PY-CEI-NRR-0988, Annual Rept,1988. Supplemental Form 10-K & Encl
| ML20244E285 | |
| Person / Time | |
|---|---|
| Site: | Perry  |
| Issue date: | 12/31/1988 |
| From: | Kaplan A CLEVELAND ELECTRIC ILLUMINATING CO. |
| To: | NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM) |
| References | |
| PY-CEI-NRR-0988, PY-CEI-NRR-988, NUDOCS 8904240397 | |
| Download: ML20244E285 (223) | |
Text
{{#Wiki_filter:.. .. l l CENTERIOR i ENERGY i 1 1 ANNUAL REPORT 8904240397 890412 PDR I ADOCK 05000440 PDC { h ggD W aH
CONTENTS M AJOR DEVELOPMENTS letter to Sharc Owners 2
- In Janutry 1989 A PUCO approved a comprehensive rate The Settlement . 2 pnase-in plan which removes most of the uncertainty financialIntegrity . 3 about our nuclear investment. The plan provides for The Northern Ohio Markciplace 5 rate increases ol 9%, 7% and 6% over three years Nuclear Ibwer . 8 beginning in 1989 and resolves, among other matters.
The 'Icam , 8 prudence investigations for Beaver Valley Unit 2 and Management's Statement of Responsibility for f erry Unit 1. Financial Statements . 10
- Our common stock dividend was reduced to an indicated annual Auditors, Report 10
. . rate of $ 1.60 per share cffcctive with the May 15,1988 Summary of Significant Accounting Iblicies . 11 payment and has been sustained at that level since.
Management's financial Analysis and financialStatements and Notes 13
- Kilowatt-hour sales rcached a record high, surpassing 28 billion financial and Statistical Review 32 kilowatt-hours in 1988. 5% above the previous Board of Directors 34 high set in 1979.
Executives . 35
- Beaver Valley Unil 2 and Ibrry Unit 1 perfonned very well in Sharc Owner Information 36 1933 Ihey exceeded the industry awrage for the amount Centerior Energy Senice Arca ar>d GeneratinS of time a unit is available to generate electricity.
Units . 37
- Customers set a new record for electricity demand on August 17, 1988. The peak demand of 5.673 megawatts was 9.6% above the prnious high set in 1987.
Centerior Enctsy Corporation was formedin April 1986 upon the affiliation of The CleveLwd Electric liluminating Company and 1he Toledo Edison Company. With assets of more than $11 billion. Centerior Enctsy is one of the larsest ek ctric utility systems in the nation. Cleveland Electric and Toledo Edison serve 2.6 million people in Northern Ohio.
F.IN A N CI A L S U M M A RY % 1988 1987 Chanse Earnings (Loss) Per Share of Common Stock . . . . . . . .. . $ (.53) $ 2.82 (118.8) Write-offs of Nuclear Plant-Related Costs . ., $ 2.48 $ -- - Earnings Per Share of Common Stock Excluding Write-offs . . . .. $- 1.95 $ 2.82 (30.9) Dividends Declared Per Share of Common Stock . .. .. $ . 1.84 $ 2.56 (28.1) ~ Book Value Pec Share of Common Stock at Year End .. . . $ 19.68 $ 22.10 (11.0) Closing Common Stock Price at Year End . . .. . .... $ 13% $ 16% (16.3) Common Stock Share Owners at Year End . . ... . 183.053 207.755 (11.9)
. Common Stock Shares Outstanding at Year End (000) . . .. 140.820 140.706 0.1 Operating Revenues (000) . . . . ... .. .
$2,037.560 $1,925.356 5.8 Operating Expenses (000) .. . .. . ... . . $ 1,725.895 $1,553.291 11.1 Net (Loss)lncome(000) . . . ... . .
$ ' (73.960) . $ 390.353 (118.9)
Return on Average Common Equity . . . . . . (2.5)% 12.8 % (119.5) Return on Average Common Equity Excluding Write-offs . . . 8.8% 12.8 % (31.2) '
' Kilowatt-hour Sales (Millions of Kik> watt-hours)
Residential . . . . ... . . . .. 6.920 6.659 3.9 Commercial . . . . . . . . 6.577 6.350 J.6 Industrial . . . .. .. . ... . .. .. 12.793 11.985 6. 7 Other - . . . .. ... .. . 1.809 1.348 54.2 Total . . . .. . . ... . . . 28.099 26.342 6. 7 ' Employees at Year End . . . . . . . . . 9.103 8.891 2.4
. QUARTERLY RANGE Of CENTERIOR ENERGY'S QUARTERLY EARNINGS AND DIVIDENDS COMMON STOCK PRICES PER SilARE'Of COMMON STOCK
'87 lst 21%
24% 1988 Larnings Dividends 1st Quarter $ .61 $ .64 2nd- 15 [G
- Ms n]22% 2nd Quarter .41 .40 3rd Quarter .79 .40 3rd - 15[f 4 J118% 4th Quarter (2.33) .40 4th < 15% N 18 % 39g7 1st Quarter .79 .64 118 ist 15% s m- Ig 2nd Quarter .69 .64 .
3rd Quarter .91 .64 l 2nd-- 14%Q16g 4th Quarter .44 J,4 3rd - 12%Im 1 16% 4ih - 12% o 14 OtrJ$ 10 15 20 25 1 1 I J 1 1 J
The outstanding performance of the new nuclear units,ltrry Unit 1 and Beaver Valky Unit 2, was another bright spot in 1988, as were record sales and revenues and the initiation of aggressive marketing and regulatory strategies. The new units helped povar the continuing economic expansion in our Northern Onio scrvice area. The public recognized the value of Ittry Unit 1 and Beaver Valley Unit 2 when their availability averted brownouts during a series of heat waves this O ,w , past summer. The environmental benchts of nuclear p $ power also were noted as concern mounted over acid
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THE SETTLEMENT
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Q]}j )f } % $ Cleveland Electric and Toledo Edison each received rate increases 3kh v f '# of 9% on Icbruary 1,1989. They will receive 7% di f5 + f increases on Icbruary 1,1990 and 6% increases on sf' N.* [ '@ february 1,1991. The 1991 increases will be moderated g to the extent determined by a management audit T~ discussed below. Centerior's annual revenue increases over the three-year period will be $171 million, $150 million and $ 139 million, respectively. As the PUCO put it " Additional matters have tren put to rest which could not have been resolved through Rulertl farlins Ric/urd A. M!Ier trarlitional rate-making procedures." This included establishing fair and reasonable productivity standards for our generating units and creating new utihty-customer communication channels.
Dear Sharc Owner:
A significant benefit of the rate agreement is the opportunity il provides to shift our limited resources A negotiated rate settlement permitting us to recover from cxpensive, time-consuming rate litigation to most of our investment in two new nuclear units capped enhancing operating efficiency, expanding our a dynamic 1988 for Centerior E.nergy. Although it ' ma.keting efforts and improving customer senice. resulted in an carnings loss for the year, the settlement laid the necessary groundwork for us to enhance the Cost-Reduction hscis value of your Centerior holdings. The challenge of operating efficiently is spelk d out in We reached the agreement in early 1989 with the rate agreement. Our interim goal is to reduce annual number of intervenor groups representiu a broad range operation and maintenance expenses (other than fuel of business and residential customers. The Public Utilitics and purchased power) by $40 million to $100 million Commission of Ohio approved it on January 31. Now by 1991 from the 1988 level. Share owners and we can turn our attention from rate matters and customers will share equally in the after-tax nel savings concentrate on the Company's overall performance in that result from these cost reductions. The magnitude a challenging competitive and op" rating environment. of this challenge is evident since inflation is expected to average about 4.5% per year. That interirn goal may be revised after an independent consultant conducts the management audit. The objective of the audit is to 2
help us reduce costs. The audit will not lead to regulatory FIN ANCI AL INTEG RITY disallowances of any prior expenditures. In the meantime, a nuclear management expert will conduct L ke many other electric utilitics in recent years, we experienced a separate cost control study at our Davis-Besse difficulties in trying to achieve fair rate treatment for our Nuclear Ibwer Station. nuclear investments. Perry Unit I and fkaver Valley We will not wait for completion of that study or Unit 2 went into commercial operation in 1987, but the audit to begin our cost reduction efforts: they have our investment in these units was not recognized in been an integral part of all Company objectives since rates until february 1989. This was the final hurdle in Centerior was formed in April 1986. The joint operations a planning, licensing and construction process that of Cleveland Electric and Toledo Edison have saved stretched over 15 years. significant sums over what the utilitics would have spent if they were still operating separately. We will continue to implement employee ideas for
. . TOTAL REVENUES increased operating cfficency. Many of these ideas originated in a comprehensive evaluation of all daily jobs and departmental activities. 5 (lnilm) Umm 4,,
No Company activity is off limits where cost-cutting is concerned-except where cost-cutting would reduce the quahty of our sersice to customers or affect the 2.0 ~ 3/" ~6o safety of our employees or the public, especially with s , regard to the operaison of our nuclear plants where '* 1.5 ~ % <
~45 safety must be the paramount consideration. M ,
g New Em of Coopcmhon 7o go p in summarizing the January 1989 agreement, PUCO y' , Commissioner Alan R. Schriber noted that the lengthy ,'
.5 ~
,- 15 litigation surrounding our rate cases was frequently ,
shrouded by " intense adversarial relationships. .It is y therefore cwn more wondrous-and commendable- u o that the parties came together for slandmark 34 '85 36 37 38 stipulation." C Tuallhun(Misak9 We will strive to see that the spirit that brought /unnuaiimwae uk9 about the agreement continues in a new era of cooperation, for example. sclected parties to the 7"'"I'""""I"I NI"Ih"" A # 'hC #"S' h""d"*S ld agreement will jointly prescribe the management aud:t "P
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um stronS enouS h to evealthe impx-t of a sharp d<thne in process and the creation of consumer advisory pancis thm re rewprar artnary durmS the 3rar in Ck>veland and Toledo. These panels will le composed of peopic representing various customer segments. They will provide a forum in which panel members can freely communicate with Company officials. This will increase our In the past several years, our net income consisted understanding of custorner concerns and allow us to largely or entirely of non-cash accounting credits. This address them promptly. The panels will compicment tisht financial situation led to a March 1988 reduction ongoing marketing cfforts to respond to the needs of in the common stoc k dividend. We regretted the reduction customers. locause many share owners depend on Centcrior dividend income to meet living expenses, but the 3
action was necessary to protect the long-term interests I' futurefaminssPicture of all share owners. Throughout this difficult period. Our task is to convert the non< ash earnings of the recent however, we maintained top quality service to our past into hard cash future carnings on our nuclear customers and were able to access the capital markets. imestment. As we accomplish this, the cash component The agreement was a vital step in solidifying of carnings will grow as non. cash accounting credits Centerior's financial viability. Rating agencies immediately decline. This means the quality of earnings will be removed our securitics from their lists of probable significantly better. downgrades, although our first mortgage bonds remain
. Total carnings will not grow dramatically over the at the low cnd of the imestment grade lewl. The next few years, partly because of an earnings cap in the settlement also markedly reduced the likelihood and agreement. The upper limits on our camings range from scope oflong and costly litigation.
$275 million ($ 1.95 per share currently outstanding)
Moreover, the agreement ended financial market to $ 310 million ($2.20 per share) for any four speculation concerning the amount of our nuclear consecutive quarters over the next three years. investment that would ultimately be disallowed. Overall* Similarly, the agreement provides an carnings floor. the agreement clarified our carnings outlook and, in We will not seek any additional permanent rate increases concert with a stringent cost-control program, provides that would become effective before february 1,1992, us a reasonable opportunity 10 maintain the common unless ourpro/ccted camings fall below $210 million stock dividend at its current $ 1.60 per share annual ($ 1.49 per share)over four consautive quarters; or $435 rate and to enhance the Company's financial integrity. rnillion owr eight consecutive quarters.
- Nuclear cost Recovery our future carnings picture reflects the end of our We will recover our in esiment in Ibtry Unit 1 and maior construction program. From 1985 through Beaver Valley Unit 2, except $495 million that was 1987, our construction costs averaged $1 billion per permanently excluded from rate base. This resulted in year. In 1988, we spent $382 million. from 1989 a $300 million after-tax charge against 1988 fourth through 1991, we expect to spend an average of $273 quarter carnings. An additional $49 million after-tax million per year. As a result of these lows r expenditures charge was taken in connection with other previously and improved cash flow from operations, our need for incurred nuclear-related costs. This one-time write-off new capital will be significantly reduced. Consequently, we do not expect per share carnings to be diluted from of $349 million resulted in a loss of $74 million ($.53 per share) lor 1988, the first loss in the history of the issuance of new common shares, barring unfore-Centerior, Ocveland Electric or Toledo Edison. The seen circumstances.
write off lowered Centerior's book value to $ 19.68. Summing Up The write-off was large, but we believe it was a Achieving adequate future carnings and sustaining the reasonable resolution of the issues when viewed in a dividend depend upon tasks that our Centerior team is broad perspective: the realization that utiiitics have lost well-equipped to tackle: marketing electricity within a billions of dollars through regulatory disallowances during known price structure and intensifying our cost-the past decade, and the virtual dissolution of more than 20 pending regulatory proceedings and court Rate treatment of our new nucicar units has been appeals concerning our nuclear construction investment
. settled. The units are operating well. The Cicveland and other rate matters. The agreement also implicitly Electric-Toledo Edison affiliation is success!ul. The resolved for the time being the recent controversy over rthem Ohio economy is stronger than ever, as shown .
our alleged " excess" generating capacity. in the following section. Many aspects of yesterday s uncertainties were not solely within the purview of Centerior management: most remaining unknowns are. In short, most of the dark clouds of uncertainty that obscured Centerior's future over the past several years are gone. 4
V . l [ THE NORTHERN OHIO New Sales Recad ) MARKETPLACE The sales of an electric utihty march to the tune of the ) regional economy the utihty sents. In 1988, l Centerior established a new saks record-the 28.1 billion ! One of our major considerations in striving teward a comprehensive kilowatt-hour sales were 5% above the previous high agreement was the apprehension expressed by some of set in 1979 by the then-separate Cleveland Electric our business and industrial customers about the and 'loledo Edison. Our total 1988 sales were 6.7% magnitude al future electric rate increases. Some customers reacted emotionally to the (Kissibility of any
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- b first tim despite rate concessions to many large customers increase, but many customers were concerned about s we c u dn or apand our saWo hem, as wd the uncertainly that surrounded the outcome of our as auract new companics to our area.
j rate cases. Knowing more precisely the amount of increases over the next three years enables businesses to plan ahead and make rational energy decisions. The phase-in plan will help most businesses handle TOTALSALESOf EllCFRICITY the increases. In the past, the industrial lleartland suffered more agii,,g ,, m., during recessions compared to the rest of the nation
* "90 and did not recover as well or as quickly. Fortunately, after years of sputtering recoveries, Northern Ohio has gy 'h 73
; w f, realized strong, sustainable growth. Economists believe S
Northern Ohio's current blend of industry and diversified ,
, S. y p senices should enabic our area to fare better than
- g,
,n ,i f, 4D many other regions in the years ahead whether times are prosperous or if there is an economic slowdown. m W
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.ts faith in the future of Northern Ohio is being 4 demonstrated by the substantial investments our s ,4 ,
customers are making. To cite just three exampks, ford 10" , j 40 Motor Company and Nissan blotor Company Ltd. are , spending more than $900 million to double the size of 5~ 4 : . 4 i .5 f ford's Avon lake manufacturing facility in Ckseland [lectric's service territory. The joint venture will g U U produce a new front-whccl<lrim minivan, with initial production scheduled for 1991. LTV Steel Company will invest more than $1 billion to modernize and O "" * * "H expand its Cleveland facilities to enhance its ^n"""""*1"* "H competitive position in the steel industry. General f.rorn 19sabroush 19ss uowan-/umr 3dc3sn>wthlus h10 tors has completed a $500 million expansion of its ,ccfera,cdlarsely on the strersth o/br<ud-leedindu3tnal Parma plant in Northeast Ohio, complementing $540 scinand /or ch1nc enersy milhon of capital improvements in Northwest Ohio over the past kw years. Automobile manufacturing and steel and chemical production have been especially strong. Our 1988 kilowatt-hour sales to steel producers were up nearly 13% owr 1987, while saks to automobile manufacturers were up 7.6%. Saks to chemical producers increased about 6% All told, industrial sales rose 6.7% over 1987. 5
The steady upward trend in our commercial sales Aggressive Marketing continued, with 1988 sales 3.6% greater than in 1987. With ampic generating capacity in place, we are moving The Greater Ckxcland office space market is aggressiwly to increase sales in the industrial, commercial among the healthiest in the nation. Square footage of and residential sectors, and to other utilitics. the suburban office market has grown almost 50% The industrial sector is the key to the job security, over the past five years. income growth and personal fulhllment that a healthy Recent commercial growth in the Toledo area has economy brings. Tb the extent that electric energy cost not been as dramatic, but more than two million plays a part in plant k> cation or the ability of our square feet of retail space, mostly all-clectric, will be industrial customers to compete, we are committed to added over the next two years. see that our electricity prices are competitive. Residential kilowatt-hour sales increased 3.9% owr 1987. New household formation and greater numbers of appliances in existing homes contributed to the growth. Spurred by recent hot sumnas, installation of central AVERAGE RElAllPRICES PER KWH air conditioning in Northern OW homes is up more than 50% since 1984. The nuuber of homes having
# EU microwave ovens and videocassette recorders has tripled since that time. gg. . Inh Sales to other utilitics wrc bolstered by Geveland Electric'ssaleof 80megawattsofitsshareof Perry Unit I to Ohio Edison and Ibnnsylvania Power. That sale began in late 1987 and will end in M5 1989. /
Sales Gutk>ok "U" The admirabic success of Northern Ohio manufacturers l in reviving their competitiveness played an important N role in the area's economic expansion, as did labor cooperation. The depreciation of the U.S. dollar also ms f
/e N g
hciped make Northern Ohio goods more competitive [ \ in the global marketplace. Since the most significant / g gains resulting from the benefit of the declinins illar im have been realized, the strong percentage saks growth M " * *
- of the past two years will probably taper off. In addition. (""=N"N lw i* m we are aware of the price clasticity of electricity; our forecasts take into account the fact that our rate increases will trigger additional consenation in some sectors. a,r arcrar retailpriu. olclatriary ha nor Acpt arcmt o/
Assuming normal weather and excluding the sale to the rate olirdlatu,n omnny the last live years. an averay Ohio Edison and Iknnsylvania Ibwer, we expect our pnce ha actually dn> pied sharply since 19s6 because o/a kilowatt-hour sales to increase about 1.5% a year over d"I"""s l"ci rosI n=ctr la tor and sfm/ contimys u ,th the next hve years, followed by more rapid growth in I"'F "'d"'"id! ""'"""" the mid-1990s. I l 6
~.
Our spcial rates for laise industrial customers are 'lYPICAL ELECTRIC BILLINGS-e . not a short-term expedient. Our orientation is to the long- RESIDENTIAL PRICES PER KWH* term and the positive ripple effect that liows through 4 of January 1,1989) the economy when industry expands: for every 100
- 1. New york . .12.72e manufacturing jobs established, about two-thirds as . . .
- 2. Philadelphia .12.35e many service-sector jobs are created.
Many of our sixtial rates are designed to fit the
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particular usage patterns of large customers or i 5. PM>urgh , ,10.51e encourage off peak use. Spreadmg our fixed costs over 6. Newark, NJ . , .10.50e
. more kilowatt-hours lowers the cost of electricity for all 7. Chicago . . .10. t 4e customers in Northern Ohio. 8J1011D0" .10 0l* ~
9 HadI"'d - - 9 93 Two of our oil refinery customers, as well as maior stect and aulomobile customers, are operating under j l34 contracts that will keep their electricity costs at 12Atmit . . . . 8.77e
~ competitive lewls over the long run. In a typical 13. Butfalo . . . 8.46e
' example, Tokxio Edison's incentive contracts helped 14. Dayton . . 8.28e bring additional business to the General Motors central 15. la . 8.12e .
- 16. Balanore . 7.5 t e -
. foundry in Defiance when GM closed portions of two foundry operations in another state. This benefited a fg ," '
.large Cleveland Electric customer. Elkem Metals, which I9. ancinnati . . ,, . 7. I t e supphes ferro-silicon to the foundry- 20. Washinston. DC. . . 5.07e in the commercial sector, builders of most new office I
.ggggg 4m and retail buildings are choosing ekctricity as the only ~cenea r.nnsnw-energy source, in large part_ because of our new special W=*" Ih I"**)
space conditioning 8 rate. The Clevdand area building A#M""'I#' I " * " " " " " " "" ##"" # boom should continue, judging from proiccts now on residentialpricesper kilouutt hourofservice for 500 kilowatt-
. the drawing boards in response to one of the lowest burs o/g> n n hwrapheir niinprniuth vacancy rates in the U.5- thme oraher cities in the ivrtheast quadrant of the united We dewk> ped a special discount rate for "addon" heat States Alter their Tebnury I. I939 rate uncnwes anda fuel pumps for both commercial and residential customers. clause inacase lor unto rdison. acwland lirtric's and An add-on heat pump is a cooling system in the summer U"*' Ed""'* P"'c5 8'" 1010ce"'5 d"d ll 50ce"'5 Per A#"""# ~h"" '**""'#""l# '
and a supplementary heating systern the rest of the year. We joined heating contractors in promoting add.on heat pump sales. This induded providing extended warrantics and proper maintenance, features that ar-important to customers. Increased cfforts to se" electricity to other utilitics, induding municipal systems, are expected to pay off by Community Commitment mid-1989. Our strategy includes the flexibility to Commitment to the cornmunities we scrw is an important negotiate packages that include price and availability corollary of marketing and customer service. Our goal, guarantees for as long as 20 years, both as a responsible corporate citizen and as employees acting on behalf of the Company or as individuals, is L to make our service area a better place in which to liw. Our employees hold a variety of kical government positions. Some are memlers of mlunteer f re departments and school boards. Others take leadership roles in a host 7
of charitable organizations. Collectively, our employees The operating record of Beaver Valley Unit 2 was are contributing $1.8 million to United Way in 1989. among the very best in the nation, while the Cleveland Electric was one of only three electric perfonnance of fbrry Unit 1 was considerably better utilitics in the U.S. to receive a 1988 Outstanding than the U.S. nuclear industry average. These were Achiewment Award for Affirmative Action frorn the significant accomplishments since the first year's I'dison Dectric Institute. The award recognized Cleveland operation of a new nuclear unit typically is something 3 Dcctric for its leadership role in hiring and training like a shakedown cruise. I disabled persons. Davis-Bessc was out of scrvicc ior nine months during l 1988 for refueling and to make additional modifications i to fulhll our commitments to the Nuclear Regulatory NUCLEAR POWER Commission. Since returning to service late in 1988 Davis-Besse has generally operated at full capacity. fttry Unit 1 and Beaver Valley Unit 2 will ur.dergo Our new nuclear units proved especially valuable during the their first refueling outage in the Spring of 1989. l July-August heat wave when we set a series of new Other utilitics will have to build new power plants peak load records. or rely upon plants built by others as demand catches up with supply and as their existing generating un-ts l age. In contrast, the availability of fttry Unit 1 and Beaver Valley Unit 2 means we won't have to devote ; PEAK LOAD resources to build new baseload generating units for a number of years. Nuclear power produced 27% of the electricity we generated in 1988 and is expected Ic, 6~
""M provide about one-third of our generation over the y next decade.
Our balanced fuel mix provides security against 5~ i . l *" ..
,@ problems that can result from too much dependence b..
.j k [3 MD on one fuel source. The enactment of legislation to
$ combat acid rain or the greenhouse effect could have 4
h g .. j more of an impact on others than upon Centerior. In k? @y$h short, our prices should become even more competitive
+ , . as the Stars go by.
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% <!i W M 7 o THE TEAM
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&.p Lyq{1j 4% f hM b+ V, #2 cm The efforts of our employees throughout the year were outstanding.
E4 ES E6 E7 E8 During the heat wave of July and August, employees endured extremely hot temperatures in generating During August o/1988. the systern peak load reached an all-plants and in the field. They pushed our facilitics to turne hish of 5.763 rnesswatts. up 9.6% over 1987's peak. a level not expected to be ach eved until I 995. In fxt peak loadsn>wth in each o/the last three >vars has sharply enreded customer demand. The hard worF and prompt action our expectations. Dese / acts dernonstrate the very tealneed of employces helped prevent Nortnern Ohio from
/or thesenciating capacity addecIby /trry Unit I and sulfering power shortages and outages this past summer. !
Ikver Valley Unit 2.
then Centerior, since mid-1979. Bob has worked Manasement Succession , tirelessly to help the Company overcome many obstacles l 1988 was a year of transition in our top management. Richard A. Miller,62, became Chairman and Chief in completing its nuclear construction program. He will be missed in our management ranks, but we will continue faccutive Officer on October 1. lie began his business career as a railroad attorney in his native Clarland. to benefit from hb counsel as a Director. He joined Cleveland Ekrtric in 1960 and specialized l' oundation for Crowth in finance and k> gal administration. He was elected A stmns mgional nonmny nmds utmns clatric unhty President of Cleveland Ucctric in 1983 and of in rder to keep growing. A utility cannot be strong Centerior in 1986. Dick Miller will devote most of his un c nmmeugulatus and investors cooperate to time to regulatory, legal and financial affairs. cm te energy policies that work fairly for all parties. Uccted President and Chief Operating Officer of umnpmhensive January 1989 agreement marked Centerior was Robert J . farling,52. He joined Cleveland a giant step f rward in this respect for Centerior Energy Dcctric in 1959 and advanced through various
. and for Northern Ohio.
management posts m. marketm.s, consumer services
.fhe agreement is not a panacca, nor will it result in and system operations. He succeeded Dick as President a lion nia. Mwung the cost-reduction goals will be of Cleveland Ek>ctric in 1986. Bob will concentrate on i ush. Competing in the energy business is trcoming i the operations side of the business, including getting m re dilficult. Continuing to provide safe. reliable the most out of the limited resources available for service with limited resources is essential.
operations. maintenance and construction. Neverthclcss, we believe a difficult decade is closing Paul M. Smart, Executive Vice President of Centerior. n a highly positive note, and that Centerior now has was appointed Chairman of our Executive Committee a s lid foundation for the future.lne cornentone on Regulatory Iblicy in October. This committee, o t foundaban is a hannonious mlabonship with initially formed to develop the strak>gy that led to the ' our pu s. As we move forward to provide the January 1989 negotiated rate settlement, will now electricity that is the lifeblood of the Northern Ohio serve to oversee its implementation. enuny, wt am pumkhdhat we whnhanm the Succeeding Bob farling as President of Cleveland value of your investment in Centerior. Dectric was Lyman C. Phillips,49, who gained cxperience in nearly every phase of operations during his 27-year career with lbledo Edison. Ek cted President of lbledo Edison was Murray R. Edciman, 49, whose 27-year management and engineering - cxperience includes heading nuclear activities for s . Ck'veland Ekrtric and Centerior. This management team brings exceptional technical Richard A. Miller Chairman expertise and broad-based managerial experience to their new positions. They are well-qualified to guide your Company through a period of transition in the energy business. , Ginn Retires A familiar signature is missing from this year's letter-Robert J. farling Robert M. Ginn retired on February 1,1989 after saving
""*u"I as Chici Executive Officer of first Cleveland Occtric, february 24.1989 9
MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL STATEMENTS The management of Centerior Energy Corporation is statements is conducted by Arthur Andersen & Co., responsible for the consolidated financial statements in independent accountants whose repoit appears
- l. this Annual Report. The statements were prepared in below.
accor dance with generally accepted accounting prin-Our Board of Directors is responsible for determining ciples. Under these principles, some of the recorded whether manat;ement and the independent account-amounts are based on estimates. Such estimates are ants are carrying out their responsibilities. The Board based on an analysis of the best information available. is Mso responsible for making changes in management or independent accountants if needed. We maintain a system of internal accounting controls. The controls are designed to assure that the financial The Board has appointed an Audit Committee com-records are reasonably complete and accurate. They prised entirely of outside directors. The Committee l also are designed to help protect the assets and their held three meetings in 1988. It recommends to the related records. We try to ensure that the costs of our Board annually the firm of independent accountants to control procedures do not exceed the benefits, be retained for the ensuing year. It reviews the audit practices used by the accountants and the results of Our internal audit program monitors the internal ac- their examination. It oversees the adequacy and effec-counting controls. This program gives us the opportu- tiveness of our internal accounting controls. T he nity to assess the adequacy and effectiveness of Committee also sees that our accounting system is existing controls and to identify and institute changes designed to produce financial statements which pre-where needed. Also, an examination of our financial sent fairly our financial position. AUDITORS' REPORT ARTHUR To the Share Owners and Board of Directors of Centerior Energy Corporation: We have audited the accompanying consolidated bal- statement presentation. We believe that our audits ance sheet and consolidated statement of cumulative provide a reasonable basis for our opinion. preferred and preference stock of Centerior Energy Corporation (an Ohio corporation) and subsidiaries as in our opinion, the financial statements referred to of December 31,1988 and 1987, and the related above present fairly, in all material respects, the finan-consolidated statements of results of operations, re- cial position of Centerior Energy Corporation and sub-tained earnings and cash flows for each of the three sidiaries as of December 31,1988 and i987, and the years in the period ended December 31,1988. These results of their operations and their cash flows for each financial statements are the responsibility of the Com, of the three years in the period ended December 31, pany's management. Our responsibility is to express ,1988, in conformity with generally accepted account-an opinion on these financial statements based on our ing pnnciples. j audits. As discussed further in the Summary of Significant We conducted our audits in accordance with generally Accounting Policies and Notes 8 and 14, a change was accepted auditing standards. Those standards require made in the methods of accounting for income taxes that we plan and perform the audit to obtain reasona- and unbilled revenues, retroactive to January 1,1988, ble assurance about whether the financial statements are free of material misstatement. An audit includes As discussed further in Note 3, the future of Perry Unit examining, on a test basis, evidence supporting the 2 is undecided. Construction has been suspended amounts and disclosures in the financial statements. smce July 1985. Various alternatives are being consid-An audit also includes assessing the accounting princi. ered, including resuming construction, mothballing or ples used and significant estimates made by manage, canceling the Unit. Management can give no assurance ment, as well as evaluating the overall financial when, if ever, Perry Unit 2 will go in-service or whether its full investment and a return thereon will ultimately be recovered. Cleveland, Ohio February 14,1989 Arthur Andersen & Co. 10
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES General fuel Expense Centerior Energy Corporation (Centerior Energy) was The cost of fossil fuel is charged to fuel expense based organized in 1985 and acquired The Cleveland Elec- on inventory usage. The cost of nuclear fuel, including tric illuminating Company and Subsidiaries (Cleve- interest, is charged to fuel expense based on the rate land Electric) and The Toledo Edison Company of consumption. Estimated future nuclear fuel \ (Toledo Edison) on April 29,1986. This business combination was accounted for as a pooling of inter-disposal costs are being recovered through the base rates. ests. The historical financial statements of Cleveland Electric and Toledo Edison (Centerior Utilities) have The Centerior Utilities defer the differences between been combined and restated. The consolidated finan- actual fuel costs and estimated fuel costs currently cial statements also include the accounts of Centerior being recovered from customers through the fuel fac-Energy's wholly-owned subsidiary, Centerior Service tor. This matches fuel expenses with fuel-related Company (Service Company), which was incorpo- revenues. rated in 1986. The Service Company provides, at cost, management, financial, administrative, engineering, Deferred Operating Expenses and Carrying Charges legal and other services to Centerior Energy, Cleve-land Electric and Toledo Edison. The Centerior Utilities The PUCO authorized the Centerior Utilities to defer operate as separate companies, each serving the cus- interest carrying costs, current operating expenses tomers in its service area. The first mortgage bonds, (including rental payments) and depreciation for Bea-other debt obligations and preferred and preference ver Valley Unit 2 from its commercial in-service date stock of the Centerior Utilities continue to be out- of November 17,1987 through December 31,1988. q standing securities of the respective Centerior Utility. The PUCO determined that Perry Unit 1 was consid-All significant intercompany items have been elimi- ered "used and useful" on May 31,1987 for regulatory nated in consolidation. purposes. Consequently, the PUCO authorized the Centerior Energy and the Centerior Utilities follow the Centerior Utilities to defer current operating expenses Uniform System of Accounts prescribed by the Fed. and depreciation for Perry Unit 1 from June 1,1987 eral Energy Regulatory Commission (FERC) and through December 22,1987, the date when these adopted by The Public Utilities Commission of Ohio costs began to be recovered in rates. The PUCO (PUCO). The Service Company follows the Uniform authorized the deferral of interest and equity carrying System of Accounts for Mutual Service Companies as costs, exclusive of those associated with current oper-prescribed by the Securities and Exchange Commis- ating expenses and depreciation, for Perry Unit 1 sion under the Public Utility Holding Company Act of from June 1,1987 through December 31,1987 and 1935. deferral of interest carrying costs from January 1,1988 through December 31,1988. The amounts deferred The Centerior Utilities are members of the Central for Perry Unit 1 pursuant to the PUCO accounting Area Power Coordination Group (CAPCO). Other orders were included in property, plant and equip-members mclude Duquesne Light Company (Du- ment through the November 18,1987 commercial-in-quesne), Ohio Ed,i son Company (Ohio Edison) and service date. Subsequent to that date, amounts de-Pennsylvania Power Company (Pennsylvania Power). (med were recorded as defened charges. See Note 7 The members have constructed and operate genera- for a discussion of regulatory matters relating to our tion and transmission facilities for the use of the ovestment in these Units. The deferrals will be amor-CAPCO companies, tized over the life of the related property. Revenues
, Customers are billed on a monthly cycle basis for their Depreciation and Amortization energy consumption, based on rate schedules author- The cost of property, plant and equipment, except for ized by the l UCO. Prior to 1988, these revenues the nuclear generating units, is depreciated over their were recorded in the accountmg penod during which estimated useful lives on a straight-line basis. Annual meters were read, except for the portion of revenues mai$line depreciation provisions expressed as a 9 which was deferred under the mirror construction- percent of average depreciable utility plant in service work-in-progress (CWIP) law discussed below. Utility were 3.8% in 1988 and 1987 and 3.6% in 1986. Depre-service rendered after monthly meter reading dates ciation expense for the nuclear units is based on the through the end of a calendar month (unbilled reve- units-of-production method.
nues) became a part of operating revenues the fol-lowing month. Effective January 1,1988, the Centerior Costs associated with four CAPCO nuclear generating Utilities changed their method of accounting to ac- units canceled in 1980 were written off in 1988. The crue the estimated amount of revenues for sales un- net after-tax write-off was $17,000,000. Under the billed at the end of each month. See Note 14. january 1989 PUCO rate orders discussed in Note 7, A fuel factor is added to the base rates for electric no specific revenues associated with these costs were service. This factor is designed to recover fuel costs provided. Previously, the costs were being amortized from customers. It is changec' semiannually after a and recovered in rates through 1991 in accordance hearing before the PUCO. with PUCO rate orders. Il
Effective July 1988, the Centerior Utilities began the Interest Charges enternal funding of future decommissioning costs for their operating nuclear units pursuant to a PUCO Interest on long-term debt reported in the statement of order. Cash contributions are to be made to the funds Resuhs of Operations does not include mterest on on a straight-line basis over the remaining licensing nuclear fuel obligations. Interest on nuclear fuel obh,- period for each un:t. Estimated total decommissioning gations for fuel under construction is capitalized. See costs for the Centerior Utilities are $122,000,000 in Note 5. 1986 dollars for the Davis-Besse Nuclear Power Station (Davis-Besse) and $72,000,000 for Perry Unit 1 and Property, Plant and Equipment
$63,000,000 for Beaver Valley Unit 2, both in 1987 Property, plant and equipment are stated at original dollars. The current level of accruals being funded and cost less any amounts ordered to be written off. In-recovered in rates from customers over the remaining cluded in the cost of construction are items such as licensing periods of the Units is approximately related payroll taxes, pensions, fringe benefits, man- $8,000,000 annually. The present funding require- agement and general overheads and AFUDC.
ments for Beaver Valley Unit 2 also satisfy a similar AFUDC represents the estimated composite debt and commitment made as part of the sale and leaseback equity cost of funds used to finance construction. This transaction discussed in Mote 2. noncash allowance is credited to income, except for Deferred Cains and Loss from Sales of Utility Plant AFUDC for Perry Unit 2. Since July 1985, Perry Unit 2 AFUDC had been credited to a deferred income ac-The Centerior Utilities are amortizing the applicable count. Effective January 1,1988, we discontinued the deferred gains and loss associated with the sales of practice of accruing AFUDC on Perry Unit 2. See utility plant in 1987 over the terms of leases under sale Note 3. The AFUDC rates, net of the income tax effect, and leaseback agreements. See Note 2. The amortiza- averaged 10.7% in 1987 and 10.6% in 1986. The gross i tion and lease expense amounts are recorded as AFUDC rates used in 1988 averaged 11.4% (9.8% on operation expense. a net-of-tax basis). Tederal locome Taxes Maintenance and repairs are charged to expense as The 1988 financial statements reflect the liability incurred. Certain maintenance and repair expenses for method of accounting for income taxes as a result of Perry Unit 1 and Beaver Valley Unit 2 have been adopting the new standard for accounting for income deferred pursuant to the PUCO accounting orders taxes. Prior to 1988, income taxes were accounted for discussed above. The cost of replacing plant and by the deferred method. Under the deferred method, equipment is charged to the utility plant accounts. The deferred taxes and deferred tax credits were not cost of property retired plus removal costs, after de-adjusted for subsequent changes in federal tax rates. ducting any salvage value, is charged to the accumu-Also, under the deferred method, we did not record lated provision for depreciation. deferred taxes on the temporary differences between book and tax income where the PUCO used the Mirror Construction Work in Progress realized tax benefits to reduce allowable costs for ratemaking purposes. This practice was premised on The Ohio m.irror CWIP law requires that revenues regulatory treatment which permits recovery of such authorized by the PUCO and collected as a result of deferred income taxes in future revenues. 'ncluding CWIP in rate base be refunded in a subse-quent period after the project is included in rate A major difference under the liability method is that base. Such revenues are deferred and recorded as t deferred tax liabilities are adjusted for subsequent tax refund obligations to customers. AFUDC continues to rate changes. Also, we must now record deferred be capitalized during the construction period. The ' taxes for all temporary differences between book and deferred revenues are then recognized as operating tax income. Initial application of the accounting stan- revenues in the statement of Results of Operations dard in 1988 did not impact results of operations as the over the period of the refund. Amounts collected additional deferred taxes were offset by a regulatory through December 31,1988 under the mirror CWIP asset on the balance sheet. Additionally, allowance law are being refunded pursuant to the January 1989 for funds used during construction (AFUDC) and PUCO rate orders discussed in Note 7. carrying charges that were previously accounted (c in the statement of Results of Operations on a net-of-tax Reclassifications and Restatements or an after-tax basis are now stated on a pre-tax basis. Consequently, our 1988 federal income tax provision Certa.in reclassifications have been made to prior years' is equally higher. fin ncial statements to make them comparable with 1988 financial statements and consistent with terms of For certain property, the Centerior Utilities received the January 1989 PUCO rate orders discussed in investment tax credits which have been accounted for Note 7. as deferred credits. Prior to 1988, tax credits utilized were reflected as reductions to tax expense over the in 1988, a new accounting standard which requires the life of the related property. Under the new method of presentation of a statement of cash flows in the finan-accounting, the amortization of investment tax credits cial statements was adopted. Previously, a statement is reported as a reduction of depreciation expense. of Source of Funds invested in Plant, Facilities and See Note 8 for federal income tax details. Special Deposits was presented. 12
MANAGEMENT'S FINANCIAL ANALYSIS ! l Results of Operations The increase in other operation and maintenance 1988 vs.1987 expense and depreciation expense mainly resulted from a full year of operation of Perry Unit 1 and Beaver Factors contributing to the 5.8% increase in 1988 Valley Unit 2 and a full year of lease expense for operating revenues are as follows: Beaver Valley Unit 2 and the Bruce Mansfield Plant increase (Mansfield Plant). The increase in deferred operating Change in Operating Revenues expenses in 1988 was largely attributable to the defer-( Decrease) ral of Beaver Valley Unit 2 operating expenses for a Electric Revenues: full year because they were not being recovered in Base Rates and Miscellaneous. .. $ 40,000,000 rates. In 1987, Perry Unit 1 and Beaver Valley Unit 2 Sales Volume. . .. . . . ... 60,000,000 operating expenses were deferred for only about Sales to Ohio Edison and Penn- seven and two months, respectively. sylvania Power . . . .. .. 75,000,000 ' Deferred CWIP Revenues . 39,000,000 As discussed in Note 7, $534,000,000 of nuclear costs Fuel Cost Recovery Revenues . . . . (89,000,000) were written off in 1988 as a consequence of the J nuary 1989 PUCO rate orders. Total .. .. .. . $125,000,000 Steam Heating Revenues . (13,000,000) The total amount of AFUDC and carrying charges
$112,000,000 decreased in 1988. The change in status from con- ;
Total . . . .. struction to operation of Perry Unit 1 and Beaver Valley Unit 2 in 1987 resulted in the cessation of Rate increases granted to the Centerior Utilities in AFUDC. Instead, an accrual of post-in-service carrying j 1987 accounted for about two-thirds of the increase in charges pursuant to PUCO orders began on such base rates and miscellaneous revenues. The remain. investments not included in rate base. However, j der of the increase resulted from several minor factors, AFUDC and carrying charges that were previously i including an increase in the amount of unbilled reve- accounted for on a net-of-tax or an after-tax basis were !' nues. Total kilowatt-hour sales increased 6.7% in stated on a pre-tax basis in 1988. 1988. Sales growth of 6.7% in the industrial sector . Part of the proceeds from the 1987 sale and leaseback reflected broad-based strength in the economy, partic-transactions was used to redeem outstanding high-ularly among automobile, steel and chemical produc-cost securities which reduced interest expense and ers. Residential sales mcreased 3.9% in 1988 largely preferred dividends in 1988, i because of a substantially warmer summer. The hot summer also contributed to a 3.6% gain in commercial Results for 1988 also included a one-time net after-tax sales as did high occupancy rates in Cleveland office increase of $28,000,000 related to a change in ac-buildings, a continued office building boom in subur- counting for unbilled revenues. See Note 14. ban areas and new r<' tail outlets. The increase in revenues from sales to Ohio Edison and l' pennsylvania Power is the result of Cleveland Electric's sale of a 1987 vs.1986 portion of its share of Perry Unit 1 capacity for all 12 Factors contributing to the 1.6% increase in 1987 months in 1988 compared to only six weeks in 1987. operating revenues are as follows: The increase in revenues attributable to deferred CWIP revenues resulted from a reduction in the level of revenues deferred under the mirror CWIP law, Change in Operating Revenues ( e r as ) t ower fuel cost recovery revenues resulted principally Electric Revenues: from the greater use of lower cost nuclear fuel and Base Rates and Miscellaneous . . $ 80,000,000 the PUCO-ordered refund of certain replacement fuel Sales Volume . .. . 41,000,000 l and purchased power costs collected from customers Sales to Ohio Edison and Penn-during a 1985-1986 Davis-Besse outage. See Note 4. sylvania Power 9,000,000 Cleveland Electric sold its steam system in December Deferred CWIP Revenues (44,000,000) 1987, resulting in the decrease in steam heating Fuel Cost Recovery Revenues. (56,000,000) revenues. Total .
$ 30,000,000 Operating expenses increased 11.1% in 1988. Lower fuel and purchased power expense in 1988 resulted Rate increases granted to the Centerior Utilities in l mainly from a decrease in deferred fuel expense. 1986 and 1987 accounted for most of the increase in Fuel and purchased power expense also was reduced base rates and miscellaneous revenues in 1987. Total I for the amortization of reserves previously established kilowatt-hour sales increased 4% in 1987. Industrial )
to match the PUCO-ordered refund discussed above. sales growth of 5% was broad-based, particularly in the D
steel sector. Residential and commercial sales in- The Cleveland Electric sale of its steam system in 1987 creased 2% and 1.8%, respectively. The sales increases resulted in a one-time net after-tax loss of resulted mainly from the warmer summer but were $18,000,000. partially offset by the moderate temperatures during AFUDC and carrying charges were higher in 1987 the winter. The sale of a portion of Cleveland Electric,s because of an increase in the amount of investment share of Perry Unit 1 capacity to Ohio Edison and not in rate base. Interest charges were higher because Pennsylvania Power discussed previously began in of an increase in outstanding long-term debt. November 1987. The decrease m revenues attribut-able to deferred CWIP revenues resulted from a net g7 ggg increase in the level of revenues deferred under the mirror CWIP law. Lower fuel cost recovery revenues in inflation adversely affected results of operations over 1987 resulted from increased use of our nuclear units. the last three years. In the period 1986-1988, our verage electric rates, including decreases in the fuel Operating expenses in 1987 increased by 0.4%. Fue c st recovery factor, decreased; however, the costs of and purchased power expense decreased because of I bor, matMals and sdes usM in operadons wm the return to service of Davis-Besse late in 1986 after higher. Changes in fuel costs do not affect our results an 18-month outage and the start-up of Perry Unit 1 f per tions since those costs are reflected in the fuel and Beaver Valley Unit 2 in 1987. Nuclear units c st recovery factor included in customer bills, provided 25% of electricity generated in 1987 com-pared to a negligible amount in 1986. The reduction in Inflation will continue to have a negative impact on fuel and purchased power expense, lower federal our results of operations. The January 1989 rate orders income taxes and savings from cost reduction pro- are primarily designed to recover deferred operating grams were offset by Mansfield Plant lease expense and capital costs of our new nuclear investments. and higher operation expenses and depreciation ex- They will not afford protection against future inflation. pense for Davis-Besse. Our cost-reduction efforts to date have been substan-tial and will continue to be an area of increasing importance as discussed in Note 7. l l 1 RETAINED EARNINGS CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES For the years ended December 31, 1988 1987 _ 1986 (thousands of dollars) Balance at Beginning of Year $ 908,611 $ 893,616 $ 620,756 Additions Net income (loss) (73,960) 390,353 391,893 Deductions Common stock dividends declared (259,022) (352,715) (319,023) Other, primarily preferred stock redemption expenses of subsidiaries (3,747) (22,643) (10) Net increase (Decrease) (336,729) 14,995 72,860 Balance at End of Year . $ 571,882 $ 908,611 $ 893,616 The accompanying notes and summary of significant accounting policies are on integral part of this statement. 14
~
RESULTS OF. OPERATIONS CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES For the years ended December 31, 1988 1987 1986 (thousands of dollars, except per share amounts) Operating Revenues - Elect ric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... $2,037,560 $1,911,985 $1,882,838
. Steam heating . . . . . . . . . . . . . . . . ...... ... ............. - 13,371 12,953 2,037,560 1,925,356 1,895,791 Operating Expenses Fuel and purchased power . . . . . . . . . . . . . . . . . . . . . . ... . 391,401 470,466 522,281 Other operation and maintenance . . . ........ .. ... 865,632 642,594 -550,874 Depreciation and amortization . . . . . . . . . ... . .. ..... ... 264,824 214,421 141,009 Taxes, other than federal income taxes . . . ...... .. 268,550 207,521 194,925 Perry Unit 1 and Beaver Valley Unit 2 deferred operating expenses.. . .... . .. .. . . .. .. .... (188,209) (87,623) -
Federal income taxes . . . . . . . .. . . . ... .. 123,697 105,912 138,181
-1,725,895 1,553,291 1,547,270 Operating income . . . . . . . . . . . . . . . . . . . .. .. ........ . 311,665 372,065 348,521 Nonoperating income Allowance for equity funds used during construction. . . . . . . 13,504 299,308 308,405 Other income and deductions, net . . . . . . . . . ... . . 45,308 (30,665) (8,108)
Write-off of nuclear costs . . . . . . . . . . . . . . . . . ... .... .. . (534,355) - - Loss on steam system sale'. . ..... . . .. . .. ... . - (27,156) - Carrying charges on nuclear plants and other. . ...... . 372,155 -39,599 - Federal income taxes - credit . . . . . . . .... .. ... 131,254 _ 121,122 116,422 27,866 402,208 416,719 income Before Interest Charges . . .. . .. ... .. . 339,531 774,273 765,240 Interest Charges Long. term debt . . . . . . . . . . . . . . . ... .. . .. 375,537 428,208 399,653 Short-term debt . .... . .. . .. . .. ... .. . . 2,755 6,834 6,812 Allowance for borrowed funds used during construction .. (6,137) (137,257) (118,145) 372,155 297,785 288,320 income,(Loss) After Interest Charges . . . . . . . . ..... .. .. (32,624) 476,488 476,920 Preferred and preference dividend requirements of subsidiaries 69,489 86,135 85,027 income (Loss) Before Cumulative Effect of an Accounting Change. .. .... .. .. . .. . .. (102,113) 390,353 391,893 Cumulative Effect on Prior Years (to December 31,1987) of an Accounting Change for Unbilled Revenues (Net of income Taxes of $18,729,000) . . . . .. . . .. . . . 28,153 - - Net income (Loss) . . . . . ... . . . . $ (73,960) $ 390,353 $ 391,893 Average Number of Common Shares Outstanding (thousands) . 140,778 138,395 128,927 Earnings (Loss) Per Common Share Before cumulative effect of an accounting change . . . .. $ (.73) $ 2.82 $ 3.04 Cumulative effect of an accounting change . .. .. . .20 - - Total . . . . . . . .. . ... .., . .... . $ (.53) $ 2.82 $ 3.04 Dividends Declared Per Common Share . . ...... ... $ 1.84 $ 2.56 $ 2.49 The accompanying notes and summary of significant accounting policies are an integral part of this statement. . l i 15
MANAGEMENT'S FINANCIAL ANALYSIS Capital Resources and liquidity orders. See Note 7 for discussion of those rate orders which provide for specific levels of rate increases and We carry on a continuous program of constructing new earnings limitations through 1991. The availability of facilities and modifying existing facilities to meet an- capital to meet our external financing needs depends ticipated demand for electric service and to comply upon such factors as financiai market conditions, with governmental regulations. Cash requirements earnings, our ability to pay dividends, the size of our for the construction program and mandatory retire- construction program and our credit ratings. We ex-ment of securities over the three-year period 1986- pect to be able to raise cash as needed. 1988 totaled approximately $1,728,000,000. Current securities ratings for the Centerior l'tilities are in 1986 and 1987, the capital required to finance our as follows: construction program and to retire securities was ob- Standard Moody's tained primarily from external sources. Also, in 1987, & Poor's investors Corporation Service we sold and leased back certain interests in four gener-ating units as discussed in Note 2. A substantial por. Cleveland Electric i tion of the net proceeds from the sale and leaseback First mortgage bonds . . . BBB- Baa2 transactions was used in 1987 and 1988 to pay por. Preferred stock . BB+ Baa2 tions of short-term debt incurred to finance the con- Toledo Edison j struction program, to redee6a outstanding securities, First mortgage bonds . BBB- Baa3 to pay our construction program costs and for general Unsecured notes. . BB+ Bal corporate purposes. In 1988, Cleveland Electric and Preferred stock . . BB+ Ba2 ToSdo Edison issued $188,730,000 and $50,700,000, respectively, of first mortgage bonds as collateral to We believe that the January 1989 rate orders, coupled secure their obligations in connection with the sales of with stringent cost control, will give us a reasonable tax-exempt bonds by public authorities to assist in opportunity to achieve financial results which would financing certain pollution control facilities. Cleveland permit Centerior Energy to continue the current quar-Electric used part of its proceeds from these sales to terly common stock dividend of $.40 per share. Nev-refund $121,165,000 of tax-exempt pollution control ertheless, dividend action by our Board of Directors bonds collateralized by an equal amount of its first will continue to be decided on a quarter-to-quarter mortgage bonds. At December 31,1988, Toledo basis after evaluation of financial results, potential Edison had $255,000,000 in cash and temporary cash earning capacity and cash flow. A write-off of our investments of the Centerior Energy total of investment in Perry Unit 2 (as discussed in Note 3
$331,000,000 available for future cash needs. " Construction and Contingencies - Perry Unit 2") I would not reduce our retained earnings sufficiently to Estimated requirements for cash construction expendi- impair our ability to declare dividends. Such a write- '
tures for 1989-1991 are $520,000,000 for Cleveland off could result in a default on the capitalization Electric and $270,000,000 for Toledo Edison. In addi- financial covenants discussed in the last paragraph of tion, Cleveland Electric and Toledo Edison will re- Note 2. quire $359,000,000 and $257,000,000, respectively, . for the redemption of debt and preferred stock during Centerior Energy and Cleveland Electric are renegoti- I this period. In 1989, Cleveland Electric also is required ating certain financial covenants contained in an l to offer to purchase $12,000,000 of preferred and agreement under which the two companies are facing 4 preference stock. Cleveland Electric expects to fi- potential non-compliance after 1989. See the last nance externally virtually all of its 1989 construction paragraph of Note 2. and redemption requirements. Nearly all of Toledo Edison's requirements in 1989 will be met with internal The Tax Reform Act of 1986 provided for a 40% cash generation and current cash resources. We ex. average income tax rate in 1987 and a 34% income tax pect to finance externally about 50 to 60% of our 1990 rate in 1988 and thereafter, the repeal of the invest-and 1991 requirements. See Note 12 for information ment tax credit, scheduled reductions in investment concerning limitations on the issuance of preferred and tax credit carryforwards, less favorable depreciation preference stock and debt. Our available short-term rates, a new alternative minimum tax and other iterns. borrowing arrangements are explained in Wte 13. The changes resulted in increased tax payments and a reduction in cash flow during 1987 principally be-Our ability to meet our financing needs depends upon cause the alternative minimum tax reduced the our internal generation of funds and the availability of amount of investment tax credits allowed as an offset capital from the financial markets. The Centerior Util- to federal income tax payable. These changes had no ities were granted rate increases in 1989 and in the significant cash flow impact in 1988 because we had , l next two years pursuant to January 1989 PUCO rate a net operating loss for tax purposes. 16
l [ CASH FLOWS CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES For the years ended December 31, 1988 1987 1986 (thousands of dollars) Crsh Flows from Operating Activines (1) Net income (Loss) . . . . . .... ... .. .. .... . . . ... .. $ (73,960) $ 390,353 $ 391,893
' Adjustments to Reconcile Net income (1,ss) to Cash from Operating Activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . ..... 264,824 214,421 141,009 Deferred federal income taxes . . . . . . . . . . . . . . . ..... (37,422) (279,814) 77,117 investment tax credits, net . . . . . . ..... . . .. .. . . . ... (3,687) 132,699 (39,109) Write-off of nuclear costs . . . . . . . . . . . . . . . . . . . . . . .... 534,355 - - Deferred and unbilled revenues . . . . . . . . . ..... . . ... . 23,842 66,185 21,939 . De fe rred fu e! . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . (54,601) 32,957 12,472 l Interest capitalized as carrying charges . . . . . . . . . . . . . . . . . .... (372,155) (39,599) - Leased nuclear fuel amortization . . . . . . . . . . . . . . . . . . . . 77,196 49,330 192 l Deferred nuclear operating expenses ............... ... .. (188,209) (87,623) - Allowance for equity funds used during construction . . .. . . . (13,504) (299,308) (308,405) Loss on steam system sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...
- 27,156 -
Amortization of reserve for Davis-Besse refund obligations to customers . . . . . . . . .. . . . . . . . . . . . . .. . ... . . . . ... (41,118) - -
- Other non-cash items . . .. .. ... .. 4 . .. . . . . . . . ... (8,510) 84,237 32,174 Cumulative effect of an accounting change. . .. .. . . . .. .. (28,153) - -
Changes in working capital affecting operations . . . ... .. . . . 106,490 106,919 93,456 Total Adjustments. . . . .. . . ..... . . .... 259,348 7,560 30,845 Net Cash from Operating Activities ., . . . . . . ..... 185,388 397,913 422,738 : Cash Flows from Financing Activities (2) tank loans and commercial paper . . .. .. . . . . . . . . . . . . (36,555) (9,197) 16,807 D(bt issues: f irst mortgage bonds . . . . . . . . . . . . . . . .. ... . .... . .. 239,430 411,500 325,000 Unsecured debt . . . ......., .. . . ... . . . . .
- 250,000 100,000 Preferred stock issues . ..... .. . . .. . . . . . . .. . ...
- 123,313 103,968 Common stock issues . ....... .... .. . ... . ... . . . . . 1 539 102,724 209.548 Maturities, redemptions and sinking funds . . . . . . . . . . . . . (384,178) (1,026,934) (143,969)
. Nuclear fuel and trust obligations . . . . . . . . . . .... . . . .. (77,196) (39,808) (192)
Common stock dividends paid 1 .. .. . .. ,. . . . .. . (259,022) _ (352,715) (319,023) Premiums, discounts and expenses .. .. . . . . . . . . .. 1,176 (5,209) (4,863 ) - Net Cash from Financing Activities . . . . . . . . . . (514,806) (546,326) 287,276 Cash Flows from Investing Activities (2) Cash applied to construction. ...... ............ ..... . . .. (313,157) (514,059) (699,468) Interest capitalized as allowance for borrowed funds used during construction . . . . . . . . . . . .. . .. . . . . . (6,137) (137,257) (118,145) Cash deposited in decommissioning trusts.. . .. .. . . . . . . . ... (4,124) - - Other cash applied . . . . . . . . . . .. . .. . . . . (3,911) (44,985) (46,020) Cash received from sale of steam system.. . .. . . . . . . .. . ....
- 7,000 -
Cash received from sale and leaseback transactions, net . . . . . . . . . ... - 1,690,816 - Cash withdrawn from (deposited in) sale and leaseback and other trusts . . . . .... ........ . . . . . . . . .. ..... . ... .. . . 374,085 (374,085) - Cash withdrawn from pollution control escrow account. . . 684 26,964 56,449 Net Cash from investing Activities . . . . . . . . 47,440 654,394 (807,184) Net Change in Cash and Temporary Cash investments . . . . . .. (281,978) 505,981 (97,170) Cash and Temporary Cash investments at Beginning of Year... . ... 612,775 106,794 203,964 Cash and Temporary Cash investments at End of Year . . . . $ 330,797 $ 612,775 $ 106,794 (1) Interest paid was $373,000,000, $427,000,000 and $397,000,000 in 1988,1987 and 1986, respectively. Income taxes paid were $76,534,000, $52,040,000 and $300,000 in 1988,1987 and 1986, respectively. (2) Increases in Nuclear Fuel and Nuclear Fuel Lease and Trust Obligations resulting from the non-cash capitalizations under nuclear fuel agreements discussed in Note 5 are excluded from this statement. The accompanying notes and summary of significant accounting policies are an integral part of this statement. 17
e BALANCE SHEET December 31, 1988 1987 (thousands of dollars) Assets Property, Plant and Equipment Utility plant in service. . $ 8,143,673 $ 8,388,114 Less: accumulated depreciation and amortization . . . 1,569,304 1,324,446 6,574,369 7,063,668 Construction work in progress . . . 355,821 224,679 Perry Unit 2. . 866,911 783,028 7,797,101 8,071,375 ( Nuclear fuel, net of amortization . . 596,818 609,545 Other property, less accumulated depreciation 46,269 46,805 8,440,188 8,727,725 Special Deposits Pollution control construction funds, unexpended 1,091 1,775 Deposits in trust, primarily sale and leaseback proceeds . .
- 374,085 Decommissioning trusts . . . .. 4,124 -
t 5,215 175,860 i Current Assets Cash and temporary cash investments . 330,797 612,775 l Amounts due from customers and others, net 202,830 208,214 Unbilled revenues . 64,369 - Materials and supplies, at average cost. . 77,217 65,910 Fossil fuel inventory, at average cost. 52,075 73,665 Taxes applicable to succeeding years . 191,292 202,394 Other 6,971 22,216 925,551 1,185,174 Deferred Charges Unamortized costs of terminated nuclear projects. - 46,224 Accumulated deferred federal income taxes . - 522,232 Amounts due from customers for future federal income taxes . 1,209,075 - Unamortized loss, Beaver Valley Unit 2 sale. 127,367 134,475 Unamortized loss on reacquired debt. . 68,320 59,748 Carrying charges and nuclear operating expenses , 669,050 89,094 Other , 128,332 209,304 2,202,144 1,061,077 Total Assets . $11,573,098 $11,349,836 The accompanying notes and summary of significant accounting policies are an intergral part of this statement. 18
W . L P CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES ' l c December 31, 1988 1987 l (thousands of dollars) Capitalization and Liabilities Capitalization Common shares, without par value (stated value of
$192,711,000 and $191,172,000 for 1988 and 1987, respec-tively); 180,000,000 authorized; 140,820,000 and 140,706,000 outstanding in 1988 and 1987, respectively . . . . . . . .... $ 2,199,862 $ 2,200,449 Retained earnings. . . ... . .. ...... ............... .... 571,882 908,611 Common stock equity. . . . . . . . . . .... .. ........... 2,771,744 3,109,060 Preferred stock With mandatory redemption provisions . . . . . . . . . . . . . . ... 297,405 330,188 Without mandatory redemption provisions . .... .. .... 427,334 457,334 Preference stock, with mandatory redemption provisions . . . . . . . 6,376 13,797 i.. Long-term debt . . . . . . . . .... .... . . . ......... 3,551,614 3,718,249 7,054,473 7,628,628
' Other Noncurrent Liabilities Refund obligations to customers ... .. .... ....... .. 74,290 100,177 Other, primarily nuclear fuel lease and trust obligations . . . . 597,876 598,084 672,166 698,261 Current Liabilities Current portion of long-term debt and preferred stock . 159,868 59,768 Current portion of lease obligations .. ...... .. .. . .... 85,043 71,396 Notes payable to banks and others . . . . . . . .. . .... .. .. 177 36,732 Accounts payable. . . . . . . ....... . . . ... . 258,835 185,070 Accrued taxes . . . . . . . . . . . . . . . . . . .. . .. .. .... . 300,113 326,268 Accrued interest . .. ... .... .. .. . . .. ..... 90,453 93,351 Dividends declared . . . . . . . . . . . . . . . . . .... . 14,518 15,348 Accrued payroll and vacations . . .. . . ...... ... .... . 27,269 27,308 Current portion of refund obligations to customers. . ... .. 68,684 13,000 Other ..... . . .... ........ . . .... 20,905 28,561 1,025,865 856,802 Deferred Credits Unamortized investment tax credits ... . . ... 383,074 399,348 Accumulated deferred federal income taxes . . . .... .. . 1,435,242 672,817 Reserve for Perry Unit 2 allowance for funds used during construction . . . . . . . . . . . . ... . . . . .. .. . 212,693 174,600 Unamortized gain, Bruce Mansfield Plant sale . ...... . . 688,669 739,910 Other . . . . . . . . . . . . . . . .. .. . .. . . 100,916 179,470 2,820,594 2,166,145 Total Capitalization and Liabilities . . . . . . . $11,573,098 $11,349,836 i
i l 19 1
STATEMENT OF CUMULATIVE CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES PREFERRED AND PREFERENCE STOCK 1988 Shares Current December 31, Outstanding Call Price 1988 1987 (thousands of dollars) Cleveland Electric Without par value, 4,000,000 preferred and 3,000,000 preference shares authorized Subject to mandatory redemption (less current maturities): Preferred:
$ 7.35 Series C 190,000 $ 101.00 $ 19,000 $ 20,000 88.00 Series E. . 33,000 1,042.09 33,000 36,000 75.00 Series F. 2,884 1,000.00 2,884 16,666 80.00 Series G 2,686 1,000.00 2,686 8,000 145.00 Series H . 16,026 -
16,026 19,590 145.00 Series I . . 19,686 - 19,686 23,624 ; 113.50 Series K . 10,000 - 10,000 10,000 Adjustable Series M . 500,000 105.51 49,000 49,000 9.125 Series N . 750,000 108.11 73,968 73,968 226,250 256,848 Preference: 77.50 Series 1. 6,376 1,000.00 6,376 13,797 Not subject to mandatory redemption: Preferred: 7.40 Series A 500,000 101.00 50,000 50,000 7.56 Series B. 450,000 102.26 45,071 45,071 Adjustable Series L. 500,000 104.67 48,950 48,950 Remarketed Series P. 750 101,000.00 73,313 73,313 217,334 217,334 Toledo Edison
$100 par value preferred, 3,000,000 shares authorized; $25 par value preferred, 12,000,000 shares authorized; and $25 par value preference, 5,000,000 shares authorized - none outstanding Subject to mandatory redemption (less current maturities):
$100 par $11.00. . . 44,800 103.50 4,480 5,000 9.375. 166,750 104.94 16,675 18,340 25 par 2.81 2,000,000 27.50 50,000 _ 50,000 71,155 73,340 Not subject to mandatory redemption:
100 par 4.25. 160,000 104.625 16,000 16,000 4.56. 50,000 101.00 5,000 5,000 4.25. . 100,000 102.00 10,000 10,000 8.32. 100,000 102.46 10,000 10,000 7.76. 150,000 102.437 15,000 15,000 7.80. 150,000 102.60 15,000 15,000 10.00. 190,000 101.00 19,000 19,000 25 par 2.21. . 1,000,000 25.90 25,000 25,000 2.365. . 1,400,000 28.45 35,000 35,000 3.4 7 . . . . ...
- - - 30,000 Series A Adjustable 1,200,000 -
30,000 30,000 Series B Adjustable 1,200,000 - 30,000 30,000 210,000 240,000 Centerior Energy Without par value, 5,000,000 preferred shares authorized - - - - Total Preferred Stock, with Mandatory Redemption Provisions $297,405 {330,188 Total Preferred Stock, without Mandatory Redemption Provisions $427,334 $457,331 Total Preference Stock, with Mandatory Redemption Provisions . $ 6,376 $ 13,79'i The accompanying notes and summary of significant accounting policies are an integral part of this statement. 20
NOTES TO THE FINANCIAL STATEMENTS (1) Property Owned with Other Utilities and Investors The Centerior Utilities own, as tenants in common with other utilities and those investors who are owner-participants in various sale and leaseback transactions (lessors), certain generating units as listed below. Each owner owns an undivided share in the entire unit. Each owner has the right to a percentage of the generating capability of each unit equal to its ownership share. Each utility owner is obligated to pay for only its respective share of the construction and operating costs. Each lessee is obligated to pay for the related lessor's share of those costs. Property, plant and equipment at December 31, 1988 includes the following facilities owned by the Centerior Utilities as tenants in common with other utilities and lessors: Owner-In- Owner- ship Plant Construction Service ship Mega. Power in Work Accumulated Generating Unit Date Share watts Source Service in Progress Depreciation (thousands of dollars) In Service; Seneca Pumped Storage . 1970 80.00 % 305 Hydro 5 58,291 $ 161 $ 17,312 Eastlake Unit 5. . . 1972 68.80 399 Coal 149,329 1,687 - Perry Unit 1 & Common facilities 1987 51.02 607 Nuclear 2,648,129 18,854 110,307 Beaver Valley Unit 2 & Common facilities (Note 2) , . 1987 26.12 218 Nuclear 1,336,956 4,230 59,545 Construction Suspended (Note 3): Perry Unit 2 . . Uncertain 51 02 615 Nuclear - 866,911 -
$4,192,705 $891.83 $187,164 Depreciation for Eastlake Unit 5 has been accumulated on an account basis with all other depreciable property rather than by specific units of depreciable property. The Centerior Utilities' share of the operating expense of . these generating units is included in the statement of Results of Operations.
