ML20235N887
| ML20235N887 | |
| Person / Time | |
|---|---|
| Site: | Beaver Valley |
| Issue date: | 07/14/1987 |
| From: | Brandenberger DUQUESNE LIGHT CO. |
| To: | |
| Shared Package | |
| ML20235N768 | List: |
| References | |
| NUDOCS 8707200260 | |
| Download: ML20235N887 (30) | |
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July 14, 1987 UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION In the Matter of )
)
DUQUESNE LIGHT COMPANY, et al. )
) Docket No. 50-412 (Beaver Valley Power Station, )
Unit 2) )
)
APPLICATION FOR LICENSE AMENDMENT AND APPROVAL IN CONNECTION WITH SALE AND LEASEBACK TRANSACTIONS BY OHIO EDISON COMPANY l
On behalf of Ohio Edison' Company (OE), Duquense Light Com-pany (DL) hereby applies for approval and amendment to Facility Operating License No. NPF-64 in connection with sale and lease-back transactions by OE. DL is the licensed operator and manager of the Beaver Valley Power Station (BVPS). OE is a licensed co-owner. Affirmation of this application and the information here-in is provided by accompanying Affidavit of H. Peter Burg, Vice President of Ohio Edison.
- 1. Requested Action OE possesses, in its own right and as beneficiary of the Ohio Edison Energy Trust, a 41.88% interest in BVPS Unit 2 and a related interest in the BVPS common facilities. OE proposes to 8707200260 870714 PDR hDOCKObOOfAd z i
refinance part of these interests by entering into one or more sale and leaseback transactions. The transactions are described' belou. This application requests that the Director of the Office of Nuclear Reactor Regulation authorize the transactions and amend the BVPS Unit 2 license by adding a new paragraph 2.B(7) as follows:
(a) Ohio Edison Company is authorized to transfer any portion of its 41.88%
interest in BVPS Unit 2 and a propor-tionate share of its interest in the BVPS common facilities to certain equity investors identified in its submission of , and at the same time to lease back from such purchasers such interest transferred in the BVPS Unit 2 facility. The term of the lease is for approximately 29-1/2 years subject to a right of renewal. Such sale and lease-back transactions are subject to the representations and conditions set forth in the aforementioned application of July 14, 1987, as well as the letter of the Director of the Office of Nuclear Reactor Regulation dated ,
consenting to such transactions. Spe-cifically, a lessor and anyone else who may acquire an interest under these transactions are prohibited from exer-cising directly or indirectly any con-trol over the license of BVPS Unit 2.
For purposes of this condition the limi-tations in 10 C.F.R. 50.81, as now in effect and as may be subsequently amended, are fully applicable to the lessor and any successor in interest to that lessor as long as the license for l BVPS Unit 2 remains in effect; these financial transactions shall have no effect on the license for the BVPS Unit 2 facility throughout the term of the license.
l (b) ~ Further,'the licensees are also required to notify the NRC in writing prior to any change in (i) the terms or condi-tions of any lease agreements executed as part of these. transactions; (ii) the BVPS Operating Agreement, (iii) the ex-isting property insurance coverage for BVPS, Unit 2, and (iv) any action by a lessor or others that'may have.an ad-verse effect on.the safe operation'of
.the facility.
- 2. Precedent The Nuclear Regulatory Commission and its Staff have previ-ously approved sale and leaseback transactions for the Palo Verde Nuclear Generating Station. Approval for the first of these transactions was sought in October 1985. The NRC Staff reviewed
.the transaction'and for the reasons articulated in NRC Policy Paper SECY-85-367 (Nov. 20, 1985), found the transaction accept-l able.
. The NRC Staff concluded that where the transaction involves 1
only the refinancing of capital, and where the investor-owner has no authority or control over the nuclear facility, the Atomic En-1 ergy Act does not require licensing of the financial investors.
The Staff further concluded that where the lease expressly pro- j
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l vides that the lessee will continue to be licensed to possess the j facility, continue to serve as a participant under the facility operating agreement, and continue its responsibility for payment of its share of taxes, insurance premiums, and operating, I
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k maintenance and decommissioning costs, the transaction presents '
no public health and safety concerns. Similarly, where the investor-owner does not acquire a right to electric power gener-ated at the facility and electricity distribution under the facility operating agreement remains the same, the Staff found no antitrust considerations. The NRC Staff referred this first transaction to the Commission as a question of first impression, and recommended approval of the transaction subject to the condi-tion that the NRC be notified in writing prior to any change in the executed lease agreements, the facility operating agreement, or existing insurance policies, and be notified promptly of any action by the lessor or others which might have an adverse effect on safe operation of the facility.
Thereafter, by Order dated December 12, .1985,1/ the Commis-sion consented to the sale and leaseback transaction subject to the condition that the lessor or anyone else who may acquire an interest under the transaction is prohibited from exercising di-rectly or indirectly any control over the facility licensees. In this respect, the Commission's Order provided that 10 C.F.R.
S 50.81 (Creditor Regulations) apply to the lessor and any suc-cessor in interest. The Commission authorized the Director of the Office of Nuclear Reactor Regulation to amend the Palo Verde license as described in SECY-85-367 and the Commission's Order.
1/ Arizona Public Service Co. (Palo Verde Unit 1), Docket No.
STN-50-528, Commission Order (Dec. 12, 1985).
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On December,26, 1985, the NRC Staff issued Amendment 3 to
.t the Palo Verde Unit 1 Operating License. The amendment contained
'the conditions specified'in SECY-85-367 and the Commission's Order.
In response to subsequent applications for authority to enter into similiar transactions, the NRC Staff issued on June 2, 1986, Amendment 6 to the Palo Verde Unit 1 Operating License; on August 12, 1986, Amendment 2 to the Palo Verde Unit 2 Operating License; on August 15, 1986, Amendment 4 to Palo Verde Unit 2 Operating License; on December 11, 1986, Amendment 11 to the Palo Verde Unit 1 Operating License; and on December 11, 1986, Amendment 6 to the Palo Verde Unit 2 Operating License. These amendments contained identical conditions.
More recently, the Nuclear Regulatory Commission approved l sale and leaseback transactions by OE for the Perry Nuclear Power Plant, Unit No. 1. The transactions described in the Perry ap-plication of January 23, 1987, as' supplemented on March 3, 1987, were similar in all significant respects to the Palo Verde trans-actions, and on March 16, 1987, the Nuclear Regulatory Commission issued Amendment No. 2 to Facility Operating License No. NPF-58 for the Perry Nuclear Power Plant, Unit No. 1.2/
2/ 52 Fed. Reg. 9,586 (1987).
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As-shown below,.the transactions described in this applica-L ' tion are similar l'n'all significant respects.to the transactions described'in the Palo Verde applications and the Perry applica-tion and supplement. The transactions satisfy the conditions that are acceptable to the NRC Staff and Commission. The license amendment sought by this. application, and the conditions therein, are the same as those issued for the Palo Verde transactions and the Perry transactions.
- 3. Description of the Proposed Sale and Leaseback Transactions The Transactions. OE proposes to sell to a-grantor trust or trusts a portion of its 41.88% interest in BVPS Unit 2, including' 1
all or such portion of OE's generation entitlement share in BVPS Unit 2,.and unless leasehold rights thereto are given in lieu of ownership rights, a proportionate share of OE's interest in BVPS common facilities.3/ The beneficiaries of the trust (s) will be l one or more investors, each of whom will enter into a separate trust' agreement with the owner trustee.4/ It is anticipated that 3/ The transferred undivided interest in BVPS Unit 2 and the interest in common facilities is hereinafter referred to collec-tively as " Unit 2."
4/ As in the Palo Verde transactions and as is typical, sepa-rate trust agreements and leases could be executed for each equi-ty investor. The transaction documents for each equity investor would be substantially the same. It is also possible that an eq-uity investor itself, rather than a trustee, will elect to hold (Continued Next Page)
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the First National Bank of Boston will serve as the owner a trustee. The owner trustee will take and hold the interests acquired from OE. The owner trustee will then lease those inter-ests in Unit 2, and assign the acquired generation entitlement share, back to OE for a term of approximately 29-1/2 years for a stipulated rent. The portion of OE's interest in BVPS Unit 2 that is not acquired by the owner-trustee will be retained by OE.
Purchase Price. The portions of OE's interest in BVPS Unit 2 that are the subject of sale and leaseback transactions will be sold at a fair market price. Prior to the closing of the lease transactions, an appraisal will confirm that the purchase price is a reasonable estimate of fair market value. The ap-praisal, to be conducted by an appraiser acceptable to the equity investor (s), will also determine that, after approximately 29-1/2 years, the estimated remaining economic life of Unit 2 will be l
l long enough and its estimated value will be great enough to es-tablish each lease as a true lease for Federal tax purposes.
l (Continued) title and act as lessor. Another alternative, as occurred in the Perry transactions, as well, is for the investors to participate I in the transaction as partners in a limited partnership which I would itself be the beneficiary of the owner trust. These possi-
! ble alternatives would not affect the terms of the lease or the rights, restrictions, and obligations of lessor and lessee.
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Lease Term and Renewal Option. The basic term of each of the leases is expected to be approximately 29-1/2 years. OE will have the option, at the end of the basic term, to renew each lease for a renewal term of no less than two years at a fixed rental rate. Additionally, OE will seek from the equity inves-tor (s) the option, but no obligation, to continue renewing each lease at fair market rentals for the remaining life of Unit 2.
Quiet Enjoyment; Rights of OE. During the term of each I
lease, the lessor will warrant that, so long as OE is in compli-ance with the terms of the lease, OE's sole possession and use of, and rights with respect to, Unit 2 shall not be interrupted by the lessor or any person claiming through the lessor. OE will be empowered with respect to Unit 2 to be and act as a partici-pant under the BVPS Operating Agreement (described below) with j l
full and exclusive authority to exercise and perform all of the j l
rights and duties of a participant thereunder. Additionally, OE will hold its exclusive entitlement to the percentage of the hour-to-hour net operating capacity for Unit 2, and energy J therefrom, associated with the lessor's interest in BVPS Unit 2.
OE will have the right to sell and dispose of this energy.
Net Lease. Each lease will be a " net lease" under which OE will be responsible for paying all taxes, insurance premiums,
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operating and maintenance costs, and all other similar costs as- l l
sociated with Unit 2 (including obligations as a party to the !
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BVPS Operating Agreement). The pur;,ose of these provisions is to ensure that the lessor is subject only to normal financing risks and not to operational risks or responsibilities.
Capital Improvements. Any addition, betterment, or enlarge-ment of Unit 2, or replacement of units of property (capital improvement), will be OE's obligation under each lease. Under each lease, OE may, but will not be obligated to, request that the lessor provide financing under the lease (supplemental fi-nancing) for its respective shares of capital improvements. Each equity investor will have the option, but no obligation, to make additional equity investments in capital improvements which are the subject of supplemental financings. Concurrently with any supplemental financing, the rent payments will be adjusted to support the amortization of the additional debt issued in connec-tion with the supplemental financing and to preserve the equity investor's net economic return.
Support Agreements. OE and each lessor will enter into sup-port agreements which will provide the lessor with such rights in !
parts of OE's interest in BVPS not constituting Unit 2 as may be necessary to enable the lessor to realize the residual value of its interests. In particular, effective upon termination of the lease (unless OE shall have exercised its option to repurchase i
Unit 2), certain rights in nuclear fuel, transmission facilities '
to the BVPS Switchyard and other retained assets will be made
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available to the lessor for the remaining economic life of Unit 2 l
to satisfy Internal Revenue Service guidelines for a "true lease" characterization, particularly with regard to negating any
" limited use" characteristics of Unit 2.
The BVPS Operating Agreement. The operation and maintenance of Unit 2 and the rights and duties of the current joint owners of BVPS Unit 2 will be governed by the BVPS Operating Agreement.
The BVPS Operating Agreement appoints DL on behalf of all of the BVPS Unit 2 participants (the CAPCO Companies) as the agent re-sponsible for the operation and maintenance of BVPS Unit 2. The BVPS Operating Agreement provides the delegations of authority to DL necessary to permit DL to carry out such functions in a manner that complies with all laws, regulations, permits and licenses (including the BVPS Unit 2 License).
The BVPS Operating Agreement also establishes the rights and obligations of the CAPCO Companies. One of the primary obliga-tions assumed by the CAPCO Companies under the BVPS Operating Agreement is the obligation to share the costs of operation, maintenance, decommissioning and capital improvements of BVPS Unit 2. So long as a Company is not in default in its obliga-tions under the BVPS Operating Agreement, it is entitled to re-serve its desired shares of capacity in the Unit and schedule its desired share of energy associated therewith, en an hour-to-hour basis, up to the limits of the percentage equal to its generation entitlement.
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i The BVPS Operating Agreement provides the CAPCO Companies with oversight of BVPS Unit 2 and the actions of DL as operating agent through plant access and reports. DL alone, however, is authorized to operate and maintain Unit 2, provide necessary ma-terials and supplies for Unit 2, and make any additions, replace-l i
ments and retirements with respect to the Unit, taking all steps which it deems necessary or appropriate to carry out the provi-sions of the BVPS Operating Agreement in accordance with sound engineering and operating principles and practices. While addi-tions, replacements and retirements that involve material changes in capability, useful life, basic methods of operation of BVPS Unit 2 and similar matters that have not been previously budgeted must normally be agreed upon by the CAPCO Companies, DL may make
, such changes without obtaining agreement if they are of an emer-gency nature. DL is authorized to contract on behalf of the CAPCO Companies for the purchase of materials, equipment and ser-vices for the operation and maintenance of BVPS Unit 2.
The BVPS Operating Agreement will be amended to permit the CAPCO Companies to enter into sale and leaseback transactions.
It will provide, however, that a Company that enters into a sale i
and leaseback transaction is not released from any obligation under.the Agreement. It will further provide that except in the event a lessor succeeds to a Company's rights and interests in accordance with the Nuclear Regulatory Commission's Creditor 1
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Regulations, the Company shall remain the sole participant (vis-1 l a-vis its original interest) with respect to the . operation and l maintenance of BVPS Unit 2 under the Agreement.
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- 4. Schedule of the Sale and Leaseback Transactions If OE is to achieve the lowest possible rental costs in con-l n'ection with the proposed sale and~1easeback transactions, it !
l will be necessary that the equity investors be able to take advantage of the maximum amount of tax benefits that may be )
available. Basically, these tax benefits involve the investment
. tax credit and depreciation deductions associated with the prop -
erty that is tx) be the subject of the sale and leaseback transac-1 tions. As to the investment tax credit, these benefits will only l be available to the equity investors if such transactions are consummated within three months of the date on which Unit 2 is l first synchronized (utilizing its nuclear steam supply system) 1 with the main transmission grid. First synchronization is ex-pected to be completed around August 1, 1987. As to depreciation deductions, depending on the factual situation of a particular equity investor,.the maximum amount of depreciation deductions available in 1987 may depend on the transactions described in l this application being consummated by September 30, 1987. This is because what in most cases would be a less favorable deprecia-tion convention would have to be used by any equity investor who is a calendar year taxpayer and who acquires depreciable property
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in the fourth quarter with a cost basis equal to or greater than 40% of the cost basis of the depreciable property which that in-vestor acquired in all of 1987. Since there is no way to know in advance what the status of potential equity investors may be in this regard, and since in any event a transaction that does not count against (and in fact enhances) their ability to do fourth quarter transactions will undoubtedly be more attractive to potential equity investors because of this fact, it is planned to consummate the instant transactions on or before September 30, 1987.
To achieve this schedule it will be necessary that:
(i) notice of this Application be pub-lished in the Federal Register not later than August 1, 1967, thereby allowing 30 days to elapse prior to the making by the Commission of a determination in respect of this Application; and (ii) the requested approval and amend-ment to the Unit 2 License be issued and become effective not later than September 1, 1987.
- 5. Supporting Information The general information respecting OE required by 10 C.F.R.
S 50.33 (a) through (d) is provided by Exhibit A hereto, which information is incorporated herein by reference. Copies of OE's 1986 Annual Report and OE's Annual Report on Form 10-K for the
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- fiscal year ended December 31, 1986 are provided as. Exhibits B and C respectively. A copy of OE's Quarterly Report on Form 10-Q for the quarter ending March 31, 1987 is provided as Exhibit D.
The general.information specified by 10 C.F.R. $~50.33 (a) through (d) respecting the proposed Owner Trustee, the First Na-tional Bank of Boston, is provided by Exhibit E attached hereto, which information is. incorporated herein by reference. Copies of
- the 1986 Annual Report and Annual Report on: Form 10-K for the
- fiscal year ended December 31, 1986, and Quarterly Report in Form 10-Q for the' quarter ending March 31, 1987, are provided as
' Exhibits F through H.
