ML20215H230
| ML20215H230 | |
| Person / Time | |
|---|---|
| Site: | Davis Besse, Perry, 05000000 |
| Issue date: | 04/10/1987 |
| From: | Martin J TOLEDO EDISON CO. |
| To: | Dinitz I NRC OFFICE OF STATE PROGRAMS (OSP) |
| References | |
| NUDOCS 8704200217 | |
| Download: ML20215H230 (24) | |
Text
TOLEDO EDISON Docket Nos. 50-440 JAMES P. MARTIN 50-346 www (4191 P49 5110 April 10, 1987 Mr. Ira Dinitz Nuclear Regulatory Commission State and Licensee Affairs Office of State Programs Washington, D.C.
20555 RE: Retrospective Premium Guarantee for Perry Unit No. I and Davis-Besse Unit No. 1
Dear Sir:
The Toledo Edison Company hereby provides the documents described below and enclosed herewith as evidence of its guarantee of its share of the retrospective premiums which may be levied against the Perry Unit No. I and the Davis-Besse Unit No. I reactor licensees, in the amounts of
$1,991,000 and $4,862,000, respectively.
- 1) A copy of The Toledo Edison Company's certified fiancial statements for the calendar year 1986.
- 2) A Certificate of the Company, signed by James P. Martin, Treasurer, stating that the Company will guarantee payment of deferred premiums by maintaining a cash reserve as permitted by 10 CFR Section 140.21(e).
At December 31, 1986, the Company had a cash reserve in the amount of
$73.7 million, invested in short-term instruments. Total cash and short-term investments at year-end 1986 were approximately $78.9 million, as shown on page 25 of the Company's certified financial statements.
Sincerely, GMA JPM/gr Enclosures 8704200217 B70410 g
PDR ADOCK 0500 6
THE TOLEDO ED! SON CCMPANf ED150N PLAZA 300 MAD;5GN AVENUE TOLEDO, OH;O 43652
s CERTIFICATE OF THE COMPANY THE TOLEDO EDISON COMPANY Guarantee of Payment of Deferred Premiums The Toledo Edison Company hereby certifies that it elects to guarantee its share of payment of deferred premiums which may be levied against the Perry Unit No. 1 and the Davis-Besse Unit No. I by maintaining a cash reserve as permitted by 10 CFR Section 140.21(e).
The Company had cash, invested in short-term instruments, at December 31, 1986 in excess of $6,853,000, its share of the deferred premiums for both Perry Unit No. l'and Davis-Besse Unit No. 1.
The deferred premiums for each unit are $1,991,000 and $4,862,000, respectively, based on the Company's 1'
ownership shares _of 19.91% of Perry Unit No. I and 48.62% of Davis-Besse.
The Company agrees to maintain cash reserves totaling $6,853,000 invested j
in short-term instruments, for the year covered by this filing.
THE TOLEDO EDISON COMPANY By; C. MA l
Jhkes P. Martin I
Treasurer l-i 4
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s Auditors' Report
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To the Share Owners of The Toledo Edison Company:
4 We have a==iaa<l the balance sheet and statement of cumulative preferred and preference stock of The Toledo E& son Company (an Ohio Corporation and wholly-owned =ihmi<hary of Centerior Energy Corporation) as of December 31,1986 and 1985, and the related statements of results of operations, retained earnings and source of funds invested in plant and facilities for each of the three years in the
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penod ended December 31,1986. Our exammations were made in accordance with generaDy accepted auditing standards and, accordingly, included such tests of the
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- e accountag records and such other auditing procedures as we considered necessary in the cucumstances.
As discussed further in Note 3, the future of Perry Unit 2 is undecided.
Constructen has been suspended since July 1985. Vanous alternatives are being conadered, including resummg construction, mothballing or cancelling the Unit.
Management can give no assurance when, if ever, Perry Unit 2 will go in semce or
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whether its fuH investment and a return thereon will ultimately be recovered in rates charged to customers.
As <hacu==ad further in Note 3, construction of Perry Unit I has been completed and Beaver Vauey Unit 2 is nearing completion. Recovery of the investment in these units wiH be determmed by a rate regulatory agency in future rate proceed-ings. As a result of investigations regardag alleged excess cost of these units and uncertanties associated with other aspects of the nuclear program, management can -
give no assurance that the full investment in these units and a return thereon will ultimately be im.e6 in rates charged to customers.
In our opuuan, subject to the effects on the financial statements of such adpastments, if any, as might have been required had the outcome of the uncertainty discussed in the second paragraph been known, and subject to the effects on the 1986 and 1985 financial statements of such adjustments, if any, as might have been requaed had the outcome of the uncertamty discussed in'the third paragraph been imown, the finnacial statements referred to above present fairly the financial position of The Toledo F<hean Company as of December 31,1986 and 1985, and the results of its operations and source of funds invested in plant and facilities for each of the three years in the period ended December 31,1986, all in, conformity with generaDy accepted accounting principles applied on a consistent basis.
i Toledo, Ohio February 12, 1987 aa Arthur Andersen & Co.
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Summary of Significant Acesunting Pclicies General The Toledo Edison Company (the Company) is a wholly-owned subsidiary of Centerior Energy Corporation (Centerior Energy). He Company's common stock wrucqu red by Centerior Energy on April 29,1986, as a result of a June 25,1985 affiliation agreement with The Cleveland Electric Illuminating Company (Cleveland Electnc) approved by the share owners of both companies on November 26,1985.
The Company follows the Uniform System of Accounts prescribed by the Federal Energy Regulatory Comnussion and adopted by The Public Utilities O-
=k-of Ohio (PUCO).
Reclassnjications Certam reclassifications have been made to the prior years financial statements to conform to current year presentations.
Related Party Transacnons Operating expenses include those amounts for transactions with affiliated companies in the ordmary course of business operations.
The Company's transactions with Cleveland Electric are primarily for in-terchange power, transnussion line rentals and jointly-owned power plant operations and construccon. See Note 2.
l Centenor Service Company (Service Company), a wholly-owned subsidiary'of Centerior Energy, was formed in May 1986. The Service Company provides management, An=aci=1. admmatrative, engineering, legal and other services to the Company and other affiliated companies at cost. During 1986, the Service Company billed the Company $6,000,000 for such services.
Revenues Customers are billed on a monthly cycle basis for their energy consumption, based on rate schedules authorized by the PUCO. These revenues are recorded in the accounting penod during which meters are read. A fuel factor is added to the base rates for electnc service. This factor is designed to recover fuel costs from customers. It is changed senuannually after a hearing before the PUCO.
Fuel The Company defers the differences between actual fuel costs and estimated fuel costs currently being recovered from customers. This matches fuel expenses with fuel-related revenues.
De cost of nueWr fuel is charged to fuel expense based on consumption.
Estimated future nuclear fuel disposal costs are being recovered through the base rates.
Depreciatwn and Amortization The cost of property, plant and equipment, except for the Davis-Besse Nuclear Power Station (Davis-Besse), is depreciated over their estimated useful lives on a straight-line basis. Depreciation expense for Davis-Besse is based on the units-of-production method. This includes a provision for decommissioning costs, currently estimated at $59,000,000 in 1986 dollars. There are no restrictions on the use of the amounts currently being recovered from customers through rates for decommis-sioning. The equivalent straight-line provisions for depreciation, excluding Davis-Besse, overall averaged 3.5% in 1986,1985 and 1984. The Company intends to use the units-of-production depreciation method for its investments in Perry Unit 1 and Beaver Valley Unit 2.
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Costs associated with four Central Area Power Coordination Group (CAPCO) nuclear generating units cancelled in 1980 are being amortized and recovered through rates in accordance with PUCO rate orders. The unamortized hal=nce of
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these costs will be amortized through 1991. No return is allowed on the unamortized m
- holance, j
In December 1986, the Financul Accounting Standards Board (FASB) issued a new pronouncement, Statement of Financal Accounting Standards 90 (SFAS 90).
SFAS 90 sets forth new reqmrements for accounting for plant abandonments and disallowances. The new standard becomes effective in 1988. We do not believe its applicannn will materially impact the Company's financial statements as it relates to the 1980 CAPCO shanrionment loss.