Ohio Edison and Pennsylvania Power have agreed to purchase 80 megawatts of Cleveland Electric's capacity entitlement in Perry Unit 1 from November 1987 through May 1989. Revenues totaled $84,000,000 for this transaction in 1988. The Unit will be out of service for refueling beginning in late February 1989. (2) Utility Plant Sale and Leaseback Transactions As a result of sale and leaseback transactions com- The amounts recorded as rental expense for the Mans-pleted in 1987, the Centerior Utilities are co-lessees of field Plant leases were $111,105,000 and $32,100,000 18.26% (152 megawatts) of Beaver Valley Unit 2 and in 1988 and 1987, respectively. Rental expenses for 6.5% (51 megawatts), 45.9 % (358 megawatts) and the Beaver Valley Unit 2 lease of $70,300,000 and 44.38% (355 megawatts) of Units 1,2 and 3, respec- $18,300,000 in 1988 and 1987, respectively, were tively, of the coal-fired Bruce Mansfield Plant (Mans- recorded in a deferred charge account pursuant to field Plant) for terms of about 29% years. Proceeds PUCO accounting orders. Such amounts will be amor-from the transactions totaled $1,738,600,000. tized to expense over the life of the lease beginning in Future minirnum lease payments under these operat. 1989. Additional rental expenses for the Beaver Val-ing leases at December 31,1988 are summarized as ley Unit 2 lease charged to expense in 1988 and 1987 follows: were not sign:ficant. Year Amount Toledo Edison is selling 150 megawatts of its Beaver (thousands of dollars) Valley Unit 2 leased capacity entitlement to Cleveland 1989. .. . $ 169,000 Electric commencing in November 1988. We antici-1990. . 169,000 pate that this sale will continue for at least ten years. 1991 . . . .. 170,000 The Centerior Utilities are responsible under the leases 1992 . . 173,000 f r paying all taxes, insurance premiurns, operation 1993. . 174,000 4,519,000 and maintenance costs and all other similar costs for Later Years . all their interests in the Units sold and leased back. Total future Minimum The Centerior Utilities may incur additional costs in lease Payments . $5,374,000 connection with capital improvements to the Units. The Centerior Utilities have options to buy the inter-21 1
ests back at the end of the leases for the fair market Perry Unit 2 value at that time or to renew the leases. Additional . . lease provisions provide other purchase options along $"'Y. Unit 2, . including its share of the common facih.- l with conditions for mandatory termination of the ties, is about 58% complete. Construction of Perry ; leases (and possible repurchase of the leasehold inter- Unit 2 was suspended in 1985 by the CAPCO compa-nies pending future consideration of several alterna-ests) for obsolescence and events of default, includ-tives which include resumption of full construction ing those described in the next paragraph. with a revised estimated cost and completion date,
- An agreement relating to a letter of credit issued in mothballing or cancellation. None of these alternatives I connection with the sale and leaseback of Beaver may be implemented without the approval of each of Valley Unit 2 contains several financial covenants af- the CAPCO companies.
fecting Centerior Energy and the Centerior Utilities. if Perry Unit 2 were to be canceled, the Centerior Among these are coverage covenants which require Centerior Energy and Cleveland Electric to maintain Utilities would seek authorization from the PUC0 to earnings-to-interest expense ratios above specific rec ver their respective investments in the Unit ,m levels. We believe that Centerior Energy and Cleve- r tes. We have no assurance that recovery would be land Electric may not be able to continue to comply " *"d. In the event of such a cancellation, if and with their respective coverage covenants after 1989. when ,it were to appear probable that recovery would We are discussing this matter with the parties to this n t be allowed, then our net mvestment in Perry Unit agreement and we believe that new requirements 2 Wss any tax saving) would have to be written off. We est,i mate that such a write-off, based on our invest-will be agreed upon. This agreement also contains , ment in this Unit as of December 31,1988, would certain capitalization covenants which require the Centerior Utilities to maintain common stock equity haw kn ah W,M,m, ak tam M Wes above specific levels and require Centerior Energy to 2 and 12 for a discussion of other potential conse-maintain the ratio of common stock equity and the quences f such a write-off. ratio of total equity to total capitalization above spe- Duquesne has advised the Pennsylvania Public Utility cific percentages. A write-off of the Centerior Utilities' Commission that it will not agree to resumption of investments in Perry Unit 2 could result in a default construction of Perry Unit 2. Duquesne is continuing on all or some of these capitalization covenants. See to pay for its 13.74% ownership share of maintaining Note 3. We also are discussing these capitalization Perry Unit 2 while construction is suspended. covenants with the parties to this agreement and we believe that new requirements will be agreed upon The increase in the Perry Unit 2 investment amount in which could be met in the event of a write-off of the 1988 is primarily the result of the gross-up of AFUDC Parv Unit 2 investment, barring unforeseen circum. rec rded in prior periods related to the adoption of stances. The failure of Centerior Energy or either of the new accounting standard for income taxes. the Centerior Utilities to comply with any of the cove-nants would constitute a default which could result (4) Nuclear Operations and Contingencies in the acceleration of the obligations of the Centerior Operating Nuclear Units Utilities as co-lessees of Beaver Valley Unit 2. Also, such a default would constitute a default under other A petition is pending before the Nuclear Regulatory agreements which contain cross-default provisions that Commission (NRC) and another petition is pending in could lead to the acceleration of payment of obliga- the United States Court of Appeals for the District of tions under those agreements. Columbia Circuit, each seeking to halt the operation of Perry Unit 1 and suspend its operating license until (3) Construction and Contingencies certain safety-related actions are compkted. We be-lieve these petitions are unlikely to succeed. In 1986, Construction Program the NRC undertook a review of nuclear reactors de-The estimated cost of our construction program for the signed by Babcock & Wilcox Company, including the i 1989-1991 period is $820,000,000, including AFUDC reactor at Davis-Besse. The outcome of that review ) and excluding nuclear fuel. Should more stringent and its impact on us cannot be predicted. environmental regulations be adopted, particularly in the area of acid rain pollution control, future con-struction program costs would increase substantially. l However, such increases would not occur until after ! 1991. 22
In 1987, the PUCO ordered a refund of certain re- The lease and borrowin ; rates are based on bank placement fuel and purchased power costs incurred prime and commerciJ ' aper rates. The nuclear fuel and collected from customers during an outage at amounts capitalized ira led interest charges incurred Davis-Besse in 1985 and 1986, plus interest. The re- by the lessors amountir , to $41,000,000 in 1988, funds are being made to Toledo Edison and Cleveland $38,000,000 in 1987 and $39,000,000 in 1986. Under Electric customers over a period of 18 months begin- the leases, rental payments are made as the fuel is ning in February and March 1988, respectively, burned in a reactor. The estimated future lease amor-through operation of the fuel cost rate adjustment. Of tization payments based on projected burn are the $66,139,000 of refunds to be made by the Center- $85,000,000 in 1989, $67,000,000 in 1990, ior Utilities, $41,118,000 was refunded through De- $107,000,000 in 1991 and, assuming replacement nu-cember 31,1988. The refunds reduce cash flow but do clear fuel financing arrangements are entered into, not adversely affect results of operations as adequate $90,000,000 in 1992 and $104,000,000 in 1993. As reserves were provided in prior years. these payments are made, the amount of credit availa-ble to the lessors becomes available to finance addi-Other Nuclear Risks tional nuclear fuel. Our interests in nuclear units may be impacted by At Dewmba 31,1988, a total of $616,000,000 is activities or events beyond our control. Operating committed under the nuclear fuel financing programs. nuclear generating units have experienced unplanned This includes nuclear fuel in the Davis-Besse, Perry outages or extensions of scheduled outages because Unit 1 and Beaver Valley Unit 2 reactors with remain-of equipment problems or new regulatory require-ing payments of $119,000,000, $51,000,000 and ments. A major accident at a nuclear facility anywhere
$2 7,000,000, respectively, as of December 31,1988.
in the world could cause the NRC to limit or prohibit the operation, construction or licensing of a nuclear unit. (6) Nuclear insurance The Price-Anderson Act limits the liability of the own-as f nuclear p wer plant. This limit is covered by (5) Nuclear Fuel private insurance amounting to $160,000,000 (which will be increased to $200,000,000 in early 1989) and The Centerior Utilities have m.ventories for nuclear fuel an amount provided by an industry assessment plan. In which should provide an adequate supply mto the the event of a nuclear incident at any unit in the mid 1990s. Substantial additional nuclear fuel must be United States resulting in losses in excess of private obtamed to supply fuel for the remaining useful hves insurance, our maximum potential assessment under of Davis-Besse, Perry Unit 1 and Beaver Valley Unit 2. that plan (assuming the other CAPCO companies More nuclear matenal and fuel would be required if were to contribute their proportionate share of any Perry Unit 2 were completed. assessment) would be $129,257,000 (adjusted for in-flation) per incident, but is limited to $19,540,000 per The Centerior Utihties finance nuclear fuel under tw year for each nuclear incident. programs. Under one set of nuclear fuel leasing ar-rangements, the Centerior Utilities can currently fi- The CAPCO companies have insurance coverage for nance a maximum amount of $480,000,000, of which damage to property at Davis-Besse, Perry and Beaver
$10,000,000 of this credit arrangement will terminate Valley (including leased fuel and clean-up costs).
on November 30,1989, $47,500,000 will terminate Coverage amounted to $1,725,000,000 for each site as on November 30,1990 and $372,500,000 will termi- of January 1,1989. Damage to property could exceed nate on November 30,1991. The Centerior Utilities the insurance coverage by a substantial amount. If it expect to enter into replacement nuclear fuel financ- does, our share of such amount could have a material ing arrangements. adverse effect on our financial condition and results of operations. Under a second set of nuclear fuel leasing arrange-Iso haw insuranw comage for the cost of any ments, the Centerior Utilities can currently finance a maximum amount of $173,000,000. Approximately mp awment pown pudasW ahn We onunnw of
$12,400,000 of this credit arrangement will terminate in November 1989. The balance of the arrangement is cancelable with one year's notice by the lender.
23
certain types of accidents at our nuclear units. The to prior years' financial statements for the related 1 amount of the coverage is 90% of the estimated revenues and reserves. l difference in replacement power costs per week dur-The orders provide for the permanent exclusion of ing the 52-week period starting 21 weeks after an $495,000,000 of the Centerior Utilities' combined in-accident and 45% of such estimate per week for the vestment in Perry Unit 1 and Beaver Valley Unit 2. next 52 weeks. The cost and duration of replacement The exclusion includes $41,000,000 of equity carrying power could substantially exceed the m, surance costs authorized by the PUCO but not recognized for
'" 8' financial reporting purposes because of the limita-tions set forth in the accounting standard for phase-in (7) Regulatory Matters plans. The exclusion resulted in a write-off of During the three years ended December 31,1988, the $454,000,000 ($300,000,000 after tax) in 1988. All PUCO granted increases in electric rates to the pending prudence investigations before the PUCO and Centerior Utilities as follows: pending litigation before the Ohio Supreme Court brought by the parties to the settlement involving our Annualized nuclear investment and other rate matters will be Date Company Amount terminated. One party who did not sign the settlement f
Q'l,5) still will have an appeal pending before the Ohio Supreme Court relating to the Perry Unit 1 prudence June 1986. Cleveland Electric $37.0 disallowance in which the PUCO disallowed approxi-March 1987 Cleveland Electric 39.6 mately $428,000,000 of the Centerior Utilities' share of Perry Unit 1 construction costs. May 1987 Toledo Edison 43.0 December 1987. Cleveland Electric 25.8 As a consequence of the orders, the Centerior Utilities ! recorded additional write-offs of $80,000,000 December 1987. Toledo Edison 0.5 ($49,000,000 after tax), bringing the total write-off of On January 31,1989, the PUCO issued orders for the nuclear costs in 1988 resulting from the orders to Centerior Utilities which adopted a settlement $534,000,000 ($349,000,000 after tax). These in-reached between the companies and the majority of volved write-offs of the remaining investment in four the interveners in then pending rate cases. The orders canceled nuclear construction projects (as discussed endorse agreements which reach beyond the issues in the Summary of Significant Accounting Policies) in such cases and resolve, with respect to the partici. and certain deferred expenses for Davis-Besse. pants, issues on appeal. We cannot predict whether The phase-in plans contained in the orders meet the any intervenor in the rate cases who was not a party to requirements of the accounting standard for phase-in the settlement will appeal the orders. plans. The plans provide for the recovery of the The orders provide for annual, automatic rate increases Centerior Utilities' remaining investment and lease for the Centerior Utilities of approximately 9%,7% payments relating to Perry Unit 1 and Beaver Valley and 6% on February 1,1989,1990 and 1991, respec. Unit 2. The deferred operating costs (including lease tively. The annualized revenues associated with these payments) and carrying charges through December increases are as follows: 31,1988 will be recovered in rates from customers over the life of the Units. The PUCO authorized the Centerior Utilities to record a full net-of-tax carrying ctr n Total charge of 9.2% on deferred rate-based investment (millions of dollars)
" "N #"" ' #
1989. $120.7 $ 50.7 $1/1.4 cember 31,1988 (including carrying charges on de-1990. . . 105.7 44.3 150.0 ferred rate-based investment, depreciation and 1991 .. 98.4 40.7 139.1 operation and maintenance expenses) will be recov-
$324.8 $135.7 $460.5 ered by December 31,1998.
Under the orders, the Centerior Utilities may not seek The above revenue increases are net increases after any further permanent rate increases to be effective including adjustments required under the mirror CWlP before February 1,1992 unless forecasted earnings law and the refunding of revenues collected by To-ledo Edison in 1985 through 1987 pursuant to a Febru-ary 1985 rate order. The refunding requirement had no impact on net income because reserves had been provided in those years. Reclassifications were made 24
. +
- 1. available for common equity, prior to extraordinary The Centerior Utilities will undergo a management items, of Centerior Energy fall below either audit to assure that operation and maintenance savings
$210,000,000 over four consecutive quarters or are maximized. Until the management audit is com-
$435,000,000 over eight consecutive quarters. During pleted, an annual savings target range of $40,000,000 this period, Centerior Energy's earnings available for to $100,000,000 from the 1988 normalized level of common equity, prior to extraordinary items and ex- operation and maintenance expense (to be deter-cluding changes in expenses relating to any future sale mined by an audit advisory panel) has been set. A and leaseback of assets, are limited to the following nuclear management expert will be employed to con-amounts for any four consecutive quarters ending on duct a cost reduction study at Davis-Besse.
or before the date indicated: The orders provide that 50% of the net after-tax sav-
$275,000,000 March 31,1990 ings in 1989 and 1990 resulting from the cost reduction l
$295,000,000 March 31,1991 effort or identified by the management audit and approved by the PUCO are to be used to reduce cost
$310,000,000 December 31,1991 deferrals recorded under the phase-in plans. Fifty if the earnings cap described above were to be ex- percent of annualized savings achieved or identified ceeded, an adjustment would be made to the amount and approved for a period to be determined will be of the deferrals recorded under the phase-in plan to used to reduce the 6% rate increase scheduled for prevent any excess earnings. The adjustment would February 1,1991. As an incentive to achieve the be applied proportionately between the Centerior savings, the remaining 50% of savings in each of the Utilities based on the earned returns of the two periods will be retained by the Centerior Utilities, companies. subject to the earnings cap described above. If the Centerior Utilities do not achieve at least one-half of The orders provide that any permanent rate increase the savings identified by the management audit and sought to be effective during the period February 1, approved by the PUCO, earnings would be reduced 1992 to February 1,1994 may only be based upon by the amount of the shortfall. Net savings are mea-costs associated with net new investment placed in sured from the 1988 normalized fevel of operation and service after February 29,1988 and changes in opera- maintenance expense (excluding fuel and purchased tion and maintenance expenses and other necessary power) and would be adjusted for changes in capital cost increases (other than fuel and purchased power) and operating costs arising from certain events.
from the levels identified in a management audit (described below). Also, if our return on average The orders set nuclear performance standards through common stock equity is below the benchmark rate 1998. Beginning in 1991, the Centerior Utilities could established quarterly by FERC for rate cases subject to be required to refund incremental replacement its jurisdiction, we could seek rate increases to im- p wer c sts if the standards are not met. prove our return under certain specified conditions. (8) Federal income Tax Federal income tax, computed by multiplying the income before taxes and preferred and preference dividend requirements of subsidiaries by the statutory rates, is reconciled to the amount of federal income tax recorded on i the books as follows: j For the years ended December 31, 1988 1987 1986 (thousands of dollars) Book Income Before Federal Income Tax . . . . .. . $ 6,701 5 461,278 $ 498,679 Tax on Book Income at Statutory Rate. .. . . $ 2,278 $ 184,281 5 229,392 increase (Decrease) in Tax: AFUDC and Carrying Charges .. . (190,228) (196,213) Accelerated Depreciation .. . . 6,829 15,852 5,361 Organization Costs . . 5,617 - (25) Taxes, Other Than Federal Income Taxes . 2,090 (1,167) (4,637) Other items. . . .. (5,642) (23,948) (12,119) Total Federal Income Tax Expense (Credit) . $11,172 $ (15,210) $ 21,759 25
- l. Federal income ta:t expense is recorded in the statement of Results of Operations as follows:
i L For the years ended December 31, I' 1988 1987 1986 (thousands of dollars) Operating Expenses: Current Tax Provision . . . . . . . . . . .. ... ..... .. $ 79,520 $ 203,513 $ 87,802 Changes in Accumulated Deferred Federal Income Tax: ! Accelerated Depreciation and Amortization .. . ..... . 10,502 131,041 82,435 Nuclear Fuel Expense. .. . ... ... .. ... . . 15,666 15,233 17,742 Sale and Leaseback Transactions and Amortization. .. .. 13,588 (356,584) - Property Tax Expense . . . . . . . . . . . . .. . . .. . .. . (12,127) 11,685 3,547 Deferred CWIP Revenues . ..... .. .. ... .. .. (8,453) (26,058) (9,613) Unbilled Revenues . . . . . . . . . . . . ... . . ... (19,706) - Deferred Fuel Costs .. . . . . . . . ... . . ...... 16,227 (12,511) (6,843) System Development Costs ... . .... ... .. . .... 9,157 5,573 7,278 Davis-Besse Replacement Power . . . . . . . . . . . . . .. . 15,291 - - Federal Income Tax Return Adjustments . . .. . (19,621) 2,117 (305) Reacquired Debt Costs . . . . . . .... .... . . 3,774 4,152 - Deferred Operating Expenses. . . . .. .. . . .. 14,913 29,490 - Net Operating Loss Carryforward . . . . . . . . . ..... . . (4,295) - - Other items. - . . . . . .... . . . . . .. (6,758) (19,244) (4,699) Investment Tax Credits - Net. . . . . . ... .. .... . (3,687) 137,211 (39,163) Total Charged to Operating Expenses .. . . .... . 123,697 105,93 138,181 Nonoperating income: Current Tax Provision . . . . .. ... ... . .... . . (46,432) (88,934) (101,102) Changes in Accumulated Deferred Federal income Tax: Davis-Besse Replacement Pow'e r. .. ... .. . . 5,724 (26,154) (6,026) Write-off of Nuclear Costs .... .. . . (188,920) - - AFUDC and Carrying Charges . .. .. . . .. . 133,637 - - Taxes, Other Than Federal income Taxes . . . . . . . . . . . . . 5,520 - (5,520) Net Operating Loss Carryforward . . . . .. . ... ... (36,831) - - Other items. , . . . . . . ... . . . . (3,952) (6,034) (3,774) Total Credit to Nonoperating income. .. . (131,254) (121,122) (116,422) Federal income Tax Included in Cumulative Effect of an Accounting Change for Unbilled Revenues. ... . .. 18,729 - - Total Federal income Tax Expense (Credit) . .. . . $ 11,172 $ (15,210) $ 21,759 As discussed in the Summary of Significant Accounting Policies, a change was made in 1988 in the method of accounting for income taxes. Adoption of the new method of accounting did not impact net income. For tax reporting purposes, a net operating loss (NOL) carryforward of approximately $333,000,000 is available to reduce future taxable income. The NOL carryforward will expire in 2003. Future utilization of this tax NOL carryforward would result in recording the related deferred tax. The tax effect of such carryforward ($113,220,000) is included in the above table as a reduction to the deferred federal incoma tax relating to accelerated depreciation and amortization ($72,094,000) and as a reduction to other deferred federal income tax charged to operating expenses ($4,295,000) and to nonoperating income ($36,831,000). Approximately $30,000,000 of unused investment tax credits are available to reduce future tax obligations. The unused credits expire in varying amounts in 2001 through 2003. Utilization of these unused credits is limited by provisions of the Tax Reform Act of 1986 and the level of future taxable income to which such credits may be , applied. ! 26 i
. . l.
, (9) Retirement income Plins and Other Assumptions used for the actuarial calculations for l Post-Retirement Benefits 1988 summarized above are: settlement (discount) l We sponsor noncontributing pension plans which rate - 8%, longtenn rate of annual compensation cover all employee groups. The amount of retirement incre se - 5% and long-term rate of return on plan benefits generall) depends upon the length of service, ssets - 8%. The 1987 assumptions for these rates were 7%,5% and 7%, respectively. Under certain circumstances, benefits can begin as early as age 55. The plans also provide certain death, Plan assets consist primarily of investments in common medical and disability benefits. Our funding policy is to stock, bonds, guaranteed investment contracts and be in compliance with the Employee Retirement In- real estate. come Security Act Guidelines. The cost of post-retirement medical benefits funded in 1987, we adopted the new standard for accounting amounted to $4,100,000 in 1986, $850,000 in 1987 for pensions. Also, during 1987, we offered a Volun- and $1,600,000 in 1988. tary Early Retirement Opportunity Program (VEROP) which cost $31,800,000. Pension and early retire- (19) Guarantees ment program costs for the years 1986 through 1988 Under two long-term coal purchase arrangements, ect v ns n n 8" " " t ar y r i mr c sts f; ' #"gn i > i od i is for 1988 and 1987 were comprised of the following components: also a party to one of these guarantee arrangements, 3933 3937 which requires payments to the mining company for (millions of dollars) ..iy actual out-of-pocket idle mine expenses (as ad-Pension Costs: vance payments for coal) when the mines are idle for Service cost for benefits earned reasons beyond the control of the mining company. during the period . ..... . . $ 12 $ 16 At December 31,1988, the principal amount of the Inte st cost on projected benefit
' 33 32 mining companies' loan and lease obligations guaran-Actual return on plan assets . . (76) (37) teed by the Centerior Utilities was $122,000,000.
Net amortization and deferral, 19 (14) The Centerior Utilities have also guaranteed the debt Net pension cost (12) (3) VEROP cost . 6 obligation of a supplier. At December 31,1988, the 26 principal amount of the debt obligation guaranteed by Net pension and VEROP costs . $ (6) $ 23 the Centerior Utilities was $10,000,000. The following table presents a reconciliation of the funded status of the plans at December 31,1988 and (11) Sale of Cleveland Electric Steam System 1987. Cleveland Electric sold its steam generation and distri. December 31 bution system on December 30,1987 for $7,000,000. 1988 L A net after-tax loss of approximately $18,000,000 (milhons of dollais) reduced Nonoperating income in the statement of Actuarial present value of benefit obligations: Results of Operations in 1987. Vested benefits . $309 $321 Nonvested benefits . 29 43 (12) Capitalization Accumulated benefit obligation 338 364 (a) Capital Stock Transactions Effect of future compensation levels . . 98 116 Shares sold and retired during the three years ended Total projected benefit obliga. December 31,1988 are listed in the following table. tion . . .... .. 436 480 Common stock activity prior to April 29,1986 re-Plan as;ets at fair market value. 661 610 flects the Cleveland Electric 1.11-for-one exchange Surplus of assets over projected ratio
- the Toledo Edison one-for-one exchange benefit obligation . ... ..
(225) (130) rat' he enterior Energy shares. Unrecognized net gain (loss) due to variance between assumptions and experience. 83 (4) Unrecognized prior service cost . 12 7 Unrecognized VIROP cost - (6) Transition asset at January 1,1987 being amortized over 19 years . 149 158 Net accrued pension cost in-cluded in other deferred credits on the Balance Sheet $ 19 % 25 27
1988 1987 1986 playee Savings Plan are being acquired in the open (thousands of shares) market. However, new shares of common .tock will Common Stock: continue to be issued for the Employee Purchase Plan. Public Sales .. . . . . . . . . . - - 4,000 Dividend Reinvestment and Stock Purchase Plan. ,. - 4,591 4,597 (b) Common Shares Reserved for issue Employee Savings Plan 7 816 484 Employee Purchase Plan . . 82 61 - Common shares reserved for issue under the Em-
- K pl yee incentive pl yee S vings Plan nd Purchase Plan were 3,176,727
- 22 1978 Key Em'ploye'eIto[(1
~
and 57,311 shares, respectively, at December 31, Option Plan . . . . 27 59 114 1988. Total Common Stock Sales.. ........ 116 5,528 9,217 Stock options to purchase unissued shares of common Fractional Shares and Other stock under the Key Employee incentive Stock Plan "jr h (34) and the 1978 Key Employee Stock Option Plan were Treasury Shares . .... . (2) (19) (17) granted at an exercise price of 100% of the fair Net Change . . 114 5,509 9,166 market value at the date of the grant. The Key Em-playee incentive Stock Plan expired in June 1987. No Cumulative Preferred and additional options may be granted under the 1978 Key Employee Stock Option Plan. The exercise prices ar$b"Ie o an t of option shares purchased during the three years Redemption: Sales ended December 31,1988 ranged from $14.09 to Cl,ev lancgElectric $20.73 per share, after adjustment for the Cleveland
$9.125 Series N . , - -
750 Electric exchange ratio. Shares under outstanding op-Toledo Edison tions held by employees were as follows: Preferred
$25 par $2.81 ..
- 2,000 -
Key Employee Retirements Incentive Stock Plan Cleveland Electn.c Preferred: 1988 1987 1986
$ 7.35 Series C . . , , (10) t10) (10) Options Outstanding 88.00 Series E . (3) (3) (3) at December 31:
75.00 Senes F . . . (14) (17) (17) Shares . - - 30,636 80.00 Senes G. . (5) (8) (8) Option Price . .. - -
$20.21 145.00 Series H . . . . . (4) (4) (2) 145.00 Series I . . . (4) (4) (2) 1978 Key E,mployee 113.50 Series J . . . . -
(29) - Stock Option Plan Preference: 77.50 Series 1 .. (7) (9) (11) 1988 1987 1986 r Options Outstanding
$100 par $11.00 . . (5) (5) (5) at December 31:
9.375 . (17) (17) Shares 314,693 392,935 482,456
. .. (17) .
13.25 .. .. - (121) (9) Option Prices. $14.09 to $14.09 to $14.09 to 12.65 .. . (190) (10) $20.73 $20.73 $20.73 14.80 . . . (300) - 25 par 3.75 . .
- (1,200) -
3.72 .. - (1.400) - (c) Equity Distribution Restrictions Net Change . . (69) (1.317) 656 At December 31,1988, consolidated retained earnings were comprised almost entirely of the undistributed Cumulative Preferred Stock of Subsidiaries Not Subject retained earnings of the Centerior Utilities. Substan-Mandatory Redemption: tially all of their retained earnings were available for the declaration of dividends on their respective pre-Cleveland Electric Preferred: ferred, preference and common shares. All of their d Series P. - 1 - common shares are held by Centerior Energy. T]ed d Preferred: A loan or advance by a Centerior Utility to Centerior
$25 par Adjustable Series B. - - 1,200 Energy requires PUCO authorization unless it is made in the ordinary course of business operations in ho*$s'on which the Centerior Utility acts for Centerior Energy.
Preferred:
$25 par $4.28 -
(800) _ (d) Cumulative Preferred and Preference Stock 3 47 (1,200) _ _ Net Change . (1,200) f799) 1,200 Amounts to be paid for preferred stock which must be redeemed during the next five years are $10,000,000 Shares of common stock required for the Dividend in 1989, $10,000,000 in 1990, $30,000,000 in 1991, Reinvestment and Stock Purchase Plan and the Em- $20,000,000 in 1992 and $45,000,000 in 1993. j 28 1 _ - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - - _ _ -
The annual mandatory redemption provisions are as (e) long-Term Deot and Other Borrowing
. follows: Arrangements Annual Mandatory Redemption Provisions long-term debt, less current maturities, for the Center-Shares ior Utilities was as follows:
Shares at Begin- Price - Actual l To Be Holders' ning Per or Average Redeemed Option in Share Interest December 31, Ceveland Electric Year of Maturity Rate 1988 1987 l Preferred: (thousands of dollars)
$ 7.35 Series C. 10,000 -
1984 $ 100 first mortgage bonds: 88.00 Series E . . 3,000 - 1981 1,000 1989 . . . 3.00 % $ - $ 20,000 75.00 Series F . - 2,884* 1985 1,000 1989 .. .. 15.25 - 40,000 80.00 Series G. . - 2,686* 1984 1,000 1989 . 14.375 - 50,000 143.00 Series H . 1,782 - 1985 1,000 1990 . 7.125 60,000 60,000 145.00 Series ! .. 1,969 - 1986 1,000 1991 .. 8.375 35,000 35,000 113.50 Series K . . 10,000 - 1991 1,000 1991 . . 14.00 25,000 25,000 Adjustable Series M 100,000 - 1991 100 1991 . 15.00 70,000 70,000 9.125 Series N. 150,000 - 1993 100 1991 13.75 4,334 4,334 1992 15.25 20,000 20,000 Preference: 1992 . . 13.75 4,334 4,334 77.50 Series 1 , 6,376* 1984 1,000 1993 3.875 30.000 30,000 1993 8.55 50,000 50,000 Toledo Edison 1993 4,334
. 13.75 4,334 Preferred: 1994-1998 . . 9.64 327,820 327,820
$100 par $11.00. 5,000 -
1979 100 1999-2003 . 157,473 9.22 157,473 9.375 . 16,650 - 1985 100 2004-2008 . 9.19 225,308 225,308 25 par 2.81 . 400,000 - 1993 25 2009-2013 9.83 630,050 828,500
- Represents remaining shares. 2014-2018 . . 9.59 722,965 668,050 2019-2022 . 8.08 332,100 205,300 The annualized cumulative preferred and preference Term bank loans due dividend requirement as of December 31,1988 is 1990-1993 . 9.42 143,500 179,166
$67,000,000. Notes due 1990-1997 10.85 354,006 357,000 Debentures due 1997 11.25 125,000 125,000 The preferred dividend rates on Cleveland Electric's Pollution control notes Series L and M and Toledo Edison's Series A and B due 1950-2015 . 9.70 222,680 223,290 fluctuate based on prevailing interest rates, with the Other - net . . - 7,710 8.340 dividend rates for these issues averaging 8.64%,8.09%, To ng & nn b $3,551,614 $3,718,249 9.33% and 10.18%, respectively, in 1988. The divi-dend rate on Cleveland Electric's Remarketed Series P Long-term debt matures during the next five years as averaged 8.30% in 1988.
follows: $150,000,000 in 1989, $208,000,000 in 1990,
$209,000,000 in 1991, $175,000,000 in 1992 and Under its articles of m. corporation, Toledo Edison can-
$160,000,000 in 1993.
not issue preferred stock unless certain earnings cov-erage requirements are met. Based on earnings for The mortgages of Cleveland Electric and Toledo Edison ihe 12 months ended December 31,1988, Toledo constitute direct first liens on substantially all property Eac,on could not issue additional preferred stock. Also, owned and franchises held by them. Excluded from a write-off by Toledo Edison of its investment in Perry the liens, among other things, are cash, :;ecurities, Unit 2 could adversely affect its ability to issue addi. accounts receivable, fuel, supplies and, in the case of tional preferred stock in the future. See Note 3. The Toledo Edison, automotive equipment, issuance of additional preferred stock in the future will The issuance of additional first mortgage bonds by depend on earnings for any 12 consecutive months of Cleveland Electric is limited by two provisions of its , the 15 months preceding the date of issuance, the mortgage. One relates to bondable property coverage l interest on all long-term debt issued and the dividends of the bonds and the other to earnings coverage of i on all preferred issues. interest on the bonds. The amount of additional bonds I issuable will depend upon unbonded bondable prop-There are no restrictions on Cleveland Electric's ability erty, earnings and interest on the bonds then out-to issue preferred or preference stock or Toled standing and to be issued. Under these limits, Edison's ability to issue preference stock. Cleveland Electric would have been permitted to issue With respect to dividend and liquidation rights, each approximately $664,000,000 of additional bonds at l company's preferred stock is prior to its preference December 31,1988. l stock and common stock, and each company's prefer- The issuance of additional first mortgage bonds by l ence stock is prior to its common stock. Toledo Edison also is limited by provisions in its mort-29
gage similar to those in Cleveland Electric's mortgage. Toledo Edison At December 31,1988, Toledo Edison could not issue first mortgage bonds pursuant to those provi. Toledo Edison's anrual commitment fees range from sions. However, at December 31,1988, Toledo Edison 0.25% to 0.50% on most of its lines of credit. For the would have been permitted to issue $105,000,000 of bank without fee requirements, the average daily cash refunding bonds. balance in the bank account satisfied informal com-pensating balance arrangements. Certain unsecured loan agreements of Toledo Edison l contain covenants limiting to 65% of total capitaliza- At December 31,1988, Toledo Edison had no com-tion (as defined) the total of its short-term debt in mercial paper outstanding. If commercial paper were excess of $150,000,000 and funded debt, limiting outstanding, it would be backed by at least an equal secured financing other than through first mortgage amount of unused bank lines of credit. bonds and certain other transactions and requiring Toledo Edison to maintain earnings (as defined) of at least 1.5 times interest on its first mortgage bonds. The Centerior Service Company earnings coverage ratio applies to $349,500,000 of unsecured loans and was 1.81 at December 31,1988. The fee for the Service Company's line of credit is 0.375 %. A write-off of the Centerior Utilities' investments in Perry Unit 2 could significantly affect their ability to Centerior Energy Corporation issue additional debt. See Note 3. (13) Short-Term Borrowing Arrangements No formal short-term borrowing arrangements were established for Centerior Energy in 1988 or 1987. Our benk credit arrangements at December 31,1988 were as follows: (14) Change in Accounting for Unbilled Revenues Cleveland Toledo Service Electric Edison Company Total In january 1988, we adopted a change in accounting (thousands of dollars) Bank Lines of for revenues in order to record unbilled revenues as Credit $151,000 $69,050 $5,000 $225,050 discussed in the Summary of Significant Accounting Revolving Under- Policies, writing facility - 25,000 - 25,000 The adoption of this accounting method increased There were no borrowings uncler these bank credit 8 net incmne and eamings per share, before the arrangements at December 31,1988. An additional cumulative effect on periods prior to January 1,1988,
$5,000,000 line of credit is available to the Service $, ,000 (net of $1,845,000 of income taxes)
Company under a $30,000,000 Cleveland Electric line nd $.03, respectively. The cumulative effect of the of credit, if unused by Cleveland Electric. The change on the periods prior to January 1,1988 was
$30,000,000 line of credit is included in the Cleveland $28,153,000 (net of $18,729,000 of income taxes), or Electric total' $.20 per share, and has been included in 1988 net Short-term borrowing capacity authorized by the income.
PUCO is $300,000,000 for Cleveland Electric and
$150,000,000 for Toledo Edison. The Centerior Utili_ If this change in accounting method were applied ties have been authorized by the PUCO to borrow retroactively,1987 and 1986 pro forma net income from each other on a short-term basis. and eamings per common share would have been as follows:
Cleveland Electric ,99, 9gg Ohousands of dollars, Most borrowing arrangements under Cleveland Elec. Nept pn share amounts) tric's short-term bank lines of credit require a fee ranging from 0.25% to 0.375% per year to be paid on Net Income (as reported) $ 390,353 $391,893 Effect of Unbilled Kevenues , any unused portion of the lines of credit. For those " banks without fee requirements, the average daily $5$9 ar$1f6Y$,0$0, ' cash balance in the bank accounts satisfied informal Respectively) (781) 742 compensating balance arrangements. Pro Forma Net locome. $389,572 5392,635 Earnings Per Common Share At December 31,1988, Cleveland Electric had no
/
commercial paper outstanding. If commercial paper Eff ct hf t illed Eevenues . ) ' Pro forma Earnings Per I were outstanding, it would be backed by at least an Common Share $ 2.81 $ 3.05 equal amount of unused bank lines of credit. X)
(15) Quarterly Results of Operations (Unaudited) The following is a tabulation of the unaudited quarterly results of operations for the two years ended December 31, 1988. Quarters Ended March 31, June 30, Sept. 30, . Dec. 31, (thousands of dollars, euept per share amounts) 1988 g Operating Revenues . . . $506,579 $483,186 $586,510 $ 461,285 Operating income . . . . . . $ 69,300 $ 75,411 $118,839 $ 48,115 Cumulative Effect of an Accounting Change (Note 14) $ 28,153 $ - Net income (loss) . . . .. . .. . $ 85,188 $ 57,565 $110,911 $ ( 327,624 ) Average Common Shares (thousands) . . . 140,740 140,776 140,787 140,820 Earnings (Loss) Per Common Share Before cumulative effect of an accounting change $ .41 $ .41 $ .79 $ ( 2.33 ) Cumulative effect of an accounting change (Note 14) . .20 - - - Total . . $ .61 5 .41 $ .79 $ ( 2.33 ) Dividends Paid Per Common Share. . $ .64 $ .40 $ .40 $ .40 1987 Operating Revenues . .. . . $482,138 $479,259 $555,520 $ 408,439 Operating income . . . . $ 98,448 $ 99,856 $128,594 $ 45,167 Net income . .. . .. $106,936 $ 94,338 $127,511 $ 61,568 Average Common Shares (thousands) . 135,926 137,661 139,552 140,596 Earnings Per Common Share . . .. . . $ .79 $ .69 $ .91 $ .44 Pro forma Amounts Assuming the Accounting Change Were Applied Retroactively (Note 14): Net income . . . . $100,261 $100,864 $128,106 $ 60,341 Earnings Per Common Share . .. $ .74 $ .73 $ .92 $ .43 Dividends Paid Per Common Share.. . . $ .64 $ .64 $ .64 $ .64 The unaudited quarterly results for the first quarter of 1988 have been restated to reflect the recognition of unbilled revenues. See Note 14. The results for the fourth quarter of 1988 have been restated to reflect year-end adjustments. The results for the four quarters of 1987 have been restated to reflect Toledo Edison's January 1989 PUCO rate order as it relates to the refund requirements contained in its February 1985 rate order discussed in Note 7. The results for the last three quarters of 1987 have been restated to reflect the PUCO's February 1988 accounting orders for Perry Unit I deferred costs and carrying charges as discussed in the Summary of Significant Accounting Policies. The restated information has been changed from the results previously reported to share owners for 1988 in the 1988 Quarterly Reports and for 1987 in the 1987 Annual Report as follows: Changes from Previously Reported Information for the Quarters Ended March 31, June 30, Sept. 30, Dec.31, (thousands of dollars, euept per share amounts) 1988 Operating Revenues $ 1,053 $ - Operating income . . . $ 458 $ -
$ ( 51,424 )
Cumulative Effect of an Accounting Change. $ 28,153 $ - Net income . $ 28,611 $ - Earnings Per Common Share Before cumulative effect of an accounting change $ .01 $ - Cumulative effect of an accounting change .20 - - - Total $ .21 $ - 1987 Operating Revenues $ ( 5,361 ) $ (4,736) $ (5,556) $ (4,532) Operating income $ (3,066) $ ( 2,709 ) $ ( 3,178 ) $ (2,592) Net income . $ -
$ 544 $ (794) $ 250 Earnings Per Common Share . $ -
$ .01 $ ( .01 ) $ -
31
r . . FINANCIAL- AND STATISTICAL REVIEW Operating Revenees (thousands of dollars) steam Total ' Total Total Heating Operating l Year Residential Commercial industrial Other Retail Wholesale Electric & Gas Revenues 1988. $637 329 $537 861 $675 584 $84 524 $1935 298 $102 262 $2 037 560 $ - $2 037 560 1987. . 629 663 531 682 689 959 36 272 1 887 576 24 409 1 911 985 13 371 1 925 356 1986. 599 445 516 614 675 682 79 716 1 871 457 11 381 1 882 838 12 953 1 895 791 1985. 566 666 485 269 667 450 73 221 1 792 606 16 036 1 808 642 18 866 1 827 508 1984. 548 136 454 092 636 036 87 279 1 725 543 14 866 1 740 409 24 324 1 764 733 1978. 320 032 239 814 398 975 4I 863 1 000 684 40 134 1 040 818 16 058 1 056 876 Operating Expenses (thousands of dollars) Perry Unit 1
& Beaver Fuel & Operation Depreciation Taxes Valley Federal Total Purchased & & Other Than Unit 2 Income Operating Year Power Maintenance Amortization flT Deferred Taxes Expenses 1988. . $391401 $865 632 $264 824 $268 550 $(188 209) $123 697 $1725 895 1987. 470 466 642 594 214 421 207 521 (87 623) 105 912 1 553 291 1986. . 522 281 550 874 141 009 194 925 -
138 181 1 547 270 1985. , 510 844 450 376 141 333 181 120 - 154 823 1 438 496 1984. 453 192 404 314 145 245 178 915 - 197 766 1 379 432 1978. 443 925 200 604 83 306 93 076 - 52 731 873 642 Income (Loss) (thousands of dollars) Carrying income Other Charges on Federal income (Loss) Income & Nuclear income Before After Operating AF UDC- Deductions Plants Tax- Interest interest AFUDC- Interest Year income [quity Net & Other Credits Charges Charges Debt Charges 1988. $311665 $ 13 504 $(489 047)(a) $372155 $131254 $339 531 $378 292 $ (6 137) $(32 624) 1987. 372 065 299 308 (57 821) 39 599 121 122 774 273 435 042 (137 257) 476 488 1986. 348 521 308 405 (8 108) - 116 422 765 240 406 465 (118 145) 476 920 1985. 389 012 268 001 5 825 - d6 775 749 613 367 315 (101 918) 484 216 1984. 385 301 213 157 11 556 - 69 434 679 448 310 265 (75 975) 445 158 1978. 183 234 47 360 7 746 - 11 794 250 134 114 817 (18 145) 153 462 income (Loss) (thousands of dollars) Common Stock (dollars per share & %) Income (loss) Cumulative before titect of an Return on Preferred & Cumulative Acrounting Average Average Preferern e Effect of an Change Net shares Common i sitx k Accounting for Unbilled Income Outstanding (b) Earnmgs stock Dividends Book Year Dividends Change Revenues (loss) (thousaruls) (loss )(b) Equity Declared (b) Value(b) 1988. $69 489 $(102113) $ 28153 $(73 960) 140 778 $(0.53) (2.5)% $1.84 $19.68 1987. 86 135 390 353 - 390 353 138 395 2.82 12.8 2.56 22.10 1986. 85 027 391 893 - 391 893 128 927 3.04 13.7 2.49 22.13 1985. 82 829 401 387 - 401 387 121 898 3.29 15.7 2.20(c) 21.50 j 1984. 78 349 366 809 - 366 809 107 622 3.41 164 2.29 20.64 4 1978. 36 595 116 867 - 116 867 52 971 2.21 11.5 1.80 19.59 i l NOTE: Data for years prior to 1986 are the result of combining and restating Cleveland Electric and Toledo Edison data. l (a) Indudes write-off of nuclear costs in the amount of $534,355,000 in 1988. l (b) Outstandmg shares for the periods prior to April 29,1986 reflect the Cleveland Ilectric 1.11-for-one exchange ratio and the Toledo Edison one-for-one exchange ratio for Centerior Energy shares. (c ) 1985 Dividends Dedared declined because Toledo Edison's first quarter 1986 dividend declaration was delayed from its usual date in 1985 to January 1986 in order to sync hronize Toledo Edison's dividend declaration and payment sc hedules with Cleveland Electric's prior to the affiliation. 32
.. I CENT [2IOR ENERGY CORPORATION AND SUB5IDIARif 5 Electric Sales (millions of KWH) Electric Customers (year end) Residential Usage Average Average Average Pnt e Revenue industrial KWH Per Per Per Year Residential Commercial industrial Wholesale Other Totat Rewdential Commercial & Other Total Customer KWH Customer 1988. , 6 920 6 577 12 793 863 946 28 099 909 182 92 132 12 305 1 013 619 7 462 9.214 $690.06 1987. 6 659 6 350 11 985 399 949 26 342 903 365 90 148 12 240 1 005 753 7 217 9.46 685.43 1986. 6 527 6 239 11 409 242 909 25 326 898 583 87 947 12 012 998 542 7 108 9.18 654.99 1985. 6 309 5 952 11 410 331 865 24 867 892 727 87 442 12 023 992 192 6 900 8.98 622.08 ; 1984. 6 404 5 794 11 441 307 871 24 817 888 816 85 825 11 850 986 491 7 035 8.56 603.92 1978. 6 203 5 165 12 610 1 291 780 26 049 872 059 80 644 11 170 963 873 6 987 5.16 361.26 j Load (megawatts) Energy (millions of KWH) Fuel l' Operable Capauty Net [Hulency- r At Time Peak Capauty load Company CennalMI Purchased F uel Cost UTU Per Year Of Peak (d) Ioad Margin Factor iossil Nuclear lotal Power Total Per KWH KWH { 1988. 5525 5 673 (2.7)% 60.8 % 21 576 7 805 29 381 920 30 301 1.594 10 410 ' 1987., 5955 5 173 13.1 63.6 20 894 6 907 27801 601 28 402 1.53 10 466 1986. . 5 199 5 021 3.4 63.0 22 739 24 22 763 4 552 27 315 1.79 10 292 1985. 4 539 4 512 5.9 69.1 21 610 1 964 23 574 3 283 26 857 1.85 10 313 1984. 5 338 4 659 12.7 66.1 19 930 4 303 24 233 2 350 26 583 1.71 10 349 1978. 6 275 4 707 25.0 66.4 21 114 2 657 23 771 4 128 27 899 1.34 10 465 Investment (thousands of dollars) Construction Work in Total Utihty Ac cumulated Progress Nuclear Property. Utility Plant in Depreciahon & Net & Perry f uel and Plant and Plant Total Year service Amortizahon Plan Unit 2 Otherie) Iquipment Addihons Assets 1988. $8143 673 $1569 304 $6 574 369 $1222 732 $643 087 $8 440188 $ 381561 $11573 098 1987. 8 388 114 1 324 446 7 063 668 1 007 707 656 350 8 727 725 947 921 11 349 836 1986.. . 4 639 542 1 367 662 3 271 880 5 237 782 652 564 9 162 226 1 133 748 10 011 912 1985. 4 481 451 1 264 931 3 216 520 4 291 094 564 276 8 071 890 994 260 9 022 094 1984. . 4 281 856 1 163 994 3 117 862 3 526 978 485 207 7 130 047 918 509 8 049 712 1978. 2 946 285 653 413 2 292 852 880 281 48 992 3 222 125 481 453 3 596 373 Capitalization (thousands of dollars & %) Preferred & Preference Preferred stock, without stm k. with Mandatory Mandatory Redemption Year Common stoc k Iquity Redemphon Provisions Provisions iong-Term Debt Total 1988. $2 771744 39 % $303 781 4% $427 334 6% $3 551614 51% $7 054 473 1987, 3 109 060 41 343 985 4 457 334 6 3 718 249 49 7 628 628 1986. 2 991 341 39 487 814 7 404 021 5 3 792 402 49 7 675 578 1985. 2 710 098 39 468 306 7 374 021 5 3 438 928 49 6 991 353 1984. 2 403 234 39 450 646 7 344 021 6 2 993 770 48 6 191 671 1978, 1 084 896 36 241 500 8 245 071 8 1 481 617 48 3 053 G84 (d) Capacity was reduced because of extended generating unit outages for renovation and improvements in 1984 (720 rnw),1985 (1.490 inw),1986 (856 mw) and 1988 (856 mw). (e) 1984 and 1978 restated for effects of capitalization of nuclear fuel lease and financing arrangements pursuant to Statement of financial Aucunting Standards 71. 33
BOARD OF DIRECTORS l Richard R Anderson, President and Chief Executive Officer of Robert AI. Ginn, Chairman Emeritus of the Company and retired The Andersons Management Corporation, a grain, Chairman and Chief Executive Officer of the Company. fann supply and retailing hrm. Roy H. Holdt, Retired Chairman of White Consohdated leish Carter President and Chief Operating Ofhccr of The Industrics, Inc., a manufacturer of pn> ducts for the BFGoodrich Company, a producer of chemicals. home, principally major appliances, and machinery plastics and acrospace products. Also Chairman of and equipment for industry. Tremco, Incorporated, a manufacturer of specialty Geoise H. Kaull, Chairman and Chief Executive Officer of chemical products, a wholly-owned subsidiary of Premix, Inc., a developer, manufacturer and fabricator The BfGoodrich Company. of thermoset reinforced composite materials. Thomas A. Commes. President and Chief Operating Officer of Richard A. Aliller. Chairman and Chief Executive Ofhccr of the The Sherwin AVilliams Company, a manufacturer of Company and Centerior Service Company. paints and painting supplies. Trank E. Alosier. Vice Chairman of BP America Inc., a producer Chester Svenow, Chairman and Chief Executist Ofhccr of and refiner of petroleum prcxlucts. Devenow [nterpriscs, Inc. an investment management Sister Alary Alarthe Reinhard. SND, former President of Notre han. Retired Chainnan and Chiel Executive Ofhccr of Dame College of Ohio in Cheland. ShellerGobe Corporation, a manufacturer of automotiw parts and assemblics, electrical equipment and Paulbl. Smart. Executive Vice President of the Company and radiation and environmental monitoring equipment. Vice Chairman of The Toledo Edison Company. Edwin D. Oxld, Retired Chairman and Chief Executive Officer of William /. Wdliams. Chairman and Chief Ewcutive Officer of Owens-lllinois. Inc., a manufacturer of glass, plastic, fluntington National Bank. paper and glass-ccramic products. Robert /. Tarhns, President of the Company and Centerior Service i Company and Chairman and Chief Executive Officer
- of The Cinciand Electric illuminating Company and l The Toledo Edison Company. /ohn R Williamson. Chairman Emeritus COMMITTEES Of THE BOARD Audit Cornpensation Executive finance NarninatinS Nuclear T. A. Commes, W.J. Williams. R.A. Miller. R.A. Miller. EE. Mosier, R.P. Anderson, Chainnan Chairman Chainnan Chairman Chairman Chainnan E.D. Dodd L Carter R.M. Ginn R.P. Anderson R.P. Anderson R.M. Ginn Sr. M.M. Reinhard C. Devenow R.li. Iloidt T.A. Commes L. Carter G.li. Kaull W.J. Williams G.ll. Kaull W.J. Williams R.M. Ginn T.A. Commes R.A. Miller EE. Mosier R.fl. Iloldt C. Devenow EE. Mosier E.D. Dodd Sr. M.M. Reinhard i R.M. Ginn R.li. lloldt G.ll. Kaull R.A. Miller Sr. M.M. Reinhard W.J. Williams
EXECUTIVES OF THE COMPANY AND SUBSIDI ARIES l CLNTLRIOR ENERGY CORPORMiON CENTERIOR SERVICL COMI%NY l Chairman and Chairman and Chief [xecutive officer . Richard A. bidler Chief [recutive Officer . Richard A. bidler President . . Robert /. krlinS President . Robert /. Tarlins Executive Vice President . . blurray R. Edelman Senior Vice President-finance l Executive Vice President . . Lyman C. Phillips and Chiel Financial Offic er. . Eqyar H. blausans Executive Vice President . 't il Af. Smart Vice President-fossil Senior Vice President-finance Operations & Engineering . Richard R Crouse and Chief financial Officer . Edsar H. blausans Vice President Vice President & General Counsel Victor E Greenslade
& General Counsel . Victor E Greenslade Vice President-Public Alfairs Controller . . Paul G. Busby & Rates . . John S. Levicki Treasurer . . . Gary Af. Hawkinson Vice President-System Secretary . . f. Lyle Ilpin Engineering & O[rrations William D. blasters Vice President-Administration . Stanley E. Wertheim Vice President-Governmental Alfairs . . Alan D. Wnight Controller . . Paul G. Busby
]icasurer . Gary bl. Hawkinson Secretary . f. Lyle {\ pin Ox?raling t Companies Till CLEVELAND LLECTRIC ILHJMINATING COMPANY TilllOLEDO FDISON COMi%NY Chairman and Chairma, and Chief Executive Officer . . Robert /. Tading Chiel Executive Officer . Robert /. Tadirs President . Lyman C. Philhps Vice Chairman . Paulbl. Smart Senior Vice President . . Alan D. Wright President . blurray R. Edelman Vice President-Marketing . . Gary /. Greben Senior Vice President . . Richard P Crouse Vice President-Administration . /acquila K. Hauscrman Vice President-Vice President-Nuclear . Alvin Kaplan Customer Operations. . DavidL blonscau Vice President-Distribution Vice President 41arketing . Thomas bl. Quinn
& Senices . William K. AlcClung Vice President-linance Vice President-Ibwer Supply . Richard A. /tlerka & Administration. . Donald H. Saunders Controller . . /ohn AI. Borthwick Vice President-Nuclear . Donald C. Shelton Treasurer Terrence R. bloran Controller and Treasurer . . /ames R Alartin Secretary . f. Lyle l\ pin Secretary . f. Lyle Itpin 35
i SH ARE OWNER INFORM ATION Dividend Reinvestment and Stock Purchase Plan Sharc Owner Services The Company has a Dividend Reinvestment and Stock Communications regarding stock transfer requirements, Purchase Plan which provides share owners of record and lost certificates, dividends and changes of address customers of the Company's subsidiaries a convenient should be directed to Sharc Owner Services at the i means of purchasing shares of Company common Company. lo reach Share Owner Serviws by phone, skrk by investing a part or all of their quarterly dividends call the following numbers: as well as making cash investments. In addition, 11ralcalls in individuals may establish an Individual Retirement Cleveland area 642-6900 or 447-2400 Account (IRA)which invests in Company common stock Outside Cleveland area 1-800-453-7794 through the Plan. Information and a prospectus relating Plc se have your account number ready when calling. to the Plan and the IRA may be obtained from Share Owner Savices at the Company. Audio Cassettes Available form 10-K Share owners with impaired vision may obtain audio cames of the Company's Quarterly Reports and Annual The Company will furnish to share owners, without Rc p rt. To obtain a cassette, simply write or call Share charge. a copy of its most recent annual report to the Owna Services. There is no charge for this service. Securities and Exchange Commission (form 10-K) and, upon payment of a reasonable fee, a copy of each Executive O// ices exhibit to form 10-K. Requests should be directc J to Centerior Energy Corporation the Secretary of the Company. 6200 Oak Tree Boulevard Independent Accountants Independence, Ohio Ecpk>ne Number (216) 447-3100 Arthur Andersen & Co. 1717 East Ninth Street blailAddress Cleveland, Ohio 44114 Centerior Energy Corporation Common Stock P.O. Box 94661 Gmland, Ohio 44101-4661 Listed on the New York, Midwest and Pacific Sk)ck Exchanges. New York Stock Exchange symbol-CX, Annualblecting Options are traded on The Pacific Stock Exchange. The annual meeting of the share owners of the Registrar Company will be held April 25,1989. Owners of mnmon skick as of February 28,1989, the record Ameritrust Company National Association date for the meeting. will be eligible to vote on matters 900 Euclid Avenue brought up for share owners' consideration. Cleveland. Ohio 44114 Notice: The annual report and the financial statements Trans/c@>nt herein are for the general infonnation of the sharc Centerior Energy Corporation o- of the Company and are not intended to be used ims in connection with any sale or purchase of securities. n{r Ocreland, Ohio 44101-4661 The Company is an equal opportunity employer. Skrk transfers may be presented at PNC Trust Company of New York 40 Broad Street, fifth fk>or New York, N.Y.10004 36 g
CENTERIOR ENERGY SERVICE AREA l J j x 1he Toledo Edison Company The ClevelandDectric Illuminating Company
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i ;q% . [b SECURITIES AND' EXCHANGE COMMISSION WASHINGTON, D.C. ~20549 'l FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) 0F THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1988 Commission' ' Registrant; State of Incorporation; I.R.S. Employer File Number Address; and Telephone Number Identification No. 1-9130 CENTERIOR ENERGY CORPORATION 34-1479083 1: (An Ohio Corporation) , 6200 Oak Tree Boulevard Independence, Ohio 44131-Telephone (216) 447-3100 2323- THE CLEVELAND ELECTRIC ILLUMINATING 34-0150020 COMPANY
- (An Ohio corporation) b 55 Public Square ij Cleveland, Ohio 44113 Telephone (216) 622-9800
# 1-3583 THE TOLEDO EDISON COMPANY 34-4375005 (An Ohio Corporation) 300 Madison Avenue Toledo, Ohio 43652 Telephone (419) 249-5000 Indicate by check mark whether each of the registrants (1) has filed all re-ports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) has been subject to such filing requirements for the past 90* days. Yes X . No .
;The aggregate market value of Centerior Energy Corporation Common Stock, with-out par value, held by non-affilia:c: vas $2,235,519,833.62 on February 28, 1989 based on the closing sele price as ge9te'd for that date on a composite transactions basis in Tbs Vall Street Journal and on the 140,820,147 sharer of Common Stock outstanding on that date. Centerior Energy Corporation is the sole holder of the 79,590,689 shares and 39,133,887 shares of the outstanding
- 7 common ~ stock of The Cleveland Electric Illuminating Company and The Toledo 1 Edison Company, respectively.
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5 b e Securities registered pursuant to Section 12(b) of the Act: f Name of each exchange ; Registrant Title of each class _on which registered Centerior Energy Common Stock, i Corporation without par value New York Stock Exchange i Midwest Stock Exchange Pacific Stock Exchange The Cleveland Electric Cumulative Serial Preferred Illuminating Company Stock, without par value:
$7.40 Series A New York Stock Exchange
$7.56 Series B New York Stock Exchange Adjustable Rate, Series L New York Stock Exchange First Mortgage Bonds:
3% Series due 1989 New York Stock Exchange 7-1/8% Series due 1990 New York Stock Exchange 8-3/8% Series due 1991 New York Stock Exchange 3-7/8% Series due 1993 New York Stock Exchange 4-3/8% Series due 1994 New York Stock Exchange
. 8-3/4% Series due 2005 New York Stock Exchange 9.1/4% Series due 2009 New York Stock Exchange 9.85% Series due 2010 New York Stock Exchange 8-3/8% Series due 2011 New Ycrk Stock Exchange
- 8-3/8% Series due 2012 New York Stock Exchange The Toledo Edison Cumulative Preferred Stock,
# Company par value $100 per share:
4-1/4% Series American Stock Exchange 8.32% Series American Stock Exchange 7.76% Series American Stock Exchange 10% Series American Stock Exchange Cumulative Preferred Stock, par value $25 per share: 8.84% Series New York Stock Exchange
$2.365 Series New York Stock Exchange Adjustable Rate, Series A New York Stock Exchange Adjustable Rate, Series B New York Stock Exchange
$2.81 Series New York Stock Exchange First Mortgage Bonds:
9% Series due 2000 New York Stock Exchange 7-1/2% Series due 2002 New York Stock Exchange 8% Series due 2003 New York Stock Exchange 9.65% Series due 2006 New York Stock Exchange 9-5/8% Series due 2008 New York Stock Exchange 1
l 0 S l A e o Securities' registered pursuant to Section 12(g) of the Act: Registrant Title of each class l l Centerior Energy None Corporation The Cleveland Electric None Illuminating Company. The Toledo E'dison Cumulative Preferred Stock, !- Company par value $100 per share: 4.56% Series and 4.25% Series DOCUMENTS INCORPORATED BY REFERENCE Part of Form 10-K Into Vhich Document Description Is Incorporated Portions of Proxy Statement of Centerior Energy Corporation, dated March 17, 1989 Part III
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TABLE OF CONTENTS
.j L Page Number ;
Glossary of Terms v l- PART I l l ~ Item 1. Business ........................ 1 1 1; The Centerior System . ..................... . 1 Industry Problems and Financial Uncertainties ......... 2 CAPCO'Grdup 3 Construct' ion and Financing Programs .............. 4 Construction Program . .................... 4
-Financing Program . . .................... 6 General Regulation . ......................
8 Holding Company Regulation . . . . . . . . . . . . . . . . . . 8 a' State Utility Commissions ... ............... 8 Ohio Power Siting Board .. ... .............. 9 Federal Energy Regulatory Commission . . . . . . . . . . . .. 9
% Nuclear Regulatory Commission ................ 9 Other Regulatien . . . . . . . . . . . . . . . . . . . . . . . 9 Environmental Regulation . . . . . . . ............. 10 General ........................... 10 Air Quality control ..................... 10 Vater Quality Control .................... 12 Toxic Substances . . . . . . . . . . . . . . . . . . . . . . . 13 Vaste Disposal . . . . . . . . . . . . . . . . . . . . . . . . 13 Electric Rates . . . . . . . . . . . . . . . . . . . . . . . . . 13 General ........................... 13 1987 Rate Orders . . . . . . . . . . . . . . . . . . . . . . . 14 1989 Rate Orders . . .................... . 15 9
Page Number . Operations.... ... . . . .................... 16-
; Sales of Electricity'. . . . . . . . . . . . . . . . . . . . . '16 Operating Statistics . .-. . ................. .
17 Operating Nuclear Units . . . . . . . . . . . . . . . . . . . - 20 Nuclear Unit Concerns .................... 21-Competitive Conditions . . . . . . . . . . . . . . . . . . . . 21 General .......................... 21 Cleveland Electric . .... ................. 21 Toledo Edison ....................... . 22 Fuel Supply ............................ 23 Coal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Nuclear .......................... 25 011 ............................ 25 Executive Officers of-the Registrants . .. .. .. . ..... 25
~ Item 2. Properties ....................... 33
-General ................ . .. ... ...... 33 The Centerior System . . . . ................. 33 Cleveland Electric . . . . . . . . . . . . . . . . . ._. . . . 34 Toledo Edison .. . . . . . . . . . . . . . . . . . . . . . . .
35 t TitleLto. Property ....................... 35 Item 3. Legal Proceedings . . . .
................. 37 Item 4. Submission of Matters to a Vote of Security Holders . . . 38 PART II Item 5. Market for Registrants' Common Equity and Related Stockholder Matters . . . . . . . ..... . . .... . 38 Centerior Energy . . . . . . . ................. 38 Market Information . ......... . . . . . . . .. . .. 38 Share Owners . . . ......... . . .. . . . . .. .. . 38 Dividends- .................. ...... .. 38 Cleveland Electric . . ..... . . .. . .. . .. . . .... 39 .
Toledo Edison .... .... . . . . . . . . . . . . .. . .. 39 l l p.
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. Item'6. Selected Financial' Data . ................ 39 Centerior Energy . . . . . . . . . . . . . . . . . . . . . . . . .
39 Cleveland Electric . . . .................... 39 Toledo Edison ......................... 39 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . ......... 39 Centerior Energy . ....................... . 39 Cleveland Electric . ... . ................... 39 Toledo Edison .......................... 39 Item 8. Financial Statements and Supplementary Data . ...... 39 Centerior Energy . . . . . . . . . . . . . . . . . . . . . . . . 39 Cleveland Electric . . ..................... 40 Toledo Edison ......................... 40 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . .......... 40 PART III Item 10. Directors and Executive Officers of the Registrants .. 40
- Centerior Energy . . . . . . . . . . . . . . . . . . . . . . . . 40 Cleveland Electric . . . . . . . . . . . . . . . . . . . . . . . 40 Toledo Edison ......................... 41 Item 11. Executive Compensation . . ............... 42 Centerior Energy . . . . . . . . . . . . . . . . .' . . . . . . . 42 Salaries and Insurance . .................... 43 Pension Plan Benefits ..................... 45 Employee Stock Plan Transactions . . . . . . . . . . . . . . . . 47 Employee Purchase Plan . . . . . . . . . . .......... 47 Employee Savings Plan .................... 48 1978 Key Employee Stock Option Plan ............. 49 Employee Stock Ownership Plan ................ 50 Item 12. Security Ownership of Certain Beneficial Owners and Management . ...................... 51
' Centerior Energy . . ...................... 51 i Cleveland Electric . ...................... 51 Toledo Edison ......................... 51
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' Item 13. Certain Relationships and Related Transactions . .. . . 52 Centerior Energy . . . . . . . . . . . . . . . . . . . . . . . .
52' Cleveland Electric . . . . . . .... .... . .. . . .... 52 Toledo Edison ........... .... .. ... . . . . . 52 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ..... .... .. ..... .... . . 52 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Index to Selected Financial-Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; , and Financial Statements . . . . . ... . . . . . . . . . . . . . . F-1 Index to Schedules . . . ... . . . ........... .. .... . S-1 Exhibit Index ... .... . ...... .. .. ... ... . .. E-1 b h e l' - iv - l i.
This ' combined Form 10-K is separately filed 'cy Centerior Energy Corporation, .-- The Cleveland Electric Illuminating Compary and The Toledo Edison Company. Information contained herein relating to any individual registrant is filed by such registrant on its'own behalf. No registrant makes any representation as to information relating to any other registrant, except that information relating to either or both of the Centerior Utilities is also attributed to Centerior Energy.
' GLOSSARY OF TERMS.
The following terms and abbreviations used in the text of this report are defined as indicated: Term. Definition AFUDC Allowance for Funds Used During Construction. AMP-Ohio American. Municipal Power-Ohio, Inc., an Ohio not-for-profit corporation, the members of which are certain Ohio municipal electric systems. B&V Babcock & Wilcox Company, designer of pres-surized water nuclear reactors. B&V Owners Group Babcock & Wilcox Owners. Group, consisting of ., certain utilities, including the Centerior Utilities, which own B&V-designed nuclear reactors. Beaver Valley. Transaction The September 1987 sale and leaseback of substantially all of Toledo Edison's interest in Beaver Valley Unit 2 as described in Note 2. Beaver Valley Unit 2 Unit 2 of the Beaver Valley Power Station, in which the Centerior Utilities have ownership and leasehold interests. CAPC0 Group Central Area Power Coordination Group. Centerior Energy or Centerior Centerior Energy Corporation. Centerior System Centerior Energy, the Centerior Utilities and the Service Company. Centerior Utilities Cleveland Electric and Toledo Edison. (individually, Centerior l
. Utility)
Clean Air Act Fedsral Clean Air Act of 1970 as amended. Clean Vater Act Federal Vater Pollution Control Act as amended.
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Term Definition 4 L -1 l; Cleveland Electric The Cleveland Electric Illuminating Company, an electric utility subsidiary- of Centerior Energy. q Consol Consolidation Coal Company. CPP Cleveland Public Power, a municipal electric system operated by the City of Cleveland. l CVIP Construction Work in Progress. Davis-Besse Davis-Besse Nuclear-Power Station. District of Columbia United States Court of Appeals for the Dis-Circuit Court trict of Columbia Circuit. . DOE United States Department uf Energy. Duff & Phelps Duff & Phelps, Incorporated. Duquesne Duquesne Light Company, an electric utility - not affiliated with the Centerior System. ECAR East Central Area Reliability Coordination Group. . FERC Federal Energy Regulatory Commission. Mansfield Plant Bruce Mansfield Generating Plant, a coal-fired power plant, in which the Centerior. Utilities have leasehold interests as joint and several lessees. Moody's Moody's Investors Service. Note or. Notes Note or Notes to the Financial Statements in the Centerior Energy, Cleveland Electric and Toledo Edison Annual Reports for 1988 (Note or Notes, where used, refers to all three companies unless otherwise specified). NPDES National Pollutant Discharge Elimination System. NRC United States Nuclear Regulatory Commission. Ohio EBR Ohio Environmental Board of Review.
- Ohio Edison Ohio Edison Company, an electric utility - ,
not affiliated with the Centerior System. Ohio EPA Ohio Environmental Protection Agency.
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Term Definition Ohio Power Ohio Power Company, an electric utility sub-sidiary .of American Electric Power Company, Inc. Ohio Valley The Ohio Valley Coal Company, the successor corporation to The Nacco Mining Company.and a subsidiary of Ohio Valley Resources, Inc. OPSB Ohio Power Siting Board. PaPUC Pennsylvania Public Utility Commission. PCB 'Polychlorinated biphenyl. Penelec Pennsylvania Electric Company, an electric utility - not affiliated with the Centerior System. Pennsylvania Power Pennsylvania . Power Company, an electric utility subsidiary of Ohio Edison. Perry Plant Perry Nuclear Pover Plant. Perry Unit 1 and Perry Unit 2 Unit 1 and Unit 2 of the Perry Plant, in a which the Centerior Utilities have ownership interests. PUC0 The Public Utilities Commission of Ohio. Purchase Plan Centerior Energy's Employee Purchase Plan. Quarto Quarto Mining Company, a subsidiary of Consol. Savings Plan Centerior Energy's Employee Savings Plan. SEC Securities and Exchange Commission. Seneca Plant Seneca Power Plant, a pumped-storage hydro-electric generating station jointly owned by Cleveland Electric and Penelec. Service Company Centerior Service Company, a service sub-sidiary of Centerior Energy. Sixth Circuit Court United States Court of Appeals for the Sixth Circuit. S&P Standard & Poor's Corporation.
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Term- Definition Superfund.' Comprehensive Environmental Response, Com-
'pensation and Liability Act of 1980 and the
'Superfund Amendments and Reauthorization Act of 1986.
Toledo Edison' The Toledo Edison- Company, an electric utility subsidiary of Centerior Energy. U.S. EPA . United States Environmental Protection. Agency. Y e 4 S l
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PART I Item 1. Business THE CENTERIOR SYSTEM Centerior Energy is a public utility holding company and the parent company of the Centerior Utilities and the Service Company. Centerior was incorporated under the laws of the State of Ohio in 1985 for the purpose of enabling Cleveland Electric and Toledo Edison to affiliate by becoming wholly-owned subsidiaries of Centerior. The affiliation of the Centerior Utilities became effective on April 29, 1986. All of the consolidated operating revenues of the Centerior System are derived from the ssle of electric energy by Cleveland Electric and Toledo Edison. The Centerior Utilities' combined service areas encompass approximat'ely 4,200 square miles in northeastern and northwestern Ohio with an estimated popula-tion of about 2,600,000. At December 31, 1988, the Centerior System had 9,103 employees. Centerior Energy has no employees. l Cleveland Electric, which was incorporated under the laws of the State of Ohio in 1892, is a public utility engaged in the generation, purchase, transmis-sion, distribution and sale of electric energy in an area of approximately 1,700 square miles in northeastern Ohio, including the City of Cleveland. Cleveland Electric also provides electric energy at wholesale to other elec-
, tric utility companies and to two municipal electric systems in its service area. Cleveland Electric serves approximately 732,000 customers and derives approximately 75% of its total electric revenue from customers outside the
- City of Cleveland. Principal industries served by Cleveland Electric include those producing steel and other primary metals, automotive and other trans-portation equipment, chemicals, electrical and nonelectrical machinery, fabricated metal products and rubber and plastic products. All of Cleveland Electric's operating revenues are derived from the sale of electric energy.
Prior to the sale of its steam generation and distribution system on December 30, 1987 (see Note.11 to the Centerior Energy and Cleveland Electric Financial Statements), Cleveland Electric also had provided steam service for heating and other porposes in the downtown area of Cleveland. At December 31, 1988, Cleveland Electric had 5,242 employees. Toledo Edison, which was incorporated under the laws of the State of Ohio in 1901, is e public utility engaged in the generation, purchase, transmission, distribution and sale of electric energy in an area of approximately 2,500 square miles in northwestern Ohio, including the City of Toledo. Toledo Edison also provides electric energy at wholesale to other electric utility companies and to 13 municipally-owned distribution systems and one rural electric cooperative distribution system in its service area. Toledo Edison serves approximately 281,000 customers and derives approximately 55% of its
- total electric revenue from customers outside the City of Toledo. Among the principal industries served are metal casting, forming and fabricating, petroleum refining, automotive equipment and assembly and glass. All of Toledo Edison's operating revenues are derived from the sale of electric ]
I energy. At December 31, 1988, Toledo Edison had 2,820 employees. j I - - _ _ - _ _ _ _ _ _ _ _ _ _ _ _ _ _ l
k The Service Company, which was incorporated in 1986 under the laws of the State of Ohio, is also a wholly-owned subsidiary of Centerior Energy. It pro- , vides management, financial, administrative, engineering, legal, governmental and public relations and other services to Centerior Energy and the Centerior Utilities. At December 31,.1988, the Service Company had 1,041 employees. INDUSTRY PROBLEMS AND FINANCIAL UNCERTAINTIES The Centerior Utilities have experienced in recent years, and may experience in the future, some of the significant problems confronting the electric utility industry in general, including the effects of fluctuating economic conditions and customer conservation practices upon electricity usage; in-creased competition from municipal systems; difficulty in accurately fore-casting demand for electric service; difficulty in obtaining adequate and timely rate relief, including disallowance or deferral of construction costs in rates; adverse changes in rate-making law; increasing operating costs; increasing costs of and delays in construction; increasing costs of complying with evolving governmental regulations, in particular environmental and nuclear plant regulations; difficulty in financing construction due to high costs of capital, uncertain financial markets and limitations on financing contained in articles of incorporation, indentures and certain financial agreements; uncertainty associated with the operation of nuclear units; and the effect on net income associated with placing large generating units in commercial operation, including the simultaneous start (unless deferred pursuant to applicable regulatory requirements) of charges for depreciation, taxes and operation and maintenance expenses and the cessation of the crediting to income of AFUDC with respect to those units which may be only , partially offset by interest carrying charges that are credited to income at a rate lower than the full AFUDC rate. See " Perry Unit 2" in Note 3 and Notes 4 and 6. The likelihood of the oc-currence of any of the matters discussed under these Notes which would have a financial impact on the Centerior Utilities cannot be determined at this time. Based on each Centerior Utility's and Centerior's current financial condition and levels of annual income, a write-off of either Centerior Utility's invest-ment. in Perry Unit 2 would have a material adverse effect on such Centerior Utility's and Centerior's results of operations in the period in which it were to occur and on retained earnings. Such a write-off could reduce Toledo Edison's retained earnings sufficiently to impair Toledo Edison's ability to declare dividends. However, such a write-off would not reduce retained earn-ings sufficiently to impair Centerior's or Cleveland Electric's ability to declare dividends. As described in the last paragraph of Note 2, Centerior and parties to an agreement relating to a letter of credit were discussing the revision of cer-tain covenants relating to earnings-to-interest expense ratios and capitali-zation requirements. Those discussions have resulted in new ratios and requirements which Centerior and Cleveland Electric believe would be met in 1989 and thereafter, even after any write-off of their respective Perry Unit 2 . investment, barring unforeseen circumstances. As discussed in Note 7 and elsewhere herein, on January 31, 1989, the PUC0 - issued orders for the Centerior Utilities settling pending rate increase j
e a requests, prudence investigations and litigation with respect to their invest-ment in Perry Unit 1 and Beaver Valley Unit 2, allegations of excess capacity for the period covered by the orders and certain other matters. The orders adopted a settlement agreement reached with most of the interveners in the rate cases and prudence proceedings. The orders resolved most of the uncer-tainties surrounding the Centerior Utilities' nuclear investment, including the amount of investment that would be disallowed from recovery through rates. The settlement and orders reduced the likelihood and scope of long and costly litigation over these matters. The PUC0 set rate increases for both Centerior Utilities for 1989 and the next two years. However, minimum and maximum earn-ings levels were set and a management audit was agreed to which will result in aggressive cost-saving targets. Also, a consultant has been engaged to review costs at Davis-Besse. Furthermore, certain assets were written down which lowered the earnings base, although current cash flow was not impaired. These orders create the need for strict cost control in an environment of inflation and increasing competition from other energy-sources, including municipal electric systems and cogeneration projects. However, cash flow and the quality of earnings are expected to increase substantially at the same time that construction expenditures vill be substantially lower than they have been in recent years. Consequently, the need for new capital vill diminish sig-nificantly after 1989. However, the Centerior Utilities' capital requirements would probably increase after 1991 if acid rain legislation is enacted. CAPCO GROUP . 1 Cleveland Electric and Toledo Edison are members of the CAPC0 Group, a power
. pool created in 1967 with Duquesne, Ohio Edison and Pennsylvania Power. This pool affords greater reliability and lower cost of providing electric service through coordinated generating unit maintenance and generating reserve back-up among the five companies. In addition, the CAPC0 Group has completed programs to construct larger, more efficient electric generating units and to strengthen interconnections within the pool.