The equity investor (s) have yet to be identified. Upon OE's accepting a proposal from a potential equity investor, OE will, as promptly as possible, provide to the Commission (i) the pur-chase price of the portion of Unit 2 in respect of which each eq-uity investor will make its initial commitment to invest and (ii) the most recent publicly-available annual and interim finsncial statements for such equity investor.
- 6. Environmental Considerations The proposed conveyances of Unit 2 to the owner trustee and the lease of Unit 2 back to OE do not involve any design or phys-ical change to Unit 2, any change in the transmission or other facilities associated with Unit 2, any change in types or amounts
of effluents from Unit 2, any change in the potential for acci-dental releases from Unit 2, or any change in the authorized power level of Unit 2. Accordingly, the grant of the relief re-quested by this Application does not present any unreviewed envi-ronmental impact. Pursuant to 10 C.F.R. S 51.5(d)(4), no envi-ronmental impact statement, negative declaration, or environmental impact appraisal need be prepared in connection with this Application.
- 7. Antitrust Considerations Because discussions with potential equity investors are con-tinuing, the identity of the actual equity investor (s) who will participate in the proposed transactions is not yet known. Over the last several years, affiliates and subsidiaries of electric utilities (singly or in joint venture with other equity investors and/or financial intermediaries) have become an increasingly im-portant source of equity investment for sale and leaseback trans-actions of all types. Although it might seem anomalous that electric utilities would be involved both as lessee and, through an affiliate or subsidiary, as equity investors, this is not surprising in view of the different financial situations of dif-ferent utilities. Like other investors, some utilities are in the position of seeking tax-advantaged investments. OE and its financial advisors, First Boston Corporation and Goldman, Sachs &
Co., believe that participation by such equity investors may be essential to the successful consummation of the sale and lease-back transactions sought by OE. Affiliates and subsidiaries of electric utilities would be purely passive investors and would have the same investment purpose as any other equity investor.
. Potential equity investors that are affiliates and/or sub-sidiaries of electric utilities may be in any geographic region of the country, including Ohio and Pennsylvania. These entities are an important potential source of equity investment for sale /
leasebacks of OE's interest in BVPS Unit 2. These entities, like any other equity investor, will not have, so long as the leases are in effect, any right to Unit 2 capacity or associated energy, and such capacity and energy will be allocated in the manner as is now set forth in the BVPS Operating Agreement as though no sale and leaseback transactions had been consummated.
The transactions described in this Application therefore do not present any unreviewed antitrust considerations not previous-ly addressed in connection with issuance of the Unit 2 License.5/
Participation by equity investors that are affiliates or 5/ A similar determination was made by the NRC Staff in connec-tion with the Palo Verde sale leaseback transactions. See, e.g., .
Policy Paper SECY-85-367, at 9. Moreover, the Commission ap- I proved the license amendment application with respect to the sale and leaseback transactions for the Perry Nuclear Power Plant, Unit 1 which contained similar antitrust considerations. See, Safety Evaluation by the Office of Nuclear Reactor Regulation Supporting Amendment No. 2 to Facility Operating License No.
NPF-58, at 3.
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i subsidiaries of electric utilities in the proposed sale and leaseback transactions would have no effect whatsoever on the operation of BVPS Unit 2, or the generation of electricity or transmission thereof; and, the presence of such entities as equi-ty investors should have no impact on the action requested by the Application. To the extent that antitrust considerations could be affected by an equity investor which is an affiliate or sub-sidiary of an electric utility entering into possession of an interest in Unit 2 upon termination of its lease, the restric-tions imposed by the requested amendment to the Unit 2 License will give the Commission an opportunity to make further determi-nations concerning antitrust and other licensing concerns in light of the circumstances at the time such change in possession takes place.p/
In the event OE determines that it wishes to accept a pro-posal from a potential equity investor that is an affiliate or subsidiary of an electric utility, OE will submit to the Commis-sion a memorandum in support of this Application addressing the possible antitrust concerns raised by the participation by such equity investor.
p/ Affiliates or subsidiaries of electric utilities were poten-tial equity investors in the Palo Verde and Perry transactions.
No antitrust review was deemed necessary.
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- 8. No Significant Hazards Consideration The consummation of the proposed sale and leaseback transac-tions will not involve any increase in the probability or conse-quences of an accident previously evaluated, or create the possi-bility of an accident that is new or that is different from any accident previously evaluated, or involve any reduction in any margin of safety. Accordingly, the consummation of the transfer of Unit 2 as contemplated by the proposed sale and leaseback transactions does not involve a "significant hazards considera-tion" within the meaning of that phrase as defined in 10 C.F.R. 50.92.
- 9. Foreign Ownership Considerations Certain equity investors may be " owned", " controlled" or
" dominated" by a foreign corporation within the meaning of Sec-tion 103d of the Atomic Energy Act. In Policy Paper SECY-85-367, the Staff took the position that, if a licensing requirement were not imposed on the equity investors, then the prohibition of Sec-tion 103d need not be addressed.7/ In its Order of December 12, 1985, the Commission concurred. It is respectfully submitted, therefore, that possible foreign control of an equity investor should not prohibit the license amendment requested by this Ap-plication. This conclusion is only reinforced by the fact that 7/ Policy Paper SECY-85-367, at 9-10 n.7.
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the proposed transactions, like the Palo Verde and Perry transac-i tions,.do not subject OE to'the will of the equity. investor or otherwise give the equity investors the power to direct OE's ac-tions with respect to Unit 2.
- 10. . Responsibility for Management of Unit 2 The consummation of the proposed sale and leaseback transac-tions will not result.in any change in the responsibilities, obli-gations or authorities of DL as the licensee under the BVPS 1
Unit 2 License authorized _to operate and maintain Unit'2, or as operating agent under the BVPS Operating Agreement. Under the terms of the proposed leases and pursuant to the BVPS Operating Agreement, OE will continue throughout the term of the leases to be a participant under the BVPS Operating Agreement, entitled-to L
l a 41.88% share of the hour-to-hour net operating capacity of BVPS 1
Unit 2 and associated energy, entitled to participate in all sig-l l nificant determinations relating to Unit 2, and obligated to pay L 41.88% of the costs of operating and maintaining BVPS Unit 2.
It is not necessary to issue a license to the owner trustee i
l and/or equity investors since only DL, as Operating Agent, and the other BVPS Unit 2 licensees, including OE, are able to insure that Unit 2's operation is consistent with the Commission's li-censing responsibilities, DL and the other BVPS Unit 2 licensees )
i alone have control of and responsibility for the operation and L___ _ L _--- -
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maintenance of Unit 2. The limited nature of the ownership rights of the owner trustee and/or the equity investors makes it unnecessary for the Commission to license them. Neither the owner trustee nor any of the equity investors will have (i) any I
ability to restrict or inhibit compliance with the security, j safety, or other regulations of the Commission, (ii) any capacity i to control the use or disposal of BVPS Unit 2 nuclear fuel, or ,
l (iii) any right to use or direct the use of Unit 2 or any other part of BVPS Unit 2. The current regime of control, supervision, )
and responsibility will be unaltered by the proposed transac- i tions. DL is and will remain responsible to the Commission for i
the proper operation and maintenance of Unit 2.
Facts similar to the foregoing were submitted to the Commis-sion in connection with the applications for approval of the Palo Verde sale leaseback transactions and served as a basis for the Commission's December 12, 1985 Order. Facts similar to the fore-going were also submitted to the Commission in connection with the application for approval of the Perry sale leaseback transac-tions and served as a basis for the Commission issuing Amendment No. 2 to Facility Operating License No. NPF-58 for the Perry Nuclear Power Plant, Unit No. 1, on March 16, 1987.
- 11. Basis for Action Requested s
The sale and leaseback transactions described in this Appli-cation are the same in all respects material to the Commission's consideration of this Application as the transactions previously approved by the Commission with respect to the Palo Verde and Perry nuclear facilities. The basic term of the leases is in ex-cess of 29 years, subject to certain renewal options, and is i
joined with a fair market value purchase option at the end of the basic lease term and each renewal term. Each lease will provide that, so long as OE is in compliance with the terms of the lease, OE's sole possession and use of, and rights with respect to the leased facilities, will not be interrupted by the lessor or any person claiming through the lessor. In addition, OE will be em-powered with respect to Unit 2 (whether or not subject to a sale and leaseback transaction) to be and act as a participant in the BVPS Operating Agreement, which sets forth the rights and duties of each of the CAPCO Companies.
Additionally, OE will hold the exclusive right to sell and dispose of its share of power and energy from BVPS Unit 2 without limitation arising from any lease agreement. Each lease will be a " net lease" under which OE will be responsible for paying all taxes, insurance premiums, operating and maintenance costs, costs related to capital improvements and decommissioning and all other similar costs and expenses associated with the leased facilities.
OE's primary and unconditional obligations with respect to decommissioning will be undiminished. Under each lease, OE will be obligated to make semi-annual lease payments to the lessor which will repay and provide a return on each equity investor's investment in Unit 2 and which will pay interest on debt obliga-tions issued to finance a portion of the purchase price of Unit 2. The rights acquired by the lessor, the equity investors and their respective successors and assigns in and to Unit 2 may, in each case, be exercised only in compliance with and subject to the same requirements and restrictions as would apply to OE pur-suant to the provisions of the applicable Commission license, the Atomic Energy Act, and the Commission's regulations. Lastly, the lessor and the equity investors will acknowledge that before tak-ing possession of any part of BVPS Unit 2, they will be subject to applicable requirements concerning (i) the issuance of a license by the Commission authorizing such possession or (ii) the transfer of the Commission license authorizing OE to possess an interest in BVPS Unit 2 upon application for transfer of such license. filed pursuant to applicable law.
As can be seen from the foregoing, the basis for the relief requested in the present Application is the same as the basis upon which relief was granted with respect to the Palo Verde and Perry transactions. The benefits that motivated the sale and leaseback transactions at Palo Verde and Perry also motivate this
Application; Ohio ratepayers will experience substantial long-term savings both from the lower cost of capital thereby made a ailable and from the levelized revenue requirements inherent in the' sale and leaseback transactions. The proposed transactions i'
will reduce the ratepayer revenue requirements associated with Unit 2. The relief requested in this Application is the same re-lief (based upon similar facts) previously granted for the Palo Verde and Perry Nuclear Plants, and it is respectfully submitted that these precedents should govern the Application.
WHEREFORE, DL requests on behalf of OE that the Director of Nuclear Reactor Regulation grant the relief requested in Section 1 hereof or in such other form and/or subject to such conditions in addition to those stated in such section as the Director may deem appropriate.
This application and information provided herein is affirmed under oath by the accompanying affidavit of H. Peter Burg, Vice President, Ohio Edison Company.
Respectfully submitted,
$WI hh e7 G. R. Brandenberger Vice President Duquesne Light Company I
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l UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION In the Matter of )
)
DUQUESNE LIGHT COMPANY, _e _t _a _l . ) Docket No. 50-412
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(Beaver Valley Power Station, )
Unit 2) )
AFFIDAVIT OF H. PETER BURG County of Summit )
) ss:
State of Ohio )
H. Peter Burg, being duly sworn according to law, deposes and states the following:
- 1. My name is H. Peter Burg. I am Vice President of Ohio Edison Company. My business address is Ohio Edison Company, 76 South Main Street, Akron, Ohio 44308,
- 2. The purpcse of this Affidavit is to affirm the information provided in the Application For License Amendment and Approval in Connection With Sale and Leaseback Transactions by Ohio Edison Company. I have knowledge of the information provided therein and believe it to be true and correct.
H. Peter Burg ,/
Subscribed and sworn to before me this 8th day of July, 1987.
bbt4k}4 $ bu&ry Notafy Public
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! Exhibit A' ;
APPLICATION-FOR APPROVAL OF SALE AND LEASEBACK TRANSACTIONS General Information Concernino Ohio Edison Company 1.. Name and Address Ohio Edison. Company
- 76. South Main Street Akron, Ohio 44308
- 2. Description of Business and Organization Ohio Edison Company.is a public utility incorporated under Lthe lavs of the State of Ohio. The Company furnishes electric service in 487 communities as well as in rural areas of Ohio. It
,1 supplies transmission services to 8 rural cooperatives, electric
' energy for resale to 3 municipalities and both transmission ser-vices and electric energy for resale to 18 municipalities in Ohio. The Company also engages in the sale, purchase and interchange of electric-energy with other electric companies.
The area it serves has a population of approximately 2,500,000.
Ohio. Edison Company is not owned, controlled, or dominated by an alien, foreign. corporation, or foreign government. The names and business addresses of Ohio Edison Company's directors and principal officers, all of whom are citizens of the United States, are as follows:
Directors Donald C. Blasius Robert H. Carlson Chairman and Chief Executive Senior Vice President Officer Plumbing Fixture Division Home Products Group Universal Rundle Corporation White consolidated Industries 303 North Street 300 Phillipi Road P.O. Box 29 P.O. Box 182056 New Castle, Pa. 16103 Columbus, Ohio 43218 Dr. Lucille G. Ford Glenn H. Meadows Vice President President and Chief Executive Ashland College Officer Ashland, Ohio 44805 McNeil Corporation 666 West Market Street Robert L. Loughhead Akron, Ohio 44308 Chairman of the Board, President and Chief John Nelson Executive Officer Chairman of the Board and Weirton Steel Corporation Chief Executive Officer Three Springs Drive Commercial Shearing, Inc. Weirton, West Virginia 26062 1775 Logan Avenue Youngstown, Ohio 44505 William R. Miller 178 St. Clair Charles W. Rainger Akron, Ohio 44307 President Sandusky Foundry and Machine Co. V. A. Owoc 615 W. Market Street Executive Vice President P.O. Box 1281 Ohio Edison Company Sandusky, Ohio 44870 76 South Main Street Akron, Ohio 44308 J. T. Rogers, Jr.
President D. W. Tschappat Ohio Edison Cnmpany Executive Vice President 76 South Main Street Ohio Edison Company Akron, Ohio 44308 76 South Main Street Akron, Ohio 44308 Frank C. Watson President William C. Zekan The Youngstown Welding and Chairman of the Board and Engineering Company President P.O. Box 2461 A. Schulman, Inc.
Youngstown, Ohio 44509-0461 3550 West Market Street Akron, Ohio 44313
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Officers l
Lynn Firestone M. T. Clark Senior Vice President Treasurer Ohio Edison Company Ohio Edison Company 76 South Main Street 76 South Main Street Akron, Ohio 44308 Akron, Ohio 44308 D. R. Gundry G. F. LaFlame Senior Vice President Secretary Ohio Edison Company Ohio Edison Company 76 South Main Street 76 South Main Street Akron, Ohio 44308 Akron, Ohio 44308 R. J. McWhorter Joanne Martin Senior Vice President Assistant Secretary Ohio Edison Company Ohio Edison Company 76 South Main Street 76 South Main Street Akron, Ohio 44308 Akron, Ohio 44308 H. P. Burg Russell J. Spetrino Vice President Vice President and General Ohio Edison Company Counsel 76 South Main Street Ohio Edison Company Akron, Ohio 44308 76 South Main Street Akron, Ohio 44308 F. E. Derry Vice President R. D. Best Ohio Edison Company Vice President ;
76 South Main Street Ohio Edison Company Akron, Ohio 44308 76 South Main Street Akron, Ohio 44308 J. D. Wilson Vice President J.-A. Gill Ohio Edison Company Vice President 76 South Main Street Ohio Edison Company Akron, Ohio 44308 76 South Main Street Akron, Ohio 44308 i
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i D. L. Yeager W. G. Fouch Vice President Assistant Comptroller Ohio Edison Company Ohio Edison Company 76 South Main Street 76 South Main Street Akron, Ohio 44308 Akron, Ohio 44308 W. A. Daniels T.F. Struck, II Comptroller Assistant Treasurer Ohio Edison Company Ohio Edison Company 76 South Main Street 76 South Main Street Akron, Ohio 44308 Akron, Ohio 44308
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cW ' . Contents . -
M 2 PresidenciMenage 4 IWew of. Operations 17 Financial Review
, i ,
40 Stockholder Wormat.on 41 Directors and Management i
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Fin ncl:INighlights I
For the Years Ended December 31 1986 1985 Change on mdhons. except per share amounts)
Kilowatt-Hour Sales 28,165.6 28,885.7 -2.5%
Operating Revenues $1,741.9 $1,754.7 -0.7%
Fuel Expense 422.8 499.2 - 15.3%
Operating income 392.4 380.4 +3.2%
Allowance for Funds Used During Construction, Net 320.8 287.7 + 11.5%
interest and Other Charges 410.4 410.2 -
Net income 410.8 370.7 + 10.8%
Earnings on Common Stock 359.8 318.1 + 13.1 %
Earnings per Common Share $2.47 $2.45 +0.8%
Dividends per Common Share * $1.92 $1.88 +2.1%
Dividends on Capital Stock $330.8 $297.1 + 11.4%
Capital Expenditures: .
