost of Preferred & Preference Stock Outstanding at December 31 10.00 % 9 87 % 9.63 % 9 17 % 8 37 % 8.38 % 7.70 % Cost of Longterm Debt Outstanding 11.45 % 11.52 % 10.82 % 10.69 % 9 99 % 3.16 % 7.27 % at December 31 Common Stock Data Earnings per Average Common Share $2.45 $2.50 $2.22 $2.13 $2.30 $1.52 $1.95 Return on Average Common Equity 15.2% 15 9 % 14.2 % 13.5 % 14 6 % 9.7% 13.1 % Dividends Paid per Share $1.88 $1.84 $1.80 $1.76 $1.76 $1.76 $1.66 Common Stock Dividend Payout Ratio 77 % 74 % 81 % 83 % 77 % 116 % 85 % Common Stock Dividend Yield 11.5 % 13 6 % 14.7 % 12.6 % 15.1 % 14 8 % 9.9% at December 31 Prce/ Earnings Ratio at December 31 6.7 54 5.5 66 5.1 7.8 86 Shares of Common Stock Outstanding at December 31 (000) 137,089 122,237 108.460 96.062 78.676 68.526 35.695 Book Vafue per Common Share at December 31 $16.30 $15 93 $15.78 $15.49 $15.62 $15.58 $15 30 Market Prce per Common Share at December 31 S!6.375 $13.50 $12.25 $14.00 $11.625 $11.875 $16 75 Ratio of Market Price to Book Value 100 % 85 % 78 % 90 % 74 % 76 % 109 % per Share at December 31 1 38
Can:olid: tad Cpar: ting Stati:tica 1985 1984 1983 1982 1981 1980 1975 Remnue From Electnc Sales mtusands) Residential 8 600,481 $ 571.878 $ 540.167 $ 497.941 $ 442,267 $ 398.832 $221.230 Commercial 433,445 400,291 385.277 356.325 308.599 268.788 149.268 Industrial 476,257 469.112 421.736 383.535 381.162 330.717 180,086 Other 64,708 57,921 69.278 67.828 53.993 50,420 27,253 Suttotal 1,574,891 1.499.202 1.416.458 1.305.629 1,186.021 1,048,757 577.837 l Sales to Utsties 159,262 117.385 76.220 101.688 73.966 12.381 6.307 Tota! $1,734,153 $1,616.587 $1.492.678 $ 1.407,317 $i 259.987 $1.061.138 $584,144 Revenue From Electrc Sales-% l Residential 34.6% 35.4 % 36.2 % 35.4 % 35.1 % 37.6 % 37.9% Commercial 25.0 24.7 25 8 25.3 24.5 25.3 25.5 l Industnal 27.5 29.0 28 3 27.3 30 2 31.2 30.8 l _ Other 3.7 36 46 4.8 4.3 4.7 4.7 t bubtotal 90.8 92.7 94 9 92.8 94.1 98.8 98 9 l Sales to Utilhes 9.2 7.3 5.1 7.2 5.9 1.2 1.1 Total 100.0 % 100.0 % 100.0 % 100 0 % 100.0 % 100 0 % 100 0 % Kdowatt Hour Sales mons) Residential 6,791 6,836 6.735 6.733 6.747 6.801 5,808 Commercial 5,266 5.101 5.096 4,996 4.917 4.812 4.169 Industnal 8,751 9.161 8,386 7,708 9.352 8.909 8.514 Other 1,149 1.075 1.211 1,227 1.181 1.370 1,133 Subtotal 21,957 22.173 21,428 20.664 22.197 21.892 19.624 Sales to U% ties 6,929 4.591 2.917 3.361 2.465 502 357 Total 28,886 26.764 24.345 24.025 24.662 22.394 19.981 Customers Served at December 31: Residential 888,107 885,376 878.949 873.877 872.303 867.447 813.308 Commercial 96,048 90.810 90,072 89.706 89.231 88,505 83.710 Industnal 2,021 1.757 1.003 1.048 1.068 1.059 1,132 Chher 892 721 736 724 711 704 676 Total 987,068 978.664 970.760 965.355 963.313 957.715 898.826 Average Annual Residential kWh Usage 7,682 7.762 7.695 7,723 7.760 7.870 7.204 Average Residential Prce per kWh 8.844 8.37c 8.02c 7.40c 6 56c 5 86c 3 81c Cost of Coal per Meon Btu $1.53 $1,59 $162 $1.75 $1.81 $1.50 $1.05 Generating Capabity at December 31: Coal 89.1 % 39 1 % 89 2 % 86.2 % 86.3 % 86.1 % 90 3 % Od 3.0 30 30 6.3 62 64 9.7 Nuclear 7.9 7.9 7.8 7.5 7.5 7.5 - TcA[ 100.0 % 100 0 % 100.0 % 100.0 % 100 0 % 100 0 % 100 0 % Sources of Electnc Generation: Coal 89.3 % 90.4 % 89 8 % 93 8 % 89 9 % 98 7 % 96 6 % Oil - - - 0.1 0.2 06 34 Nuclear 10.7 96 10 2 6.1 99 0.7 - Total 100.0 % 100 0 % 100 0 % 100.0 % 100 0 % 100 0 % 100 0 % Peak Load-Megawatts 4,084 4.093 4.148 4.073 4.148 4.210 3.682 Numbe of Employees at December 31 7,496 7.611 '.702 7.885 7.669 7.503 6.184 39