The CAPC0 Group companies have placed in service nine major generating units, of which the Centerior Utilities have ownership or leasehold interests in seven (three nuclear and four coal-fired). Construction of another nuclear generating unit (Peite Unit 2) has been suspended (see Note 3). Each company owns, as a tenant-in-common, or leases a portion of certain of these generat-ing units. Each company has the right to the net capability and associated energy of its respective ownership and leasehold portions of the units and is, severally and not jointly, obligated for the capital and operating costs equivalent to its respective ownership and leasehold portions of the units and the required fuel, except that the obligations of Pennsylvania Power are the joint and several obligations of that company and Ohio Edison and except that the leasehold obligations of Cleveland Electric and Toledo Edison are joint and several. (See " Operations--Fuel Supply".) The company in whose service area a generating unit is located is responsible for the operation of that unit for all the owners, except for the procurement of nuclear fuel for a nuclear generating unit. Each company owns the necessary interconnecting l transmission facilities within its service area. The other CAPC0 Group com-panies contribute toward fixed charges and operating costs of those transmis-sion facilities. See " Operations--Nuclear Unit Concerns" concerning the risks associated with the operation of the nuclear generating units. l
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All of the CAPCO Group companies are members of ECAR which is comprised of 27 electric companies located in nine contiguous states. ECAR's purpose is to - improve reliability of bulk power supply through coordination of planning and operation of member companies' generation and transmission facilities. CONSTRUCTION AND FINANCING PROGRAMS Construction Program Although the Centerior System has completed its generating unit construction program, it is carrying on a continuous program of constructing transmission, distribution and general facilities and modifying existing generating fa-cilities to meet anticipated demand for electric service and to comply with governmental regulations. The Centerior Utilities' generating facilities in-clude, among others, three nuclear units owned as tenants-in-common or leased l by the CAPCO Group--Perry Unit 1, Beaver Valley Unit 2 and Davis-Besse. (Davis-Besse is owned entirely by the Centerior Utilities.) These three units are in commercial operation. Cleveland Electric has responsibility for operating Perry Unit 1 and maintaining Perry Unit 2, Duquesne has responsibil-ity for operating Beaver Valley Unit 2 and Toledo Edison has responsibility for operating Davis-Besse Cleveland Electric and Toledo Edison own, respec-tively, 31.11% and 19.91% of each Perry Unit, 24.47% and 1.65% of Beaver Valley Unit 2 and 51.38% and 48.62% of Davis-Besse. Cleveland Electric and Toledo Edison also lease, as joint lessees, another 18.26% of Beaver Valley Unit 2 as a result of the Beaver Valley Transaction (see Note 2). The following table shows, categorized by major components, the construction . expenditures by Cleveland Electric, Toledo Edison and the Centerior System during 1986, 1987 and 1988 and the estimated cost of their construction pro-grams for the 1989-1991 period, in each case including AFUDC and excluding a nuclear fuel: 1986 1987 1988 1989-1991 l Actual Actual Actual Estimated Cleveland Electric (Millions of Dollars) Perry Unit 1 S 223 $ 188 $ 21 S 0 Beaver Valley Unit 2 211 196 0 0 Perry Unit 2* 70 49 0 0 Transmission, Distribution and General Facilities 61 53 65 274 Modifications of Generating Units Perry Unit 1 0 0 13 34 Beaver Valley Unit 2 0 0 24 25 Davis-Besse 54 28 56 81 Non-Nuclear Units 52 53 33 124 Total $ 671 S 567 $ 212 S 538 Note: Footnotes to the table are on the following page. i
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- 1986 1987 1988 1989-1991' Actual Actual Actual Estimated 1 L. Toledo Edison' (Millions.of Dollars) I h Perry Unit 1**' ~S 161 $ 133 $ 9 S' O Beaver Valley Unit 2 174 162 0 0 Perry Unit 2* 29 32 0 0
' Transmission, Distribution and General Facilities 24 29 26 111 Modifications of Generating Units i Perry Unit 1 .
0 0 22 21
. Beaver Valley. Unit-2 0 0 20 20 ls Davis-Besse- 63- 18 51- 78 Non-Nuclear Units 11 6 2 50 Total $ 462 $_,380 $ 130 $ 280 1989-1991 1986 1987 1988 Actual Actual Actual' Estimated Centerior System (Millions of Dollars)
Perry Unit 1** $ 384 $ 321 $ 30 $ 0 Beaver Valley Unit 2 385 358 0 0-Perry Unit 2* 99 81 0 0 Transmission, Distribution
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and General Facilities 85 82 91 385 Modifications of Generating Units Perry Unit l' O O 35 55 Beaver Valley Unit 2 0 0 44 45 Davis-Besse 117 46 107 159 Non-Nuclear Units 63 59 35 174 Total $1,133 $ 947 $ 342 $ 818
- Construction of Perry Unit 2 has be'ne suspended. Amounts shown for Perry Unit- 2 are primarily AFUDC. AFUDC was discontinued on January 1, 1988. See Note 3 regarding the future of that Unit.
** Toledo Edison's and Centerior's Perry Unit 1 expenditures for 1986 and 1987 have been restated to tne " comparable with 1988 amounts' and consistent with the- terms of the' January 1989 PUC0 rate orders (see " Electric Rates--1989 Rate Orders" and Note 7).
Should more stringent environmental regulations be adopted, particularly in the' area of acid rain pollution control, the Centerior System's construction program costs for pollution control facilities in the 1989-1991 period are not expected to increase substantially over the current estimate, but such costs probably would increase substantially thereafter. See " Environmental Regulation--General" and the seventh paragraph under " Environmental Regulation--Air Quality Control". Construction program costs in 1989, including AFUDC and excluding nuclear fuel, for Cleveland Electric, Toledo Edison and the Centerior System are ex-pected to be about $162,000,000, $98,000,000 and $260,000,000, respectively.
c3 4t. Each -company in the CAPC0 Group is responsible for financing the portion of the capital. costs of nuclear fuel equivalent to its ownership and leased ., '- interest ;in the unit in which the fuel will be utilized. See " Operations-- Fuel Supply--Nuclear" for information regarding nuclear fuel supplies ~and Note 5 regarding leasing arrangements to- finance nuclear fuel capital costs. Nuclear fuel capital costs-incurred by Cleveland Electric, Toledo Edison and the Centerior System during 1986, 1987 and 1988 and their estimated nuclear fuel capital costs for the 1989-1991' period are as follows: 1986 1987 1988 1989-1991 Actual Actual Actual . Estimated (Millions of Dollars)
' Cleveland Electric $ 45 $ 26 $ 37 .$ 114
. Toledo Edison $ 41 $ .20 $ 34 $ 78 i .
Centerior System $ 86 $ 46' $ 71 $ 192
' Cleveland Electric's, Toledo Edison's and Centerior's nuclear fuel capital' costs for. 1989 are estimated to be about $34,000,000, $21,000,000 and
$55,000,000, respectively.
Financing Program Reference- is made to Centerior Energy's, Cleveland Electric's and Toledo Edison's Management's Financial Analysis contained under Item 7 of this report-for a discussion of the Centerior System's financing activity in 1988; debt and preferred. stock redemption requirements and offer to purchase obligations . during the 1989-1991 period; expected external financing needs during such period; and short-term and long-term financing capability.
. Financing activity expected for the Centerior Utilities in 1989 consists of the issuance by Cleveland Electric of $200,000,000 to $300,000,000 of first r mortgage bonds and a term bank loan of $40,000,000. Toledo Edison is not expected to issue any- securities in 1989. See Note 5 for information con-cerning the refinancing by the Centerior Utilities of certain nuclear fuel leasing arrangements.
Centerior plans to- purchase up to 3,000,000 shares of its common stock at prevailing .-prices in the open market in the period between March 28, 1989 and March 31, 1990. The purpose of the purchase program is to enhance share owner value and.to-improve cash flow by-.the resulting reduction in dividends. The
-purchase program is expected to have a minimal effect on Centerior's capitali-zation structure. The common stock repurchased under the program would be added to treasury stock.
- In 1988, S&P, Moody's and Duff & Phelps advised the Centerior Utilities that their respective ratings ~ on certain of the Centerior Utilities' securities were ~being reviewed by each rating agency for possible downrating. On October 3, 1988, citing an August 23, 1988 PUC0 order denying the Centerior . ,
Utilities' requests for emergency rate relief as the basis for its action, Duff & Phelps lowered its ratings on Cleveland Electric's first mortgage bonds and preferred stock to "11" and "12", respectively, from "9" and "11" and lowered its ratings on Toledo Edison's first mortgage bonds and preferred
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. stock to "11" and "13", respectively, from "10" and "12". The new Duff &
Phelps ratings reflect belov investment grade status on these securities. Previously, the Centerior Utilities' first mortgage bonds were rated inve:t- ) ment grade by Duff & Phelps. In early February 1989, S&P and Moody's removed the Centerior Utilitias' securities from " credit watch" status following the PUC0's January 31, 1 89 ) approval of the rates settlement entered into by the Centerior Utilities tnd l certain parties (see " Electric Rates--1989 Rate Orders"). S&P and Mood:r's I maintained their existing ratings of the Centerior Utilities' securities. Toledo Edison's preferred stock and unsecured notes are currently rated belov ; investment grade by both Moody's and S&P and Cleveland Electric's preferred ' stock is rated below investment grade by S&P. The current securities ratiags for the Centerior Utilities are as follows: S&P Moody's Duff & Phelps Cleveland Electric First Mortgage Bonds BBB- Baa2 11 Preferred Stock BB+ baa2 12 Toledo Edison First Mortgage Bonds BBB- Baa3 11 Preferred Stock BB+ ba2 13 Unsecured Notes BB+ Bal -- See Note 12 to the Centerior Energy and Cleveland Electric Financial Sta:e-ments for a discussion concerning restrictions on the issuance of additional 5 debt securities and preferred and preference stock by Cleveland Electric. Under the limits of its mortgage, Cleveland Electric would have been permitted at December 31, 1988 to issue approximately $664,000,000 of additional bonds. If Perry Unit 2 had been cancelled and written off as of that date (see Note 3), the amount of additional bonds which could have been issued by Cleveland Electric vould have been reduced by about $347,000,000. Cleveland Electric, under certain circumstances, would include revenue subject to refund in determining its earnings coverage under its mortgage. See Note 12 to the Centeriot- Energy Financial Statements and Note 11 to the Toledo Edison Financial Statements for a discussion concerning restrictions on the issuance of additional debt securities and preferred and preference stock by Toledo Edison. Under the limits of its mortgage, Toledo Edison vould not have been permitted at December 31, 1988 to issue additional bonds, but it would have been permitted to issue $105,000,000 of refunding bonds. Also at that date, under the limits of its articles of incorporation, Toledo Edison would not have been permitted to issue any preferred stock, but vould have been permitted to issue additional short-term and long-term debt. If Perry Unit 2 had been cancelled and written off as of that date (see Note 3), the
. amount of additional bonds which Toledo Edison could have issued would not have changed. In addition, such a write-off could adversely affect Toledo Edison's ability to issue preferred stock in the future and its ability to issue additional short-term and long-term debt. Toledo Edison, under certain circumstances, would include revenue subject to refund in determining its earnings coverage under its articles of incorporation, its mortgage and its loan agreements.
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GENERAL REGULATION Holding Company Regulation Centerior Energy is currently exempt from regulation under the Public Utility Holding Company Act of 1935. State Utility Commissions The Centerior Utilities are subject to the jurisdiction of the PUC0 with re-spect to rates, service, accounting, issuance of securities and other matters. Under Ohio law, municipalities may regulate rates, subject to appeal to the PUC0 if not acceptable to the utility. See " Electric Rates--General" for a description of certain aspects of Ohio rate-making law. The Centerior Utilities are also subject " the jurisdiction of the PaPUC in certain re-spects relating to their ownership interests in generating facilities located in Pennsylvania. The PUC0 is composed of five commissioners appointed by the Governor of Ohio from nominees recommended by a Public Utility Commission Nominating Council. Nominees must have at least three years' experience in one of several disci-plines. Not more than three commissioners may belong to the same political party. Under Ohio law, a public utility must file with the Forecasting and Siting Division of the PUC0 an annual long-term forecast of customer loads, fa-cilities needed to serve those loads and prospective sites for those fa-cilities. The Division must hold a public hearing on such forecast at least once every five years. The jurisdiction of the Division is limited to deter-mining in such hearings whether the forecasting and generation planning prac- . tices of the utility are reasonable. The PUC0 and the OPSB are required to consider the record of such hearings in proceedings for approving facility sites, changing rates, approving security issues and initiating energy con-servation programs. The PUC0 held hearings during 1988 on the Centerior Utilities' amended 1987 long-term forecast report filed in 1987 by Centerior on behalf of Cleveland Electric and Toledo Edison. Centerior's forecasting and generation planning practices were found to be reasonable, except that the PUC0 ordered a revision of the manner in which Cleveland Electric's peak load was calculated. The Centerior Utilities' 1989 long-term forecast report will be filed by Centerior Energy in the second quarter of 1989. The PUC0 has jurisdiction over certain transactions by companies in an elec-tric utility holding company system if it includes at least one Ohio electric utility and is exempt from regulation under Section 3(a)(1) or (2) of the Public Utility Holding Company Act of 1935. An Ohio electric utility in such a holding company system must obtain PUC0 approval to invest in, lend funds to, guarantee the obligations of or otherwise finance or transfer assets to any non-utility company in that holding company system, unless the transaction is in the ordinary course of business operations in which one company acts for - or with respect to another company. Also, the holding company in such a hold-ing company system must obtain PUC0 approval to make any investment in any non-utility subsidiaries, affiliates or associates of the holding company if - such investment vould cause all such capital investments to exceed 15% of the
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e consolidated capitalization of the holding company unless such funds were provided by non-utility subsidiaries, affiliates or associates. In 1987, the PUC0 adopted a reserve capacity policy for electric utilities in Ohio stating that (i) 20% of service area peak load excluding interruptible load is an appropriate generic benchmark for an electric utility's reserve margin; (ii) a reserve margin exceeding 20% gives rise to a presumption of excess capacity, but may be appropriate if it confers a positive net present benefit to customers or is justified by unique system characteristics; and (iii) appropriate remedies for excess capacity (possibly including disallow-ance of costs in rates) vill be determined by the PUC0 on a case-by-case basis. Excess capacity will not be an issue for the Centerior Utilities for the period covered by the PUCO's January 31, 1989 orders. See " Electric Rates--1989 Rate Orders". Ohio Power Siting Board The OPSB has state-wide jurisdiction, except to the extent pre-empted by Federal law, over the location, need for and certain environmental aspects of electric generating units with a capacity of 50,000 kilowatts or more and transmission lines with a rating of at least 125 kV. Federal Energy Regulatory Commission The Centeriot Utilities are each subject to the jurisdiction of the FERC vith respect to the transmission and sale of power at wholesale in Interstate com-merce, interconnections with other utilitiest accounting and certain other matters. Cleveland Electric is also subject to FERC jurisdiction with respect to its ownership and operation of the Seneca Plant. s Nuclear Regulatory Commission The nuclear generating units in which the Centerior Utilities have an interest are subject to regulation by the NRC. The NRC's jurisdiction encompasses broad supervisory and regulatory powers over the construction and operation of nuclear reactors, including matters of health and safety, antitrus't considera-tions and environmental impacts. Owners of nuclear units are required to purchase the full amount of nuclear liability insurance available. See Note 6 for a description of nuclear in-surance coverages. Other Regulation The Centerior Utilities are subject to regulation by Federal, state and local authorities with regard ts the location, construction and operation of certain facilities. The Centerior Utilities are also subject to regulation by local authorities with respect to certain zoning and planning matters. e
s . ENVIRONMENTAL REGULATION General The Centerior Utilities are subject to regulation with respect to air quality, water quality, toxic substances and waste disposal matters. Federal environ-mental legislation affecting the operations and properties of the Centerior Utilities includes the Clean Air Act, the Clean Vater Act, the Resource Conservation and Recovery Act of 1976, the Toxic Substances Control Act and Superfund. The requirements of these statutes and related state and local laws are continually changing due to the promulgation of new or revised regu-lations, the results of judicial and agency proceedings and frequent amendment of these statutes. As a result, the Centerior Utilities cannot now estimate all the effects of such existing and future laws and regulations upon their existing and proposed facilities and operations. Compliance with such laws and regulations may require the Centerior Utilities to modify, supplement, abandon or replace facilities and may delay or impede construction and operation of facilities, all at costs which could be substantial. The Centerior Utilities expect that the impact of such costs would eventually be reflected in their respective rate schedules. Cleveland Electric and Toledo Edison plan to spend, during the period 1989-1991, $4,000,000 and $3,000,000, respectively, for pollution control facilities. These costs are included in their and Centerior Energy's construction programs described above under
" Construction and Financing Programs--Construction Program".
The Centerior Utilities believe that they are currently in compliance in all material respects with all applicable environmental laws and regulations, or to the extent that one or both of the Centerior Utilities may dispute the
- applicability or interpretation of a particular environmental law and regula-tion, the affected company has filed an appeal or has applied for permits, ~
revisions in requirements, variances or extensions of deadlines. Air Quality Control Under the Clean Air Act, the Ohio EPA has adopted Ohio emission limitations for particulate matter and sulfur dioxide for each of the Centerior Utilities' plants. The Clean Air Act provides for civil penalties of up to $25,000 per day for violations of an emission limitation. The U.S. EPA has approved the Ohio EPA's emission limitations and the related implementation plans except for fugitive dust emissions and certain sulfur dioxide emissions. The U.S. EPA has adopted separate sulfur dioxide emission limitations for each of the Centerior Utilities' plants. The Centerior Utilities' fossil fuel-fired generating units in Ohio comply with the U.S. EPA limitations and Ohio EPA limitations on particulate matter emissions and on sulfur dioxide emissions applicable to those plants. Cur-rently, the U.S. EPA enforcement policy and Ohio regulations allow compliance with sulfur dioxide emission limitations to be based on a 30-day averaging period. . In 1985, the U.S. EPA issued revised regulations specifying the extent to which stack height may be incorporated into the establishment of an emission . limitation. Pursuant to the revised regulations, the Centerior Utilities sub-mitted to the Ohio EPA information intended to support continuation of the e . stack height credit received under the previous regulations for stacks at
- Cleveland Electric's Avon Lake and Eastlake Plants and Toledo Edison's Bay Shore Station. The Ohio EPA has accepted the submissions and forwarded them to the U.S. EPA for approval. In January 1988, the District of Columbia Circuit Court remanded portions of the 1985 regulations to the U.S. EPA for I further consideration. The Centerior Utilities cannot predict what action the U.S. EPA may take. i l
In 1986, the Sixth Circuit Court ruled on a challenge filed by an environ- I mental group and several states east of Ohio seeking to overturn the Federal sulfur dioxide emission limitations for the Eastlake and Avon Lake Plants. The Court ruled that the validity of the air quality model used by the U.S. EPA to set the sulfur dioxide emission limitations for those plants had not been adequately established. The Court permitted the Ohio sulfur dioxide emission limitations to remain in effect while the U..S. EPA completes its re-view of the application of the air quality model. The U.S. EPA, along with Centerior, demonstrated the validity of the model used to establish the sulfur dioxide emission limitations for those plants; however, no formal action was taken. In a separate administrative proceeding, the U.S. EPA, in December 1984, denied the requests of several states that more stringent sulfur dioxide emission controls be imposed on midwestern power plants, including those of the Centerior Utilities. This denial was appealed to the District of Columbia Circuit Court and, ultimately, the U.S. Supreme Court. In March 1989, the U.S. Supreme Court refused to hear the appeal. In another administrative proceeding commenced in April 1988, several north-eastern states and several environmental groups' asked the U.S. EPA to
. promulgato rules under Section 115 of the Clean Air Act to reduce sulfur emissions cy revising existing state implementation plans for sulfur dioxide.
The U.S. EPA advised the petitioners that it would not take immediate action on their request. In November 1988, the petitioners filed suit in the U.S. District Court for the District of Columbia to force the U.S. EPA to act on their request. The Court has not rendered n decision on the petitioners' suit at this time. The Centerior Utilities cannot predict what action the Court may take. Currently, acid rain legislation is being considered by Congress. Any legis-lative bill, if enacted, could require major reductions of sulfur dioxide and nitrogen oxide emissions within the electric utility industry. The Centerior Utilities cannot predict whether any acid rain legislation vill be passed by Congress in the current session. However, the Centerior Utilities believe that there is a higher probability than in recent years that some form of acid rain bill vill be passed. Any acid rain legislation adopted would probably require substantial capital expenditures. However, capital expenditures would not be expected to increase substantially until about five years prior to the earliest date set for compliance with the enacted acid rain legislation. More stringent sulfur dioxide regulations or legislation could ultimately re-quire the Centerior Utilities to use more low-sulfur coal (which would have to be obtained primarily from sources outside Ohio) or to install pollution con-trol equipment known as scrubbers. It is expected that the cost of using 1
additional low-sulfur coal vould be significantly less than the cost of in-stalling and operating scrubbers. The Centerior Utilities believe that the ' cost of additional low-sulfur coal and scrubbers eventually would be recovered in rates. Also, it might be necessary for the Centerior Utilities to exercise their rights to terminate deliveries of high-sulfur coal supplied under cer-tain long-term contracts due to inability to burn such coal under such regula-tions or legislation. One or more suppliers under those contracts might claim substantial termination charges in amounts which cannot now be determined, but the cost of terminating such contracts vould not have a material adverse ef-feet upon Centerior's or the Centerior Utilities' financial positions. Vater Quality Control The Clean Vater Act requires that power plants obtain permits that contain certain effluent limitations (that is, limits on discharges of pollutants into bodies of water). It also provides that permits for new power plants include even more stringent effluent limitations, including zero discharges, where practicable. The Clean Vater Act also requires that cooling water intake structures for power plants incorporate the best available technology for minimizing adverse environmental impact. The Clean Water Act requires the states to establish water quality standards (which could result in more strin-gent effluent limitations for facilities than those described above) and a permit system to be approved by the U.S. EPA. Violators of effluent limita-tions and water quality standards are subject to a civil penalty not to exceed
$25,000 per day of such violation.
The Clean Vater Act permits thermal effluent limitations to be established for a facility which are less stringent than those which otherwise would apply if the owner can demonstrate that such less stringent limitations are sufficient to assure the protection and propagation of aquatic and other vildlife in the - affected body of water. By 1978, the Centerior Utilities had submitted to the Ohio EPA such demonstrations for review with respect to their Ashtabula, Avon Lake, Lake Shore, Eastlake, Acme and Bay Shore Stations. Ohio EPA has taken no action on the submittals. In 1985, Cleveland Electric's Ashtabula, Avon Lake, Lake Shore, Eastlake and Perry Plants and Toledo Edison's Bay Shore and Davis-Besse Plants received NPDES permits from the Ohio EPA which incorporate applicable effluent limita-tions. In 1987, Toledo Edison filed an application with the Ohio EPA to have the NPDES permit renewed for its Acme Plant. The Ohio EPA has yet to act on this application; however, the plant may continue to operate while the appli-cation is pending. Violations of these NPDES permits are considered to be violations of the Clean Vater Act subject to the penalty discussed above. In 1976, the Ohio EPA issued water quality standards applicable to Lake Erie and waters of the State of Ohio. These standards may serve as the basis for more stringent effluent limitations for the Cleveland Electric plants than are contained in the current NPDES permits for those plants. Such limitations could require the installation of additional pollution control equipment and , increased operational expenses. Cleveland Electric appealed the issuance of such standards and two subsequent amendments to such standards to the Ohio EBR on the basis that the standards were technologically infeasible, economically .
unreasonable and without scientific foundation. The Ohio EPA is in the
. process of issuing revisions to the Lake Erie water quality standards. The Centerior Utilities cannot predict what action the Ohio EPA may take with respect to those standards or the outcome of the appeals before the Ohio EBR.
Toxic Substances Under the Toxic Substances Control Act, the U.S. EPA is empowered to regulate the use and disposal of certain toxic substances. In July 1985, the U.S. EPA promulgated regulations governing "PCB Transformers" (containing a certain concentration of PCBs) in or near commercial buildings. The major require-ments of these regulations include the prohibition after October 1, 1985 of the installation of PCB Transformers; the prohibition after October 1, 1990 of the use of PCB Transformers that operate at secondary voltages of 480 volts or above; and enhanced electrical protection on all other PCB Transformers. Cleveland Electric has removed all known PCB Transformers. A program to phase out all existing PCB Transformers in Toledo Edison's customer vaults is scheduled to be completed in advance of the above regulatory deadline. Vaste Disposal Superfund established programs addressing the clean-up of hazardous vaste disposal sites, emergency preparedness and other issues. Pursuant to Superfund, Cleveland Electric has been notified of its potential involvement in the clean-up of six hazardous vaste sites and Toledo Edison has been notified of its potential involvement in the clean-up of three hazardous vaste sites. Centerior and the Centerior Utilities believe that the ultimate out-come of these matters will be immaterial. The Federal Resource Conservation and Recovery Act exempts certain electric utility vaste products from hazardous vaste disposal requirements until the U.S. EPA has completed a study of these vastes and existing disposal methods. The Centerior Utilities are unable to predict whether the results of the study would affect them or, if affected, the costs relating to sny required changes in the operations of the Centerior Utilities. ELECTRIC RATES General Under Ohio law, rate base is the original cost less depreciation of a utility's total plant adjusted for certain items. The law permits the PUCO, in its discretion, to include CVIP in rate base when a construction project is at least 75% complete, but limits the amount included to 10% of rate base ex-cluding CVIP or, in the case of a project to construct pollution control fa-cilities which would remove sulfur and nitrous oxide from flue gas emissions, 20% of rate base excluding CVIP. When a project is completed, the portion of l its cost which had been included in rate base as CVIP is excluded from rate
, base until the revenue received due to the CVIP inclusion is offset by the revenue lost due to its exclusion. During this period of time, an AFUDC-type credit is allowed on the portion of the project cost excluded from rate base. i . Also, the lav permits inclusion of CVIP for a particular project for a period not longer than 48 consecutive months, plus any time needed to comply with L___________---_________---_--
O 3 changed governmental regulation, standards or approvals. The PUC0 is em-powered to permit inclusion for up to another 12 months for good cause shown. - If a project is cancelled or not completed within the allowable period of time after inclusion of its CVIP has started, then CVIP is excluded from rate base and any revenues which resulted from such prior inclusion are offset against future revenues over the same period of time as the CVIP was included. Current Ohio law further provides that requested rates can be col ected by a public utility, subject to refund, if the PUC0 does not make a decision within 275 days after the rate request application is filed. If the PUC0 does not make its final decision within 545 days, revenues collected thereafter are not subj ect to refund. A notice of intent to file an application for a rate in-crease cannot be filed before the issuance of a final order in any prior pend-ing application for a rate increase or until 275 days after the filing of the prior application, whichever is earlier. The minimum period by which the notice of intent to file must precede the actual filing is 30 days. The test year for determining rates may not end more than nine months after the date the application for a rate increase is filed. Under Ohio law, electric rates are adjusted every six months, after a PUC0 hearing, to reflect changes in fuel costs. Any difference between actual fuel costs during a six-month period and the fuel revenues recovered in that period is deferred and is taken into account in setting the fuel recovery factor for a subsequent six-month period. Also, under Ohio law, municipalities may regulate rates, subject to appeal to the PUC0 if not acceptable to the utility. If municipally-fixed rates are ac-cepted by the utility, such rates are binding on both parties for the speci- - fled term and cannot be changed by the PUCO. See " Operations--Competitive Conditions--Toledo Edison" for a discussion of Toledo Edison's rate contract - with AMP-Ohio. 1987 Rate Orders Effective December 23, 1987, the PUC0 granted Cleveland Electric an increase in electric rates of $28,837,000 annually. Cleveland Electric had requested an increase of $217,000,000. The rate' increase, however, is being reduced by
$11,838,000 on an annual basis for a period of about 18 months because of Ohio's CVIP law. The PUC0 granted Cleveland Electric a 13.72% rate of return on common stock equity and an 11.61% rate of return on total capitalization.
In April 1988, the PUC0 reheard certain issues with respect to this rate order and, as a result of those rehearings, ordered that the rate increase granted Cleveland Electric in December 1987 be reduced by about $3,000,000. Also effective December 23, 1987, the PUC0 granted Toledo Edison an increase in electric rates of $69,671,000 annually, of which $65,700,000 represented emergency rate increases previously granted. The PUC0 granted Toledo Edison a 13.50% rate of return on common stock equity and an 11.53% rate of return on total capitalization. In April 1988, the PUC0 reheard certain issues with re-
- spect to this rate order and, as a result of those rehearings, ordered that Toledo Edison's December 1987 rate increase be reduced by about $3,500,000.
i
1989 Rate Orders On March 8, 1988, the Centerior Utilities separately filed with the PUC0 applications requesting rate increases. Each Centerior Utility proposed a gradual increase in its rates so as to " phase in" full recovery of all its allowable costs of Perry Unit 1 and Beaver Valley Unit 2 over a 10-year period. Each Centerior Utility included in its rate application, as an alternative to its phase-in plan, a request for an approximate 30% rate increase which reflected the increase necessary for full recovery of its investment in Perry Unit 1 and Beaver Valley Unit 2 on a nondeferred basis. On January 11, 1989, the Centerior Utilities entered into a settlement agree-ment with the majority of those parties who had intervened in the Centerior Utilities' pending electric rate cases. Among those signing the agreement with the Centerior Utilities were the Ohio Office of Consumers' Counsel, the Cities of Cleveland and Toledo and the Industrial Energy Consumers. On January 31, 1989, the PUC0 issued orders to the Centerior Utilities which adopted, in its entirety, the January 11 settlement. Several of the parties who intervened in the March 1988 rate cases but were not parties to the settlement have filed requests for rehearing with the PUCO. Two interveners who were parties to the settlement have asked the PUC0 to clarify certain issues contained in the orders. A more complete description of the rate increases and other major provisions of the PUC0's January 31, 1989 orders is included in Note 7. The orders
~
provide for three annual rate increases for Cleveland Electric and Toledo Edison of approximately 9%, 7% and 6% effective with bills rendered on February 1, 1989. The orders further provide for the permanent exclusion of , $495,000,000 of the Centerior Utilities' combined investment in Perry Unit 1 and Beaver Valley Unit 2; the recovery in rates of the Centerior Utilities' allowed investment in those two units; a three-year cap on earnings and parameters for seeking permanent rate increases prior to February 1, 1994; and an immediate cost reduction effort through a management audit to maximize savings and a cost control study at Davis-Besse. The orders also establish nuclear plant performance standards beginning in 1991 and extending through 1998 for the Centerior Utilities. The orders also provide for the settlement by the parties to the January 11, 1989 agreement of all pending prudence investigations and litigation pending before the PUC0 and the Ohio Supreme Court involving Perry Unit 1 and Beaver Valley Unit 2. Also, the Centerior Utilities' appeal of the PUCO's order disallowing certain fuel and purchased power costs associated with an 18-month outage at Davis-Besse beginning in 1985 and the appeals of the December 1987 rate orders vill be dismissed. One party who did not sign the agreement will still have an appeal pending before the Ohio Supreme Court relating to a January 1988 order by the PUC0 which called for a $428,000,000 prudence disallowance of the Centerior Utilities' Perry Unit 1 construction costs. e
OPERATIONS Sales of Electricity Kilowatthour sales by the Centerior Utilities follow a seasonal pattern marked by increased customer usage in the summer for air conditioning and in the vinter for heating. Traditionally, Cleveland Electric has experienced its heaviest demand for electric service during the summer months because of a l significant air conditioning load on its system and a relatively lov amount of electric heating load in the vinter. Toledo Edison has its heaviest service demand during either the summer or the vinter months because, in addition to a j strong air conditioning demand, it also has a significant electric heating load. In 1988, both utilities achieved new peak loads in the summer resulting primarily from weather-related air conditioning usage. See " Item 2. Properties--General" for a discussion of the 1988 peak loads of Centerior Energy and each Centerior Utility. The Centerior System's largest customer is LTV Steel which has two major steel producing facilities served by Cleveland Electric. Sales to this customer in 1988 accounted for 3% and 5% of the 1988 total electric operating revenues of Centerior Energy and Cleveland Electric, respectively. The loss of this cus-tomer (and the resultant loss of another large customer vhose primary product is purchased by the two steel producing facilities) would reduce Centerior Energy's and Cleveland Electric's net income by about $34,000,000 based on 1988 sales levels. The largest customer served by Toledo Edison is a major automobile manufac- . turer. Sales to this customer in 1988 accounted for 1% and 3% of the 1988 total electric operating revenues of Centerior Energy and Toledo Edison, re-spectively. The loss of this customer would reduce Centerior Energy's and - Toledo Edison's net income by about $9,000,000 based on 1988 sales levels.
Operating Statistics f Centerior System Years Ended December 31, 1988 1987 1986 Energy Generated (Millions of kWh): Net Generation 29,381 27,801 .22,763 Net Purchases 920 601 4,552 Net Available for Service Area 30,301 28,402 27,315 Electric Sales (Millions of kWh): Residential 6,920 6,659 6,527 Commercial 6,577 6,350 6,239 Industrial 12,793 11,985 11,409 Wholesale 863 399 242 Other 946 949 909 Total Electric Sales 28,099 26,342 25,326 Customers (End of Period): Residential 909,182 903,365 898,583 Commercial 92,132 90,148 87,947 Industrial & Other 12,305 12,240 12,012 Total Electric Customers 1,013,619 1,005,753 998,542 Operating. Revenues (In Thousands): Residential $ 637,329 $ 629,663 $ 599,445
- Commercial 537,861 531,682 516,614 Industrial 675,584 689,959 675,682 Other 84,524 36,272 79,716
. Total Retail 1,935,298 1,887,576 1,871,457 Wholesale 102,262 24,409 11,381 Total Electric 2,037,560 1,911,985 1,882,838 Steam Heating - 13,371 12,953 Total Operating Revenues $2,037,560 $1,925,356 $1,895,791 1
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Cleveland Electric A Years Ended December 31, 1988 1987 1986 Enargy Generated (Millions of kWh): i Net Generation 20,236 18,667 16,289 l Net' Purchases 1,091- 1,248 2,863 Net Available for Service Area 21,327 19,4T5- 19,152 Electric Sales (Millions of kVh): Residential 4,852 4,682 4,586 Commercial 4,998 4,818 4,744-Industrial 9,013 8,396 7,927 Wholesale 481 55 - 460 Other 472 485 Total Electric Sales 19,816 18,436 17,717 Customers (End of Period): Residential 657,592 654,021 651,327 Commercial 66,606 64,978 63,292 Industrial & Other 8,203 8,155 8,008 Total Electric Customers 732,401 727,154 722,627 Operating Revenues (In Thousands):
. Residential $ 436,413 $ 428,786 $ 410,153 ,
Commercial 395,165 389,297 382,773 Industrial 476,063 470,861 461,408 Other 59,804 12,322 60,245 . Total Retail 1,367,445 1,301,266 1,314,579 Wholesale 84,133 9,378 192
. Total Electric 1,451,578 1.,310,644 1,314,771 Steam Heating - 13,371 12,953 Total Operating Revenues $1,451,578 $1,324,015 $1,327,724 d
^ ;.' . L
' Toledo Edison
.:.. 1 i Years Ended December 31, 1988 1987 1986
]
1 Energy Generated (Millions of kWh): Net Generation- 9,145 9,134 6,474 Net Purchases 385 (647) 1,689 Net Available for Service Area. 9,530 8,487 8,163l ;
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Electric Sales (Millions of kWh): Residential. 2,068 1,977 1,941 Commercial- 1,579 1,532 -1,495 Industrial 3,780 3,589 3,482 Wholesale 938 344 242 Other 474 464 449 Total Electric Sales- - HII3I 7,906- 7,609 Customers (End of Period):. Residential 251,590 249,344' 247,256 Commercial- 25,526 25,170 24,655 Industrial & Other 4,102 4,085 4,004 Total Electric Customers 281,218 278,599 275,915 Operating Revenues.(In Thousands):
, Residential $200,916 $200,877 $189,292 Commercial 142,696 142,385 133,841 Industrial 199,521 219,098 214,274
., Other 34,961 27,646 23,886 Total Retail 578,094 590,006 561,293
- Vholesale 49,903 15,031- 11,189-Total Operating Revenues $627,997 $605,037 $572,482 l
e r 9
Operating Nuclear Units
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Davis-Besse was placed in commercial operation in 1977 and Perry Unit 1 and Beaver Valley Unit 2 were placed in commercial operation in 1987. See Notes 1 and 2 for the Centerior Utilities' ownership and leasehold shares in these units. Davis-Besse, Perry Unit 1 and Beaver Valley Unit 2 had equivalent availability factors during 1988 of 33%, 70% and 88%, respectively. (Davis-Besse was out of service for nine months in 1988 for extensive modifications, repairs and refueling.) Equivalent availability is the ratio of gross avail-able generation to gross maximum generation, expressed as a percentage. Available generation is the energy that can be produced if the unit is oper-ated at the maximum power level permitted by equipment and regulatory limita-tions. Maximum generation is the energy that can be produced by a unit in a given period if operated continuously at maximum capacity. Discretionary 1 operations below maximum permitted power for economic reasons do not reduce equivalent availability. In January 1988, an organization filed a petition with the NRC requesting that the NRC suspend the operating license of Perry Unit 1 and the construction permit for Perry Unit 2 based upon information regarding the potential for an earthquake near the Perry Plant and its ability to withstand such an earth-quake. The petition was denied by the NRC in June 1988. In September 1988, the organization filed a petition with the District of Columbia Circuit Court seeking review of the NRC's June 1988 denial. Centerior and the Centerior Utilities believe this petition is unlikely to succeed. In July 1988, the same organization filed a petition with the NRC requesting ~ that all nuclear plants with boiling water reactors, including Perry Unit 1, be shut down until certain remedial steps are taken to reduce the risks as-sociated with a power oscillation problem such as that experienced at the , Commonwealth Edison Company's LaSalle Unit 2 in March 1988. In August 1988, the NRC notified the organization that the request for an immediate shutdown of Perry Unit 1 was denied. The remaining requests for remedial action con-tinue to be pending before the NRC. Centerior and the Centerior Utilities also believe that this petition is unlikely to succeed. In January 1986, the NRC undertook to review the design and operation of B&V-designed nuclear reactors at several plants, including Davis-Besse, to deter-mine whether any changes should be made to reduce the frequency and severity of operational problems at such reactors and thereby improve safety. As a result, the B&V Owners Group conducted a study of the matter and reported the results to the NRC for consideration as a part of its review. The report concluded that the B&V-designed reactors were safe, but offered recommenda-tions to effect changes to enhance safety and improve operating efficiency. All of the recommendations relating to safety have been made at Davis-Besse. Toledo Edison is implementing the remaining recommendations relating to ef- ; ficiency during regularly scheduled outages. The NRC staff has not conducted any further review beyond the scope of the B&W Owners Group study, and there has been no indication that the NRC vill conduct any further review. . In January 1989, the Sixth Circuit Court affirmed the NRC's decision denying the request filed by the State of Ohio and an organization in 1986 to prevent . the operation of Davis-Besse until the NRC had reviewed the off-site emergency evacuation plan for Davis-Besse. The organization has said that it would not
appeal this decision to the U.S. Supreme Court. Centerior and the Centerior Utilities cannot predict whether or not the State of Ohio will pursue such an appeal. Nuclear Unit Concerns Nuclear generating units in the electric utility industry, including those of the CAPC0 Group companies, have experienced unplanned outages or extensions of scheduled outages due to equipment problems or new regulatory requirements sometimes followed by significant delays in obtaining regulatory approval to return to service. A major accident at a nuclear facility anywhere in the world could cause the NRC to limit or prohibit the operation, construction or licensing of nuclear units in the United States, including those of the CAPC0 Group. Competitive Conditions General. The Centerior Utilities compete in their respective service areas with suppliers of natural gas for space, water and process heating and appli-ances. The Centerior Utilities also are engaged in competition to a lesser extent with suppliers of oil and liquified natural gas for heating purposes, with certain customers who own and operate cogeneration facilities and, in the case of Cleveland Electric, with CPP. Certain municipal officials in several of the municipalities served by the Centerior Utilities have suggested that their municipalities investigate the
. economic feasibility of establishing and operating municipally-owned electric systems. With the exception of Clyde, Ohio, as discussed below under "Com-petitive Conditions--Toledo Edison", none of those municipalities has obtained
- authorization to establish such a system.
The Centerior Utilities face continuing competition from locations outside their service areas which are promoted by governmental and private agencies in attempts to influence potential and existing commercial and industrial cus-tomers to locate in their respective areas. Cleveland Electric and Toledo Edison also periodically compete with other electric utilities for sales to electric utilities which are in the market for bulk power purchases. Cleveland Electric. The City of Cleveland operates CPP in competition with Cleveland Electric. CPP is primarily an electric distribution system which supplies electric power in approximately 40% of the City's area and to ap-proximately 22% (about 50,000) of the electric consumers in the City--equal to ! about 7% of all customers served by Cleveland Electric. CPP's kilowatthour sales and revenues are equal to about 3% of Cleveland Electric's kilowatthour l l sales and revenues. Much of the area served by CPP overlaps that of Cleveland l Electric. Cleveland Electric is obligated to make available up to 100,000 kilowatts of CPP's energy requirements over two 138 kV interconnections. However, in recent years, CPP has not made significant power purchases from Cleveland Electric. In 1988, Cleveland Electric provided less than 1% of CPP's energy requirements. The balance of CPP's power is purchased from other sources and transmitted or " wheeled" over Cleveland Electric's transmission system. For all classes of customers, Cleveland Electric's rates are higher
i than CPP's rates due primarily to CPP's purchases of low-cost power which is not available, by lav, to Cleveland Electric and to the exemption from taxa- . tion enjoyed by CPP. In May 1983, CPP announced its intention to convert some of Cleveland Electric's customers to its service. In August 1987, the City of Cleveland sold $50,000,000 of special obligation bonds payable only from revenues of CPP. CPP stated that it plans to use the proceeds primarily to construct by 1992 new transmission and distribution facilities extending into easterly portions of Cleveland, comprising over 20% of the area of the City, which now are served exclusively by Cleveland Electric. The construction schedule of CPP is intended to enable it to start offering service in that area as early as mid-1989 to residential and commercial customers (including some classified as small industrial by Cleveland Electric) and various City facilities. CPP projects that by 1992 it should take away from Cleveland Electric in that area over 36,000 residential customers and a small number of commercial customers. Over the past three years, Cleveland Electric has ex-perienced the net loss of an insignificant number of customers (about 2,300), which were primarily residential, to the CPP system. On May 25, 1988, the Ohio Supreme Court ruled that CPP must pay back the loan of approximately $29,400,000 it had received from tax revenues of the City of Cleveland, which loan was subsequently forgiven by the City. Cleveland Electric had filed a suit in August 1984 on behalf of itself and all other taxpayers in the City of Cleveland claiming that the transfer of tax funds from the City to CPP was in violation of the City's charter. The Ohio Supreme Court agreed with Cleveland Electric and remanded the case to the trial court for a determination of a repayment plan for the reimbursement of tax funds with proper interest. . , The City of Painesville owns and operates an electric generation and distribu-tion system which supplies electric power exclusively to customers in the City - of Painesville. It also serves small portions of Painesville and Perry Town-ships which also are served by Cleveland Electric. The number of customers served by the Painesville system is approximately 1% of the number of cus-tomers served by Cleveland Electric. Cleveland Electric has a 138 kV inter-connection with the City of Painesville and provides power for emergency purposes only. Currently, four commercial customers and one industrial customer of Cleveland Electric have cogeneration installations. An increasing number of customers are inquiring about cogeneration applications, and cogeneration vendors continue to be active in Cleveland Electric's service area. Toledo Edison. Located wholly or partly within Toledo Edison's service area are five rural electric cooperatives which are supplied with power trans-mitted, in some cases over Toledo Edison's facilities, by Buckeye Power, Inc. (an affiliate of a number of Ohio rural electric cooperatives). i Toledo Edison serves 13 municipalities at wholesale under a rate contract through AMP-Ohio which has been approved by the FERC. Rates paid by the - ' municipalities under this contract are permit ted to increase annually subject to FERC approval. Less than 3% of Toledo Edison's total electric operating revenues in 1988 was derived from sales under the AMP-Ohio contract. The t contract can be cancelled upon one year's notice by either party. AMP-Ohio has notified Toledo Edison that it is cancelling its power sales agreement 1
i with Toledo Edison effective August 1, 1989. Toledo Edison is continuing to l
. negotiate with AMP-Ohio in an effort to enter into a new agreement.
Although the municipalities served by Toledo Edison which have entered into an agreement with AMP-Ohio continue to evaluate possible means of replacing a portion of the electric power currently being supplied by Toledo Edison, Toledo Edison is currently aware of only two municipalities that have ex-pressed an intention to eliminate their power purchases from Toledo Edison.
)
Those two municipalities are attempting to force another Ohio utility to pro-vide them with electricity. However, the Ohio utility involved has refused to provide such power, and the two municipalities have filed a complaint with the FERC in this matter. No action has been taken by the FERC on this complaint. The municipalities which have entered into an agreement with AMP-Ohio have been purchasing some of their power needs from other sources at rates lover than Toledo Edison's and wheeling such power through Toledo Edison's transmis-sion system. Toledo Edison believes that the municipalities will continue to purchase some of their power needs from other sources as long as it is eco-nomically beneficial. In November 1987, the city of Clyde, Ohio initiated plans to establish and operate a municipally-owned electric distribution system. In 1988, about 1% of Toledo Edison's total electric operating revenues was derived from sales to about 2,300 customers located in Clyde. Construction of Clyde's distribution system is in progress. The largest customer in Clyde, which comprises about 75% of the total sales to Clyde customers, is expected to begin converting to Clyde's system in April 1989. Other customers in Clyde may convert as con-struction progresses and service becomes available. A" organization has started a petition drive in the City of Toledo to force a
, ballot referendum which vould require the City to investigate the possibility of establishing its own municipal system. The Toledo City Council had pre-viously voted against having such a study performed. Several other communi-ties are in various preliminary stages of investigating the possibility of establishing their own municipal electric systems.
Currently, three commercial customers and two industrial customers of Toledo Edison have cogeneration installations. An increasing number of customers are inquiring about cogeneration applications, and cogeneration vendors continue to be active in Toledo Edison's service area. Fuel Supply Cleveland Electric and Toledo Edison are primarily coal-fired utilities. Gen-eration by type of fuel for 1988 for Cleveland Electric was 78% coal-fired and 22% nuclear; for Toledo Edison was 64% coal-fired and 36% nuclear; and for the Centerior System was 73% coal-fired and 27% nuclear. Coal. In 1988, Cleveland Electric and Toledo Edison burned 6,519,000 tons and
. 2,248,000 tons of coal, respectively, for electric generation. Each utility normally maintains a reserve supply of coal sufficient for about 40 days of normal operations. On March 1, 1989, this reserve was about 48 days for - plants operated by Cleveland Electric, 58 days for plants operated by Toledo Edison and 60 days for the Mansfield Plant, which is operated by Pennsylvania Power.
l
In 1988, about 63% of Cleveland Electric's coal requirements was purchased under long-term contracts with the longest remaining term being almost 12 , years. In most cases, these contracts provide for adjusting the price of the coal on the basis of changes associated with coal quality and mining costs. The sulfur content of the coal purchased under the long-term contracts ranges from less than 1% to about 4%. The balance of Cleveland Electric's coal was purchased on the spot market with sulfur content ranging from less than 1% to 3.5%. In 1988, about 85% of Toledo Edison's coal requirements was purchased under long-term contracts with the longest remaining term being almost 12 years. In most cases, these contracts provide for adjusting the price of the coal on the basis of changes associated with coal quality and mining costs. The sulfur content of the coal purchased under the long-term contracts was about 1% to 4%. The balance of Toledo Edison's coal was purchased on the spot market with sulfur content of about 1%. One of Cleveland Electric's long-term coal supply contracts is with Ohio Valley, the successor corporation to The Nacco Mining Company. All of the stock in The Nacco Mining Company was purchased by Ohio Valley Resources, Inc., in May 1988 and The Nacco Mining Company's name was changed to The Ohio Valley Coal Company. At that time, Cleveland Electric entered into an agree-ment with Ohio Valley whereby Cleveland Electric agreed to pay Ohio Valley certain amounts to cover Ohio Valley's costs regardless of whether coal is actually delivered. Included in those costs are amounts sufficient to service the long-term debt incurred by Ohio Valley Resources, Inc. to acquire The Nacco Mining Company and the long-term debt and lease obligations incurred by ~ The Nacco Mining Company and assumed by Ohio Valley to develop a mine. If the coal sales agreement is terminated for any reason, including the inability to use the coal, Cleveland Electric must assume Ohio Valley's debt and lease ~ obligations and may incur other expenses. Cleveland Electric believes that the cost of assuming such obligations and incurring such expenses vould not have a material adverse effect upon its financial position. The principal amount of debt and termination values of leased property covered by Cleveland Electric's agreement was $48,002,000 at December 31, 1988. Centerior and Cleveland Electric expect that Ohio Valley revenues from sales of coal to Cleveland Electric vill continue to be sufficient for Ohio Valley to meet its debt and lease obligations. The contract with Ohio Valley expires in 1997. The CAPC0 Group companies, including the Centerior Utilities, have a long-term contract with Quarto and Consol for the supply of about 5,000,000 tons of coal per year to the Hansfield Plant, about 75%-85% of the annual coal needs of this Plant. The contract runs through at least the end of 1999, and the price of coal is adjustable to reflect changes in labor, materials, transportation and other costs. The CAPC0 Group companies have guaranteed, severally and not jointly, the debt and lease obligations incurred by Quarto to develop, equip and operate two of the mines which supply the Hansfield Plant. At December 31, 1988, the total dollar amount of Quarto's debt and lease obligations guaranteed by Cleveland Electric was $47,128,000 acd by Toledo Edison was ,
$26,508,000. Centerior, Cleveland Electric and Toiedo Edison expect that Quarto revenues from sales of coal to the CAPC0 Group companies vill continue to be sufficient for Quarto to meet its debt and lease obligations. .
( _ _ _ _ _ _ _ _ _ _ _ _ _ _
Nuclear. The acquisition and utilization of nuclear fuel involves six dis-
. tinct steps: (i) supply of uranium oxide raw material, (ii) conversion to uranium hexafluoride, (iii) enrichment, (iv) fabrication into fuel assemblies, i (v) utilization as fuel in a nuclear reactor and (vi) storing and reprocessing l or disposing of spent fuel. The Centerior Utilities have inventories and !
have contracts for the supply of raw material sufficient to provide nuclear j i fuel through 1994 for the operation of their nuclear generating units, and have contracts for conversion and fabrication services for most of that fuel. The additional required conversion and fabrication services are available. Substantial additional fuel vill have to be obtained in the future over the remaining useful lives of the units. More nuclear fuel vould be needed if Perry Unit 2 is completed. The CAPC0 Group companies have a 30-year contract with the DOE which vill sup-ply up to all of the needed enrichment services for their nuclear units' fuel supply for that period. The validity of the form of enrichment services con-tract used by the DOE had been challenged in a lawsuit in the U.S. District Court for Colorado. However, in February 1989, the plaintiffs in that suit withdrew their complaint, thus leaving intact the DOE's contracts, including its contract with the CAPC0 Group companies. Spent fuel reprocessing is not commercially available. Off-site disposal of spent nuclear fuel is also unavailable, but the CAPC0 Group companies have contracts with the DOE which provide for the future acceptance of spent fuel for disposal by the Federal government. Pursuant to the Nuclear Vaste Policy Act of 1982, the Federal government has indicated it vill begin accepting spent fuel from utilities by the year 2003. On-site storage capacity at Davis-Besse and Beave; Valley Unit 2 should be sufficient through 1995 and 2009, respectively. On-site storage capacity at the Perry Plant should be
. sufficient through 2008 for Perry Unit 1. Any additional storage capacity needed for the period until the government accepts the fuel can be provided for either on-site or off-site by the time it is needed.
011. The Centerior Utilities each have adequate supplies of oil and fuel for their oil-fired electric generating units which are used primarily as reserve and peaking capacity. EXECUTIVE OFFICERS OF THE REGISTRANTS Set forth below are the names, ages as of March 15, 1989, positions and brief accounts of the business experience during the past five years of the execu-tive officers of Centerior Energy, the Service Company, Cleveland Electric and Toledo Edison. Position or positions currently held are designated with an asterisk (*). 4
A. Centerior Energy Business Experience Effective Date Name Age (Positions as Indicated) of Position Richard A. Miller- 62
- Chairman of the Board and October 1988 Chief Executive Officer of Centerior and the Service Company
< Vice Chairman of the Board July 1988 and Chief Executive Officer of the Service Company and Cleveland Electric and Chairman of the Board and Chief Executive Officer of Toledo Edison President of the Service April 1986 Company President of Centerior February 1986 President of Cleveland September 1983 Electric Robert J. Farling 52
- Chairman of the Board and February 1989 Chief Executive Officer of
-Cleveland Electric
- President of Centerior and October 1988
- Chairman of the Board and .
Chief Executive Officer of Toledo Edison
.
- President of the Service July 1988 ~
Company President of Cleveland April 1986 Electric Executive Vice President of February 1986 Centerior Vice President-Administrative July 1980 ^ Services of Cleveland Electric Paul M. Smart 60 *Vice Chairman of the Board July 1988 of Toledo Edison
- Executive Vice President of February 1986 Centerior President of Toledo Edison July 1985 Senior Vice President, January 1984 Corporate Development and General Counsel of Toledo Edison Senior Partner, Fuller & July 1963 ,
Henry (Served as Toledo Edison's General Counsel with Specialization in . Electric Utility Regulatory Matters)
"9 - 4
't : ..
~ Business Experience . Effective Date Name' Age (Positions as Indicated) of Position Murray R. Edelman 49
- Executive Vice. President of . July 1988 Centerior and
- President of Toledo Edison Vice President-Nuclear April 1986 of the Service Company and Senior Vice President-Nuclear of' Cleveland Electric Vice President-Nuclear of December 1982 Cleveland ElectrJe
- Lyman C. Phillips '49
- Executive Vice President of July-1988.
Centerior and
- President of Cleveland Electric
' Executive Vice President of June 1987 Toledo Edison and Senior-Vice President-of Centerior Senior Vice President- April 1986 Administration of the Service Company.
Senior Vice President, January 1984 Administration of Toledo Edison
~ Edgar H. Maugans 54
- Senior Vice President-Finance April 1988 of Centerior
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- Senior Vice President-Finance April 1986 of the Service Company Vice President-Finance of February 1986 Centerior Vice President-Finance of February 1979 Cleveland Electric Victor F. Greenslade 61 *Vice President & General June 1987 Counsel of Centerior and the Service Company General Counsel of the April 1986 Service Company General Counsel & Director- February 1983 Governmental Affairs of ,
Cleveland Electric ' Paul G. Busby 40
- Controller of Centerior April 1988 .
- Controller of the Service June 1986 Company Controller of Toledo Edison April 1979
)
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- s. *
. Business Experience Effective Date
'Name Age (Positions as-Indicated) of Position ,
Gary M. Hawkinson' 40
- Assistant Treasurer of August-1987 Cleveland Electric
- Assistant Treasurer of September-1986 Toledo Edison
- Treasurer of the Service April 1986 Company
- Treasurer of Centerior February 1986 Assistant Secretary of April 1984--
Toledo Edison . April 1986 Assistant Treasurer of March 1979-Toledo Edison April 1986 E. Lyle Pepin 47
- Secretary of Cleveland- October 1988 L Electric and Toledo Edison
- Secretary of the Service April 1986 Company Assistant Secretary of April 1986 C3ev(land Electric and Toledo Edison
- Secretary of Centerior February 1986 Secretary.of Cleveland October 1982 Electric.
4 'B. Service" Company
~
Business Experience (Positions , With the Service Company Effective Date Name Age Unless Otherwise Indicated) of Position Richard A.' Miller 62
- Chairman of the Board and October 1988 Chief Executive Officer See listing under Centerior
- Energy for additional business experience.
Robert J. Farling 52
- President July 1988 See listing under Centerior Energy for additional business experience.
Edgar H. Maugans 54
- Senior Vice President-Finance April 1986 See listing under Centerior Energy for additional business experience..
4
s'
]
l Business Experience (Positions l
. Vith the Service Company Effective Date Name Age Unless Otherwise Indicated) of Position Richard P. Crouse 49
- Senior Vice President of April 1988 ,
Toledo Edison i
*Vice President-Fossil August 1987 Operations & Engineering Senior Vice President, June 1986 Engineering & Operations of Toledo Edison Senior Vice President, July 1985 Operations of Toledo Edison
~Vice President, Nuclear of December 1919 Tolede Edison Victor F. Greenslade 61 *Vice President & General June 1987 Counsel See listing under Centerior Energy for additional business experience.
John S. Levicki 49 *Vice President-Public October 1988 Affairs & Rates Vice President-Finance, January 1988 Administration & Legal of
. Cleveland Electric Vice President-Finance & April 1986 Administration of Cleveland
.. Electric Manager-Consumer Services September 1981 Dept. of Cleveland Electric Villiam D. Masters 58 *Vice President-System April 1986 Engineering & Operations Manager-System Planning & July 1985 Operations Dept. of Cleveland Electric Manager-Plant & Substation February 1984 Engineering Dept. of Cleveland ElectrP Manager-System Plt..aing February 1974 Dept. of Cleveland Electric Stanley E. Vertheim 61 *Vice President-Administration June 1987 Assistant to the President April 1986 Director-Corporate Planning February 1985 of Cleveland Electric
. Manager-System Planning & January 1984 Operations Dept. of Cleveland Electric I
Business Experience (Positions With the Service Company Effective Date . Name Age Unless Otherwise Indicated) of Position Alan D. Vright 59 *Vice President-Governmental October 1988 Affairs
- Senior Vice President of April 1988 Cleveland Electric Vlee President-Governmental & April 1986 Public Affairs Senior Vice President-Public April 1986 Affairs & Legal of Cleveland Electric Vice President-Public March 1980 Affairs & Legal of Cleveland Electric Paul G. Busby 40
- Controller June 1986 See listing under Centerior Energy for additional business experience.
Gary M. Hawkinson 40
- Treasurer April 1986 See listing under Centerior Energy for additional business experience.
^
E. Lyle Pepin 47
- Secretary April 1986 See listing under Centerior Energy for additional .
business experience. C. Cleveland Electric Business Experience (Positions With Cleveland Electric Effective Date Name Age Unless Otherwise Indicated) of Position Robert J. Farling 52
- Chairman of the Board and February 1989 Chief Executive Officer See listing under Centerior Energy for additional business experience.
Lyman C. Phillips 49
- President July 1988 See listing under Centerior Energy for additional business experience. .
l ______ __-- _ _ _ J
Business Experience (Positions Vith Cleveland Electric Effective Date l Name Age Unless Otherwise Indicated) of Position Alan D. Vright 59 *3enior Vice President April 1968 l See listing under the Service Company for additional business experience. Gary J. Greben 51 *Vice President-Marketing July 1987 Manager-Business Ventures November 1984 Manager-Industrial Marketing February 1978 Dept. Jacquita K. Hauserman 46 *Vice President-Administration October 1988 Director-Consumer Services April 1986 Dept. Senior Corporate Planning August 1985 Advisor General Supervisor-Personnel July 1985 Development Section, Personnel Dept. General Supervisor-Employee November 1983 Services Section, Personnel Dept. Alvin Kaplan 50 *Vice President-Nuclear December 1987 Vice President-Nuclear February 1984 Operations Division-Manager-Plant & Substation July 1980 Engineering Dept. Villiam K. McClung 59 *Vice President-Distribution & January 1988 Services Vice President-Distribution & May 1986 Services Division Manager-Miles District Dept. July 1982 Richard A. Peterka 61 *Vice President-Power Supply January 1988 Vice President-Power May 1986 Production Division Director-Union Relations October 1983 John M. Borthwick 52
- Controller January 1989 Manager-General Accounting March 1980 Section, Controller's Dept.
9
Business Experience (Positions With Cleveland Electric Effective Date .- Name Age Unless Otherwise Indicated) of Position Terrence R. Moran 47-
- Treasurer April 1986 Assistant Treasurer and July 1984 General Supervisor, Funds Management Section Senior Rates & Technical August 1982 Studies Analyst E. Lyle Pepin 47
- Secretary October 1988 See listing under Centerior Energy for additional business experience.
D. Toledo Edison Business Experience (Positions With Toledo Edison Effective Date, Name Age Unless Otherwise Indicated) of Position Robert J. Farling 52
- Chairman of the Board and October 1988 Chief Executive Officer See listing under Centerior Energy for additional .
business experience. Paul H. Smart 60 *Vice Chairman of the Board July 1988 - See listing under Centerior Energy for additional business experience. Murray R. Edelman 49
- President July 1988 See listing under Centerior Energy for additional business experience.
Richard P. Crouse 49
- Senior Vice President April 1988 i See listing under the Service Company for additional business experience.
1 David L. Monseau 48 *Vice President-Customer September 1987 Operations l Director-Human Resources April 1986 1 Dept. of the Service - Company Manager-Personnel Dept. of June 1980 Cleveland Electric - i l u__._____________.____
c.,. ..: e Business Experience (Positions With Toledo Edison. Effective Date
' Name ' . Age Unless 0therwise Indicated) of Position Thomas M. Quinn 49 *Vice, President-Marketing September 1987 L
General Manager-Consumer August 1986 Services Dept. Manager-Southern District January 1979 Donald H. Saunders 53 *Vice President, Finance & July 1986 Administration Treasurer. March'1979 e Donald C.~Shelton. 55 *Vice President, Nuclear August 1986 Project Manager,: Stone and January 1983 Webster Engineering Corp..
' James P. Martin 45
- Controller and Treasurer October 1988 Controller' October 1987-Treasurer July 1986 Audit Manager . October 1977 lE. Lyle'Pepin 47
- Secretary. October 1988.
See listing under Centerior Energy for additional p,. business experience. All of' the ' executive officers of Centerior Energy, the Service Company, Cleveland Electric and Toledo Edison are elected annually for a one-year term by the. board of directors of Centerior, the Service Company, Cleveland Electric or Toledo Edison, as the case may be. Mr. Smart is employed by Toledo Edison pursuant to an employment contract extending through January 31, 1990.- l No . family relationship exists among any of the executive officers and direc-tors of any of the Centerior System companies. Item 2. Properties GENERAL The Centerior System The Lvholly-owned, jointly-owned and leased electric generating facilities of thel Centerior Utilities in commercial operation as of December 31, 1988 pro-vide .the Centerior System with a net demonstrated capability of 6,697,000 L kilowatts during the vinter. These facilities include 28 generating units
.. (4,390,000 kilowatts) at seven fossil-fired steam electric generation sta-tions; three nuclear generating units (1,851,000 kilowatts); a 305,000 kilo-vatt share of the Seneca Plant; seven combustion turbine generating units
. .(147,000 kilowatts) and one diesel generator (4,000 kilowatts). All of the Centerior System's generating facilities are located in Ohio and Pennsylvania.
- = - _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _ __ ______ ______ -______ _ _ _ _ _ ___ _ _-_ __ - _ - - _ _ . -
t C The 'Centerior System's net 60-minute peak load of its service area for 1988 was 5,673,000 kilowatts and occurred on August 17. This peak load established , the; all-time record for Centerior. At the time of the 1988 peak load, the operable capacity available to serve the load was 5,525,000 kilowatts. The Centerior System's 1989 service area peak load. is forecasted to be 5,490,000 kilowatts. The operable capacity expected to be ,available to serve the Centerior System's 1989 peak is 6,590,000 kilowatts. Over the 1989-1991 period, Centerior Energy forecasts its operable capacity' margins at the time of the projected Centerior System peak loads to range from 17% to 19%. Each Centerior Utility owns the electric transmission and distribution facili-ties located in its respective service area. Cleveland Electric and Toledo Edison are interconnected by 345 kV transmission facilities, some portions of which are owned and used by Ohio Edison. The Centerior Utilities have a long-term contract with the CAPCO Group companies, including Ohio Edison,~ relating to the use of these facilities. These interconnection facilities provide for 3' the ~ interchange of power between the two Centerior Utilities. The Centerior ~ j System. is interconnected with Ohio Edison, Ohio Power, Penelee end Detroit Edison Company. Cleveland Electric . The wholly-owned, jof:tly-owned and leased electric generating facilitiee of Cleveland . Electric in commercial operation as of December 31, 1988 provide a net demonstrated capability of 4,600,000 kilowatts during the vinter. These facilities include 21 generating units (3,197,000 kilowatts) at five fossil-fired steam electric generation stations; its share of three nuclear generat- , ing units (1,024,000 kilowatts); a 305,000 kilowatt share of the Seneca Plant; two combustion turbine generating units (70,000 kilowatts) and one diesel gen-erator (4,000 kilowatts). All'of Cleveland Electric's generating facilities . are located in Ohio and Pennsylvania. The net 60-minute peak load of Cleveland Electric's service area occurred on August 22, 1988 and was 4,067,000 kilowatts. This peak load established the all-time record for Cleveland Electric. The operable capacity at the time of the 1988 peak was 4,028,000 kilowatts. Cleveland Electric's 1989 service area peak load is forecasted to be 3,990,000 kilowatts. The operable capacity, which includes firm purchases, expected to be available to serve Cleveland Electric's 1989 peak is 4,686,000 kilowatts. Over the 1989-1991 period, Cleveland Electric forecasts its operable capacity margins at the time of its projected peak loads to range from 16% to 18%. Cleveland Electric owns the facilities located in the area it serves for ) transmitting and distributing power to all its customers. Cleveland Electric has interconnections with Ohio Edison, Ohio Power and Penelec. The intercon-nections with Ohio Edison provide for the interchange of electric power with the other CAPC0 Group companies and for transmission of power from the tenant-in-common owned or leased CAPCO Gioup generating units as well as for the i interchange of power with Toledo Edison. The interconnection with Penelec . J provides for transmission of power from Cleveland Electric's share of the ) Seneca Plant. In addition, these interconnections provide the means for the interchange of electric power with other utilities. - l l
Cleveland Electric also has interconnections with the Painesville Municipal Light Plant and CPP. Toledo Edison The wholly-owned, jointly-owned and leased electric generating facilities of Toledo Edison in commercial operation as of December 31, 1988 provide a net demonstrated capability of 2,097,000 kilowatts during the vinter. These facilities include nine generating units (1,193,000 kilowatts) at three fossil-fired steam electric generation stations; its share of three nuclear generating units (827,000 kilowatts) and five combustion turbine generating units (77,000 kilowatts). All of Toledo Edison's generating facilities are located in Ohio and Pennsylvania. The net 60-minute peak load of Toledo Edison's service area occurred on August 17, 1988 and was 1,614,000 kilowatts. This peak load established the ; all-time record for Toledo Edison. The operable capacity at the time of the 1988 peak was 1,497,000 kilowatts. Toledo Edison's 1989 service area peak load is forecasted to be 1,520,000 kilowatts. The operable capacity, which excludes firm sales, expected to be available to serve Toledo Edison's 1989 peak is 1,904,000 kilowatts. Over the 1989-1991 period, Toledo Edison fore-casts its operable capacity margins at the time of its projected peak loads to range from 18% to 20%. Toledo Edison owns the facilities located in the area it serves for trans-mitting and distributing power to all its customers. Toledo Edison has inter-
. connections with Ohio Edison, Ohio Power and Detroit Edison Company. The interconnection with Ohio Edison provides for the interchange of electric power with the other CAPCO Group companies and for transmission of power from the tenant-in-common owned or leased CAPCO Gicap generating units as well as for the interchange of power with Cleveland Electric. In addition, these in-terconnections provide the means for the interchange of electric power with other utilities.