Construction of Facilities $717.8 $765.6 Nuclear Fuel 52.0 52.8 Other Capital Leases 6.4 8.6
$776.2 $827.0 -6.1%
Internally Generated Cash 232.7 275.3 - 15.5%
Net Financing Activities 370.5 443.8 - 16.5% -
Return on Average Common Equity 14.9 % 15.2 %
- The qu erf vidend was increased to 49 cents per share ($1.96 on an annual basis) beginning with the dividend payable on rating Revenues Earnings per Share Ann iDividend turn on Average
$2.0 $2.50 $2.50 20.0
~
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1.00 ll 1JN) lll 8.0 0.4 i e 0.50 . i 0.50 ! 4.0 I
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1 Pre:Id:nt's M:cccp Our improved operating performance and suc- lower than the previous year. This was largely cess in holding down costs helped us achieve the result of utilities in the mid-Atlantic region a 1986 carnings per share on common stock -our primary market-switching back to their of $2.47, up from $2.45 in 1985. We accom- own oil-fired generating units when oil prices plished this despite our having 12 percent fell in 1986. Also, three large generating units more common shares outstanding. were placed in service, providing additional p wer in that region.
"Ibtal kilowatt-hour sales to customers in our ]
service area were up nearly 2 percent. Com- These changing market conditions made a i mercial sales increased 5.6 percent, reflecting major off-system sales agreement with Potomac continued growth of retail and service-related Electric Power Company (PEPCO) all the more businesses. Residential sales were up 3.7 gratifying. The agreement, which is subject .
percent, for the most part due to increases in to approval by the Federal Energy Regulatory new home construction and demand for heat- Commission, takes effect June 1,1987, and ing and air-conditioning. Industrial sales were should bring in an average of $150 million in off 2.5 percent, mainly because of lengthy annual revenue through the year 2005, strikes that halted operations at the plants of Financial position improves two of our largest industrial customers.
Our ongoing efforts to improve operating effi-Although off-system kilowatt-hour sales to ciency have been rewarding, especially in power other utilities produced $138 million in reve- plant operations. Average generating unit avail-nues in 1986, those sales were 15.8 percent ability increased from 60 percent in 1979 to nearly 80 percent in 1986. This performance re-duced annual operating costs about $50 million.
We also took advan age of lower interest rates
.! V, 1). h' and refinanced more than $210 million of debt e T. during the year. This will save $14 million in annual interest expenst i These and other successful efforts to improve our financiel position have enabled us to increase j kf -
j{ the annual common stock dividend from $1.76 in 1982 to $1.92 in 1986. In February, the h j r. -
Board of Directors again raised the quarterly p 'N dividend to 49 cents per share, or $1.96 on p k " ,
f s a31wA np M' "
l >
~ , - -
+ Perry Plant progress pggy p; 1, On November 13,1986, the Nuclear Regula-tory Commission (NRC) issued a full-power
!!MJE Eh. L. - ,
operating license for Perry Unit 1. The unit moved closer to full commercial operation when, in mid-December, it supplied power to the system for the first time.
As construction at Perry was nearing comple-tion, the Public Utilities Commission of Ohio ordered an independent audit to identify the 2 ,
j
- causes of construction delays and cost increases. erating the bulk of electric power this country in releasing its findings last August, the auditors needs to maintain living standards and support said the Perry project was well managed. They future economic growth.
attributed most of the construction delays and llut no new nuclear generating units and only a cost increases to factors outside the control of few coal-fired units have been ordered since utshty company management.
1978. Our nation needs to develop an energy
. Other concerns about nuclear power plants are ' policy that encourages construction of plants often brought up-and must be addressed-as to meet future demand and that provides for plants approach full operation. The Perry Plant a reasonable return on investment in those is no exception, plants. Without it, our industry's continued -
ability to deliver reliable and economical elec-Following an carthquake in northeastern Ohio tric p wer will be seriously jeopardi=d.
in January 1986, questions were raised about the possibility of damage to the plant. The - . .
Staying competitive NRC conducted a thorough investigation and a congressional subcommittee held a public Last year i met with many executives who run hearing. Iloth concluded that the plant did industrial and commercial businesses in our area. While sharing their concerns for holding indeed safely withstand the earthquake..
down operating costs, improving sales and pro-Despite these findings, nearly seven months moting growth, I assured them that we will after the earthquake, Ohio's governor withdrew never take their business for granted; that we his support for the Perry emergency evacuation will do everything possible to keep our prices plan. This plan had been developed, tested and competitive.
approved by the state and had the approval of
,I'he increasing intensity of competition from federal agencies.
other energy suppliers is not the only thing In withdrawing his support, the governor cited that can affect our financial performance. New the accident at the Soviet Union's Chernobyl environmental laws, deregulation, restructuring plant. Even some of the severest critics of and diversification could also significantly nuclear power have conceded that Chernobyl change our industry over the next few years, was not built with the margin of safety basic to We are prepared to meet these and other chal-all U.S. nuclear plants. We believe the exten.
lenges uithout being distracted from our pri-sive safeguards and backup systems built into mary objectives: quality service and ,mproved i
U.S. plants clearly demonstrate our concern for public safety far beyond what was evident pr fitability.
at Chernobyl. Given the considerable achievements of our employees in recent years, I am confident We also believe nuclear power represents a about the future. With our resources, our ded,-i source of energy that must play a growing role cated people and the continued support of you, in meeting our future energy needs. Oil and ur stockholders, we will get the job done.
natural gas eventually will be in much shorter supply. At some point, nuclear and coal are likely to be the only practical choices for gen-
' T. s.~
justin T. Rogers,Jr.
President March 1,1987 3
Ceview of Cperations Area sales increase Use of electricity in our service area grew 1.7 percent in 1986, despite lower sales to 4 industrial customers.
Sales to commercial customers showed the I largest gain, up 5.6 percent, as retailers and generation because of depressed oil prices.
service businesses enjoyed steady growth.
Als , three generating units placed in service Residential sales also grew, by 3.7 percent, by other utilities supplied additional power I mainly from new home construction and to t red n. H um,I ngterm contrams higher heating and air-conditioning use.
secured in 1983 helped us realize $138 million On July 18, our customers set a new system in revenues from off-system sales last year, record for peak energy demand of 4,243 A m j r new contraa, effeaiveJune 1,1987, megawatts. The heat and humidity also will assure revenues from off-system sales strained regional supplies of electricity, which through the year 2005. The agreement was reflected in our sale of 826 megawatts should produce an average of $150 million to other utilities.
annually from sales of electricity to the A 2.5 percent downturn in sales to industrial Allegheny Power System for resale to customers was primarily due to prolonged Potomac Electric Power Company, which strikes at facilities of two of our largest steel serves the Washington, D.C., area.
manufacturing customers. Off-system sales to other utilities fell 15.8 percent as eastern Special programs attract utilities used more of their own oil-fired and keep customers To help steel manufacturers keep prices competitive with foreign suppliers, we offer two special rate options to customers operat-ing electric melting furnaces. In return, these !
options allow us to interrupt this heavy power demand during the Company's peak i
> New technologies have con-tributed to our improved effi-ciency and enabled us to
, generate sources of revenue :
9-
'g g from nonutility businesses, !
% including microfilm records 4
i s.. .I .
and fiber optics.
4 A $5.8 million expansion and
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200 new jobs qualified t.ittle y / .
I y y .
.f Tikes Company for special y '
. . . - - economic development rates, which reduce energy costs for new or growing A- businesses.
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J , , s d2 mand period if needed for capacity short- .; falls, system emergencies or other purposes. ; o y ;' Thir program also helps preserve jobs and ] the economy in 'communities where steel plants are located. Thirteen companies j signed up for these options in 1986. Our most successful program is a special share of this market, which represents about l five-year price-incentive plan that offers 5.5 percent of our annual revenues, we have growing businesses significant savings in been establishing prices competitive with 1 electricity costs. It has helped persuade 50 natural gas and selling the many benefits companies to build new facilities or expand f electric heating. their operations in our service area. They A study conducted in May 1986 showed that created more than 2,000 jobs and added annual operating costs of homes with electric
$11.4 million to our t.nuud sales revenue. baseboard heating and load control were equal Another 20 companies that qualified to to or lower than operating costs of homes j participate in the plan should add 2,000 heatea by gas. A 14S3 study showed cost ]
more jobs and more than 59 million in an- savings for homes with heat pumps and load nual reverue when their facilities are operating. control over those with gas furnaces and air-conditioning. These studies are helping to Expanding home henting sales convince homeowners that our pricing options In 1986, electric heating was the choice of make electric heat cost competitive as well ! buildert, and buyers in 35 percent of new as more efficient and comfortabb than gas homes in our service area. To gain a larger Jr oil heat. Custoniers can also reduce their energy j costs with our Power Commander program. In exchange for controllable service, resi-dential and commercial customers receive a reduced electric rate for space and water heating. Interest-free loans are available
> Facilities to d.evelop robotics I and train technicians are i
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y I. b Q Community College. 4 Kent State University's Liguld l
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for load-control systems and electric water heaters that replace gas or oil water heaters. 'llouble-free equipment performance is the goal of our Alternative Plus program, which assures that heat pumps are installed accord-ing to the Company's recommended stan-dards. 'E retain electric heating customers, generating level, Ohio Edison has been our Performance Pius program gives cus. authorized by the Public Utilities Commis-tomers up to $250 for qualifying repairs and si n of Ohio to begin recovering a portion of improvements to electric heating systems, the Company's financing costs. Customer Our newest plan, the Heat Pump Perform _ bills would increase by about 2 percent. ance Check, helps pay for annual service and the new rates would add an estimated inspections. $42 million in annual revenue. In October 1986, the Company withdrew Perry Unit I licensed a request fc,c a rate increase that would have Unit 1 at the Perry Nuclear Power Plant re- primarily covered operating and maintenance ceived a full-power license on November 13, expenses, depreciation and taxes for Perry 1986, from the Nuclear Regulatory Commis- Unit 1. Because of legal nnd other delays in sion (NRC). With tests continuing at various receiving a full-power operating license, the levels of operation, the unit is expected to unit was not expected to be operating at full reach commercial operation in mid-1987, capacity within the test year approved for according to the plant's operator, the Cleveland the rate case. A new request will be filed in Electric illuminating Company. 1987 to recover our investment and operat-ing c sts for Perry Unit 1. When Perry Unit I reaches the 20 percent Because of different state regulations, Penn Power has not withdrawn a rate request it filed in June 1986 with the Pennsylvania Public Utility Commission (PPUC). The request by > Perry Unit 1 received its full-power operating license in Y .
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would increase retail electric rates gradually over the next four years. The four equal an-nual installments would total $70.9 million ; in annual revenue, reflecting invest;nent and operating costs for Perry Unit 1. However, l on February 2,1987, an administrative law
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judge recommended a one-time increase of systems and licensing activities. Ohio Edison
$23.1 million. Penn Power has taken excep- owns about 42 percent of this 833 megawatt ~t ion with the recommendation and filed a unit, which is being built by Duquesne brief with the PPUC. Light Company.
Ohio Edison end Penn Power own about 35 percent of the 1,205 megawatt Perry Financing costs reduced Unit 1. Construction of Perry Unit 2 has As a result of good earnings performance in l stopped and all options are being evaluated. recent years, internal financing of construc- ) tion and system improvements has helped Beaver Valley Unit 2 reduce our interest costs. Of the 9,718 million l-l fuelloading scheduled the Companies raised in 1986 for construc-Nuclear fuel was delivered to Unit 2 of the tion,33 percent was generated internally. l Beaver Valley Power Station in September. This compares with only 12 percent in 1980. With major construction and most regulatory In 1987, we expect internal financing of reviews completed, fuel is scheduled to be 32 percent of our $626 million construction loaded into the reactor in the spring of 1987. budget. In the latest NRC inspection, Beaver Valley During 1986, we further reduced annual Unit 2 received high ratings for safety-related interest costs more than $14 million by re- I placing some $210 million in high-interest debt with issues at lowr rates. We secured our lowest interest rate in nine years by work-ing with a group of Swiss banking institu-tions. That arrangement, one of the first in y*t . . <Y ,, > Centralizing water and coal
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the country by an electric utility, was com-pleted in May and raised $44 million at an effective rate of 8.6 percent. Efficiency improves Aggressive productivity and cost-containment goals continued paying off in 1986. Through We now lease the use of fiber-optic cable improved maintenance programs, redesigned along some of our existing transmission and and computer-supported controls and better- distribution routes to telecommunications trained employees, the generating units we companies. Our high-speed computerized operate achieved nearly 80 percent avail- bill processing services attracted a major ability. Improvements made since 1979's Akron-area company that wanted to improve availability ofjust over 60 percent are saving its cash management. .And we've sold serv-us about $50 million in annual operating costs. ices in advanced microfilm processing, en . Computers and other advanced technology vironmental consulting, and chemical and base contributed to more efficient performance metallurgical laboratory analysis, in a wide range of other activities as well. Consolidating some of our operations will Improved efficiency has also enabled us to help control future costs as well. 'E reduce use some available resources to earn addi- the costs of coordinating the local distribu-tional revenue from nonutility business ven- tion of electricity and repair work, we are tures. In just two years, Ohio Edison has se- combining nine area dispatching offices into cured contracts that have exceeded $573,000 one location. This streamlining should lower in annual revenue. annual operating costs by about $2 million. Finding low-cost environmental solutions We are working on two fronts to achieve cost-effective solutions to environmental
> This silo is for our LIMB project, which is attracting g national attention as a test for more economical means l'
' - .I . of reducing plant sulfur
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[/ < insulated gloves each year
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problems. The first involves research on new technologies to reduce power-plant emissions. One project, Limestone injection Multistage Burners (LIMB), reduces sulfur dioxide and nitrogen oxides from power-plant emissions by injecting lime into the boiler and using special bumers. The U.S. Depantnent of and is based on the success of similar work Energy, U.S. Environmental Protection in other countries. The program's goal is to Agency, state of Ohio, Babcock & Wilcox treat about 100 lakes and streams. Company and others have recently expanded LIMB funding from $18 million to $47 million. Recognizing our commitment Success with this and other projects at to the community several of our plants could result in more During the year, we continued developing economical environmental controls and programs that reflect our responsibility to greater use of high-sulfur midwestern coal. customers, which goes beyond providing Another environmental project is aimed at reliable service and keeping our product reducing the acidity of lakes and streams by mpetitively priced. i treating them with time. Last year,15 lakes One example is our Project Reach program, in the Northeast with high acidic levels re- now in its third year. Through 1986, cus-l ceived treatments through Living Lakes, Inc. tomers and employees made donations, This $20 million program is cosponsored by matched by the Companies, raising more Ohio Edison, Penn Power and other compa- than $228,000 to help nearly 4,000 needy nies to reduce acidity regardless of the cause families pay a part of their energy bills dur-l ing the winter months. To assist the elderly, we introduced our Gatekeeper Program in early 1987. Cus-tomer service representatives, meter readers and other employees who have daily contact
, > One of the many local vol-
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employees, Adopt-A-Family in our Marion Division pro-ks - vides clothes and toys for
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the needy at Christmas time.
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>, ! 41n service to communities, j i Sh di employees are proud to sup-o port volunteer programs like
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- blood drives, donating more than 1,100 pints of blood f1 . In 1986.