Clockh:Id:rInferm ti:n Clockholder Profile Dividend Reinvestment Plan Toll-Free Telephone Management Developments At the end of the year,205,576 At the end of 1985, more than Numbers Available The Company's Board of stockhoklem owned 137.I 72,000 stockholders, repre- For the convenience of our Directors elected two new vice million shan s of Ohio Edison senting 32 percent of all stock. stockholders, the Company presidents in August 1985. common stock. Approximately holders, were enrolled in the has toll free telephone num- II. R ter Burg, treasurer, and 29 percent are women,27 Company's Dividend Reinvest. lun to provide information David I Wager, assistant to percent men and 32 percent ment and Stock Purchase and assistance. Stockhoklers die president, were both joint hoklers. The remaining Plan. They reinvested $56.2 are encouraged to call 1-800~ elected vice president. 12 percent represents trusts, million in dividends arul made 321-0468 in Ohio, or 1-800-633-4766 outside Ohio, on corporations, institutions, optional cash payments of brokers and other investment $20.8 million to acquire 5. I Monday thmugh I rida3, ex-million sh tres of common cept holidays, from 8:00 a.m. b'rouIis- I,. Struck, II, former director of stock during the year. to 4:30 p.m., eastern time. Nearly 74 percent of conunon Akron area and foreign callers airporate planning coontina-stockholders own 300 shares Most participants in the Plan tion, was elected to succeed dumid use (216) 384 6509. or less. They live in all 50 states could have exchaled from their Stockhoklers may also write Mr. Clark as assistant treasun r. and many foreign countries. annual income up to $750 din cdy to Stockhohler Ser- Clyde W. Frederickson, vice ($1,500 on a joint return) of vices, Ohio Edison Company, president since 1980, retired Common Stock Dividend taxable dividends they rein- 76 South Main Stn et, Akron, in May 1985 after 37 years Effective the first quarter of vested in 1985. Ilowever, this Ohio 44308. of service. 1986, the Company's Ibant of exclusion has expin d fbr Directors increased the quar- dividends reinvested after We were s ddened on March 7, Additionallnformation terly common stock dividerul December 31,1985. Ohio Edison Company common
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from 47 cents per share to 48 ns ehi, president of the Additional information about stock is listed on the New Wrk cents, or $1.92 on an annual ompany between 1964 and tM Pl ad a Prospectus, and Midwest stock exchanges basis. For each quarter of 1985, arid traded on other registered
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be ohmined by contacting """ the ibani declared dividends of 47 cents per share. Ohio Edison's Stockholder exchanges under the "OEC"
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Services- ticker symbol. Newspapers Mansfiehl was well known for generally use the symbol Dividend income Tax Status h.is countless contributions to al Ing "OWM"b M IWim the Company, the utility m-All common, preferred and of Stockholders preference stock dividends Fonn 10-K, the 1985 Annual dustry and our community. Stockhohlers are invited to paid in 1985 were taxable for Report to the Securities and attend the 1986 Annual Meet. WWM 198 Wder federal income tax purposes. Exchange Commission, will ing on Thursday, April 24, at he sent wdumt charge to Rhs& ed mr No portion of 1985 dividend 1 10 a.m. in the Company's President of the Company represented a return of capital (;eneral Office auditorium in stodhoMem upon n quest from 1944 to his retirement in because of changes in federal Akron, Ohio. Those not at. l'or a copy, please write to 1964, Mr. Sanunis was also a tax laws affecting how a cor- Gregory F. laFlame, Secretary, g 3gg g 3gg tending can vote on the items 7 no Edison ( ompany, 76 poration determines return of of business by fiUing out mul and guided dm early growth capital. It is also unlikely Ihat returning the proxy cant mailed S"'.ith Main Street, Akron, of Ohio Edison. future dividends will be con- to each stockholder approxi-
"" #U sidenxi return of capital. mately 30 days befbre the New Board Member Transfer Agent:
meeting. At the 1985 Ammal Meeting , Ohio Edisou Company of Stockhoklers, William R. l 76 South Main Street M el d to um Boant . Akron, Ohio 44308 of Directors to succeed William l Attention Transfer Agent A. Derrick, who retired af ter Registrar serving as a director of Ohio on for 13 years. Mr. Miller ' National City Bank, Akron m va e president of govern One Cascade Plaza
""'ntal personnel relations at Akron, Ohio 4430M The Goodyear Tire and Rubber Company in Akron.