TITLE TO PROPERTY The generating plants and other principal facilities of the Centerior Utilities a e located on land owned in fee by them, except as follows: (1) Cleveland Electric and Toledo Edison lease from others for a term of about 29-1/2 years starting on October 1, 1987 undivided 6.5%, 45.9% and 44.38% tenant-in-common interests in Units 1, 2 and 3, respectively, of the Mansfield Plant located in Shippingport, Pennsylvania. Cleveland Electric and Toledo Edison lease from others for a term of about 29-1/2 years starting on October 1, 1987 an 18.26% undivided tenant-in-common interest in Beaver Valley Unit 2 located in Shippingport, Pennsylvania. Cleveland Electric and Toledo Edison own another 24.47% interest and 1.65% interest, respectively, in Beaver Valley Unit 2 as a tenant-in-common. Cleveland Electric and Toledo Edison continue to own as a tenant-in-common the land upon which the Mansfield Plant and Beaver Valley Unit 2 are located, but have leased to others certain portions of that land relating to the above-mentioned generating unit leases.
. n (2) Most 'of the facilities of Cleveland Electric's Lake Shore Plant are situated on artificially filled land, extending beyond the natural shore- .
line of Lake Erie as it existed in 1910. As of December 31, 1988, the cost of. Cleveland Electric's facilities, other than water intake and discharge facilities, located on such artificially filled land aggregated approximately $107,974,000. Title to land under the water of Lake Erie within the territorial limits of Ohio (including artificially filled land) is in the State of Ohio in trust for the people of the State for the public uses to which it may be adapted, subject to the powers of the United States, the public rights of navigation, water commerce and L fishery and the rights of upland owners to wharf out or fill to make use of the water. The State is required by statute, after appropriate pro-ceedings, to grant a lease to an upland owner, such as Cleveland Elec-tric, which erected and maintained facilities on such filled land prior to .0ctober 13, 1955. Cleveland Electric does not have such a lease from the State with respect to the artificially filled land on which its Lake Shore Plant facilities are located, but Cleveland Electric's position, on advice of counsel for Cleveland Electric, is that its facilit'ies and oc-cupancy may not be disturbed because they do not interfere with the free flow of commerce in navigable channels and constitute (at least in part) and are on land filled pursuant to the exercise by it of its property rights as owner of the land above the shoreline adjacent to the filled land. Cleveland Electric holds permits, under Federal statutes relating
~
to navigation, to occupy such artificially filled land. (3) The facilities of Cleveland Electric's Seneca Plant in Warren County, Pennsylvania, are located on land owned by the United States and occupied ' by Cleveland Electric and Penelee pursuant to a license issued by the FERC for a 50-year period starting December 1, 1965 for the construction, operation and maintenance of a pumped-storage hydroelectric plant. , (4) The water intake and discharge facilities at the electric generating plants of Cleveland Electric and Toledo Edison, located along Lake Erie, the Maumee River and the Ohio River, are extended into the lake and rivers under their property rights as owners of the land above the water line and pursuant to permits under Federal statutes relating to navigation. (5) The transmission systems of the Centerior Utilities are located on land, easements or rights-of-way owned by them. Their distribution systems also are located, in part, on interests in land owned by them, but, for the most part, they are located on lands owned by others and on streets and highways. In most cases, permission has been obtained from the apparent owner or, if located on streets and highways, from the apparent owner of the abutting property. Their electric underground transmission and distribution systems are located, for the most part, in public i streets. The Pennsylvania portions of the main transmission lines from ) the Seneca Plant, the Mansfield Plant and Beaver Valley Unit 2 are not owned by Cleveland Electric or Toledo Edison. . 1 All Cleveland Electric and Toledo Edison properties, with certain exceptions, are subject to the lien of their respective mortgages. . 1 1 l 1 l
The fee titles which Cleveland Electric and Toledo Edison acquire as tenant-in-common owners, and the leasehold interests they have as joint lessees, of certain generating units do not include the right to require a partition or sale for division of proceeds of the units without the concurrence of all the other owners and their respective mortgage trustees and the trustees under Cleveland Electric's and Toledo Edison's mortgages. Item 3. Legal Proceedi g Various Actions Involving the Perry Plant--See " Item 1. Business-- Operations--Operating Nuclear Units" and Note 4. Appeal of PUC0 Refund Orders Regarding Davis-Besse--See " Item 1. Business-- Electric Rates--1989 Kate Orders". Petition to Suspend Operating License of Davis-Besse Due to Concerns Over Off-Site Emergency Evacuation Plans--See " Item 1 Business--Operations-- Operating Nuclear Units" and Note 4. Regulatory Proceedings and Suits Contesting Sulfur Dioxide Emission Limitations and Related Regulations Applicable to the Centerior Utilities--See
" Item 1. Business -Environmental Regulation--Air Quality Control".
Suits and Administrative Proceedings by the Center'ior Utilities Challenging Effluent Limitations and Water Quality Standards and Requesting Variances Under the Clean Vater Act--See " Item 1. Business--Environmental Regulation--
~
Vater Quality Control". Appeals of 1987 Rate Orders--See " Item 1. Business--Electric Rates--1989 Rate Orders" and Note 7. Proceedings Relating to Perry Unit 1 and Beaver Valley Unit 2 Prudence--See
" Item 1. Business--Electric Rates--1989 Rate Orders" and Note 7.
Taxpayer Suit Filed by Cleveland Electric Challenging Transfer of Funds by City of Cleveland to CPP--See " Item 1. Business--Operations--Competitive Conditions--Cleveland Electric". Share Owner Derivative Suits. On January 28, 1988, two share owners of Centerior Energy common stock filed a derivative complaint in the Common Pleas Court of Cuyahoga County, Ohio, against certain current and past directors of Centerior Energy, Cleveland Electric and Toledo Edison. The suit named Centerior Energy, Cleveland Electric and Toledo Edison as nominal defendants. In the suit, the plaintiffs allege on behalf of Centerior Energy, Cleveland Electric and Toledo Edison that, among other things, the defendants breached their fiduciary duty and mismanaged the companies with respect to the opera-tion of Davis-Besse, the construction of Perry Unit 1 and Perry Unit 2 and the public offerings of additional common stock in recent years. The suit did not specify the amount of damages sought. On March 14, 1988, a third share owner filed a similar suit in the same Court. Subsequently, the Court consolidated the two suits, which are pending.
Item 4. Submission of Matters to a Vote of Security Holders CENTERIOR ENERGY, CLEVELAND ELECTRIC AND TOLEDO EDISON None. PART II Item 5. Market for Registrants' Common Equity and Related Stockholder Matters CENTERIOR ENERGY l Market Information Centerior Energy's common stock is traded on the New York, Midwest and Pacific l Stock Exchanges. The quarterly high and low prices of Centerior common stock (as reported on the composite tape) in 1987 and 1988 vere as follows: 1987 1988 M Low M Lov ist Quarter 24-7/8 21-5/8 18 15-1/8 2nd Quarter 22-3/8 15 16-1/2 14-3/8 3rd Quarter 18-1/2 15 16-1/2 12-3/4 4th Quarter 18-1/2 15-3/8 14 12-1/4 Share Owners As of March 10, 1989, Centerior Energy had 190,787 common stock share owners. , Dividends See Note 15 to Centerior's ~ Financial Statements for quarterly dividend pay-ments in the last two years. l The payment of future dividends by Centerior and the Centerior Utilities vill depend on the future earnings and the financial and business condition of each company and other factors including those discussed in the second paragraph under " Industry Problems and Financial Uncertainties" in Item 1. l At December 31, 1988, Centerior had earnings retained in the business of about
$572,000,000 and capital surplus of about $2,007,000,000, both of which were available to pay dividends. Cleveland Electric and Toledo Edison can make cash available for the funding of Centerior's common stock dividends by paying i dividends on their own common stocks. At December 31, 1988, Cleveland Electric had about $460,000,000 of retained earnings and about $1,321,000,000 of capital surplus and Toledo Edison had about $90,000,000 of retained earn-ings available under Ohio law for the declaration of dividends on their re- . ,
spective preferred, preference and common stocks. However, the payment of dividends out of capital surplus by cleveland Electric may be restricted under the Federal Power'Act. - I
CLEVELAND ELECTRIC The information required by this Item is not applicable to Cleveland Electric because all of its common stock is held solely by Centerior Energy.
*l0LEDO EDISON The information required by this Item is not applicable to Toledo Edison because all of its common stock is held solely by Centerior Energy.
Item 6. Selected Financial Data CENTERIOR ENERGY The information required by this Item is contained on Pages F-24 and F-25 attached hereto. CLEVELAND ELECTRIC The information required by this Item is contained on Pages F-47 and F-48 attached hereto. TOLEDO EDIS0N The information required by this Item is contained on Pages F-71 and F-72 l attached hereto. Item 7. Management's Discussion and Analysis of Financial Condition and _ Results of Operations ! CENTERIOR ENERGY The information required by this Item is contained on Pages F-5, F-6 and F-8 attached hereto. t CLEVELAND ELECTRIC The information required by this Item is contained on Pages F-29, F-30 and F-32 attached hereto. TOLEDO EDISON The information required by this Item is contained on Pages F-52, F-53 and F-55 attached hereto. Item 8. Financial Statements and Supplementary Data CENTERIOR ENERGY The information required by this Item is contained on Pages F-2 through F-4, F-6, F-7 ar.d F-9 through F-23 at tached hereto. The unaudited quarterly results reported for 1988 and 1987 in Centerior Energy's March 31, 1988, June 30, 1988 and September 30, 1988 Form 10-Q's and
l
. . t
~I reported for 1987 in Centerior Energy's 1987 Form 10-K vere the same unaudited I quarterly results as reported for such periods in Centerior Energy's Quarterly .
Reports to Share Owners in 1988 and in its 1987 /nnual Report to Share Owners. As discussed in Note 15, the quarterly results for the first quarter of 1988 and for the four quarters of 1987 have been restated for various reasons. A reconciliation of restated and previously reported information is presented therein. CLEVELAND ELECTRIC The information required by this Item is contained on Pages F-26 through F-28, F-30, F-31 and F-33 through F-46 attached hereto. TOLEDO EDIS0N The information required by this Item is contained on Pages F-49 through F-51, F-53, F-54 and F-56 through F-70 attached hereto. Item 9. Changes in and Disagreements Vith Accountants on Accounting and Financial Disclosure CENTERIOR ENERGY, CLEVELAND ELECTRIC AND TOLEDO EDISON None. PART III Item 10. Directors and Executive Officers of the Registrants CENTERIOR ENERGY . The information required by this Item regarding directors is incorporated herein by reference to Pages 3 through 6 of Centerior's 1989 definitive proxy statement dated March 17, 1989. Reference is also made to " Executive Officers of the Registrants" in Part I of this report for information regarding executive officers. CLEVELAND ELECTRIC Set forth below are the names, ages at March 15, 1989, positions, business experience during the past five years and other directorships held, if any, of the directors of Cleveland Electric. The year in which the director was first elected to Cleveland Electric's Board of Directors is set forth in parentheses. Robert J. Farling*, 52, Chairman and Chief Executive Officer of Cleveland Electric since February 1989, President of Centerior Energy since October 1988 and the Service Company since July 1988. Mr. Farling also has been Chairman and Chief Executive Officer of Toledo Edison since October 1988. From October - 1988 to February 1989, he was Vice Chairman and Chief Executive Officer of Cleveland Electric. Mr. Farling served as Executive Vice President of Centerior Energy from February 1986 to July 1988 and as President of Cleveland - Electric from April 1986 to July 1988. From July 1980 to April 1986, he was i
Vice President-Administrative Services of Cleveland Electric. He also is a director of National City Bank. (1986) Richard A. Miller *, 62, Chairman and Chief Executive Officer of Centerior Energy and the Service Company since October 1988. From July 1988 to October 1988, he was Vice Chairman and Chief Executive Officer of the Service Company and Cleveland Electric and Chairman and Chief Executive Officer of Tcledo Edison. Mr. Miller was President of Centerior Energy from February 1986 to October 1988 and of the Service Company from April 1986 to July 1988. From September 1983 to April 1986, Mr. Miller was President of Cleveland Electric. Mr. Miller also is a director of Bank One, Cleveland, N.A., and The Lubrizol Corp. (1977) Lyman C. Phillips, 49, Executive Vice President of Centerior Energy and Presi-dent of Cleveland Electric since July 1988. From June 1987 to July 1988, he was Senior Vice President of Centerior and Executive Vice President of Toledo Edison. . Mr. Phillips served as Senior Vice President-Administration of the Service Company from April 1986 to June 1987 and Senior Vice President, Administration of Toledo Edison from January 1984 to April 1986. Previously, he was Vice President, Corporate Planning and Development of Toledo Edison from August 1982. (1988)
*Also a director of Centerior Energy and the Service Company.
TOLEDO EDISON
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Set forth below are the names, ages at March 15, 1989, positions, business experience during the past five years and other directorships held, if any, of the directors of Toledo Edison. The year in which the director was first named to Toledo Edison's Board of Directors is set forth in parentheses. Robert J. Farling*, 52, Chairman and Chief Executive Officer of Toledo Edison and President of Centerior Energy since October 1988 and President of the Service Company since July 1988. In February 1989, he became Chairman and Chief Executive Officer of Cleveland Electric. From October 1988 to February 1989, he was Vice Chairman and Chief Executive Officer of Cleveland Electric. Mr. Farling served as Executive Vice President of Centerior Energy from February 1986 to July 1988 and as President of Cleveland Electric from April 1986 to July 1988. From July 1980 to April 1986, he was Vice President-Administration Services of Cleveland Electric. He also is a director of National City Bank. (1988) Murray R. Edelman, 49, Executive Vice President of Centerior Energy and Presi-dent of Toledo Edison since July 1988. From April 1986 to July 1988, he was Vice President-Nuclear of the Service Company and Senior Vice President-Nuclear of Cleveland Electric. Previously, Mr. Edelman was Vice President-Nuclear of Cleveland Electric since December 1982. (1988) ) l l
Richard A. Miller *, 62, Chairman and Chief Executive Officer of Centerior Energy and the Service Company since October 1988. From July 1988 to October . 1988, he was Vice Chairman and Chief Executive Officer of the Service Company and Cleveland Electric and Chairman and Chief Executive Officer of Toledo Edison. Mr. Miller was President of Centerior Energy from February 1986 to October 1988 and of the Service Company from April 1986 to July 1988. From September 1983 to April 1986, Mr. Miller was President of Cleveland Electric. Mr. Miller also is a director of Bank One, Cleveland, N.A., and The Lubrizol Corp. (1986) Donald H. Saunders, 53, Vice President, Finance and Administration of Toledo Edison since July 1986. From Harch 1979 to July 1986, Mr. Saunders was Treasurer of Toledo Edison. (1988)
*Also a director of Centerior Energy and the Service Company.
Item 11. Executive Compensation , CENTERIOR ENERGY The information required by this Item is incorporated herein by reference to the information concerning compensation of directors on Page 7 and the in-formation concerning compensation, other than salaries and insurance, of executive officers on Pages 10 through 14 of Centerior's 1989 definitive proxy statement dated March 17, 1989. 1 1 I I
. . j 1
SALARIES AND INSURANCE { l CENTERIOR ENERGY The following information summarizes compensation paid by the Centerior System for services rendered in 1988 to the five highest paid executive officers of Centerior Energy or the Service Company whose aggregate remuneration exceeded
$60,000 and the aggregate compensation paid to all executive officers of Centerior Energy or the Service Company as a group:
Cash Compensation To Vhom Paid and Principal Salaries and Incentive Insurance Capacities in Which Served (1) Compensation (1) Premiums (2) Richard A. Miller S 362,098 $ 5,466 Robert M. Ginn 343,000 (3) 4,728 Paul H. Smart 227,231 1,794 Robert J. Farling 200,961 3,238 Lyman C. Phillips 188,470 2,925 All 16 executive officers (including the above officers) as a group 2,593,073 37,979 (1) Data are included for the portion of 1988 during which the persons were executive officers of Centerior Energy or the Service Company and includes cash compensation ps?d or accrued in all capacities with the Centerior System as listed in "BLsiness--Executive Officers of the Registrants" for that period. Includes Incentive Compensation awarded on March 28, 1989. (2) Centerior pays long-term disability benefits and premiums for life, acci-dent and personal liability insurance benefits for executive officers to the extent those benefits exceed the benefits uniformly available to sal-aried employees under the Centerior System's benefit plans. No such long-term disability benefits were paid in 1988. (3) Compensation is for the period January 1, 1988 through September 30, 1988. Mr. Ginn retired from the Service Company effective February 1, 1989. CLEVELAND ELECTRIC The following information summarizes compensation paid by the Centerior System fc services rendered in 1988 to the five highest paid executive officers of Cleveland Electric whose aggregate remuneration exceeded $60,000 and the aggregate compensation paid to all Cleveland Electric executive officers as a group: I l 1 l l 1
< . o p -
Cash Compensation To Whom Paid and Principal'- . Salaries and Incentive . Insurance .
.Capaci*fes in'Vhich Served (1) -Compensation.(1) Premiums (2)
. Robert.M..Ginn $ 227,500 (3) $ 3,152 Alan D. Wright 155,608- 1,800' ]
Robert J;'Farling 148,913. 2,429 . Alvin.Kaplan1 127,478 1,994 ,
- Villiam K. McClung 115,463 1,852
- All 15Lexecutive officers (including the above J officers) as a group 1,457,877 22,042
)
(1) Data are included for the portion of 1988 during which the persons were
- executive officers of Cleveland Electric and includes cash. compensation paid -or accrued:in all capacities with the Centerior System as listed in
" Business--Executive Officers of'the Registrants" for that period.
. (2) Centerior pays long-term disabilityLbenefits and premiums for life, acci-dent. and personal liability insurance benefits for executive officers to the extent those benefits exceed the benefits uniformly available to sal-aried employees under the Centerior System's benefit plans. No such long-
-tera disability benefits were paid in 1988.
'(3). compensation is for the period January 1, 1988 through June 30, 1988. 3 Mr. Ginn. retired from the Service Company effective February 1, 1989.
Cleveland Electric has a Deferred Compensation Plan under:which employees 1 designated by the Compensation Committee of Centerior may elect to defer the receipt of up to 25% of salary or.up' to all incentive compensation until a ,. year' selected by the employee not later than the year in which the employee
. attains age >70 or, if it occurs. earlier, at retirement, 12 months after death or at other1 termination of employment. Any. amounts deferred by executive
- officers in 1988 have been included in the cash compensation table.
The directors of Cleveland Electric received no remuneration in their capacity as directors. TOLEDO EDISON
^
The following information summarizes compensation paid by the Centerior System for services rendered in 1988 to the five highest paid executive officers of Toledo Edison whose aggregate remuneration exceeded $60,000 and the aggregate compensation paid to all Toledo Edison executive officers as a groups t 4 _ _ _ . _ _ _ . . ____.-__._m. . _ . . .
E . .- 1 Cash Compensation To Whom Paid and Principal Salaries and Incentive Insurance Capacities in Vhich Servec (1) Compensation (1) Premiums (2) Robert M. Ginn $ 227,500 (3) $ 3,152 Paul M. Smart 227,231 1,794
' Richard P. Crouse 134,500 2,122 1 Donald C. Shelton 125,002 932 J David L.:Monseau 103,494 826 1 All 14 executive officers (including the above officers) as a group 1,419,187 12,995 l
(1) Data are included for the portion of 1988 during which the persons were executive officers of Toledo Edison and includes cash compensation paid or accrued in all capacities with the Centerior System as listed in
" Business--Executive Officers of the Registrants" for that period.
1 (2) Centerior- pays long-term disability benefits and premiums for life, acci- l dent and personal liability insurance benefits for executive officers to the extent those benefits exceed the benefits uniformly available to sal- l aried employees under the Centerior System's benefit plans. .No such long-term disability benefits were paid in 1988. (3) Compensation is for the period January 1, 1988 through June 30, 1988. Mr. Ginn retired from the Service Company effective February 1, 1939. Toledo Edison has a Deferred Compensation Plan under which employees desig-nated by the Compensation Committee may elect to defer the receipt of up to 25% of= salary or up to all incentive compensation until a year selected by the employee not later than the year in which the eeployee attains age 70 or, if it occurs earlier, at retirement, 12 months after death or at other termina-tion of employment. Any amounts deferred by executive officers in 1988 have been included in the cash compensation table. The directors of Toledo Edison received no remuneration in their capacity as directors. PENSION PLAN BENEFITS Centerior System employees, including officers of Cleveland Electric and Toledo Edison, are covered by Centerior's pension program. The pension pro-gram is a noncontributory fixed-benefit program which provides benefits upon retirement at or after age 55. The annual amount of the pension is based pri-marily upon the monthly average straight-time salary and incentive compensa-tion in the 60 consecutive highest paid months (" covered compensation") and the number of years of service. The resulting benefit is reduced by a portion of social security benefits. Effective January 1, 1989, the method of deter- i
~
mining this reduction changed to comply with new Federal regulations. The l pension is reduced in the event of retirement prior to age 62 and in certain I
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l i
cases prior to age 65. Appropriate reductions are made if the employee elects a joint and survivor, guaranteed years certain, lump sum or other form of pen- - sion in place of payments for life. To the extent limits imposed by Federal law apply to reduce a pension which otherwise vould be payable under the pen-sion program, the amount of the reduction vill be paid, as permitted by Federal law, directly by Centerior, except to the extent it is paid out of a trust established by Centerior. The following table shows the annual amount of payment-for-life pension payable to salaried employees who retire under the pension program at or after age 62 at stated levels of covered compensation and years of service: Covered Years of Service Compensation 10 20 25 30 35 40
$100,000 ...... $19,958 $ 39,915 0 45,405 $ 50,894 $ 53,394 $ 55,894 150,000 ...... 30,958 61,915 70,405 78,894 82,644 86,394 200,000 ...... 41,958 83,915 95,405 106,894 111,894 116,894 750,000 ...... 52,958 105,915 120,405 134,894 141,144 147,394 300,000 ...... 63,958 127,915 145,405 162,894 170,394 177,894 350,000 ...... 74,958 149,915 170,405 190,894 199,644 208,394 400,000 ...... 85,958 171,915 195,405 218,894 228,894 238,894 CLEVELAND ELECTRIC The following table sets forth the years of service and the covered compensa- -
tion as of year-end 1988 of the five highest paid executive officers of Cleveland Electric: . Years of Covered Executive Officer Service Compensation . Robert M. Ginn 40 $376,434 Alan D. Vright 16 144,237 Robert J. Farling 29 153,158 Alvin Kaplan 32 107,895 William K. McClung 36 98,191 TOLEDO EDISON The following table sets forth the years of service and the covered ;ompensa-tion as of year-end 1988 of the five highest paid executive officers of Toledo Edison: Years of Covered Executive Officer Service Compensation Robert M. Ginn 40 $376,434 Paul M. Smart (1) 4 - Richard P. Crouse 28 109,677 - Donald C. Shelton (2) 2 - David L. Monseau 24 85,329
.. 4 (1).'Mr. Smart is covered by the pension program, but, as of December 31, 1988, he had only four years of service with Toledo Edison and, as of that date, was ;not entitled to any pension under that program.
1 However, he became entitled to a pension under that program effective January 16,-1989. 1
.Mr. Smart .also has an employment agreement under which he is entitled _to ]
participate fully in the same employee benefit plans available. to other j senior' officers of Toledo Edison. His benefits under the pension program ] are to be supplemented by Toledo Edison to aggregate those :which would l otherwise be payable =under the pension program if his 20 years of service with the law firm of Fuller & Henry were credited as years of service for :i purposes of the pension program, but reduced by the actuarially projected 1 value of benefits vested as of January 16, 1984 under the Fuller & Henry retirement ~lan. p The benefits under the agreement are payable to Mr. Smart or his spouse or beneficiary. They will be forfeited in the event Mr. Smart's employment is terminated prior to January 31, 1990 for failure to perform his obligations or by his resignation without prior approval of the Toledo Edison Board of Directors. During his years with Fuller & Henry, s' substantial portion of Mr. Smart's ' services with that firm were performed for Toledo Edison. Mr. Smart's-consulting agreement.with Centerior and Toledo Edison, which becomes effective February 1, 1990 and terminates on January 31, 1994, provides that if he dies prior to January 31, 1994, .two-thirds of the compensation for'the remaining term of the agreement will be paid to his estate or beneficiary. As of February 1, 1994,- Centerior and Toledo Edison -vill provide Mr. Smart or his beneficiary a pension benefit from the pension program and other sources in an amount which assumes 30 years ' of service and covered compensation of the greater of actual earnings for pension program purposes or $175,000. 'The pension benefit provided by the consulting agreement.will be in lieu of any pension benefit resulting from Mr. Smart's employment agreement. (2)'Mr. Shelton is not now vested in the pension program and is therefore not entitled to any pension. EMPLOYEE STOCK PLAN TRANSACTIONS Employee Purchase Plan A'll employees, including officers, of Centerior, Centerior Service, Cleveland Electric (and its participating subsidiaries) and Toledo Edison (except cer-tain of its union-represented employees) are eligible to participate in the Purchase Plan. A participant may contribute up to 100% of his straight-time pay to purchase U.S. Savings Bonds, less (1) payroll withholding tax and other i payroll deductions, (2) any other contribution he makes into the Purchase Plat i and (3) any contribution he makes into the Savings Plan. A participant also may contribute up to 8% of his pay, less any Basic Contribution he makes into the Savings Plan, to purchase Centerior common stock at a price 15% below the fair market value on the semiannual dates of purchase, March 15 and Septen.ber 15. The Bonds and common stock are distributed to the participant immediately after purchase. Centerior's contribution into the Purchase Plan is. the 15% discount on the price of the common stock. The 15% discount is taxable ordinary income to the participant in the tax year the common stock is purchased and is deductible by Centerior. o_____________ l
V . . W ~ CLEVELAND ELECTRIC l- None of the five named officers acquired Centerior common stock through the ~ ii Purchase Plan.in 1988. All 15 executive officers as a group, including the
'five named officers, purchased a total of 187 shares at an aggregate purchase price of $2,305.75.. The aggregate market value of the stock on the purchase
~date was $2,677.94.
TOLEDO EDISON 1 None of the 14 executive officers, including the five named officers, q u.i red Centerior common stock through the Purchase Plan in 1988. Employee Savings Plan All employees, including officers, of Centerior, Centerior Service,' Cleveland Electric .(and its participating subsidiaries) and Toledo Edison (except cer-tain of its union-represented employees) may participate at their ' option in the Savings Plan by means of payroll deduction contributions. The Savings Plan consists of two parts: Ita Af ter Tax Part and the Before Tax Part. The After Tax Part receives a participant's contributions after they have been taxed .as pay. The Before' Tax Part receives a participant's contributions be-fore they have been taxed as pay; however, they will be taxed when withdrawn from the Savings Plan. The combined maximum employee contribution into both Parts of the Savings Plan is'16% of pay. A participant may contribute up to 6% of his straight-time pay as a Basic Contribution and up to another 10% as a Supplemental Contribution - into the After Tax and Before Tax Parts combined. The minimum contribution is 1% of pay. Centerior contributes out of current income or retained earnings an amount equal to 50% of the employee's Basic Contribution. Contributions of highly compensated employees and Centerior's matching contributions are re-duced when necessary to keep them within the limits of Federal income tax law. Contributions are placed in a tax-exempt trust administered by a corporate trustee.- The trust invests in (1) Centerior common stock, (2) a diversified group of common stocks, excluding Centerior common stock and (3) fixed income debt or stock investments, which currently are deposits under insurance com-pany contracts at fixed rates of interest. A participant may allocate his contributions into the three Funds in such portions as he designates, except l that not more than 12% of pay may be allocated to the Centerior Stock Fund. Centerior Stock Fund contributions and earnings are invested in common stock purchased by the trustee from Centerior or in the open market, in either case at its fair market value. Centerior's contributions are all invested in the j Centerior Stock Fund. Centerior contributions and the earnings thereon become
.100% vested in the participant after the participant makes at least 36 months I of contributions in the After Tax Part, but become immediately vested in the Before Tax Part. l 1
48 -
CLEVELAND ELECTRIC j
- j The following table presents information relating to the acquisition of Centerior common stock by executive officers under the Savings Plan during 1988: ,
1 Centerior Whole Shares Purchased (Centerior i Executive Officer Contributions and Employee Contributions) ] 1 Robert M. Ginn $ 3,656 224 j Alan D. Vright 3,014 199 Robert J. Farling 3,656 370 Alvin Kaplan 3,766 256 Villiam K. McClung 3,042 203 , l All 15 executive 33,703 2,639 officers (includ-ing the above officers) as a group TOLEDO EDISON The following table presents information relating to the acquisition of Centerior common stock by axecutive officers under the Savings Plan during 1988:
. Centerior Whole Shares Purchased (Centerior Executive, Officer Contributions and Employee Contributions) . Robert M. Ginn S 3,656 224 Paul M. Smart 4,668 308 Richard P. Crouse 3,756 307 Donald C. Shelton 3,652 250 David L. Monseau 3,138 213 All 14 executive 31,246 2,532 officers (in-cluding the above I officers) as a )
group l 1978 Key Employee Stock Option Plan Prior to becoming a subsidiary of Centerior, options to buy Cleveland Electric common stock were granted at various times by Cleveland Electric to certain of its key employees pursuant to its 1978 Key Employee Stock Option Plan. When Cleveland Electric became a subsidiary of Centerior, the Plan was changed to l provide for the sale of Centerior common stock instead of Cleveland Electric l common stock upon exercise of those options, and Centerior assumed all thi l
- obligations of Cleveland Electric under those options and the Plan. L, l additional options can be granted under the Plan.
1 1 1
l . CLEVELAND ELECTRIC
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None of the 15 executive officers, including the five named officers, exer-cised options in 1988. TOLEDO EDISON None of the 14 executive officers, including the five named officers, exer-cised options in 1988. Employee Stock Ovnership Plan Under theToledoEdisondmployeeStockOwnershipPlan,commonstockofToledo Edison was allocable and, since 1986, Centerior common stock is allocable to the accounts of all eligible employees of Toledo Edison in proportion to their compensation from Toledo Edison. Toledo Edison made contributions in 1977, 1984, 1986 and 1968, in each case for the preceding tax year. Participants are always fully vested in the. common stock credited to their accounts. Upon the affiliation of Cleveland Electric and Toledo Edison, the Toledo Edison common stock in the plan was converted into Centerior common stock. CLEVELAND ELECTRIC One Cleveland Electric enxecutive officer who was previously employed by Toledo Edison was credited with 51 shares of Centerior common stock under the Employee Stock Ownership Plan in 1988. At December 31, 1988, 454 shares were held in his account under the Plan. None of the other 14 Cleveland Electric executive officers, including the five named officers, hold any shares in the Plan since they were not employed by Toledo Edison in any of the years which were used as the basis for a distribution. TOLEDO EDISON The following table presents information relating to the holdings of Centerior common stock by executive officers under the Employee Stock Ovnership Plan in 1988: Shares Credited Whole Shares Held as Executive Officer in 1988 of December 31, 1988 Robert H. Ginn (1) - - Paul M. Smart 127 248 Richard P. Crouse 163 611 Donald C. Shelton 112 112 David L. Monseau - - All 14 executive officers 889 2,845 (including the above officers) as a group (1)
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(1) Messrs. Ginn and Monseau and four other executive officers do not hold any shares in the Plan since they were not employed by Toledo Edison in any of the years which were used as the basis for a distribution. . Item 12. Security Ownership of Certain Beneficial Owners and Management CENTERIOR ENERGY The information required by this Item is incorporated herein by reference to Pages 4 through 6 of Centerior's 1989 definitive proxy statement dated March 17, 1989. CLEVELAND ELECTRIC The following table sets forth the beneficial ownership of Centerior common stock by individual directors of Cleveland Electric and all directors and officers as a group as of February 28, 1989: l Name of Beneficial Number of Common Owner Shares Owned (1) Robert J. Farling 33,555 (2) Richard A. Miller 64,754 (2) Lyman C. Phillips 3,448 All Directors and Officers as a Group 208,473 (2) (1) Beneficially owned shares include any shares with respect to which. voting or investment power is attributed to a director because of joint or fidu-clary ovnership of the shares or relationship to the record owners, such
. as a spouse, even though the director does-not consider himself the beneficial . owner. On February 28, 1989, all directors and officers of Cleveland Electric as a group were considered to own beneficially 0.1% of Centerior's common stock and none of Cleveland Electric's serial preferred stock or serial preference stock. Certain' directors and officers disclaim beneficial ownership of some of those shares.
(2) Includes the following numbers of shares which are not owned but could have been purchased within 60 days after February 28, 1989 upon exercise of options granted by Cleveland Electric: Mr. Farling - 24,835; Mr. Miller - 42,402; and all other officers as a group - 55,467. None of those options have been exercised as of March 27, 1989. TOLEDO EDISON The following table sets forth the beneficial ownership of Centerior common stock by individual directors of Toledo Edison and all directors and officers as a group as of February 28, 1989: Name of Beneficial Number of Common Owner Shares owned (1)
- Murray R. Edelman 25,352 (2)
Robert J. Farling 33,555 (2) Richard A. Miller 64,754 (2) Donald H. Saunders 3,631 j All Directors and Officers I as a Group 164,736 (2) 4 u .,
- 1. :
L' .
'(1) Beneficially. owned shares include any shares with respect to which voting
- or' investment power is' attributed to a director because of joint or fidu-clary ownership of the shares or relationship to the~ record owners,fsuch p as a? spouse, even though the director does not consider himself the beneficial owner. On February.28, 1989, all Toledo Edison directors and
' officers as a group. were considered to own beneficially 0.1% of Centerior's common stock. Certain directors and officers disclaim bene-ficial ownership of' some of these shares. None of the directors or officers are the beneficial'ovner of equity securities of Toledo Edison of )
any class, except'one officer,.who owns 50 shares'of. Toledo Edison pre- J ferred stock, 8.84%, $25 par value. (2) Includes the following numbers of shares which are not owned but could have been purchased within 60 days after February 28, 1989 upon exercise of. options granted by Cleveland Electric: Mr. Edelman - 24,863; Mr. Farling - 24,835; Mr. Miller - 42,402; and all other officers as a group - 5,366. None of those options have been exercised as of March 27, J 1989. , Item 13. Certain Relationships and Related Transactions CENTERIOR ENERGY i . The information required by this Item is incorporated herein by reference to e Page 7 of'Centerior's 1989 definitive proxy statement dated March 17, 1989. ' CLEVELAND ELECTRIC L None. i. I - TOLEDO EDISON Centerior and Toledo Edison have an agreement with Mr. Smart for the period February 1, 1990 through. January 31, 1994 pursuant to which he is to provide . consulting ' services to Centerior and Toledo Edison. Mr. Smart will be paid a 3 monthly fee equivalent to an annual rate of $150,000. His fee vill be adjusted if there is a certain minimum increase in the Consumer Frice Index j i (urban). . His fee also could be greater. if his consulting services exceed j 1,000 hours in'any year. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) Documents Filed as a Part of the Report
- 1. Financial Statements:
Financial Statements for Centerior Energy, Cleveland Electric and Toledo Edison are listed in the Index to Selected Financial Data; Management's Discussion and Analysis of Financial Condition and Re-sults of.0perations; and Financial Statements. See Page F-1. .l i
- 2. Financial Statement Schedules:
Financial ' Statement Schedules for Centerior Energy, Cleveland Electric and Toledo Edison are listed in the Index to Schedules. See i Page S-1.
- 3. Exhibits: i Exhibits for Centerior Energy, Cleveland Electric and Toledo Edison are listed in the Exhibit Index. See Page E-1.
(b) . Reports on Form 8-K During the fourth quarter of 1988, Centerior Energy, Cleveland Electric I and Toledo Edison each filed the following Current Reports on Form 8-K: Date of Report Item Reported ] September 30, 1988 Item 5. Other Events (1. Dividends and
- 2. Downrating of Securities)
October 12, 1988 Item 5. Other Events (1. Rate Phase-In Plans for Nuclear Investments) p. 9 4
I
. . l J
. i SIGNATURES l l '
l Pursuant to the requirements of Section 13 or 15(d) of the-Securities Exchange
- l. Act of 1934, the registrant has duly caused this report to be signed on its L behalf by.the undersigned, thereunto duly authorized.
1 CENTERIOR ENERGY CORPORATION Registrant March.30, 1989 By
- RICHARD A-, MILLER, Chairman of the Board and Chief Executive Officer l
l Pursuant to the requirements of the Securities Exchange Act of 1934, this re-port has been signed below by the following persons on behalf of the regi-strant and in the capacities and on the date indicated:
' Signature Title Date Principal Executive Officer: )
- RICHARD A. MILLER Chairman of the Board )
and Chief Executive ) j Officer ) Principal Financial Officers )
- EDGAR H. MAUGANS Senior Vice President- )
Finance ) Principal Accounting Officers
- PAUL G. BUSBY Controller )
Directors: )
- RICHARD P. ANDERSON Director ) _
*LEIGH CARTER Director )
- THOMAS A. COMMES Director ) March 30, 1989
*CHESTER DEVEN0V Director )
*EDVIN D. D0DD Director )
- ROBERT J. FARLING Director -)
- ROBERT M. GINN Director )
*ROY H. HOLDT Director )
- GEORGE H. KAULL Director )
- RICHARD A. MILLER Director )
- FRANK E. MOSIER Director )
*SR. MARY MARTHE REINHARD, SND Director )
- PAUL M. SMART Director )
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*VILLIAM J. VILLIAMS Director )
*By J. T. PERCIO J. T. Percio, Attorney-in-Fact 1
l '^ i' SIGNATURES
' Pursuant-to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has . duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY Registrant March 30, 1989 By
- ROBERT J. FARLING, Chairman of the Board and Chief Executive Officer i Pursuant to the requirements of'the Securities. Exchange Act of 1934, this re-port has been signed below by the following persons on behalf of the regi-strant and in the capacities'and on the date indicated:
Signature Title Date Principal Executive Officer )
- ROBERT J. FARLING Chairman of the Board )
and Chief Executive ) Officer ) Principal Financial Officers )
- EDGAR H. MAUGANS Chief Financial )
Officer ) March 30, 1989
. Principal Accounting Officer )
- JOHN M. B0RTHVICK Controller )
Directors: )
- ROBERT J. FARLING Director )
- RICHARD A. MILLER Director )
*LYMAN C. PHILLIPS Director )
*By J. T. PERCIO J. T. Percio, Attorney-in-Fact M
1 . SIGNATURES
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE TOLEDO EDISON COMPANY Registrant March 30, 1989 By
- DONALD H. SAUNDERS, Vice President-Finance and Administration Pursuant to the requirements of the Securities Exchange Act of 1934, this re-port has been signed below by the following persons on behalf of the regi-strant and in the capacities and on the date indicated:
Signature Title Date Principal Executive Officer: )
- ROBERT J. FARLING Chairman of the Board )
and Chief Executive ) Officer ) Principal Financial Officer: )
- DONALD H. SAUNDERS Vice President- )
Finance and ) Administration ) Principal Accounting Officer: ) March 30, 1989 -
- JAMES P. MARTIN Controller and )
Treasurer ) Directors )
*MURRAY R. EDELMAN Director )
- ROBERT J. FARLING Director ) l
- RICHARD A. MILLER Director )
- DONALD H. SAUNDERS Director )
- i
*By J. T. PERCIO J. T. Percio, Attorney-in-Fact .
! 4 j g . . !
.'O' INDEX TO SELECTED FINANCIAL DATA; MANAGEMENT'S DISCUSSION ,
. AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF l OPERATIONS; AND FINANCIAL STATEMENTS l Centerior Energy Corporation and Subsidiaries:
Report of Independent Public Accountants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2-- Summary of Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F3
' Management's Financial Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F 5/F 8 Retained Eamings for the years ended December 31,1988,1987 and 1986 F-6 1 Results of Operations for the years ended December 31,1988,1987 and i 1986............................................................... F-7
. i
- Cash Flows for the years ended December 31,1988,1987 and 1986....... F-9 ;
Balance Sheet as of December 31, 1988 and 1987. . . . . . . . . . . . . . . . . . . . . . . . F-10 ! Statement of Cumulative Preferred and Preference Stock at December 31, 1988 and 198 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-12 Notes to the Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-13 Financial and Statistical Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F 24 The Cleveland Electric illuminating Company and Subsidiaries: Report of Independent Public Accountants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F 26 Summary of Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F.27 Management's Financial Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-29 / F-32 Retained Eamings for the years ended December 31,1988,1987 and 1986 F-30 Results of Operations for the years ended December 31,1988,1987 and 1986............................................................... F-31 Cash Flows for the years ended December 31,1988,1987 and 1986. . ..... F-33
- Balance Sheet as of December 31, 1988 and 1987. . . . . . . . . . . . . . . . . . . . . . . . F 34 Statement of Cumulative Preferred and Preference Stock at December 31, 1988 and 1 98 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-36 Notes to the Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F 37 Financial and Statistical Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-47 4
The Toledo Edison Company:
- Report of Independent Public Accountants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-49 Summary of Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F 50 Management's Financial Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-52 / F-55 l l
Retained Eamings for the years ended December 31,1988,1987 and 1986 F 53 Results of Operations for the years ended December 31,1988,1987 and { 1986........................................................... . F 54 j Cash Flows for the years ended December 31,1988,1987 and 1986. . . . . . . F-56 Balance Sheet as of December 31, 1988 and 1987. . . . . . . . . . . . . . . . . . . . . . . . F-58 Statement of Cumulative Preferred and Preference Stock at December 31, 1988 and 198 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-60 Notes to the Financial Statements . . . . . . . . . . . . . . . . .. ... ... . F-61 Financial and Statistical Review . . . . . . . ... . .... .. . F.71 F-1 j l _ _ _ _ _ _ _ _ . . _ _ _ _ _ _ _ _ __ l
I REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - To the Share Owners and Board of Directors of Centerior Energy Corporation: - We have audited the accompanying consolidated bal- of the three years in the period ended December 31, ance sheet and consolidated statement of cumulative 1988, in conformity with generally accepted account. preferred and preference stock of Centerior Energy ing principles. Corporation (an Ohio corporation) and subsidiaries as of December 31,1988 and 1987, and the related As discussed further in the Summary of Significant consolidated statements of results of operations, re- Accounting Policies and Notes 8 and 14, a chaney was tained earnings and cash flows for each of the three made in the methods of accounting for income taxes years in thr period ended December 31,1988. These and unbilled revenues, retroactive to January 1,1988. financial statements are the responsibility of the Com-pany's management. Our responsibility is to express As discussed further in Note 3, the future of Perry Unit an opinion on these financial statements based on our 2 is undecided. Construction has been suspended audits. since July 1985. Various alternatives are being consid. ered, including resuming construction, mothballing or We conducted our audits in accordance with generally canceling the Unit. Management can give no assurance accepted auditing standards. Those standards require when, if ever, Perry Unit 2 will go in servic.? or that we plan and perform the audit to obtain reasona- , whether its full mvestment and a retum thereon will ble assurance about whether the financial statements ultimately be recovered. are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the Our audits were made for the purpose of forming an amounts and disclosures m the financial statements. An audit also ,mcludes assessing the accounting pnnci- o inion on the basic financial statements taken as a whole. The schedules of Centerior Energy Corporation pies used and significant estimates made by manage-listed in the index to Schedules are presented for ment, as well as evaluating the overall financial urposes of complying with the Securities and Ex-statement presentation. We believe that our audits change Commission's rules and are not part of the provide a reasonable basis for our opinion. basic financial statements. These schedules have been in our opinion, the financial statements referred to subjected to the auditing procedures applied in our above present fairly, in all material respects, the finan- audits of the basic financial statements and, in our cial position of Cd.terior Energy Corporation and sub- opinion, fairly state in all material respects the financial sidiaries as of December 31,1988 and 1987, and the data required to be set forth therein in relation to the results of their operations and their cash flows for each basic financial statements taken as a whole. Cleveland, Ohio February 14,1989 , Arthur Andersen & Co. (Centerior Energy) F-2
i j
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES i Ceneral Fuel bpense _ f Centerior Energy Corporation (Centerior Energy) was The cost of fossil fuel is charged to fuel expense based i organized in 1985 and acquired The Cleveland Elec- on inventory usage. The cost of nuclear fuel, including j tric illuminating Company and Subsidiaries (Cleve- interest, is charged to fuel expense based on the rate land Electric) and The Toledo Edison Company of consumption. Estimated future nuclear fuel (Toledo Edison) on April 29,1986. This business disposal costs are being recovered through the base combination was accounted for as a pooling of inter- rates, ests. The historical financial statements of Cleveland Electric and Toledo Edison (Centerior Utilities) have The Centerior Utilities defer the differences b. tween been combined and restated. The consolidated finan- actual fuel costs and estimated fuel costs currently i cial statements also include the accounts of Centerior being recovered from customers through the fuel fac-Energy's wholly-owned subsidiary, Centerior Service tor. This matches fuel expenses with fuel-related Company (Service Company), which was incorpo- revenues. rated in 1986. The Service Company provides, at cost, management, financial, administrative, engineering' 1: gal and other services to Centerior Energy, Cleve- Deferred Operating Expenses and Carrying Charges land Electric and Toledo Edison. The Centerior Utilities The PUCO authorized the Centerior Utilities to defer operate as separate cornpanies, each serving the cus ' interest carrying costs, current operating expenses tomers in its service area. The first mortgage bonds, (including rental payments) and depreciation for Bea-other debt obligations and preferred and preference ver Valley Unit 2 from its commercial in-service date stock of the Centerior Utilities continue to be out- of November 17,1987 through December 31,1988. standing securities of the respective Centerior Utility. The PUCO determined that Perry Unit I was consid-All significant intercompany items have been elimi- ered "used and useful" on May 31,1987 for regulatory nated in consolidation. purposes. Consequently, the PUCO authorized the Centerior Energy and the Centerior Utilities follow the Centerior Utilities to defer current operating expenses Uniform System of Accounts prescnbed by the Fed. and depreciation for Perry Unit 1 from June 1,1987 eral Energy Regulatory Commission (FERC) and through December 22,1987, the date when these adopted by The Public Utilities Commission of Ohio costs began to be recovered in rates. The PUCO
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(PUCO). The Service Company follows the Uniform authorized the deferral of interest and equity carrying System of Accounts for Mutual Service Companies as costs, exclusive of those associated with current oper-prescribed by the Securities and Exchange Commis- ating expenses and depreciation, for Perry Unit 1 sion under the Public Utility Holding Company Act of from June 1,1987 through December 31,1987 and 1935. deferral of interest carrying costs from January 1,1988 through December 31,1988. The amounts deferred The Centerior Utilities are members of the Central Area Power Coordination Group (CAPCO). Other f r Perry Unit 1 pursuant to the PUCO accounting members include Duquesne Light Company (Du- rders were included m property, plant and equip. , ment through the November 18,1987 commercial-in-quesne)' Ohio Edison Company (Ohio Edison) and
. service date. Subsequent to that date, amounts de-Pennsylvania Power Company (Pennsylvania Power).
ferred were recorded as deferred charges. See Note 7 The members have constructed and operate genera-for a discussion of regulatory matters relating to our tion and transmission facilities for the use of the CAPCO companies. investment in these Units. The deferrals will be amor-tized over the life of the related property. Revenues Customers are billed on a monthly cycle basis for their Depreciation and Amortization energy consumption, based on rate schedules author. ized by the PUCO. Prior to 1988, these revenues The cost of property, plant and equipment. except for the nuclear generating units, is depreciated over their were recorded in the accounting period during which meters were read, except for the portion of revenues estimated usefullives on a straight-line basis. Annual straight-line depreciation provisions expressed as a which was deferred under the mirror construction-work-in-progress (CWIP) law discussed below. Utility percent of average depreciable utility plant in service service rendered after monthly meter reading dates were 3.8% in 1988 and 1987 and 3.6% in 1986. Depre-
~
clation expense for the nuclear units is based on the through the end of a calendar month (unbilled reve-units-of-production method. nues) became a part of operating revenues the fol-lowing month. Effective January 1,1988, the Centerior Costs associated with four CAPCO nuclear generating
. Utilities changed their method of accounting to ac- units canceled in 1980 were written off in 1988. The crue the estimated amount of revenues for sales un- net after-tax write-off was $17,000.000. Under the billed at the end of each month. See Note 14. January 1989 PUCO rate orders discussed in Note 7, A fuel factor is added to the base rates for electric no specific revenues associated with these costs were service. This factor is designed to recover fuel costs provided. Previously, the costs were being amortized from customers it is changed semiannually after a and recovered in rates through 1991 in accordance hearing before the PUCO. with PUCO rate orders.
F-3 (Centerior Energy)
Effectiv2 July 1988, tha Centerior Utilities began th2 Interest Charges . cxternal funding of future decommissioning costs for their operating nuclear units pursuant to a PUCO Interest on long-term debt reported in the statement of order. Cash contributions are to be made to the funds Results of Operations does not include mterest on , on a straight-line basis over the remaining licensing nuclear fuel obligations. Interest on nuclear tuel obli-period for each unit. Estimated total decommissioning gations for fuel under construction is capitalized. See costs for the Centerior Utilities are $122,000,000 in Note S. 1986 dollars for the Davis Besse Nuclear Power Station (Davis Besse) and $72,000,000 for Perry Unit 1 and Property, Plant and Equipment
$63,000,000 for Beaver Valley Unit 2, both in 1987 Property, plant and equipment are stated at original dollars. The current level of accruals being funded and cost less any amounts ordered to be written off. in-recovered in rates from customers over the remaining cluded in the cost of construction are items such as licensing periods of the Units is approximately related payroll taxes, pensions, fringe benefits, man-
$8,000,000 annually. The present funding require- agement and general overheads and AFUDC.
ments for Beaver Valley Unit 2 also satisfy a similar AFUDC represents the estimated composite debt and commitment made as part of the sale and leaseback equity cost of funds used to finance construction. This transaction discussed in Note 2. noncash allowance is credited to income, except for Deferred Cains and I.oss from Sales of Utility Plant AFUDC for Perry Unit 2. Since July 1935, Perry Unit 2 AFUDC had been credited to a deferred income ac. The Centerior Utilities are amortizing the applicable count. Effective January 1,1988, we discontinued the deferred gains and loss associated with the sales of practice of accruing AFUDC on Perry Unit 2. See utility plant in 1987 over the terms of leases under sale Note 3. The AFUDC rates, net of the income tax effect, and leaseback agreements. See Note 2. The amortiza- averaged 10.7% in 1987 and 10.6% in 1986. The gross tion and lease expense amounts are recorded as AFUDC rates used in 1988 averaged 11.4% (9.8% on operation expense. a net-of tax basis). Federallncome Taxes Maintenance and repairs are charged to expense as The 1988 financial statements reflect the liability incurred. Certain maintenance and repair expenses for ; method of accounting for income taxes as a result of Perry Unit 1 and Beaver Valley Unit 2 have been adopting the new standard for accounting for income deferred pursuant to the PUCO accounting orders taxes. Prior to 1988, income taxes were accounted for discussed above. The cost of replacing plant and ' by the deferred method. Under the deferred method, equipment is charged to the utility plant accounts. The deferred taxes and deferred tax credits were not cost of property retired plus removal costs, after de-adjusted for subsequent changes in federal tax rates. ducting any salvage value, is charged to the accumu-Also, under the deferred method, we did not record lated provision for depreciation. - deferred taxes on the temporary differences between book and tax income where the PUCO used the Mirror Construction Work in Progress realized tax benefits to reduce allowable costs for ratemaking purposes. This practice was premised on The Ohio mirror CWIP law requires that revenues regulatory treatment which permits recovery of such authorized by the PUCO and collected as a result of deferred income taxes in future revenues. including CWIP in rate base be refunded in a subse-quent period after the project is included m rate A major difference under the liability method is that base. Such revenues are deferred and recorded as deferred tax liabilities are adjusted for subsequent tax refund obligations to customers. AFUDC continues to rate changes. Also, we must now record deferred be capitalized during the construction period. The j taxes for all temporary differences between book and deferred revenues are then recognized as operating i tax income. Initial application of the accounting stan- revenues in the statement of Results of Operations dard in 1988 did not impact results of operations as the over the period of the refund. Amounts collected additional deferred taxes were offset by a regulatory through December 31,1988 under the mirror CWIP asset on the balance sheet. Additionally, allowance law are being refunded pursuant to the January 1989 for funds used during construction ( AFUDC) and PUCO rate orders discussed in Note 7. carrying charges that were previously accounted for in the statement of Results of Operations on a net-of-tax Reclassincations and Restatements or an after-tax basis are now stated on a pre-tax basis. Consequently, our 1988 federal income tax provision Certain reclassifications have been made to prior years' is equally higher. financial statements to make them comparable with - 1988 hnancial statements and consistent with terms of For certain property, the Centerior Utilities received the January 1989 PUCO rate orders discussed in investment tax credits which have been accounted for Note 7. . as deferred credits. Prior to 1988, tax credits utilized were reflected as reductions to tax expense over the in 1988, a new accounting standard which requires the life of the related property. Under the new method of presentation of a statement of cash flows in the finan-accounting, the amortization of investment tax credits cial statements was adopted. Previously, a statement is reported as a reduction of depreciation expense. of Source of Funds Invested in Plant, Facilities and See Note 8 for federal income tax details. Special Deposits was presented. (Centerior Energy) F-4
MANAGEMENT'S FINANCIAL ANALYSIS - Results of Operations The increase in other operation and maintenance expense and depreciation expense mainly resulted 1988 vs.1987 from a full year of operation of Perry Unit 1 and Beaver Factors contributing to the 5.8% increase in 1988 Valley Unit 2 and a full year of lease expense for operating revenues are as follows: Beaver Valley Unit 2 and the Bruce Mansfield Plant increase (Mansfield Plant). The increase in deferred operating Change in Operating Revenues expenses in 1988 was largely attributable to the defer-(Decrease) ral of Beaver Valley Unit 2 operating expenses for a Electric Revenues: full year because they were not being recovered in Base Rates and Miscellaneous . . . . . $ 40,000,000 rates. In 1987, Perry Unit 1 and Beaver Valley Unit 2 Sales Volum e . . . . . . . . . . . . . . . . . . . . 60,000,000 operating expenses were deferred for only about Sales to Ohio Edison and Penn- seven and two months, respectively. sylvania Power . . . . . . . . . . . . . 75,000,000 39,000,000 As discussed in Note 7, $534,000,000 of nuclear costs Deferred CWIP Revenues . . . . . . . . Fuel Cost Recovery Revenues . . . . . (89,000.000) were written off in 1988 as a consequence of the January 1989 PUCO rate orders. To tal . . . . . . . . . . . . . . . . . . . . . . . . . $125,000,000 Steam Heating Revenues . . . . . . . . . . . (13,000,000) The total amount of AFUDC and carrying charges decreased in 1988. The change in status from con-To tal . . . . . . . . . . . . . . . . . . . . . . . . . $112.000,000 struction to operation of Perry Unit 1 and Beaver Valley Unit 2 in 1987 resulted in the ressation of Rate increases granted to the Centerior Utilities in AFUDC. Instead, an accrual of post-in-service carrying 1987 accounted for about two-thirds of the increase in charges pursuant to PUCO orders began on such base rates and miscellaneous revenues. The remain- investments not included in rate base. r-lowever, der of the increase resulted from several minor factors, AFUDC and carrying charges that were previously including an increase in the amount of unbilled reve- accounted for on a net-of-tax or an after-tax basis were
. nues. Total kilowatt-hour sales increased 6.7% in stated on a pre-tax basis in 1988.
1988. Sales growth of 6.7% in the industrial sector Part of the proceeds from the 1987 sale and leaseback i reflected broad-based strength m the economy, partic- transactions was used to redeem outstanding high- ! - ularly among automobile, steel and chemical produc- cost securities which reduced interest expense and ers. Residential sales increased 3.9% in 1988 largely referred dividends in 1988. because of a substantially warmer summer. The hot summer also contributed to a 3.6% gain in commercial Results for 1988 also included a one-time net after-tax - sales as did high occupancy rates in Cleveland office increase of $28,000,000 related to a change in ac-buildings, a continued office building boom in subur- counting for unbilled sevenues. See Note 14. ban areas and new retail outlets. The increase in revenues from sales to Ohio Edison and Pennsy.lvania 1987 vs.1986 Power is the result of Cleveland Electric's sale of a portion of its share of Perry Unit I capacity for all 12 Facters contributing to the 1.6% increase in 1987 months in 1988 compared to only six weeks in 1987. operating revenues are as follows: The increase in revenues attributable to deferred CWIP revenues resulted from a reduction in the level Change in Operating Revenues ( e ease) of revenues deferred under the mirror CWIP law. Lower fuel cost recovery revenues resulted principally Electric Revenues: from the greater use of lower cost nuclear fuel and Base Rates and Miscellaneous . . . . S 80,000,000 the PUCO-or'dered refund of certain replacement fuel Sales Volume . ............. . 41,000,000 and purchased power costs collected from customers Sales to Ohio Edison and Penn-during a 1985-1986 Davis-Besse outage. See Note 4. sylvania Power ..... ... . 9,000,000 - Cleveland Electric sold its steam system in December Deferred CWIP Revenues . . . (44,000,000) 1987, resulting in the decrease in steam heating Fuel Cost Recovery Revenues . . . . (56,000.000) revenues. Total . . ........ .. . . $ 30.000.000 Operating expenses increased 11.1% in 1988. Lower fuel and purchased power expense in 1988 resulted Rate increases granted to the Centerior Utilities in mamly from a decrease in deferred fuel expense. 1986 and 1987 accounted for most of the increase in Fuel and purchased power expense also was reduced base rates and miscellaneous revenues in 1987. Total for the amortization of reserves previously established kilowatt-hour sales increased 4% in 1987. Industrial to match the PUCO-ordered refund discussed above. sales growth of 5% was broad-based, particularly in the F-5 (Centerior Energy)
steel s. ctor. R:sidential and commercial sales in- The CI:vtland E!:ctric salm of its steam syst:m in 19F7 . creased 2% ar.d 1.8% respectively. The sales in- resulted in a one time net aher-tax loss of creases resulted mainly from the warmer summer but $18,000,000. were partially offset by the moderate temperatures AFUDC and carrying charges were higher in 1987 during the winter. The sale of a portion of Cleveland because of an increase in the amount of investment Electric's share of Perry Unit 1 capacity to Ohio Edison not in rate base. Interest charges were higher because and Pennsylvania Power discussed previously began of an increase in outstanding long-term debt. m November 1987. The decrease m revenues attribut-able to deferred CWIP revenues resulted from a net ct an.on ine ease in the level of revenues deferred under the mirror CWIP law. Lower fuel cost recovery revenues in inflation adversely affected results of operations over 1987 resulted from increased use of our nuciear units. the last three years. In the period 19861988, our average electric rates, including decreases in the fuel Operating expenses in 1987 increased by 0.4% Fuel c st rec very factor, decreased; however, the costs of and purchased power expense decreased because of labor, materials and services used m operations were j the return to service of Davis-Besse late in 1986 after higher. Changes in fuel costs do not affect our results an 18-month outage and the start-up of Perry Unit 1 and Beaver Valley Unit 2 in 1987. Nuclear units f Perations since those cost are reflected in the fuel cost recovery factor mcludei m, customer bills. provided 25% of electricity generated in 1987 com-pared to a negligible amount in 1986. The reduction in Inflation will continue to have a negative impact on fuel and purchased power expense, lower federal our results of operations. The January 1989 rate orders ir.come taxes and savings from cost reduction pro- are primarily designed to recover deferred operating grams were offset by Mansfield Plant lease expense and capital costs of our new nuclear investments. and higher operation expenses and depreciation ex. They will not afford protection against future inflation. pense for Davis-Besse. Our cost-reduction efforts to date have been substan-tial and will continue to be an area of increasing importance as discussed in Note 7. RETAINED EARNINGS cistenion ssency coneon^rios aso sussioianies , For the years ended December 31, 1988 1987 1986 (thousands of dollars) Balance at Beginning of Year . . . .. ... .. . .. . .. . .... $ 908,611 $ 893,616 5 820,756 Additions Net income (loss) . ... ......... ...... . ... . . . ... (73,960) 390,353 391,893 Deductions Common stock dividends declared .. . ......... .... .... (259,022) (352,715) (319,023) Other, primanly preferred stock redemption expenses of subsidiaries .. (3,747) (22.643) (10) Net increase (Decrease) .. . . . ..... ... .. . ...... . . (336,729) 14,995 72.860 Balance at End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. $ 571,882 5 908.611 5 893.616 The accompanying notes and summary of significant accounting policies are an integral part of this statement. I l l l (Centerior Energy) F-6 l
m 4 .
.RESULTS OF OPERATlONS CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES F For the years ended December 31, ~-
1988 1987 1986 (thousands of douars, except per share amounts) Operating Revenues Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,037,560 $1,911,985 $1,n82,830 S team h eating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 13,371 12.953 2,037,560 1,925,356 1,895,791 Operating Expenses Fuel and purchased power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 391,401 470,466 522,281 Other operation and maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . 865,632 642,594 550,874 Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264,824 214,421 141,009
< Taxes, other than federal income taxes . . . . . . . . . . . . . . . . . . . . . . 268,550 207,521 194,925 Perry Unit 1 and Beaver Valley Unit 2 deferred operating e x pe n ses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (188,209) (87,623) -
Federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123,697 105,912 138,18,1, 1,725,895 1,553,291 1,547,270
- Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311,665 372,065 348 521 Nonoperating incone Allowance for equity funds used during construction. . . . . . . . . . 13,504- 299,308 308,405 Other income and deductions, net . . . . . . . . . . . . . . . . . . . . . . . . . . 45,308 (30,665) (8,108 ) '
Write-off of nuclear costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (534,355) - - Loss on steam system sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (27,156) - Carrying charges on nuclear plants and other. . . . . . . . . . . . . . . . . 372,15S 39,599 -
~ federal income taxes - credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131,254 121,122 116,422 27,866 402,208 416.719 income Before Interest Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339,531 774,273 765.240 interest Charges Lon g-term d ebt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,537 428,208 399,653 S h ort term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,755 6,834 6,812 Allowance for borrowed funds used during construction ...... (6,137) (137,257) (118,145) 372,155 297,785 288,320 income ( Loss) After interest Charges . . . . . . . . . . . . . . . . . . . . . . . . . (32,624) 476,488 476,920 Preferred and preference dividend requirements of subsidiaries 69,489 86,135 85,027 income (Loss) Before Cumulative Effect of an Account'ng Change................................................... (102,113) 390,353 391,893 Cumulative Effect on Prior Years (to December 31,1987) of an Accounting Change for Unbilled Revenues (Net of income Taxes of $18,729,000 ) . . . . . . . . . . . ....................... 28,153 - -
Net income ( Loss ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (73,960) $ 390,353 $ 391,893 Averale Number of Common Shares Outstanding (thousands) .. 140,778 138,395 128.927 Earnings (Loss) Per Common Share Before cumulative effect of an accounting change . . . . . . . . . . . . $ (.73) $ 2.82 5 3.04 Cumulative effect of an accounting change . . . . . . . . . . . . . . . . . .20
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Total............................................... $ (.53) $ 2.82 5 3.04 Dividends Declared ?n C mmon Share . . . . . . . . . . . . . $ 1.84 5 2.56 $ 2.49 The accompanying notes and summary of significant accounting policies are an integral part of this statement. F-7 (Centerior Energy)
MANAGEMENT'S FINANCIAL ANALYSIS - Capital Resources and Uquidity orders. See Note 7 for discussion of those rate orders which provide for specific levels of rate increases and , We carry on a continuous program of constructing new eamings limitations through 1991. The availability of facilities and modifying existing facilities to meet an- capital to meet our extemal financing needs depends ticipated demand for electric service and to comply upon such factors as financial market conditions, with governmental regulations. Cash requirements eamings, our ability to pay dividends, the size of our for the construction. program and mandatory retire- construction program and our credit ratings. We ex-ment of securities over the three-year period 1986- pect to be able to raise cash as needed. 1988 totaled approximately $1,728,000,000. Current securities ratings for the Centerior milities are In 1986 and 1987, the capital required to finance our as follows: construction program and to retire securities was ob. Standard Moody's tained primarily from extemal sources. Also, in 1987, & Poor's investors Corporation Service we sold and leased back certain interests in four gener-ating units as discussed in Note 2. A substantial por. Cleveland Electric tion of the net proceeds from the sale and leaseback First mortgage bonds . . BBB- Baa2 l transactions was used in 1987 and 1988 to pay por. Preferred stock ....... BB+ Baa2 tions of short-term debt incurred to finance the con
- Toledo Edison struction program, to redeem outstanding securities, First mortgage bonds . . . . BBB- Laa3 to pay our construction program costs and for general Unsecured notes . . . . . . . BB+ Bal corporate purposes. In 1988, Cleveland Electric and Preferred stock . . . . . . . . 88+ Ba2 Toledo Edison issued $188,730,000 and $50,700,000; respectively, of first mortgage bonds as collateral to We believe that the January 1989 rate orders, coupled secure their obligations in connection with the sales of with stringent cost control, will give us a reasonable tax-exempt bonds by public authorities to assist in opportunity to achieve financial results which would .
financing certain pollution control facilities. Cleveland permit Centerior Energy to continue the current quar-Electric used part of its proceeds from these sales to terly common stock dividend of $.40 per share. Nev-r; fund $121,165,000 of tax-exempt pollution control ertheless, dividend action by our Board of Directors - bonds collateralized by an equal amount of its first will continue to be decided on a quarter to-quarter mortgage bonds. At December 31, 1988, Toledo basis after evaluation of financial results, potential Edison had $255,000,000 in cash and temporary cash eaming capacity and cash flow. A write-off of our - investments of the Centerior Energy total of investment in Perry Unit 2 (as discussed in Note 3
$331,000,000 available for future cash needs. " Construction and Contingencies - Perry Unit 2")
would not reduce our retained earnings sufficiently to > Estimated requirements for cash construction expendi- impair our ability to declare dividends. Such a write- I tures for 1989-1991 are $520,000,000 for Clev6nd off could result in a default on the capitalization Electric and $270,000,000 for Toledo Edison. In addi- financial covenants discussed in the last paragraph of tion, Cleveland Electric and Toledo Edison will re-Note 2. quire $359,000,000 and $257,000,000, respectively, for the redemption of debt and preferred stock during Centerior Energy and Cleveland Electric are renegoti-this period. In 1989, Cleveland Electric also is required ating certain financial covenants contained in an to offer to purchase $12,000,000 of preferred and agreement under which the two companies are facing preference stock. Cleveland Electric expects to fi- potentia! non-compliance after 1989. See the last nance extemally virtually all of its 1989 construction paragraph of Note 2. and redemption requirements. Nearly all of Toledo Edison's requirements in 1989 will be met with internal The Tax Reform Act of 1986 provided for a 40% cash generation and current cash resources. We ex. average income tax rate in 1987 and a 34% income tax pect to finance extemally about 50 to 60% of our 1990 rate in 1988 and thereafter, the repeal of the invest-and 1991 requirements. See Note 12 for information ment tax credit, scheduled reductions in investment conceming limitations on the issuance of preferred and tax credit carryforwards, less favorable depreciation - preference stock and debt. Our available short-term rates, a new attemative minimum tax and other items. borrowing arrangements are explained in Note 13. The changes resulted in increased tax payments and a reduction in cash flow dur:ng 1987 principally be. - Our ability to meet our financing needs depends upon cause the alternative minimum tax reduced the our internal generation of funds and the availability of amount of investment tax credits allowed as an offset capital from the financial markets. The Centerior Util- to federal income tax payable. These changes had no ities were granted rate increases in 1989 and in the significant cash flow impact in 1988 because we had next two years pursuant to January 1989 PUCO rate a net operating loss for tax purposes. (Centerior Energy) F-8
J .' i w- . , I
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' CASH FLOWS CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES For the years ended December 31,
- 1988 ,1987 1986 (thousands of dollars) i Cash Flows from Net income (Loss Op)erating Activities (1)
................................................ $ (73,960) $ 390,353 5 391,893 Adjustments to Reconcile Net income (Loss) to Cash from Operating
' Activities: .
I Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264,824 214,421 141,009
' Deferred federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (37,422) (279,814) 77,117 Investment tax credits, ne t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,687) 1.12,699 (39,109)
Write-off of nuclear costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 534,355 - - Deferred and unbilled revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,842 66,185 21,939 Deferred fuel . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (54,601) 32,957 12,472 Interest capitalized as carrying charges . . . . . . . . . . . . . . . . . . . . . . . . . . (372,155) (39,599) - Leased r.uclear fuel amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,1 % 49,330 192 1 Deferred nuclear operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . (188,209) (87,623) - Allowance for equity funds used during construction . . . . . . . . . . . . . (13,504) (299,308) (308.405) Loss on steam s ystem sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 27,156 - Amortization of reserve for Davis-Besse refund obligations to c ustomers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (41,118) - - Other non-cash items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,510) 84,237 32,174 Cumulative effect of an accounting change . . . . . . . . . . . . . . . . . . . . . . (28,153) - - Changes in working capital affecting operations . . . . . . . . . . . . . . . . . . 106,490 106,919 93,456 Total Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259,348 7,560 30,8_45 Net Cash from Operating Activities . . . . . . . . . . . . . . . . . . . . . . . 185,388 397,913 422,738 Cash Flows from Financing Activities (2) Bank loans and commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (36,555) (9,197) 16,807
- Debt isses
.Jht mortgage bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239,430 411,500 325,000 Unsecured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 250,000 100,000 Preferred stock issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 123,313 103.968
. Com mon stock is sues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,539 102,724 209,548 Maturities, redemptions and sinking funds . . . . . . . . . . . . . . . . . . . . . . . . . . . (384,178) (1,026,934) (143,969)
N uclear fuel and trust obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (77,1%) (39,808)- (192) Common stock dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (259,022) (352,715) (319,023) Premiums, discounts and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,176 (5,209) (4.863) Net Cash from Financing Activities . . . . . . . . . . . . . . . . . . . . . . . (514,806) (546,326) 287,276 Cash Flows from lavesting Activities (2) Cash applied to construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (313,157) (514,059) (699,468) Interest capitalized as allowance for borrowed funds used during construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,137) (137,257) (118,145) Cash deposited in decommissioning trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,124) Oth er cash applied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,911) (44,985) (46,020) Cash received from sale of steam system . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 7,000 - Cash received from sale arfd leaseback transactions, net . . . . . . . . . . . . . . - 1,690,816 - Cash withdrawn from (deposited in) sale and leaseback and other trusts......................................................... 374,085 (374,085) - Cash withdrawn from pollution control escrow account. . . . . . . . . . . . . . 684 26,964 56,449 Net Cash from Investing Activities . . . . . . . . . . . . . . . . . . . . . . . . 47,440 654,394 (807,184) Net Chan8e in Cash and Temporary Cash investments . . . . . . . . . . . . . . . . . (281,978) 505,981 (97,170) Cash and Temporary Cash investments at geginning of Year . . . . ...... 612,775 106,794 203, % 4 Cash and Temporary Cash investments at End of Year . . . . . . . . . . . . . . . $ 330,797 5 612,775 5 106,794
' (l) Interest paid was $373,000,000, $427,000,000 and $397,000,000 in 1988,1987 and 1986, respectively.