14
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with customers are trained to recognize the special needs of the elderly. An employee who notices that someone may need help con-tacts the appropriate Area Agency on Aging. Our CrimeT%tch program was expanded in 1986 to give special attention to child safety. CrimeWatch, along with Utility Watch in area - we are leading an effort to enlist local Pennsylvania, prepares employees to ob-companies in cosponsoring Writing to Read. serve and report suspicicas activities and This program utilizes computers and other emergencies to local police or fire depart. educational materials to improve the reading ments. Working with schools, we're letting and writing skills of children in kindergarten children know that if they need help, they and elementary school. Children learn how can get it from our employees. to form words and sentences based on the sounds of individual letters. Ohio Edison is To help support higher education and the contributing $15,000 to kick off the program. ai ts, our Matching Gifts Program is matching Ileginning in 1986, area educators who de-employee contributions, dollar for dollar, up velop energy education projects dealing with to $3,000 annually for qualifying educational electricity are eligible for grants of up to and cultural institutions. Nearly 75 institu-
$300 from Ohio Edison.The program is tions shared the $14,760 raised in the pro.
designed to support educators who develop gram's first year. innovative energy projects that can be shared To help reduce illiteracy and the number of by other schools. Thirteen grants were school dropouts - and in the long run im- awarded for the 1986-87 school year. Grant prove economic development in our service winners are selected with help from our Educational Advisory Council, a panel of educators who assist in reviewing and evalu-ating the riearly 150 free films, booklets and special programs we provide to area schools. 4 Child safety activities range
' from classroom dernonstra-
[ e A- g f; a tions to CrimeWatch, which lots children know they can 4 , depend on employees if they need to report emergeacles.
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; Q 16
M:ncg:m:nt R: port 1 The consolidated financial statements were prepared by the management of Ohio Edison Company, who take responsibility for their integrity and objectivity. The statements were prepared in conformity with generally accepted acccunting principles and are consistent with other financialinforme ion appearing else-where in this report. Arthur Andersen & ' M., independent public accountants, have expressed an opinion on the Company's finan-cial statements, as shown on page 37. The Company's internal auditors, who are responsible to the Audit Committee of the Board of Directors, review the results and performance of operating units within the Company for ade-quacy, effectiveness and reliability of accounting and reporting systems, as well as managerial and operating controls. The Audit Committee consists of four nonemployee directors whose duties include: consideration of the adequacy of the in-ternal controls of the Company and the objectivity of financial reporting; inquiry into the number, extent, adequacy and validity of regular and special audits conducted by independent public accountants and the internal auditors; the recommendation of independent accountants to conduct the normal annual audit and special purpose audits as may be required; and reporting to the Board of Directors the Committee's findings and any recommen-dation for changes in scope, methods, or procedures of the auditing functions.The Audit Committee held three meetings during 1986. f
.h & /
V. A. Owoe W. A. Daniels Executive Vice President Corpptroller Chief FinancialOfficer 17
Mancgsmant's Dlacussion and Anclysis of Rocults of Operations and Fincncici Condition 4-Mesults of opermelons On September 25,1986, a settlement agreement was adopted Operating results for 1986 continued the upward trend of past by the Pennsyhania Public Utility Commission (PPUC) years. Earnings available for common stock increased by whereby Penn Power is currently making refunds to its cus- . 13.1% over 1985, although a 12.0% increase in the average tomers in connection with certain income taxes normalized number of shares of common stock outstanding in 1986 in prior years. The effect of this settlement decreased operat-limited the increase in earnings per share to 0.8% and resulted ing revenues and income taxes by $6,547,000 and $7,232,000, in a slight decline in return on common equity. This increase respectively, and increased other interest expense by $659,000 in carnings occurred, even though the Companies stopped resulting in no material effect to net income. including allowance for funds used during construction The change in fuel costs during the last two years was attrib-(AFUDC) relating to Perry Urut 2 in net income as of July 1, " utable to the following factors: 1985 (see Notes 1 and 7); inclusion of this AFUDC in 1985 and 1984 provided earnings of $.17 and $.26 per share, respec- 1986 1985 tively. In addition, results for 1984 also included a $6,800,000 noncash adjustment to Penn Power's depreciation reserve, gein consumpte $ 7 gn mmeng$ 49 (h 9 which increased earnings per share by $.06. Difference in net deferred fuel costs (37.9) 37.0 . T taiin rease(decre w $ge a $ 76 4 Operating revenues declined slightly in 1986 due in part to a reduction in the Company's fuel recovery rate. This reduction A refueling outage at Beaver Valley Unit I during 1986 was l reflects the Company's continued success in procuring fuel at primarily responsible for the increase in maintenance expenses competitive prices. The following summarizes the sources of and contributed to the increase in purchased and interchanged the changes in operating revenues during 1986 and 1985: power. This contrasts with a decrease in purchased and inter-changed power in 1985 when compared to 1984 resulting 1986 1985 from an increase in kilowatt-hour generaAn from the U" "O Companies' production facil; ties in 19V. A reduction of Sales to Residential, Commercial and Industnal customers- $14,400,000 in pension costs is reflected in other operation [^,",9 g y y ,*'S *S 5y4 5 Q 3) expenses for 1986. The reduced pension costs resulted from Change in fuel recovery rates (59 1) 42 4 the Companies' adoption in 1986 of a new pension account-Total 10.5 68 9 ing standard issued by the Financial Accounting Standards R v'S' n f r revenue refund (6.5) - Sales to utikties Board (FASB). This reduction was in addition to a $6,500,000 (21 3) 41.9 Sales to all other customers (0 3) 68 reduction in pension costs for 1985 resulting from a change other revenues 4.8 - in actuarial assumptions (see Note 1). Totalincrease (decrease) $(12 8) $ 117.6
'Ibtal kilowatt-hour sales for 1986 were 2.5% lower than 1985.
# "*P "I#S "E" "E " "*' " " P
- E' * *' 9 'I" E the continuation of debt financing, resulted in an increase in An increase of 1.7% in kilowatt-hour sales to system customers nterest n I ng-term debt during 1986. Offsetting this increase was offset by a 15.8% decrease in sales to other utilities.
was a decline in interest on long-term obligations resultmg The increase in kilowatt-hour sales to customers resulted
. from lower interest rates in 1986. 'l he increase attributable from increases in sales to residenu.a l and commercial cus-t I ng-term debt reflects the refinancing of $213,000,000 s tomers of 3.7% and 5.6%, respectively, offsettin,, a 2.5%
of long-term debt with an effective annual interest rate of decrease .m sales to mdustnal customers. . . 17.1 %. and add. .inonal borrowings resultmg m the issuance of
$315,000,000 of new long-term debt with an effective annual interest rate of 10.1%. As the Companies' construction proj-ects proceed and until the projects are placed in service and/
or included in rate base, total AFUDC will continue to increase in order to capitalize those financing costs not being , recovered through rates. 18
The electric utility industry is subject to inflationary pressures In addition to cash generated internally and available cash sirnilar to those experienced by all other industries. To the resources described above, the Company presently expects extent that the Companies incur additional casts or receive to finance its capital needs during 1987 by issuing up to benefits resuking from the effects of inflation, it is antici- 3,400,000 shares of common stock through the Dividend pated that those effects will ultimately be reficeted in the Reinvestment and Stock Purchase Plan; 5,600,000 addi-Companies' rates. tional shares of common stock through public sales;
'#'# E " 'O "'" *"0 '#'# *' ""W CepnalResources and Unuidity
#'* * *P""Y E"" ' "E E Capital requirements in 1986 for the Companies' construction bih.ty of entering into a sale / leaseback arrangement for a por-programs, capital leases and nuclear fuel were approximately ion of its ownership interest in Perry Unit 1. If the Company
$776,000,000, of which approximately $422,000,000 was proceeds with this arrangement, some or all of this financing financed externally. Over the last five years these requirements n.av not be needed. Additionally, investments in nuclear fuel were approximately $4,000,000,000, of which approximately ofh i ly $41,000,000 will be made in 1987 through
$2,700,000,000 was provided from external sources. l'he the incurrence of additionallong-cerm obligations.
1987-1991 construcuon program and capital lease requirements are currently estimated to be $1,700,000,000 (excluding Based upon earnings for 1486 and after giving effect to the costs of nuclear fuel); additional financing including the issu- redemption of $88,300,000 of first mortgage bonds in ance of additional common stock and other securities will be February 1987, the Company would be permitted, under the necessary to fund a portion of this new construction. The Companies have additional cash requirements of approximately
$890,000,000 for the 1987-1991 period to meet maturities of, and sinking fund requirements for, long-term debt, long-term obligations (excluding nuclear fuel), and preferred and oo Market Price to sook value preference stock. N un s2s T~
investments for additional nuclear fuel during the five years T s X 1987-1991 are estimated to be approximately $204,000,000. 31 ; - During that same period, long-term obligations related to n w N _
- nuclear fuel are expected to be reduced by approximately E---"iy * '
$345,000,000 as the Companies recover such costs through ^
their electric rates. ;
! i ui , : 73 At December 31,1986, the Companies had approximately --';-""" ~- - - $148,000,000 of cash and temporary cash investments, and ,
approximately $30,000,000 of funds held in escrow from previous pollution control financings. The Companies also i".--yi z -,1 5" - have $50,000,000 of short-term bank lines of credit, in addi- 7-tion to a $500,000,000 revolving credit agreement available to the Company, which could be used for interim financing 20 . 23 purposes. 0 0 a a a 8s n n a u as u l heferred C !Mn M Caumn ik ua> i 19
earnings coverage test contained in its first mortgage inden- second quarter of 1987, providing for new rates to become ture, to issue at least $1,071,000,000 principal amount of effective upon the commercial operation date of Perry Unit 1, first mortgage bonds at an assumed interest rate of 10.5%, or as long as that date is not later than July 17, 1987. If the date under the carnings coverage test contained in its Charter to is later, Penn Power will either seek an extension for imple-issue at least $1,308,000,000 of preferred stock at an menting the new rates to coincide with the commercial oper-assumed dividend rate of 10.5% If it were to issue both first ation date or file a new rate case. The Company expects to mortgage bonds and preferred stock, some lesser combina- file a rate increase request with the Public Utilities Commis-tion of the two would be permitted. The Company is cur- sion of Ohio to recover its costs for Perry Unit I after the unit rently able to issue $735,000,000 principal amount of first is in operation. mortgage bonds against previously retired bonds without the The Tax Reform Act of 1986 reduced the maximum cor-need to meet earnmgs coverage requirements ($175,000,000 porate tax rate from 46% to 34E The Companies expect of this amount is reserved for issuance pursuant to the that the reduced tax rate will reduce their provision for Company's revolving ciedit agreement referred to above) and i tbt would otherwise have been charged to
$308,000,000 agamst property addinons. If Perry Urut 2 .
. income m future years. However, the new law repeals the were to be terminated the resulting reduction in property investment tax credit (except for certain transition property),
cligible to be pledged would reduce this latter amount to .
$138,000,000.
""N#"" # ' ** #E ** " ** ##* " # #" "" " ..'Y property and requires capitalization of construction period Penn Power currently has a rate increase request pending interest for all new construction projects. In addition, the law before the PPUC which is designed to produce approximately also establishes a new methodology for computing the alter-
$70,900,000 in additional annual operating revenues phased native minimum tax which, in effect, could cause the Com-in over a four-year period in equal annual installments. On panies to pay income tax on the equity portion of AFUDC, February 2,1987, the Administrative Law judge (ALj) issued which is not taxable income under ordinary circumstances.
his recommended decision to the PPUC in which he recom- After giving effect to the reduced rates combined with these mended a total increase of approximately $23,100,000 (an other changes, the Companies expect their cash payments increase of approximately 13%) to be implemented without for income taxes to increase in the near term from the levels the proposed phase-in plan. The ALJ found that the costs of the past several years. To the extent that alternative mini-incurred in the construction of Perry Unit I were reasonable, mum tax payments exceed the normal income tax computa-that no adjustment for imprudence should therefore be made, tion, that excess may be carried forward indefinitely as a and that recovery of depreciation expense and operating credit to normalincome taxes payable in future years. costs should be allowed. However, a number of other adjust- The EASB issued an Exposure Draft in 1986 which proposes ments were recommended, meluding an adjustment for a change to the accounting for income taxes. If the proposal
" excess,, capacity by disallowing a common equity return on the were adopted, the Companies would be required to write portion deemed to be " excess. Penn Power has filed excep- down their net deferred tax balances to reflect the new lower tions to the ALJ decision. A PPUC decision is expected m the income tax rates. Instead of increasing income due to this potential write down, the Companies would defer these amounts and include them as a reduction to cost of service in future rate proceedings.
20
S:l:ct:d Fin nci I D:ta onccoison 1986 1985 1984 1983 1982 (in thousands, except per share amounts) Operating Revenues S1,741,900 $1,754,749 $1,637,104 $1.515,852 $1.429.626 392,357 380.354 342,713 302,751 269.640 Operating Income Income Before Ecaordinary items 410,828 370.685 339.333 272.400 195.571 410,828 370.685 339.333 272.400 215.729 Net income Earnings on Common Stock 359,825 318.073 290.694 227.843 181.496 Earnings per Share of Common Stock (based on weighted average number of shares outstanding dunng the year) 2.47 2.45 2.50 2.22 1.89 Before Extrarydinary items 2.47 2.45 2.50 2.22 2.13 Earnings on Common Stock Dividends Declared per Share of Common Stock 1.92 1.88 1.84 1.80 1.76 7,902,704 7,290.417 6.690.098 5.960.374 5.247.138 Total Assets at December 31 Preferred and Preference Stock Subjectto 160,794 176.694 158.483 158,112 152.560 Mandatory Redemption 2,781,590 2.691.615 2,449.502 2,132.137 2.005.436 Longterm Debt Long-Term Obligations 859.900 739.291 822.234 759.843 656.655 Ccmmon Stock Data The Company's Common Stock is listed on the New York and M dwest Stock Exchanges and is traded on other registered exchanges. 1986 1985 Price Menge of Common Stock 19-7/6 15 718 14 7/8 13 1/8 First Quarter High-Low 2 0-314 17 15-5/8 14 Second Quarter High Low 22 1/2 18 16-1/8 14-3/8 Third Quarter High-Low 21 194'd 16-1/2 14-1/2 Fourth Quarter High-Low 22 112 15 Wi: 16 1/2 13-1/8 Warty Hrah-Law Pnces are based on reports puthhed in The WallStreet,/oumalfor New trk Stock Exchange Composite Transo:tions CIcssification of Holders of Common Stock as of December 31,1986 Holders of Record Shares Held Number % Number % 179.548 88.72 55,322.214 36.93 Individuals 19.305 9.54 4,419.299 2.95 Fiductanes 566,775 78 0 04 0.38 Brokers 288 0.14 86,675,609 57.85 Nominees 31,814 22 0.01 0 02 Banks & Financial Institutions 1,440 0.71 1,634,904 1.09 Insurance Companies & Other Corporations 426 0.21 238,209 0.16 Chantable, Religious & Educational Institutions Pensions. Profa Shanng & Other investment Trusts 1.272 0.63 925.927 0.62 202.379 100 00 149.814.751 100 00 Total As of January 31,1987, there were 201,421 holders Quarterly dividends of 48e and 47e per share were paid on the l of 150,313.399 shares of the Company's Comrnon Stock. Company's Common Stock dunng 1986 and 1985, respectively. Information regarding retained earr ings available for payment of cash dividends is given in Note 4b. 21
!$OR.:OlWtOd CtetORhents Cf SRC:R90 OHIO EDISON l
, For the ears Ended December 31 1986 1985 1584-On thousands, except per share amounts) 'l Operating Newonces $1,741,900 - $1.754,749 $1,637,104 Operating Empenses and Thaest 1 Operation-Fuel . . _ 422,830' 499.159 L 422.805 i Purchased and interchanged power, net 39,388 30,802 56,659 i Other operation expenses 275,984 271,142 267,288 l.
. Total operation 738,202 801,103 746.752, l Maintenance 137,542 129,295 129,313 '!