FederalIncome Taaes The Company has recorded as deferred federal income taxes the differences between straight-line depreciation and tax depreciation for property additions since 1973, as well as the tax effects of certain other timing differences. This treatment is enn=>atant with the methods used for rate-making purposes. The remammg timing ddferences are not deferred. They are recogmzed for book purposes, and in rates, in the year they affect taxes payable. At December 31,1986, the cumulative amount of income tax timing differences Jarwinch deferred income taxes have not been proruled amounted to $178,000,000. Based on PUCO and Ohio Supreme Court decisions, such taxes can be recovered in future revenues.
For certam property, the Company receives investment tax credits wtuch are accounted for as deferred credits. Tax credits utihzed are reflected as reductions to tax expense over the life of the related property. See Note 8 for federal income tax i
details.
Debt interest Interest on long-term debt reported on the statement of Results of Operations includes interest on nuclear fuel obligations for fuel in the reactor. Interest on nuclear fuel obligations for fuel under construction is capitahzed.
Property, Plant and Equighnent Property, plant and equipment are stated at original cost. Included in the cost of constructma are items such as related payroll taxes, pensions, fringe benefits, management and general overheads and an allowance for funds used during con-structen (AFUDC). AFUDC represents the estimated composite debt and equity cost of funds used to finance construction. This noncash allowance is credited to income, except for AFUDC for Perry Unit 2. Since July 1985, Perry Unit 2 AFUDC has been credited to a deferred income account. See Notes 3 and 7. The AFUDC rates, net of the income tax effect, were 10.71% in 1986,10.50% in 1985 and ranged from 10% to 10.25% in 1984.
Maintenance and repairs are charged to expense as incurred. The cost of replacing plant and equipment is charged to the utility plant accounts. The cost of property retired plus removal costs, after deducting any salvage value, is charged to the accumulated provision for depreciation.
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- _. - _ _ _ _ _. _ _ _ _ _ _ _ _ _. - _ _, _ ~ _ - _ _.
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Management's Financial Anr. lysis Results of Operations Operating revenues in 1986 were essentially nach= aged from 1985, as gains from higher retail electric sales were oRset by a decline in sales to municipals and a full-year efect of the discontinuance of gas and steam heating operations in 1985.
Operating revenues increased by 7.9% in 1985 and 9.3% in 1984 as a result of meressed rates and growth in electne sales. Rate increases in the three-year period a-1984-1986 were slightly above the natmaal rate of inflation. Sales showed a modest gain in the past two years, precipally because of growth in the services sector of the economy.
Operating arran== increased by 2.7% in 1986,6.3% in 1985 and 9.9% in 1984. Increases in operating expenses occurred in all three years as a result of inflation and basic growth in the business. Operating expenses also increased as a result of an outage at Davis Besse wiuch began in June 1985 and ended in December 1986. This outage also resulted in greater generation at coal-fired plants and increased purchases of power from e,ther utilities resulting in higher costs. Most of the power purchases were made at unit prices lower than the cost of internal generation.
Earmass available for common stock in 1986 were about the same as 1985 foBowmg increases of 11.5% in 1985 and 20.7% in 1984. Earmngs have been P-8 by higher cost of operations wtuch were not fully recogmzed in rate cases and an accounting deferral of AFUDC for Perry Unit 2, wtuch began July 1,1985.
The AFUDC deferral did not afect cash flow during these periods, but it did result in reductmas in earmass avait=ala for common stock.
Notwi ernading the Perry Unit 2 AFUDC deferral, AFUDC has represented an th meressmg givyvides of earnings - 130.0% in 1986,105.4% in 1985, and 99.2%
in 1984. At the same time, cash flows have been impacted by higher cost of service and the cost of additional debt and equity Aa= aria: for the completion of two auclear generating units. AFUDC wiH be discontinued on these facilities as they become oper3tional Efect ofinfation Inflation continues to affect our busmess even though the 1986 rate of inflation was less ageficant than the already moderate rates of the last few years. Over the l
L,.;; penod 1994-1986, the Company's average electric rates have increased 3 _. -
slightly more thm thT antianal indices for prices. In this period, increases in the cost of labor, materials and services used in operations were moderated by a downward trend in the cost of cost l
The efect of inflation on the cost of much of our new facilities has yet to be l
rW in the rate-malung process. Generally, we have to raise new capital to meet growth needs at inflated costs of construction and to replace worn-out items at higher replacement costs. If rate adjustments fail to compensate for the cost of new y
capital, an erosion of return on equity will occur. As a result, there will be a continuing need for rate relief.
We continue to seek adequate and timely rate increases for the Company and a l
regulatory environment wtuch is responsive to the effect of inflation on our investment.
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Results of Operations :
.;r The Toledo Edison Company 1
For the years ended December 31.
1986 1985 1984 (thr-Ma of douars)
Operating Revenues Electric............. !...................................
$594,421
$589.172
$541.869 Steam heating and gas,......................................
5,761 9.436 594.421 594.933 551,305 Operating Eapty. sos Fuel and purchased power......................................
158,763 158.990 139,780 Other operation and_ maintenance..
167,319 141,608 125,351 Depreciation and amortization.................................
37,832 44,338 49,971 Taxes, other than federal income taxes........
52,440 48,698 46,602 Federal income taxes '......................................
50,763 61.412 66.411 467,117 455,046 428,115 Opera ting Income..........&...........................................
127,304 139.887 ~
123,190 Nonoperating income Allowance for equity funds used during construction...............
119,954 97,725 82,736 Other income and de&tiaas. net (1,627) 10,669 7,876 Federal income taxes-credit.................................
52.029 38,167 34.335 n
170,356 146,561 124.947 laceae Before Interest Cha rges..........................................
297,660 286,448 248,137 Interest Charges Lon g-term debt.................................
168,275 150,021 122,518 Short-term debt.......................................
3,675 4,518 6.883 Allowance for borrowed funds used during construction..............
(51,207)
(41.604)
(34.790) 120,743 112.935 94,611 Netfaceae...........................................................
176,917 173,513 153,526 Preferred dividend requirements 45,243 41.362 34,996 Ezrnings Available for Common Stock.........'............................ $131,674
$132.151
$118,530 Th2 accompanying notes and summary of significant accounting policies are an integral part of this statement.
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Management's Firencial Analysis Capital Resources and Liquidity We carry on a continuous program of constructing new facilities to meet anticipated 7:
demand for electnc service, to replace aging facilities and to comply with pollution
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control regulations. The capital requirements for this construction program over the three-year penod 1984-1986 totaled apprommately $1,200,000,000, wM=5 nuclest fuel This amount includes AFUDC. 'Ilie capital required to finance our
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construction program is obtamed from funds generated internally as well as from external sources. About 69% of the constructen program capital requirements over
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the 1984-1986 penod was raised through bank t,.. vwings, sales of securities and eqmty contributions from the parent company. In 1986 the Company sold
$100,000,000 of first mortgage bonds, $100,000,000 of unsecured notes and
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$30,000,000 of preferred stock. Equity contributions from Centerior Energy pro-vided $91,000,000. The net proceeds from the sales of these securities and the eqmty contributions from the parent company have been used to pay portions of short-term debt incurred to finance the construc%n program, to pay the construc-tion program's costs and for general corporate purposes.
In =Minan to funds required for the construction program, the Company will reqmre $410,000,000 for the retirement of debt and preferred stock during the 1987-1991 penod. See Note 11 for further information concerning the first mort-gage bonds and the.hed and preference stock of the Company. The Company's v
available short-term financmg is arpinined in Note 12.
Our ability to Ananea the construction program depends upon the Company ai*nining suf5cient and timely rate increases and upon availability of capital to the Company and Centerior Energy. Permanent rate increases granted during recent years by the PUCO have been sigmficantly lower than the amounts requested. These rate decmons have limited the amount of funds we generate internally, weakened our financial condition and led to lower security ratings. See Notes 3 and 7 for a l
discussen concerning the risks associated with the construction of nuclear generat-ing units and the is.vw.1 of costs through the regulatory process.
The availability of capital to meet our external Anannng needs depends upon such factors as financial market conditions, earnings, our ability to pay dividends, the size of the constructen program and credit ratings. In 1985, rating agencies i
lowered their ratings on certain securities of the Company. This made our cost of I
capital more expensive. In April 1986, Standard and Poor's Corporation raised the w
Company's first mortgage bonds and preferred stock ratings to BBB-and BB+,
respectively. Moody's Investors Service rates the Company's bonds Baa3 and
'.imi stock Ba2.
y.
For discunnian of the cash flow impact of the Tax Reform Act of 1986, see Note 8.
. Retained ' Earnings r
The Toledo Edison Company
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For the years ended December 31.