Income taxes paid were $76,534,000, $52,040,000 and $300,000 in 1988,1987 and 1986; respectively.
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(2) Increases in Nuclear Fuel and Nuclear Fuel Lease and Trust Obligations resulting from the non-cash capitalizations under nuclear fuel agreements discussed in Note 5 are excluded from this statement. The accompanying notes and summary of significant accounting policies are an integral part of this statement. F-9 (Centerior Energy) i i
BALANCE SHEET . December 31, , 1988 1987 (thousands of dollars) Assets Property, Plant and Equipment Utility plant in service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,143,673 $ 8,388,114 1.ess: accumulated depreciation and amortization . . . . . . . . . . . 1,569,304 1,324,446 6,574,369 7,063,668 Construction work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355,821 224,679 P erry U ni t 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 866,911 783,028 7,797,101 8,071,375 Nuclear fuel, net of amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 %,818 609,545 Other property, less accumulated depreciation . . . . . . . . . . . . . . . . 46,269 46,805 8,440,188 8,727,725 Special Deposits Pollution control construction funds, unexpended . . . . . . . . . . . . 1,091 1,775 Deposits in trust, primarily sale and leaseback proceeds . . . . . . . . -. 374,085 Decommissioning trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,124 - 5,215 375,860 Current Assets Cash and temporary cash investments . . . . . . . . . . . . . . . . . . . . . . . 330,797 612,775 Amounts due from customers and others, net . . . . . . . . . . . . . . . . 202,830 208,214 Unbilled revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,369 - Materials and supplies, at average cost. . . . . . . . . . . . . . . . . . . . . . . . 77,217 65,910
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Fossil fuel inventory, at average cost. . . . . . . . . . . . . . . . . . . . . . . . . 52,075 73,665 Taxes applicable to succeeding years . . . . . . . . . . . . . . . . . . . . . . . . . 191,292 202,394 Other................................................... 6,971 22.216 l 925,551 1,185,174 Deferred Charges Unamortized costs of terminated nuclear projects. . . . . . . . . . . . . . - 46,224 522,232 N Accumulated deferred federal income taxes . . . . . . . . . . . . . . . . . . - Amounts due from customers for future federal income taxes . . . 1,209,075- - Unamortized loss, 8eaver Valley Unit 2 sale . . . . . . . . . . . . . . . . . . 127,367 134,475 Unamortized loss on reacquired debt . . . . . . . . . . . . . . . . . . . . . . . . . 68,320 59,748 Carrying charges and nuclear operating expenses . . . .. . . . . . . . . 669,050 89,094 ! Other.................................................. 128,332 209,304 ) 2,202,144 1,061,077 Total Ass ets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,573,098 $11,349,836 j The accompanying notes and summary of significant accounting policies are an integral part of this statement. , l i l (Centerior Energy) F-10
o_ = l CENTERIOR ENERCY CORPORATION AND SUB5IDIARIES . 1 ( December 31, p 1988 1987 (thousands of dollars) Capitalization and Liabilities Capitalization \ Common shares, without par value (stated value of )
$192,711,000 and $191,172.000 for 1988 and 1987, respec- d tively); 180,000,000 authorized: 140,820,000 and 140,706,000 outstanding in 1988 and 1987, respectively . . . . . . . . . . . . . . . . . $ 2,199,862 $ 2,200,449 Re tained eamin gs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 571,882 908.611 Common stock equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,771,744 3,109,060 Preferred stock With mandatory redemption provisions . . . . . . . . . . . . . . . . . . . . . 297,405 330,188 Without mandatory redemption provisions . . . . . . . . . . . . . . . . . . 427,334 457,334 Preference stock, with mandatory redemption provisions . . . . . . . 6,376 13,797 Lon g-term d ebt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,551,614 3,718.249 7,054,473 7,628,628 Other Noncurrent Uabilities Refund obligations to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,290 100,177 Other, primarily nuclear fuel lease and trust obligations . . . . . . . . 597,876 598,084 672,166 698,261 Current Uabilities Current portion of long-term debt and preferred stock . . .'. . . . . . 159,868 59,768 Current portion of lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 85,043 71,396 Notes payable to banks and others . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 36,732 Accou nts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258,835 185,070 Accru ed taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,113 326,268 Accru ed interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,453 93,351 Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,518 15,348 Accrued payroll and vacations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,269 27,308 Current pc-tion of refund obligations to customers . . . . . . . . . . . . . 68,684 13,000 Other..................................................... 20,905 28,561
- 1,025,865 856,802 Deferred Credits Unamortized investment tax credits . . . . . . . . . . . . . . . . . . . . . . . . 383,074 399,348 Accumulated deferred federal income taxes . . . . . . . . . . . . . . . . . . . 1,435,242 672,817 Reserve for Perry Unit 2 allowance for funds used during construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212,693 174,600 Unamortized gain, Bruce Mansfield Plant sale . . . . . . . . . . . . . . . . . 688,669 739,910 Other.................................................... 100,916 179,470 2,820,594 2.166,145 Total Capitalization and Liabilities . . . . . . . . . . . . . . . . . . . . . . $11.573,098 $11,349,836 F 11 (Centerior Energy)
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. O
-STATEMENT OF CUMULATIVE CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES .
PREFERRED AND PREFERENCE STOCK December 31, *
]
1988 Shares Current Outstanding Call Price 1988 1987 (thousands of donars) Cleveland Electric Without par value,4,000,000 preferred and 3,000,000 preference shares authorized Subject to mandatory redemption (less current maturities): Preferred:
$ 7.3 5 Series C . . . . . . . . . . . . . . . . . 190,000 $ . 101.00 $ 19,000 $ 20,000 88.00 Series E . . . . . . . . . . . . . . . . . . 33,000 1,042.09 33,000 36,000 75.00 Series F . . . . . . . . . . . . . . . . . . 2,884 1,000.00 2,884 16,666 80.00 Series G . . . . . . . . . . . . . . . . . 2,686 1,000.00 2,686 8,000 145.00 Series H . . . . . . . . . . . . . . . . . 16,026 - 16,026 19,590 145.00 Series I . . . . . . . . . . . . . . . . . . 19,686 - 19,686 23,624 113.50 Series K . . . . . . . . . . . . . . . . . 10,000 - 10,000 10,000 Adjustable Series M . . . . . . . . . . . . . . . . . 500,000 105.51 49,000 49,000-9.125 Series N . . . . . . . . . . . . . . . . . 750,000 108.11 73,968 73,968 226,250 256,848 Preference:
77.50 Series 1. . . . . . . . . . . . . . . . . . 6,376 1,000.00 6,376 13,797 Not to mandatory redemption: 7.40 Series A . . . . . . . . . . . . . . . . . 500,000 101.00 50,000 50,000 7.56 Series B . . . . . . . . . . . . . . . ... . 450,000 102.26 45,071 45,071 Adjustable Series L. . . . . . . . . . . . . . . . . 500,000 104.67 48,950 48,950 Remarketed Series P. . . . . . . . . . . . . . . . . . 750 101,000.00 73.313 73,313 217,334 217,334 Toledo Edison
$100 par value preferred,3,000,000 shares authorized: $25 par value preferred, 12,000,000 shares authorized; and $25 par value preference, .
5,000,000 shares authorized - none outstanding
- Subject to mandatory redemption (less current maturities):
$ 100 par $11.00. . . . . . . . . . . . . . . . . . . 44,800 103.50 4,480 5,000 9.3 75 . . . . . . . . . . . . . . . . . . 166,750 104.94 16,675 18,340 25 par 2.81 . . . . . . . . . . . . . . . . . . . 2,000,000 27.50 50,000 50,000 71,155 73,340 Not subject to mandatory redemption:
100 par 4.2 5 . . . . . . . . . . . . . . . . . . . 160,000 104.625 16,000 16,000 4.5 6 . . . . . . . . . . . . . . . . . . 50,000 101.00 5,000 5,000 4.2 5 . . . . . . . . . . . . . . . . . . 100,000 102.00 10,000 10,000
- 8. 3 2 . . . . . . . . . . . . . . . . . . . 100,000 102.46 10,000 10,000
- 7. 7 6 . . . . . . . . . . . . . . . . . . . 150,000 102.437 15,000 15,000
- 7. 80 . . . . . . . . . . . . . . . . . . . 150,000 102.60 15,000 15,000 1 0. 00 . . . . . . . . . . . . . . . . . . . 190,000 101.00 19,000 19,000 25 par 2.21 . . . . . . . . . . . . . . . . . . . 1,000,000 25.90 25,000 25,000 2.3 6 5 . . . . . . . . . . . . . . . . . . 1,400,000 28.45 35,000 35,000 i 3.47.................. - - - 30,000 l
Series A Adjustable . . . . . . . 1,200,000 - 30,000 30,000 l Series B Adjustable . . . . . . . 1,200,000 - 30,000 30,000 210,000 240,000 Centerior Energy . Without par value, 5,000,000 preferred l shares authorized . . . . . . . . . .. . . . . . . . . . . . - - - - Total Preferred Stock, with Mandatory Redemption Provisions . . . . . . . . ... . .. $297,405 5330,188
- Total Preferred Stock, without Mandatory Redemption Provisions ... .. $427,334 5457,334 Total Preference Stock, with Mandatory Redemption Provisions . . . . . ... $ 6,376 $ 13,797 The accompanying note's and summary of significant accounting policies are an integral part of this statement.
(Centerior Energy) F.12
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NOTES TO THE FINANCIAL STATEMENTS
. (1) Property Owned with Other Utilities and Investors ,
I The Centerior Utilities own, as tenants in common with other utilities and those investors who are owner- ' participants in various sale and leaseback transactions (lessors), certain generating units as listed below. Each owner owns an undivided share in the entire unit. Each owner has the right to a percentage of the generating capability of each unit equal to its ownership share. Each utility owner is obligated to pay for only its respective share of the construction and operating costs. Each lessee is obligated to pay for the related lessor's share of those costs. Property, plant and equipment at December 31,1988 includes the following facilities owned by the Centerior Utilities as tenants in common with other utilities and lessors: Owner. In- Owner- ship Plant Construction Service ship Mega. Power in Work Accumulated Generatmg Unit Date Share watts Source Service in Progress Depreciation (thousands of dollars) In Service: Seneca Pumped Storage . . .. .. 1970 80.00 % 305 Hydro $ 58,291 $ 161 $ 17,312 Eastlake Unit 5. ... .. 1972 68.80 399 Coal 149,329 1,687 - Perry Unit 1 & Common Facilities . 1987 51.02 607 Nuclear 2,648,129 18,854 110,307 8eaver Valley Unit 2 & Common Facilities (Note 2) .. ..... . 1987 26.12 24l Nuclear 1,336,956 4,230 59,545 Construction Suspended (Note 3): Perry Unit 2 . . . ...... ... Uncertain 51.02 615 Nuclear - 866,911 -
$4,192.705 $891,843 $187,164 Depreciation for Eastlake Unit 5 has been accumulated on an account basis with all other depreciable property rather than by specific units of depreciable property. The Centerior Utilities' share of the operating expense of these generating units is included in the statement of Results of Operations.
Ohio Edison and Pennsylvania Power have agreed to purchase 80 megawatts of Cleveland Electric's capacity entitlement in Perry Unit 1 from November 1987 through May 1989. Revenues totaled $84,000,000 for this transaction in 1988. The Unit will be out of service for refueling beginning in late February 1989. (2) Utility Plant Sale and Leaseback Transactions in 1988 and 1987, respectively. Rental expenses for As a result of sale and leaseback transactions com- the Beaver Valley Unit 2 lease of $70,300,000 and pleted in 1987, the Centerior Utilities are co lessees of $18,300,000 in 1988 and 1987, respectively, were 18.26% (152 megawatts) of Beaver Valley Unit 2 and recorded in a deferred charge account pursuant to 6.5% (51 megawatts),45.9% (358 megawatts) and PUCO accounting orders. Such amounts will be amor-44.38 % (355 megawatts) of Units 1,2 and 3, respec- tized to expense over the life of the lease beginning in tively, of the coal-fired Bruce Mansfield Plant (Mans- 1989. Additional rental expenses for the Beaver Val-field Plant) for terms of about 29W years. Proceeds ley Unit 2 lease charged to expense in 1988 and 1987 from the transactions totaled $1,738,600,000. were not significant. Future minimum lease payments under these operat. Toledo Edison is selling 150 megawatts of its Beaver ing leases at December 31,1988 are summarized as Valley Unit 2 leased capacity entitlement to Cleveland follows: Electric commencing in November 1988. We antici-Year Amount pate that this sale will continue for at least ten years. (thousands of doHars) The Centerior Utilities are responsible under the leases 1989.... ... .. ..... $ 169,000 for paying all taxes, insurance premiums, operation 1990......... ..... .. 169,000 and maintenance costs and all other similar costs for 1991 ....... .. ... . 170,000 all their interests in the Units sold and leased back. 1992.. .. . .. . 173,000 The Centerior Utilities may incur additional costs in
. 1993 ...... . 174,000 connection with capital improvements to the Units.
Later Years . . . 4,519,009 The Centerior Utilities have options to buy the inter-Total Future Minimum ests back at the end of the leases for the fair market lease Payments $5,374,000 value at that time or to renew the leases. Additional lease provisions provide other purchase options along The amounts recorded as rental expense for the Mans- with conditions for mandatory termination of the field Plant leases were $111,105,000 and $32,100,000 leases (and possible repurchase of the leasehold inter-l F-13 (Centerior Energy)
ests) for obsoltscincs and events of default, includ- may b3 impl m:nted without the approval of each of . ing those described in the next paragraph. the CAPCO companies. An agreement relating to a letter of credit issued in if Perry Unit 2 were to be canceled the Centerior . connection with the sale and leaseback of Beaver Utilities would seek authorization from the PUCO to Valley Unit 2 contains several financial covenants af- recover their respective investments in the Unit in fecting Centerior Energy and the Centerior Utilities. rates. We have no assurance that recovery would be Among these are coverage covenants which require allowed. In the event of such a cancellation, if and l Centerior Energy and Cleveland Electric to maintain when it were to appear probable that recovery would l carnings-to-interest expense ratios above specific not be allowed, then our net investment in Perry Unit i livels. We believe that Centerior Energy and Cleve- 2 (less any tax saving) would have to be written off. l land Electric may not be able to continue to comply We estimate that such a write-off, based on our invest- I with their respective coverage covenants after 1989, ment in this Unit as of December 31,1%8, would i We are discussing this matter with the parties to this have been about $438,000,000, after taxes. See Notes l agreement and we believe that new requirements 2 and 12 for a discussion of other potential conse-will be agreed upon. This agreement also contains quences of such a write-off. certain capitalization covenants which require the Centerior Utilities to maintain common stock equity Duquesne has advised the Pennsylvania Public Utility above specific levels and require Centerior Energy t Commission that it will not agree to resumption of maintain the ratio of common stock equity and the construction of Perry Unit 2. Duquesne is continuing l ratio of total equity to total capitalization above spe- to ay for its 13.74% ownership share of maintaining { cific percentages. A write-off of the Centerior Utilities Perry Unit 2 while construction is suspended. l j investments in Perry Unit 2 could result in a default The increase in the Perry Unit 2 investment amount in i' on all or some of these capitalization covenants. See 1988 is primarily the result @he gross-up of AFUDC Note 3. We also are discussing these capitalization recorded in prior periods related to the adoption of covenants with the parties to this agreement and we the new accounting standard for income taxes. believe that new requirements will be agreed upon which could be met in the event of a write-off of the (4) Nuclear Operations and Contingencies Perry Unit 2 investment, barring unforeseen circum-stances. The failure of Centerior Energy or either of Operating Nuclear Units - the Centerior Utilities to comply with any of the cove- A petition is pending before the Nuclear Regulatory nants would constitute a default which could result Commission (NRC) and another petition is pending in . in the acceleration of the obligations of the Centerior the United States Court of Appeals for the District of Utilities as co-lessees of Beaver Valley Unit 2. Also, Columbia Circuit, each seeking to halt the operation such a default would constitute a default under other of Perry Unit 1 and suspend its operating license until agreements which contain cross-default provisions that certain safety-related actions are completed. We be-could lead to the acceleration of payment of obliga- lieve these petitions are unlikely to succeed. In 1986, tions under those agreements. the NRC undertook a review of nuclear reactors de- l signed by Babcock & Wilcox Company, including the (3) Construction and Contingencies reactor at Davis-Besse. The outcome of that review Construction Program and its impact on uc cannot be predicted. The estimated cost of our construction program for the in 1987, the PUCO ordered a refund of certain re-1989-1991 period is $820,000,000, including AFUDC placement fuel and purchased power costs incurred and excluding nuclear fuel. Should more stringent and collected from customers during an outage at environmental regulations be adopted, particularly in Davis Besse in 1985 and 1986, plus interest. The re-the area of acid rain pollution control, future con- funds are being made to Toledo Edison and Cleveland struction program costs would increase substantially. Electric customers over a period of 18 months begin-However, such increases would not occur until after ning in February and March 1988, respectively, 1991, through operation of the fuel cost rate adjustment. Of the $66,139,000 of refunds to be made by the Center- ~ Perry Unit 2 ior Utilities, $41,118,000 was refunded through De-cember 31,1988. The refunds reduce cash flow but do Perry Unit 2, .mcluding its share of the common facil". not adversely affect results of operations as adequate ties, is about 58% complete. Construction of Perry reserves were provided in prior years.
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Unit 2 was suspended in 1985 by the CAPCO compa-nies pending future consideration of several alterna-Other Nuclear 35u tives which mclude resumption of full construction with a revised estimated cost and completion date, Our interests in nuclear units may be impacted by mothballing or cancellation. None of these attematives activities or events beyond our control. Operating (Centerior Energy) F-14
l
. , 1 e .
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nuclear generating units have experienced unplanned (6) Nucl:ar Insurance outages or extensions of scheduled outages because The Price-Anderson Act limits the liability of the own- l
. of equipment problems or new regulatory require- "
ments. A major accident at a nuclear facility anywhere ers of a nuclear power plant. This limit is covered by private insurance amounting to S160,000,000 (which ] in the world could cause the NRC to limit or prohibit , will be m, creased to $200,000,000 m early 1989) and l the operation, construction or licensing of a nuclear an amount provided by an mdustry assessment plan. In unit. ] the event of a nuclear incident at any unit in the 1 United States resulting in losses in excess of private (5) Nuclear Fuel insurance, our maximum potential assessment under that plan (assuming the other CAPCO companies The Centerior Utilities have inventories for nuclear fuel were to contribute their proportionate share of any which should provide an adequate supply into the assessment) would be $129,257,000 (adjusted for in-mid-1990s. Substantial additional nuclear fuel must be flation) per incident, but is limited to $19,54" 000 per obtained to supply fuel for the remaining useful lives year for each nuclear incident. of Davis-Besse, Perry Unit 1 and Beaver Valley Unit 2. The CAPCO companies have insurance coverage for More nuclear material and fuel would be required if damage to property at Davis-Besse, Perry and Beaver Perry Unit 2 were completed. Valley (including leased fuel and clean-up costs). werage am un e to $1,725,000,000 for each site as The Centerior Utilities finance nuclear fuel under two anuay ,1989. Damage to property could exceed programs. Under or' set of nuclear fuel leasing ar-inwance cwerage a su an al amount. U it rangements, the Centerior Utilitibs can currently fi- does, our share of such amount could have a material nance a maximum amount of $480,000,000, of which adverse effect on our financial condition and results of
$10,000,000 of this credit arrangement will terminate P "'
on November 30,1989, $47,500,000 will terminate on November 30,1990 and $372,500,000 will termi- We also have insurance coverage for the cost of any ; nate on November 30,1991. The Centerior Utilities replacement power purchased after the occurrence of ' cxpect to enter into replacement nuclear fuel financ- certain types of accidents at our nuclear units. The ing arrangements. amount of the coverage is 90% of the estimated difference in replacement power costs per week dur-Under a second set of nuclear fuel leasing arrange- ing the 52-week period starting 21 weeks after an
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ments, the Centerior Utilities can currently finance a accident and 45% of such estimate per week for the maximum amount of $173,000,000. Approximately next 52 weeks. The cost and duration of replacement
$12,400,000 of this credit arrangement will ter ninete power could substantially exceed the insurance in November 1989. The balance of the arrangement is c-)verage.
cancelable with one year's notice by the lender. (7) Regulatory Matters The lease and borrowing rates are based on bank prime and commercial paper rates. The nuclear fuel During the three years ended December 31,1988, the amounts capitalized included interest charges incurred PUCO granted increases in electric rates to the by the lessurs amounting to $41,000,000 in 1988, Centerice Utilities as follows:
$38,000,000 in 1987 and $39,000,000 in 1986. Under Annualized the leases, rental payments are made as the fuel is Cate Company Amount burned in a reactor. The estimated future lease amor- (maon, of tization payments based on projected burn are dollars )
$85,000,000 in 1989, $67,000,000 in 1990, June 1986. ... Cleveland Electric $ 37.0
$107,000,000 in 1991 and, assuming replacement nu-March "987 .. Cleveland Electric 39.6 clear fuel financing arrangements are entered into,
$90,000,000 in 1992 and $104,000,000 in 1993. As May 1937 . . . . . . Toledo Edison 43.0 these payments are made, the amount of credit availa- December 1987. . Cleveland Electric 25.8 ble to the lessors becomes available to finance addi-December 1987. Toledo Edison 0.5 tional nuclear fuel.
. On January 31,1989, the PUCO issued orders for the At December 31, 1988, a total of $616,000,000 is Centerior Utilities which adopted a settlement committed under the nuc! ear fuel financing programs. reached between the companies and the majority of This includes nuclear fuel in the Davis-Besse, Perry the interveners in then pending rate cases. The orders Unit 1 and Beaver Valley Unit 2 reactors with remain- endorse agreements which reach beyond the issues ing payments of $119,000,000, $51,000,000 and in such cases and resolve, with respect to the partici-
$27,000,000, respectively, as of December 31, 1988. pants, issues on appeal. We cannot predict whether F-15 (Centerior Energy)
l I any intervinor in tha rats cases who was not a party to paymtnts relating to Parry Unit 1 and Beavtr Vall:y -
]
the settlement will appeal the orders. Unit 2. The deferred operating costs (including lease l payments) and carrying charges through December The orders provide for annual, automatic rate increases 1, 88 wW be recwered in rates hm cmtomen -
)
for the Centerior Utilities of approximately 9%,7% auMzed 6e wer e es e n j and 6% on February 1,1989,1990 and 1991, respec- Centerior Utilities to record a full net-of tax carrying tively. The annualized revenues associated with these charge of 9.2% on deferred rate-based investment j increases are as follows: commencing January 1,1989. All deferrals after De- l Cleveland Toledo cember 31,1988 (including carrying charges on de-Electnc Edison Total ferred rate-based investment, depreciation and 1
* * * *"' I operation and maintenance expenses) will be recov- )
1989....... $120.7 $ 50.7 $171.4 . ered by December 31,1998. l 1990....... 105.7 44.3 150.0 n n, e e es ay nm sed 1991 ....... 98.4 40.7 139.1 any further permanent rate increases to be effect,ve i 5324.8 5135.7 $460.5 before February 1,1992 unless forecasted earnings ] available for common equity, prior to extraordinary j The above revenue ,ncreases i are net increases after items, of Centerior Energy fall below either ( including adjustments required under the mirror CWIP $210,000,000 over four consecutive quarters or i law and the refunding of revenues co!!ected by To- $435,000,000 over eight consecutive quarters. During j ledo Edison.in 1965 through 1987 pursuant to a Febru- this period, Centerior Energy's earnings available for ] ary 1985 rate order. The refunding requirement had common equity, prior to extraordinary items and ex- I no impact on net income because reserves had been ciuding changes in expenses relating to any future sale I provided in those years. Reclassifications were made and leaseback of assets, are limited to the following I to prior years' financial statements for the related amounts for any four consecutive quarters ending on revenues and reserves. or before the date indicated: The orders provide for the permanent exclusion of
$495,000,000 of the Centerior Utilities' combined .m- $275'000'000 March 31 1990 vestment in Perry Unit 1 and Beaver Valley Unit 2. $295'000 000 March 31$ 1991 '
$310,000,000 December 31,1991 The exclusion includes $41,000,000 of equity carrying costs authorized by the PUCO but not recognized for If the earnings cap described above were to be ex.
financial reporting purposes because of the limita- ceeded, an adjustment would be made to the amount tions set forth in the accounting standard for phase in of the deferrals recorded under the phase-in plan to plans. The exclusion resulted in a write-off of prevent any excess eamings. The adjustment would
$454,000,000 ($300,000,000 after tax) in 1988. Ail be applied proportionately between the Centerior pending prudence investigations before the PUCO and Utilities based on the eamed retuma of the two I pending litigation before the Ohio Supreme Court companies.
brought by the parties to the settlement involving our ! nuclear investment and other rate matters will be The orders provide that any permanent rate increase ! terminated. One party who did not sign the settlement sought to be effective during the period February 1, ) still will have an appeal pending before the Ohio 1992 to February 1,1994 may only be based upon I Supreme Court relating to the Perry Unit 1 prudence costs associated with net new investment placed in I disallowance in which the PUCO disallowed approxi-mately $428,000,000 of the Centerior Utilities' share of service after February 29,1988 and changes in opera- ) tion and maintenance expenses and other necessary Perry Unit 1 construction costs. cost increases (other thn fuel and purchased power) As a consequence of the orders, the Centerior Utilities from the levels identified in a management audit l recorded additional write-offs of $80,000,000 (described below). Also, if our retum on average ($49,000,000 after tax), bringing the total write-off of c mmon stock equity is below the benchmark rate nuclear costs h !908 resMring from the orders to established quarterly by FERC for rate cases subject to l
$514,000,000 h349,000,04 after tax). These in- its jurisdiction, we could seek rate increases to im- , l prove our return under certain specified conditions.
volved write-offs of the remaining investment in four ) canceled nuclear construction projects (as discussed The Centerior Utilities will undergo a management m the Summary of Significant Accounting Pol,cies)i ~ audit to assure that operation and maintenance savings and certain deferred expenses for Davis-Besse. are maximized. Until the management audit is com-The phase-in plans contained in the orders meet the pleted, an annual savings target range of $40,000.000 requirements of the accounting standard for phase-in to $100,000,000 from the 1988 normalized level of plans. The plans provide for the recovery of the operation and maintenance expense (to be deter-Centerior Utilities' remaining investment and fease mined by an audit advisory panel) has been set. A (Centerior Energy) F-16
e nuclear management expert will be employed to con- subject to the earnings cap described above. If the duct a cost reduction study at Davis-Besse. Centerior Utilities do not achieve at least one-half of
~ the savings identified by the management audit and
. The orders provide that 50% of the net after-tax sav-approved by the PUCO, eamings would be reduced
- ings in 1989 and 1990 resulting from the cost reduction by the amount of the shortfall. Net savings are mea-effort or identified by the management audit and sured fr m the 1988 normalized level of operation and approved by the PUCO are to be used to reduce cost maintenance expense (excluding fuel and purchased deferrals recorded under the phase-in plans. Fifty p wer) and would be adjusted for changes in capital percent of annualized savings achieved or identified and operating costs arising from certam events.
and approved for a period to be determined will be used to reduce the 6% rate increase scheduled for The orders set nuclear performance standards through February 1,1991. As an incentive to achieve the 1998. Beginning in 1991, the Centerior Utilities could savings, the remaining 50% of savings in each of the be required to refund incremental' replacement periods will be retained by the Centerior Utilities, power costs if the standards are not met. (8) Federal income Tax Federal income tax, computed by multiplying the income before taxes and preferred and preference dividend requirements of subsidiaries by the statutory rates, is reconciled to the amount of federal income tax recorded on the books as follows: For the years ended December 31, 1988 1987 1986 (thousands of doHars) Book Income Before Federal income Tax . . . . . . . . . . . . . . . . . . . . . . $ 6,701 5 461,278 5 498,679 Tax on Book Income at Statutory Rate . . . . . . . . . . . . . . . . . . . . . . $ 2,278 $ 184,281 $ 229,392 increase (Decrease) in Tax: ' AFU DC and Carrying Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (190,228) (196,213) l Accelerated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,829 15,852 5,361 Organization Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,617 - (25) Taxes, Other Than Federal Income Taxes . . . . . . . . . . . ..... 2,090 (1,167) (4,637)
.. Oth er i tems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,642) (23,948) (12,119)
Total Federal income Tax Expense (Credit) . . . . . . . . . . . . . . . . . . . . $11,172 $ (15,210) $ 21,759 F-17 (Centerior Energy)
Federal incom2 tax expensa is' record:d in th2 stat'; mint of Results of Operations as follows: . For the years ended December 31, 1988 1987 1986 (thousands of donars) Operating Expenses: Current Tax Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 79,520 $ 203,513 $ 87,802 Changes in Accumulated Deferred Federal Income Tax: Accelerated Depreciation and Amortization . . . . . . . . . . . . . . . . 10,502 131,041 82,435 Nuclear Fuel Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,666 15,233 17,742 Sale and Leaseback Transactions and Amortization. . . . . . . . . . 13,588 (356,584) - Property Tax Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12.127) 11,685: -3,547 Deferred CWIP Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,453) (26,058) s9,613) Unbilled Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (19,706) -- Deferred Fuel Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,227 (12,511) (6,843) System Development Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,157 5,573 7,278 Davis-8 esse Replacement Power . . . . . . . . . . . . . . . . . . . . . . . . . . 15,291 - - Federal Income Tax Return Adjustments . . . . . . . . . . . . . . . . . . . (19,621) 2,117 (305) Reacquired Debt Costs . . . . . . . .'. . . . . . . . . . . . . . . . . . . . . . . . . . 3,774 4,152 - Deferred Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,913 29,490 - Net Operating Loss Carryforward . . . . . . . . . . . . . . . . . . . . . . . . . (4,295) . Other t tems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,758) (19,244)- (4,699) Investment Tax Credits - Net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,687) 137,211 (39,163) Total Charged to Operating Expenses . . . . . . . . . . . . . . . 123,697 105,912 138,181 Nonoperating income: Current Tax Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (46,432) (88,934) (101,102) Changes in Accumukted Deferred Federal income Tax: Davis-Besse Replacr.ent Power . . . . . . . . . . . . . . . . . . . . . . . . . . 5,724 (26,154) (6,026) Write-off of Nuclear Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (188,920) - - AFU DC and Carrying Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133,637- - - Taxes, Other Than Federal Income Taxes . . . . . . . . . . . . . . . . . . 5,520 - (5,520) Net Operating Loss Carryforward . . . . . . . . . . . . . . . . . . . . . . . . . (36,831) - - Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,952) (6,034) (3,774) ~ Total Credit to Nonoperating income . . . . . . . . . . . . . . . . (131,254) g i 21,122 ) (116,422) Federal income Tax included in Cumulative Effect of an Accounting Change for Unbilled Revenues. . . . . . . . . . . . . . . . . . .. 18,729 - - Total Federal income Tax Expense (Credit) . . . . . . . . . . . . . . . . . . . . $ 11,172
$ (15,210) $ 21,759 As discussed in the Summary of Significant Accounting Policies, a change was made in 1988 in the method of accounting for income taxes. Adoption of the new method of accounting did not impact net income.
For tax reporting purposes, a net operating loss (NOL) carryforward of approximately $333,000,000 is available to reduce future taxable income. The NOL carryforward will expire in 2003. Future utilization of this tax NOL carryforward would result in recording the related deferrai bx. The tax effect of such carryforward ($113,220,000) is ire.luded in the above table as a reduction to tne deferred federal income tax relating to accelerated depreciation and amortization ($72,094,000) and as a reduction to other deferred federal income tax charged to operatog expenses ($4,295,000) and to nonoperating income ($36,831,000). Approximately $30,000,000 of unused investment tax credits are available to reduce future tax obligations. The unused credits expire in varying amounts in 2001 through 2003. Utilization of these unused credits is limited by provisions of the Tax Reform Act of 1986 and the level of future taxable income to which such credits may be applied. -
. (Centerior Energy)- F-18 L_-________-_____-_
.. i
'(9) Retirement income Plans'and Other Assumptions used for the actuarial calculations for I
! Post-Retiremert Benefits 1988 summarized above are: settlement (discount)
~- rate - E, I ng term rate I annual compensation
~ We sponsor noncontributing pension plans which increase - 5% and lo g-term rate of return on plan cover all employee groups. The amount of retirement assets - 8%. The 1987 assumptions for these rates m ' benefits generally depends upon the length of service. were 7%,5% and 7%, respectively. -
Under cartain circumstances, benefits can begin as zarly as age 55. The plans also provide certain death, Plan assets consist primarily of investments in common ; medical and disability benefits. Our funding policy is to stock, bonds, guaranteed investment contracts and 1 be in compliance with the Employee Retirement in- real estate. come Security Act Guidelines. The cost of post-retirement medical benefits funded in 1987, we edopted thte new standard for accounting amounted to $4,100,000 in 1986, $850,000 in 1987 . l for pensions. Also, during 1987, we offered a Volun- and $1,600,000 in 1988. tary Early Retirement Opportunity Program (VEROP)
- which cost $31,800,000. Pension and early retire- (10) Guarantees ment program costa for the years 1986 through 1988 Under two long-term coal purchase arrangements, were $18,100,000, (23,300,000 and ($5,700,000),
Cleveland Electric has guaranteed the loan and fease respectively. Net paion and early reti.ement costs obligations of two mining companies. Toledo Edison is for 1988 er.d 1987 weta comprised of the following also a party to one of these guarantee arrangements, components: which requires payments to the mining company for 1988 1987 (munons of donars) any actual out-of pocket idle mine expe ises (as ad. Pension Costs: van;e payments for coal) when the mines are idle for Service cost for benefits eamed reasons beyond the control of the mining company. during the period . . . . . . . . . . . . . $ 12 5 16 At December 31,1988, the principal amount of the In][t cost on pmjected benefit mining companies' loan and lease obligations guaran-33 32 A i ret m"on'pbasNt (76) (,s teed by the Centerior Utilities was $122,000,000. Nd amortization and deferrai . 19 ( 14_) The Centerior Utilities have also guaranteed the debt Net pension cost . . . . . . . . . (12) (3) obligation of a supplier. At December 31,1988, the VEROP cost . . . . . . . . . . . . . . . . . . . . . . 6 26 rincipal amount of the debt obligation guaranteed by
$ 23 Net pension and VEROP costs . . . Q) the Centerior Utilities was $10,000,000.
The following table presents a reconciliation of the (11) Sale of Cleveland Electric Steam System funded status of the plans at December 31,19S8 and 1987. Cleveland Electric sold its steam generation and distri-December 31, bution system on December 30,1987 for $7,000,000. 1988 1987 A net after-tax loss of approximately $18,000,000 (mduons of doNars) reduced Nonoperating income in the statement of Aduarial present value of benefit Results of Operations in 1987. obligations: Vested benefits . . . . . . . . . . . . . . $309 $321 y (12) Capitalization Nonvested benefits . . . . . . ..... 29 Accumulated benefit obligation 338 364 (a) Capital Stock 7 transactions Effect of future compensation levels . . . . . . . . . . . . . . . . . . . . . . . 98 116 Shares sold and retired during the three years ended 1 Totai projected benefit obliga. December 31,1988 are listed in the following table. tion . . . . . . . . . . . . . . . . . . . . . . . 436 480 Common stock activity prior to April 29,1986 re-Plan assets at fair market value . . . .. 661 610 flects the Cleveland Electric 1.11 for one exchange
- Surplus of assets over projected ratio and the Toledo Edison one-for-one exchange ,
' benefit obligation . . . . . . . . . . . . . . . (225) (130) ratio for Centerior Energy shares. !
i Unrecognized net gain (loss) due to variance between assumptions i i ! ' and experience . . . . . . . . . . . . . . . 83 (4) Unrecognized prior service cost . . . 12 7 Unrecognized VEROP cost . . . . . . . - (6)
. Transition asset at January 1,1987 being amortized over 19 years . . 149 158 Net accrued pension cost in.
cluded in other deferred credits on the Balance Sheet .. $_19 5 25 F-19 (Centerior Energy)
1988 1987 1986 ploya Savings Plan are bring acquirrd in the op:n . 3 (thousands of shares) market. However, new shares of common stock will Common Stocic continue to be issued for the Employee Purchase Plan. Public Sales .. . ....... - - 4,000 - Dividend Reinvestment and , Stock Purchase Plan . . . . - 4,591 4,597 (b) Common Shares Reserved for Issue Employee Savings Plan .. . 7 816 484 Employee Purchase Plan .. 82 61 - Common shares reserved for issue under the Em-Ke E pge incentive _ y g ployee Savings Plan and Purchase Plan were 3,176,727 1978 Key Emp"loyee'5'tof and 57,311 shares, respectively, at December 31, Option Plan . . . . . .... 27 59 114 1988. Total Common Stock Sales . . . ......... 116 5,528 ' 9,217 Stock options to purchase unissued shares of common Fractional Shares and Other stock under the Key Employee incentive Stock Plan hf ShaIe ." .. - - (34) and the 1978 Key Employee Stock Option Plan were Treasury Shares . . . . . . . . . . (2) j t9) (17) granted at an exercise price of 100% of the fair Net Change .... . 114 5.509 9,166 market value at the date of the grant. The Key Em-playee incentive Stock Plan expired in June 1987. No Cumulative Preferred and additional options may be granted under the 1978
$b i Uke Redemption:
o $at Key Employee Stock Option Plan. The exercise prices of option shares purchased during the three years Sales ended December 31,1988 ranged from $14.09 to C vgnd Electric $20.73 per share, after adjustment for the Cleveland
$9.125 Series N . .
750 Electric exchange ratio. Shares under outstanding op. Toledo Edison tions held by employees were as follows: Preferred
$25 par $2.81. .. - 2,000 -
Key Employee I lectric Incentive Stock Plan Preferret 1988 1987 1986 -
$ 7.35 Series C . . ... (10) (10) (10) Options Outstanding 88.00 Senes E . . (3) (3) (3) 75.00 Series F . . . at December 31:
(14) (17) (17) Shares . - - 30,636 80.00 Series G . . . . . . (5) (8) (8) 145.00 Series H . . . . . . . (4) (4) Option Price . - -
$20.21 (2) .
145.00 Series I. . . . (4) (4) (2) 113.50 Series J . . . . . . (29) - 1978 Key E,mployee - Preference: Stock Option Plan 77.t0 Series 1 . . (7) (9) (11) 1988 1987 1986 Toledo Edison Preferred: Options Outstanding
$100 par $11.00 . . . . (5) (5) (5) at December 31:
9.3 75 . . . . . . (17) (17) (17) Shares . . 314,693 392.935 482.456 13.25 .. - 121) (9) Option Prices . . $14.09 to $14.09 to $14.09 to 12.65 - 190) (10) $20.73 $20.73 $20.73 14.80 . . 300) - 25 par 3.75 - (1,200) - 3.72 . (1.400) - (c) Equity Distribution Restrictions Net Change ... (69) (1,317) 656 At December 31,1988, consolidated retained earnings Cumulative Prefer.ed Stock were comprised almost entirely of tf.e undistributed of Subsidiaries Not Subject retained earnings of the Centerior Utilities. Substan-to Mandatory Redemption: tially all of their retained earnings were available for he*y' eland Electric the declaration of dividends on their respective pre. Preferred: ferred, preference and common shares. All of their Remarketed Series P. - 1 - common shares are held by Centerior Energy. Toledo Edisory
}'.[5 pa A I an or advance by a Centerior Utility to Centerior Adjustable Series 8. - - 1,200 Energy requires PUCO authorization unless it is madr- -
Retirements in the ordinary course of business operations in i D,yN5" which the Centerior Utility acts for Centerior Energy. l 125 (800) P"' Sy -
'y ^
(d) Cumulative Preferred and Preference Stock Net Change (1,200) (799) 1,200 Amounts to be paid for preferred stock which must be I redeemed during the next five years are $10,000,000 Shares of common stock required for the Dividend in 1989, $10,000,000 in 1990, $30,000,000 in 1991, Reinvestment and Stock Purchase Plan and the Em- $20,000,000 in 1992 and $45,000,000 in 1993. l (Centerior Energy) F-20 l l
The annual mandatory redemption provisions are as (e) long-Term Debt and Other Borrowing l iallows: Arrangements Annual Mandatory . . ~ Redemption Provisions Long term debt,less current maturities, for the Center-Shares ior Utilities was as follows: Shares at Begin. Price Actual j To Be Holders' ning Per or Average December 31, i Redeemed Option in Share interest j Year of Maturity Rate 1988 1987 q Cleveland Electric Preferred: (thousands of dollars) I
$ 7.35 Series C. 10,000 -
1984 $ 100 First mortgage bonds: ) 88.00 Series E . . . 3,000 - 1981 1,000 1989 ..... .......... 3.00 % $ - $ 20,000 ' 75.00 Series F .. - 2,884* 1985 1,000 1989. ... . .. .. 15.25 - 40,000 80.00 Series G. . . - 2,686* 1984 1,000 1989 .... ....... 14.375 - 50,000 j 145.00 Series H .. 1,782 - 1985 1,000 1990 ..... . .... .. 7.125 60,000 60,000 J 145.00 Series I . . 1,969 - 1986 1,000 1991 ........ .. 8.375 35,000 35,000 113.50 Series K. . 10,000 - 1991 1,000 1991 ....... . 14.00 25,000 25,000 Adjustable Series M 100,000 - 1991 100 1991 . .. . 15.00 70,000 70,000 9.125 Series N. . . 150,000 - 1993 100 1991 .. .. 13.75 4,334 4,334 1992 . ..... .. . .. 15.25 20,000 20,000 Preference: 1992 ..... .... . . 13.75 4,334 4,334 77.50 Series 1 - 6,376* 1984 1,000 1993 .. . .. 3.875 30,000 30,000 1993 .... . . . .. 8.55 50,000 50,000 Toledo Edison 1993 .. . . .. .. 13.75 4,334 4,334 Prefermd: 1994-1998 . .. ... 9.64 327,820 327,820
$100 par $11.00. . . 5,000 - 1979 100 1999-2003 . . . . 9.22 157,473 157,473 9.375 . 16,650 -
1985 100 2004-2008 . . ... . 9.19 225,308 225,308 25 par 2.81 . . 400,000 - 1993 25 2009 2013 ... . 9.83 630,050 828,500 2014-2018 ... ... 9.59 722,965 668,050
- Represents remaining shares. 8.08 332,100 2019-2023 . . 205.300
~
The annualized cumulative preferred and preference Term bank loans due dividend requiremen? as of December 31,1988 is 1990-1993 .. 9.42 143,500 179,166
~
$67,000,000. Notes due 1990-1997 10.85 354,006 357,000 Debentures due 1997 11.25 125,000 125,000 The preferred dividend rates on Cleveland Electric's Pollution control notes due 1990-2015 . . 9.70 222,680 223,290 Series L and M and Toledo Edison's Series A and B Oth *' - " '
- 8'3#U 7'7' U fluctuate based on prevailing interest rates, with the -
T "8 "" dividend rates for these issues averaging 8.64%,8.09%, t $3,551,614 53,718,249 9.33% and 10.18%, respectively, in 1988. The divi-dend rate on Cleveland Electric's Remarketed Series P Long term debt matures during the next five years as averaged 8.30% in 1988. follows: $150,000,000 in 1989, $208,000,000 in 1990, j
$209,000,000 in 1991, $175,000,000 in 1992 and l Under its articles of incorporation, Toledo Edison can- $160,000,000 in 1993.
not issue preferred stock unless certain eamings cov- j erage requirements are met. Based on earnings for The mortgages of Cleveland Electric and Toledo Edison , the 12 months ended December 31,1988, Toledo constitute direct first liens on substantially all property Edison could not issue additional preferred stock. Also, owned and franchises held by them. Excluded from a write-off by Toledo Edison of its investment in Perry the liens, among other things, are cash, securities, Unit 2 could adversely affect its ability to issue addi. accounts receivable, fuel, supplies and, in the case of tional preferred stock in the future. See Note 3. The Toledo Edison, automotive equipment. issuance of additional preferred stock in the future will The issu'ance of additional first mortgage bonds by depend on earnings for any 12 consecutive months of Cleveland Electric is limited by two provisions of its the 15 months preceding the date of issuance, the mortgage. One relates to bondable property coverage interest on alllong term debt issued and the dividends of the bonds and the other to eamings coverage of on all preferred issues. interest on the bonds. The amount of adcistional bonds issuable will depend upon unbonded bondable prop-There are no restrictions on Cleveland Electric's ability erty, earnings and interest on the bonds then out-to issue preferred or preference stock or Toled standing and to be issued. Under these limits, Edison's ability to issue preference stock. Cleveland Electric would have been permitted to issue With respect to dividend and liquidation rights, each approximately $664,000,000 of additional bonds at company's prefened stock is prior to its preference December 31,1988. stock and common stock, and each company's prefer- The issuance of additional first mortgage bonds by ence stock is prior to its common smck. Toledo Edison also is limited by provisions in its mort-F 21 (Centerior Energy)
. . 1 gags similar to thosa in Cl valand Electric's mortgags. Tolrdo Edison .
At December 31, 1988, Toledo Edison could not issue first mortgage bonds pursuant to those provi- Toledo Edison's annual commitment fees range from
- sions. However, at December 31,1988, Toledo Edison 0.25% to 0.50% on most of its lines of credit. For the . .
l .would have been permitted to issue $105,000,000 of bnk without fee requirements, the average daily cash ) balance in the bank account satisfied informal com-refunding bonds. l pensating balance arrangements. Certain unsecured loan agreements of Toledo Edison contain covenants limiting to 65% of total capitaliza- At December 31,1988, Toledo Edison had no com-tion (as defined) the total of its short-term debt in mercial paper outstanding. If commercial paper were excess of $150,000,000 and funded debt, limiting. outstanding, it would be backed by at least an equal secured financing other than through first mortgage amount of unused bank lines of credit. bonds and certain other transactions and requiring Toledo Edison to maintain earnings (as defined) of at itast 1.5 times interest on its first mortgage bonds. The Centerior Service Company famings coverage ratio applies to $349,500,000 of unsecured loans and was 1.81 at December 31,1988. The fee for the Service Company's line of credit is 0.375 %. A write-off of the Centerior Utilities' investments in Perry Unit 2 could significantly affect their ability to issue additional debt. See Nrb 3. Centerior Energy Corporation (13) Short-Term Sorrowing W1mgements No formal short-term borrowing arrangements were j established for Centerior Energy in 1988 or 1987, 1 Our bank credit arrangement at December 31,1988 j were as follows: (14) Change in Accounting for Unbilled Revenues Cleveland Toledo Service Electric - Edison Company Total ,l haands of douars) In January 1988, we adopted a change in accounting I Bank Lines of for revenues in order to record unbilled revenues as Credit . . .... $151,000 $69,050 $5,000 $225,050 discussed in the Summary of Significant Accounting . Revolving Under. Policies, writing Facility - 25,000 - 25,000 The adoption of this accounting method increased - There were no borrowings under these bank credit 1988 net income and earnings per share, before the arrangements at December 31,1988. An additional cumulative effect on periods prior to January 1,1988,
$5,000,000 line of credit is available to the Service .
W $3,581,000 (net of $1,845,000 of income taxes) ) Company under a $30,000,000 Cleveland Electric line and $.03, respectively. The cumulative effect of the J of credit, if unused by Cleve8and Electric. The change on the periods prior to January 1,1988 was
$30,000,000 line of credit is included in the Cleveland
$28,153,000 (net of $18,729,000 of income taxes), or Electric total' $.20 per share, and has been included in 1988 net Short term borrowing capacity authorized by the income.
PUCO is $300,000,000 for Cleveland Electric and
$150,000,000 for Toledo Edison. The Centerior Utili. If this change in accounting method were applied )
retroactively,1987 and 1986 pro forma net income ties have been authorized by the PUCO to borrow
- from each other on a short-term basis. and earnings per common share would have been as follows:
Cleveland Electric ,,gy ,,gs Most borrowing arrangements under Cleveland Elec- ,,,7, g, nd',ha e afnUn'u) tric's short term bank lines of credit require a fee j ranging from 0.25% to 0.375% per year to be paid on Net income (as reported) ... $390,353 $391,893 ! any unused portion of the lines of credit. For those E ct of nbi d Revenues . banks without fee requirements, the average daily ($319,000) and $632,000, { cash balance in the bank accounts satisfied informal Respectively) . . .. .. (781) 742 i compensating balance arrangements. Pro Forma Net income. $389.572 5392.635 At December 31,1988, Cleveland Electric had no faNe$orted ."" $ 2.82 $ 3.04 commercial paper outstanding. If commercial paper Effect of Unbilled Revenues . ( .01 ) .01 w were outstanding, it would be backed by at least an Pro Forma Eamings Per ; Common Share $ 2.81 $ 3.05 equal amount of unused bank lines of credit. . . (Centerior Energy) F-22
* - - _ _ - _ _ _ - _ _ - _ _ - _ _ _ _ _ _ - - - _ _ _ _ _ _ _ _ _ _ _ _ _ ___-___u
ts s, . ,
- (15) Quarterly Results of Operations (Unaudited)
. The following is a tabulation of the unaudited quarterly results of operations for the two years ended December 31, 1988.
Quarters Ended March 31, June 30, Sept.30, Dec. 31, (thousands of douars except per share amounts)
~1988-Operating Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $506,579 $483,186 $586,510 $ 461,285 ,
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 69,300 $ 75,411 - $118,839 $ 48,115 Cumulative Effect of an Accounting Change (Note 14) .. $ 28,153 $ - Net income ( Loss ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 85,188 $ 57,565 $110,911 $ (327,624 ) Average Common Shares (thousands ) . . . . . . . . . . . . . . . . . . 140,740 140,776 140,787 140,820 Eamings (Loss) Per Common Share Before cumulative effect of an accounting change ..... $ .41 $ .41 $ .79 $ (2.33 )
. Cumulative effect of an accounting change
( N ote 1 4 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 - - - Total.......................................... $ .61 $ .41 $ .79 $ (2.33 ) Dividends Paid Per Common 5 hare. . . . . . . . . . . . . . . . . . . . . $ .64 $ .40 $ .40 $ .40 1987 09erating Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $482,138 $479,259 $555,520 $ . 408,439 O !erating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 98,448 $ 99,856 $128,594 .$ 45,167 Net inc ome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $106,936 $ 94,338 $127,511 5 61,568 Average Common Shares ( thousands ) . . . . . . . . . . . . . . . . . . 135,926 137,661 139,552 140,596 Eat nings Per Common Share . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .79 $ .69 $ .91 $ .44 - Pro Forma Amounts Assuming the Accounting Change Were Applied Retroactively (Note 14): Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,261 $100,864 $128,106 $ 60,341
+ Eamings Per Common 5 hare . . . . . . . . . . . . . . . . . . . . . . . $ .74 $ .73 $ .92 $ .43 Dividends Paid Per Common 5 hare. . . . . . . . . . . . . . . . . . . . . $ .64 $ .64 .$ .64 $ .64 i ' The unaudited quarterly results for the first quarter of 1988 have been restated to reflect the recognition of unbilled revenues. See Note 14. The results for the fourth quarter of 1988 have been restated to reflect year-end adjustments. The results for the four quarters of 1987 have been restated to reflect Toledo Edison's January 1989 PUCO rate order as it relates to the refund requirements contained in its February 1985 rate order discussed in Note 7. The results for the last three quarters of 1987 have been restated to reflect the PUCO's February 1988 accounting orders for Perry Unit I deferred costs and carrying charges as discussed in the Summary of Significant Accounting Policies.
The restated information has been changed from the results previously reported to share owners for 1988 in the 1988 Quarterly Reports and for 1987 in the 1987 Annual Report as follows: Changes from Previously Reported information for the Quarters Ended March 31, June 30. Sept.30, Dec. 31, (thousands of doNars, except per share amounts) 1988 Operating Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ . 1,053 $ - Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 458 $ -
$ - $ (51,424 ) i Cumulative Effect of an Accounting Change . . . . . . . . . . . . . $ 28,153 $ -
N e
- Inc om e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,611 $ -
Eamings Per Common Share Before cumulative effect of an accounting change . . . . $ .01 $ - Cumulative effect of an accounting change . . . . . . . . . . . .20 - - -
~
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... $ .21 $ - J 1987 Operating Revenues . . . .... . ... . ... .. .... .. $ (5,361) $ (4,736) $ (5,556) $ (4,532) Operating Income . . . . . . . . . . .... .. . .... ..... . $ (3,066) $ (2,709) $ (3,178) $ (2,592) Net income . . . . . . . . . . . . . . . .. . ..... .. $ -
$ 544 $ (794) $ 250 Eamings Per Common Share . . . ... . . .......... $ -
S .01 $ (.01 ) $ - F 23 (Centerior Energy)
- e FINANCIAL AND STATISTICAL REVlEW .
Operating Revenues (thousands of dollars) Steam Total Total Total Heating Operating - Year Residential Commerdal Industnal Other Retail Wholesale Electnc & Cas Revenues 1988.. . .. $637 329 $537 861 $675 584 $84 524 $1935 295 $102 262 $2 037 560 $ -
$2 037 560 1987.. . . 629 663 531 682 689 959 36 272 1 887 576 24 409 1 911 985 13 371 1 925 356 1986.. . .. 599 445 516 614 675 682 79 716 1 871 457 11 381 1 882 838 12 953 1 895 791 1985.. . .. 566 665 485 269 667 450 73 221 1 792 606 16 036 1 808 642 18 866 1 827 508
' 1984., .. 548 136 454 092 636 036 87 279 1 725 543 14 866 1 740 409 24 324 1 764 733 1978.. .. 320 032 239 814 398 975 41 863 1 000 684 40 134 1 040 818 16 058 1 056 876 Operating Expenses (thousands of dollars) i Peny Unit t j
& Beaver :
Fust & Operation Depreciation Taxes Valley Federal Total l Purchased & & Other Than Unit 2 Income Operanns l Year Power Maintenance Amortization FIT Deferred Taxes Expenses I l 1988.. .. . $391401 $865 632 $264 824 $268 550 $(188 209) $123 697 $1723 895 j 1987. ... ... 470 466 642 594 214 421 207 521 (87 623) 105 912 1 553 291 1986.. ...... 522 281 550 874 141 009 194 925 - 138 181 1 547 270 1985. . . 510 844 450 376 141 333 181 120 - 154 823 1 438 496 1984.. ..... 453 192 404 314 145 245 178 915 - 197 766 1 379 432 1978. . 443 925 200 604 83 306 93 076 - 52 731 873 642 Income (Loss) (thousands of dollars) Carrying income Other Charges on Federal income (Loss) Income & Nudear income Before After . Operating AFUDC- Deductions Plants Tax- Interest Interest AFUDC- Interest Year income Equsty Net & Other Credits Charges Charues Debt Charges 1984 . . $311665 $ 13 504 $(489 047)(a) $372155 5131 254 $339 531 $378 292 $ (6 137) $(32 624) . 1987.. . 372 065 299 308 (57 821) 39 599 121 122 774 273 435 042 (137 257) 476 488 1986. 348 521 308 405 (8 108) - 116 422 765 240 406 465 (118 i45) 476 920 1985. 389 012 268 001 5 825 - 86 775 749 613 367 315 (101 918) 484 216 1984. 385 301 213 157 11 556 - 69 434 679 448 310 265 (75 975) 445 158 1978. . 183 234 47 360 7 746 - 11 794 250 134 114 817 (18 145) 153 462 income (Loss) (thousands of dollars) Common Stock (dollars per share & %) 3 income (Loss) Cumulative Before Effect of an Retum on Preferred & Cumulative Accounung Average Average Preference Effect of an Change Net Shares Common Stock Accounting for Unbdled income Outstanding (b) Eamings Stock Olvidends Book Year Olvidends Change Revenues (Loss 1 (thousands I (Loss iib) Equity DeclaredI b) Value(bi 1988. .. $69 489 $(102113) $ 28153 $(73 960) 140 778 $(0.53) (2.5)% $1.84 $19.68 1987.4 . 86 135 390 353 - 390 353 138 395 2.82 12.8 2.56 22.10 1986. 85 027 391 893 - 391 893 128 927 3.04 13.7 2.49 22.13 1985. .. 82 829 401 387 - 401 387 121 898 3.29 15.7 2.20 (c) 21.50 1984 . .. . 78 349 366 809 - 366 809 107 622 3 41 16.4 2.29 20.64 1978. . . 36 595 116 867 - 116 867 52 971 2.21 11.5 1.80 19.59 - NOTE: Data for years pnor to 1986 are the result of combining and restating Cleveland Electnc and Toledo Edison data. (a) Includes wnte-off of nuclear costs in the amount of $534,355.000 in 1988. - (b ) Outstanding shares for the penods pnor to apnl 29,1986 reflect the Cleveland Electnc 1.11.for-one exchange ratio and the Toledo Edison one-for-one exchange ratio for Centenor Energy shares. (c) 1985 Dividends Declared declined because Toledo Edison's first quarter 1986 dividend declaration was delayed from its usual date in 1985 to January 1986 in order to synchronize Toledo Edison's dividend declaration and payment schedules with Cleveland Electnc's pnor to the affiliahon. (Centerior Energy) F-24 1
- - - - . - - - - i
4- 8
= .
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES
., Electric Sales (millions of KWH) . Electric Customer 5 (year end) Residential Usage Average Average Average Pnce Revenue Industnal KWH Per Per Per Year Residential Cornmarcial Indusatal Wholesale Other Total Residential Commerdal & Other Total Customer KWH Customer 1908...... 6 920 6 577 12 793 863 946 23 099 909 182 92 132 12 305 1 013 619 7 462 9.214 5690.06 198 7 . . . . . . . 6 659 6 350 11 985 399 949 26 342' 903 365 90 148 12 240 1 005 753 7 217 9.46 685.43 . 1986....... 6 527 - 6 239 11 409 242 909 25 326 898 583 87 947 12 012 998 542 7 108 9.18 654.99 1985....... 6 309 5952 11 410 331 865 24 867 892 727 87 442 12 023 992 192 6 900 8.98 622.08.
1984.. .... 6 404 5 794 11 441 307 871 24 817 888 816 85 825 11 850 936 491 7 035 8.56 603.92 1978..... 6 203 5 165 12 610 1 291 780 26 049 872 059 80 644 11 170 ' % 3 873 6 987 5.16 361.26 Load (megawatts) Energy (millions of KWH) Fuel Operable Year E Of Peak (d) Peak Load Capacity Maren Load Factor Foned Company Censrated Nudeer Total py,h Power Total Fuel Coat Per KWH KWH 1988 .. .... 5 525 5 673 (2J)% 68.8 % 21 576 7 805 29 381 920 30 301 1.594 10 410 198 7 . . . . . 5 955 5 173 13.1 63.6 20 894 6 907 27 801 601 28 402 1.53 10 466 1986....... 5 199 5 021 3.4 63.0 22 739 24 22 763 4 552 27 315 1.79 10 292 1985. .... 4 539 4 512 5.9 69.1 21 610 1 964 23 574 3 283 26 857 1.85 10 313 1984. ... 5 338 4 659 12.7 66.1 19 930 4 303 ' 24 233 2 350 26 583 1.71 10 349 1978.. .. 6 275 4 707 25.0 66.4 21 114 2 657 23 771 4 128 27 899 1.34 10 465 investment (thousands of dollars) Conwucson Work in Total Utility Accumulated Propees Nuclear Property, Utility Mantin Cm --& Net & Perry Fueland Plant and Plant Total ..- Year service Amorttzenon Rant Unit 2 Other(el Equipment - Addittons Anets 1988...... $5143 673 $1569 304 - $6 574 369 $1222 732 $643 087 $8 440188 $ 381561 $11573 098 1987... ,. 8 388 114 1 324 446 7 063 668 1 007 707 656 350 8 727 725 947 921 11 349 836 1986... . . 4 639 542 1 367 662 3 271 880 5 237 782 652 564 9 162 226 1 133 748 10 011 932 1985... . 4 481 451 1 264 931 3 216 520 4 291 094 564 276 - 8 071 890 994 260 9 022 094 1984..... 4 281 856 1 163 994 3 117 862 3 526 978 485 207 7 130 047 938 509 8 049 712 1978. . 2 946 285 653 433 2 292 852 880 281 48 992 3 222 125 481 453 3 596 373 Capitalization (thousands of dollars & %) Preferred & Preference Preferred Stock, without stock, with Mandatory Mandatory Redemption Year Common stock Equity Redemption Provinsons Provisions Long. Term Debt Total 1988.. .. $2 771744 39 % $303 781 4% $427 334 6% 53 551 614 51% $7 054 473 1987.. .. 3 109 060 41 343 985 4 457 334 6 3 718 249 49 7 628 628 1986.... . 2 991 341 39 487 814 7 404 021 5 3 792 402 49 7 675 578 1985..... . 2 710 098 39 41,8 306 7 374 321 5 3 438 928 49 6 991 353 1984.... . 2 403 234 39 450 046 7 344 021 ,6 2 993 770 48 6 191 671 1978... ... 1 084 896 36 241 500 8 245 071 8 1 481 617 48 3 053 084
. (d) Capacity was reduced because of extended generating unit outages for renovation and improvements in 1984 (720 mw),1985 (1,490 mw),1986 (856 mw) and 1988 (856 mw).
(e) 1984 and 1978 restated for effects of capitalization of nuclear fuellease and financing arrangements pursuant to Statement of Financial Accounting Standards 71. F 25 (Centerior Energy)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - To the Share Owners of-The Cleveland Electric illuminating Company: - We have audited the accompanying consolidated bal. cash flows for each of the three years in the period ance sheet and consolidated statement of cumulative ended December 31,1988, in conformity with gener-preferred and preference stock of The Cleveland ally accepted accounting pnnciples. Electric illuminating Company (a wholly-owned sub- - sidiary of Centerior Energy Corporation) and subsidi. As discussed further in the Summary of Significant
. aries as of December 31,1988 and 1987, and the Accounting Policies and Notes 8 and 14, a change was related consolidated statements of results of opera- made in the methods of accounting for income taxes tions, retained earnings and cash flows for each of the and unbilled revenues, retroactive to January 1,1988.
three years in the period ended December 31,1988. These financial statements are the responsibility of As discussed further in Note 3, the future of Perry Unit the Companyi management. Our responsibility is to 2 is undecided. Construction has been suspended express an opinion on these financial statements since July 1985. Various alternatives are being consid-based on our audits. ered, including resuming construction, mothballing or canceling the Unit. Management can give no assurance We conducted our audits in accordance with generally , accepted auditing standards. Those standards require when, if ever, Perry Unit 2 will go in service or , that we plan and perform the audit to obtain reasona-whether its full investment and a retum thereon will ultimately be recovered. ble assurance about whether the financial statements are free of material misstatement. An audit includes Our audits were made for the purpose of forming an examining, on a test basis, evidence supporting the opinion on the basic financial statements taken as a amounts and disclosures in the financial statements. whole. The schedules of The Cleveland Electric illumi. An audit also m , cludes assessing the accounting princi-nating Company listed in the Index to Schedules are pies used and significant estimates made by manage-presented for purposes of complying with the Securi-ment, as well as evaluating the overall financial ties and Exchange Commission's rules and are not statement presentation; We believe that our audits - art of the basic financial statements. These schedules provide a reasonable basis for our opinion. have been subjected to the auditing procedures ap-In our opinion, the financial statements referred to plied in our audits of the basic financial statements above present fairly, in all material respects, the finan- and, in our opinion, fairly state in all material respects cial position of The Cleveland Electric illuminating the financial data rcquired to be set forth therein in Company and subsidiaries as of December 31,1988 relation to the basic financial statements taken as a and 1987, and the results of their operations and their whole. Cleveland, Ohio February 14,1989 Arthur Andersen & Co. l I i i i (Cleveland Electric) F 26
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES Ceneral A fuel factor is added to the base rates for electric service. This factor is ifesigned to recover fuel, costs
. The Cleveland Electric illuminating Company (Com- fmrn customers. It is changed semiannually arter a pany) is a wholly owned subsidiary of Centerior En- hearing before the PUCO.
crgy Corporation (Centerior Energy). The l Company's common stock was acquired by Centerior Fuel Spense I Energy on April 29,1986, as a result of a lune 25,1985 affiliation agreement with The Toledo Edison Com- The cost of fossil fuel is charged to fuel expense based pany (Toledo Edison) approved by the share owners on inventory usage. The cost of nuclear fuel, including of both companies on November 26,1985. interest,is charged to fuel expense based on the rate The Company follows the Uniform System of Accounts of consumption. Estimated future nuclear fuel prescribed by the Federal Energy Regulatory Commis-disposal costs are being recovered through the base sion (FERC) and adopted by The Public Utilities rates. Commission of Ohio (PUCO). The Company defers the differences between actual The Company is a member of the Central Area Power fuel costs and estimated fuel costs currently being Coordination Group (CAPCO). Other members in. recovered from customers through the fuel factor. This ciude Toledo Edison, Duquesne Ught Company (Du- matches fuel expenses with fuel-related revenues. quesne), Ohio Edison Company (Ohio Edison) and Pennsylvania Power Company (Pennsylvania Power). Deferred Operating 6penses and Carrying Charges The members have constructed and operate genera. The PUCO authorized the Company to defer interest tion and transmission facilities for the use of the carrying costs, current operating expenses (including CAPCO companies. rental payments) and depreciation for Beaver Valley Unit 2 from its commercialin service date of Novem. Consolidation ber 17,1987 through December 31,1988. The PUCO The financial statements include the accounts of determined that Perry Unit 1 was considered used wholly-owned subsidiaries, which in the aggregate are and useful" on May 31,1987 for regulatory purposes. not material. Consequently, the PUCO authorized the Company to defer current operating expenses and depreciation Related Party Transactions for Perry Unit 1 from June 1,1987 through December Operating revenues and expenses include those 22,1987, the date when these costs began to be amounts for transactions with affiliated companies in recovered in rates. The PUCO authorized the deferral the ordinary course of business operations. of interest and equity carrying costs, exclusive of those
~ associated with current operating expenses and de-The Company's transactions with Toledo Edison are ,
preciation, for Perry Unit 1 from June 1,1987 through primarily for interchange power, transmission line rent- December 31,1987 ased deferral of interest carrying als and jointly-owned power plant operations and c sts from January 1,1988 through December 31, construction. See Notes 1 and 2. 1988. The amounts deferred for Perry Unit 1 pursuant Centerior Service Company (Service Company), a to the PUCO accounting orders were included in wholly-owned subsidiary of Centerior Energy, was property, plant and equipment through the November formed in May 1986. The Service Company provides 18,1987 commercial-in-service date. Subsequent to management, financial, administrative, engineering, le- that date, amounts deferred were recorded as de-gal and other services to the Company and other ferred charges. See nom 7 for a discussion of regula-affiliated companies at cost. The Service Company tory matters relating to the Company's investment in billed the Company $79,000,000, $43,000,000 and these Units. The deferrals will be amortized over the
$16,000,000 in 1988,1987 and 1986, respectively, for life of the related property.
such services. Depreciation and Amortization The cost of property, plant and equipment, except for Customers are billed on a monthly cycle basis for their the nuclear generating units, is depreciated over their energy consumption, based on rate schedules author- , estimated useful lives on a straight-line basis. Annual ized by the PUCO. Prior to 1988, these revenues straight-line depreciation provisions expressed as a were recorded in the accounting period during which prcent of average depreciable utility plant in service meters were read, except for the port'on of revenues were 3.9% in 4 988 and 1987 and 3.7% in 1986. Depre-which was deferred under the mirror construction- ciation expense for the nuclear units is based on the work-in-progress (CWIP) law discussed below. Utility units-of-production method. szrvice rendered after monthly meter reaoing dates through the end of a calendar month (unbilled reve- Costs associated with four CAPCO nuclear generating nues) became a part of operating revenues the fol- units canceled in 1980 were written off in 1988. The lowing month. Effective January 1,1988, the Company net after-tax write off was 511,000,000. Under the changed its method of accounting to accrue the esti- January 1989 PUCO rate order discussed in Note 7, no mated amount of revenues for sales unbilled at the specific revenues associated with these costs were end of each month. See Note 14. provided. Previously, the costs were being amortized F 27 (Cleveland EJectric)
and r:cov:r:d in rat;s through 1991 in accordance Interest Charg:5 - with PUCO rate orders. Interest on long-term debt reported in the statement of Effective July 1988, the Company began the external Results of Operations does not include interest on - funding of future decommissioning costs for its operat- nuclear fuel obligations. Interest on nuclear fuel obli. mg nuclear units pursuant to a PUCO order. Cash gations for fuel under construction is capitalized. See contributions are to be made to the funds on a Note 5. straight line basis over the remaining licensing period for each unit. Estimated total decommissioning costs for the Company are 563,000,000 in 1986 dollars for Property, Plant and Equipment the Davis-Besse Nuclear Power Station (Davis-Besse) Property, plant and equipment are stated at on. .gmal and $44,000,000 for Perry Unit 1 and $35,000,000 for B: aver Valley Unit 2, both in 1987 dollars. The cur- c st less any amounts ordered to be written off. In-rent level of accruals being funded and recovered in cluded in the cost of construction are items such as rates from custorners over the remaining licensing peri- related payroll taxes, pensions, fringe benefits, man-ods of the Units is approximately $4,000,000 annually, agement and general overheads and AFUDC. AFUDC represents the estimated composite debt and Deferred Cain from Sale of Utility Plant equity cost of funds,used to finance construction. This noncash allowance is credited to income, except for The Company is amortizing the deferred gain associ. AFUDC for Perry Unit 2. Since Ju;y 1985, Perry Unit 2 ated with the sale of the Bruce Mansfield Plant (Mans. AFUDC had been credited to a deferred income ac-fi:Id Plant) in 1987 over the term of the leases under count. Effective January 1,1988, the Company dis-the sale and leaseback agreement. See Note 2. The continued the practice of accruing AFUDC on Perry amortization and lease expense amounts are recorded Unit 2. See Note 3. The AFUD rates, net of the as operation expense. income tax effect, were 10.47% ..i 1987 and 10.58% in 1986. The gross AFUDC rate Qsed in 1988 was 11.23%
, FederalIncome Taxes (9.50% on a net-of-tax basis).