Prwision for depreciation and amortization 153,392 '143,377' 131,340 , Generaltaxes 143,441 136,206 136,880 j income taxes 178,968 164,414 150,106 q !. Total operating expenses and taxes 1,349,543 1,374,395 1,294,391 Operatingincome 392,357 380,354 342.713 Other Sneame and Deductionst Allowance for equity funds used dunng construction ' 208,360 176.471 152,567
- Miscellaneous, not 18,666 27,458 28.928 Income taxes-credit 89,371 85,365 82,383 Total other income and deductions 316,397- 289,294 263.878' 7btalincome 70s,754 669.648 606,591 Not laterest and Other Charpos l Interest on long-term debt 327,970 321,017 267,391 l Interest on long-term obligations 65,756 74,207 . 89,780 Allowance for borrowed funds used dunng construction, net of deferred income taxes (112,449) (111,240) (104.351)'
Other interest expense . 5,438 4.962 5.473 Subsidiaryt preferred stock dividend requirements 11,211 10,017 - 8.965 Net interest and other charges 297.928 298.963 267,258 Not income 410,828 370,685 339,333 preferred and preference Stock ) OMdend Requirements 51,003 52,612 48,639 Earnings on Common Stock 8 359,825 $ 318,373 $ 290,694 Nielphied Average Number of Shares cf Common Stock OutstamNng 145,527 129,926 116,171 C'ernings per Share of Common Stock (based on weighted average number of snares outstanding dunng the year) 82.47 $2 45 $2.50 DMdende Deciated per Share of Common Stock $1.92 $1.88 $1.84 The accompanying Notes to Consolidated Financtel Statements are an Mtegralpart of these statements. I i l 22 1 o
Ccn3cildatad D:Icnco Shocta onia toison At December 31 1986 1985 A** *$* ""
- UtL'ty Plant:
In service, at onginal cost $4,370,135 $4,248,800 Less- Accumulated provision for depreciation 1,401,520 1,279,373 2,968,615 2.969,427 Construction work in progress-Electnc plant (Note 7) 3,941,558 3,349,998 Nuclear fuel 305,929 289.771 4.247,487 3,639.769 7,216,102 6.609.196 Cth:r Property andinvestments 9,234 41,104 Current Assets: Cash 1,652 2,051 Temporary cash investments, at cost, which approximates market value 146,774 126,382 Receivables-Customers (less accumulated provisions of $2,750,000 and
$1,319,000, respectively, for uncollectible accounts) 142,304 147,875 Other 30,549 31,722 Matenals and supplies, at average cost-Fuel 68,719 58,117 Other 50,626 45,953 Prepayments 60,681 50,635 501,305 462,735 Dzfstred Charges:
4,357 12,741 Deferred fuel costs (Note 7) Property taxes 58,384 56,064 Unamortized costs of terminated construction projects (Note 2) 63,193 73.783 Other 50,129 34,794 176,063 177,382
$7,902,704 $7,290.417 Capitalization and Liabilities C:pftalization (See Consolidated Statements of Capitahzation):
Common stockholders' equity $2,541,712 $2.234,156 Preferred stock-Not subject to mandatory redemption 363,662 376,035 Subject to mandatory redemption 68,000 72,000 Preference stock-Not subject to mandatory redemption 50,000 50,000 Subject to mandatory redemption Preferred stock of consolidated subsidiary-23,432 34,032 f' Not subject to mandatory redemption 41,905 41,905 Subject to mandatory redemption 69,362 70.662 Long term debt 2,781,590 2.691,615 5,939,663 5.570,405 Long Term Obilgations: Construction energy trust (Note 5) 500,000 400,000 Nuclear fuel (Note 5) 259,696 284,740 Capitalleases (Note 3) 100,204 54,551 859,900 739.2p Current Liabilities: Currently payable preferred and preference stock, long-term debt and long-term obligations 158,310 157,543 Notes payable to banks (Note 6) - - Accounts payable 154,221 147,212 Accrued taxes 66,798 55,590 Accrued interest 96,013 94,627 Other 56,300 48,137 531,642 503,109 Dsistred Credits: Accumulated deferred income taxes 239,805 181.247 Accumulated deferred investment tax cred',ts 234,105 201,345 Property taxes 58,384 56.064 Fuel costs recovered in advance 19,060 24,618 Other 20,145 14.338 571,499 477.612 Commitments, Guarantees and Contingencies (Notes 3 and 7)
$7,902,704 $7,290.417 The accompayng Notes to Consohdated Fonanaal Statements are en untegra!part of Inese balance snoets
Ccnoclidat:d Stst3m:nta cf Ccpitalizstian onto eoison At December 31 1986 1985 Csmmon Stockholders' Equity, On ttousanas) Common stock,59 par value. authonred 175.000.000 shares-149.814.751 and 137,089.271 shares outstanding, respectwely (Note 4a) 81,348,333 $1.233.804 Other paid in capital 722,1 SS 609.117 Retained earnings (Note 4b) 471,223 391 235 Totalocmmon stockholders' ectuity 2,641,712 2.234.156 Ortional Redempton Price Number of Sh.res Outstanding Aggregate 1986 1985 Per Share (in thousands) Preferred Stesk (Note 4c) Cumulatwe. $100 par va!ve-Authonzed 6.000,000 shares Nat Subject to Mandatory Redemption, 390 % 724% 973.350 9,73.350 $103.38-108 00 $102.034 97,338 97,335 7.36 4 820% 800.000 800.000 $104 68-105 35 84.046 80,000 80.000 8644 012% 850.000 850.000 $104M2-106 84 89.806 85,000 85.000 Total not subsect to mandatory redemption 2.623.350 2 623.350 $275.886 262,338 262.335 Subrect to Mandatory Redemption (Note 4c). 1048 4 1350% 717.290 737.970 $105 24112.00 $ 76.875 71,729 73,797 Redemp00n within one year (3,729) (1.797) Total subiect to mandatory redemption 58,000 72.000 Cumulative. $25 par value- Authorcod 8.000.000 shares Nat Subsect to Mandatory Redemption:
$3.50 Senes 2.000,000 2.000.000 $28 75 $ 57,500 So,000 50.000 Senes A 53.100 548.000 $25.00 1.327 1,327 13.700 Senes B 2.000.000 2.000.000 $25.75 51.500 50,000 50.000 Total not subiect to mandatory revamption 4 053100 4.548 000 $110.327 101,327 113.700 Proterence Stock (Note 40).
CumulatNo. no par value- Authonzed 8.000.000 shares Not Subject to Mandatory Reaemption: ' j $3.92 Senes 2.000.000 2.000.000 $3142 $ 62.840 80,000 50.000 Sub#eci to Mandatory Redempt on (Nate de)
$95.00-$102.50 Senes 20.700 23 400 $1,044 001.070 00 $ 22.009 20,700 23.400
$1.80 Senes 459.110 981.491 $15.58 7.151 4,948 14.845 Redemption within one year (4,213) (4.213) l
! Total subiect to mandatory redemption 479.810 1 004.891 5 29.160 23,432 34 032 Prsterred Stock of ConsoNdeted Subsidiary (Note 4c) Cumulatwe, $100 par value- Authonted 1,200.000 shares Nat Subject to Mandatory Redemption; 424 4 416% 419 049 419.049 $102 98105 20 $ 43.654 41,905 41.905 Subrect to Mandatory Redemption (Note 4d) 8 2t415.00% 706.591 714.528 $101.29114 23 $ 76.536 70,659 71.453 Redemption within one year (1,297) (7P1) lotal subsect to mandatory redemption 89,362 70.662 Long-Teron Debt (Note Af) First mortgage bonds: Ohio Edison Company-7.55% weighted average interest rate. due 1987-1991 117.118 198.766 13 21% weighted average interest rate. due 1992-1996 524,215 380.215 9 47% weighted average interest rate, due 1997-2001 164,683 166.583 8 51% weighted average interest rate. due 2002-2006 201,918 201.918 10 99% weighted average interest rate. due 2007-2011 318,285 318.265 10 99% weighted average interest rate. due 20t2-2016 142,500 50.000 1,4*'t,597 1.315.747 Pennsylvania Power Company-10 25% weighted average interest rate due 1987-2008 228,244 251.622 Total hrst mortgage bonds 1,701,841 1.567.369 Secured notes and obhgations ! Ohio Edison Company-993% weighted average interest rate duo 1907-2015 654,071 613.125 Amount held by Trustee - (66.519) 654,071 546.606 Ohio Edison Finance NV-1725% weghted average interest rate due 1987 75,000 150.000 Pennsylvania Power Company-10.02% weighted average interest rate. due 1988-2015 134,411 134.411 Amount held by Trustee (2,224) (3.592) 132,107 130.819 Total secured rwates and obligatons 843,258 627.425 Unsecured notes of Ohio Edison Company.10.59% weighted average interest rate. due 1967-2014 365,200 376.000 Amount held by Trustee _ (28,901) (40.755) Total unsecured nntes of Ohio Edison Company 338,299 327.245 Net unamortized discount on debt (20,423) (20.343) Long term dett due within one year (101,185) (10.081) Totaliong term debt 2,781,590 2.691.615 TotrJ Capitalization $5,939,643 SS 570.405 7he accompanying Notes to Consohdated Fonancral Statements are an sntegralpart of these statement., 24
Ccnoclidctad Statements of RatcInod Ecrnings mo toison For the Years Ended December 31 1986 1985 1984 (In ttrousands) Balance at beginning of year $391,235 $317,631 $241,314 Net income 410,828 370.685 339.333 802,063 688.316 580.647 Cash dividends on preferred and preference stock 50,693 52,573 49,100 Cash dividends on common stock 280,147 244.508 213.916 330,840 297,081 263,016 Balance at end of year 5471,223 $391,235 $317.631 Consolidated Statements of Capital Stock and Other Pald in Capital Preferred and Preference Stock Not Subject to Subject to Common Stock Mandatory Redemption Mandatory Redemption j __,, Number Par Other Paid- Number Par or Number Par or of Shares Value in Capital of Shares Stated Value of Shares Stated Value (Dollars on thousands) Ba!ance. January 1,1984 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 - - - -- Capital Stock Expense - - (2,548) - - - - Sale of Senes A Class A Preferred Stock - - - 2,050,000 51,250 - - Sale of 13.00% Preferred Stock - - - - - 100.000 10,000 Conversions and Redemptions-
$1.80 Senes 33,450 301 187 - -
(33.450) (506)
$102.50 Series - - - - -
(900) (900) 8.24% Senes (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) 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 - - - - Capital Stock Expense - - (2,427) - - - - Sale of Senes B Class A Preferred Stock - - - 2,000,000 50,000 - - Sale of 13.50% Preferred Stock - - - - - 200,000 20,000 Sale of 11.50% Preferred Stock - - - - - 150.000 15,000 - Conversions and Redemptions-Series A Class A 3,124,160 28,117 9.433 (1,502.000) (37,550) - -
$180 Senes 549,403 4.945 3.080 - -
(607,605) (9.190)
$95.00 Senes - - - - -
(1,800) (1,800)
$102.50 Senes - - - - -
s'900) (900) 8.24% Senes - - - - - (5,000) (500) 10 48% Senes - - 259 - - (18,840) (1,884) . 10.76% Series - - 221 - - (20,000) (2,000) 11.00% Senes - - 11 - - (1,088) (109) Balanco December 31,1985 137,089,271 1.233.804 609.117 9,590.399 467,940 2.457,389 183,495 Sale of Common Stock 7,665,704 68,991 71,074 - - - - l Dividend Reinvestment Plan 3,528.014 31,752 37,091 - - - - Capital Stock Expense - - (1,099) - - - - Conversions and Redemptions-Senes A Class A 1,029.392 9,265 3,108 (494.900) (12.373) - -
$1.80 Senes 502,370 4,521 2.853 - -
(522,381) (7,900)
$95.00 Senes - - - - -
(1,800) (1,800)
$102.50 Senes - - - - -
(900) (900) 8.24% Senes - - - - - (5,000) (500) 10.48% Series - - - - - (17,970) (1,797) 10.76% Senes - - 11 - - (2.710) (271) 11.00% Senes - - 1 - - (2,937) (294) Balance. December 31.1986 149.814.751 $1.348.333 $722.156 9.095.499 $455.567 1.903.691 $170.033 The accompanpng IVotes to Consohduted Frnanoaf Statements are en totegral part of these statement
CcnocIldat3d Stat 3m:nts of Cach Flcw onia toison For the Wam Ended December 31 1986 1985 1984 Cperating Activitiess 0" * "'*"0') Net income . 5410,828 $370,685 $339,333 Pnncipal noncash items-Depreciation and amortization 180,337 174,107 142,260 Deferred income taxes 145,183 97,287 113,551 investment tax credrts, net 32,764 55,936 38,026 Provision for revenue refund 7,206 - - Allowance for equity funds used dunng construction (208,360) (176,471) (152,567) Deferred fuel costs, net - 2,826 41,325 4,471 Deferred loss on reacquired debt (13,327) - - Miscellaneous 6,093 9,550 552 Net cash provided from operations 563,550 572,419 485,626 Cividend Paymentas Common stock 280,147 244,508 213,916 Preferred and preference stock 50,693 52,573 49.100 Totalcash used for dividends 330,840 297,081 263,016 Finzncing Activitiess Common stock issued 228,655 215.131 161,121 Less: Noncash conversions 19,747 45,575 488 5 Common stock cash proceeds 208,908 169,556 160,633 Preferred stock - 85.000 61,250 Long-term debt 314,344 212,915 238,000 Long-term obligations 51,235 69,124 82,329 Not change in funds held in escrow 89,995 123,458 131,653 Miscellaneous 815 (2,120) (2,029) 665,297 657,933 671,836 Noncash obligations incurred (51,235) (69,124) (82,329) Total cash from new financing 614,062 588.809 589.507 Repayments-Preferred and preference stock 25,835 53,933 6.134 Less: Noncash conversions 20,273 46,108 506 l Preferred and preference cash repayments 5,562 7,825 5.628 Long-term debt 212,581 107,590 76,868 Long-term obligations 25,443 29,602 15.294 Total cash used for repayments 243,586 145,017 97,790 j Net cash provided from financing activities 370,476 443,792 491,717 inussting Activitiest i Property additions 776,198 826,994 868,099 l Principal noncash items-l Allowance for equity funds used during construction (208,360) (176,471) (152,567) ! Deferred income taxes on allowance for borrowed funds l used during construction excluding nuclear fuel 87,658 86,310 77,870 Capitalized leases (53,050) (59,939) (67,697) Change in accounts payable (1,425) 34,710 (20,482) long-term investments (19,500) - - Miscellaneous 1,672 170 3.801 Net cash used for inveshng activities 583,193 711,774 709,024 Net increase in cash and temporary investments S 19,993 $ 7.356 $ 5.303 Wa accompanying Notes to Conschdated FonancialStatements are an ontegralpart of these statements
?b
Consondated Statements cf 1\nx 3 onia toison For the wars Ended December 31 1956 1985 1984 General Thnest (In thousands 1 State gross receipts S 74,253 5 71,369 $ 71,044 R:ai and personal property 50,006 47,415 48,717 Sociat secunty and unemployment 13,776 12,545 12,649 Mir:ellaneous 5,406 4,877 4,470
- Total general taxes $143,441 $136,206 $136,880 Provision forincome Tknest Currently payable-Federal 8 5,569 $ 19.546 $ 5,778 State 2,861 4,382 2,616 Foreign 65 214 254 8,495 24,142 8,648 Deferred, net (see below)-
Federal 145,695 93,585 108,154 State (512) 3,702 5,397 145,183 97,287 113,551 investment tax credits, net of amortization 32,764 55.936 38,026 Total provision for income taxes $186,442 5177,365 $160,225 income Statement Clanstfication of Provision forincome Tknest Operating expenses $176,966 $164,414 $150,106 Other income (89,371) (85,365) (82,383) Allowance for borrowed funds used during construction 98,847 98,316 92,502 Total provision for income taxes $186,442 $177,365 $160,225 Sources of Deterred Tku Expenset Allowance for borrowed funds used during construction, which is credited to plant S 98,847 $ 98,316 $ 92,502 Excess of tax over book depreciation, net ' 66,092 29,814 25,045 Deferred fuel costs, not (1,649) (19,055) (1,805) Deferred interest on leased nuclear fuel, r'et (11.545) (5,488) (5.824) Other, net (6,562) (6,300) 3,633 Net deferred tax expense $145,183 $ 97,287 $113,551 Reconciliation of FederalIncome Tkx Cxpense at Statutory Rate to 76tal Provision forincome Thnest Book income before provision for income taxes $597,270 $548,050 $499,558 Federal income tax expense at statutory rate $274,744 $252,103 $229,797 increases (reductions) in taxes resulting from-Allowance for equity funds used dunng construction. which does not constitute taxable income (95,846) (81.177) (70,181) Excess of book over tax depreciation 19,317 14.534 10,163 Other, net (11,773) (8.095) (9,554) Total provision for income taxes $186,442 $177,365 $160,225 The accompanying Note.s to Consolidated Fonancial Statements are an integralpart of these statements. l 27
N:te3 to Con:oHdated Mn:nci:I Stat:m:nts l 1-summary of significant Accounting PoNcles: The Companies provide for depreciation on a straight-line l- The consolidated financial statements include Ohio Edison basis at various rates over the estimated lives of property in-l~ Company (Company) and its wholly owned subsidiaries, cluded in plant in service. The annual composite rates for l Pennsylvania Power Company (Penn Power) and Ohio Edison electric plant were 3.6% in 1986, and 3.5% in 1985 and 1984. l Finance N.V. All significant intercompany transactions have The Companics recognize as depreciation expense the been eliminated. The Company and Penn Power (Companies) estimated decommissioning costs being recovered from their follow the accounting policies and practices prescribed by the customers applicable to their only nuclear generating unit Public Utilities Commission of Ohio (PUCO), the Pennsylvania in service. Public Utility Commission (PPUC) and the Federal Energy Common Ownership of Generating Feellifies-Regulatory Commission (FERC).