8 1986 1985 1984 (tha==aada d douars)
Balance at Begmaing of Year J. ; 1......................................
$ 276.588
$ 221.486
$ 187.475 Additions '
Net income......... L i......................................
176,917 173,513 153,526 Deductions Dmdende declared
(*am-stock... i.~........................................
(102,918)
(76,566)
(82,900)
Preferred stock.... :. l.......................................
(45.457)
(41.845)
(36.615)
Earmass Reinvested Durmg the Year.....................
28.542 55.102 34.011 Balance at End of Yea r......, i.......................................
$ 305,130
$ 276,588
$ 221.486 Source of Funds Invested in Plant and Facilities For the years ended December 31, 1986 1985 1984 2__
(hamaade W douars)
Preidedfrom InternalSources Net Income................................................... $ 176,917 8 173,513
$ 153.526 Prmespal Non-Cash items:
Deprecation and amortisation..................................
37,832 44,338 49,971 Deferred federal meame taxes.................................
32,037 12,801 19,224 Investment tax credits, net....................................
(21,558) 6,512 9,319 Allowance for equity funds used durmg constrirtian...............
(119.954)
(97.725)
(82,736)
Funds Pronded from Operations.........................
105,274 139,439 149,304 Dmdends paid.................................................
(148,382)
(139,072)
(114,052)
Increase in reserve for Perry Unit 2 allowance for funds used during construction.................................................
27,079 12,460 Net change in woriang capital and other accounts...................
22,608 3,905 13,348 l
Allowance for equity funds used durmg construction.................
119,954 97,725 82,736 j
Funds Pronded from Internal Sources....................
126,533 114.457 131.336 Providedfrom Esternal Sources Sale of Securities:
Cammaa stock.... m........................................
1,333 80,885 64,299 Preferred stock..............................................
30,000 30,000 65,000 t
First mortssse bonds c........................................
100,000 96,800 107,300 l
Equity contributions from parent.................................
91,059 Net change in other debt........................................
93,535 147,346 67,846 Net change in pollution. control construction funds..................
25,403 (10.512)
(21,215) l Net increase (decresse) in short-term debt........................
(7,700) 1,000 28.000 Net (increase) decrease in temporary cash investments.............
41,492 (31,599)
(69,428)
Redemption of bonds and i,.....M stock..........................
(53,031)
(52.823)
(14,009) j Net increase in other noncurrent obligations, prunarily nuclear fuel l
obhgations...... _............................................
42,047 33.486 29.512 Funds Pranded from External Sources....................
364,138 294.583 257.305 Total Sources of Funds................................................. 8 490.671
$ 409.040
$ 388.641 Invested in 4
Construction Fm nd*ures.................................... $ 449,432
$ 378,045 8 356,221 Increase in Nuclear Fuel. Inventory...............................
41.239 30,995 32.420 Tetal Invested in Plant and Facilities.................................... $ 490.671
$ 409.040
$ 388.641 Th2 accompanying notes and summary of signi6 cant accounting policies are an integral part of these statements.
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Ba'la'nce Sheet
~v The Toledo Edison Compa' y n
December.31.
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1986 1985 Assets (thousands of douars)
Property, Plant and Equipment Utility plant in service.:...........................
$1,442,812
$1,392,346 Less: accumulateLdepreciation and amortization..............
415.745 390.565 1,027.067 1.001,781 Construenon work inprogress.................................
1,870.649 1.509,849 Perry Unit 2...............................................
275,055 246.568 H
3,172,771 2,758,198 Nuclear fuel, net' of amortization...............................
267,829 226,590 Other rvydy, less_ accumulated deprecation....................
1,193 1.835 4
3.441.793 2.986.623 Pollution Centrol Constructie41unds, ah...
6.331 31,734 Current Assets Cash and temporary cash investments...........................
78,974 118,862 Amounts due from customers and others, net....................
50,728 51,168 Amounts due from adiliates....................................
11.539 13.416 Matenals and supplies, at average cost..........................
11,479 10.500 Fossil fuel inventory, at average cost...........................
21,182 20,720 Taxes applicable to succeedmg years............................
44,899 41,407 Other......................................................
2.536 15.535 221,337 271.608 Deferred Chargas Unamortised costs U termmated projects........................
22,408 27,593 Accumulated deferred federal mcome taxes......................
11.223 2,475 Other......................................................
66,436 45,260 100,067 75.328 Total Assets..........................................
$3,769.528
$3.365.293 Capitalization and Liabilities Capitali:ation Common shares. 85 par value: 60,000.000 authorized: 39,134,000 and 38,871,000 outstanding in 1986 and 1985, respectively
$ 195,687
$ 194,354 Premium on capital stock....................................
482,787 478,939 Other paid-in capital..........................................
91,059 Retamed earmass. u.........................................
305.130 276.588 O-stock equity.......................................
1,074,663 949,881 Preferred stock With mandatory redemption provisions........................
148,797 153,639 Without mandatory redemption provisions.....................
260,000 230,000 Long-term debt.......'......................................
1.480,947 1.339.268 2*964*407 2*672*788 Other Nancurrent Lsabilisies, primarily nuclear fuellease and trust obligations........,.:J.......................................
274.644 232.597 Current Liabilities Current portion of long-term debt and preferred stock............
28.398 24,731 Current pornon of lease obhgations............................
17,710 17.710 Notes payable to banks and others..............................
15,000 29,000 Accounts payable..........................................
62,480 56.132 Accounts and notes payable to nelistes..........................
7,767 69 Accrued taxes..... ;,i.......................................
46,686 51.627 Accrued interest....-:......................................
42,955 39,952 Dmdends declared,.. J..
11,300 11.307 Accrued payroll and vacations.................................
8.929 6,179 Other....................................................
11.518 5.222 Deferred Credits 252,743 241.929 j
Unamortized investment tax credits............................
33,890 55,448 Accumulated ?.ferred federal income taxes....................
189,454 148,669 Reserve for Perry Unit 2 allowance for funds used during construction... -........................................
39.539 12,460 Other......................................................
14.851 1.402 277.734 217,979 Total CapiM_*p and Laabilities
$3.769.528 53,365.293 The accompanymg notes and summary of sigmficant accounting policies are an integral part of this statement.
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Stcteinent of Cumulativa Preferred and Preferenca Stock
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Tha Toledo Edison Company sh0 C
nt December 31
._j Outstan7ing CafPnce 1986 1985 (thousands of dollars)
$100 par value preferred, 3,000,000 shares authorized: $25 par value preferred, 12,000,000 shares authorized; and $25 par value preference, 5,000,000 shares authorized - none outstanding Subject to mandatory redemption (less current maturities):
i
$100 par $ 11.00.............
54,990
$ 106.00
$ 5,499
$ 5,740 9.375...............
200,050 105.93 20,005 21,670
. 13.25..............
112,680 108.57 11,268 12,134
- 12. 65..............
182.250 108.50 18,225 19,095 14.80...............
288,000 110.00 28.800 30,000 25 par 3.75.........
1,200,000 28.75 30,000 30,000 3.72.............
1,400,000 28.72 35,000 35.000
$148.797
$153,639 Not subject to mandatory redemption:
100 par 4.25 160,000 104.625
$ 16,000
$ 16,000 4.56...............
50,000 101.00 5,000 5,000 4.2 5...............
100,000 102.00 10,000 10,000 8.3 2...............
100,000 103.54 10,000 10,000 7.7 6...............
150,000 103.377 15,000 15,000 7.80...............
150,000 102.60 15,000 15,000 10.00...............
190,000 101.00 19.000 19,000 25 par. 2.21 1,000,000 25.90 25,000 25,000 2.365...............
1,400,000 29.15 35,000 35,000 4.2 8...............
800,000 31.78 20,000 20,000 3.4 7...............
1,200,000 30.97 30,000 30,000 Series A Adjustable...
1,200,000 30,000 30,000 Series B Adjustable..
1,200,000 30.000
$260.000
$230,000 Tha accompanying notes and summary of signi6 cant accounting policies are an integral part of this statement.
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Notes to the Financial Statements (1) Affliation The adiliation between the Company and Cleveland Electric Energy common stock in exchange for each share of the j
under Centerior Energy became effective on April 29,1986.
Company's common stock. No other securities or financial The Company's share owners received one share of Centerior obligations of the Company were affected.