The 1988 financial statements reflect the liability Maintenance and repairs are charged to expense as method of accounting for income taxes as a result of incurred. Certain maintenance and repair expenses for ; adopting the new standard for accounting for income Perry Unit 1 and Beaver Valley Unit 2 have been I taxes. Prior to 1988, income taxes were accounted for deferred pursuant to the PUCO accounting orders ~ by the deferred method. Under the deferred method, discussed above. The cost of replacing plant and dsferred taxes and deferred tax credits were not equipment is charged to the utility plant accounts. The adjusted for subsequent changes in federal tax rates. cost of property retired plus removal costs, after de-Also, under the deferred method, the Company did ducting any salvage value, is charged to the accumu- ~ not record deferred taxes on the temporary differences lated provision for depreciation. b: tween book and tax income where the PUCO used the realized tax benefits to reduce allowable costs for Mirror Construction Work in Progress ratemaking purposes. This practice was premised on regulatory treatment which permits recovery of such The Ohio mirror CWIP law requires that revenues d:ferred income taxes in future revenues. authorized by the PUCO and collected as a result of A major difference under the liability method is that including CWIP in rate base be refunded in a subse-d:ferred tax liabilities are adjusted for subsequent tax quent period after the project is mcluded in rate rate changes. Also, the Company must now record base. Such revenues are deferred and recorded as diferred taxes for all temporary differences between refund obligations to customers. AFUDC continues to be capitalized during the construction penod. The book and tax income, initial application of the ac-counting standard in 1988 did not impact results of deferred revenues are then recognized as operating operations as the additional deferred taxes were offset revenues in the statement of Results of Operations by a regulatory asset on the balance sheet. Addition- ver the period of the refund. Amounts collected ally, allowance for funds used during construction through December 31,1988 under the mirror CWIP ( AFUDC) and carrying charges that were previously I w are being refunded pursuant to the January 1989 accounted for in the statement of Results of Opera- PUCO rate order discussed in Note 7. tions on a net-of tax or an after-tax basis are now stated on a pre-tax basis. Consequently, the 1988 Reclassifications and Restatements f:deral income tax provision is equally higher. Certain reclassifications have been made to prior years' For certain property, the Company received invest- financiti statements to make them comparable with ment tax credits which have been accounted for as 1988 financial statements. - deferred credits. Prior to 1988, tax credits utilized were reflected as reductions to tax expense over the life of in 1988, a new accounting standard which requires the the related property. Under the new method of ac- presentation of a statement of cash flows in the finan-counting, the amortization of investment tax credits is cial statements was adopted. Previously, a statement reported as a reduction of depreciation expense. See of Source of Funds invested in Plant, Facilities and Note 8 for federal income tax details. Special Deposits was presented. (Cleveland Electric) F-28
m .-
^ ' '
MANAGEMENT'S FINANCIALfANALYSIS s - Results of Operations ~ The increase in other operation and maintenance-
.1988 vs.1987 expense and depreciation expense mainly resulted from a full year of operation of Perry Unit 1 and Beaver Factors contributing to the 9.6% increase in 1988 Valley Unit 2 and a full year of lease expense for the operating revenues are as follows: Mansfield Plant. The increase in deferred operating
! Increase expenses in 1988 was largely attributable to the defer-
' Change in Operating Revenues (Decrease) ral of Beaver Valley. Unit 2 operating expenses for a o
full year because they were not being recovered in Electric Revenues: rates. In 1987, Perry Unit 1 and Beaver Valley Unit 2 Base Rates and Miscellar.eous.... $ 49,000,000 operating expenses were deferred for only about Sales Volume . . . . . . . . . . . . . . . . . . . 33,000,000 seven and two months, respectively. Sales to Ohio Edison and Penn-sylvania Power . . . . . . . . . . . . . . 75,000,000 As discussed in Note 7, $257,000,000 of nuclear costs Deferred CWIP Revenues . . . . . . . 32,000,000 were written off in 1988 as a consequence of the Fuel Cost Recovery Revenues . . . . (48,000,000) January 1989 PUCO rate order. Tota l . . . . . . . . . . . . . . . . . . . . . . . . 141,000,000 The total amount of AFUDC and carrying charges
- Steam Heating Revenues . . . . . . . . . . (13,000,000) decreased in 1988. The change in status from con-
~ Total ' . . . . . . . . . . . . . . . . . . . . . . . . . $128,000,000 struction to operation of Perry Unit 1 and Beaver Valley Unit 2 in 1987 resulted in the cessation of AFUDC. mstead, an accrual of post in-service carrying charges pursuant to PUCO orders began on such Rate increases granted to the Company in 1987 ac-counted for about twodhirds of the increase in base investments not included in rate base. However, rates and miscellaneous revenues. The remainder of AFUDC and carrying charges that were previously the increase resulted from several minor factors, in. accounted for on a net-of tax or an after tax basis were
- cluding an increase in the amount of unbilled reve- stated on a pre tax basis in 1988.
nues. Total kilowatt hour sales increased 7.5% in 1988. Part of the proceeds from the 1987 sale and leaseback Sales growth of 7.3% in the mdustrial sector reflected transaction was used to redeem outstanding high-cost broad-based strength in the economy, particularly securities which reduced interest expense and pre-among automobile, steel and chemical producers. ferred dividends in 1988. Residential sales increased 3.6% in 1988 largely be-cause of a substantially warmer <ummer. The hot sum- Results for 1988 also included a one time net after tax mer also contributed to a 3.7% gain in commercial increase of $22,000,000 related to a change in ac-sales as did high occupancy rates in Cleveland office counting for unbilled revenues. See Note 14. buildings, a continued office building boom in subur- , ban areas and new retail outlets. The increase in reve. nues from sales to Ohio Edison and Pennsylvania 1987 vs.1986 Power is the result of the sale of a portion of the Factors contributirig to the 0.3% decrease in 1987 Company's share of Perry Unit I capacity for all 12 operating revenues are as follows: months in 1988 compared to only six weeks in 1987. The increase in revenues attributable to deferred Change in Operating Revenues CWIP revenues resulted (som a reduction in the level ( e ease) of revenues deferred under the mirror CWIP law. Electric Revenues: Lower fuel cost recovery revenues resulted principally Base Rates and Miscellaneous . . . . $ 51,000,000 from the greater use of lower cost nuclear fuel and the Sales Volume . . . . . . . . . . . . . . . . . . . 25,000,000 PUCO-ordered refund of certain replacement fuel Sales to Ohio Edison and Penn-
- and purchased power costs collected from customers sylvania Power .............. 9,000,000 during a 1985-1986 Davis-Besse outage. See Note 4. Deferred CWIP Revenues ...... (46,000,000)
;- The Company sold its steam system in December Fuel Cost Recovery Revenues . . . (43,000,000) 1987, resulting in the decrease in steam heating Total . . . . . . . . . . . . . . . . .. .. $ (4,000,000) revenues.
' Operating expenses increased 10.1% in 1988. Lower Rate increases granted to the Company in 1986 and fuel and purchased power expense in 1988 resulted 1987 accounted for most of the increase in base rates ;
mainly from a decrease in deferred fuel expense, and miscellaneous revenues in 1987. Total kilowatt- I Fuel and purchased power expense also was reduced hour sales increased 4.1% in 1987. Industrial sales ] for the amortization of reserves previously established growth of 5.9% was broad based, particularly in the l to match the PUCO-ordered refund discussed above, steel sector. Residential and commercial sales in. F 29 (Cleveland Electric) a_ __:-- - - _ _ _ e
O
- creased 2.1% and 1.6%, respectively. The sales in- AFUDC and carrying charges were higher in 1987 .
creases resulted mainly from the warmer summer but because of an increase in the amount of investment were partially offset by the moderate temperatures not in rate base. Interest charges were higher because during the winter. The sale of a portion of the Com- of an increase in outstanding long-term debt. pany's share of Perry Unit 1 capacity to Ohio Edison and Pennsylvania Power discussed previously began in Effect of Int 7ation November 1987. The decrease in revenues attnbut- Inflation adversely affected results of operations over able to deferred CWIP revenues resulted from an tr e last three years. In the period 1986-1988, our increase in the level of revenues deferred under the , average electric rates, including decreases in the fuel mirror CWIP law. Lower fuel rast recovery revenues in cost recovery factor, decreased; however, the costs or, 1987 resulted from increased use of our nuclear units. labor, materials and services used m operations were Operating expenses in 1987 decreas'ed by 0.8%. Fuel higher. Changes in fuel costs do not affect our results and purchased power expense decreased because of of operations since those costs are reflected in the fuel the return to service of Davis Besse late in 1986 after cost recovery factor included in customer bills, an 18-month outage and the start-up of Perry Unit 1 Inflation will continue to have a negative impact on and Beaver Valley Unit 2 in 1987. Nuclear units pro- our results of operations. The January 1989 rate order vided 20% of electricity generated in 1987 cornpared is rimarily designed to recover deferred operating to a negligible amount in 1986. The reduction in fuel and capital costs of our new nuclear investments. The and purchased power expense, lower federal income order will not afford protection against future infla-taxes and savings from cost reduction programs were tion. Our cost reduction efforts to date have been offset by Mansfield Plant lease expense and higher substantial and will continue to be an area of increas-operation expenses and depreciation expense for Da- ing importance as discussed in Note 7. vis-Besse. The sale of the Company's steam system in 1987 resulted in a one-time net after-tax loss of
$ 18,000,000.
- 1 RETAINED EARNINGS rse ctevitasD etscraic ittumisArisc COMPANY AND SUBSIDIARIES For the years ended December 31, 1986 l 1988 1987 .
(thousands of dollars) Balance at Beginning of Year . . . ... . .. .. 5 604,516 5 522,805 5 547.671 Additions Net income .. .. .. , . . .. .. .. . . 95,085 309,582 299,884 Deductions Dividends declared: Common stock . . . . . .. (198,445) (179,320) (276,849) Preferred stock . . . . ... . (41,203) (45,594) (45,025) Preference stock . ..' . ... (638) (1,684) (2,872) Other, primarily preferred stock redemption expenses . 394 (1,273) (4)
~
Net increase (Decrease) . (144,807) 81,711 (24,866) Balance at End of Year .. . 5 459,709 $ 604.516 5 522.805 The accompanying notes and summary of significant accounting policies are an integral part of this statement. (Cleveland Electric) F-30
1*- RESULTS OF OPERATlONS Tse ctevctaso strcinic ittumisarisc couersy Ano sussioixaits L For the years ended December 31, l 1988 1987 1986 (thousands of dollars) , . Operating Revenues l Elect ric . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . .. . . . . . . . . . . $1,451,578. $1,310,644 $1,314,771 5 te am h ea ti ng . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 13,371 12,953 1,451,578 1,324,015 1,327,724 Operating Expenses Fuel and purchased power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307,014 330,290 363,518 Other operation and maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . 524,478 425,938 388,388 Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189,731 148,918 103,179 Taxes, other than federal income taxes . . . . . . . . . . . . . . . . . . . . . . 184,813 146,407 143,495 Perry Unit I and Beaver Valley Unit 2 deferred operating expenses.............. ................................ (104,3%) (47,826) - Federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,654 83,179 97,074 1,196,294 1,086,906 1,095,654 Operatin g income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255,284 237,109 232,070 Nonoperating income Allowance for equity funds used during construction. . . . . . . . . . 8,052 177,170 178,826 Other income and deductions, net . . . . . . . . . . . . . . . . . . . . . . . . . . 14,103 (14,784) (6,255) Write-off of nuclear costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (257,400) -- - . Loss on steam system sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (27,156) - Carrying charges on nuclear plants and other. . . . . . . . . . . . . . . . . 224,585 24,610 - Federal income taxes - credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,162 79,606 64,544
~
42,502 239,446 237,115 Income Before Interest Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297,786 476,555 469,185 Interest Charges Lor g term d eb t . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224,879 246,012 228,932 S h ort term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . /. . . . . . 4,000 3,946 3,201 Allowance for borrowed funds used during construction . . . . . . (4,304) (82,985) (62.832) 224,575 166,973 169,301 income Before Cumulative Effect of an Accounting Change ..... 73,211 309,582 299,884 Cumulative Effect on Prior Years (to December 31,1987) of an Accounting Change for Unbilled Revenues (Net of Income Taxes of $14,552,000) .................................... 21,874 - - Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... 95,085 309,582 299,884 Preferred and Preference Dividend Requirements . . . . . . . . . . . . 42,506 43,386 39,784 Earnings Available for Common Stock . . . . . . . . . . . . . . . . . . . . . . . . $ 52,579 $ 266,196 $ 260,100 The accompanying notes and summary of significant accounting policies are an integral part of this statement. F 31 (Cleveland Electric)
MANAGEMENT'S FINANCIAL ANALYSIS Capital Resources and Liquidity granted a rate increase in 1989 and in the next two years pursuant to the January 1989 PUCO rate order. .- We carry on a continuous program of constructing new See Note 7 for discussion of the Company's and , facilities and modifying existing facilities to meet an- Toledo Edison's rate orders which provide for specific ticipated demand for electric service and to comply levels f rate increases and earnings limitations for with govemmental regulations. Cash requirements Centerior Energy through 1991. The availability of for the construction program and mandatory retire. capital to meet our extemal financing needs depends ment of securities over the three-year period 1986 up n such factors as fmancial market conditions, 1988 totaled approximately $1,072,000,000. eamings, our ability to pay dividends, the size of our in 1986 and 1987, the capital required to finance our construction program and our credit ratings. We ex- . I construction program and to retire securities was ob- pect to be able to raise cash as needed. tained primarily from extemal sources. Also, in 1987, Current securities ratings for the Company are as we sold and leased back certain interests in the Mans-IOU 0*S field Plant's three generating units as discussed in Standard Moody's Note 2. A substantial portion of the net proceeds from & Poor's investors the sale and leaseback transaction was used in 1987 Corporation Service and 1988 to pay portions of short-term debt incurred to finance the construction program, to redeem out. First mortgage bonds . . . . . . BBB- Baa2 standing securities, to pay our construction program Preferred stock . . . . . . . . . . BB+ Baa2 costs and for general corporate purposes, in 1988, the Company issued $188,730,000 of first mortgage A write-off of the Company's investment in Perry Unit bonds as collateral to secure its obligations in connec. 2 (as discussed in Note 3 " Construction and Contin-tion with the sales of tax excmpt bonds by public gencies - Perry Unit 2") would not reduce retained authorities to assist in financmg certain polletion con. eamings sufficiently to imih air the Company's ability to trol facilities. The Company used part of the proceeds declare dividends. Such a write-off could result in a from these sales to refund $121,165,000 of tax-ex. default on the capitalization financial covenants dis-empt pollution control bonds collateralized by an cussed in the last paragraph of Note 2. equal amount of its first mortgage bonds. The Company and Centerior Energy are renegotiating Estimated requirements for the Company's cash con- certain financial covenants contained in an agreement struction expenditures for 1989-1991 are under which the two companies are facing potential -
$520,000,000. In addition, $359,000,000 will be re. non-compliance after 1989. See the last paragraph of quired for the redemption of debt and preferred stock Note 2.
during this period. In 1989, the Company also is The Tax Reform Act of 1986 provided for a 40% required to offer.to purchase $12,000,000 of preferred average income tax rate in 1987 and a 34% income tax and preference stock. We expect to finance exter- rate in 1988 and thereafter, the repeal of the invest. nally virtually all of our 1989 construction and redemp- ment tax credit, scheduled reductions in investment tion requirements. We expect to finance extemally tax credit carryforwards, less favorable depreciation about 60% of our 1990 and 1991 requirements. See rates, a new altemative minimum tax and other items' Note 12 for nformation conceming limitations on the The changes resulted in increased tax payments and a issuance of preferred and preference stock and debt. reduction in cash flow during 1987 principally be. Our available short-term borrowing arrangements are cause the alternative minimum
- tax reduced the explamed in Note 13.
amount of investment tax credits allowed as an offset Our ability to meet our financing needs depends upon to federal income tax payable. These changes had no our internal generation of funds and the availability of significant cash flow impact in'1988 because the capital from the financial markets. The Company was Company had a net operating loss for tax purposes. (Cleveland Electric) F.32 L_________ _ _ _ _
CA5H FLOWS THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARIES For the years ended December 31. 1988 1987 1986 (thousands of dollars) Cash Flows from Operating Activities (1) Net income . . . . .... ....... ..................... ........ . .. $ 95,085 $ 309.582 5 299,884 Adjustments to Reconcile Net income to Cash from Operating Activities: Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189,731 148,918 103,179 i Deferred federal income taxes . . . . . . . . . . . . . . . . . . . . . . .... .... 18,650 (129,097) 54,693 investment tax credits, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,607) 53,367 (17,551) Write-off of nuclear costs . . . . . . . . . . . ........ ..... ...... . 257,400 - - Deferred and unbilled revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,200 46,000 - Deferred fuel . . . . . . . . . . . . . . . . . . . . . . . . . . .................. (33,908) 1.7,109 15,845
'nterest capitalized as carrying charges . . . . . . . . . . . . . . . . . . . . . .. (224,585) (24,610) -
Leased nuclear fuel amortization .. . .... ......... ......... 44,911 26,727 75 Deferred nuclear operating expenses .. ....... . . ........ (104,3%) (47,826) - Allowance for equity funds used during construction . . . . . . . . . . . . (8,052) (177,170) (178,826) Loss on steam system sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 27,156 - Amortization of reserve for Davis-8 esse refund obligations to cu s to m ers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,341) - - Other non-cash items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .... (17,657) 40,115 14,413 Cumulative effect of an accounting change . . . . . . . . . . . . . . . . . . . (21,874) - - Changes in working capital affecting operations . . . . . . . . . . . . . . 52,838 84,214 51,641 Total Adjustments . . . ~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131,310 64,903 43,469 Net Cash from Operating Activities . . . '. . . . ... . .. .. 226,395 374,485 343,353 Cash Flows from Financing Activities (2) Bank loans, commercial paper and other short. term debt . . .. .. .. 36,445 16,803 30,807 rirst mortgage bond issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188,730 370,500 225,000 Preferred stock issues . . . . . . . . . . . . ..... .. .. .... .. ........ - 73,313 73,968 Common stock issues . . . . . . . . . . . . .......... . .. .... ...... - - 26,688 Equity contributions from parent ... . ... ............. . ... (95) 33 78,687 Maturities, redemptions and sinking tunds . .. . ... .. .... . (162,411) (476,872) (84,487) Nuclear fuel and trust obligations . . . . . . . . . . .... ... . (44,911) (18,855) (75) Dividends paid .... .................. ........ ... . ... ..... (241,422) (281,418) (255,895) Premiums, discounts and expenses . . . . . . . . . . . . . . . . . . . . ... . (313) (2,478) (1,284) Net Cash from Financing Activities ... . .. .. (223,977) (318,974) 93,409 Cash Flows from Investing Activities (2) Cash applied to construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. (199,983) (337,040) (430,899) Interest capitalized as a!!owance for borrowed funds used during construction . . . . . . . . . ... .. . . . .. . . .... . (4,304) (82,985) (62,832) Cash deposited in decommissioning trusts . . . . . . . . . .. . (2,218) - - Other cash received ( applied) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,503 (29,417) (31,596) Cash received from sale of steam system.. .. ... ....... ....... - 7,000 - Cash received from sale and leaseback transaction, net . . . . . . . . . . . . . - 614,828 - Cash withdrawn from (deposited in) sale and leaseback and other t rus t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... ....... . 264,109 (264,109) - Cash withdrawn from pollution control escrow account..... .. . . 225 21,516 31,046 Net Cash from investing Activities . . . . . . . . . . . . . 60,332 (70,207) (494,281) Net Change in Cash and Temporary Cash investments . . . . . . ... ..... 62,750 (14,696) (57,519) Cash and Temporary Cash investments at Beginning of Year.. . .. ... 12,887 27,583 85,102 Cash and Temporary Cash investments at End of Year . . . . . ... $ 75,637 5 12,887 5 27,583 (1) Interest paid was $224,000,000, $247,000,000 and $227,000,000 in 1988.1987 and 1986, respectively. Income taxes paid were $84,007,000, $27,060,000 and $300,000 in 1988,1987 and 1986, respectively. (2) increases in Nuclear Fuel and Nuclear Fuel Lease and Trust Obligations resulting from the non-cash capitali:ations under nuclear fuel agreements discussed in Note 5 are excluded from this statement. The accompanying notes and summary of significant accounting policies are an integral part of this statement. F-33 (Cleveland Electric)
l l BALANCE SHEET . l l' December 31, .. 1988 1987 (thousands of dollars) Assets Property, Plant and Equipment Utility plant in service . . . . . . . . . . . . . . . . . . . . . ................ $5,704,746 $5,787,603 Less: accumulated depreciation and amortization . . . . . . . . . . . . 1,081,758 905,297 4,622,988 '4,882,306 Constructi'on work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239,843 156,975 P erry U ni t 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 523,785 476,458 5,386,616 5,515,739 Nuclear fuel, net of amortization . . . . . . . . . ................. 336,456 344,499 Other property, less accumulated depreci,.aon . . . . . . . . . . . . . . . . 44,117 44,782 5,767,189 5,905,020 Special Deposits Pollution control construction funds, unexpended . . . . . . . . . . . . . 667 892 Deposits in trust, primarily sale and leaseback proceeds . . . . . . . . ,
- 264,109 Decommissioning trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,218 -
2,885 265,001 Current Assets Cash and temporary cash investments . ...:................. 75,637 12,887
. Amounts due from customers and others, net . . . . . . . . . . . . . . . . . 153,055 145,088 Amounts due from affiliates. . . . . . . . . . . . . . . . . . . . . . . . . .. 5,605 2,921 Unbilled revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,954 -
44,638 Materials and supplies, at average cost . . . . . . . . . . . . . . . . . . . . . . 52,793 Fossil fuel inventory, at average cost. . . . . . . . ......... ....... 32,886 50,420 Taxes applicable to succeeding years . . . . . . . . . . . . . . . . . . . . . . . 137,540 140,780 Other.................................................... .42 07 6,701 512,677 403,435 Deferred Charges Unamortized costs of terminated nuclear projects . . . . . . . . . . . . . - 29,001 Accumulated deferred federal income taxes . . . . . . . . . . . . . . . . . . - 275,443 Amounts due from customers for future federal income taxes... 689,837 - Unamortized loss on reac'uired debt . . . . . . . . . . . . . . . . . . . . . . . 37,511 39,964 Carrying charges and nuclear operating expenses . . . . . . . . . . . . . . 390,922 49,022 Other.................................................... 55,177 122,140 1,173,447 515,570 Total As sets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,456,198 $7,089,026 The accompanying notes and summary of significant accounting policies are an integral part of this statement. i (Cleveland Electric) F-34
c
... y .~ THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARIES December 31, 1988 1987 (thousands of dollars)
Capitalization and Uabilities Capitalization Common shares, without par value: 105,000,000 authorized;
+ 79,591,000 outstanding in 1988 and 1987. . . . . . . . . . . . . . . . . . $1,242,074 51,242,483 Other paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,625 78,720
' Retained eamin gs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459,709 604,516 Common stock eq uio; . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,780,408 1,925,719 Preferred stock With mandatory redemption provisions . . . . . . . . . . . . . . . . . . . . . 226,250 256,848 Without mandatory redemption provisions . . . . . . . . . . . . . . . . . 217,334 217,334 Preference stock, with mandatcry redemption provisions . . . . . . . 6,376 13,797 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .............. 2,260,170 2,317,957 4,490,538- 4,731,655 Other Noncurrent Uabilities Refund obligations to customers . . . . . . . . . . . . . . . . . . . . . . . . .'. . . . 26,571 33,000 Other, primarily nuclear fuel lease and trust obligations . . . . . . . . 328,531 337,655 355,102 370,655 Current Uabilities Current portion of long-telm debt and preferred stock . . . . . . . . . 132,936 22,836 Current portion of lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 46,544 40,605 Notes payable to banks and others . . . . . . . . . . . . . . . . . . . . . . . . . . 177 .36,732
' Ac coun ts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145,606 100,005 Accounts and notes payable to affiliates . . . . . . . . . . . . . . . . . . . . . . 127,214 34,711 Accru ed taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196,109 231,422 Accrued in terest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,646 49,699 Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,895 14,031 Accrued payroll and vacations . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,195 18,589 Current portion of refund obligations to customers. . .. . . . . . . . . 33,984 13,000 Other..................................................... 7,471 8,603 769,777 570,233 i Deferred Credits Unamortized investment tax credits . . . . . . . . . . . . . . . . . . . . . . . . . 277,523 297,782 1
Accumulated deferred federal income taxes . . . . . . . . . . . . . . . . . . . 944,099 435,714 Reserve for Perry Unit 2 allowance for funds used during construction n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,398 102,903 Unamortized gain, Bruce Mansfield Plant sale . . . . . . . . . . . . . . . . . 432,6 % 464,292 Other.................................................... 62,065 115,792 l 1,840,781 1,416,483 Total Capitalization and Liabilities . . . . . . . . . . . . . . . . . . . $7,456,198 57,089,026 F 35 (Cleveland Electric) j
STATEMENT OF CUMULATIVE rse cttvetx~o ttecTaic ittumi~4ri~c come4~y x~o sus c.oixaits PREFERRED AND PREFERENCE STOCK December 31, 1 1988 Shares Current Outstanding Call Price 1988 1987 (thousan:is of dollars) Without par value, 4,000,000 preferred and 3,000,000 preference shares authorized Subject to mandatory redemption (less current maturities): Preferred:
$ 7.3 5 Series C . . . . . . . . . . . . . . . . . . . . . 190,000 $ 101.00 $ 19,000 $ 20,000 88.00 Series E . . . . . . . . . . . . . . . . . . . . . 33,009 1,042.09 33,000 36.000 75.00 Series F . . . . . . . . . . . . . . . . . . . . 2,864 1,000.00 2,884 16,666 80.00 Series G . . . . . . . . . . . . . . . . . . . . . 2,686 1,000.00 2,686 8.000 14 5.00 Series H . . . . . . . . . . . . . . . . . . . . . 16,026 - 16,026 19,590 145.00 Series I . . . . . . . . . . . . . . . . . . . . . 19,686 - 19,686 23,624 113.50 Series K . . . . . . . . . . . . . . . . . . . . 10,000 - 10,000 10.000 Adjustable Series M . . . . . . . . . . . . . . . . . 500,000 105.51 49,000 49,000 9.125 Series N . . . . . . . . . . . . . . . . . . . . . 750,000 108.11 73,968 73,968
$226,250 5256.848 Preference:
77.50 Series 1 . . . . . . . . . . . . . . . . . . . . 6,376 1,000.00 $ 6,376 $ 13,797 Not subject to mandatory redemption: ' Preferred: 7.40 Series A . . . . . . . . . . . . . . . . . . . . . 500,000 101.00 $ 50,000 $ 50,000 7.5 6 Series B . . . . . . . . . . . . . . . . . . . . 450,000 102.26 45,071 45,071 Adjustable Series L . . . . . . . . . . . . . . . . . . . . 500,000 104.67 48,950 48,950 Remarketed Series P . . . . . . . . . . . . . . . . . . . . . 750 101,000.00 73,313 73.313
$217,334 5217.334 The accompanying notes and summary of significant accounting policies are an integral part of this statement.
(Cleveland Electric) F-3 6
NOTES TO THE FINANCIAL STATEMENTS (1) Property Owned with Other Utilities and Investors The Company owns, as a tenant in common with other utilities and those investors who are owner participants in various sale and leaseback transactions (lessors), certain generating units as listed below. Each owner owns an undividea share in the entire unit. Each owner has the right to a percentage of the generating capability of each i unit equal to its ownership share. Each utility owner is obligated to pay for only its respective share of the l construction and operating costs. Each lessee is obligated to pay for the related lessor's share of those costs. I j Property, plant and equipment at December 31,1988 includes the following facilities owned by the Company as a t:nant in common with other utilities and lessors: Owner-In- Owner. ship Plant Construction , W ork Accumulated I Service ship Mega. Power in Cenerating Unit Date Share watts Source Service in Progress Depreciation f (thousands of dollars) In Service: Seneca Pumped Storage . . . . 1970 80.00 % 305 Hydro $ 58,291 $ 161 $ 17,312 1972 68.80 399 Coal 149,329 1,687 - Eastlake Unit 5. . . .... .. . . . 1977 51.38 445 Nuclear 540,084 86,982 113,064 Davis-Besse . . . . . .. ... . Peny Unit 1 & Common Facilities .. 1987 31.11 370 Nuclear 1,736,737 17,484 67,209 Beaver Valley Unit 2 & Common - 1987 24.47 204 Nuclear 1,157,499 3,797 51,465 Facilitires (Note 2) . . . . . . .. Cor.struction Suspended (Note 3): Perry Unit 2 . . . .. Uncertain 31.11 375 Nuclear - 523.785 -
$ 3,641,940 $633,896 $249,050 Depreciation for Eastlake Unit 5 has been accumulated on an account basis with all other depreciable property rather than by specific units of depreciable property. The Company's share of the operating expense of these generating units is included in the statement of Results of Operations.
Ohio Edison and Pennsylvania Power have agreed to purchase 80 megawatts of the Company's capacity entitlement in Perry Unit 1 from November 1987 through May 1989. Revenues totaled $84,000,000 for this transaction in 1988'. The Unit will be out of service for refueling beginning in late February 1989. (2) Utility Plant Sale and Leaseback Transactions As a result of sale and leaseback transactions com. For.the For Toledo pleted in 1987, the Company and Toledo Edison are Year Company Edison. co-lessees of 18.26% (152 megawatts) of Beaver Val- tthousands of dollars). ley 'Jnit 2 and 6.5% (51 megawatts), 45.9% (358 1989................. $ 63,000 $ 106,000 megawatts) and 44.38% (355 megawatts) of Units 1, 1990.. ............. 63,000 106,000 2 and 3, respectively, of the coal-fired Mansfield Plant 1991. ........... ... 63,000 107,000 I for terms of about 29% years. The Company's pro- 1992..... ........... 63,000 110,000 ceeds from its sale of esser'tially all ofits undivided 1993.. .... ........ 63,000 111,000 tenant in-common interests in the Mansfield Plant later Years . . . . . . . . . . 1,706,000 2.813,000 were $625,500,000. Total Future Minimum Lease Payments , . . . . 52,021,000 $3.353.000 As co lessee with Toledo Edison, the Company is also obligated for Toledo Edison's lease payments. If Toleco Edison is unable to make its payments under The amounts recorded by the Company as rental ex-the Mansfield Plant and Beaver Valley Unit 2 leases, pense for the Mansfield Plant leases were $68,010,000 the Company would be obligated to make such and $19,500,000 in 1988 and 1987, respectively. ) j' payments. No payments were made on behalf of Toledo Edison is selling 150 megawatts of its Beaver Toledo Edison in 1988. Valley Unit 2 leased capacity entitlement to the Com-Future minimum lease payments required under these pany commencing in November 1988. We anticipate f that this sale will continue for at least ten years. operating leases at December 31, 1988 are summa-rized as follows: Purchased power expense for this transaction was F-37 (Cleveland Electric)
$18,533,000 in 1988, of which $16,061,000 was re- (3) Construction and Contingencies corded in a deferred charge account pursuant to a Construction Program PUCO accounting order. Such amount will be amor- .
tized to expense over the life of the lease beginning in The estimated cost of the Company's construction 1989. The future minimum lease payments associ- program for the 1989,1991 period is $540,000,000,
; ated - with Beaver Valley Unit 2 aggregate including AFUDC and excluding nuclear fuel. Should , $2,068,000,000. more stringent environmental regulations be adopted, i I
particularly in the area of acid rain pollution control, The Company and Toledo Edison are responsible . future construction program costs would increase-under the le',es for paying all taxes, insurance premi- substantially. However, such increases would not oc. ums, opersion and maintenance costs and all other cur unt i l after 1991. similar costs for all their interests in the Units sold and Izased back. The Company and Toledo Edison may Perry Unit 2 incur additional costs in connection with capital im-
- provements to the Units. The Company and Toledo Perry Unit 2, including its share of the common facili-
- Edison have options to buy the interests back at the ties, is about 58% complete. Construction of Perry end of the leases for the fair market value at that time Unit 2 was suspended in 1985 by the CAPCO compa-or to renew the leases. Additional lease provisions nies pending future consideration of severa' altema-provide other purchase options along with conditions tives which include resumption of full construction .
I for mandatory t.rmination of the leases (and possible with a revised estimated cost and completion date, r: purchase of the leasehold interests) for obsoles. mothballing or cancellation. None of these altematives I conce and events of default, including those de<cribed may be implemented without the approval of each of in the next paragraph. the CAPCO companies. An agreement relating to a letter of credit issue J in if Perry Unit 2 were to be canceled, the Company l connection with the sale and leaseback of Beaver would seek authorization from the PUCO to recover ! Valley Unit 2 contains several financial covenants af- its investment in the Unit in rates. We have no assur-
. fzcting the Company, Toledo Edison and Centerior ance that recovery would be allowed. In the event of Energy. Among these are coverage covenants which such a cancellation, if and when it were to appear
~
rzquire the Company and Centerior Energy to maintain probable that recovery would not be allowed, then camings to-interest expense ratios above specific the Company's net investment in Perry Unit 2 (less Izvels. We believe that the Company and Centerior any tax saving) would have to be written off. We -l
' Energy may not be able to continue to comply with estimate that such a write-off, based on the Company's their rerpretive coverage covenants after 1989. This investment in this Unit as of December 31,1988, matter is being discussed with the parties to this agree- would have been about $266,000,000, after taxes. See ment and we believe that new requirements will be Notes 2 and 12 for a discussion of other potential l
agreed upon. This agreement also contains certain consequences of such a write-off. ; l capitalization covenants which require the Company Duquesne has advised the Pennsylvania Public Utility I and To.edo Edison to maintain common stock equity Commission that it will not agree to' resumption of above specific levels and require Centerior Energy to construction of Perry Unit 2. Duquesne is continuing maintain t?.e ratio of common stock equity and the to pay for its 13.74% ownership share of maintaining ratio of total equity to total capitalization above spe. Perry Unit 2 while construction is suspended. cific percentages. A write-off of the Company's and Toledo Edison's investments in Perry Unit 2 could The increase in the Perry Unit 2 investment amount in result in a default on all or some of these capitalization 1988 is primarily the result of the gross-up of AFUDC covenants. See Note 3. These capitalization covenants recorded in prior periods related to the adoption of also are being discussed with the parties to this the new accounting standard for income taxes. L agreement and we believe that new requirements will l I l be agreed upon which could be met in the event of a (4) Nuclear Operations and Contingencies write off of the Perry Unit 2 investments, barring Operating Nuclear Units unforeseen circumstmces. The failure of the Com- ~ pany, Toledo Edison or Centerior Energy to comply A petition is pending before the Nuclear Regulatory with any of the covenants would constitute a default Commission (NRC) and another petition is pending in which could result in the acceleration of the obliga- the United States Court of Appeals for the District of . I tions of the Company and Toledo Edison as co-lessees Columbia Circuit. each seeking to halt the operation of Beaver Valley Unit 2, Also, such a default would of Perry Unit 1 and suspend its operating license until L constitute a default under other agreements which certain safety-related actions are completed. We be- i contain cross-default provisions that could lead to the lieve these petitions are unlikely to succeed. In 1986, ! acceleration of payment of obligations under those the NRC undertook a review of nuclear reactors de- I agreements. signed by Babcock & Wilcox Company, including the ) 1 (Cleveland Electric) F-38 l
r actor at Davis Bess 2. The outcoma of that revi:;w by th21:ssors amounting to $23,000,000 in 1988 and and its impact on the Company cannot be predicted. $22,000,000 in 1987 and 1986. Under the leases, rental payments are made as the fuel is burned in a In 1987, the PUCO ordered a refund of certain re- reactor. The estimated future lease amortization pay- - placement fuel and pwchased power costs incurred ments based on projected bum are $47,000,000 in and collected from customers during an outage at 1989, $37,000,000 in 1990, $59,000,000 in 1991 and, Davis-Besse in 1985 and 1986, plus interest. The re- assuming replacement nuclear fuel financing arrange-fund is being made to customers over a period of 18 ments are entered into, $50,000,000 in 1992 and months beginning in March 1988 through operation of $58,000,000 in 1993. As these payments are made, the the fuel cost rate adjustment. Of the $32,505,000 amount of credit available to the lessors becomes total refund to be made, $20,341,000 was refunded availAle to finance additional nuclear fuel. . through December 31,1988. The refund reduced cash firw but did not adversely affect results of operations At December 31, 1988, a total of $348,000,000 is as adequate reserves were provided in prior years. committed under the nuclear fuel financing programs. This includes nuclear fuel in the Davis Besse, Perry Other Nuclear Risks Unit 1 and Beaver Valley Unit 2 reactors with remain-ing payments of $61,000,000, $31,000,000 and The Company's interests in nuclear units may be im-
$15,000,000, respectively, as of December 31,1988.
pacted by activities or events beyond the Company's control. Operating nuclear generating units have ex-perienced unplanned outages or extensions of sched- (6) Nuclear Insurance uled out.m because of equipment problems or new regulatory virements. A major accident at a nu. The Price Anderson Act limits the liability of the own-clear facility - where in the world could cause the ers of a nuclear power plant. This limit is covered by NRC to limit or prohibit the operatiori, construction or Private insurance amounting to $160,000,000 (which licensing of a nuclear unit. will be increased to $200,000,000 in early i989) and an amount provided by an industry assessment plan. In the event of a nuclear incident at any unit in the - (5) Nuclear Fuel United States resulting in losses in excess of private The Company has ;nventories for nuclear fuel which insurance, the Company's maximum potential assess-should provide en adequate supply into the mid- ment under that plan (assuming the other CAPCO 1990s. Substant,al additional nuclear fuel must be ob- companies were to contribute their proportionate tained to supply fuel for the remaining useful lives of share of any assessment) would be $70,754,000 (ad-Davis-Besse, Perry Unit 1 and Beaver Valley Unit 2. justed for inflation) per incident, but is limited to More nuclear material and fuel would be required if $10,696,000 per year for each nuclear incident. Pirry Unit 2 were completed. The CAPCO companies have insurance coverage for The Company finances . nuclear fuel under two pro- damage to property at Davis-Besse, Perry and Beaver grams. Under one set of nuclear fuel leasing arrange- Valley (including leased fuel and clean-up costs). ments, the Company can currently finance a maximum Coverage amounted to $1,725,000,000 for each site as I amount of $275,000,000, of which $5,000,000 of this of January 1,1989. Damage to property could exceed credit arrangement will terminate on November 30, the insurance coverage by a substantial amount. If it 1989, $15,000,000 will terminate on November 30, does, the Company's share of such amount could have ; 1990 and $205,000,000 will terminate on November a material adverse effect on the Company's financial l 30,1991. The Company expects to enter into re- condition and results of operations. I placement nuclear fuel financing arrangements. Under a second set of nuclear fuel leasing arrange- The Company also has insurance coverage for the cost ments, the Company can currently finance a maximum f any replacement power purchased after the occur-amount of $90,000,000. Approximately $300,000 of rence of certain types of accidents at our nuclear this credit arrangement will terminate in November units: The amount of the coverage is 90% of the { f 1989. The balance of the arrangement is cancelable estimated difference in replacement power costs per , with one year's notice by the lender, week during the 52 week period starting 21 weeks after an accident and 45% of such estimate per week l The lease and borrowing rates are based on bank for the next 52 weeks. The cost and duration of l prime and commercial paper rates. The nuclear fuel replacement power could substantially exceed the in- I amounts capitalized included interest charges incurred surance coverage. l l 1 l l ) ! l I F-39 (Cleveland Electric) I _ _ _ - _ - _ . i
l
- l. (7) Regulatory Matters $260,000,000 of the Company's share of Perry Unit 1 C "5 ""**
During the three years ended December 31,1988, the ' PUCO granted increases in electric rates to the Com. As a consequence of the order relating to the Com-p:ny as follows: pany, the Company recorded additional write-offs of l $45,000,000 ($28,000,000 after tax), bringing the total AnnuaH7ed write-off of nuclear costs in 1988 resulting from the l Date Amount order to $257,000,000 ($168,000,000 after tax). U"N,si ' These involved write-offs of the remaining investment in f ur canceled nuclear construction projects (as June 1986 . . . . . . . . . . . . . . $37.r discussed in the Summary of Significant Accounting March 1987. . . . . . . . . . . . 39.6 Policies) and certain deferred expenses for Davis. l December 1987. . . . . . . . . 25.8 Besse. On January 31,1989, the PUCO issued orders for the The phase-in plan contained in the PUCO's order with Company and Toledo Edison which adopted a settle- respect to the Company meets the requirements of ment reached between the companies and the ma- the accounting standard for phase-in plans. The plan s jority of the interveners in then pending rate cases. provides for the recosery of the Company's remaining The orders endorse agreements which reach beyond investments in Perry Unit I and Beaver Valley Unit 2. the issues in such cases and resolve, with respect to The deferred operating costs and carrying charges t the participants, issues on appeal. We cannot predict through December 31,1988 will be recovered in rates whether any intervenor in the rate cases who wa's from customers over the livec of the Units. The PUCO not a party to the settlement will appeal the orders. authorized the Company to acord a full net of-tax carrying charge of 9.2% on deferred rate-based invest-The orders provide for annual, automatic rate increases ment commencing Jaauary 1,1989. All deferrals after for the Company and Toledo Edison of approximately December 31,1988 sincluding carrying charges on 9%,7% and 6% on February 1,1989,1990 and 1991, deferred rate-based investment, depreciation and op-respectively. The revenues associated with the Com- eration and maintenance expenses) will be recov-pany's increases are as follows: ered by December 31,1998. . Annualized Amount Under the orders, the Company and Toledo Edison onmons or may not seek any further permanent rate increases to 1 dollars) be effective before February 1,1992 unless fore- - 1989................... $120.7 casted eamings available for common equity, prior to extraordinary items, of Centerior Energy fall below 1990............. ..... 105.7 either $210,000,000 o/er four consecutive quarters or . 98.4 1991... ............... g435,000,000 over eight consecutive quarters. During )
$324.8 this period, Centerior Energy's eamings available for i common equity, prior to extraordinary items and ex- l The above revenue increases are net increases after ciuding changes in expenses relating to any future sale j including adjustments required under the mirror CWIP and leaseback of assets, are limited to the following law. amounts for any four consecutive quarters ending on j r before the date indicated:
The orders provide for the permanent exclusion of l
$495,000,000 of the Company's and Toledo Edison's $275,000,000 March 31,1990 combined investment in Perry Unit 1 and Beaver Val- $295,000,000 March 31,1991 l 1:y Unit 2. The exclusion includes $41,000,000 of $310,000,000 December 31,1991 equity carrying costs authorized by the PUCO but not if the eamings cap described above were to be ex- ,
recognized for financial reporting purposes because ceeded, an adjustment would be made to the amount l of the limitations set forth in the accounting standard of the deferrals recorded under the phase in plan to for phase-in plans. Tha exclusion resulted in a write-revent any excess eamings. The adjustment would off by *he Company of $212,000,000 ($140,000,000 be applied proportionately between the Company and after tax) in 1988. All pending prudence investigations Toledo Edison based on the earned roturns of the before the PUCO and pending litigation before the two com anies* Ohio Supreme Court brought by the parties to the , settlement involving the Company's nuclear invest- The orders provide that any permanent rate increase ment and other rate matters will be terminated. One sought to be effective during the period February 1, party who did not sign the settlement still will have an 1992 to February 1,1994 may only be based upon appeal pending before the Ohio Supreme Court relat- costs associated with net new investment placed in ir g to the Perry Unit 1 prudence disallowance in service after February 29,1988 and changes in opera-which the PUCO disallowed approximately tion and maintenance expenses and other necessary (Cleveland Electric) F-40
cost incrzasts (othtr than fu 1 and purchas1d powtr) dgferrals r: cord:d under the phase-in plans for the from the levels identified in a management audit two companies. Fifty percent of anaualized savings
. (described below). Also, if Centerior Energy's return achieved or identified and approved for a period to be on average common stock equity is below the bench- determined will be used to reduce the 6% rate in-mark rate established quarterly by FERC for rate cases crease scheduled for February 1,1991. As an incentive subject to its jurisdiction, the Company and Toledo to achieve the savings, the remaining 50% of savings
' Edison could seek rate increases to improve the return in each of the periods will be retained by the Company under certain specified conditions. and Toledo Edison, subject to the earnings cap de-The Company and Toledo Edison will undergo a man. scribed above. If the Company and Toledo Edison do
. agement audit to assure that operation anJ mainte. not achieve at least one-half of the savings identified nance savings are maximized. Until the management by the management audit and approved by the PUCO, audit is completed, an annual savings target range of earnings would be reduced by the amount of the
$40,000,000 to $100,000,000 from the 1988 normal. shortfall. Net savings are measured from the 1988 ized level of operation and maintenance expense normalized level of operation and maintenance ex-(to be determined by an audit advisory panel) has pense (excluding fuel and purchased power) and been set for the two companies. A nuclear manage, would be adjusted for changes in capital and operating ment expert will be employed to conduct a cost reduc. costs arising from certain events.
tion study at Davis Besse. The orr ers set nuclear performance standards through The orders provide that 50% of the net after-tax sav- 1998. Beginning in 1991, the Company could be ings in 1989 and 1990 resulting from the t.ost reduction required to refund incremental replacement power effort or identified by the management audit and costs if the st1ndards are not met. approved by the PUCO are to be used to reduce cost (8) Federal income Tax I Federalincome tax, computed by multiplying the income before taxes and preferred and preference dividend requirements by the statutory rates, is reconciled to the arnount of federal income tax recorded on the books as
. follows:
For the years ended December 31. 1988 1987 1986 (thousands of dollars) Book income Before Federal Income Tax . . . . . . . . . . . . . . . . . . . . . . $1'51,129 $ 313,155 5 332,414 Tax on Book Incorne at Statutory Rate . . . . . . . . . . . . . . . . . . . . . . . $ 51,384 $ 125,105 5 152,910 increase (Decrease) in Tax: AFU DC and Carrying Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . - (113,764) (111,162) Accelerated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,300 14,186 8,089 Organization Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,343 - - Taxes, Other Than Federal Income Taxes . . . . . . . . . . . . . . . . . . (2,202) (4,182) (4,425) Ot her ite ms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,781) (17,772) (12,882) Total Federal Income Tax Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . S 56,044 5 3,573 $ 32,530 F-41 (Cleveland Electric)
, j ,
!F deral income' tax expense is recorded in the statement of Results of Operations as follows: l a
For the years ended December 31,
]
1988 1987 1986 U (thousands of dollars) l Operating Expenses:L . L Current Tax Provision . . . . .'. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 82,766 $ 132,479 ~ 'S 54,557
- Changes in Accumulated Def?rred Federal income Tax:
11,856 89,800 54,477 L Accelerated Depreciation and Amortization ~. . . . . . . . . . . . . . . . 10,136 l
. Nuclear Fuel Expense . . . a . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . -12,589 9,659
. (1,175) (177,029' f Sale 'and Leaseback Transaction and Amortization .. . . . . . . . . .
- Property Tax Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,069). 6,231' 2,302
- Deferred CWIP Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,122) (18,377)- -
Unbilled Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (18,522) --
. Deferred Fuel Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,529- (6,070) (7,289)
System Development Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,518. 4,218 3,667 Davis-Besse Replacement Power . . . . . . . . . . . . . . . . . . . . . . . . . . 6,916 - -- Federal income Tax Return Adjustments . . . . . . . . . . . . . . . . . . . -(19,349) 1,357 (298) Reacquired Debt Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (872) 4,152 - Deferred Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,874 19,134- . g Other i tems . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . '(4,200) (17,900) (2,927) j investment Tax Credits - Net.'. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,607) 54,047- (17,551) Total Charged to Operating Expenses . . . . . . . . . . . . . . . 94,654 83,179 97,074 ; Nonoperating income. . [ Current Tax Provision . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . (48,413) (58,934) (58,338) Changes in Accumulated Deferred Federal in:ome Tax: Davis-8 esse Replacement Power . . . . . . . . . . . . . . . . . . . . . . . . . . - 3,015 (16,040) - Write-off of Nuclear Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . (91,643) - : AFU DC and Carrying Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,923 - -
- Taxes, Other Than Federal income Taxes . . . . . . . . . . . . . .. . . . . 5,520 - (5,520)
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,564) (4,632) (686)
~
Total Credit to Nonoperating Income. . . . . . . . . . . . . . . . (53,162) '(79,606) (64,544) f Frderal income Tax included in Cumulative Effect of an 4 Accounting Change for Unbilled Revenues . . . . . . . . . . '. . . . . . . . . 14,552 - - q' Total Federal Income Tax Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 56,044 $ 3,573 $ 32,530 l The Company joins in' the filing of a consolidated federal income tax retum with its affiliated companies. The method of tax allocation approximates , a separate retum result for each company. i
' As di%CM in the Summary of Significant Accounting Policies, a change was made in 1988 in the method of accounting for income taxes. Adoption of the new method of accounting did not impact net income.
For tax reporting purposes, a net operating loss (NOL) carryforward of approximately $140,832,000 is available to rzduce future taxable income. The NOL carryforward will expire in 2003. Future utilization of this tax NOL carryforward would result in recording the related deferred tax. The tax effect of such carryforward ($47,883,000) ' is included in the above table as a reduction to the deferred federal income tax relating to accelerated depreciation and amortization. Approximately $8,000,000 of unused investment tax credits are available to reduce future tax obligations. The ] unused credits expire in varying amounts in 2001 through 2003. Utilization of these unused credits is limited by provisions of the Tax Reform Act of 1986 and the level of future taxable income to which such credits may be .
- applied.
k I 1 j l
. (Cleveland Electric) F-42 l
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(9) Retirement lxcome Plan cod Oth:r Assumptions usId for tha actuarial calculations for t Post-Retirement Benefits 1988 summarized in the table are: settlement (dis-
- count) rate - 8%, long term rate of annual compen-We sponsor a noncontributing pension plan which sation increase - 5% and long-term rate of return on covers all employee groups. The amount of retirement plan assets - 8%. The 1987 assumptions for these i benefits generally depends upon the length of service. rates were 7%, 5% and 7%, respectively.
Under certain circumstances, benefits can begin as Plan assets consist primarily of m. vestments m common carly as age 55. The plan also provides certain death, medical and disability benefits. The Company's fund- stock, bonds, guaranteed investment contracts and ing policy is to be in compliance with the Employee real estate. Retirement income Security Act Guidelines. The cost of post retirement medical benef.cs funded
. amounted to $4,100,000 in 1986 and $150,000 in in 1987, the Company adopted the new standard for 1987. No benefits were funded in 1988, accounting for pensions. Also, during 1987, the Com-l pany offered a Voluntary Early Retirement Opportu- (10) Guarantees nity Program (VEROP) which cost $25,500,000.
Pension and early retirement program costs for the Under two long term coal purchase arrangements, the years 1986 through 1988 were $13,700,000, Company has guaranteed the loan and lease obliga-
$17,600,000 and ($7,800,000), respectively. Net pen- tions of two mining companies. One of these arrange-sion and early retirement costs for 1988 and 1987 ments also requires payments to the mining company were comprised of the following components: for any actual out of-pocket idle mine expenses (as advance payments for coal) when the mines are idle 1988 1987 for reasons beyond the control of the mining company.
(mnons of donars) At December 31,1988, the principal amount of the ce t for benefits earned mining companies' loan and lease obligations guaran-5 during the period . . . . . . . . . . . . $ 8 5 12 teed by the Company was $95,000,000. o i 24 24 The Company has also guaranteed the debt obligation Actual retum on plan assets . . . (58) (29) of a supplier. At December 31,1988, the pnncipal Net amortization and deferral .. 14 (11) amount of the debt obligation guaranteed by the Net pension cost . . . . . . . . (12) (4) Company was $5,000,000. VEROP cost . . . . . . . . . . .. . .. 4 22 (11) Sale of Steam System Net pension and VEROP costs . . .
$J) $ 18 The Company sold its steam generation arid distribu-The following table presents a reconciliation of the tion system on December 30,1987 for $7,000,000. A funded status of the plan at December 31,1988 and . net after-tax loss of approximately $18,000,000 re-1987. duced Nonoperating income in the statement of Re-December 31, suits of Operations in 1987.
1988 1987 (mnons of doXars) Actuarial present value of benefit , obligations: Vested benefits . . . . . . . . . . . . . . . . $227 $235 Nonvested benefits . . ....... 20 31 Accumulated benefit obligation 247 266 Effect of future compensation levels . . . .. .... . .. . 73 86 Total projected benefit obliga-tion .... ....... ... . .. 320 352 Plan assets at fair market value. 509 469 Surplus of assets over projected j benefit obligation . . . . . . . . . . . . (189) (117)
- Unrecognized net gain (loss) due to variance between assumptions and experience . . . . . . 63 (2) -
Unrecognized prior service cost . 10 7 Unrecognized VEROP cost - (4) Transition asset at January 1,1987 being amortized over 19 years . 125 133 Net accrued pension cost in-cluded in other deferred credits ; on the Balance Sheet $ 9 $ 17 { l i F 43 (Cleveland Electric) { l _ _ _ _ _ _ _ _ _ _ _ _ - . _ _ _ - . _ _ _ _ _ _ _ . I
L(I'2) Capitalization the ordinary course of business operations in which (a) . Capital Stock Transactions . Shares sold and retired during the three years ended
' December 31,1988 are listed in the following table. Amounts to be paid for preferred stock which rr.u:r be No new shares of common stock have been issued redeemed during the next five years are 58,0C0,000 in by the Company since April 1986. 1989, $8,000,000 in 1990, $28,000,000 in 1991,.
1988 1987 198t; $18,000,000 in 1992 and $33,000,000 in t 993, in (thousands of shares) addition, the Cornpany must offer to purchase pre-Common Stock: ferred and preference stock having a total redemption Dividend Reinvestment and price of $12,000,000 in 1989. Stock Purcnase Plan . . . - - 880 Employee Savings Plan ... - - 124 K Employee incentive . The annual mandatory redemption provisions are as ock Plan . . . . . . . . . . . . . - - 10 1978 Key Employee 5tm k follows: Annual Mandatory Option Plan . . . . . . . . . . . - ' - 54 edemWe Romms Tott.1 Common Stock - Sales . . . . . . . . . . . . . . . . - - 1.068 Begin. Price Shares t To Be Holders' ning Per Cumulative Preferred and Redeemed Option in Share Preference Stock Subject to
'Y **E 1984 $ 100
[a',, Series C . . . . 10,000 - 88.00 Series E .. . . 3,000 - 1981 1,000
' Preferred:
750 75.00 Saries F . .. - 2,884* 1985 1,000
$9.125 Series N . . . . . . - -
Retirer.ents 80.00 Series G. . . - 2,686* 1984 1,000 Prefe: red: 145.00 Series H . 1,782 - 1985 1,000
$ 7.35 Series C . . . . . (10) (10) (10) 145.00 Series l . . 1,%9 - 1986 1,000 88.00 Series E . . . . . . . (3) (3) (3) 113.50 Series K . . . . 10,000 -
1991 1,000 Adjustable Series M 100,000
- 8. Sen .'..[l 8) (8l 9.125 Senes N.. 150,000 1991 1993 100 100 145.00 Series H . . . . . . . (4) (4) (2) 145.00 Series I . . . . . . (4) (4) (2) 113.50 Series J . . . . . . . . -
(29) - Preference: Preference: 77.50 Series 1. . . - 6,376* 1984 1,000 -
^
77.50 Series 1.. . . . (7) (9) (11) Net Change . . . . . . . . . . . (d) ' (84) 697
- Represents re:naining shares.
Cumulative Preferred Stock The annualized cumulative. preferred and preference to Mandatory dividend requirement as of December 31,1988 is QS Sales n-
$41,000,000.
Remarketed Series P. ... - 1 - Change . ... ... .. - 1 The preferred dividend rates on the Company's Series i L and M fluctuate based on prevailing interest rates, with the dividend rates for these issues averaging (b) Equity Distribution Restrictions 8.64% and 8.09%, respectively, in 1988. The dividend . At December 31,1988, consolidated retained earnings rate on Remarketed Series P averaged 8.30% in 1988. l' were $459,709,000. The retained eamings were avail-able for the declaration of dividends on the Com. There are no restrictions on the Company's ability to pany's preferred, preference and common shares. All issue preferred or preference stock. L of the Company's common shares are held by Center-lor Energy. With respect to dividend and liquidation rights, the Company's preferred stock is prict to its preference A loan or advance by the Company to Centerior En- stock and comtron stock, and its preference stock is - ergy requires PUCO authorization unless it is made in prior to its common stock. 4 (Cleveland Electric) F-44
L
' (d) long-Term Debt and Othrr Borrowing (13) Sh rt Tcrm Borrowing Arrangements Arrangements
- Long term debt, less current maturities, was as follows: The Company had $151,000,000 of bank lir(es of credit arrangements at December 31,1988. This mcluded a Actual or Average $30,000,000 line of credit which provided a December 31, $5,000,000 line of credit to be available to the Service Interest Year of Maturity Rate 1988 1987 Company if unused by the Company. There were no (thousands of dollars) borrowings 'under these bank credit arrangements at First mortg.sge bonds: December 31,1988.
1989 ...... ..... . 3.00 % $ - $ 20,000 1989 . ... .. .. . 15.25 - 40,000 1989 . . ....... ... 14.375 - 50,000 Short term borrowing capacity authorized by the 1990 ...... .. ..... 7.125 60,000 60,0 0 PUCO is $300,000,000. The Company and Toledo Edison have been authorized by the PUCO to borrow 19 S.. .. . 1 0 00 from each other on a short term basis. 1991 .. .... ........ 13.75 4,334 4,334 1992 .. .. .... ..... 15.25 20,000. 20,000 1992 ..... ........ 13.75 4,334 4,334 Most borrowing arrangements under the short-term 50:g bank iines f credit require a fee ranging from 0.25% to
$$'::.::::::..:': $'!?
. 5SEO 4,334 4,334 0.375% per year to be paid on any unsur portion of 1993 ........... .... 13.75 ,
1994-1998 . . . . . . . . . . . 9.01 61,670 61,670 the lines of credit. For those banks withe.t fee re- 1 1999-2003 .. ....... 10.77 61,420 123,408 61,420 123,408 quirements, the average daily cash balance in the. ) 2004-2008 . . . . . . . . . . . 8.82 bank accounts satisfied informal compensating balance 1 2009 2013 . . . . . . . . . 9.83 630,050 693,500 . 722,965 anangemento j J 2014-2018 . . . . . . . . . . 9.59 668,050 ! 2019-2023 . . . . . . . . . . 8.08 240.400 164,300 ( 2,072,915 ?,115,350 At December 31,1988, the Company had no cammer- < Term bank loans due cial paper outstanding. If commercial paper were out-1990-1993 ..... .. 8.63 124,000 138,000 standing, it would be backed by at least an equal Pollution control notes amount of unused bank lines of credit. due 1990-2012 . .. 6.31 55,280 55,790 .
- Other - net . ..... - 7,975 8.817 l Total Long-Term (14) Change in Accounting for Unbilled Revenues Debt ..... .. . $2,260,170 $2,317,957 In January 1988, the Company adopted a change in Long-term debt matures during the next five years as accounting for revenues in order to record unbilled follows: $125,000,000 in 1989, $95,000,000 in 1990, revenues as discussed in the Sumnay of Significant
$96,000,000 in 1991, $56,000,000 in 1992 and Accounting Policies. l
$116,000,000 in 1993. ,
)
The Company's mortgage constitutes a direct first lien The adoption of this accounting method increased j on substantially all property owned and franchises 1988 net income, before the cumulative effect on l held by the Company. Excluded from the lien, among periods prior to January 1,1988, by $3,363,000 (net of j other things, are cash, securities, accounts receivable, $1,733,000 of income taxes). The cumulative effect ' fuel and supplies, of the change on the periods prior to January 1,1988 was $21,874,000 (net of $14,552,000 of income The issuance of additional first mortgage bonds by the Company is limited by two provisions of its mortgage. taxes) and has been included in 1^38 net income. One relates to bondable property coverage of the , bonds and the other to eamings coverage of interest if this change ,m accounting method were applied on the bonds. The amount of additional bonds issuable retroactively,1987 and 1986 pro forma net income will depend upon unbonded bondable property, w uld have been as follows: camings and interest on the bonds then outstanding and to be issued. Under these lirnits, the Company thousands of dos a s)
, would have been permitted to issue approximately ;
$664,000,000 of additional bonds at December 31, Net income (as reported) $309,582 $299,884 1988. Effect of Unbilled Revenues (Net of income Taxes of A write-off of the Company's investment in Perry Unit $149.000 and ($259,000),
Respectively) 224 (303) f 2 could significantly affect its ability to issue additional Pro Forma Net income. $ 309.806 $299,581 debt. See Note 3. F-45 (Cleveland Electric)
L \. l (15) Quarterly Results of Operations (Unaudited) The following is a tabulation of the unaudited quarterly results of operations for the two years ended December 31, 1988. Quarters Ended March 31, June 30, Sept. 30, Dec.31, (thousands of dollars) 1988 Operating Revenues . . . . . . . . . . . . . . . . . .............. ' $352,322 $343,861 $429,333 - 5 326,062 Operating income . . . ............................... 51,914. 57,340- 100,219 45,811 Cumulative Effect of ra Accounting Change (Note 14) .. 21,874 - - - Net income ( Loss ) ' . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,470 57,323 106,825 (145,533) Eamings (Loss) Available for Common Stock. . . . . . . . . . . 65,204 - 46,780 96,656 .(156,061). 1987 Operating Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $338,260 $331,585 $389,511 $ 264,659 Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,165 68,984 92,473 12,487 81,038 79,750 102,323 46,471 Net i ncome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. Famings Available for Common Stock . . . . . . . . . . . . . . . . . . 70,111- 69,380 91,561- - 35,144 Pro Forma Amounts Assuming the Accounting Change Were Applied Retroactively (Note 14):
N et income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,881 84,891 101,027 47,007 Eamings Available for Co:nmon Stock . . . . . . . . . . . . . 65,954 74,521 90,265 35,680 The unaudited quarterly results for the first quarter of 1988 have been restated to reflect the recognition of unbilled ravenues. See Note 14. The results for the last three quarters of 1987 have been restated to reflect the PUCO's February 1988 accounting orders for Perry Unit 1 deferred costs and carrying charges as discussed in the Summary of Significant Accounting Policies. The restated.information has been changed from the results previously reported for 1988 in the 1988 Quarterly . Reports on Form 10-Q and for 1987 in the 1987 Annual Report on Form 10-K as follows: Changes from Previously Reported . Information for the Quarters Ended March 31, June 30, Sept. 30, Dec. 31, (thousands of dollars) 1988 Operating Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,539) $ - Not Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,140) - - Previously Cumulative Effect of an Accounting Change . . . . . . . . . . . . . 21,874 - - Reported Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,734 - - Eamings Available for Common Stock . . . . . . . . . . . . . . . . . . 19,734 - - 1987 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -
$ 201 $ (61) $ (140)
Eamings Available for Common Stock . . . . . . . . . . . . . . . . . . - 201 (61) (140) i i i l i 1 (Cleveland Electric) F.46 i f
e .
~
FINANCIAL AND STATISTICAL REVIEW Operating Revenues (thousands of dollars) 4 Total Total . Total Steam Operating Year Residential Commeraal Industnal Other Retasi Wholesale Electnc Heating Revenues 1988. .. .. . $436 413 $395165 $476 063 $59 804 $1367 445 $84133 $1451578 $- $1451578 1987.. ..... 428 78t> 389 297 470 861 12 322 1 301 266 9 378 1 310 644 13 3'1 1 324 015 1986.... . .. 410 153 382 773 461 408 60 245 1 314 579 192 s 314 771 12 953 1 327 724. 1985. ... . 381 979 356 108 453 555 48 863 1 240 505 380 1 240 885 13 105 1 253 990 1984 .. . .. 375 597 338 625 441 285 44 175 1 199 682 783 1 200 465 14 888 1 215 353
.1 @78 . . . . . . 213 520 172 251 278 405 19 318 683 494 23 513 707 007 10 085 717 092 Operating Expenses (thousands of dollars)
Perry Unit 1
& Beaver
. Fuel & Operanon D ?preciation Taxes. Valley Federal Total Farchased & & Other Than Unst 2 income Operating Year rower Mamtenance Amortization Ftf Deferred Taxes Expenses 1988.. . ..... $387 014 $524 478 $189 731 $184 813 $(184 396) $ 94 654 $1 1% 294 1987.. .. 330 290 425 938 148 918 146 407 (47 826) 8's 179 1 086 906 1986. . .., . 363 518 388 388 103 179 143 495 - 97 074 1 095 654 1985. .. . 351 854 310 694 96 995 133 348 -- 101 950 994 841 1984. .. . 313 412 280 888 95 274 132 313 - 131 355 953 242 1978.. . . 307 429 140 996 56 774 68 756 -
25 334 599 289 Income (thou5 ands of dollars) Carryirig Other Charges :.a Federal income income & Nuclear income Berore
- Operating AFUDC- Deductions, Plants Taxes- Interest ,
Year income Equity Not & Other Creact Charaes 1988. . . . $255 284 $ 8 052 $(243 297)(a) $224 585 $53162 $297 786 1987.. .. . 237 109 177 170 (41 940) 24 610 79 606 476 555 1986.. . 232 070 178 826 (6 255) - 64 544 469 185 1985.... . . 259 149 162 907 (4 844) - 48 608 465 820
- 1984 ... 262 111 130 421 3 680 - 35 099 431 311 1978. .. .... 117 803 29 890 7 026 - 5 310 160 029 income (thousands of dollars) i income Cumulative l Before Effect of an :
Cumulative Accounting Preferred & Earnings j Effect of an Change Preterence Availab6e 1 interest AFUDC- Accounting for Unbilled Net Stock for Common f Year Charues Debt Change Revenues income Dividends Stock 1988. ... $228 879 $ (4 304) $ 73 211 $21874 5 95 085 $42 506 $ 52 579
- 266 196 i987. .. 249 958 (82 985) 309 582 -
309 582 43 386 1986. .. 232 133 (62 832) 299 884 - 299 884 39 784 260 100
. 1985.. . . 212 290 (57 173) 310 703 - 310 703 41 467 269 236 1984. . 180 864 (41 185) 291 632 - 291 632 43 353 248 279 1978, . 72 071 (11 055) 99 013 - 99 013 23 575 75 438 (a) includes wnte.off of nuclear costs in the arnount of $257,400.000 in 1988.
l l l F-47 (Cleveland Electric) 1
1 . THE CLEVELAND ELECTRIC ILLUMINAT!NG COMPANY AND SUBSIDIARIES Electric Sales (millions'of KWHL ' Electric Customers (year end) Residential Usage ,j p ' Average - Aberage Industrial K Per - P er Year Residential Commactal Indussial Wholesale Other Total Residential' Commercial & Other Total - Customer KWH Customer
.- 5 1988 .. ,. o 4 852 4 998 9 013 481~ 472 19 816 657 592 - 66 606 0203 732 401 7 152 S.998 5646.35 1987 w ... '4 '82 4 818 . 8396 55 485 18 436 654 021 64 978 .8 155 727 154 6 927 9.16 637.46 j 1986'.... . 4 586 4 744 7 47 - 460 17 717 651 327 63 292 8 008 722 627 6 810 8.94 611.34 l.
-1985e. ... 4 408 4516 7 981 1 414 17 320 647 242 63 181 8 081 718 504 6 567 8.70 571.03 ;
l ~1984....... 4 446 43%- 7 997 3 431 17 273 644 904 61 934 7 930 714 7ae 6646 8.48 563.60
]
1578.. . .. 4 289 3 934 8 993 758 '390 18 364 637 609 57 310 7 619 702 538 6 517 4.98 324.91 j l Load (megawatts) Energy (millions of KWH) Fuel 'i j Caerable
. Yaar TE ofPeaktb)
Peak Load capacity Load company Generased Nuclear Total d Power Total Fuel Cost Per KWH 8KWHE .- Maram Facier Joenti 1988.. .... 4 028 4 867 - (1.5)% 59.8% 15 756 4 400 20 236 1 091 21 327 1.594 .10 $17 - i f 1987....... 4 257 .3 722 ' 12.6 ,2.5 14 978 3 689 Id F,67 1 248 19 915 1.56 - 10 5 % i 1996.. .... 3 875 3 601 17.1 62.2 '16 277 12 16 269 2 863 19 152 1.78 10 464 )
- 1985.... .. 3 244 3 257 (0.4) 67.5 15 866 1 012 16 878 '1 881 18 759 1.81 10 3P7 .!
1984..... . 3 694 3 371' 8.7 64.5 14 749 2 212 to %1 1 631 18 592 1.70 10 416 j 1978 .... . 4 46*4 3 327 25.4 . 66.1 15 712 1 379 17 091 2 562- 19 653 1.39 10 536 Investment '(thoussids of dollars) *)
. Consouction Work in .
Total
- Uttlity A r, cumulated s Nuclear Property. Utdify Mant in Ospreciation & . Net & . Fueland Plant and Plant Total Year Service Plant Unte 2 Other(c) Equipment Addinons Assets
_Amorrisasten
'1988.... .. SS 704 746 $1 est 758 $4 622 988 $ 763 628 $300 573 55 767 189 $211060 57 456 198
-1987.. ... 5 787 603 905 297 4 882 306 633 #33 389 281 5 905 020 $66 947 7 089 026 1986.. .. 3 1% 730' 951 917 2 244 813 3 067 C7 ' 383 542 5 696 192 670 585 6 209 692 1985..... . 3 089 105 874 366 2 214 739 2 524 167 335 851 5 074 757 605 705 5 650 560 1984.. 1... '2 908 893- 798 979 2 109 914 2 113 650 288 677 4 512 241 582 288 5 119 842-1978. . .. 1 '*5 676 476 983- 1 518 693 528 320 24 917' 2 071 930 300 765 2 341 424 Capitalization (thousands of dollars & a6)
Preferred & Preference Preferred Stock. without
. Stock, witt Mandatory Mandate Redernption Year Common Stock Equity Redemption Provisions Provisions Long-Term Debt Total 1988.. ... 31 780 408 40 % $232 626 5% $217 334 5% $2 260170 50 % $4 490 538 1987.... . 1 925 719. 41 270 645 6 217 334 4 2 317 957 49 4 731 655 1986.... .. 1 d43 974 40 339 017 7 144 021 3 2 311 455 50 4 638 467 .
1985. . ... 1 763 720 41 314 667 7 144 021 3 2 099 660 49 4 322 068 1984.. .. . 1 592 210 41 292 818 7 144 021 4 1 883 648 48 3 913 297 1978.. .. 708 883 36 232 000 12 95 071 5 920 073 47 1 956 927 -! ib) Capacity was reduced because of extended generating unit outages for renovaPon and improvements in 1984 (635 mwl 1985 (1.089 mw),1986 (440 mw) and 1988 (440 mw). (c) 1984 and 1978 restated for effects or capitalization of nuclear fuel lease and financing arrangements pursuant to Statement of Financial Accountmg Standards 71. (Oeveland Electric) F-48
y . ..