.The Compan.ies and other Central Area Power Coordination Revenues- Group (CAPCO) companies own, as tenants in common, The Companies' retail customers are metered on a cycle various power generating facilities. Each of the companies is basis. Revenue is recognized for electric service based on obligated to pay a share of the construction costs of anyjoindy meters read through the end of the month. owned facility in the same proportion as its ownership interest.
*E E * )perating expenses associated Deferred Fuel Costs- with these j."'.ointly owned facih.ues are meluded m The Company recovers fuel-related costs from its retail cus-sponding operating expenses on the Consolidated Statements tomers through an electric fuel component (EFC). The EFC of Income. The amounts reflected on the Consolidated Balance is an estimated fixed rate per kilowatt-hour included on cusm- Sheet under utility plant at December 31,1986, include the mer bills for a six-month period and is based upon fuel-following related costs for the preceding six-month period. Any over or under collection resulting from the operation of the EFC is Accumulated Construction Cornpanes' included as an adjustment to the EFC rate in a subsequent uteypiani Prov ontor work in ownership Generating Units in Sennce Depreciation progress rd Interest six-month period. Accordingly, the Company defers the dif- gn , nous,nos, ference between actual fuel-related costs incurred and the W. H Sarnmis #7 5 231,400 $ 46.700 $ 1.000 68.80 %
Bruce Mans' eld amounts currently recovered from its customers. #t #2 and #3 708.800 184.000 1,100 50.68 % Beaver VaHey #161) 634,200 169,700 33,000 52.50 % lbnn Power recovers fuel costs from its retail customers Beaver vaney #2 through an annual 1evelized' energy cost rate (ECR). The (Note 5) - - 1,598.600 41.88 % Pe #1 and ECR, which includes adjustment for any over or under col-lection from customers, is recalculated each year. Accordingly, Facdities - - 1,817.000 35.24 % Perry #2 - - 399,300 35.24 % Penn Power defers the difference tretween actual energy costs Total $1.574.400 $400.400 $3.850.000 and the amounts currently recovered from its customers.
, Q) UCluoc5 nuclear fuelIn process Wluch haS not yet been BSSQned to O SpecthC Reference is made to Note 7 w. ith respect to Penn Power,s nucmar unit-accounting for the cost of coal received from Quarto Mining *""d*S co*mo"'dc"**S 8PP*ca6' seaver vaney ,2.
Company (Quarto). yyef,,, py,;_ Utility Piant and Depreelation- The Companies amortize the cost of nuclear fuel based on Utility plant reflects the original cost of construction, includ. the rate of consumption. The Companies' electric rates include ing payroll and related costs such as taxes, pensions and other amounts for the future disposal of spent nuclear fuel based fringe benefits, administrative and general costs and allowance upon the formula used to compute payments to the United for funds used during construction (see AFUDC). States Department of Energy. Allowanee for Funds Used During Construction (AFUDC)- AFUDC represents the net financing costs capitalized to construction work in progress during the construction period. AFUDC is not capitalized on that portion of any construction j 28
project included in rate base. The borrowed funds portion $81,000,000 of unused TIC was available to offset federal reflects capitalized interest payments and the equity funds income taxes payable for 1987. If the FIC is not utilized for portion represents the noncash capitalization of imputed 1987, the amount available to offset federal income taxes equity costs which are charged to construction. During 1984 payable for years after 1987 would be reduced to $64,000,000 the Company also charged AFUDC to certain projects which and would expire at the end of 2001, were completed but not yet ' included in rate base, in accord- g,,,,,,,,, ,,,,f;,,_ ance with a PUCO order. AFUDC varies according to changes ,
.l'he Compam.es trusteed, noncontributory defined benefit in the level of construction work in progress and in the cost p n plans mwr abnost aH fuWtime employees. Upon of capital. The Companies compute AFUDC utilizirg a net r urement, empi yees receive a m nthly pension based on l of tax rate, which is consistent with the rate treatment. The length of service and compensation. Pnor to July 1,1985, the AFUDC rate related to assets financed only through the Companies funded pension costs accrued using the frozen incurrence of long-term obligations (see Note 5) is based on . . . .
irutialliabih.ty actuanal funding method. Effeco.ve July 1,1985, actual interest accrued on the obligations during the period. . the Companies changed to the projected unit credit method The annual rates used by the Company and Penn Power for f r funding purposes and have not been required to make all other construction projects approximated 11% and 9.5%, pension contributions since June 30,1985. Contributions of respectively, during the three years ended December 31,1986. .
$10,300,000 were made during the first six months of 1985.
Inerme Taxes- Pension costs in 1985 were reduced by approximately Details of the total provision for income taxes are shown on $6,500,000 due primarily to a change from 7.0% to 8.5% in the Consolidated Statements of 'laxes. The deferred income the assumed average annual earnings rate of plan assets and taxes result from timing differences in the recognition of other assumptions. revenues and expenses for tax and accounting purposes. The Companies adopted the provisions of Statement of The Companies allocate the income tax benefit which results Financial Accounting Standards No. 87,
- Employers' Accounting from interest expense related to construction work in progress for Pensions," as of January 1,1986. As a result, reported net to income taxes-credit included under other income and income for 1986 uns approximately $7,800,000 ($.05 per deductions on the Consolidated Statements of Income. share of common stock) higher than it would have been For income tax purposes, the Companies claim liberalized under the previous accounting standard.
depreciation and, consistent with the rate treatment, generally The following sets forth the funded status of the plan'. and provide deferred income taxes. The Companies expect that amounts recognized on the Consolidated Balance Sheet at deferred taxes which have not been provided will be collected December 31,1986: from their customers when the taxes become payable, based upon the established rate making practices of the PUCO, the Actuans present value of Deneta obkgabons: PPUC and the FERC. As of December 31,1986, the cumu- vested benefits $252.616.000 Nonvested beneft 18.278.000 lative net income tax timing differences for which deferred Acune ena mg a n $2ma m income taxes have not been provided were approximately A tu nal present v lue f pr je ted benefit obligation $356.983,000 ,
*%600'000'000* Plan assets at fair value 496A64.000 !
Proceeds from the sales of certain tax benefits in accordance Plan asse:s in excess of projected benefit obbgation 139.481.000
. . Unrecognized net gain (26.284.000) with provisions of the E.conomic Recovery , lax Act of 1981 Unrecognized pnor service cost 294,000 are being amortized over the life of the related property. Unrecognized net transition asset (113.333.000)
Net pension asset $ 158.000 Proceeds attributable to investment tax credits were recorded as additional deferred investment tax credits; the remaining amounts were recorded as reductions to utility plant in service. The Companies defer investment tax credits (FIC) utilized and amortize these credits to income over the estimated life of the ielated property. The ' lax Reform Act of 1986 repealed the ITC effective January 1,1986, except for certain transi-tion property. As of December 31,1986, approximately 29
Notss (Omnmmft The assets of the plans consist primariy of common stocks, 2-Terminated Construction Projects: United States gwernment bonds and corporate bonds. Net in January 1980, the Companies and all other CAPCO com-pension cost for 1986 was computed as follows: panies terminated plans to construct four nuclear generating units. Costs (including settlement of all asserted claims result-serwce cost- cenefits earnea cunng ine penoo 513 210.000 ing from termination) unrecovered by the Company and Penn interest on prometed benefit obhgation 28.371.000 Power as of December 31,1986, applicable to these units Return on plan assets (74.424.000) Deferred return on plan assets 35.666.000 amounted to approximately $51,604,000 and $11,589,000, Arnorteation of transition asset (7.623,000) respectively. The Company is secovering these costs from its Net penson cost $ (4.800.000) PUCO jurisdictional customers through an increment to the The assumed discount rate and rate of increase in future allowed rate of return in rate cases and Penn Power (and the compensation levels used in determining the actuarial present Company with respect to its FERC jurisdictional customers) value of the projected benefit obligation were 9% and 7%, is recovering these costs as an operating expense allowance. respectively. The assumed expected long-term rate of return There is presently an appeal by the Office of Consumer on plan assets was 9%. Advocate before the Pennsylvania State Supreme Court re-garding Penn Power's recosery of the costs of terminated Under the previous pension accounting standard, the projects through rates from P"PUC jurisdictional customers. Companies' pension costs were $14,986,000 and $20,483,000 Although management cannot predict the outcome of this in 1985 and 1984, respectively. Of those amounts, $9,829,000 appeal, it believes the PPUC order permitting recovery of and $14,369,000, respectively, were charged to operating such costs is lawful and should be allowed to stand. The expenses; the balances were charged primarily to construc- remaining periods of recovery for the Company and Penn tion. Such costs included the amortization of unfunded past Power are approximately 6 and 7 years, respectively. Neither service costs on an actuarial basis o er 30 years, l'he actuarial company is earning a return on the unamortized investment. present value of accumulated plan benefits at June 30,1985, Reference is made to Note 7 with respect to Statement of based on an 8% assumed rate of return, totaled $232,364,000, Financial Accounting Standards No. 90 (SFAS No. 90) in of which $209,898,000 and $22,466,000 represented vested connection with terminated construction projects excluded and nonvested benefits, respectively; plan net assets available from rate base. for benefits at June 30,1985 were $407,476,000. The Companies provide a minimum amount of non. 3-Leases: contributory life insurance to retired emplo es in addition to The Companies lease a portion of their nuclear fuel require-optional contributory insurance features.11alth care benefits, ments, certain transmission facilities, computer equipment, which include certain employee deductibles and copayments, office space and other property and equipment under canect-are also available to retired employees, their dependents and, able and noncancellable leases. Consistent with the regulatory under certain circumstances, to their survivors. The Companies treatment, the rental payments for capital and operating pay insurance premiums to cover a portion of these benefits leases are charged to operating expenses on the Consolidated in excess of set limits; all amounts up to the limits are paid by Statements of Income. Such costs for the three years ended i the Companies. Expenses associated with health care and life December 31,1986, are summarized as follows: l insurance benefits for retirees amounted to $3,128,000, 1986 1985 1984
$3,785,000 and $3,597,000 in 1986,1985 and 1984, rc.
spectively, and are charged to income during the applicable interest on captaued leases $ 7.188 $9 513.524 payment periods. Arnorteation of captalleases 14.687 12.704 15.283 All other leases 10.363 10.764 12.120 Total rental payments $32.238 533 377 540.927 Certain leases entered into prior to January 1,1983, which would be reflected as capital leases on the Consolidated llalance Sheets, have not yet been capitalized as permitted by Statement of Financial Accounting Standards No. 71. If they had been capitalized, total assets and liabilities would have increased by $23,639,000 and $35,554,000 at December 31, 1986 and 1985, respectively. 30
e The future minimum rental commitments as of December 31, noted. Redemption of all preferred and preference stock issued 1986, for leases reported as capital leases and noncancellable within the past five years is subject to certain restrictions operating leases are: regarding refunding. The optional redemption prices shown on the Consolidated Statements of Capitalization will decline [ capw operahno to eventual minimums per share according to the Charter Leases Leases 5 21,777.000 5 7,612,000 F ..# # # 1987 1990
$ b1 18.030,000 h09 000 The Convertible Adjustable Series A Preferred Stock is con-6,465,000 vertible into the Company's common stock only during a specified period each quarter and, based upon market price a thereaner $9 000 9 at the time of conversion, is converted to not more than 6.15 Tual minimum lease payments $198.566,000 $128.017.000 Executory costs 23.664.000 shares nor less than 2.08 shares of common stock for each Net minimum lease paymerus 174,902.000 share of preferred stock surrendered for conversion. The irterest portion 57.941,000 Company may, at its option, elect to purchase for cash, in Presert value of net minimum lease paymerts $116 961,000 lieu of delivery of common stock, any C,.onvera.ble Adj.ust-able Series A Preferred Stock surrendered for conversion, 4-Capitalizatlom (a) Common Stock- (d) Preferred Stock Subject to Mandatory Redemption-Through the Dividend Reinvestment and Stock Purchase Annual sinking fund provisions for the Companies' preferred Plan, holders of common, preferred and preference stock stock, which are retired at $100 per share plus accrued divi-can acquire additional shares of the Company's common dends, are as follows:
stock by automatically reinvesting all or a portion of their senes shares Date Beginning dividends and by making optional cash payments. Purchases are made at a price equal to 100% of the average closing Ch'o Edison-
. 10 48 % 20.000 Decemoer 1 (i) price for the Company's common stock for each of the five 10.76 % 20.000 January 1 (-)
New York Stock Exchange trading days ending on the in. 13 50 % 40,000 June 1 1991 Penn Power-vestment date. At December 31,1986, the Company had 5,195,721 shares of common stock reserved for issuance 11.00 % 4.000 January 1 (i) 32 J j under this plan, 1,584,300 shares reserved for issuance )y@% , 9 j5 under a continuous shelf registration program,459,110 13 00 % 5,000 July 1 1990 Its0% 30.w0 September 1 1991 shares reserved for possible conversion of the $1.80 Pr:f. 10.50 % 100.000 Apni 1 2040 erence Stock, 846,448 shares reserved for possible conver- (1) Retwernents of this senes have begun sion of the Convertible Adjustable Sen.es A Preferred Stock and 497,276 shares reserved for issuance through the The sinking fund requirements for the next five years are: payroll-based employee stock ownership plan. 1987 $5.026,000 0 0 (b) Retained Eamings- 99l Under the Company's indenture, the Company's consolidated 1990 '.220,000 1991 14.220.000 retained earnings unrestricted for payment of cash dividends on the Company's common stock were $399,176,000 at December 31,1986. (c) Preferred and Preference Stock-l At the Companies
- option, all preferred and preference stock may be redeemed in whole, or in part, at any time upon not less than 30 nor more than 60 days notice, unless otherwise 31
Notes niimd) (2) Preference Stock Subject to Mandatory Redemptien- The weighted average interest rates shown on the Consoli-The $102.50 Series ad $95.00 Series each include provi- dated Statements of Capitalization relate to long-term debt sions for a mandatory sinking fund to retire a minimum of outstanding at December 31,1986. 900 and 1,800 shares, respectively, on July 1 in each year at Total secured and unsecured notes outstanding at December
$1,000 per share plus accrued dividends. The $1.80 Senes 31,1986 and 1985, exclude $29,125,000 and $118,866,000, meludes a provision for a mandatory smkmg fund to retire a respectively, of certain pollution control notes, the proceeds minimum of 100,000 shares on October 1 m each year at of which were then in escrow pending their disbursement
$15.125 per share plus accrued dividends. The annual sink-for construction of pollution control facilities. The Companies'
,mg fund requirements are $4.,213,000 for 1987 through obligations to repay certain pollution control revenue bonds 1989 and $2,413,000 for 1990 and 1991.
are secured by several series of first mortgage bonds. A por-The $1.80 Seaes is convertible at any time into common tion of the unsecured notes outstanding are entitled to the stock at a price of $15.125 per share. Holders receive one benefit of irrevocable bank letters of credit of $213,885,000, share of common stock for each share of $1.80 Preference 'Ib the extent that drawings are made under those letters of Stock converted, subject to adjustment under certain credit to pay principal of, or interest on, the pollution con-conditions. trol revenue bonds, the Company is entitled ta a credit on (f)long-Term Debt- the notes. The Company pays an ammal fee of 5/8% to 7/8%
. of the amounts of the letters of credit to the issuing banks 4
,I,he mortgages and their supplements, w hich secure all of and is obligated to reimburse the banks for any drawings the Compames first mortgage bonds, serve as direct first thereunder.