(2) Property Owned with Other Utilities The Company owns, as tenants in common with other utilities, certam generating units as listed below. Each owner owns an undivided share in the entire unit. Each owner has the right to a percentage of the generating capability of each unit equal to its ownership share and is obligated to pay for its respective share of the construction and operating costs. No owner is responsible for any other owner's share. The Company's share of the operating expense of properties owned with others is included in the Results of Operations. Pwpwily, plant and equipment at December 31,1986 includes the following facilities owned by the Company as tenants in common with other utilities:
Actual or Scheduled Plant Construction In-Sernce Ownershg Ownership In Work Generating Unit m
Date Share Megawatts Fuel Service in Progress (thousands of dollars)
In Sernce:
Davis-Besse............... c,..
1977 48.62 %
421 Nuclear
$479,051 56.846 Bruce Mansfield Unit 2..... :..
1977 17.30 135 Coal 72,029 452
, Bruce Mansfield Unit 3........
1980 19.91 159 Coal 129,859 337 Under Construction (Note 3):
Perry Unit 1 & Common Facilities..................
1987 19.91 240 Nuclear 974,722 Beaver Valley Unit 2 &
Common Facilities.....
1987 19.91 166 Nuclear 813,744 Construction Suspended (Note 3):
Perry Unit 2..................
Uncertain 19.91 240 Nuclear 275.055 p
$680,939
$2.121.156 l
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(3) Canarucnon and Connngencies Constructen Program The esumated cost of the Company's construction program suspend construction and operation of Perry Unit i because for the 1987-1991 permd is $630,000.000, including AFUDC the seismic design of the Plant is inadequate, (b) to estab-and excluding anclear fuel. Should more stringent environ-lish an independent design and construction verification pro-mental regulations be adopted, particularly in the area of acid gram and (c) to review the erTect the arliliation will have on rain pouution control, construction program costs for this the Company's and Cleveland Electric's ability to meet the period are not expected to increase substantially. However, liability insurance and indemnity requirements for the Perry such costs could increase substantially thereafter.
Plant. No ruling has been issued on this petition.
The constructen program includes the completion of the Company's share of two nuclear generating unit projects, Beaver Valley Unit 2 l
Perry Unit I and Beaver Vauey Unit 2. No amount for new I
constructma is included for a third protect Perry Unit 2, Beaver Valley Unit 2 currently is about 98% complete and is because construction of this Unit has been suspended. These scheduled for completion around the end of 1987. The generating units are owned by the five utilities in the Central estimated final cost of the Company's 166-megawatt share of Area Power Coord=6a= Group (CAPCO), namely, the the Unit is about 5863,000.000, including AFUDC. An Company, Cleveland Electric, Duquesne Light Company application for an operating license for the Unit is pending
( Duquesne), Ohio Edinos and Pennsylvama Power. Cleveland before the NRC.
Electric is re=pa==hia for constructing Perry Units 1 and 2 and Duquesne is respoemble for constructag Beaver Valley Perry Unit 2 Unit 2.
Perry Unit 2, exclusive of the common facilities, is about 44%
Perry Unit 1 complete. Including its share of the common facilities, the Unit is about 58% complete. Construction of Perry Unit 2 Perry Unit 1 and the facilities to be used in common with was suspended in 1985 by the CAPCO companies pending Perry Unit 2 have been completed. The cost, including future consuleration of several alternatives. The alternatives AFUDC, of the Company's share of Perry Unit I and the include resumption of full construction with a revised esti-common facilities was $975.000,000 at December 31,1986.
mated cost and completion date, mothballing or cancellation.
W2 estimate that the ran=pany's share of the cost wiH None of these alternatives may be implemented without the increase about $14.000,000 per month until the Unit approval of each of the CAPCO companies. Many factors wdl actueves commercial operation.
be taken into account in making the decision, including cost, In November 1986, the Nuclest Regulatory Commission safety, environmental issues and recovery of !nsestment.
Other factors are the potential need for additional capacity (NRC) issued a fuB power license for Perry Unit 1. The Unit's power ascensen and final testing program is progress-nationwide, particularly in our region, the probable high cost ing. Net positive generation of' 20% could be achieved of retrofitting fossil fuel units to satisfy possible acid rain pollution control regulations and the incremental cost of during the first quarter of 1987 and full commercial operati a withan another five months. However, experience indicates completing Perry Unit 2. The timing of a decision on Perry Unit 2 will depend on developments relating to the above that 4 bet deisys in the testing program can occur.
factors and possibly others.
The United States Court of Appeals for the Sixth Circuit is currently consadering a request by an orgamaanon that the The Company is continuing to capitalize AFUDC for Court order the NRC to re examine the seismic design of Perry Unit 2, but since July 1,1985, it has been creditmg Perry Unit 1 because of the earthquake which occurred near such AFUDC to a balance sheet deferred credit reserve the Plant in January 1986 and that the Court revoke the nstead of crediting it to income. This deferral does not atYect cash flow, but it reduces the Company's reported net income
- "E by about $2,400,000 per month from what it otherwise The NRC currently has pendmg before it a request by an would be.
orgamsanon for review of certam aspects of the Perry Plant oifsite emergency plan and to modify or terminate the Perry If Perry Unit 2 is cancelled, the Company will seek Unit 1 operating license and a request by two other orgamza, authoruation from the PUCO to recover its investment in the tions for revocation of the Perry Unit 1 operating license Unit in rates. We have no assurance that recovery would be claimmg that certam pope hangers are defective.
allowed. In the event of such a cancellation, if it appears probable that recovery would not be allowed, then the Com-In July 1986, an organization filed a petition in the pany's investment in Perry Unit 2 (including AFUDC), plus United States Court of Appeals.in the District of Columbia any cancellation costs, less any equipment usable elsewhere seeiung review of the refusal by the NRC staff to act (a) to and less any resultmg tax benefit, would have to be written 2a
j
- of. W'a estimate that, based on the Company's i vestment in continue to be able to pay for their shares of tach protect. To -
- this Unit at December 31,1986 and assuming a federal do so, each CAPCO company must obtain adequata and income tax rate of 34%, such a write of would have been timely rate increases. There can be no assurance that such about $167,000,000. Based on the Company's current finan-rate increases always wiu be forthcoming or that some other cial position and level of annual income, such a write of event will not adversely afect financial markets or nudear would have a material adverse e6sct on the Company's projects generaHy, or a CAPCO company or nuclear project results of operations and retamed earnings in the period in in particular, so as to impair the ability of a CAPCO company wtuch it were to occur. The Company's abihty to continue to pay for its share. If any CAPCO company stops paying for paying dmdends would not be impared solely because of such its share, any or all of the other CAPCO compames could be
)
a write of.
forced to accept a solution involving substantial losses or additional financial burdens
- l In April 1986 Duquesne announced that it no longer i
needs the capacity of Perry Unit 2. In June 1986, Duquesne In 1985, the PUCO ordered an investigation to deter-asked the Pennsylvania Pubhc Utility r======= (PaPUC) mine whether any Perry Unit 1 costs are excessive due to to pernut recovery of its investment in Perry Unit 2 as imprudent management by Cleveland Electric. In August i
though it had ahandanad the Unit, even though the CAPCO 1986, the PUCO published the summary report of the consul-j compemes have not doculed to cancel the Unit. Duquesne tants it Yre' to investigate the cost of Perry Unit 1. The d
l has also advised the PaPUC that it will not agree to resump-consultants concluded that Cleveland Electric performed ef-tion of construction of Perry Unit 2. Dmy==n* is continuing fecovely in managing the planmng, design, licensing and to pay its share of===*===g Perry Unit 2. We do not plan construction of the Unit, except for about $229,000,000 (as c
currently to treat the a=t=ay's investment in Perry Unit 2 revised) of costs through 1985, including AFUDC through i
as abandoned for any purpose. We do not know what 1986, wtuch the consultants believe couki have been avoided arrangements might be made with Duquesne if au the other through improved management and decision-malung. The j
CAPCO compames want to complete Perry Unit 2 and consultants also concluded that delays caused by General Duquesne does not change its position.