. ~
y ' REPORT O'F INDEPENDENT PUBLIC ACCOUNTANTS
. 4 :To the Share Owners of
!The Toledo Edison Company:
. We have audited the accompanying balance sheet and years in the period ended December 31,1988, in Mtatement of cumulative preferred and preference. conformity with generally accepted ' accounting stock of The Toledo Edison Company (a wholly- principles.
owned subsidiary of Centedor Energy Corporation) as of December 31,1988 and 1987, and the related As discussed further in the Summary of Significant
- stater ents of results of operations, retained eamings Accounting Policies and Notes 8 and 13, a change was and . ash flows for each of the three years in the period made in the methods of accounting for income taxes ended Decernber 31,1988. These financial state- and unbilled revenues, retroactive to January 1,1988.
- ments are the responsibility of the Company's man
- As discussed further in Note 3, the future of Perry Unit agement. Our responsibility is to express an opinion 2 is undecided; Construction has been suspended
- on these financial statements based on our audits. since July 1985. Various alternatives are being consid-
.- We conducted our audits in accordance with generally ered, including resuming construction, mothballing or -
accepted a Jditing standards. Those stancards require canceling the Unit. Management can give no assurance that we plan and perform the audit to obtain reasona. when, if ever, Perry Unit 2 will go in-service or ble assurance about whether the financial statements whether its full investment and a retum thereon will are free of material misstatement. An audit includes ultimately be recovered. sxamining, on a test basis, eviden e supporting the amounts and disclosures in the financial statements, Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a An audit a5o includes assessing the accounting princi-whole. The schedules of The Toledo Edison Company pies used and significant estimates mMe by manage-listed in the Index to Schedules are presented for ment, as well as evaluating the overall financial urposes of complying with the Securities and Ex-statement presentation. We helieve that our audits change Commission's rules and are not part of the _ provide a reasonable basis for our opinion.
, basic financial statements. These schedules have been in our opinion, the financial statements referred to subjected to the auditing procedures applied in our Labove present fairly, in all material respects, the finan- audits of the basic financial statements and, in our
.- cial position of The Toledo Edison Company as of opinion, fairly state in all material respects the financial December 31,1988 and 1987, and the results ofits data required to be set forth therein in relation to the f operations and its cash flows for each of the three basic financial statements taken as a whole.
Cleveland, Ohio - February 14,1989 Arthur Andersen & Co. l i
~.. J l ~
l' l F 49 (Toledo Edison)
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES Ceneral Fuel Expense . The Toledo Edison Company (Company) is a wholly. The cost of fossil fuel is charged to fuel expense based owned subsidiary of Centerior Energy Corporation on inventory usage. The cost of nuclear fuel, including (Centerior Energy). The Company's sommon stock interest, is charged to fuel expense based on the rate was acquired by Centerior Energy on April 29,1986, as of consumption. Estimated future nuclear fuel a result of a June 25,1985 affiliation agreement with disposal costs are being recovered through the base The Cleveland Electric illuminating Company rates. (Cleveland Electric) approved by the share owners of The C smpany defers the differences between actual both companies on November 26,1985. fuel costs and estimated fuel costs currently being The Company follows the Uniform System cf Accounts recovered from customers through the ft.al factor. This prescribed by the Federal Energy Regulatory Commis. matches fuel expenses with fuel-related revenues, sion (FERC) and adopted by The Public Utilities Commission of Ohio (PUCO). Deferred Operating Expenses and Carrying Charges The Company is a member of the Central Area Power The PUCO authorized the Company to defer interest Coordination Group (CAPCO). Other members in- carrying cos+s, current operating expenses (including ciude Cleveland Electric, Duquesne Ugt t Company rental payments) and depreciation for Beaver Valley (Duquesne), Ohio Edison Company and Pennsylvania Unit 2 from its commercialin-service date of Novem-Power Company. The members have constructed and ber 17,1987 through December 31,1988. The PUCO operate generation and transmission facilities for the determined that Perry Unit 1 was considt red "used use of the CAPCO companies, and useful" on May 31,1987 for regulatt.y purposes. Consequently, the PUCO authorized the Company to R: lated Party Transactions defer current operating expenses and depreciation { for Perry Unit 1 from June 1,1987 through December Operating expenses include those amounts for trans- 22,1987, the date when these costs began to be actions with affiliated companies in the ordina0 recovered in rates. The PUCO authorized the deferral course of business operations. of interest and equity carrying costs, exclusive of those g The Company's transactions with Clevel.nd Electric associated with current operating expenses and de- ' are primarily for firm power, interchange power, trans. preciation, for Perry Unit 1 from June 1,1987 through mission line rentals and jointly-owned power plant December 31,1987 and deferral of interest carrying operations and construction. See Notes 1 and 2. costs from January 1,1988 through December 3", 1988. The amounts deferred fcc Perry Unit 1 pursuant Centerior Service Cornpany (ServLa Company), a to the PUCO accounting orders were included in wholly-owned subsidiary of Centerior Energy, was property, plant and equipment through the November formed in May 1986. The Service Company provides 18,1987 commercial-in-service date. Subsequent to management, financial, administrauve, engmeenng, le- inat date, amounts deferred were recorded as de-gal and other services to the Company and other ferred charges. See Note 7 for a discussion of regula-affiliated companies at cost. The Service Company tory matters relating to the Company's investment in billed the Company $43,000,000, $21,000,000 and these Units. The deferrals will be amortized over the
$6,t>00,000 in 1988,1987 and 1986, respectively, for life of the related property, such services.
Depreciation and Amortization Revenues The cost of Property, plant and equipment, except for Customers are tiilled on a monthly cycle basis for their the nuclear generating units, is depreciated over their energy consumption, based on rate schedules author- estimated useful lives on a straight line basis. Annual ized by the PUCO. Prior to 1988, these revenues straight-line depreciation provisions expressed as a were recorded in the accounting period during which percent of average deprecia' ole utility plant in service meters were read, except for the portion of revenues were 3.6% in 1988 and 1937 and 3.5% in 1986. Depre-which was deferred under the mirror construction- ciation expense for the nuclear units is based on the work in progress (CWIP) law discussed below. Utility units-of-production method. s rvice rendered after monthly meter read;ng dates through the end of a calendar month (unbilled reva- Cost:: associated with four CAPCO nuclear generating . nues) became a part of operating revenues the fol. units canceled in 1980 were written off in 1988. The lowireg month. Effective January 1,1988, the Company net after-tn write-off was $6,000,000. Under the changed its method of accounting to accrue the esti. January '989 PUCO rate order discussed in Note 7, no mated amount of revenues for sales unbilled at the specific revenues associated with these costs were ! end of each month. See Note l'3. provided. Previously, the costs were being amortized A fuel factor is added to the base rates for electric wh UC rt orders. service. This factor is designed to recover fuel costs from customers. It is changed semiannually after a Effective July 1988, the Company began the external hearing before the PUCO. funding of future decommissioning costs for its operat- ( (Toledo Edison) F 50
1 4
~
ing nuclear units pursuant to a PUCO order. Cash Interest Charges contributions are to be made to the funds on a Interest on long-term debt reported in the statement of straight line basis over the remaining licensing period Results of Operations does not mclude i,nterest on for each unit. EsHmated total decommissioning costs nuclear fuel oMgadons, except for an immaterial for the Company are 559,000,000 in 1986 dollars for the Davis Besse Nuclear Power Station (Davis-Besse) amount for fuel in the Davis,Besse reactor. Interest on and $28,000,000 each for Perry Unit 1 and Beaver nuclear fuel obligations for ruel under construction is Valley Unit 2 in 1987 dollars. The current level of capitalized. See Note 5. accruals being funded and recovered in rates from Property, Plant and Equipment customers over the remaining licensing penods of the Units is approximately 54,000,000 annually. The pre- Property, plant and equipment are stated at original sent funding requirements for Beaver %Iley Unit 2 cost less any amounts ordered to be written off. Im also satisfy a similar commitment made as part of the duded in the cost of construction are items such as sale and leaseback transaction discussed in Note 2. related payroll taxes, pensions, fringe benefits, man-agement and general overheads and AFUDC. D:ferred Cain and Loss from Sales of Utility Plant AFUDC represents the estimated composite debt and equity cost of funds used to finance construction. This The Company is amortizing the applicable deferred noncash allowance is credited to income, except for gain and loss associated with the salet of utility plant in AFUDC for Perry Unit 2. Since July 1985, Perry Unit 2 1987 over the terms of leases under sale and lease. AFUDC had been credited to a deferred income ac-back agreements. See Note 2. The amortization and count. Effective January 1,1988, the Company dis-1:ase expense amounts are recorded as operation continued the practice of accruing AFUDC on Perry expense. Unit 2. See Note 3. The AFUDC rates, net of the income tax effect, were 10.97% in 19d7 and 10.71% in Federaf Income Taxes 1986.The gross AFUDC rate used in 1988 was 11.62% (10.03% on a net-of-tax basis). The 1988 financial statements reflect the liability method of accounting for income taxes as a result of Main unance and repairs are charged to expense as incurred. Certain maintenance and repair expenses for adopting the new standard for accounting for income taxes. Prior to 1988, income taxes were accounted for Perry Unit 1 and Beaver Valley Unit 2 have been by the deferred method. Under the deferred method, deferred pursuant to the PUCO accounting orders discussed above. The cost of replacing plant and deferred taxes and deferred tax credits were not adjusted for subsequent changes in federal tax rates. equipment is charged to the utility plant accounts. The Also, under the deferred method, the Company did cost of property retired plus removal costs. after de-not record deferred taxes on the temporary differences ducting any salvage value, is charged to the accumu-between book and tax income where the PUCO used lated provision for depreciation. the realized tax benefits to reduce allowable costs for Mirror Construction Work in Progress ratemalcing purposes. This practice was premised on r;gulatory treatment which permits recovery of such The Ohio mirror CWIP law requires that revenues diferred income taxes in future revenues. authorized by the PUCO and collected as a result of including CWIP in rate base be refunded in a subse-
. A major difference under the liability method is that quent period after the project is included in rate
&ferred tax liabilities are adjusted for subsequent tax base. Such revenues are deferred and recorded as rate changes. A!so, the Corapany must now record refund obligations to customers. AFUDC continue < to deferred taxes for all temporary differences between be capitalized during the constructica period. The book and tax income. Initial application of the ac- deferred revenues are then recognized as operating counting standard in 198f did not impact results of revenues in the statement of Results of Operations operations as the additional deferred taxes were offset over the period of the refund. Amounts collected by a regulatory asset on the balance sheet. Addition- through December 31,1988 under the mirror CWiP ally, allowance for funds used during construction law are being refunded pursuant to the January 1989
( AFUDC) and carrying charges that were previously PUCO rate order discussed in Note 7. accounted for in the statement of Results of Opera-tions on a net-of-tax or an after tax basis are now ' Reclassifications and Restatements stated on a pre-tax basis. Consequently, the 1988 Certain reclassifications have. been made to prior years' federal income tax provision is equally higher. f nancial statements to make them comparable with 1988 financial statements and consistent with terms of For certain property, the Company received invest- the January 1989 PUCO rate order discussed in ment tax credits which have been accounted for as Note 7. deferred credits. Prior to 1988, tax credits utilized were reflected as reductions to tax expense over the life of in 1988, a new accounting standard which requires the the related property. Under the new method of ac- prestnf ation of a statement of cash flows in the finan-counting, the amortization of investment tax credits is cial statements was adopted. Previously, a statement reported as a reduction of depreciation expense. See of Source of Funds Invested in Plant. Facilities and Note 8 for federal income tax details. Special Deposits was presented. I F 51 (Toledo Edison)
' MANAGEMENTS S FINANCIAL ANALYSIS i~ s RIsults of Operations ' As discussed in Note 7, $277,000,000 of nuclear costs. .
were written off in 1988 as a consequence of the 1988 vs.1987 January 1989 PUCO rate order.-
. Factors contributing to the 3.8% increase in 1988 The total amount of AFUDC and carrying c'farges operating revenues are as follows:
increase decreased in 1988. The change in status from con-Change in Operating Revenues (Decrease) struction to operation of Perry Unit 1 and Beaver Valley Unit 2 in 1987 resulted in the cess. .lon of Electric Revenues: AFUDC. Instead, an accrual of post in serWe carrying Sales Volume . . . . . . . . . . . . . . . . . . . . $ 27,000,000 charges pursuant to PUCO orders btgan on such Sales of Capacity to Cleveland investments not included in rate base. However, 32,000,000 Electric . .~ . . . . . . . . . . . . . . . . . . . . .. AFUDC and carrying charges that were previously Deferred CWIP Revenues . . . . . . . . 7,000,000 accounted for on a net-of-tax or an after-tax basis were . Fuel Cost Recovery Revenues . . . . . .(41,000,000) stated on a pre-tax basis in 1988. l' Base Rates and Miscellaneous . . . . . (2.000,000) Part of the proceeds from the 1987 sale and leaseback Total . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,000.000 transactions was used to rede~em outstanding high-c h ed interest expense and Total kilowatt hour sales increased 11.8%'in 1988 p di si 988' Sales growth of 5.3% in the industrial sector reflected broad-based strength in the economy, particularly Results for 1988 also included a one-time net after-tax among automobile manufacturers. Residential sales increase of $6,000,000 related to a change in account-increased 4.6% in 1988 largely because of a substan- ing for unbilled revenues. See Note 13. tially warmer summer. The hot summer also contrib. uted to a 3.1% gain in commercial sales as did new 1987 vs,1986 r tail outlets. In 1988, the Company sold to Cleveland Factors contributing to the 5.7% increase in 1987 ElIctric a portion of its leased capacity entitlement in operating revenues are as follows: Bruce Mansfleid Plant (Mansfleid Plant) and Beaver Valley Unit 2 for three and two-month periods, Change in Operating Revenues ( e ease) r:spectively. The increase in revenues attributable to dIferred CWIP revenues resulted from a reduction in Electric Revenues: - the level of revenues deferred under the mirror Base Rates and Miscellaneous . . . . . $ 29,000,000 CW4P law. Lower fuel cost recovery revenues resulted Sales Volume . . . . . . . . . . . . . . . . . 15,000,000 principal?/ from the greater use of lower cost nuclear Deferred CWIP Revenues . . . . ... i . 2,000,000
' fuel and the PUCO-ordered refund of certain re- Fuel Cost Recovery Revenues . . . . (13,000.000)
. placement fuel and purchased power costs collected Total . . . . . . . . . . . . . . . . . . . . . . . . . $ 33,000.000 from customers during a 19851986 Davis Besse out-age. See Note 4. Rate increases granted to the Com- The rate increase granted to the Company in May 1987 piny in 1987 were offset by the impact of special accounted for most of the increase in base rates and contracts with large industrial customers. miscellaneous revenues in 1987. Tmal kilowatt hour sales increased 3.9% in 1987. Industrial sales growth Operating expenses increased 22.1% in 1988. Lower 3.1% was broad-based, particularly in the metal fuel and purchased power expense in 1988 resulted fabricating sector. Residential and commercial sales mainly from a decrease in deferred fuel expense, increased 1.9% and 2.5%, respectively. The sales m-Fuel and purchased power expense also was reduced creases resulted mainly from the warmer summer but for the amortization of reserves previously established were partially offset by the moderate temperatures to match the PUCO-ordered refund discussed above. during the wmter. The increase in revenues attribut-
- The increase in other operation and maintenance able to deferred CWIP revenues resulted from a reduc-expense and depreciation expense mainly resulted l tion in the leval of revenues deferred under the mirror from a full year of operatic t of Perry Unit 1 and Beaver CWIP law. Lower fuel cost cecovery revenues m, 1987 Valley Unit 2 and a full year of lease expense for resulted from increased use of our nuclear units. '
Braver Valley Unit 2 and Mansfield Plant.The increase in deferred operating expenses in 1988 was largely Operating expenses in 1987 increased by 3.3%. Fuel - attributable to the deferral of Beaver Valley Unit 2 and purchased power expense decreased because of operating expenses for most of the year because they the retum to service of Davis Besse late in 1986 after were not being recovered in rates. In 1987, Perry Unit an 18 month outage and the start up of Perry Unit 1
' 1 and Beaver Vallev Unit 2 operating expenses were and Beaver Valley Unit 2 in 1987. Nuclear units deferred for only about seven and two months, provided 35% of electricity generated in 1987 com-rtnectively. pared to a negligible amount in 1986. The reduction in
. (Toledo Edison) F-52 !
L 1 l :. .
' fuel and purchased power expense, lower federal average electric rates, including decreases in the fuel Lincome taxes and savings from cost reduction pro- cost recovery factor, decreased; however, the costs of .' grams were offset by Mansfield Plant lease expense labor, materials and services used in operations were i and higher operation expenses and depreciation ex- higher. Changes in fuel costs do not affect our results i pense for Davis-Besse, of operations since those costs are reflected in the fuel L . cost recovery factor included in customer bills. 1 l
AFUDC and carrying chages were slightly higher in ; 1987 because of an increase in the amount of invest- Inflation will continue to ilave a negative impact on ment not in rate base. Interest charges were higher our results of operations. The January 1989 rate order because of an increase in outstanding long term debt. is primarily designed to recover deferred operating
. and capital costs of our nu nuclear investments. The l rder will n t afford proNetion against future infla-Effect of Inflation tion. Our cost-reduction efforts to date have been j inflation adversely affected resuits of operations over substantial and will continue to be an area of increas-the last three years. In the period 1986-1988, our ing importance as discussed in Note 7.
i s I l RETAINED EARNINGS rse rottoo coisas comersy For the years ended December 31, 1988 1987 _ 1986 i (thousands or collars) Balance at Beginning of Year ... ............. .. . ..... .. .. $ 297,221 $ 305,130 5 276,588 j Additions Net income (loss ) . . . . . . . . . . . . . . . ............. ................ (115,452) 165,171 176,917 Deductions Dividends declared:
' C ommon stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (61,711) (111,500) (102,918)
Prefe rred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26,269) (40,212) (45,457) Preferred stock redemption expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,175) (21,368) - Net increase ( Decrease ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (207,607) (7,909) 28,542
. Balance at End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 89,614 $ 297,221 5 305,130 The accompanying notes and summary of significant accounting policies are an integral part of this statement.
(Toledo Edison) F-53
i 1 RESULTS OF OPERATIONS THE TOLEDO EDISON COMPANY For the years ended December 31, - 1988 1987' 1986 (thousands of dollars)
' Operating Revenues j Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 627,997 $$05,037 $572,482 '
Operating Expenses Fuel and purchased power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116,161 140,176 158,763 Other operation and maintenance . . . . . . . . . . . . . . . . . . . . . . . . . 358,823 223,307 167,319 Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,093 65,503 37,832 Taxes, other than federal income taxes . . . . . . . . . . . . . . . . . . . . . . 80,138 59,658 51,398 Perry Unit 1 and Beaver Valley Unit 2 deferred operating expenses.......................... ..... .............. (83,813) (39,797) - Federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,242 22.747 41,150 1 575,644 47i,594 456,462 1 i Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,353 133,443 116,020 l 1 Nonoperating income (Loss) l Allowance for equity funds used during construction. . . . . . . . . 5,452 122,138 129,578 Other income and c% ductions, net . . . . . . . . . . . . . . . . . . . . . . . . . . 30,233 (16,904) (1,627) Write-off of nuclear costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (276,955) - -
)
Carrying charges on nuclear plants and other. . . . . . . . . . . . . . . . 129,632 14,989 - Federal income taxca - credit . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,244 42,726 ,,,, 52,029 (25,394) 162,949 179.980 income Before Interest Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,959 296,392 296,000 ; interest Charges - Lon g.te rm d eb t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 150,658 182,196 170,722 S h ort term de bt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (135) 3,297 3,675
- Allowance for borrowed funds used during construction ... ... (1,833) (54,272) (55,314) -
148,690 131,221 119.083 IIcome (Loss) Before Cumulative Effect of an Accounting l Change................................................. (121,731) 165,171 176,917 Cumulative Effect on Prior Years (to December 31,1987) of an Accounting Change for Unbilled Revenues (Net of Income Taxes of $4,177,000 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,279 - -.- N et income ( Loss ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (115,452) 165,171 176,917 Preferred Dividend Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,983 42,749 45,243 l Earnings (Loss) Available for Common Stock . . . . . . . . . . . . . . . . . . $(142,435) , $122,422- $131,674 The accompanying notes and summary of significant accounting policies are an integral part of this statement. (Toledo Edison) F-54
5 MANAGEMENT'S FINANCIAL ANALYSIS 7 Capital Resources and Uguidity land Electric's rate orders which provide for specific , levels f rate increases and eamings limitations for I We carry on a continuous program of constructing new Centerior Energy through 1991. The availability of facilities and modifying existing facilities to meet an-capital to meet our extemal financing needs depends iticipated demand for electric service and to comply up n such factors as financial market conditions, with governmental regulations. Cash requirements eamings, our ability to pay dividends, the size of our
' for the construction program and mandatory retire-construction program and our credit ratings. We ex-ment of securities over the three-year period 1986-pect to be able to raise cash as needed 1988 totaled approximately $656,000,000, in 1986 and 1987, the capital required to finance our Current securities ratings for the Company are 'as construction program and to retire securities was ob. follows:
- tained primarily from extemal sources. Also, in 1987, Standa . oo s g pg9 ,
we sold and leased back certain interests in three Corporation . Service t-generating units as discussed in Note 2. A substantial portion of the net proceeds from the sale and lease-First mortgage bonds . . . BBB- Baa3 back transactions was used in 1987 and 1988 to pay Unsecured notes . . . . . . . . .BB+ Bal I portions of short-term debt incurred to finance the Preferred stock . . . . . . . . . BB+ Ba2 construction program, to redeem outstanding securi- A write-off of the Company's investment in Perry Unit ties, to pay our construction program costs and for 2 (as discussed in Note 3 " Construction and Contin-general corporate purposes. In 1988, the Company gencies - Perry Unit 2"), depending upon the mag-issued $50,700,000, of first mortgage bonds as collat- nitude and timing of such a write-off, could reduce eral to secure its obligations m connection with the retained earnings sufficiently to impair the Company's sale of tax exempt bonds by public authorities to assist ability to declare dividerds. Such'a write-off could I m financing certain pollution control facilities. At De. result in a default on the capitalization financial cove- ! cember 31,1988, the Company had $255,000,000 in nants discussed in the last paragraph of Note 2. I cash and temporary cash investments available for
.- future cash needs. . Cleveland Electric and Centerior Energy are renegoti-Estimated requirements for the Company's cash con. ating certain financial covenants contained in an struction expenditures 'for .1989-1991 are agreement under which the two companies are facing 5270,000,000. In addition, $257,000,000 will be re, potential non-compliance after 1989. See the last quired for the redemption of debt and preferred stock paragraph of Note 2 for a discussion of the potential
. during this period.- Nearly all of the Company's re, impact on the Company. )
quirements in 1989 will be met with intemal cash The Tax Reform Act of 1986 provided for a 40% generation and current cash resources. We expect t average income tax rate in 1987 and a 34% income tax { finance extemally about 50% of our 1990 and 1991 rate in 1988 and thereafter, the repeal of the invest. j requirements. See Note 11 for information concerning . credit, scheduled reductions in investment i limitations on the issuance of preferred and prefer-tax credit carryforwards, less favorable depreciation i ence stock and debt. Our available short-term bor- . rates, a new altemative minimum tax and other items, i rowing arrangements are explained in Note 12. j The changes resulted in increased tax payments and a Our ability to meet our financing needs depends upon reduction in cash flow during 1987 principally be-our internal generation of funds and the availability of cause the alternative minimum' tax reduced the capital from the financial markets. The Company was amount of investment tax credits allowed as an offset j granted a rate increase in 1989 and in the next two to federal income tax payable. These changes had no years pursuant to the January 1989 PUCO rate order, significant cash flow impact in 1988 because the See Note 7 for discussion of the Company's and Cleve- Company had a net operating loss for tax purposes. i l l 1 l l F-55 (Toledo Edison) ; l l
I
. CASH FLOWS - THE TOLEDO EDISON COMPANY For the years ended December 31, . !
1988 1987 1986 (thousands of douars)
. Cash Flows from Operating Activities (1)
N e t income ( Los s ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(115,452). 5 165,171
$ 176.917 Adjustments to Reconcile Net income (Loss) to Cash from Operating Activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,093 65,503 37,832 Deferred feder) income taxc3 . . . . . . . . . . . . . . . . . . , . . . . ........ -(62,598) (150,717) 22.424 investment ta . credits, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,920 79,332 (21.558) Write-off of nuclear costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276,955 - - Deferred and unbilled revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,642 20,185.. 21,939 Deferred fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,693) 15,848 (3,373) Interest capitalized as carryin6 charges . . . . . . . . . . . . . . . . . . . . . . . . . (129,632) (14,989) - Leared nuclear fuel amortizat.on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,285 22,603 117 Deferred nuclear operating expenses . . . . . . . . . . . . . . . .. . . . . . . . . . . (83,813) (39,797)- - Allowance for equity funds used during construction . . . . . . . . . . . . . (5,452) (122,138)- (129,578) Amortization of reserve for Davis-Besse refund obligations to c us t o mers . . . . . . . . .: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,777) - - Other non-cash items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,358 44,190 17,780 Cumulative effect of an accounting change . . . . . . . . . . . . . . . . . . . . . . (6,279) - - Changes in working capital affecting operations .: . . . . . . . . . . . . . . . . 45,614 29,284 44,245 Total Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131,623 -(50,696) (10.172)- Net Cash from Operating Activities . . . . . . . . . . . . . . . . . . . . . . . 16,171 114,475 166,745 Cash Flows from Financing Activities (2)
- Bank loans, commerciai paper and other short term deh . . . . . . . . . . . . . (68,000) 46,700 (7,700)
Debt issues: I First mortgage bonds . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,700 41,000 100,000 U nsecured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 250,000 100,000 Preferred stock issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 50,000 30,000 Common stock issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - 1,333 . Equity contributions from parent . . . . . . . . . . ....... ..... .. - 30,000 91,059 Maturities, redemptions and sinking funds . . . . . . . . . . . . . . . . . . . . . . . . (222,166) (550,075) (54,718) - Nuclear fuel and trust obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (32,285) (20,954) (117) I Div id ends pai d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (89,054) (155,515) (148,382) - Premiums, discounts and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,489 (2,731) (3,579) Net C sh from Financing Activities . . . . . . . . . . . . . . . . . . . . . . . , (359,316) (311,575) 107,896 Cash Flows from investing Activities (2) Cash applied to construction . . . . . . . . . . . .......... ............... (113,174) (177,019) (268,569) Interest capitalized as allowance for borrowed funds used during constructi on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,833) (54,272) (55,314) Cash deposited in decommissioning trusts . . . . . . . . . . . . . . . . . . . . .... (1,906) - - Other cash received ( applied ) . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,394 (22,926) (16,049)
~ Cash received from sale and leaseback transactions, net . . . . . . . . . . . - 1,075,988 -
Cash withdrawn fr::,m (deposited in) sale and leaseback trust . . . . . . .. 109,976 (109,976) - Cash withdrawn from pollution control escrow account. . . . . . . . . . . . 459 5,448 25,403 Net Cash from Investing Activities . . . . . . . . . . . . . . . . . . . . . . . . (1,084) 717,243 (314.529) J Net Change in Cash and Temporary Cash investments . . . . . . . . . . . . . . . . . (344,229) 520,143 (39,888) . Cash and Temporary Cash investments at Beginning of Year . . . . . . . . . . . 599,117 78,974 118,862 Cash and Temporary Cash investments at End of Year ............. . 5 254,888 5 599,117 5 78,974 , (1) Interest paid was $150,000,000, $183,000,000 and $170,000,000 in 1988,1987 and 1986, respectively. income taxes paid were $24,980,000 in 1987. No income taxes were paid in 1988 and 1986. (2) Increases in Nuclear Fuel and Nuclear Fuel Lease and Trust Obligations resulting from the non-cash a capinlizations under nuclear fuel agreements discussed in Note 5 are excluded from this statement. 1 The accompanying notes and summary of significant accounting policies are an integral part of this statement. i i 3
' (Toledo Edison) . F 56 i i
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- - - - ~ ~ ' - - ' - - - - - - - -
( ( '. F{. p BALANCE SHEET k. December 31, [ 1988 1987 (thousands of dollars)
- Assets Property, Plant and Equipment Utility plant in service . . . . . . . . . . . . . . . . . . . . . . . . ............. $2,438,927 $2,600,511
!L , Less: accumulated depreciation and amortization . . . . . . . . . . . . 487,546 419.149 1,951,381 2,181,362 Construction work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,978 67,704 Perry U nit 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343,126 306.570 l 2,410,485 2,555,636 Nuclear fuel, net of amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260,362 265,046 l'
' Other property, less accumulated depreciation . . . . . . . . . . . . . . . . 2,152 2,023 2,672,999 2,822,705 Special Deposits Pollution control construction funds, unexpended . . . . . . . . . . . . . 424 883 Deposits in trust, sale and leaseback proceeds. . . . . . . . . . . . . . . . . - 109,976 Decommissioning trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,906 -
2,330 110.859 Currcat Assets Cash and temporary cash investments . . . . . . . . . . . . . . . . . . . . . . . . 254,888 599,117 Amounts due from customers and others, net . . . . . . . . . . . . . . . . . 49,394 62.866 Amounts due from affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,050 15,840 , U nbilled revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,415 - Materials and supplies, at average cost. . . . . . . . . . . . . . . . . . . . . . . . 24,424 21,272 Fossil fuel inventory, at average cost. . . . . . . . . . . . . . . . . . . . . . . . . . 19,189 23,245 . Taxes applicable to succeeding years . . . . . . . . . . . . . . . . . . . . . . . . . 53,752 61,614 Other..................................................... 1,947 14.699 448,059 798,653 Deferred Charges Unamortized costs of terminated nuclear projects . . . . . . . . . . . . . . - 17,223 Accumulated deferred federal income taxes . . . . . . . . . . . . . . . . . . . - 246,789 Amounts due from customers for future federal income taxes .. . 519,238 - Unamortized loss, Beaver Valley Unit 2 sale . . . . . . . . . . . . . . . . . . 127,367 134,475
- Unamortized loss on reacquired debt . . . . . . . . . . . . . . . . . . . . . . . . . 30,809 19,784 Carrying charges and nuclear operating expenses . . . . . . . . . . . . . . 259,978 40,072 Other..................................................... 73,892 87,027 1,011,284 545,370 r Total As sets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... $4,134,672 $4,277,5E The accompanying notes and sum. nary of significant accounting policies are an integral part of this statement.
(Toledo Edison) F-58
. c THE TOLEDO EDtSON COMPANY .c.
December 31, 1988 1987 (thouunds of dollars) Capitalization and uabilities Capitalization Common shares, $5 par value: 60,000,000 authorized: 39,134,000 outstanding in 1988 and 1987. . . . . . . . . . . . . . . . . . . $ 195,687 5 195.687 Premium on capital stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 481,082 482,770 Other paid.in capitai . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,059 121,059 Re tained eamin gs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,614 297,221 Common stock equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 887,442 1,096,737 Preferred stock With mandatory redemption provisions . . . . . . . . . . . . . . . . . . . . . 71,155. 73,340 Without mandatory redemption provisions . . . . . . . . . . . . . . . . . . 210,000 240,000 p Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,291,444. 1.400,292 2,460,041 2.810,369 Other Noncurrent Uabilities-Refund obligations to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,719 67,177
. Other, primarily nuclear fuel lease and trust obligations . . . . . . . . 269,345 260,429 317,064 327,606 Current Uabilities Current portion of long-term debt and preferred stock . . . . . . . . . 26,932 36,932 Current portion of lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 38,499 30,791 Accou nts pa yable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,442 79,970 Accounts and notes payable to affiliates . . . . . . . . . . . . . . . . . . . . . . 16,059 84,269 Accru ed taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102,811 93,264 Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,807 43,675 Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,423 7,497
. Accrued payroll and vacations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,728 8,116 Current portion of refund obligations to customers. . . . . . . . . . . . . 34,700 -
Other.................................................... 11,156 17,000 383,557 401,514 Deferred Credits Unamortized investment tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . 105,551 101,566 Accumulated deferred federal income taxes . . . . . . . . . . . . . . . . . . . 484,913 237,103 Reserve for Perry Unit 2 allowance for funds used during construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,295 71,697 Unamortized gain, Bruce Mansfield Plant sale . . . . . . . . . . . . . . . . . 255,973 275,618 Other..................................................... 39,278 52,114 974,010 738,098 Total Capitalization and Liabilities . . . . . . . . . . . . . . . . . . . . . 54,134,672 54,277,587 i
.9 F-59 (Toledo Edison)
L t . . STATEMENT OF CUMULATIVE iss Tottoo coisos couersy PREFERRED 'AND PREFERENCE STOCK - ! 1988 Shares Current December 31. Outstanding Call Price 1988 1987 (thousands of dollars)
$100 par value preferred, 3,000,000 shares authorized; $25 par value preferred, 12,000,000 shares authorized; and $25 par value preference, 5,000,000 shares authorized - none outstanding ect to mandatory redemption (less current maturities):
Subj$100 par $11.00. . . . . . . . . . . . . . . . . . . 44,800 $103.50 $ 4,480 $ 5,000 9.3 75 . . . . . . . . . . . . . . . . . . 166,750 104.94 16,675 18,340 25 par 2.81................... 2,000,000 27.50 50,000 50.000
$ 71,155 5 73,340 Not subject to mandatory redemption:
100 par 4.2 5 . . . . . . . . . . . . . . . . . . . '160,000 104.625 $ 16,000 $ 16,000 i 4.5 6 . . . . . . . . . . . . . . . . . . . 50,000 101.00 5,000 5,000 l' 10,000 10,000
- 4.2 5 . . . . . . . . . . . . . . . . . . . 100,000 102.00
- 8. 3 2 . . . . . . . . . . . . . . . . . . . 100,000 102.46 10,000 10,000
- 7. 7 6 . . . . . . . . . . . . . . . . . . . 150,000 102.437 15,000 15,000
- 7. 80 . . . . . . . . . . . . . . . . . . . 150,000 102.60 15,A0 15,000 10.00 . . . . . . . . . . .. . . . . . . . . 190,000 101.00 19,000 19,000 25 par 2.21................... 1,000,000 25.90 25,000 25,000 2.3 65 . . . . . . . . . . . . . . . . . . 1,400,000 28.45 35,000 35,000 3 .4 7 . . . . . . . . . . . . . . . . . . . - - - 30,000 Series A Adjustable . . . . . . . 1,200,000 - 30,000 30,000 5eries B Adjustable . . . . . . . 1,200,000 - 30,000 30,000
$210,000 $240.000 The accompanying notes and summary of significant accounting policies are an integral part of this statement. .
l (Toledo Edison) F-60
NOTES TO THE FINANCIAL STATEMENTS (1) Property Owned with Other Utilities and Investors The Company owns, as a tenant in common with other utilities and those investors who are owner-participants in various sale and leaseback transactions (lessors), certain generating units as listed below. Each owner owns an undivided share in the entire unit. Each owner has the right to a percentage of the generating capability of each unit equal to its ownership share. Each utility owner is obligated to pay for only its respective share of the construction and operating costs. Each lessee is obligated to pay for the related lessor's share of those costs. The Company's share of the operating expense of these generating units is included in the statement of Results of Operations. Property, plant and equipment at December 31,1988 includes the following facilities owned by the Company as a tenant in common with other utilities and lessors: Owner-In- Owner- ship Plant Construction Service ship Mega- Power in Work Accumulated Generating Unit Date Share watts Source Service in Progress Depreciation (thousands of dollars) In Service: Davis-Besse .... . .... ..... .. 1977 48.62% 421 Nuclear $ 519,723 $ 86,438 $ 89,277 Peny Unit 1 & Common Facilities . 1987 19.91 237 Nuclear 911,392 1,370 43,098 Beaver Valley Unit 2 & Common Facilities (Note 2) .. ... . 1987 1.65 14 Nuclear 179,457 433 8.081 Construction Suspended (Note 3): Perry Unit 2 . . . . . . . . Uncertain 19.91 240 Nuclear - 343,126 -
$ 1,610,572 $431,367 $140.456 l (2) Utility Plant Sale and Leaseback Transactions ]
As a sesult of sale and leaseback transactions com- For { pleted in 1987, the Company and Cleveland Electric For the Cleveland j are co lessees of 18.26% (152 megawatts) of Beaver Year Company Electric l Valley Unit 2 and 6.5% (51 megawatts),45.9% (358 (thousands of dollars) ) megawatts) and 44.38% (355 megawatts) of Units 1, 1989.......... ........ $ 106,000 $ 63,000 2 and 3, respectively, of the coal-fired Bruce Mansfield 1990....... .. .... .. 106,000 63,000 Plant (Mansfield Plant) for terms of about 29% years.
~
1991... . .. ... 107,000 63,000 q The Company sold a substantial portion of its undi- 1992......... ... ..... 110,000 63,000 3 vided tenant-in-common interest in Beaver Valley Unit 1993,...... ...... . .. 111,000 63,000 2 and essentially all of its interests in Units 2 and 3 of Later Years . . . . . . .... 2,813,000 1,706.000 the Mansfield Plant. The Company's proceeds from Total Future Minimum the transactions totaled $1,113,100,000. Cleveland Lease Payments . . . . . . . $ 3,353,000 $ 2,021,000 Electric also sold essentially all of its interests in the three units of the Mansfield Plant. The amounts recorded by the Company as rental ex- , As co-lessee with Cleveland Electric, the Company is pense for the Mansfield Plant leases were $43,095,000 also obligated for Cleveland Electric's lease payments. and $12,600,000 in 1988 and 1987, respectively, if Cleveland Electric is unable to make its payments Rental expenses for the Beaver Valley Unit 2 lease of under the Mansfield Plant leases, the Company would 558,254,000 and $18,300,000 in 1988 and 1987, re-l be obligated to make such payments. No payments spectively, were recorded in a deferred charge account I were made on behalf of Cleveland Electric in 1988. by the Company pursuant to a PUCO accounting l- rder. Such amounts will be amortized to expense Future minimum lease pay nents required under these ver the life of the lease beginning in 1989. Additional operating leases at December 31,1988 are summa-rental expense for the Beaver Valley Unit 2 lease rized as follows: 1 - charged to expense in 1988 was $13,556,000. The l additional rent expense charged to expense in 1987 was not significant. l l f l F-61 (Toledo Edison) e _ __ - _ . _ _ _ _ . _ _ _ _ >
The Company is selling 150 rnegawatts of its Beaver could lead to the acceleration of payment of obliga-Valley Unit 2 leased capacity entitlement to Cleveland tions under those agreements. . Electric commencing in November 1988. Revenues recorded for this transaction were $18,533,000 in (3) Construction and Contingencies 1988. We anticipate that this sale will continue for at Construction Program 1:ast ten years. The future minimum lease payments associated with Beaver Valley Unit 2 aggregate The estimated cost of the Company's construction:
$2,068,000,000. Program for the 1989-1991 period is $280,000,000, including AFUDC and excluding nuclear fuel, Should ,
The Cconpany and Cleveland Electric are responsible more stringent environmental regulations be adopted, under the leases for paying all taxes, insurance premi. particularly in the area of acid rain pollution cont'01, ums, operation and maintenance costs and all other future construction program costs would increase similar costs for all their interests in the Units sold and substantially. However, such increases would not oc-1:ased back. The Company and Cleveland Electric cur until after 1991. may incur additional costs in connection with capital improvemen's to the Units. The Company and Cleve. Perry Unit 2 lind Electric have options to buy the interests back at Perry Unit 2, including its share of the common facili-the end of the leases for the fair market value at that ties, is about 58% complete. Construction of Perry time or to renew the leases. Additional lease provi- Unit 2 was suspended in 1985 by the CAPCO compa-sions provid 9 other purchase options along with condi- nies pending future consideration of several alterna-tions for ma.idatory termination of the leases (and tives which include resumption of full construction - possible repurchase of the leasehold interests) for with a revised estimated cost and completion date, , obsolescence and events of default, m , eluding those mothballing or cancellation. None of these altematives described in the next paragraph. l may be implemented without the approval of each of the CAPCO companies. An agreement relating to a letter of credit issued m, cont ection with the sale and leaseback of Beaver if Perry Unit 2 were to be canceled, the Company Valley Unit ~! contains several financial covenants af- would seek authorization from the PUCO to recover - ficting the Company, Cleveland Electric and Centerior its investment in the Unit in rate's. We have no assur-Energy. Among these are coverage covenants which ance that recovery would be allowed. In the event of r quire Cleveland Electric and Centerior Encrgy to such a cancellation, if and when it were to appear - maintain earnings to-interest expense ratios above probable that recovery would not be allowed, then specif.c levels. We believe that Cleveland Electric and the Company's net investment in Perry Unit 2 (less Centerior Energy may not be able to continue to any tax saving) would have to be written off. We comply with their respective coverage covenants after estimate that such a write-off, based on the Company's 4 1989. This matter is being discussed with the parties investment in this Unit as of December 31,1988, I to this agreement and we believe that new require- would have been about $172,000,000, after taxes. See - ments will be agreed upon. This agreement also con- Notes 2 and 11 for a discussion of other potential tains certain capitalization covenants which require consequences of such a write-off. I the Company and Cleveland Electric to maintain com- Duquesne has advised the Pennsylvania Public Utility 1 mon stock equity above specific levels and require Commission that it will not agree to resumption of l Centerior Energy to maintam the ratio of common cons'ruction of Perry Unit 2. Duquesne is continuing stock equity and the ratio of total equity to total to pay for its 13.74% ownership share of maintaining l capitalization above specific percentages. A write-off Perry Unit 2 while construction is suspended. of the Company's and Cleveland Electric's investments , in Perry Unit 2 could result in a default on all or some The increase in the Perry Unit 2 investrnent amount in j of these capitalization covenants. See Note 3. These 1988 is primarily the result of the gross-up of AFUDC capitalization covenants also are being discussed recorded in prior periods related to the adoption of with the parties to this agreement and we believe that the new accounting standard for income taxb. , new requirements will be agreed upon which could -! be met in the event of a write-off of the Perry Unit 2 (4) Nuclear Operations and Contingencies ! investments, barring unforeseen circumstances. The Operating Nuclear Units . failure of the Company, Cleveland Electric or Centerior Energy to comply with any of the covenants would A petition is pending before the Nuclear Regulatory constitute a default which could result in the accelera- Commission (NRC) and another petition is per ding in tion of the obligations of the Company and Cleveland the United States Court of Appeals for the District of Electric as co-lessees of Beaver Valley Unit 2. Also, Columbia Circuit, each seeking to halt the operation such a default wou a atitute e default under other of Perry Unit 1 and suspend its operating license until agreements which cantaia ess-default provisions that certain safety-related actions are completed. We be-(Toledo Edison) F-62
lieve these petitions are unlikely to succeed. In 1986, The lease and borrowing rates are based on bank the NRC undertook a review of nuclear reactors de- prime and commercial paper rates. The nuclear fuel signed by Babcock & Wilcox Company, including the amounts capitalized included interest charges incurred r: actor at Davis-Besse. The outcome of that review by the lessors amounting to $18,000,000 in 1988 and and its impact on the Comoany cannot be predicted. $17,000,000 in 1987 and 1986. Under the leases, rental payments are made as the fuel is burned in a in 1987, the PUCO orosed a refund of certain re- reactor. The estimated future lease amortization pav-placement fuel and purchased power costs incurred ments based on projected burn are $38,000.000 in' and collected from customers during an outage at 1989, $30,000,000 in 1990, $48,000,000 in 1991 and. DavisBesse in 1985 and 1986, plus interest. The re- assuming replacement nuclear fuel financing arrange-fund is being made to customers over a period of 18 ments are entered into, $40,000,000 in 1992 and months beginning in February 1988 through operation $46,000,000 in 1993. As these payments are made, the of the fuel cost rate adjustment. Of the $33,634 000 amount of credit available to the lessors becomes total refund to be made, $20,777,000 was refunded available to finance additional nuclear fuel. through December 31,1988.The refund reduced cash flow but did not adversely affect results of opera. At December 31,1988, a total of $268,000,000 is tions as adequate reserves were provided in prior committed under the nuclear fuel financing programs. years. This includes nuclear fuel in the Davis-Besse, Perry U. tit 1 and Beaver Valley Unit 2 reactors with remain. ing payments of $58,000,000, $20,'000,000 and Other Nuclear Risks
$12,000,000, respectively, as of December 31,1988.
Tha Company's interests in nuclear units may be im-pacted by actbities or events beyond the Company's (6) Nuclear Insurance control. Operating nuclear generating units have ex- The Price-Anderson Act limits the liability of the own- i peienced unplanncd outages or extensions of sched- ers of a nuclear power plant. This limit is covered by uled outages because of equipment problems or new private insurance amounting to $160,000,000 (which regulatory requirements. A major accident at a nu- will be increased to $200,000,000 in early 1989 ) and clear facility anywhere in the world could cause the an amount provided by an industry assessment plan. In NRC to limit or prohibit the operation, construction or the event of a nuclear incident at any unit in the licensing of a nuclear unit. United States resulting in losses in excess of private insurance, the Companys' maximum potential assess-(5) Nuclear Fuel ment under that plan (assuming the other CAPCO c mpanies were t c ntribute their proportionate The Company h.as inventories for nuc!' ear fuel which share of any assessment) would be $58,503,000 (ad-should provide an adequate supply into the mid. Justed for inflation) per incident, but is limited to 1990s. Substantial additional nuclear fuel must be ob. q
$8,844,000 per year for each nuclear incident. l tamed to supply fuel for the remaining useful lives of j Davis-Besse, Perry Unit 1 and Beaver Valley Unit 2. The CAPCO companies have insurance coverage for More nuclear material and fuel would be required if damage to property at Davis Besse, Perry and Beaver Perry Unit 2 were completed. Valley (including leased fuel and clean-up costs).
Coverage amounted to $1,725,000,000 for each site as The Company finances nuclear fuel under two pro- of January 1,1989. Damage to property could exceed grams. Under one set of nuclear fuel leasing arrange- the insurance coverage by a substantial amount. If it ments, the Company can currently finance a maximum does, the Company's share of such amount could have amount of $205,000,000, of which $5,000,000 of this a material adverse effect on the Companys' financial credit arrangement will terminate on November 30, condition and results of operations. 1989, $32,500,000 will terminate on November 30, 1990 and $167,500,000 will terminate on November The Company also has insurance coverage for the cost 30,1901. The Company expects to enter into re- of any replacernent power purcha ed after the occur-placementnuclear fuel financing arrangements. rence of certam types of accidents at our nuclear l units. The amount of the coverage is 90% of the J Under a second set of nuclear fuel leasing arrange- estimated difference in replacement power costs per l ments, the Company can currently finance a maximum week during the 52-week period starting 21 weeks ! l . amount of $83,000,000. Approximately $12,100,000 after an accident and 45% of such estimate per week l l of this credit arrangement will terminate in November for the next 52 weeks. The cost and duration of l 1989. The balance of the arrangement is cancelable replacement power could substantially exceed the in-with one year's notice by the lender. surance coverage. I F-63 (Toledo Edison) 1 L-----_------- )
I l l t (7) Regulatory Matters ment and other rate matters will be terminated. One [ party who did not sign the settlement still will have an I During the three years ended December 31,1988, the , appeal pending before the Ohio Supreme Court relat-PUCO granted increases in electric rates to the Com- ing to the Perry Unit 1 prudence disallowance m pany as foHows: which the PUCO disallowed approximately Annualized $168,000,000 of the Company's share of Perry Unit 1 l Date Amount construction costs. T2)# As a consequenc,e of the order relative to the Com-pany, the Company recorded additional write-n.fs of Ma' 1987 ' ' ' ' ' ' ' ' ' $43'0 $35,000,000 t $21,000,000 aiter tax), bringin ; the total December 1987 . . . . . 0.5 write-off of nuclear costs in 1988 resulting from the rder to $277,000,000 ($181,000,000 after tax). On January 31,1989, the PUCO issued orders for the These involved write-offs of the remaining investment Company and Cleveland Electric which adopted a in four canceled nuclear construction projects (as s:ttlement reached between the companies and the discussed in the Summary of Significant Accounting m lority of the interveners in then pending rate cases. Policies) ed certain deferred expenses for Davis-The orders endorse agreements which reach beyond th issues in such cases and resolve, with respect to Besse. thm participa .ts, issues on appeal. We cannot predict The phase-in plan contained in the PUCO's order with whether any intervenor in the rate cases who was not respect to the Company meets the requirements of a party to the settlement will appeal the orders. the accounting standard for phase-in plans. The plan provides for the recovery of the Company's remaining The orders provide for annual, automatic rate increases investment and lease payments relating to Ferry Unit for the Company and Cleveland Electric of aoproxi. 1 and Beaver Valley Unit 2. The deferred operating mitely 9%, 7% and 6% on February 1,1989,1990 and costs (including lease payments) and carrying charges 1991, respectively. The revenues associated with the through December 31,1988 will be recovered in rates Company's increases are as follows: from customers over the lives of the Units. The Annualized PUCO authorized the Company to record a full net-of- - tax carrying charge of 9.2% on deferred rate-based
"[h investment commencing January 1,1989. All deferrals donan) after December 31,1988 (including carrying charges -
1989 ............... $ 50.7 on ceferred rate-based investment, depreciation and 19(,0 . . . . . . . . . . . . . . . 44.3 ope, cation and maintenance expenses) will Fe recov-1991 ............... 40.7 ered by December 31,1998.
$135.7 Under the orders, the Company and Cleveland Electric may not seek any further permanent rate increases to The above revenue increases are net increases after be effective before February 1,1992 unless fore-including adjustments required under the mirror CWIP casted earnings available for common equity, prior to Irw and *he refunding of revenues collected by the extraordinary items, of Centerior Energy fall below Company in 1985 through 1987 pursuant to a Febru- either $210,000,000 over four consecutive quarters or try 1985 rate order. The refunding requirement had $435,000,000 over eight consecutive quarters. During no impact on net income because reserves had been this period, Centerior Energy's earnings available for provided in those years. Reclassifications were made to common equity, prior to extraordinary items and ex-prior years' financial statements for the related reve- ciuding changes in expenses relating to any future sale nues and reserves. and leaseback of assets, are limited to the following The orders provide for the permanent exclusion of amounts for any four consecutive quarters ending on $495,000,000 of the Company's and Cleveland Elec. or before the date indicated:
tric's combined investment in Perry Unit 1 and Beaver $275,000,000 March 31,1990 Valley Unit 2. The exclusion includes $41,000,000 of $295,000,000 March 31,1991 - equity carrying costs authorized by the PUCO but not $310,000,000 December 31,1991 recognized for financial reporting purposes because of the limitations set forth in the accounting standard if the earnings cap described above were to be ex. - for phase-in plans. The exclusion resulted in a write- ceeded, an adjustment would be made to the amount off by the Company of $242,000,000 ($160,000,000 of the deferrals recorded under the phase.in plan to after tax) in 1988. All pending prudence investigations prevent any excess earnings. The adjustment would before the PUCO and pending litigation before the be applied proportionately between the Company and Ohio Supreme Court brought by the parties to the Cleveland Electric based on the earned returns of the sattlement involving the Company's nuclear invest- two companies. (Toledo Edison) F-tA
The orders provide that any permanent rate increase effort or identified by the management audit and sought to be effective during the period February 1, approved by the PUCO are to be used to reduce cost 1992 to February 1,1994 may only be based upon deferrals recorded under the phase in plans for the costs associated with net new investment placed in two companies. Fifty percent of annualized savings service after February 29,1988 and changes in opera- achieved or identified and approved for a period to be tion and maintenance expenses and other necessary determined will be used to reduce the 6% rate in-cost increases (other than fuel and purchased power) crease scheduled for February 1,1991. As an incentive from the levels identified in a management audit to achieve the savings, the remaining 50% of savings (described below). Also, if Centerior Energy's retum in each of the periods will be retained by the Company on average common stock equity is below the bench- and Cleveland Ele.tric, subject to the earnings cap mark rate established quarterly by FERC for rate cases described above if the Company and Cleveland Elec-subject to its jurisdiction, the Company and Cleveland tric do not achieve at least.one-half of the savings Electric could seek rate increases to improve the identified by the management audit and approved by r;.tum under certain specified conditions. the PUCO, earnings would be reduced by the amount f the shortfall. Net savings are measured from the The Company and Cleveland Electric will undergo a 1988 normalized level of operation and maintenance management audit to assure that operation and main-expense (excluding fuel and purchased power) anri t: nance savings are maximized. Until the manage-w uld be adjusted for changes in capital and operat-ment audit is completed, an annual savings target ing costs ansing kom certain events. range of $40,000,000 to $100,000,000 from the 1988 normalized level of operation and maintenance ex- The orders set nuclear performance standards through pense (to be determined by an audit ad/isory panel) 1998. Beginning in 1991, the Company could be has been set for the two companies. A nuclear man- r : quired to refund incremental replacement power agement expert will be employed to conduct a cost costs if the standards are not met. r: duction study at Davis-Besse. The orders provide that 50% of the net after tax sav-ings in 1989 and 1990 resulting from the cost reduction (8) Federal Income Tax F:deralincome tax, computed by multiplying the income before taxes and preferred dividend requirements by the statutory rates, is reconciled to the amount of federal income tax recorded on the books as follows: For the years ended December 31, 1968 1987 1986 (thousands of dollars) Book income (Loss) Before Federal Income Tax ... . . ... . $ (168,277) $145,192 $166,038 Tax on Book income (Loss) at Statuw.ry Rate . . . . . . .. $ (57,214) $ 58,004 $ 76,377 increase (Decrease) in Tax: AFUDC and Carrying Charges ......... .... . .. .. .. - (76,464) (85,050) Accelerated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329 1,666 (2,728) Organization Costs . . . . . . . . . . . . . . . . . . . . . ........... 2,274 - (25) Taxes, Other Than Federal Income Taxes . . . . . . . . . . . . . . . . . . 4,292 3,015 (212)
- Other ite ms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,706) (6.200) 759 Total Federal income Tax Expense (Credit) . . . . . .. . $ (52.825) $ (19,979 ) $ (10,879 )
F-65 (Toledo Edison) s
4 4
~
i Federalincome tax expense is recorded in the statement of Results of Operations as follows: For the years ended December 31. > 1988 1987 1986 (thousands or dot!ars) Operating Expenses:
$ (3,132) $ 71,050 $ 33,288 Current Tax Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in Accumulated Deferred Federal Income Tax: Accelerated Depreciation and Amortization" . . . . . . . . . . . (1,354) 41,241 27.958 1 Nuclear Fuel Expense . . . . . . . . . . . . . . . . . . . .......... .. 3,077 5,574 7.606 l
. Sale and Leaseback Transactions and Amortie.ation. . . . . . . . . . 14,763 (179,555) - ,
Property Tax Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,058) 5,454 1,245 Deferred CWIP Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,331) (7,681) (9.613) I' Unbilled Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. - (1,184) - Deferred Fuel Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .... .. 4,698 (6,441) 446 3,639 1,355 3,611 System Development Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Davis-Besse Replacement Power . . . . . . . . . . . . . . . . . . . . . . . . . . 8,375 - - Federal income Tax Return Adjustments . . . . . . . . . . . . . . . . . . . (272) 760 (7) ; 4 Reacquired Debt Costs . . . . . . . . . . . . . . . . . . , . . . . . . . . . . . . . . 4,646 - - Deferred Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,039 10,356 - Net Operating Loss Carryforward . . . . . . . . . . . . . . . . . . . . . . . . (4,295) - - Other ite ms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,473) (1,346) (1,773) 6,920 83,164 (21.611) Investment Tax Credits - Net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Charged to Operating Exper.ses . . . . . . . . . . 29,242 22,747 41.150 Nonoperating income: Current Tax Provision . . . . . . . . . . . . . . . . . . . . .... ...... .
- (31,209) (42.915)
Changes in Accumulated Deferred Federal Income Tax: , Davis-Besse Replacement Power . . . . . . . . . . . . . . . . . . .. 2,709 (10,114) (6,026) Write-off of N uclear Costs . . . . . . . . . . . . . . . . . . . . . ... ... (97,277) - - AFUDC and Carrying Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,543 - - Net Operating Loss Carryforward . . . . . . . . . . . . . . . . . . . . . . . . . (36,831) - - Other i te ms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. (1,388) (1.403) (3.088) Total Credit to Nonoperating income. . . . . . . . . . . ... (66,244) (42.726) (52.029) Federal Income Tax Included in Cumulative Effect of an Accounting Change for Unbilled Revenues. . . . . . . . . . . . . . . . 4,177 _ Total Federal Income Tax Expense (Credit) . . . . . . . . . . . . . . . . . . . $(52.825) $ (19,979) $ (10.879 ) The Company joins in the filing of a cohsolid .ted federal income tax retum with its affiliated companies. The m;thod of tax allocation approximates a separate retum result for each company. As discussed in the Summary of Significant Accounting Policies, a change was made in 1988 in the method of accounting for income taxes. Adoption of the new method of accounting did not impact net income. For tax reporting purposes, a net operating loss (NOL) carryforward of approximately $187,018,000 is available to r: duce future taxable income. The NOL carryforward will expire in 2003. Future utiliz2 tion of this tax NOL carryforward would result in recording the related deferred tax. The tax effect of such carryforward ($63,586,000) is included in the above table as a reducti6n to the deferred federal income tax relating to accelera,ted d:preciation and amortizatbn ($22,460,000) and as a reduction to other deferred federal income tax charged to ,, operating expenses ($4,295,000) and to nonoperating income ($36,831,000). Approximately $22,000,000 of unused investment tax credits are available to reduce future tax obligations. The , unused credits expire in varying amounts in 2001 through 2003. Utilization of these unused credits is limited by provisions of the Tax Reform Act of 1986 and the level of future taxable income to which such credits may_ be applied. (Toledo Edison) F-66
.- s
.+ ,. . .
(9) Retirement income Plan and Other Assumptions used for the actuarial calculations for -
. Post Retirement Benefits 1988 summarized in the table are: settlement (dis-
~ cant) rate - 8%, long tenn rate of anmal compen-Wa spcasor a noncontributing pension plan which {
sation increase - 5% and long term rate of return on covers all employee g oups. The amount of retirement plan assets - 8% The 1987 assumptions for these b:nefits generally depends upon the length of service. rates were 7%, 5% and 7%, respectively, Under certain circumstances, benefits can begin as . early as age 55.' The plan also provides certain death, Plan assets consist primarily of investments !n common ( medical and disability benefits. The Company's fund. stock, bonds, guaranteed investment contracts and I ing policy is to be in ccmpliance with theEmployee real estate. Rstirement income becurity Act Guid(ines. The cost of post retirement medical benefits funded
. In 1987, the Company adopted the new standard for amounted to $700,000 in 1987 and $1,600,000 in accounting for pensions. Also, during 1987, the Com- ' 1988. No benefits were funded in 1986. i i.dny offered a Voluntary Early Retirement Opportu- )
nity Program (VEROP) which cost $6,300,000. (10) Guarantees i Pznsion and early retirement program costs for the Under a long term coal purchase arrangement, the. years 1986 through 1988 were $4,400,000, $5,700,000 Company has guaranteed the loan and lease obliga-and 52,100,000, respectively. Net pension and early tions of a mining company. This arrangement also retirement costs for 1988 and 1987 were comprised of requires payments to the mining company for any tha followmg components: actual out-of pocket idle mine expenses (as advance 1988 1987 l (mmons of donars) payments for coal) when the mines are idle for j P;nsion Costs: reasons beyond the control of the mining company. At i Service cost for benefits camed . December 31,1988, the principal amount of the l during the period . . . . . . . . . . . . . .$ 4 $4 mining company's loan and lease obligations guaran. Interest cost on projected benefit teed by the Company was $27,000,000. obligation . . . . . . . . . . . . . . . . . 9 8 Actual retum on plan assets . . . . . (18) (8) The Company has also guaranteed the debt obligation Net amortization and deferral .... j j) of a supplier. At December 31,1988, the principal Net pension cost . . . . . . . - 1 amount of the debt obligation guaranteed by the VEROP cost . ........ ....... 2 j Company was $5,000,000. 1 y Net pension and VEROP costs ... $ 2 1 i The following table preants a reconciliation of the * { fund.ed status of tSe plan at December 31,1988 and 1987.' . December 31, 1988 1987 (mWons of douars) Actuarial present value of benefit obligations: Vested benefits . . .. . . . . . . . . . . $ 82 5 86 N Nonvested benef;.s . . . . . . . . . . . 9 12 ) 1 Accumulated benefit obligation 91 98 Effect of future compensation levels . . . . . . . . . . . . . . . . . . . . . . 25 30 Total projected benefit obliga. tion ... ....,...... .... 116 128 Plan assets at fair market value . .. 152 141 Surplus of assets over projected benefit obligation . . . . . . . . . . . (36) (13) Unrecognized net gain (loss) due.
- to variance between assumptions . .
i
- and experience . . . . . . ... 20 (2)
Unrecognized prior service cost .. 2 - Unrecognized VEROP cost .. . . . .. - (2) l'. . Transition asset at January 1,1987 being amortized over 19 years . 24 25 Net accrued pension cost in-cluded in other deferred credits on the Balance Sheet . $ 10 $ 8 k l l p F-67 (Toledo Edison) l l- _. _ --_- _ - _ _ _ - _ - _ - _ _ _ - _ _ ___ N
. . 1 i
l (11) Capitalization A loan or advance by the Company to Centerior En-l ergy requires PUCO authorization unless it is made in . (a) Capital Stock Transactions ,
]
the ordinary course of business operations in which j Shares sold and retired during the three years ended the Company acts for Centerior Energy. 1 December 31, 1988 are listed in the following table. No new shares of common stock have been issued (c) Cumulative Preferred and Preference Stock by the Company since April 1986. q 1988 1987 1986 Amounts to be paid for preferred stock which must be 4 (thousands of shares) redeemed during tt's next five years are $2.000.000 in { i Commo.: Stock Sales: each year 1989 th ough 1992 and 512,000,000 in Devicend Reinvestment and Stock Purchase Plan .. .. - - 263 1993. Cumulative Preferred Stock The annual mandatory redemption provisions are as f Subject to Mandatory follows: } Redemption: Annual Mandatory 25 par $2.81 . . . . . . .. - 2,000 - Retirements Shares Price ,
$100 par $11.00 . . . . . . . . . (5) (5) (5) To Be Begi,nning Per !
9.3 75 . . . . . Redeemed m Share (17) (17) (17) 13.25 . . . . . . - (121) (9) Preferred: 1 12.65 . . . . . . - (190) (10) $100 par $11.00 . . . . . 5,000 1979 $ 100 ! 14.80 . . . . . . . -- (300). -- 9 375. . 16,650 1985 100 l 25 par 3.75 . . . . . . . . - (1,200) - 25 par 400,000 1993 25 2.81 1 3.72 ..... - (1,400) - Net Change . . . . . .. (22) (1,233) (41) The annualized cumulative preferred dividend require- ! Cumulative Preferred Stock ment as of December 31,1988 is $26.000,000. Not Subject to Mandatory Redemption: The preferred dividend rates on the Company's Series 25 par A and B. fluctuate based on prevailing interest rates, .l Adjustable Series B .. - - 1,200 with the dividend rates for these issues averaging i Retirements 9.33% and 10.18%, respectively, in 1988. I
$25 par $4.28 (800)
-{
3.4 7 . . . . . (1,200) - - J Change . . . . (1,200) 1,200 Under its articles of incorporation, the Company can-
. . (800) not issue preferred stock unless certain eamings cov- ;
erage requirements are met. Based on earnings for j Changes in premium on capital stock are summarized the 12 months ended December 31,1988, the Com- j 1988 1987 1986 pany could not issue additional preferred stock. Also, a J (thousands of dollars) write-off by the Company of its investment in Perry J Balance at Beginning Unit 2 could adversely affect its ability to issue addi. I of Year . . . . . . . . . $482,770 $482,787 $478,939 tianal preferred stock in the future. See Note 3. The Pr " l E n e' issuance of additior'al prt=ferred stock in the future will l
- Common Stock. . - - 5,041 depend on eamings for any 12 consecutive months of l
- Preferred Stock. . (1,688) (17) (1,193) the 15 months preceding the date of issuance, the Balance at End of Year .. 548t,082 $482,770 5482.787 interest on alllong term debt issued and the dividends on all preferred issues. ,
(b) Equity Distribution Restrictions There are no restrictions on the Company's ability to At December 31, 1988, retained eamings were issue preference stock.
$89,614,000. Substantially all of the retained eamings 4 were available for the declaration of dividends on the With respect to dividend and liquidation rights, the !
Company's preferred and common shares. All of the Company's preferred stock is prior to its preference I Company's common shares are neld by Centerior stock and common stock. and its pr:ference stock is "l Energy, prior to its common stock. l l
. i l
l (Toledo Edison) F-68 - -_ \
(d) long-Term Debt and Other Borrowing (12) Short-Term Borrowing Arrangements "E " The Company's bank credit arrangements at Decem-Long-term debt, less current maturities, was as follows: ber 31,1988 were as follows: Actual or Average ^ Interest December 31, (thousands Year of Maturity Rate 1988 1987 of dollars) Bank Lines of Credit. . . $69,050 (thousands of dollars) First mortgage bonds: Revolving Underwnting Facility. 25,000 1991 .. . . .. .... 15.00% $ 70,000 $ 70,000
$.I..T.' .2 ,
There were no borrowings under these bank credit 2004-2008 . .. .. 9.64 101,900 101,900 arrangements at December 31,1988. 2009-2013 . . . . . . . . . - - 135,000 2022-2023 . . . 8.06 91,700 41,000 Short term borrowing capacity authorized by the 625,803 710,103 PUCO is $150,000,000. The Company and Cleveland Tcrm bank loans due Electric have been authorized by the PUCO to bor-l99 g,, y g 97" 9 3],$ 3 row from each other on a short-term basis. Debentures due 1997 11.25 125,0 % 125,000 Pollution control notes Annual cornmitment fees tsnge from 0.25% to 0.50% due 1990 2015 . . . . . . 10.82 167,400 167,500 on most of the lines of credit. For the bank without Other - net . . . .... - (265) (477) fee requirements, the average daily cash balance in the Total Long-Term bank account satisfied informal compensating balance Debt ... .... $1,291,444 $1,400,292 arrangements. Long-term debt matures during the next five years as At December 31,1988, the Company had no commer-follows: $25,000,000 in 1989, $113,000,000 in 1990, cial paper outstanding. If commercial paper were out-
$113,000,000 in 1991, $119,000,000 in 1992 and standing, it would be backed by at least an equal
$44,000,000 in 1993, amount of unused bank lines of credit.
The Company's mortgage constitutes a direct first lien on substantially all property owned and franchises (13) Change in Accounting for Unbilled Revenues
, h:Id by the Company. Excluded from the lien, among other things, are cash, securities, accounts receivable, in January 1988, the Company adopted a change in fu;l, supplies and automotive equipment. accounting for revenues in order to record unbilled revenues as discussed in the Summery of SiInificar.;
The issuance of additional first mortgage bonds by the Accounting Policies. Company is limited by provisions in its mortgage. At Drcember 31,1988, the Company could not issue The adoption of this accounting method increased first mortgage bonds pursuant to those provisions. 1988 net income, before the cumulative effect on However, at December 31,1988, the Company would periods prior to January 1,1988, by $218,000 (net of have been permitted to issue $105,000,000 of re- $112,000 of income taxes). The cumulative effect of funding bonds. the change on the periods prior to Jnuary 1,1988 was $6,279,000 (net of $4,177,000 of income taxes) Certain unsecured loan agreements of the Company and has been included in 1988 net income. conta,m covenants limiting to 65% of total capitaliza-tion (as defined) the total of its short term debt in if this change in accounting method were applied excess of $150,000,000 and funded debt, limiting se- retroactively,1987 and 1986 pro forma net income cured financing other than through first mortgage would have been as follows: bonds and certain other transactions and requiring the Company to maintain earnings (as defined) of at least 1987 1986 1.5 tirnes interest on its first mortgage bonds. The. (thousands of dollars)
- camings coverage ratio applies to $349,500,000,of orted 4 $165,171 $176,917 unsecured loans and was 1.81 at December 31,1988. Net Effectincoi..e of Unbilled (as rekevenu)es .
(Net of income Taxes of
. A write off of the Company's investment in Perry Unit ($668,000) and $891,000, Respectively) (1,005) 1.045 2 could significantly affect its ability to issue additional Pro Forma Net income. $ 164.166 $177.962 debt. See Note 3.