mortgage liens on substantially all property and franchises, other than specifically excepted property, owned by the 5-Long Term Obligations Companies. Ohio Edison Energy kust (DEET)- Based on the amount of bonds authenticated by the Trustees OEEF, which finances part of the Company's imestment in through December 31,1986, the Companies' annual sinking Beaver Valley Unit 2, has $500,000,000 of term loans out-and improvement fund requirements for all bonds issued standing. The Company has transferred its interest in Beaver under the mortgages amount to $31,131,000. The Company Valley Unit 2 (exclusive of common facilities and transmission expects to deposit funds in 1987 which will be withdrawn facilities) to OEET, w here the assets are used to secure OElsf upor the surrender for cancellation of a like principal amount borrowings. Under recently negotiated amendments, this of bonds, which are specifically authenticated for such pur- arrangement has been extended to the earlier of December poses against unfunded property additions or against pre- 31,1988 or the in-service date of Beaver Valley Unit 2, with viously retired bonds. This method can result in minor in- amortization of the notes beginning in 1989. The Company creases in the amount of the annual sinking fund require- presently anticipates payments of $120,000,000 in 1989, ments. Penn Power expects to satisfy its requirements in $140,000,000 in 1990 and $80,000,000 in 1991. 1987 by certifying unfunded property additions at 166-2/3% The Company accrues interest applicable to OEls!' which is of the required amount. subsequently capitalized, i et of income tax effect. The As of December 31,1986, the Companies' sinking fund effective average annual interest ra:es on OEET borrowings requirements for certain series of first mortgage bonds and were 8.4%,9.8%, and 11.8% during 1986,1985 and 1984, maturing long-term debt for the nest five years are: respectively. Nuclear Fuel Financing-1989 5%Qjjj 74.695.000 Ohio Edison Fe.cl Corporation and Pennsylvania Power Fuel Corporation (corporations in which the Companies have no yy 1{896 gg0 ownership interest) pmvide funds for the procurement of nuclear fuel on behalf of the Companies. The Companies also participate in arrangements wherein the Central Area Energy 'Irust (CAET) finances the acquisition of nuclear material that will ultimately be used to fuel various CAPCO 32
.6 1
I generating units. Under ordinary circumstances, the Com- its $30,000,000 credit line. All of the Companies' current panics make payments for the nuclear fuel as it is consumed. lines expire December 31,1987; however, all unused lines Financing on behalf of the Companies of up to $303,000,000 may be canceled by the banks. ; (of which $293,000,000 had been utilized as of December - 4 31,1986) is currently available through the fuel corporations,
# *P ""I ** * "" ' "# .'*E****"'P""
ng for bormwings of up to $500,000,000. Interest rates either through revolving credit arrangements or the issuance n borrowings under the agreement vary depending upon of commercial paper, which is supported by bank letters of e cunent rm ng, wtal bormwings tkn anmunt j credit, or a combination of both. Financing of up to outstan ng an , at the option of the Company, may be based
$137,000,000 (of which $85,000,000 had been utilized as of December 31,1986) is available to CAET on behalf of up n t e prevaHjng pdme ram r cenain other intemst l measurements. I he Company must pay commitment fees j the Companies, subject to certain limitations. of 1/2% on the average daily unused portion of the credit -)
The Companies accrue interest applicable to the nuclear agreement. In certain circumstances, borrowings under the ) fuel obligations (for fuel which is not included in utility plant agreement are required to be secured by the Company's first j in service) which is subsequently capitalized, net of income mortgage bonds. At the Company's option, all obligations ; tax effect. No direct borrowings have been or are expected outstanding at December 31,1987, may be converted into l' to be made against the lines of credit available to the fuel an amortizable three-year term loan. The Company has not corporations; the fuel corporations have issued and have out- made any borrowings under this agreement, standing commercial paper supported by the lines of credit.
'E the extent that borrowings are less than the $303,000,000 7-comedements, overantees and contingencies:
available under these credit lines, the fuel corporations must Construction Program- l pay commitment fees of 1/8% to 1/2% on the available por- The Companies
- current budget forecasts reflect expenditures l tions of the lines of credit. They also pay fees of 5/8% to of approximately $1,700,000,000 for property additions and j 7/8% for the letters of credit on the aggregate amount of improvements from 1987-1991, of which approximately 1 outstanding commercial paper. Interest rates on CAls!' pur- $626,000,000 is applicable to 1987. These amounts include chase commitments vary from 1-1/8% to 1-1/2% over the the capitalization of AFUDC during the construction period interest rate applicable to certain dealer placed commercial only. In addition, the Companies expect to invest approxi-paper. The effective average annual interest rates applicabic mately $204,000,000 for nuclear fuel during the 1987-1991-to nuclear fuel obligations were 8.0%,9.5%, and 11.9% period, of which approximately $41,000,000 is applicable during 1986,1985 and 1984, respectively. to 1987.
The Companies presently expect to make payments applie- Reference is made to
- Common Ownership of Generating able to these obligations during the next five years as follows: Facilities" included in Note 1 with respect to the Companies' l investments in Ileaver Valley Unit 2 and Perry Units I and 2, all CAPCO nuclear units. Perry Unit 1 is currently under-1987 $31.130.000 1988 33.344.000 going testing and lleaver Vallev Unit 2 is about 98% com-
$$ jjj((jj$ plete; the status of Perry Unit 2 is discussed below. The 3 1991 39 212.000 Company will be requesting rate recovery for its investments )
in Perry Unit 1 and lleaver Valley Unit 2, but it cannot pre- l 6-Sank Lines of Credit and RevoMag Credit Agreement dict with any degree of certainty the outcome of the regula-tory process, The Companies have lines of credit with domestic banks that provide for horrowings of up to $50,000,000 at the pre- l vailing prime or similar interest rate. Short-term borrowings may be made under these lines of credit on the Companies' unsecured notes. Penn Power is required to pay commitment fees that vary from 3/8% to 1/2% to assure the availability of l t l i I 33
Notes Gnmno 6 The CAPCO companies are continuing to review the status if construction of Perry Unit 2 is terminated, the Company of Perry Unit 2. Currently, no significant uurk is being per- uuuld seek to recover its investment but cannot now predict formed on the unit. As of July 1,1985, the Companies whether its investment in Unit 2 applicable to its PUCO stopped including AFUDC relating tc Unit 2 in net income. jurisdictional customers will be recoverable. If no means of Until revieu et the sr.:tus cf Unit 2 has been completed, recovery of the costs of Unit 2,in the case of termination, there will be no defined schedule for its completion; accord- were available to the Company from its PUCO jurisdictional
, irgly, the constr"ction estimates for the 1987-1991 period customers and no other basis for recovery could be found or +
S not include any amounts applicable to Perry Unit 2 if anticipated, the Company would be required to write off the instruction of the unit were to be resumed. Possible alter- portion of its investment applicable to its PUCO jurisdic-natives being reviewed with respect to Unit 2 include indefi- tional customers. As of December 31,1986, the Company g nite suspension of construction on the uoit, resumption of estimates that the maximum amount of such a write-off work on the unit and termina6m of the unit. In accordance would be approximately $210,000,000, net of income tax with the CAPCO arrangements, none of these alternatives effect. After giving effect to the final reduction in the maxi-may be implemented without the approval of each of the mum corporate income tax rate contained in the Tax Reform CAPCO companies. Act of 1986, this amount would increase to $220,000,000. The Company does not presently anticipate that a write-off Duquesne Light Company (Duquesne) has claimed a emnt magn tu , f required, would affect its ability to "de facto' abandonment, for rete making purposes, of its pay c mm n stock dividends at current levels, and studies
.13.74% interest in Perry Unit 2. Daquesne's decision was
.. indicate that the magnitude of any such wnte-off could be dependently made and does not represent a decision on . .
much smaller. If desp.ite its best current information, a much the part of the Companies to abandon Unit 2 for rate makine or any other purposes. Although any future decision on the I rger write- ff were required, depending upon the ammg mvolved, such a write-off could temporarily affect the - status of Perry Un.a2 u.ill have to take into account Duquesne. s , unpanys abih.ty to pay common stock dividends at current position at the tinse such a decision is made, the Company , n their expedenw to date, tMompanies l e a does not now know what that position will be and conse- , would expect to recover their investments in Uru,t 2 with quently has no way to presently assess its impact. uns . . customers if the unit respect to the. ir FERC j. . dictional As of December 31,1986, the Company and Penn Power were terminated. Penn Power also believes this should be the had invested approximately $343,500,000 and $55,800,000, case with respect to its PPUC jurisdictional customers, respectively, applicable to Perry Unit 2. Delay in the com- although Penn Power's recovery of the costs of terminated pbtion of the unit can be expected to increase its total cost projects through rates is still before the Pennsylvania Supreme by amounts which are not presently determinable. If a deci- Court. Reference is made to SFAS No. 90 d:scussed below. sion were made to terminate Unit 2, certain costs which are currently assigned to Unit 2 would be reassigned, where Quarto Profeet-appropriate, to Unit 1. Ilowever, cancellation charges pay- The Companies, together with the other CAPCO companies, able to contractors and other costs of termination could be have entered into a long-term coal supply contract with Quarto incurred. Pending completion of the CAPCO review, the Mining Company. The CAPCO companies have also agreed Company is unable to predict u hether the construction on to guarantee severally, and not jointly, their proportionate Unit 2 will continue or, if continued, on what basis s"ch shares of Quarto's debt and lease obligations incurred while continuation will proceed. developing and equipping the mines. As of L)ecember 31,1986, the Companies' share of the guarantee was $190,526,000. Under the terms of the coal supply contract, which expires December 31,1999, the Companies must reimburse Quarto for their shares of the cost of operating the Quarto mines, including those costs associated with mine construction, whether or not thev receive coal from Quarto. These pay-34
ments will pennit Quarto, over the life of the contract, to pollution in an upwind state causes nonattainment of air meet the debt and lease obligations it incurred while develop- quality standards in the downwind state. The petition com-ing and equipping the mines. The Companies' total payments plained of excessive particulate and sulfur dioxide (SO2 ) under this contract, including amounts related to mine con- emissions from a number of sources in Ohio and other ( struction costs, amounted to $83,106,000, $92,532,000, states, including potentially all of the Companies' Ohio and $103,464,000 during 1986,1985 and 1984, respectively. plants. Seven northeastern states have appealed the EPA's Under the coal supply contract, the Companies' future min- decision to the U.S. Court of Appeals for the District of imum payments related solely to mine construction costs are: Columbia, asking that the decision be reviewed and reversed, - modified or set aside. The Company, along with other electric 5 26,930,000 utilities and others, has intervened in the case. The case was -- 1987 1988 25.929,000 argued in December 1985 but a decision has not yet been g 2 28
,, rendered by the Court. The Company is unable to predict the outcome of these proceedings.
1991 22.926.000 Years thematter 151.176.000 Legislation has been introduced in Congress to address the Following the end of the development period, Penn Power so-called
- acid rain" problem. Various bills introduced would was ordered by the PPUC to defer recovery of the cost of require reductions in SO2 emissions from utility power plants Quarto coal in excess of generally prevailing market prices. and other sources located in several states, including Ohio As a result, Penn Power began deferring a portion of the cost and Pennsvivania. The Company is unable to predict whether of Quarto coal, rather than including such costs in its ECR. legislation will be enacted and, if so, to what extent, if any, As of December 31,1986, Penn Power's deferred Quarto the SO emission limits at the Companies' plants would be 2
coal costs amounted to $4,343,000. Although the PPUC affected. Substantial changes in the SO2 emission limits issued a subsequent order which found that Penn Power was could result in the need for changes in coal supply, significant not imprudent m imnatmg and continuing the Quarto prof capital investments in flue gas desulfurization equipment or ect, it prescribed a method for recovery of the current cost the closing of some coal-fired generating capacity to assure of Quarto coal and the Quarto coal costs Penn Power had compliance. If flue gas desulfurization equipment were to be deferred w hich could result in a substantial underrecovery of installed on all of their generating units to achieve compliance, Quarto coal costs. Penn Power appealed that order to the a circumstance that may be physically impossible because of Commonwealth Court of Pennsylvania, but the Court upheld space limitations at certain of their plants, the Companies the PPUC order. Penn Power's requested review by the estimate that the capital costs associated with such installa-Pennsylvania Supreme Court of the Commonwealth Court's tion could exceed $1,000,000,000. The Companies expect decision was denied. Management believes that the uhimate that any such capital costs, as well as any increased operating disposition of this matter will not have a material adverse costs associated with such equipment, would ultimately be effect upon the Company's consolidated results of operations. recovered from their customers. In October 1983, the U.S. Court of Appeals for the District Environmental Matters-of Columbia reversed several significant portions of the EPA's Various federal, state and local authorities regulate the regulations on the methods used by the EPA to determine l Companies with regard to air and water quality and othe, the amount of stack height credit for establishing individual environmental matters. The Companies estimate that com. source emission limits. In July 1984, the U.S. Supreme Court pliance requires additional capital expenditures of approxi. mately $80,000,000, which is included in the construction estimate gisen above under ' Construction Pmgram' for 1987 through 1991. On December 5,1984, the federal Environmental Protection Agency (EPA) denied a petition from the Commonwealth of Pennsylvania and the states of New York and Maine, which sought to force the EPA to make findings under Section 126 of the Clean Air Act. Section 126 provides a remedy for a downwind state that can show adverse impact because air 35
Notss Wmarud denied a utility industry request to review the Court of Appeals' B-Summary of Quarterly Financial Data ffJnauditedh decision. On July 8,1985, the EPA issued new stack height The following summariees certain consolidated operating regulations to conform with the court's decision; the new regu- results for the four quarters of 1986 and 1985. lations have been appealed to the U.S. Court of Appeals for the District of Columbia by the Companies and others. The Mae June Septe%er Decemw Three Months Ended 31.1986 30.1986 30.1986 31.1986 Ohio Environmental Protection Agency and the Pennsylvania y,, ,,,c,ys,,,ys,,c,y, y,, ,,,,,, ,,,,c,y,,, Department of Environmental Resources must review the Operating Revenues $461.451 $421.565 $434.079 $424.805 cmission limits under their respective State implementation Og {"9 Expenses es 347.018 324.394 342.836 335.295 Plans and submit to the EPA for approval any resised limits Operating income 114.433 97.171 91.243 89.510 necessary to conform to the new regulations. Such resiew Other income and could result in more stringent emission limits for some exist- j,*,dy,$sand ing plants and increased capital costs and operating expenses. Otner Charges 77.162 75,674 74.961 70.129 The Companies are studying the regulations and are currently Not Income $112.201 $ 99.956 $ 96.460 $102.211 unable to predict their ultimate effect. Earnings on Common Stock $ 98.916 $ 87.106 $ 83.971 $ 89.832 Weighted Average Number Statement of Finanelal Accounting Standards No. 90- of Shures of Common
. Stock Outstanding 141.221 144.861 147.044 148.981 The I..mancial Accounting S.tandards Board (FASB) recently Earr ngs released SFAS No. 90,' Regulated Enterprises- Accounting for Abandonments and Disallowances of Plant Costs.'The Statement, which is effective for the Companies January 1, uaren June septemtmr oece%er 31.1985 30,1985 30.1985 31,1985 1988, will require the Companies to reduce the carrying value hw M mns Ended (In titousanCS. eXCept per Share amCNJntS) of the unrecovered costs of four nuclear generating units Operating Revenues $453.354 $418.498 $438.901 $443.996 which were terminated in 1980 (see Note 2) since the un. Operating Expenses amortized costs are not included in rate base. This adjustment nd T xes 353 444 330.808 342.433 347.710 . . Operating locome 99.910 87.690 96,468 96.286 will not have a material adverse effect on the C.,ompany s Other income and Consolidated results of operations. The FASB has indicated Oeductions 72.652 76.583 70.177 69.882 that it intends to issue during 1987 a new Exposure Draft of Ng',7n$,"ges 73.780 73.467 76.169 75.547 pmposed accounting standards to address rate phase-in Net income $ 98,782 $ 90.806 $ 90.476 $ 90,621 plans applicable to new generating facilities and possibly Earnings on Common Stock 5 85.866 $ 77.888 $ 77.188 $ 77.131 other related matters.
Weighted Average Number of Shares of Common Stock Oustanding 123.502 127.486 133.026 135.691 Eamings per Share of Common Stock $.70 $ 61 $ 58 5 57 l l
T Auditors'Rcport To the Stockholders and floard of Directors of As discussed in Note 7 to the consolidated financial state-Ohio Edison Company: ments, the continued construction of Perry Unit 2 is cur-rently being reviewed by the CAPCO companies. Possible We have examined the consolidated balance sheets and con- . alternatives being considered include m. definite suspension, solidated statements of capitalization of Ohio Edison Company
- resumpton fn and termMation of tk Umt. &cause the (an Ohio corporation) and st.bsidiaries as of December 31, ,
1986 and 1985, and the related consolidated statements of Company n unaye to predict the results of the review, it cann t now predict if construction of Perry Umt 2 will be income, retained earnings, capital stock and other paid-in capital, cash flow and taxes for each of the three years in the '*"" "*'. d, and if terminated, whether the investment apph,-
~
cable to its PUCO junsdicuonal customers will be recoverable. period ended December 31,1986. Our examinations were made in accordance with generally accepted auditing stan- In our opinion, subject to the effect on the 1986 and 1985 dards and, accordingly, included such tests of the accounting consolidated financial sr.atements of such adjustments, if any, records and such other aaditing procedures as we considered that might have been required had the outcome of the uncer-necessary in the circumstances, tainties referred to above been known, the financial statements referred to above present fairly the financial position of Ohio Regulatory commissions are examining the impact on cus-.