Electric Company in connection with the design and construc-tion of the nuclear steam supply system resulted in about Nuclear Plant Ofsite E-.
q Plans
$673,000,000, including AFUDC through 1985, of additional In August 1986, the Governor of Ohio informed the NRC costs over wtuch Cleveland Electric had no control. The I
' that, because of the accident at a nuclear plant in Chernobyl, report of the consultants is not binding on the PUCO or the USSR, in April 1986 and the earthquake near the Perry owners f Perry Unit 1. The PUCO will consider the report, Plant in January 1986, he was withdrawing his support for together with the input of its staf and other studies, to 1
the afsite emergency plans for the Perry and Davis-Besse determine whether any Perry Unit I costs are excessive due md with the participation - to,unprudent management and to determme whether any of Plants. These plans had bec and cooperation of the Stat:
A and local government such costs should be disallowed in rates. Hearings before officials. The State of Ohio has requested the United States the PUCO are scheduled to begin ut May 1987. The PUCO Court of Appeals for the Sixth Circuit to prolulut operation also could consider the prudency of costs incumd after of Perry Unit 1 and Davis-Besse and to order the NRC to re-1985. We believe that all of Cleveland Electric's actions in exarair,e the ofsite emergem:y plans for both plants. The connection with Perry Unit i have been prudent.
Court has not yet ruled on,these requests.
In February 1987, in a Duquesne rate case, the PaPUC indicated that it would adopt in its final decision in that case Other Nuclear Risks the conclusion of its administrative law judge ( ALJ) that l
Experience indicates that completion of nuclear generating Perry Unit I was prudently planned, managed and con-projects usuaHy involves the risks of significant cost in.
structed. The AIJ recommended that no reduction in the creases, construction delays and licensing difficulties. Also, allowable costs of Perry Unit i should be made for im-operating nuclear generating units have experienced unplan.
prudency. Any P:PUC decision will not apply to the i
ned outages or extensions of scheduled outages because of Company.
i equipment problems or new regulatory requirements. A A consultant is investigating for the PaPUC whether any major accident at a nuclear facility anywhere in the world e sts of Beaver Vauey Unit 2 are excessive. Any PaPUC i
could cause the NRC to limit or prohibit the operation, decisi n wiH not apply to the Company. However, it is construction or licensms of a nuclear unit.
probable that the PUCO also willinvestigate the costs of j
The successful completion of the Company's nuclear Beaver Valley Unit 2 (and Perry Unit 2 if completed) construction program requaes that the CAPCO compames mcurred by the Company.
i i
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~
Beginning in 1988, the Company will be required to The Company replaced the power it normally would have adopt the FASB's recently issued SFAS 90. This stamisrd will received from Davis-Besse during the outage with more unpose stricter standards to be met to avoid the write-off of costly generation from its own non-nuclear generating units capitahsed costs involved in abandonments of partiaHy com-and with wholesale power purchases. The Ohio OfBce of pieted generating plants. It will requre the immediate write-C&=rs' Counsel (OCC) has requested the PUCO to of of disaDowances in rates d the costs of newly completed disallow recovery of such replacement power costs claiming generating plants. Also, it wiu regere that the accrual of that the June 9 event was the result of imprudent manage-AFUDC durmg the construction penod be discontinued un-ment by the Company. A consultant has been engaged by 4
less the facts and cren==ts-indicate that subsequent the PUCO to determme whether the June 9 event and the recovery of such a===tn is probable.
ensumg outage were caused by imprudent management and The book necanannt or the three melaar units dis-to detenmne se cost d uplacement poww incurnd b l
f caum t e stage W de extent to M such costs h i
cussed above could be afected by'the implementation of mc und kom customus.
SFAS 90. An shaminament, where recovery is not probable, l
.or a disallowance will have to be immedately recogmaed as a The consultant's report concluded that imprudence on 1
loss to the extent that the rate recovery process does not the part of the Company contributed to the June 9 event and provule for recovery of such costs and a return on the the subsequent outage. The consultant determined that the investment. Discontinuation of AFUDC would have to be Company's total cost of fuel and purchased power associ-determmed based on the facts and circumstances that exist. A ated with the outage from June 9,1985 to March 31,1986 potential write of d Perry Unit 2 has been discussed above.
amounted to $31,000,000. Substantially all of these costs Perry Unit 2 AFUDC is already being deferred and not have been recovered from the Company's customers. The W=d in the Company's results of operations. We Company intends to oppose the consultant's conclusions on cannot predict what actmas the PUCO wiH take on any of imprudence and the amount of fuel and purchased power these issues. However, an adverse regulatory action could costs attributable to the outage. Hearings before the PUCO result in a write of, wtuch could have a material adverse are scheduled to begin in March 1987. The consultant's n
efect on the Company's a=ac=1 postma and results of report is not binding on the PUCO.
l The consultant also concluded that the necessity to 4
Because of the pendag investigations and the other inspect and replace shaft assemblies on four reactor coolant uncertanties described in this Note, there can be no assur-pumps during the outage (but for reasons unrelated to the ance as to the extent to which the PUCO wiB aBow fua June 9 event) was beyond the Company's control. The recovery in rates of, and an adequate return on, the Com-consultant stated that without the pump shaft problem, the pany's investment in Perry Units 1 and 2 and Beaver Valley outage would have had a duration of about one year.
IJnit 2. The nehhaad of any of the described uncertanties 0**I "* ' ' "
O'*
- *****" '* "I**P**
resulting in an adverse outcome varies. It should be recog-to han a material adwne efect on future msuhs d nised, however, that one or more of such adverse events could occur. Indmdually, or collectively, such events could have a material adverse unpact on the Company's financial A petition is pending before the NRC requesting suspen-l condition, results of operations or the Company's ability to sion of the operating license of Davis-Besse because of l
pay dmdends. See Note 7.
alleged design flaws affecting safety as indicated by the r
operating history of Davis Besse and similar nuclear generat-l (4) Devs-Bessa Nuclear Parner Staden ing plants designed by the same manufacturer.
i On June 9,1985, Davis Besse was shut down because of the
- "#### I"'I failure of its main and auxiliary feedwater supply. NRC reports on the incident stated that there were de6ciencies in The Company has lease and trust arrangements to finance i
the efectiveness of management of Davis-Besse operations nuclear material and fuel. This nuclear fuel inventory should and plant maintenance before the incident. The Company, provxie an adequate supply lasting into the mid 1990s. Sub-1 operator of the Plant, has substantially completed its correc-stantial additional nuclear material must be obtained in the i
i tive action. On November 21,1986, the NRC authorised its future to supply fuel for the remaining useful lives of Perry staf to permit Davis-Besse to restart. The Plant has been Unit 1, Beaver Valley Unit 2 and Davis-Besse. More nuclear restarted. It currently is operating at around half of capacity material and fuel would be required if Perry Unit 2 is while one of the main feedwater pumps is repared.
completed.
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. The - amount that the Company can finnae' Tha Company has insuranca coverage far damage to its under one set of anche fuel leasing arrangements is property at Divis-Besse and Perry (including leased futi and
$215.000,000. It conosts of a long-tzrm lease that allows th2 clean-up costs) in thn amount of $1,160,000,000 for each lenders to cancel their financmg commitments after three plant. Damage to the Company's property could exceed the years notice. The Company's share of the mammum amount insurance coverage by a substantial amount and thereby avaiinhie under another arrangement, wtuch includes leases have a material adverse effect on the Company's financial and a trust combeed is $83,000,000. This arrangement is condition and results of operations in the period of the loss. If subsect to c==<*llation by the lender after one year notice.
the property damage insurer's reserves are inadequate to The lease and borrowing rates are based on bank prime cover clauns arising out of an accident at any nuclear site in ad conumercial paper e The amonts capitalmed in-the United States, the Company is obligated to pay retro-cluded sterest charges ocurrd by the lessors amounting 8pective premiums up to $6,634,000 for this policy year. The to $17,000,000 in 1986, $16,000,000 in 1985 and Company atends to obtain sinular insurance for its other ack units at the he of fuel load.
$17,000,000 ha 1984. Under the leases, rental payments are made as the fuel is burned in a reactor. The estimated future Insurance coverage is also held for the cost of any lease amortization payments based on protected burn are replacement power purchased after the occurrence of certain
$18.000,000 in 1987, $35,000,000 in 1988, $33,000,000 in types of accidents at Davis-Besse. 'Ihe event at Davis-Besse 1989, $46.000,000 in 1990 and $44,000,000 in 1991. As described in Note 4 is not a covered event. The amount of these payments are made, the amount of credit available to the coverage is $502,000 per week during the 52 week the lessors is renewed and becanes available to hn" period starting 26 weeks after an accident and $251,000 per ah==l eclear fuel.
week for the next 52 weeks. The cost and duration of At December 31,1986, a total of $268,000,000 is replacement power could substantially exceed the insurance ca===mted under the leases and the trust for puche material coverage. Also, if the insurer's reserves are inadequate to and costs of processes it into fuel for the Company. This cover claims arising out of accidents at any nuclear units in includes nuclear fuel in the Dava Besse and Perry Unit I the United States covered by such insurance, the' Company is reactors with re'a==nng costs of $36,000,000 for each reac.
obligated to pay retrospective premiums up to $847,000 for i
tor, as of December 31,1986.
this policy year. The Company intends to obtain similar msurance for its other nuclear units when they begin com-(6) Nuclearlasurance mercial operation.