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< Chlo Edia:n Dircct:ra cnd nt n g:msnt l Board of Directors Officers Division ntanagers Donald C.131asius Justin T. Itogers, Jr. Anthony N. Gorant Clusinnan of the lhunni and Chief IWsident Aknin Division Entntiev Officer of The 7appan 0""- pany, Alansfield, Ohio (rnien>nstav V ctor A. Owoc Denver G.13losser 00vns, apylianres andfurnish tnqs). Slender, Nenninating nunruittov, Douglas W. 'lkchappat James E. 51arkle Fina nce Onn mittee. Entntire Lice Pnsident lake Eric Division Dr. Lucille G. Ford Lynn Firestone italcolm E. Cash L' ice IWsi&ntfor Acadernic Affairs, &nior l' ice IWsident Ala nsfivid Division Ashland Ostlar, itshland. Ohio. Chainnan, N<rninating Onnneitt<v; Dav.d i I . G.undry th>bert L. h.ensinger Alemler, Einance Onntnittee. &nic>r 1{urIWsident 31 nrion Dit ision Ih>bert L. Loughhead flobert J. AlcWhorter N. Itod Afonahan
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Chainna n of thelkwnni, nt:idenl and Chief Envntire Oficeriff \li>irton flussell J. Spetrino ihrbert E. Dawson SteelOirporation, \\eirton, \\?st l' ire IWsident a nd Stark Dir ision l'inf nia i (stavl pnwincts). Chainna n, ciern>nal n>a n. set David C.13ixler, Jr. Gunpensation Onn mitt <v; hiemier' Andt! Onn mitter_ onald D.13est 11hnen Dirision l' ice IWsident Glenn II. hicadows Ibter A. Fetterolf IWsident, Chief Envntire Olyicer a rni II IY'C'I5U'M li'""U"" " hivisi"" Dinrtor of StrNeiI arriainstion, \""IWsid'"' Ak n>n, Ghio(cari<nts nuunnfactnnvi Frank C. Derry pnwfurts). Sfender. Onnpensation l' ice prysident Onnmittav, Audit Cennmitt<v. John A. Gill William it. Atiller l' ice avsident l l' ire JWsident <!f Gor ennnental Drson nel Rrlations, The Gooditcar balDCS U EiISUD Tirr and Rubber Onnpany. Ahnm, ti<v IW.sident Ohia (ntbher a nd n lated pn> ducts). Dayid L. Yeager Stemler; Onnpensation Onnmittee. t'icet w gident John Nelson 5fark T. Clark Chainnan of thelknnnland Chief 7%vn. sun r Envntire Officer of Com unerrial Sloviring, Inc., }inIngstoorn, Ohio WIIlia m A U aDIVIS (enginventi metal rtrmpo ments) C"*PI"'lI'Y 3/ ember; nunien.sation nunmitt,v. Gregory F. LaFlame Victor A. Owoc S r"'f""I Entntia e l' ire IWsident of Chi" Warren G. Pouch Edis<ns. Slender. Finance Onn witter Assisrang n,mptnoller Justin T. Ibigers, Jr. Joanne 51artin President of Ohio Erlison and ,ggjsta ng S 77pta n, Chainnan of the ikwtrelof ris subsid-inry. IVnnsyh ania Dnrer Chainnan, Theodore Y Struck,11 Fina nce Onnmittee; Slender; Now. it ta nt l'rrasu rrr inating renn milto v. }layypy L_ yagup7 Douglas W. 'lhchappat Assisi""I 0""pt">ller Ea vutur ( *i<v nmident <!f Olao Edism. Frank C. Watson IWsulent and Dins for <![ The
}im ralston n \\b(dimjrInd Eneinuvrinq o nnpet rot. lim misforrn. Oh to (non-Jhrnms allmss). l'hairnunn. Audit Co nn millov; llender, Nenninating Ce nnin oltre.
William C. Zekan Cha r rnut n of I ie lh un ni a nd Pr esident of A. S hnIrnan. Ine Aknm. Ohio (custom plastic campmuda 3 fender; Andot Gunnattov Director Emeritus Fred 11. Zuck
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