.. Edison Company and subsid. .ianes as of December 31,1986 tomers rates of nuclear generating units and are raismg van-and 1985, and the results of their operations and the state-ous concerns, including the level of construction costs of such ments of cash flow for each of the three years m the period units and the possible existence of excess generating capacity. .
ended Daernber 31,1986, .m conform.ity with generally These concerns are likely to be addressed by the commis-anep an un ng pr e es w , mept f r tk dange sions regulating the Companies with respect to units in which the Companies have an ownership interest. Pennsvivania yau we e neud in aa unting for pension costs bec ote D, an en app n a e ns stent basis Power has requested, and the Company will be requesting, recovery for their respective investments in Perry Unit 1 and Ileaver Valley Unit 2 in rate proceedings. The outcome of the regulatory process cannot be predicted with any degree 4 . of certainty, and accordingly, we are unable to form an opin- ARTHUR ANDERSEN & CO. ion as to what extent the Companies' investments will be New York, N.Y. recoverable. February 4,1987 l 37
Ccncolid:ted Fincncici Statistics 1986 1985 1984 1983 1982 1981 1976 G:neral Financialinformation (Dollars n thousand1 except per share amounts) Total Operating Revenues $1,741,900 $1,754,749 $1,637,104 $1,515,852 $1,429.626 $1,279.649 $ 644.852 Operatng income 5 392,357 $ 380,354 5 342,713 $ 302,751 $ 269,640 $ 252,381 $ 122,217 Eamings on Common Stock $ 359,825 $ 318,073 $ 290,694 E 227,843 $ 181,496 $ 163.892 5 82,777 Ratio of Earnings on Common Stock to Operating Revenues 20.7 % 18.1 % 17.8 % 15.0 % 12.7 % 12.8 % 12.8 % Times Interest Eamed Before income Tax 2.46 x 2.34 x 2.34 x 2.31 x 2.02 x 2.11 x 2.22 x Not Utility Plant at December 31 $7,216,102 $6,609,196 $5.945,549 $5.206,134 $4,522,733 $3,867,757 $2,115,798 Property Additons S 776,198 $ 826,994 $ 868,099 $ 771,131 $ 774,233 $ 568,044 5 325.553 Capitalization at December 31. Common Stockheiderr' Equity $2,541,712 $2,234,156 $1,947,357 $1,711,974 $1.488,371 $1,229,044 5 635,274 Preferred and Preferen :e Stock Not Subject to Mandatory Redempton 455,567 467,940 455.490 404,240 354,240 304,240 261,905 Preferred and Preference Stock Subject to Mandatory Redemption 160,794 176,694 158,483 158,112 152,560 151,141 88,000 Longterm Debt 2,781,590 2,691,615 2.449,502 2,132,137 2,005,436 1,759,771 1,087,755 Total Capdalization $5,939,663 $5,570,405 $5,010.832 $4.406,463 $4,000,607 $3,444,196 $2,072,934 Capitalization Ratos at December 31: Common Stockholders' Equity 42.8 % 40.1 % 38 9 % 38 9 % 37.2 % 35.7 % 30.7 % Preferred and Preference Stock Not Subject to Mandatory Redemption 7.7 8.4 9.1 9.1 8.9 8.8 12.6 Preferred and Preference Stock Subject to Mandatory Redemption 2.7 3.2 3.1 3.6 3.8 4.4 4.2 Longterm Debt 46.8 48 3 48.9 48.4 50.1 51,1 52.5 Total Capitalization 100.0 % 100.0 % 100.0 % 100.0 % 100 0% . 100.0 % 100.0 % Longterm Obligations at December 31 S 859,900 $ 739,291 $ 822.234 $ 759.843 $ 656,655 5 447,484 $ - Cost of Preferred and Prefererce Stock Outstanding at December 31 9.66 % 10.00 % 9 87 % 9 63 % 9.17 % 8.37 % 7.84 % Cost of Longterm Debt Outcanding at December 31 11.05 % 11.45 % 11.52 % 10.82 % 10.69 % 9.99 % 7.50 % Common Stock Data Eamings per Average Common Share $2.47 $2.45 $2.50 $2.22 $2.13 $2.30 $2.14 Return on Average Common Equity 14.9 % 15.2 % 15 9 % 14.2 % 13.5 % 14.6 % 14.0 % Dmdends Paid per Share $1J2 $1.88 $1.84 $1.80 $1.76 $1.76 $ 1.67 Common Stock Dmdend Payout Ratio 78 % 77 % 74 % 81 % 83 % 77 % 78 % Common Stock Dmdend Yield at December 31 9.8 % 11.5 % 13.6 % 14.7 % 12.6 % 15.1 % 8.1% Prce/ Earnings Ratio at December 31 7.9 6.7 5.4 55 6.6 5.1 98 Shares of Cornmon Stock Outstanding at December 31 (000) 149,815 137,089 122,237 108,460 96,082 78.676 34.856 Book Value per Common Share at December 31 $16.07 $16.30 $15.93 $15.78 $15.49 $15.62 515.94 Market Prce per Common Share at December 31 S19.50 $16.375 $13.50 $12.25 $14.00 $11.625 $20 875 Rato of Market Prce to Book Wue per Share at December 31 115 % 100 % 85 % 78 % 90 % 74 % 131 % 38
f Canaclidctcd Opcrcting Statistica , 1986 1985 1984 1983 1982 1981 1976 Revenue From Electnc Sales (rnovsanos;. Residental S 615,262 $ 600,481 $ 671.878 $ 540,167 5 497,941 $ 442,267 $232,433 Commercial 449,590 433,445 400,291 385,277 356.325 308.599 155,572 Industrial 449,392 476.257 469,112 421,736 383,535 381.162 195.311 Other 64,345 64,708 57,921 69.278 67,828 53.993 31,013 Sutxotal 1,578,589 1,574,891 1,499.202 1,416.458 1,305,629 1,186.021 614.329 Sales to Utihties 137,994 159.262 117.385 76,220 101.688 73,966 6,749 Total $1,716,583 $1,734,153 $1,616.587 $1,492.678 $1,407,317 $1,259,987 $621,078 Revenue From Electnc Sales-%: Residential 35.8 % 34.6 % 35.4 % 36.2 % 35.4 % 35.1 % 37.4 % Commercial 26.2 25.0 24.7 25.8 25.3 24.5 25.1 Industnal 26.2 27.5 29 0 28.3 27.3 30.2 31.4 Other 3.8 3.7 3.6 4.6 4.8 4.3 5.0 . Subtotal 92.0 90 8 92.7 94.9 92.8 94.1 98.9 Sales to Utikties 8.0 9.2 7.3 S.1 7.2 E.9 1.1 Total 100.0 % 100.0 % 100 0 % 100.0 % 100.0 % 100.0 % 100.0 % Kilowatt-Hou; Sales (Maons) j Residential 7,046 6.791 6,836 6,735 6,733 6,747 6,024 Commercial 5,560 5,266 5,101 5,096 4,996 4,917 4,358 Industnal 8,533 8,751 9,161 8,386 7,708 9,352 9,262 Other 1,192 1,149 1,075 1.211 1.227 1,181 1,171 Subtotal 22.331 21,957 22.173 21,428 20,664 22,197 20,815 Sales to Utilities 5,835 6.929 4,591 2.917 3.361 2.465 387 Total 28,166 28,886 26,764 24,345 24,025 24,662 21,202 Customers Served at December 31. Residential 894,164 838,107 885,376 878,949 873.877 872,303 824,851 Commercial 97,383 96.048 90,810 90,072 89,706 89.231 85,512 Industnal 2,239 2,021 1,757 1,003 1,048 1,068 1,111 Other 802 892 721 736 724 711 681 Total 994,568 987,068 978,664 970,760 965.355 963.313 912,155 Average Annual Residental kWh Usage 7,924 7,682 7,762 7,695 7,723 7,760 7,361 Average Residential Pnce per kWh 8.73C 8.84e 8.37c 8 02c 7,40c 6.56e 3.86e Cost of Coal per Million Btu $1.44 $1.53 $1.59 $1.62 $1.75 $1.81 $0.93 Generating Capability at December 31: Coal 89.1 % 89 1 % 89.1 % 89.2 % 86.2 % 86 3 % 87.8 % Oil 3.0 30 3.0 3.0 6.3 6.2 8.3 Nuclear 7.9 7.9 7.9 7.8 7.5 75 3.9 Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Sources of Electnc Generation: Coal 91.0 % 89.3 % 90.4 % 89.8 % 93 8 % 999% 94.4 % Oil - - - - 0.1 0.2 4.9 Nuclear 9.0 10.7 9.6 10.2 6.1 9.9 0.7 Total 100.0 % 100.0 % 100 0% 100.0 % 100.0 % 100 0 % 100.0 % Peak Load-Megawatts 4,243 4.084 4.093 4,148 4.073 4,148 3.817 Number of Employees at December 31 7,383 7,496 7.611 7,702 7.885 7.669 6.241 l l / 39
Stockhcidar information Stoct. holder Profile Contacting Stockholder Services At year end,202,379 stockholders owned 149.8 million For the comenience of stockholders, the Company has toll-shares of Ohia Edison common stock. Approximately 30 free telephone numbers to provide information and assist- /j percent are women,25 percent are men and 34 percent ance. Stockholders are encouraged to call 1-800-321-0468 ) are joint holders. The remaining 11 percent represents in Ohio, or 1-800-633-4766 outside Ohio, on hionday through trusts, corporations, institutions, brokers and other invest- Friday, except holidays, from 8:00 a.m. to 4:30 p.m., eastern ment groups. time. Callers in the Akron area and in foreign countries should use (216) 384-5509. When calling, please ask for Stock-N,early,67 percent of common stockholders own less than holder Services. 300 shares. They live in all 50 states and many foreign countries. Stockholders may also write directly to Stockholder Services, Ohio Edison Company, 76 South hiain Street, 1 Dividend and Tax information Akron, Ohio 44308. Effective the first quarter of 1987, the Company's Board of Directors increased the quarterly common stock dividend Additionallnformation
=
to 49 cents per share, or $1.96 on an annual basis. For Ohio Edison Company common stock is listed on the New each quarter of 1986, the Board declared common stock York and hiidwest stock exchanges and traded on other dividends of 48 cents per share. registered exchanges under the "OEC" ticker symbol. News- f papers gnerah use e symbol'OhioEd"in stock listings. All common, preferred and preference stock dividends paid in 1986 were taxable for federal income tax purposes. The Form 10-K, the 1986 Annual Report to the Securities and Tax Reform Act of 1986 has made major changs to the Exchange Commission, will be sent without charge to i federal tax laws, some of which may be of particular interest stockholders upon request. For a copy, please write to to stockholders. Gregory E LaFlame, Secretary, Ohio Edison Company,
. 76 South Niain Street, Akron, Ohio 44308.
Effective January 1,1987, the Act terminates the lower tax rate that the tax law had granted to long-term capital gains. ,,, ,, So after 1986, long-term capital gains are taxed at the same Ohio Edison Company rates as ordinary income. Also, the $100/$200 dividend ex-
/6 South hiain Street, Akron, Oh,o i 44308 clusion has been eh. .mmated starting with the tax year 1987. . .
Attention Fransfer Agent For information regarding these matters, plus the many other changs that may affect your tax situation, we suggest Registrar: that you consult a tax advisor. National City Bank, Akron One Cascade Plaza, Akron, Ohio 44308 Dividend Reinvestment Plan By the end of the year,66,745 stockholders, representing 30 percent of all stockholders, were enrolled in the Com-pany's Dividend Reinvestment and Stock Purchase Plan. They reinvested 551.3 million in dividends and made optional cash payments of 517.5 million to acquire 3.5 million shares of common stock in 1986. Annual Meeting of Stockholders Stockholders are invited to attend the 1987 Annual hiecting on Thursday, April 30, at 10 a.m. in the Company's General Office auditorium in Akron, Ohio. Those not attending can vote on the items of business by filling out and returning the proxy card mailed to each stockholder approximately 30 days before the meeting. 40 /
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Ys . , i . l , , neerd et Directors ; > , orneers : DMason unneners
' ; Donald C.) Blasius' , .
l,. < Justin T. Rogers;Jr. . , ; Anthony N. Gorant Chairman andOkfExecutiw Ofcerof . ' Ihudent . > , Aknm uvidon ,
#C/Romermduca Group; #'hia LVictor'A. Owoc? ,
~
J Gary M2 Stair! . ' [ Casdidaadindustries, inc , Columbus, . p,y 7, ,yg,,,'
= Ohio (airconditionen, kitchen apphanas, i .n . ,.. ..
?4 andrypmduca andkitcAen cabinea).y i' Douglas W.Tschappat , ? James E. Markle iMember; Nominating Comreitue, cl: ; Executiw 17ce hrsident ' ' ; LakeErieDivision %
g Finaar CommitueU '. Lynn Firestone i . Malsolm E. Cshi 7 , cW '~ '
. ' Dr. Lucille G. Ford - ' Seniorrice thident JManspddDividon :
~
ria ArsidentprAademicWIairs,;f , David R. Gundry Roberili. Kensingeri .
,, Ashland College;Ashland. Chro. : >
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- Chainnan, Nommattug Committee;_ ., ..
+ ' Nenber; &ana Committee. . .r .. Robert J. McWhorter N. Rod MonahanL ,
I #P""Y""*iA"" A
#'"'*!'"'*"'"'i 1 Robert L 1Aug$$i .
Gainna ofthe Board, Ihsident and I Russell J. Spetrino . "Roben E. Dawson L ChiefIbirbtive Officerof H&irton Sted .. Ilie hrsident and l J StariDividon : '
. Corporation, H&irnm, Hest lirginia (sted l ' , GeneralCounsd! David C. Bixler, Jr.
pnduca). Chasnnan, Compensation . , ggg,gg 9, ge,, y;,,,, y,v;;,,
.i ; Commitue; Member; Adit Committee.
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Glenn H Meadows - . , , : Peter A. Fetterolf,. e
; IhsidentandOlefEawriu opiarof N McNeil(Ohio) Corporation, Airon, Ohio
{fftfurg' ihungnasa Dnunon
' (various manufacturrdpaduca). ' Member; - ..Fr'an' k E. Derry; g Compensation Committee, &dit Committee. . Ila brident L
~
TWilliam RLMiller L . -~ John A. Gill - Retired,pnnedy Ila hrsident of ' Ila hrsident GowmmentallhsoundRdations, The y Goodyear Tirr andRubber Company, 5** ,,,?'*" g3 Ahmn, Ohio (rubberandtriatedpmduca).'
. Member; Compensation Commitue. David Il Yeager
#7"#*d#'"'
John Nelson , Chainnan ofthe BoardandChiefEwutiw Matk T. Clatk
- OpcerofComm<nialShearing, Inc., . Tirasurer
)bunguoren, 0hio (engineeredmetativmpo- -
William A. Daniels . nena). Member; Compensation Commitur. (, y, Victor A. Owoc - ** Ezecutiv i7ce thidentof Ohio Edian.
'*E*'Y '
- Member; Finana Committer. N'*'"'1 Warren G. Fouch
. Justin T. Rogers, Jr. 'Want Crimptn>He Meddent of Ohio Ikfixa andChairman o}
the Boardofits subsidiary, hnnsykenia ' ' Joanne Martin Iteer: Chainnan, Finance Commitue; ' AssistantSeartary LMember; Nominating Committee.' Theodote E Struck, il Douglas W. Tschappat Aaistant Treasurer Erewrive lice hesident of Ohio FAimn. Ilarvey L Wagnet Frank C. Watson . Assistant Comptm/ler hrsident qf The )bungsnan Rhlding and
- Engineering Company,1bungsnow, Ohio
' (nonjenvas alloysh Chairman, Audit Committer; Member; Nominating Commitae.
William C. Zekan . Chairman rfthe BoardandMrsident ofA. Schulman, Inc., Akmn, Ohio
. (customplastic amspounds). Member, Aalit Committee.
' Director Emeritus Fred H. Zuck
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