The Company and the other CAPCO compames maintain a nuclear mourance program for each nuclear plant to the p) Rate Matten maxanum extent avad=W This inchubs $695,000,000 of Recent Rate Increases nucl==r habibty coverage, as of December 31,1986, for injury to persons and their wysty arising out of a nuclear Durms the three years ended December 31,1986, the PUCO v
incident at each site. The coverage consists of granted increases in electric rates to the Company as
$160,000,000 of insurance and $535,000,000,of indemnity follows:
by the federal government under the Price-Anderson amend-AnnaM meets to the Atomic Energy Act. The Act limits the owr.ers.
Date Amant nuclear liability to the amount of the coveragt. The current Price-Anderson legalation expires in August 1987. Bills to k Yr amend it by incressag substantially the amount of indemnity September 1984
$17,000 j
havt. been introduced in Congress. Under the federal indem-February 1985 22,700 nity coverage, the Company is currently obligated to pay retrospective premiums up to $6,853,000 for this policy year Perry Unit 1 construction work in progress (CWIP) ta cover any nuclear liability claims arising out of an incident amounts were not included in the rate base for either of the 1
at any nuclear piant in the United States, increases.
}
)
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The Company's February-1985 rate order was a tempo-Any delay in the operation of Perry Unit 1, which rary emergency rate increase. It was granted subject to prevents the Company from starting to recover in rates Perry refund if and to the extent a smaller rate increase were to be Unit 1 CWIP and operating costs in the last half of 1987, granted in a rate case filed in June 1985. The Company was could make it necessary to corsider cash conservation mea-crdered to record a portion of its AFUDC accruals to a sures. This includes reductions in expenditures, additional
)
reserve account (rather than to mcome) in an amount requests for emergency rate relief and reexamination,of the sufHeient to ofset the after-tax earmags acrease wtuch the Company's common stock dividend policy.
temporary rates would cause. At December 31,1936, this AFUDC deferral amounted to $24,000,000. It is expected j
that when Perry Unit 1 is included in the Company's rate Perry Unit 1 Rate Treatment base, the PUCO will either reduce rate base by the amount of the reserve or include such ' amount in rate base. If the The Company has asked the PUCO to permit it to defer the latter option were chosen, future revenues would be reduced ongoing financing costs of Perry Unit i until subsequent by the interim revenues collected, including carrying recovery in rates is authorized. This deferral would be charges, over a permd equal to da: of the surcharge.
calculated on a basis similar to AFUDC and would begin at the time the Unit is placed in service. It would continue until Pendmg Applications the Unit's costs are included in rate base. The PUCO has allowed such deferrals in similar cases for other Ohio utili-Th2 Company aled an application in June 1985 requesting an ties. Also, the Company has requested authority to defer meresse in electrx: rates of $103,000,000 annually (includ-Perry Unit 1 operating costs until those costs are included in ing the $22,700,000 temporary emergency rates described rates if the PUCO denies their inclusion in the November above). Inclusion of Perry Unit 1 CWIP in rate base was 1986 rate application. Deferral of financing and operating requested at the mammum allowable level. Annuahsed Perr7 costs prevents a reduction in reported earnings from what Unit 1 operating expenses were also requested. The PUCO
, they otherwise would be, but does not produce cash flow until has deferred for an na MM time any actma on this
.ni==anaat periods when such costs are recovered in rates, application. The temporary emergency rate increase granted in February 1985 continues in effect.
The FASB continues to consider amendments to ac-In November 1986, the Company applied to the PUCO counting standards applicable to rate increase phase-m plans.
f:r a rate increase based on a test year ending July 31, A formal proposal which would have allowed deferral of 1987. Any rate increase resulting from the new request is not costs, including an equity return, if recoverable over not expected to become effective until late in the summer of more than 10 years, has been withdrawn. A new proposal is 1987 at the earliest. 'Ihe new application includes allowances expected to be issued in 1987.
f:r recovery of Perry Unit 1 operating costs. The Company is asking for an increase of $109,000,000 above its current Any PUCO demal of the Company's requests to defer rates, wtuch include the $22,700,000 a year temporary financing and operating costs or adoption of a recovery emergency rate increase. In February 1987, the Company method that does not meet the criteria of the final FASB requested the PUCO to accelerate relief in its pending rate standard could have a material adverse impact on future cases by ' granting interim emergency rate relief in the results of operations. We cannot predict the outcome of the amount of $50,000,000.
FASB's review or future actions of the PUCO.
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(8) Federalincome Tax Federal income tax. computed by multiplying the income before taxes by the statutory rate of 46%, is reconciled to the amount of federal income tax recorded on the books as follows:
For the yearc ended December 31.
_2 1986 1985 1984 (tw-*= of douars)
Book laceae Refere Federal laceae Taz..................
$175,651
$196,758
$185,602 Tax on Book Income at_ Statutory Rate...........
S 80,800
$ 90,508
$ 85,377 Decrease in Tax Due to:
Allowance for Funds Used Durmg Construction..
78,734 64,091 54,061 Other Items..._.... : :.......................
3,332 3,172 (760) 82,066 67,263 53.301 Total Federal income Tax Expense (Credit)..............
S (1,266)
$ 23,245 S 32.076 Federal acome tax apanna is recorded in the Results of Operations as follows:
For the years ended December 31.
1986 1985 1984 (tw-w f donars) o Operadng Espenses Current Tax Provimon.........................
$ 33,288
$ 39,778
$ 38,092 Changes in #-= dated Deferred Federal Income Tax:
Accelerated Deprecation and Amortization......
27,951 10,130 11.693 Nuclear Fuel Interest Charges................
7,606 7,054 8,007 Other Items................................
3,529 (2,349)
(5,087)
Investment Tax Credits _- Net.................
(21.611) 6.799 13.706 Total Charged to Operating h===
50,763 61,412 66,411 Nonoperanng income Current Tax Provisma.........................
(42,915)
(37,777)
(34,301)
Deferred Tax Provision _........................
(9,114)
(390)
(34)
Titel Federal Intene Taz Espanse (Credit)..............
S (1,266)
S 23,245 5 32.076 The Company wiH join in the filing of a consolidated federal income tax return with the af51iated companies for 1986. The method of tax aBocation approximates a separate return result for each company. For 1986, the Company incurred a loss for federal income tax purposes. "Ihis loss resulted largely from the nontaxability of AFUDC and the tax depreciation treatment of j
its investment in Perry Unit L For federal income tax purposes, such loss is camed back to offset taxes paid in prior years. The resulting tax refunds wiH be smaH as the taxes paid in prior years were offset by investment tax credits to the extent allowable.
The investment tax credits previously utihsed in those years are now available to be carried forward to offset future taxes payable.
Approximately $93,000,000 of naused investment tax credits are available and may be used to reduce future tax obligations.
The unused credits expire in varymg amounts from 1996 to 2001. Utilization of these unused credits is limited by provisions of the Tax Reform Act of 1986 and the level of future taxabie income to which such credits may be applied.
The Tax Reform Act of 1986 provides for a 40% average income tax rate in 1987 and a 34% income tax rate in 1988 and thereafter, the repeal of the investment tax credit, scheduled reductmas in investment tax credit carryforwards, less favorable depreciation rates, a new alternative minimum tax and other items. These changes are expected to increase our tax payments and reduce cash flow from what it otherwise would be starting in 1987. Most of the increase in tax payments is expected to result from the new alternative mimmum tax. Tax payments required as a result of the alternative muumum tax may be utilized as a j
tax credit to offset future tax payments. Current income tax expenses will be based on the lower statutory rates and the effects j
of the alternative mirumum tax wiD be deferred for accounting purposes.
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(9) Retirement income Plan and Other Post-Retirement (10) Guarantees M '3 r
Under a long-term coal purchase arrangement, the Company A non-contributory pension plan is maintained wluch covers has guaranteed the loan and lease obligations of a mining
]
all employee groups. The amount of retirement benents company. This arrangement also requires payments to the generaHy depends upon the length of employee service and mining company for any actual out-of. pocket idle mine ex-earamss. Under certam crcumstances, benedts can begin as penses (as advance payments for coal) when the mines are early as age 55. The plan also provides certam death and idle for reasons beyond the control of the mining company. At disability bene 6ts, as weH as certaa medical bene 6ts.
December 31,1986, the principal amount of the mining Pension costs for 1986 were $5,700,000 and included mmpany's loan and lease obligations guaranteed by the
$1,300,000 for post-retrement medical benents and premi.
Company was $32,000,000.
ums. Pensma costs for 1985 and 1984 were $4,000,000 and (H) CWW
$3,700,000, respectively. The practice of the Company has been to fund pension costs accrued.
(a) Capital Stock Transactions Funding of post-retiremrat medical benents and premi.
Shares sold and retired during the three years ended Decem-
~~
ums was added to the pian iri 1986. The Company had been ber 31,1986 are listed below, paying these amounts directly_when due.
1986 1985 1984 Adoption of a new actuanal method increased pensma Common Stocic i
costs by $200,000 in 1986. A change in the basis for eubu Saies...........
3.0.
3.0.
acma, tai assuot,ons a 1 creased r-costs by oirsgig ;,>;
a Sua.*0 a 1=.
eun................
.3 1.813 1.5.
i The comparison of the actiaarial value of the liability for Total em accumulated plan benents with net assets available for bene-Stock Sales....
263 4.613 4.589 6ts wtuch fouows is required under generally accepted Cumulative Preferred Stock 1
accounting principin.
January 1 Submet to Mandatory Re-demption:
4 1986 1985 Sales 1
( m aams of douars)
$25 par $3.75.........
1.200 Actuarial present val.ue d accumu-3.7 2.........
1.400 lated plan benents.
Vested.....................
$ 74 8 53 Retirements Nonvested..................
4 7
$100 par $11.00.......
(5)
(5)
(5)
$ 78
$ 60 9.375......
(17)
(17) 13.25 ' ' ' ' '
(9)
Market value of net assets available 12.65 ' * " * *
(10) for benents
$120
$ 95 Net Change.....
(41)
(22) 2.595
' Based on an annual discount rate of 7% in 1986 and 8% in Cumulative Prefened Stock 3
i 1985.
Not Subject to andatory Redemptiom i
The above companson determines the accumulated pen-Sales sion plan liability as though the plan was ternunated at the dates shown. It is calculated wahout consideration of future
$25 nn 8'
l' i
increases in employees' earness.1We and the Company'e h *,,'
1,2 5 pension consultants believe that the reqmred disclosures are Net Change * *
- 1.200 ' 1.200 misleading because they understas the fund's assets needed I
at those dates to provide pension benents as they become Changes in premium on c.apital stock are summarized as payable under a pian intended to continue ind*Anitely. Deter-foHows:
mining the plan liability using our long-term funding assump*
1986 1985 1984 tions indicates that on January 1.- 1986 the fund's liability (f;unands as donars) was slightly more than the fund's assets.
Balance at Beginning of During 1985, the FASB issued new standards for pen.
Year.......m......... $478,939 $421,118 $379,766 sion accounting. The Company will be required to adopt those Premium, Net of Expense
-Common Stock......
5,051 58,728 44.321 l
standards in 1987. We expect that adoption of the new e m d Stock... -.
R 203)
% (2.969)
I standards will not have a meterial effect on the Company's Balance at End of Year.... $482.787 $478.939 $421.118 gnancial position or results of ptions.
i
__,. -,... --,_,.,_ -.m
. m..
, _ -.. _ -, _ _.... ~ _,
(b)* Equity Distribution Restrictions tionallong-term debt above that outstanding at December 31 1986. Should the Company be required to writa off its At December 31,1986, the Company's retamed earnmgs investment in PIrry Unit 2 wa belisva such a write-off would were $305.000,000. Substantially aB of the retained earnings were available for the declaration of dmdends on the Com-reduce the amount of preferred stock issuable or prohibit pony's preferred and common shares. All of the Company's the hura of prefemd stock dumg tk suWnt 12-month period. The issuance of additional preferred stock at common shares are held by Centerior Energy.
any given time in the future will depend on net earnings for A loan or advance by the Company to Centerior Energy any 12 consecutive months of the 15 months preceding the reqmres PUCO authorisation unless it is made in the ordi-date of i-we, the interest requirements of any additional nary course of busmess operations in wtuch the Company debt issued and the dividend requirements of any new acts for Centerior Energy.
preferred issues.
(c) Cumulative Preferred and Preference Stock There are no restrictions on the Company's ability to
"* 8' Amounts to be paid for preferred stock wtuch must be redeemed during the next five years are $5,000,000 in 1987' The Company's preferred stock is prior to its preference 1988 and 1989 and $8,000,000 in 1990 and 1991.
stock, and its preferred and preference stock are prior to its The annual mandatory radaa'adaa provisions are as common stock with respect to dividend and liquidation fokm:
d&k Annual Mandatory Redemption Provisions
- Shares Begin-(d) Long-Term Debt and Other Borrowing Arrangements to be ning Redeemed In Price Long-term debt, less current maturities, is as follows:
Preferred:
First Mortgage Bonk Interest December 31.
$100 par $11.00.......
5,000 1979
$100 Year of Maturity Rate 1986 1985 9.375......
17,000 1985 100 (thousands of douars) 13.25.......
9,000 1986 1M 1988..........
4.00 % $
15.000 $
15,000 12.65.......
8,000 1986 100 1990..........
14.00 65,000 65,000 14.80.......
12,000 1987 10 1991..........
15.625 35,000 35,000 25 par 3.7 5.......
60,000 1990 25 1991..........
16.25 35,000 3.7 2.......
70,000 1990 25 1991..........
15.00 70.000 70,000 1992 1996..... 9.375-16.125 364,100 264,100 The annuahmed cumulative i,.
, dmdend require-1997-2001..... 6.125-10.00 66,378 66,378 ment as of December 31,1986 is $45,000,000.
2002 2006..... 7.50 9.65 111,725 111,725 i
2007-2011..... 9.625-11.00 126,900 126,900 The dmdend rates on the Company's Adjustable Series 2012 2020..... 12.25-15.00 120.000 120,000 A and B Preferred Stock fluctuate based on prevailing 974,103
.909,103 interest rates. The dmdend rates for these issuances aver-Term bank loans, 6.84-14.49%,
aged 8.97% and 8.96%, respectively, in 1986.
due 1987 1990...............
62,833 79,500 Notes. 8.75-15.00%, due 1987-Under its articles of incorporation, the Company cannot 1997........................
277,000 183,600 issue preferred stock unless certain earness coverage
- Pollution control notes. 5.20-quirements are met. Based on earnags for the 12 month:
13.25%, due 1987-2015 167,600 167,700 ended Lb amhar 31,1986, the Company could issue up to Other - net...................
(589)
(635) approximately $80,000,000 of additional preferred stock at an assumed annual dmdend rate of 11%, assuming no addi-Total Long-Term Debt...... $1.480.947 $1,339.268 l
l l
l 3
Long-term debt matures during the next five years as bonds. The earmngs coverage ratio applies to $229,500,000 (silows: $23,000,000 in 1987," $38,000,000 in 1988, of unsecured loans' and was 1.85 at December 31,1986.
$33,000,000 in 1989, $131,000,000 in 1990 and Substantial operating cost increases, if not adequately recog-
$152,000,000 in 1991.
nised in rates or permitted to be deferred with a promise of b"" "~', would cause continued deterioration of this
- The mortyge of the Company constitutes a direct first comage rak.in 27. k Note 7.
mortpge lien on =ahatman=Hy all its property and francluses owned. Fuchuki from the lien are cash, securities, accounts receivable, fuel, supplies and automotive equspment.
(12) Short-Tern Borrowing Arrangements The issuance of additional refundmg and non-refunding first mortgage bonds by the Company is limited by provisions The Company's bank credit arrangements at December 31, in its mortpge. Under these provisions at December 31, 1986 are as follows:
4 1986, the Company would not have been permitted to issue Amount any non-refunding bonds. However, the Company would (t w a have been able to issue $65,000.000 of refunding bonds.
1 Bank Lines of Credit..........
371,900 Certain unsecured loan apts d the Company contain covenants limiting to 65% of total capitaliation (as Borrowings Under Bank Lines of Credit...
defined) the total of funded debt and short-term debt in
. Revolving Unhamg Facility.........
$25,000 excess of $150,000,000, limiting secured 8==adag other than Borrowings Under Underwriting Facility..
$15,000 through first mongage bonds and certain other transactions and requirms the Company to maatam earmngs (as de-Shon-term borrowing capacity authorized by the PUCO fined) of at least 1.5 times interest on its first mortpge is $150,000,000.
i t
e 1
i i
4 1
'l 4
i
Annual commitment fees range from 0.375% to 0.5% on 20% of the line of credit, depending upon the amouats most of the lines of credit. The rest of the lines of credit have borrowed. The deposits provide operating balances for the informal compensating balance arrangements. Banks expect Company and are not restricted legally.
the Company to maintain average deposits equal to 5% to (l3) Quarterly Results of Operations (Unaudited)
The following is a tabulation.of the unaudited quarterly results of operations for the two years ended December 31,1986.
Quarters ended March 31 June 30 Sept.30 Dec. 31 (thousands of douars) 1986 Operating Revenues..'..........................
$152,730
$138,032
$154,886
$148,773 Operatmg Income..............................
$ 36,358
$ 33.674
$ 34,735
$ 22,537 Net rnen=e....... i. J..........................
8 45,066
$ 40,077
$ 46.304
$ 45,470 Earmngs Available for Common Stock.............
$ 33,973
$ 28,545
$ 34,975
$ 34,181 1983 Operating Revenues.............................
$151,608
$138.885
$155.230
$149.212 Operating Income...............................
$ 36,605
$ 34.304
$ 40,084
$ 28,894 Net Income.....................................
8 47,676
$ 45,076
$ 45.550
$ 35.214 Earmass Avadable for Common Stock..............
$ 37,446 3 34.880
$ 35,387
$ 24,438 m
37
Finh&cial and Statistical-Review The Toledo Edison Company Operanag Revenues (thousands d dollars)
Steam Total Total Total Heating Operating Year Residential -
M Indusmal Other Retail Wholesale Electne
& Gas Revenues 1906.
$180 292 3133 841 8214 274 S45 825 3583 232 811 189 8594 421 S-
$594 421 1985.
184 687
.129 161 213 895 45 773 573 516 15 656 589 172 5 761 594 933 1984..
172 539 115 467 194 751 45 029 527 786 14 083 541 869 9 436 551 305 1983.
161 275 - 105 482 169 672 42 118 478 547 16 824 495 371 9 245 504 616 1982..
153 662
.101 790 154 929 38 306 452 687 20 508 473 195 8 530 481 725 1976..
71 562.. ' '45 384 76 998 16 051 209 995 9 134 219 129 4 607 223 736 Opersons Expenses (thousands of dollars)
Income (tba===ad= of dollars)
Federal Income Fuel &
Operanon Depreanoon Tases Federal Income Other Before Perhamad
- 4 Other Than income Opermang AFUDC-Tax-Income-Interest Year Power Wa====aar=
Amarnation FIT Tazes laea==
Equity Credits Net Charges 1986.
8154 783 3167 319 337 832 352 440 880 763 $127 304 8119 964 862 029 8(1 627) 8297 660 1985..
158 900 141 808 44 338 48 698 61 412 139 887 97 725 38 167 10 669 286 444 1984.
139 780 - 125 351 49 971 46 602 66 411 123 190 82 736 34 335 7 876 248 137 1983.
121 041 115 300 51 138 45 210 56 727 115 200 65 585 24 111 1 617 206 513 1982..
124 706 117 625 43 838 41 280 45 214 109 082 48 706 18 937 1 017 177 742 1976..
108 177 35 780 15 964 15 956 12 446 35 433 16 757 6 087 1 946 60 223 faca== (tha====d= of douars)
Earnings Return Avadable on Preferred for Average laterest AFUDC-Net Stock Common Equity Year Charges Debt facome Dindends Stock
(%)
1986.
8171 980 8(51 207) 8176 917
$46 243 8131 674 13.0%
1985...
154 539 (41 604) 173 513 41 362 132 151 15.0 1984..
129 401 (34 790) 153 526 34 996 118 530 15.4 1983.
104 475 (26 306) 128 344 30 129 98 215 14.7 1982.
94 713 (22 505) 105 534 26 221 79 313 13.6 1976...
28 460,
(7 700) 39 463 7 683 317PO 13.2 Capie.u,
(ehno.made of douars)
Preferred Preferred Stock Stock
(*a==an mthout with 1.ong.
Stock Mandatory Mandatory Term Year Egety Redempoon
. Redemptmn Debt Total 1986..
S.074663.
36 %
S260 000 9%
$148 797 5%
$1480 947 50%
$2 964 407 1985....
949 881 '
36 230 000 8
153 639 6
1 339 268 50 2 672 788 1984.....
813 705 36 200 000 9
157 828 7
1 110 122 48 2 281 845 1983....
715 544 -
36 200 000 10 94 002 5
984 976 49 1 994 562 1
1982..
617 128. 35 169 500 10 95 527 5
875 859 50 1 758 014 1976.
266 469 -
34 115 000 15 10 000 1
388 270 50 779 739 38
.s Dectnc Sales (mihons of KWH)
Electnc Customers (year end)
Rawmini Usage Average Average KWH Pnce Revenue Per
'~-
Industn-1 Per Per KWH Customer Year
_. Residential Commercal Industnal Wholesale Other Total Residential Commercial & Other Total Customer (cents)
(dollars) 1986 1 941 1 496 3 482 242 449 7609 247 256 24 655 4 004 275 915 7 881 9.754 3788.43 1985...
1901 1 436 3 429 330 451 7 547 245 485 24 261 3 942 273 688 7 770 9.72 755.00 1984.
1958 1 398 3 444 304 440 7 544 243 912 23 891 3 920 271 723 8 045 8.81 709.09 1983.
1915 1 341 3 127 320 428 7 131 242 959 23 694 3 864 270 517 7 900 8.44 655.43 1982.
1911 1 326 2 873 395 413 6 918 241 492 23 495 3 815 268 802 7 906 8.04 635.82 1976...
1782 1 203 3 394 484 359 7 222 227 167 22 912 3 428 253 507 7 903 4.02 317.39 Load (megawatts)
Energy (millions of KWH)
Fuel Operable Fuel Cost Capacty Net Per Efficiency-At Time Pe'~ ic Load Capacity Company Generated Purchased KWH BTU Der a
Year Of Peak
- Load Factor (%) Marge (%)
Fossil Nuclear Total Power Total (cents)
KWH 1986 1 324 1 423 64.8 %
(7.574 6462 12 6 474 1689 8 163 1.828 9 860 1985..
1338 1 374 -
66J (2.7) 5744 952 6 696 1 402 8 098 1.90 10 124 1984..
1 641 1 327 68.2 19.1 5181 2 091 7 272 719 7 991 1.73 10 193 1983..
1777 1 325 65.6 25.4 4 683 2 383 7 066
$93 7 659 1.67 10 337 6 875 510 7 385 1.80 10 221 1982..
1 790 1 355-61.8 24.3 5 306 1 569 5 421 2 394 7 815 1.11 9 963 1976.
1 465 1 340-66.3 8.5 5 421 Investment (th=d of dollars)
Total UtGity Am==dard Construction Nuclear P.operty.
Utility Plant In Deprecation &
Net Work In Fueiand Plant and Plant Total Year Sernce Amoetizacia Plant Progress Other" Equipment Additions Assets 1986 31 442 812
$415745 81 027 067
$2145 704
$269 022
$3 441793
$449 432
$3 769 528 1985.
1 392 346 390 565 1 001 781 1 756 417 228 425 2 986 623 378 045 3 365 293 1984.
1 372 963 365 015 1 007 948 1 413 328 196 530 2 617 806 356 221 2 936 162 1983.
1 342 057 324 826 1 017 231 1 093 699 164 115 2 275 045 294 010 2 500 526 1982.
1 293 836 285 453 1 004 383 856 128 119 275 1 983 786 248 515 2 181 272 1976,.
531 301 137 540 393 761 424 463 7 463 825 687 144 714 904 524
- Capacity was reduced because of extended generating unit outages for renovation and improvements in 1984 (85 mw),1985 (401 mw) and 1986 (416 mw).
- 1984 and prior restated for effects cf capitalization of nuclear fuel lease and financing arrangements pursuant to Statement of Financial Accounting Standards 71.
39
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