F-69 (Toledo Edison)
(14) Quarterly Results of Operations (Unaudited) Tha following is a tabulation of the unaudited quarterly results of operations for the two years ended December 31, 1988. Quarters Ended March 31, June 30. Sept. 30, Dec. 31, (thousands o: dollars) 1988 Operating Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $156,689 5141,824 $170,102 5 159,382 Operating incom e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,000 16 481 17,655 1,217 Cumulative Effect of an Accounting Change (Note 13) .. 6,279 - - - Net income ( Los s ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,803 16,327 19,764 (178,346) Eamings (Loss) Available Cr Common Stock. . . . . . . . . . . 19,150 9,922 13,295 (184,802) 1987 Operating Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $144,794 5148,419 $166,858 $ 144,966 Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,891 30,653 35,848 32,051 N et i ncom e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,950 35,715 46,832 34,674 Eamings Available for Common Stock . . . . . . . . . . . . . . . . . . 36,637 24,707 35,177 25,601 i Pro Forma Amounts Assuming the Accounting Change Were Applied Retroactively (Note 13): Net inc ome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,432 37,100 48,723 32,911 Eamings Available for Common Stock . . . . . . . . . . . . . . 34,119 26,092 37,368 23,838 Tha unaudited quarterly results for the first quarter of 1988 have been restated to reflect the recognition of unbilled r: venues. See Note 13. The results for the four quarters of 1987 have been restated to reflect the Company's January 1989 PUCO rate order as it relates to the refund requirements contained in its February 1985 rate order discussed in Note 7. The results for the last three quarters of 1987 have been restated to reflect the PUCO's F:bruary 1988 accounting orders for Perry Unit 1 deferred costs and cairying charges as discussed in the Summary . of Significant Accounting Policies. Thn restated infonnation has been chan8ed from the results previously reported for 1988 in the 1988 Quarterly . Rrports on Form 10-Q and for 1987 in the 1987 Annual Report on Form 10-K as filows: Changes from Pruiously Reported information for the Quarters Ended March 31, June 30, Sept. 30, Dec.31, (thousands of dollars) 1988 Operating Revenu es . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,592 $- 5 - Not Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,598 - - Previously Cumulative Effect of an Accounting Change . . . . . . . . . . . . . 6,279 - - Reported N et inc ome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,877 - - Eamings Available for Common Stock . . . . . . . . . . . . . . . . . 8,877 - - 1987 Operating Revenu es . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5,361 ) $ (4,736) S(5,556) $ (4,532 ) Operating Income ............ ..................... (3,066) (2,709) (3,178) (2,592) Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ... - 343 (733) 390 Eamings Available for Common Stock . . . . . . . . . . . . . . . . . - 343 (733) 390 1 (Toledo Edison) F-70
l' j r .. s 1 H. FIN ^N'CIAL' AND STATISTICAL REVIEW Operating Revenues (thousands of dollars) l Total Steam Total Total Heating Operanng
. Year Res4dential Commercial Industrial Other Retail Wholesale Electne & Cas Revenues 1988......... $200 916 $142 696 $199 521 $34 961 $578 094 $49 903 $627 997 $- $627 997 1987.. . .. . 200 877 142 385 219 Da8 27 646 590 006 15 031 605 037 - 605 037 1986.. .. ... 189 292 133 841 214 274 23 886 561 293 11 189 572 482 -
572 482 != 1985 . .. ..... 184 687 129 161 213 895 26 284 554 027 15 656 569 683 5 761 575 444 l~ 1984..... .... ~172 539 - 115 467 194 751 45 02 ) 527 786 14 083 Sdi 869 9 436 551 303 1978........ . 106 512' 67 563 120 570- 22 817 317 462 16 621 334 083 5 973 340 056 Operating Expenses (thousands of dollars) Perry Unit 1
& Seaver Fuel & Operason Depreciation Taxes. Valley . . ederal Total Purchased & & Other Than ' Unit 2 'ncome Operanng Year Power Maintenance Amorttration FIT Defer ed Taxes Ewenses
.1988.. ....... $116161 $358823 $75 093 See 138 $(83 813) $29 242 $575 644 1987.. ....... 140 176 223 307 65 503 59 658 (39 797) 12 747 471 594 1986 . . . . . . . . . 158 763 ~ '167 319 37 832 51 398 -
41 150 456 462 1985... .. ... 158 990 141 608 44 338 47 772 - 52 873 445 581 1984. . . . . 139 780 125 351 49 971 46 602 - 56 411 428 115 1978. . . ... 137 889 58 487 26 532 24 320 - 27 397 - 274 625
- Income (Loss) (thousands of dollars)
Carrying Other Charges on Federal Income Income & Nuclear income Before
- Operaens AFUDC- Deductions, Plants Tanes- Interest Year income Equity Net & Other Credit Charges 1988.. ....... $ 52 353 $ $452 $(246 722)(a) $129 632 $86 244 5 26 959 1987.. .... . 133 443 122 138 (16 904) 14 989 42 726 296 392 1986. .. .... 116 020 129 578 (1 627) -- 52 029 296 000 1985.... .. .. 129 663 105 094 10 669 - 38 167 283 793 1984. ... . 123 190 82 736 7 876 - 34 335 248 137 1978. .. . 65 431 17 470 720 - 6 484 90 105 Income (Loss) (thousands of dollars) income (Loss) Cumulative Before Effect of an Eammes Cumulatrve Accounting (Loss )
Effect of an Change Preferred Available Interest AFUDC- Accounting for Unbilled Net Income stock for Common Year Charges Debt Change Revenues (Loss) Dividends stock 1988. .,... . $150 523' $ (1 833) $(121731) $6 279 $(115 452) $26 983 5(142 435) 1987.......... 185 493 (54 272) 165 171 - 165 t71 42 749 122 422
'1986. ... . 174 397 (.,5 314) 176 917 - 176 917 45 243 131 674 1985. . .. 155 025 (44 745) 173 513 -
1*3 513 41 362 132 151 1984 . . .. 129 401 (34 790) 153 526 - 153 526 34 9 % 118 530 1978.. ,..... 42 746 (7 090) 54 449 - 54 449 13 020 41 429 (al includes wnte.oif of nuclear costs in the amount of $276.955.000 in 1988. F-71 (Toledo Edison)
1 V s * ) THE TOLEDO EDISON COMPANY Electric Sales (millions of KWH) Electric Customers (year end) Residential Usage , Average ~Aberase Average Prtce Revenue indusfrtal KWH Per Per Per Yart - Resadenttal Commerctal industrial Wholesale Other Total Residential Commercial & Ortier Total Customer KWH Customer 1988. ,... 2 068- . 1 579 3 780 938 474 8 839 251 590 25 526 4 102 281 218 8 264 9.724 $802.87
' 1987 .. . . . . . . 1977 1 532 3 589 344 464 7 906 249 344 25 170 4 085 278 599 7 969 10.16 809.66 1986..... . 1 941 1 495 1 482 242 449 7 609 247 256 24 655 4 004 275 915 7 881 9.75 768.43 1985.. .. 1 901 1 436 2429 330 451 7 547 245 485 24 261 3 942 273 688 7 770 9.72 755.00 1984,, ... 1958 1 398 3 444 304 440 7 544 243 912 23 891 3 920 ' 271 723 8 045 8.81 709.09 1978. ... 1914 1 231 3 617 533 390 7 685 234 450 23 334 3 551 261 335 8 244 5.57 458.86 Load (megawatts) - Energy bnillions of KWH) Fuel Operaine i Capactr.' Company Generated Pur Fuel Cost T Peak Load -
Year Of Peaktb) Load Margm Factor Foned Nuclear Total Power Total Per KWH KWH J 1988... ... 1497 1 614 (7.8)% 62.8% -5 828 3 325 9 145 385 9 530 1J94 10 174 1987....... 1 698 1 484 12.6 64.9 5 916 3 218 9 134 (647) 8 487 1.45 10 1 % 1986 ....... 1324 1 423 (7.5) 64.8 6 462 12 6 474 1 689 8 163 1.82 9 860 1985', ... . 1338 1 374 (2.7) 66.8 5 744 952 66% 1402 8 098 1.90 10 124 1994 ... .. 'I 641 1 327 49.1 68.2 5 181 2 091 7 272 .719 7 991 1.73 10 193 1978... . 1813 1 386 23.6 67.1 5 402 1 278 6 680 1 566 8 246 1.20 to 283
~ '
investment (thousands of dollars) Construction Work in Total Utdity Accumulated Proyens Nuclear Property, Utility . Plant in Dooreciatton & . Net & Perry Fueland Plant and Plant Total Year service Amortization Plant Unst 2 Ottieric) Equipment Addmons Assets 1988 ....... $2 438 927 $487 546 $1951381 5 459 104 $262 514 $2 672 999 $170 501 $4134 672 1987.. . . 2 600 511 419 149 2 181 362 374 274 267 069 2 822 705 380 974 4 277 587 1986..... . 1 442 812 415 745 1 027 067 2 169 945 269 022 3 466 034 463 163 3 813 889 1985. ..... 1 392 346 390 565 1 001 781 1 766 927 228 425 2 997 133 388 555 3 385 268 1984 .. ... 1 372 963 365 015 1 007 948 1 413 328 196 530 2 617 806 356 22) 2 936 162 1978. ... 950 609 176 450 774 159 351 %1 24 075 1450195 180 688 1 255 947 Capitalization (thousands of dollars & %)
- Preferred Stock, Preferred Stock, without with Mandatory Mandatory Redemption Ytar - Common stock Equity Redemption Provisions Provtssons long. Term Debt Total 1988. . ... $ 087 442 36 % $ 71 155 3% $210 000 9% $1291444 52% $2 460 041
.9872. ... 1 096 737 39 73 340 3 240 000 8 1 400 292 50 4 810 369 --1986 . .. 1 074 663 36 148 797 5 260 000 9 1 480 947 50 2 964 407 -
1985 ...... 949 881 36 153 639 6 230 000 8 1 339 268 50 2 672 788
'1984 s. ... 813 895 36 157 828 7 200 000 9 1 110 122 48 2 281 845 1978. . .. 382 084 35 9 500 1 150 000 13 560 644 51 1 102 228 (b) Capacity was redu(ed because or extended generating unit outages for renovation and improvements in 1984185 mw).1985 (401 rnwL 1986 (416 mw) and 1988 (416 mwL (c) la84 and 1978 restated for effects of capitahzation of nuclear fuel lease and financing arrangements pursuant to Statement of Financial l
; Accounting Standards 71.
-(Toledo Edison) F 72
~
l
> e INDEX TO SCHEDULES Page Centerior Energy Corporation and Subsidiaries:
Property, Plant and Equipment for the Years Schedule V S-2 Ended December 31, 1988, 1987 and 1986 Schedule VI Accumulated Depreciation and Amortization of S-5 Property, Plant and Equipment for the Years Ended December 31, 1988, 1987 and 1986 Schedule VII Guarantees of Securities of Other Issuers for S-8 the Year Ended December 31, 1988 Schedule VIII Valuation and Genlifying Accounts far the S-9 Years Ended December 31, 1988, 1987 and 1986 Schedule IX Short-Term Borrowings for the Years Ended S-10 December 31, 1988, 1987 and 1986 Schedule X Supplementary Jncome Statement Information for S-11 the Years Endel December 31, 1988, 1987 and 1986 The Cleveland Electric Illuminating Company and Subsidiaries: Schedule V Property, Plant and Equipment for the Years S-12 Ended December 31, 1988, 1987 and 1986 Schedule VI Accumulated Depreciation and Amortization of S-15 Property, Plant and Equipment for the Years Ended December 31, 1988, 1987 and 1986 Schedule VII Guarantees of Securities of Other Issuers for S-18 the Year Ended December 31, 1988 Schedule VIII Valuation and Qualifying Accounts for the S-19 Years Ended December 31, 1988, 1987 and 1986 Schedule IX Short-Term Borrowings for the Years Ended S-20 December 31, 1988, 1987 and 1986 Schedule X Supplementary Income Statement Information for S-21 the Years Ended December 31, 1988, 1987 and 1986 The Toledo Edison Company: Schedule V Property, Plant and Equipment for the Years S-22 Ended December 31, 1998, 1987 and 1986 Schedule VI Accumulated Depreciation and Amortization of S-25 Property, Plant and Equipment for the Years j Ended December 31, 1988, 1987 and 1986 Schedule VII Guarantees of Securities of Other Issuers for S-28 the Year Ended December 31, 1988 Schedule VIII Valuation and Qualifying Accounts for the S-29 Years Ended December 31, 1988, 1987 and 1986 Schedule IX Short-Term Borrowings for the Years Ended S-30 December 31, 1988, 1987 and 1986
. Schedule X Supplementary Income Statement Information for S-31 the Years Ended December 31, 1988, 1987 and 1986 S-1 l
I I
m . u
.'j l
l L -l I CD!:ERIOR ENERGY CORPORAT!0N AND SUBSIDIARIES SCHEDULE V PROPERTY, PLANT AND EQUIPAENT YEAR ENDED DECEMBER 31, 1988 f I (Thousands of Dollars) 3 Balance at Retirements Batance at j Beginning of Additions or End of j Classification Period at Cost Sales Other Period Utility Plant: Electric Productions i Steam $1,241,340 $53,830 (s5,134) $0 $1,290,036 Nuclear (b) 55,195,992 $91,211 ($454,030)(c) So $4,833,173 Hydraulic $56,306 - (SS) $0 50 $56,301 Other $13,877 376 (510) $0 513,943 1 Transmission (b) $671,701 $8,101 ($2,267) SO 5677,535 0 distribution 51,043,350 $60,507 ($9,091) 50 $1,094,766 General- 5165,548 $16,598 (54,227) $0 $177,919 Total Utility Plant S8,388,114 S230,318 (5474,759) $0 $8,143,673 Perry Unit 2 (a) $783,028 $0 $0 583,883 (d) $866,911 Construction Work in Progress $224,679 $117,021 $0 $14,121 (d) 5355,821 Nuclear Fuel S750,588 $64,556 so $0 5815,144 Other Plant $59,785 $813 ($653) $0 $59,945
............ ......g..... ............ ............ ............
Total Property, Plant and Equipment $10,206,194 $412,708 (5475,412) $98,004 $10,241,494 (e) inclL. des Perry Unit 2 AFUDC subsequent to July 1985, see schedule VIII. (b) Includes reclassification of PUC0 ordered AFUDC reserve to a refund obligation cons' stent with terms of . the January 1989 PUC0 rate order. (c) Includes $453,674,000 of PUC0 ordered write-off of Perry Unit i and Beaver Valley Unit 2 investments. (d) Results primarily from adoption of a new method of accounting for income taxes which requires the -
- presentation of amounts (previously stated on a net-of tax basis) on a pre-tax basis.
I [ S-2 3
4' .,
/
i L ! CENTER 10R ENERGY CORPORATION AND SU8s!D! ARIES SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT j YEAR ENDED DECEMBER 31, 1987 1 I (Thousands of Dollars) Balance at Retirements Sala .e at Beginning of Additions or End of Classification Period at Cost Sales Other Period Utility Plants Electric Production: steam $1,753,698 $30,919 (s529,725)(c) ($13,552)(f) 51,241,30 Nuclear (g) $974,053 S4,223,646 (b) ($1,507) so $5,195,992 Hydraulic $56,145 $188 ($27) $0 556,306 Othe $13,895 ($4) ($14) $0 $13,877
- Transmission (g) s451,081 $24,360 ($3,740) 50 $671,701 Distribution S993,334 $58,780 ($8,764) $0 $1,043,350 General' $150,744 S18,437 (s3,633) so $165,548 Total Electric $4,592,950 $4,356,126 ($547,410) ($13,552) 58,388,114
. Steam S46,592 ($556) ($46,036)(d) $0 50 Total Utility Plant $4,639,542 s4,355,570 (s593,446) (s13,552) 58,388,114 Perry Ur:!t 2 (a) s702,579 'S80,449 $0 $0 $783,028 Construction Work in Progreas (g) $4.535,203 ($3,488,098)(b) (f822,426)(e) 50 5224,679 Nuclear Fuel $'705,063 $45,525 50 $0 $750,588 other Plant $42,819 53,414 50 513,552 (f) 559,785 Total Property, Plant and ,,
Equipnent $10,625,206 $996,860 (s1,415,872) 50 , $10,206,194
............ ............ ......c .... ............ ............
, . (a) Includes Perry Unit 2 AFUDC subsequent to July 1985, see schedate VIII. l (b) Perry Unit 1 and Beaver Valley Unit 2 were placed in comercial operation during November 1987. g (c) includes $476,084,000 relating to the sa(e of the Bruce Mansfield Plant. ( (d) Includes the sale of the steam system. (e) Includes the sale of a portion of Beaver Valley Unit 2. (f) Transfer of Utility Plant to other Plant. (9) Includes reclassification of PUC0 ordered AFUDC reserve to a refund obligation consistent with terms of the January 1989 PUC0 rate order. l S-3
f I? l' l-CENTER 10R EY4RGY COR*0 RAT!0N AND SUBSID! ARIES 1 l
)
l, $CHEDULE V PROPERT't, PLANT AND EQUIPMENT
- l. YEAR ENDED DECEMBER 31, 1986 (Thousands of Dollars)
!, Balance at Retirements Balance at ! Beginning of Additions or End of , _ Classification Period at Cost sales Other Period
- Utility Plants Electric
. Production:
steam $1,722,999 $38,574 (S7,875) 50 $1,753,698 Nuclear. $910,935 566,224 (53,106) 50 5974,r53 Mydraulle $54,473 $2,088 ($416) 50 $56,145 I Other $14,060 ($20)- (5145) $0 $13,895 l Transmission $645,569 $6,313 (5801) $0 5651,081 Distribution $945,861 $55,624 (s8,151) 50 $993,334 General $141,974 $13,647 ($4,877) $0 5150,744 Total Electric $4,435,871 S182,450 ($25,371) 50 54,592,950 I steam s45,580 $1,285 (5273) s0 $46,592 Total Utility Plant $4,481,451 $133,735 (525,644) $0 $4,639,542 i l
, Perry Unit 2 (a) s605,234 $97,345 so $0 s702,579 1 1
Construction Work in
]
$3,685,860 Progress (b) $849,343 $0 50 $4,535,203 Nuclear Fuel $618,633 $86,430 $0 SO 5705,063 i
Other Plant $39,450 $3,990 ($621) $0 $42,819 , j
............ ............ ............ ............ ............ 1 i
Total Property, Plant and . Equipment $9,430,62* $1,220,843 (526,265) $0 $10,625,206 (a) Includes Perry Unit 2 AFUDC subsequent to July 1985, see schedule VIII. l (b) Includes reclassification of PUC0 ordered AFUDC reserve to a refund obligation consistent with terms of the January 1989 PUC0 rate order.
)
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5 .s' i -% If lV 1 CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES SC:tEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT YEtR ENrED DECEMSER 31, 1988 (Thousands of Dollars) Additions Deductions Balance at Charged to Removal Cost Balance s'. Beginning of Results of Net of Salvage End of Description Period - Operations Other (a) Retirements Add /(Deduct) Period Utility Plants Ettetric Depreciation $1,321,464 5267,004- 53,534 ($21,034) (54,990) 51,565,978
. Amortization $2,982 5344 S0 50 50 53,326 Total Utility Plant $1,324,446 $267,348 (b) $3,534 ($11,034). ($4,990) 51,569,3D4 Othsr Property Depreciation- $12,980 $1,323 (c) SO ($620) (57) 513,676 Total s1,337,426 S268,671 $3,534 ($21,654) ($4,997) 51,582,980 S38s53a33333 333333333333 assmassassins 3s33333333s8 333333333s33 33335ss33333 Nuctsar Fuel Amortization $141,043' $77,283 (d) SO $0 $0 $218,326
+B35555533333 333333338833 553535355335 533333333333 53355383553S SESSSESSSESS
' Notes (8)' Accumulated depreciation charged to construction work in progress.
(b) Depreciatfore and amortization as reported in Results of Operations includes approximately $9 million of
~
amortization related to terminated nuclear generating units and s13 million of amortization of investment tax credits resulting from the chaenge in accounting for income taxes. The unamortized costs related to the termi-nated units were recorded as deferred charges on the Balance Sheet. The December 31, 1988 balance of
$27.8 million in the deferred charge account was written off at year end.
(c) Non-utility plant expensJ charged to other income and deductions, net. (d) Charged to nuclesr fuel expense, e e _ __ _ s-3 I
- v. . .
(ENTERIOR ENERGY CORPORA'!0N AND SUBSIDIARIES SCHEDULE VI ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT YEAR ENDED DECEMBER 31, 1987 { l (Thousands of Dollars) Additions Deductions ] Balance et.' Charged to Removal Cost Balance nt Beginning of Results of Net of Salvage End of D scription Period Operations Other (a) Retirements Add /(Deduct) Feriod Utility Plant Electric Depreciation $1,351,361 S109,059 53,945 ($217,301)(e) ($15,620) 51,321,464 Amortization $2,573 S409 SO So 50 $2,982 3tcam - Depreciation $13,708- $1,213 $0 ($14,851)(f) (S70) 50 Total Utility Plant $1,36Y,662 S200,681 (b) S3,945 ($232,152) ($15,690) 51,324,'46
. Othar Property Depreciation $3,606 58,937 (c) 5437 SO SO S12,930 Total $1,371,268 $209,618 S4,382 ($232,152) ($15,690) 51,337,426
- s========== ============ === s=3ssess s=======sses ass ========= sesssssssss:
NuclGir Fuel . Amortization $91,712 549,331 (d) $0 50 SO S141,043 assamassassa ==ssassanssa suusssssssas masassamasas seasassssss: sassassssess Note: (a) Accumulated depreciation charged to construction work in progress. (b) Depreciation and amortization as reported in Results of Operations includes approximately $14 million of amortization related to terminated nuclear generating mits. The unamortized costs related to the termi-nated units are recorded as deferred charges on the Balance Sheet.
~
(c) Non utility plant expense charged to other income and deductions, net. { (d) Charged to nuclear fuel expense. (e) Includes $143,441,000 relating to the sale of the Bruce Mansfield Plant. (f) The steam system was sold on December 30, 1987. 1. i l l .- . l l l'. l u
e . CENTER 10R ENERGY CORPORATION AND SUBSIDIARIES SCHEDULE VI . ACCUMULATED DEPRECIATION AND AMORT!ZATION OF PROPERTY, PLANT AND EQUlPMENT YEAR ENDED DECEMBER 31, 1986 (Thousands of Dollars) Additions Deductions Balance at Charged to Removal Cost Balance at Beginning of' Results of Net of Salvage E nd c f D:scription Period operations other (a) Retirements Add /(Deduct) Period Utility Plants Electric
- Depreciation $1,249,518 5128,208 $3,121 (525,371) ($4,095) 51,351,381 Amortization $2,383 $190 $0 $0 50 52,573 Stsam Depreciation $13,030 $1,164 SO ($273) (5233) $13,708 Total Utilf9y Plant $1,264,931 $129,582 (b) 53,121 ($25,644) ($4,328) 51,367,6e2
. Othsr Property - Depreciation 52,287 $1,319 (c) $0 50 50 $3,606 Total $1,267,218 $130,901 $3,121 ($25,644) (54,328) 51,371,268
............ ............ ............ ....s....... ............ ............
Nuclear Fuel . Amortization $91,520 $192 (d) $0 $0 $0 $91,712
............ ............ ............ ............ ...... 2.... s ..........
Ntte: (a) Accumulated depreciation charged to construction Work in progress. (b) Derre.sistion and amortization as reported in Results of Operations includes approximately $12 million of minortization related to terminated nuctsar generating units. The unamortized costs related to the termi-noted units are recorded as deferred charges on the Balance sheet. (c) Non utility plant expsnse charged to other income and deductions, net. l (d) Charged to nuclear fuel expense. ' 1 1 I 1 1 I l l
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CENTER'!OR ENERGY CORPORATION AND SUSS! DIARIES' SCHEDULL Vl! GUARANTEES OF SECURITIES OF OTHER ISSUERS YEAR ENDED DECEMBER 31, 1988
-(Thousands of Dollars)
Principal Amount b ' Guaranteed and
'Name of !ssuer of Outstanding Securities Guaranteed Title of issue (a) and (b) Nature of Guarantee Quarto Mining Conpany (b) Guaranteed Mortgage Bonds, Due 2000 Series A 8.25% $1,291 Principal and Interest
!- Series B 9.70% 1,260 . Principal and Interest Series C 9.40% 6,295 Principal and Interest Series D 12.625% 7,326 Principal and interest Series EA 10.25%- 1,498 Principal and Ir.terest Series EB 11.70% 1,461 orincipal and Interest Series EC 11.40% 7,306 Principsl and Interest Series ED 14.625% 7,988 Principal and Interest Series FA 10.50% 1,150 Principal and Interest Series FB 11.75% 365 Principal and Interest Series FC 11.40% 1,475 Principal and interest Series S 9.05% 19,010 Principal and Interest
. Unsecured Note, Interest at prime (10.50% -
at 12/31/88) plus 2%, Due 2000 4,822 Principal and Interest Equipment Leases 12,389 Termination Value per -
+ -- -- Agreements 73,636 The Ohio Valley Coal Company First Mortgage Notes Series D 8.00% Due 1989 to 1997 7,450 Principal and Interest Series E- 10.25% Due 1989 to 1997 5,225 Principal and Interest Equipment Leases 7,507 Stipulated Loss value per Agreements Ters Notes 9.53% Due 1989 to 1996 4,305 Principal arid Interest
-10.85% Due 1989 to 1997 23,515 Principal and Interest 48,002 General Physics Ohio Term Note 10.50% Due 1989 to 1994 10,070 Principal and Interest
. Corporation -------
$131,708 Notes: (a) None of the securities were owned by the Centerior Utilities; none were held in the treasury of the issuer; and none were in default.
(b) The Centerior Utilities and the other CAPCO Group Conpanies have agreed to guaranteo beverally, I and not jointly, their proportionate shares of Quarto Mining Company debt and lease obligations incurred while developing and equipping the mines. The amounts shown are the Centerior Utilities' proportionate share of the total obligations. tr P
p ,, y_ CENTERIOR ENERGY CORPORAf!ON AND SUBSin! ARIES SCHEDULE V!!! VALUATION AND QUALIFYING ACCOUNTS FOR THF YEARS ENDED DECEMBER 31, 1988, 1987 AND 1986 (Thousands rf Dollars) Addltions Deduetions Balance at Charged to Deductions Balance at Beginning Results of from End of l
~
' Description of Period Operations Other Reserves Other Period
'" ' ........... ............ ............ ............ ............ .. ......... ............ 1 Reflected as Reductions to the Related Assets:
Accumulated Provision-for Uncollectible Accounts (Deduction from Accounts Receivable) 1988 $5,571 $11,893 $1,146 (a) $11,709 (b) 50 56,901 1987 $11,746 52,395 $881 (a) 19,451 (b) 50 $3,571 1986 $5,331 $13,357 $1,549 (a) $8,491 (b) $0 $11,746
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Reflected as Reserves on the Belar.co Sheet: Reserve for Perry Unit 2 Aliowance for Funds Used During Construction j 1988 $174,600 SO (c) $38,093 (d) $0 50 5212,693 ! 1987 $93,047 $80,653 (c) $0 $0 50 5174,600 l 1986 $30,422 $63,525 (c) $0 $0 $0 593,947 ) (a) Collection of accounts previously written off. (b) Uncollectible accounts written off. (c) Reflected as a reduction to Allowance for Funds Used During Construction (AFUDC). (d) Results from adoption of a new method of accounting for income taxes which requires the presentation of amounts (previously stated on a net-of tax bcsis) on a pre tax basis. l S a; h . CENTER 10R ENERGY CORPORATION AND SUBSIDIARIES SCHEDULE IX $HORT TERM BORROWINGS , FOR THE YEARS ENDED DECEMBER 31, 1988, 1987 AND 1986 j (Thousands .t Dollars) Average Weighted Daily Aver ae Average Maximum Weighted C# y
. Balance Interest ~ Amor.t Amount Weighted at End Rate at outstanding Outstanding Interest of End of During Durl@ the Rate During Category , Period Period Period Per led , the Period Bank Borrowings.
. Lines of Credit-1988' SD 0.0% $0 SO (c) 0.0% (b) 1987 SO 0.0% $36,000 $19,538 (c) 8.0% (b) '-
1986 $15,000 6.4% $71,000 $31,071 (c) 8.1% (b) Commercial Paper
- 1988 $0 0.0% - $123,000 $21,248 (a) 7.4% (b) 1987 S37,000 8.7% $141,900 $41,992 (a) 7.2% (b) 1986 $31,000 8.3% $134,875 $31,621 (a) 6.9% (b)
(a) Computed by dividing the total of the daily outstanding balances for the year by 365 days (366 for 1988).
-(b) Computed by dividing total interest expense for the year by the average dal'y balance outstanding.
(c) Computed by dividing the total of the daily outstanding balances for the year by the nornber of days outste.nding. e k l l _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ . _ _ _ _ _ . _ . _ _ _ _ _ . _ _ _ _ _ _ ._ _ _ _ Anra .. _a
.j b . -.
l CENTER 10R ENERGY CORPORATION AND SUBSIDIARIES SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1988, 1987 AND 1986 (Thousands of Dollars) Charged to operating Expense Itam 1988 1987 1986 Maintenance and Repairs _ - $199,468 $161,296- $169,034 Taxes, other Than Pay' roll and Income Taxes: Operating Expenses Real and Personal Property Taxes $145,665 $96,367 593,917 Ohio State Excise Taxes $91,644 $84,791 $84,941 other. $11,773 $10,347 $6,218 Total operating Expenses $249,082 $191,505 $185,076 other Income and Deductions- $597 $798 $735 Total $249,679 $192,303 $185,811
... ....... ............ ===.........
t e
e
- THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARIES SCHEDULE V . PROPERTY, PLANT AND EDUIPMENT YEAR ENDED DECEMBER 31, 1988 l
(Thousands of Dollars) Balance at Retirements Balance at Beginning of Additions or End of
' Classification Period at Cost Sales Other Period Utility Plants Electric Production Steam $967,557 S50,877 (s4,798) 50 $1,013,636 Nuclear S3,415,183 S32,127 ($211,594)(b) so $3,235,716 Hyursu!!c $56,306 (SS) $0 50 556,301 Other $7,221 576 ($10) 50 57,287 Transmission $521,893 $6,569 ($1,642) $0 5526,820 Distribution $719,330 541,096 ($5,776) 50 5754,650 General $100,113 s12, 775 ($2,552) $0 $110,336 Total Utility Plant 55,787,603 S143,515 ($226,372) $0 $5,704,746 Perry Unit 2 (a) S476,458 50 $0 547,327 (c) 5523,785 Construction Work in Progress $156,975 $68,747 50 $14,121 (c) 5239,843 Nuclear Fuel $416,786 s36,868 50 $0 $453,654 Other Plant $56,616 $639 (s630) so $56,625 Total Property, Plant and Equipment $6,894,438 $249,769 ($227,002) 561,448 56,478,653 535553335583 533333853585 558333533333 333333333333 333333353533 (a) Includes Perry Unit 2 AFUDC subsequent to July 1985, see schedult Vill. ,
(b) PUCO ordered write-off of Perry Unit 1 and Beaver Valley Unit 2 investments. (c) Results primarily from adoption of a new method of accounting for income taxes which requires the presentation of amounts (previously stated on a net of tax basis) on a pre-tax basis. . 1 i S-12
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? THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARIES j SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT YEAR ENDED DECEMBER 31, 1987 (Thousands of Dollars) Balance at Retirements Balance at Beginning of Additions or End of Classification Period at Cost sal'es Other Period Utility Plants Electric-Production: Steam $1,I96,566 $20,949 ($337,708)(c) ($1,2,250)(e) 5967,557 N': lear $500,861 $2,914,613 (b) ($291) $0 53,415,183 Hydraulic $56,145 $188 ($27) $0 556,306 other $7,239 (s4) ($14) $0 57,221 Transmission $509,186 $14,985 ($2,278) 50 5521,893 Ofstribution $688,319 $37,992 (s6,981) $0 5719,330 1 General $91,822 $10,824 ($2,533) $0 $100,113 Total Electric $3,150,138 $2,999,547 ($349,832) ($12,250) $5,787,603 ; steam 546,592 ($556) (s41,036)(d) 50 $0 Total Utility Plant $3,196,730 $2,998,991 ($395,868) ($12,250) $5,787,603 Perry Unit 2 (a) S427,524 S48,934 $0 50 $476,458 Construction Work in Progress $2,640,313 (s2,480,978)(b) (22,360) 50 $156,975 Nuclear Fuel $391,081 $25,705 $0 50 $416,'786 other Plant- $40,952 $3,414 50 512,250 (e) 556,616 iY ............ ............ ............ ............ ............ to Total Property, Plant and Equipment $6,696,600 $596 066 ($398,228) $0 $6,894,438
. ............ =======..... ======...... ============ =====ss=====
(a) Includes Perry Unit 2 AFUDC subsequent'to July 1985, see schedule Vill.
'(b) Perry Unit 1 and Beaver Valley Unit 2 were placed in comercial operation during November 1987.
(c) Includes $285,417,000 relating to the sale of the Bruce Mansfield Plant. (d) Includes the sale of the steam system. (e) Transfer of Utility Plant to Other Plant. S-13
e s e. THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARIES-SCHEDULE V - PROPERTY, PLANT AtD EDU!PMENT YEAR ENDED DECEMBER 31, 1986 (Thousands of Dollars) Balance at Retirements Balance at Beginning of Additions or End of Classification' Period - at Cost Sales Other Period Utility Plants Electric Productions , steam $1,271,627 S31,911 ($6,972) 50 $1,296,566
. Nuclear S465,794 $35,167 ($100) 50 5500,861 Hydraulic $54,473 $2,088 ($416) 50 556,145 Other $7,404 ($20) ($145) SO $7,239 Transmission $505,072 S4,676 ($562) $0 $509,186 Distribution' $653,923 S40,878 (56,482) $0 5688,319 General- $85,232 510,930 ($4,340) 50 $91,822 i
Total Electric $3,043,525 $125,630 (S19,017) $0 $3,150,138 j
]
Steam S45,580 $1,285 ($273) SO $46,592 Total Utility Plant $3,089,105 $126,915 ($19,290) SO 53,196,730 j Perry Unit 2 (a) 5358,666 S68,858 SO SO 5427,524 Construction Work in Progress $2,165,501 S474,812 $0 50 $2,640,313 ; Nuclear Fuel- $346,007 545,074 SO $0 $391,081 Other Plant $36,962 $3,990 $0 $0 540,952 , Total Property, Plant and - Equipment $5,996,241 $719,649 ($19,290) $0 $6,696,600 533333333S88 353E83833585 355335E55533 353532555833 333333333333 (a) Includes Perry Unit 2 AFUDC subsequent to July 1985, see schedule VI!!. l 1 1 I L S-14 ! l
a e
- e THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARIES SCHEDULE VI ACCUMULATED DEPRECIAT!DN AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT YEAR ENDED DECEMBER 31, 1988 (Thousands of Dollars)
Additions Deductions Belance at Charged to Removal Cost Balanco at Beginning of Results of Net of Salvage End of Description Peri od Operations Other (a) Retirements Add /(Deduct) Period Utility Plants Eltetric - Depreciation $902,315 s192,354 51,700 ($14,778) (53,159) 51,078,432 ;
- Amortization 52,982 5344 $0 50 $0 $3,32o Total Utility Plant 5905,297 $192,698 (b) 51,700 ($14,778) ($3,159) $1,081,75B OthIr Property Depreciation $11,834 51,274 (c) 50 (5600) $0 512,508 Total $917,131 5193,972 $1,700 (515,378) ($3,159) $1,094,266
. 53....s... .3535 35 53. .......s.... . 3.ss.B...E S33335 53535 333333333385 Nuclear, Fuel Amortization 572,287 $44,911 (d) 50 50 $0 $117,198
.s. ..... a ............ ............ ............ ............ sass........
Note: (a; Accumulated depreciation charged to construction work in progress. (b) Depreciation and amortization as reported in Results of Operations includes approximately 56 million of amortization related to terminated nuclear generating unita and **0 million of amortization of investment tax credits resulting from the change in accounting for income taxes. The unamortized costs related to the termi-nated units were recorded as deferred charges on the Balance Sheet. The December 31, 1988 balance of
$17.6 mittion in the deferred charge account was written off at year end.
(c) Non-utility plant expense charged to other income and deductions, net. (d) Charged to nuclear fuel expense. l l i l ) l t I l [ S .ll5 _ _ _ _ _ _
i l l THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARIES SCHEDULE VI ACCUMULATED DEPRECIATION AND AMORT!ZATION OF PROPERTY, PLANT AND EQUIPMENT YEAR ENDED DECEMBER 31, 1987 (Thousands of Dollars) Additions Deductions Balance at Charged to Removal Cost Balance at Beginning of Results of Net of Calvage End of D:scription Period Op. rations Other (a) Retirements Add /(Deduct) Period Utility Plantt Electr,1c Depreciation $935,636 $138,741 $1,47b 's160,379)(e) (513,161) 5902,315 Amortization $2,573 5409 50 50 50 52,982 Stzam Depreciation $13,708 51,213 $0 ($14,851)(f) (570) to Total Utility Plant $951,917 $140,363 (b) $1,478 ($175,230) ($13,231) 5905,297 Othtr Property Depreciation $2,932 58,902 (c) $0 50 50 511,834 Total $954,849 $149,265 $1,473 ($175,230) ($13,231) 5917,131 cuclear Fuel . Amortization $45,559 526,728 (d) $0 $0 50 572,287
............ ............ ............ ............ ............ .........=.. j Note: (a) Accumulated depreciation ch.,rged to construction work in progress.
(b) Depreciation and amortization as reported in Results of Operations includes approximately $9 million of amortization related to terminated nuclear generating tnits. The unamortized costs related to the termi-nated units are recorded as deferred charges on the Balance Sheet. (c) Non-utility plant expense charged to other income and deductions, net. (d) Charged to nuclear fuel expense. *
-(e) Includes $93,431,000 relating to the cale of the Bruce Mansfield Plant.
(f) The steam system was sold on Decenber 30, 1987. l
'l I
l 1 1 4 S-16 . l
1 e < 4 4 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBS! DIARIES SCHEDULE VI ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT l YEAR EWDED DECEMBER 31, 1986 (Thousands of Dollars) Additions Deductions Balance at Charged to Removal Cost Balance at Beginning of Results of Net of $alvage End of De'cription Period Operations other (a) Retirements Add /(Deduc t ) Period , Utility Plant Electric Depreciation $858,953 is95,561 $1,591 ($19,017) ($1,452) 5935,636
. Amortization $2,383 $190 $0 50 $0 $2,573 stram Depreciation 513,030 $1,184 $0 (5273) ($233) 513,70S Total Utility Plant $874,366 $96,935 (b) $1,591 ($19,290) ($1,685) $951,917 Othzr Property
- Depreciation $1,634 $1,298 (c) $0 $0 $0 $2,932 Total $876,000 $98,233 S1,591 ($19,290) (51,685) $954,849 samassamasss assassssassa masssssssssa masssssssssa massssssssus asssssssssas Nucts:r Fuel - Amortization $45,484 s75 (d) $0 $0 SO $45,559 !
saassassssas assassassass assassassssa ssssssssssss aussssssssas assssssssss: N;te: (a) Act"Jnulated depreciation charge'd to construction work in progress. (b) Depreciation and amortization as reported in Results of Operations includes approximately 56 million of amortization related to terminated nuclear generating units. The unaniortized costs related to the termi-nated units are reccrded as deferred charges on the Balance Sheet. (c) Non-utility plant expense charged to other income and deductions, net. (d) Charged to ruclear fuel expense. S-17
THE CLEVE!.AND ELECTRIC ! ILLUMINATING COMPANY AND SUBSIDIARIES SCHEDULE VII GUARANTEES OF SECURITIES OF OTHER ISSUERS YEAR F%ED DECEMBER 31, 1988 (Thousands of Dollars)
/ Principal Amount Guaranteed and Name of !ssuer of Outstanding Securities Guaranteed Title of lasue (a) and (b) Nature of Guarantee Quarto Mining Conpany (b) Guaranteed Mortgage Bonds, Due 2000 Series A 8.25% $865 <rincipal and Interest Series B 9.70% 844 Principal and Interest Series C 9.40% 4,217 Principal and Interest Swries D 12.625% 4,907 Principal and Interest Series EA 10.25% 936 Principal and Interest Series EB 11.70% 913 Princlpal and Interest Series EC 11.40% 4,567 Principal and Interest Series ED 14.625% 4,794 Principal and Interest
$sries FA 10.50% 719 Principal and Interest Series FB 11.75 % 228 Principal and Interest Series FC 11.40% 922 Principal and Interest Series G 9.05% 11,703 Principal and Interest Unsecured Note, Interest at prime (10.50% _
st 12/31/88) plus 2%, Due 2000 3,014 Principal and Interest Equipment Leases 8,299 Termination Value per . l
- --- - Agreements 47,128 The Ohio Valley Coal Conpany First Mortgage Notes Series D 8.00% Due 1929 to 1997 7,450 Principal and Interest Series E- 10.25% Due 1989 to 1997 5,225 Principal and Interest Equipment Leases 7,507 Stipulated Loss Value per Agreements Term Notes- 9.53% Due 1989 to 1996 4,305 Principal and Interest 10.85% Due 1989 to 1997 23,515 Principal and Interest i l
48,002 l 1 General Physics Ohio Term Note
- 10.50% Due 1989 to 1994 5,174 Principal and Interest Corporation - ------
$100,304 ,
J Notest "a) None of the securities were owned by Cleveland Electric; none were held in the treasury of the issuer; and none were in default. ~l
\
(b) Cleveland Electric and the other CAPCO Group Companies have agreed to guarantee severally, and not jointly, their proportjenate shares of Quarto Mining Company debt and lease obligations incurred while developing and equipping the mines. The amounts shown are Cleveland Electric's proportionate share of the total obligations. l R--},lk _
~. O . ; 5 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARIES
- SCHEDULE VI!! VALUATION AND QUALIFYING ACCOUNTS FOR THE ??ARS ENDED DECEMBER 31, 1988, 1987 AND 1986 (Thousands of Dollars)
AdditioiJ Deduetions Balance at Charged to Deductions Balance at. Beginning Results of- from End of Description of Period Operations Other Reserves Other Period Reflec' A as Reductions I to the Ru sted Assets: Accumulat d Provision for Uncollectible Accounts (Deduction from Accounts Receivable) 1988 $5,126 $9,307 s1,146 (a) 59,553 (b) 50 56,026 1987 $11,126 $515 $880 (a) $7,395 (b) $0 55,126 1986 $4,426 s11,914 $880 (a) 56,094 (b) $0 $11,126 Reflected as Reserves on : the Balance Sheetr , Reserve for Perry Unit 2 Allowance for Funds Used During Construction 1988 5102,903 so (c) $21,495 (d) 50 $0 5124,395 1987 554,408 $48,495 (c) $0 50 $0 5102,903 1986 517,962 $36,446 (c) $0 so $0 554,408 i (a) Collection of accounts previously written off. { (b) Uncollectible accounts written of f.
-(c) Reflected as a reduction to Allowance for Funds Used During Construction (AFUDC).
(d) Results from adoption of a new method of accounting for income taxes wh8ch requires the presentation of amounts (previously stated on a net-of-tax basis) on a pre tax basis. 1 I C_________ _ _ _ _ _ _ _ _ . _ _ _9-A@ _
e iL l THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARIES SCHEDULE IX
- SHORT TERM SORROWINGS FOR THE YEARS ENDED DECEMBER 31, 1988, 1987 AND 1986 (Thousands of Dollars)
Average Weighted' Daily Average Average Maxionan Weighted Daily BAa.c e Interest Amount Amount Weighted
~
at rfd u - Rate at Outstanding Outstanding Interest of End of During During the Rate During. Category. Period Period Period Perind the Period Bank Borro-Ines . Not applicmble Coi.nercial Proer i ................ ., 1988 50 0.0% $123,000 $21,248 (a) 7.4% (b> 1987~ .$37,000 8.7% $141,900 535,821 (a) 7.3% (b) , 1986 $31,000 8.3% $134,875 531,621 (a) 6.9% (b) l ) a
.4 (a) Computed by dividing the total of the daily outstanding balances for the year by 365 days (366 for 1988).
(b) Computed by dividing total interest expense for the year by the average daily balance outstanding. 3
* - O . . . . _ . . . _ . . . _ _ _ . _ _ . _ _ _ _ . _ . _ _ _ _ _ _ _ . _ _ . _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
. . - e.
i
'4 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBS! DIARIES SCHEDULE X SUPPLEMENTARY INCOME STATEMENT INFORMAT!ON ; F01 Tile YEARS ENDED DECEMBER 31, 1988, 1987 AND 1986 (Thousands of L'.'4 Lars)
Charged to Operating Expense Item 1988 1987 1986 Maintenance and Repairs $132,946 $117,458 $118,768 Taxes, Other Then Payroll and Income Taxes: Operating Expenses Real and Personal Property Taxes $104,601 $71,262 $70,805 Ohio State Excise Texes $61,990 $57,471 $58,324 Other $6,307 $8,249 $4,579 Total Operating Expenses $172,898 $136,982 $133,708 other Income and Deductions $494 $733 $652 Total $173,392 $137,715 $134,360 1 l 4 S-21 .
ji .*
- l; .
1 l THE TOLEDO ED!s0N COMPANY SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT YEAR ENDED DECEMBER 31, 1988 (Thousands of Dollars) Balance at Retirements Balance at Beginning of . Additions or End of Classification Period at Cost Sales other Period Utility Plant Electric _, Production Steam 5273,783 $2,953 ($336) $0 $276,'.00 Nuclear (b) $1,780,809 S59,084 ($242,436)(c) 50 51,597, 37 other. 56,656 50 50 50 56,656 Transmission (b) s149,808 $1,532 (5625) $0 5150,715 Olstribution $324,020 519,411 (s3,315) $0 $340,116 General $65,435 $3,823 ($1,675) 50 567,583
............ ............ ............ ..........~. ............
Total Utility Plant $2,600,511 586,803 ($248,387) $0 $2,438,927 Perry Unit 2 (a) $306,570 50 $0 $36,556 (d) 5343,126 Construction Work in-Progress $67,704 548,274 50 $0 $115,978 Nuclear Fuel $333,802 $27,688 $0 $0 5361,490 Other Plant $3,169 s174 ($23) 50 $3,320 Total Property, Plant and Equipment $3,311,756 5162,939 ($248,410) 536,556 53,262,841 333335533555 S33333355558 333355533335 333385355555 33583333333k (a) Includes Perry Unit 2 AFUDC subsequent to July 1985, see schedule Vill. *
'b) Includes reclassi*1 cation of PUC0 ordered AFUDC reserve to a refund obligation consistent with terms of the January 1989 PUCD rate order.
(c) Includes $242,080,000 of PUCD ordered write-off of Perry Unit 1 and Beaver Valley Unit 2 investments. , (d) Results primarily from adoption of a new method of accounting for income taxes which requires the presentation of amounts (previously stated on a net of-tax basis) on a pre-tax basis. a y _
e e'
-f4 4 S.
4
'THE TOLEDO EDIs0N COMPANY SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT 1 EAR ENDED DECEMER 31, 1987 (Thousands of Dollars)
Balance at Retirements Balance at Beginning of Additions or End of Classification Period at Cost Sales Other Period
.............. ............ ............ ............ ............ ............ 1 Utility Plants i s- Electric I Productions !
Steam S457,132 $9,970 (s192,0*7)(c) ($1,302)(e) 5273,783. Nuclear (f) 5473,192 S1,308,833 (b) ($1,21;) 50 $1,780,809 other $6,656 50 50 50 $6,656 Transmission (f) $141,895 $9,375 '($1,462) 50 $149,808 Distribution- $305,015 $20,788 ($1,783) 50 $324,020 Ceneral 558,922 $7,613 ($1,100) $0 565,435 Total Utility Plant. s1,442,812 $1,356,579 (S197,578) ($1,302) $2,600,511 I
. Perry Unit 2 (a) $275,055 531,515 $0 $0 5306,570 Construction Work in Progress (f) 51,894,890 ($1,007,120)(b) (s829,066)(d) $0 567,704 Nuclear Fuet $313,982 s19,820 50 50 5333,802 Other Plant $1,867 SO $0 $1,302 (e) 53,169 Total Property, Plant and Equipment $3,928,606 5400,794 ($1,017,644) 50 $3,311,756
............ ............ ..........c. ............ ............
(a) Includes Perry Unit 2 AFUDC rubsequent to July 1985, see schedule VI!!. ' > (b) Perry Unit 1 and Beaver Valley Unit 2 were placed in comercial operation during November 1987. (c) Includes $190,667,000 relating to the sete of the Bruce Mansfield Plant. (d) Includes the sale of a portion of Beaver Valley unit 2.
-(e) Transfer of Utility Plant to other Plant.
(f) includes reclassification of PUC0 ordered AFUDC reserve to a refund obligation consistent with terms of the January 1989 PUC0 rate order. l l L 1 l S-23
, . . g' g l
f l f f THE TOLEDO EDISON C0 5 ANY l l SCHEDULE V - PROPEETY, PLANT AND EQUIPMENT YEAR ENDED DECEMBEp 31, 1986 (Thousands of Dollars) l Balance at Retirements Balance at l .Beginning of Acklitions or End of Classification Period rt Cost Sales Other Period Utility Plant: _ l
. Electric l Production ..
Steam $451,372 s6,663 (s903) $0 5457,132 Nuclear $44'. ,141 S31,057 ($3,006) SO $473,192 1Other $6,656 S0 $0 $0 56,656
~ Transmission $140,497 $1,637 ($239) $0 $141,895 Distribution $291,938 $14,746 ($1,669) $0 $305,')15 General $56,742 $2,717 (s537) 50 $58,922 .
Total Utility Plant $1,392,346 $56,820 (s6,354) 50 $1,442,812 Perry Unit 2 (a). s246,568 S28,487 $0 50 5275,055
~
. Construction Work in .
P, ogress (b) $1,520,359 $374,531 SO $0 $1,894,890 Nuclear Fuel $272,626 S41,356 SO $0 5313,982 I
- Other Plant- $2,488 $0 (S621) $0 51,867 Total Property, Plant and
. Equipment $3,434,387 $501,194 ($6,975) $0 $3,928,606
============ sassammass== sass ===ss=== . ============ =====ssssss:
l (a) Includes Perry Unit 2 AFUDC subsequent to July 1985, see schedule VIII. (b) Includes reclassification of PUCD ordered AFUDC reserve to a refund ol, ligation consistent with terms of
~
the January 1989 PUC0 rate order. lt
)
'l n
4 S-24 . j
Ih THE TOLEDO EDISON COMPANY-
' SCHEDULE VI ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
' YEAR ENDED DECEMBER 31, 1988 (Thousands of Dollars)
Additione Deductions Balance at Charged to Removal Cost Balance at Beginning of ?esults of Net of Salvage End of Description Period Operations Other (a) Retirements Add /(Deduct) Period Ettetric utility Plant . Diprociation S419,149 $74,650 (b) $1,834 (S6,256) ($1,831) 5487,546' Oth$r Property Depreciatici $1,146 S49 (c) SO ($20) (S7) 51,168 e Total $420,295 $74,699 $1,834 (S6,276) ($1,838) $488,714
========== . assamassamma .....ss===== ============ sasssssssssa esssssssises Nuclccr Fuel . Amorttration. S68,756 $32,372 (d) $0 $0 50 $101,123
-seassessenes ============ samassass=== assessanssas seasssssssas ::::: ...
Notes (a) Accumulated depreciation charged to construction work in progress. (b) Depreciation and amortization as reported in Results of Operations includes approximately $3 million of
. amortization related to terminated nuclear generating units and $3 million of amortization of investment tax credits resulting from the change in accounting for income taxes. The unamortized costs related to the termi-nated units were recorded as deferred charges on the Balance Sheet. The December 31, 1988 balance of
$10.2 million in the deferred charge accomt was written off at year end.
(c) Non utility plant expense charged to other income and deductions, net. (d) Charged to nuclear fuel expense. I
- I i
I 1 1' il , S-25 __ . x_ - -
=
l i THE TOLEDO EDISON COMPANY i
$CHEDULE VI - ACCUMULATED DEPREC!Afl0N AND AMORT!ZATION OF PROPERTY, PLANT AND EQUIPMENT YEAR ENDED DECEMBER 31, 1987 f
' Thousands of Dollars) l Add!tions Deductions 1
Balance at Charged to Removal Cost Balonce at Beginning of Results of Net of Salvage ind of 1 D:2cription Period Operations Other (a) Retirements Add /(Deduct) Perfoo
........... ............ ..........s. ............ ............ .............. ....... .... ,
1 Electric Utility Plant -
.D:preeletion S415,745 $60,318 (b) S2,467 ($56,922)(e) (s2,459) 5419,*'.9 OthIr Property Depreciatfor4 S674 $35 (c) $437 50 $0 $1,14 e Total 5416,419 560,353 $2,904 ($56,922) ($2,459) 5420,295
============ s........... ........m. ............ ............ .sa ssssssa.
Nuctsir Fuel
- Amortization $46,153 s22,603 (d) $0 $0 50 $68,756 -
..========== s..........a ............ sas.. ...... ............ ::::........
Nots: (a) Accumulated deprecletion charged to construction. work in progress. (b) Depreciation and amortization as reported in Results of Operations includes approximately $5 mit t f or of amortization related to terminated nuclear generating units. The unamortizect costs related to the termi-nated units are recorded as deferred charges on the Balance Sheet. (c) Non-utility plant expense charged to other income and deductions, net. (d) Charged to nuclear ~ fuel expense. (e) Includes $50,010,000 relating to the sale of the Bruce Mansfield Plant. i h
,c ,
M'
~.; .
4 s- . THE TOLEDO EDISON COMPANT SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT YEAR ENDED D'CEMBER 31, 1986 (Thousands of Dollars) Additions Deductions Balance it Charged to Removat Cost Balance at Beginning of Results of Net of Salvage End of
. Des ription Period Operations Other (a) Retirements Add /(Deduct) Period Electric Utility Plant -
Depreciation $390,565 $32,647 (b) $1,530 ($6,354) ($2,643) 5415,745 othtr Property Depreciation S653 $21 (c) 50 50 50 5674 Total $3?1,218 832,668 $1,530 (56,354) (52,643) 5416,419 samassessSSB saamassa:E E BESSESS. Essa s3 333333s 3333335 3s33 33333 3s3333
, Nucts*r Fuel _ Amortization
- 546,036 $117 (d) 50 $0 SO S46,153
============ ====s:ss==== ........sms. ====se====== sassamassess assess ::::
l
-Nits: (a) AccLaulated depreciation charged to construction work in progress. ;
(b) Depreciation and amortization as reported in Results of Operations includes approximately $5 million of amortization related to terminated nuclear generating units. The unamortized costs related to the termi- .j nated units are recordec' as deferred charges on the Balance Sheet. (c) Non-utility plant expense charg(d to other income and deductions, net. (d) Charged to nuclear fuel expense. 9
'S I
_I
^
[ THE TOLEDO EDISON COMPANY
~
! SCHEDULE VII - GUARANTEES OF SECURITIES OF OTHER ISSUERS YEAR ENDED DECEMBER 31, 1988
- y (Thousands of pollars)
Principal Amount Guaranteed and Name of !ssuer of Outstanding Securities Guaranteed Title of 'ssue (a) and (b) Nature of Guarantee Quarto Mining Company (b) Guaranteed Mortgage Bonds, Due 2000 Series A 8.25% $426 Principal and Interest series B 9.70% 416 Principal and Interest Series C 9.40% 2,078 Peincipal and Interest series is 12162J% 2,419 Principal and Interest Series EA 10.25% 562 Principal and Interest Series EB 11 70% 548 Principal and Interest Series EC 11.40% 2,737 Principal and Interest Series ED 14.625% 2,994 Prin;ipal and Interest Series FA 10.50% 431 Principal and Interest series FB 11.75% 137 Principal and Intere",t series FC. 11.40% 553 Principal and Intereit Series G 9.05% 7,307 Principal and Inter. t Unsecured Note, Interest . at prime (10.50% at 12/31/88) plus 2%, Due 2000' 1,808 Priccipal and Interest . Equipment Leases 4,0,0 Termination Value per
-- Agreements 26,508 Ceneral Physics Ohio Terrt Note- 10.50% Due 1989 to 1994 4,896 Principal and Interest
^
Corporation --- --
$31,404-
======..
Notes: (a) None of the securities were owned by Toledo Edison; none were held in the treasury of the issuer; and none were in default. (b) Toledo Edison and the other CAPC0 Group Companies have agreed to guarantee seserally. I and not jointly, their proportionate shares of Quarto Mining Company debt and lease obtf rations irrurred while developing and equipping the mines. The amounts shown are Tctedo Edison's proportionate share of the total obligations.
- I l
l l S-28 I
ij ' . * . 1'_ 1 l THE TOLEDO EDISON COMPANY \; , SCHEDULE VI!! VALUATICN AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31,1983,1987 AND 1986 (Thousands of Dollars) Additions Deduetiens Balance at Charged to Deductions Balance at l Seginning Results of from End of Description - of Period - Operations Other Reserves' Other Period-
........... . ..e..... ............ ............ ............ ............ ... ... ..
Reflected as Reductions to the Related Assets: Acetmulated Provision-for Uncollectible Accounts
-(Doduction from Accounts Receivable) 1988 $445 $2,586 so (a) $2,156 (b) $0 5875 i i 1987 $620 $1,880 $1 (a) 52,056 (b) 50 5445 ;
1986- $905 $1,443 5669 (a) $2,397 (b) 50 f.620 . L Reflected as Reserves on the Balance Sheets , , l Reserve for Perry Unit 2 Allowance for Funds Used
.During Construction 1988 $71,697 SO (c) S16,598 (d) 50 50 $88,295 1987 $39,539 - $32,158 (c) so $0 $0 $71,697 ,
1986 $12,460 $27,079 (c) 50 50 50 $39,539 i (a) Collection of accounts previously written off. (b) Uncollectible accounts written off. i (c) Reflected at a . reduction to Allowance for Funds Used During Construction (AILM ). I
-(d) Results from adoption of a new method of accounting for income taxes which ta ylres the presentation of amounts (previously stered on a net of tax basis) on a pre tax basis. -
i
.e l l
i l 4 i _ ____ _ _ _ _ _ _ . _ _ _ _ _ _ _ _ _ _ . _ .___S-29 J
=. _ - _
l. l l l l THE TOLEDO EDISON COMPANY SCHEDULE IX . SHORT. TERM BORROWINGS FOR THE YEARS ENDED DECEMBER 31, 1988, 1987 AND 1986 (Thousands of Dollars) Average Weighted Daily Average Average Maximum Weighted Daily Balance Interett Amount Amount Weighted at End Rate at Outstanding Outstanding Interest of End of During During the Rate During
'Categoiy Period Period Period Period the P'eriod
-Bank Borrowings Lines of credit 1988 S0 0.0% $0 50 (c) 0.0% (b>
1987 $0 'O.0% $36,000 $19,538 (c) 8.0% (b) . 1986 $15,000 6.4% $71,000 $31,071 (c) 8.1% (c) Commercial Paper 1988 SO 0.0% $0 50 (a) 0.0% (b) 1987 SO 0.0% S47,000 S6,172 (a) 6.9% (b) 1986 SO 0.0% SO $0 (a) 0.0% (b) (a) Computed by dividing the total of the daily outstanding balances for the year by 365 days (366 for 1988). , (b) Computed by dividing total interest expense for the year by the average daily balance outstanding. (c) Computed by dividing the total of the daily outstanding balances for the year by the number of days outstanding, S-30
m THE TOLED0 EDISON COMPANY SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1988, 1987 ANO 1986 (Thousands of Dottars) Charged to Operatlng Expense Itan 1988 1987 1986
.... .....u...... ............ ............
Maintenance end Repairs $66,522 .s43,831 $50,286 sa.s...... ======== ... ............ Taxes, other Than Payroll and Income Taxes: Operating Expenses Real and Personal Property Taxes $41,064 $25,078 s23,112 I Chlo State Excise Taxes $29,654 s27,320 526,617 - other s4,492 52,242 $1,639 I Total Operating Expenses $75,210 554,640 $51,368 other Income and Deductions $103 s65 $33 Total S75,313 s54,705 s51,451
======= amass ass ==ss===== sessnes=====
e. 0 s-31 _ l
EXHIBIT INDEX The exhibits designated with an asterisk (*) are filed herewith. The exhibits not so designated have previously been filed with the SEC in the f'.le indi-cated in parenthesis following the description of such exhibits and are in-corporated herein by reference. COMMON EXIIIBITS (The following documents are exhibits to the reports of Centerior Energy, Cleveland Electric and Toledo Edison.) Exhibit Number - Document 10b(1)(a) CAPCO Administration Agreement dated November 1, 197*., as of September 14, 1967, among the CAPC0 Group members re-garding the organization and procedures for implementing the objectives of the CAPC0 Group (Exhibit 5(p), Amendment No. 1, File No. 2-42230, filed by Cleveland Electric). 10b(1)(b) Amendment No. 1, dated January 4, 1974, to CAPCO Adminis-tration Agreement among the CAPC0 Group members (Exhibit 5(c)(3), File No. 2-68906, filed by Ohio Edison). 10b(2) CAPCO Transmission Facilities Agreement dated November 1, 1971, as of September 14, 1967, among the CAPCO Group members regarding the installation, operation and mainte-nance of transmission facilities to catry out the objec-tives of the CAPC0 Group (Exhibit 5(q), Amendment No. 1, File No. 2-42230, filed by Cleveland Electric). CAPC0 Basic Operating Agreement as Amended September 1, 10b(3) 1980 among the CAPC0 Group members regarding coordinated operation of the members' s?, stems (Exhibit 10.24, 1980 Form 10-K, File No. 1-956, filed by Duquesne). 10b(4) Agreement dated September 1, 1980 for the Termination or Construction of Certain Agreements by and among the CAPC0 Group members (Exhibit 10.25, 1980 Form 10-K, File No. ' 1-956, filed by Duquesne). - 10b(5) Construction Agreement, dated July 22, 1974, among the CAPCO Group members and relating to the Perry Nuclear Plant (Exhibit 5(yy), File No. 2-52251, filed by Toledo Edison). 10b(6) Contract, dated as of December 5, 1975, among the CAPC0 Group members for the construction of Beaver Valley Unit No. 2 (Exhibit 5(g), File No. 2-52996, filed by Cleveland Electric). 10b(7) Amendment No. 1, dated May 1, 1977, to Contract, dated as of December 5, 1975, among the CAPC0 Group members for the construction of Beaver Valley Unit No. 2 (Exhibit 5(d)(4), File tio. 2-60109, filed by Ohio Edison). , 10b(8) Contract, dated May 24, 1976, among the CAPC0 Group ]
. members for the operation of Beaver Valley Unit No. 2 l (Exhibit 5(d)(4), File No. 2-56944, filed by Pennsylvania
{
- Power).
l l E-1 i _ _ _________ _ N
Exhibit Number Document - 10b(9) Amendment No. 1, dated May 1, 1977, to Contract, dated May 24, 1976, among the CAPC0 Group members for the opera-tion of Beaver Valley Unit No. 2 (Exhibit 5(d)(6), File No. 2-60109, filed by Ohio Edison). 10b(10) Addendum No. 1, dated November 1, 1980, to Contract, dated May 24, 1976, as amended amonsr the CAPCO Group members for the operation of Beaver Val'ey Unit No. 2 (Exhibit 10-9, File No. 2-68906, filed by Ohio Edison). 10b(11) Amendment No. 1, dated August 1, 1981, to CAPCO Basic Operating Agreement as Amended September 1, 1980 among the CAPCO Group members (Exhibit 10.27, 1981 Form 10-K, Fils No. 1-956, filed by Duquesne). 10b(12) Amendment No. 2, dated September 1, 1992, to CAPC0 Basic Operating Agreement as Amended September 1, 1980 among the CAPCO Group members (Exhibit 10.29, 1982 Form 10-K, File No. 1-956, filed by Duquesne). 10c(1) Participation Agreement, dated as of October 1, 1973, among Quarto, the CAPC0 Group members, Energy Properties, Inc., General Electrie Credit Corporation, the. Loan Participants listed in Schedules A and B thereto, Centtal liational Bank of Cleveland, as Owner Trustee, National City Bank, as Loan Trustee, and National City Bank, as Bond Trustee (Exhibit 5(z), File No. 2-59794, filed by , Toledo Edison). 10c(2) Amendment No. 1, dated as of September 15, 1978, to Par-ticipation Agreement, dated as of October 1, 1973, among , the same parties as Exhibit 10c(1) (Exhibit 5(e)(2), File No. 2-68906, filed by Pennsylvania Pover). 10c(3) Participation Agreement No. 2, dated as of Atigust 1,1974, among the same parties as Exhibit 10c(1) (Exhibit 5(h)(2), File No. 2-53059, filed by Ohio Edison). 10c(4) Amendment No. 1, dated as of September 15, 1978, to Par-ticipation Agreement No. 2, dated as of August 1, 1974, among the same parties as Exhibit 10c(1) (Exhibit 5(e)(4), , File No. 2-68906, filed by Pennsylvania Power). I 10c(5) Participation Agreement No. 3, dated as of September 15, l 1978, among the .mme parties as Exhibit 10c(1) (Exhibit 5(uu), File No. 2-64609, filed by Toledo Edison). 1 10c(6) Participation Agreement No. 4, dated as of October 31, 1 1980, among Quarto, the CAPC0 Group members, the Loan Par- ) ticipants listed in Schedule A thereto, and National City Bank, as Bond Trustee (Exhibit 10-16, File No. 2-68906, ] l fi):d by Ohio Edison). l 10c(7) Lease and Agreement, dated as of June 7, 1973, as amended ' and restated as of October 1, 1973, between Central . National Bank of Cleveland, as Trustee, and Quarto, to-gether with Guaranty, dated as October 1, 1973, with re- 1 spect thereto by the CAPC0 Group members (Exhibit 5(aa), -)' l File No. 2-59794, filed by Toledo Edison). l I 1 l E-2 _ _ _ - - - _ _ _ _ - - - ]
a p , l , a :/ ... [m L 'p Exhibit Number Document
.10c(8) Trust Indenture and Mortgage, dated as o'f October 1,.1973,
- between Quarto and National City Bank,/as Bond Trustee, togethe' with Guaranty, dated as of.0ctober 1, 1973, with l
' respect thereto-by;the CAPCO Group members (Exhibit 5(bb), !
File No. 2-59794, filed.by Toledo Edison). 10c(9). Amendment 'No. 1, dated as of August 1, 1974, to Trust.In-denture and Mortgage, dated as of October 1, 1973, between Quarto :and National City Bank, as Bond Trustee, together j with -Amendment No. 1, dated August 1,-1974, to Guaranty,. { dated as of.0ctober 1, 1973, with ~ respect thereto by:the ' CAPC0: Group members (Exhibit 5(L)(2), File No. 2-53059, filed by Ohio Edison). 10c(10) Amendment No. 2, dated as of September 15, 1978, to Trust Iridenture r_nd Mortgage, dated as of October 1, 1973, as
- amended, between Quarto and ' National City Bank, as Bond Trustee, together with Amendment No. 2, dated as of September. 15,.1978,- to Guaranty, dated as of October 1, j 1973, with : respect thereto by .'he CAPCO Group members
.(Exhibits 5(e)(11) and 5(e)(12), File ,No. 2-68906, filed-by Pennsylvania; Power).
10c(11) Amendment No. 3, dated as of October 31, 1980,' to Trust 2ndenture. and Mortgage, dcted as of October 1, 1973, as amended, between Quarto and National City Bank, . as Bond Trustee (Exhibit 10-16,-File No. 2-68906, filed by Ohio
-Edison).
10c(12) Amendment No. 3, dated es of October 31, 1980, to Guaranty, dated as of October 1, 1973, with respect to the CAPCO -Group members (Exhibit 10-18, File No. 2-68906, filed by Ohio Edison).
-10c(13) Open-End Mortgage, dated as of October 1, 1973, between Quarto and the CAPCO Group members and Amendment No. 1
.thereto, dated as of September 15, 1978 (Exhibit 10-5, File No. 2-68906, filed by Ohio Edison).
10c(14) Agreement, dated October 20,.1981, among the CAPC0 Group
- members regarding the use of Quarto coal, at Mansfield Units 1. 2 and 3 (Exhibit 10(ff), 1981 Form 10-K, File No.
1-3583, filed by Toledo Edison). ) 10c(15). Agreement, dated July' 1, 1982, among the CAPC0 Group-members reallocating the rights and liabilities of the members with respect to certain uranium supply contracts ! (Exhibit 10(ff), 1982. Form 10-K, File No. 1-3582, filed by Toledo Edison). 10d(1)(a) . Form of Collateral Trust Indenture among CTC Beaver Valley Funding Corporation, Cleveland Electric, Toledo Edison and ,
~
Irving Trust Company, as Trustee (Exhibit 4(a), File No. f 33-18755, filed by Cleveland Electric and Toledo Edison). ) ILd(1)(b) Form of Supplemental Indenture to Collateral Trust In- 1 ( denture, including form of Secured Lease Obligation Bond (Exhibit 4(b), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 1 E-3 i b
l Exhibit Number- Document 10d(2)(a) Form of Collateral Trust Indenture among CTC Mansfield Funding Corporation, Cleveland Electric, Toledo Edison and IBJ Schroder Bank & Trust Company, as Trustee (Ahibit 4(a), File No. 33-20128, filed by Cleveland Electric and Toledo Edison).
- 10d(2)(b) Form of Supplements'. Indenture to Collateral Tru v In-
~ denture, including forms of Secured Lease Obligatiea Bonds (Exhibit 4(b), File No. 33-20128, filed by Cleveland Electric and Toledo Edison).
10d(3)(a) . Form of Facility Lease dated as of September 15. 1987 be-tween The First National Bank of Boston, as Owner Trustee under a Truct Agreement dated as of September 15, 1987 with the limited partnership Owner Participant nahied therein, Lessor, and Cleveland Electric and Toledo Edison, Lessees (Exhibit 4(c), Fila No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10d(3)(b) Form of Amendment No. 1 to Facility Lease constituting Exhibit 10d(3)(a) above (Exhibit 4(e), File No.' 33-18755, filed by Cleveland Electric and Toledo Edison). 10d(4)(a) Form of Facility Lease dated as of September l',,1987 be-tween The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987 with the corporate Owner Participant named therein, i Lessor, and Cleveland Electric and Toledo Edison, Lessees . (Exhibit 4(d), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10d(4)(b) Form of Amendment No. 1 to Facility Lease constituting Exhibit 10d(4)(a) above (Exhibit 4(f), File No. 33-18755, , filed by Cleveland Llectric and Toledo Edison). ]' 10d(5)(a) Form of Facility Lease dated'as of September 30, 1987 be-tween Meridian Trust Company, as Owner Trustee under a Trust Agreement dated as of September 30, 1987'vith the Owner Participant named therein, Lessor, and Cleveland , Electric, and Toledo Edison, Lessees (Exhibit 4(c), File i No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10d(5)(b) Form of Amendment No. 1 to the Facility Lease constituting Exhibit 10d(5)(a) above (Exhibit 4(f), File No. 33-20128,
. filed by Cleveland Electric and Toledo Edison).
10d(6)(a) Form of Participation Agreement dated as of September 15, 1 1987 among the limited partnership Owner Participant named therein, the Original Loan Participants listed in Schedule 1 thereto, as Original Loan Participants, CTC Beaver Valley Funding Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving > Trust Company, as Indenture Trustee, and Cleceland -f Electric and Toledo Edison, as Lessees (Exhibit 28(a), ' File No. 33-18755, filed by Cleveland Electric and Toledo Edison). ~ ' 10d(6)(b) Form of Amendment No I to Participation Agreement consti-tuting Exhibit 10d(6)(a) above (Exhibit 28(c), File No. j 33-18755, filed by Cleveland Electric and Toledo Edison). 1 E-4 i
o 4 . ; 1 l
. Exhibit Number Document 10d(7)(a) Form of Participation Agreement dated as of September 15, 1 1987 among the corporate Owner Participant named therein, the Original Loan Participants listed in Schedule 1 thereto, as Original Loan Participants, CTC Beaver Valley j Funding Corporation, as Funding Corporation, The First i National Bank of Boston, as Ovrar Trustee, Irving Trust Company, as Indenture Trustee, and Cleveland Electric and Toledo Edison, as Lessees (Exhibit 28(b), File No.
1 1 33-18755, filed by Cleveland Electric and Toledo Edison). 10d(7)(b) Form of Amendment No. 1 to Participation Agreement consti- 2 I tuting Exhibit 10d(7)(a) above (Exhibit 28(d), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10d(8)(a) Form of Participation Agreement dated as of September 30, 1987 among the Owner Participant nared therein, the Origi-nal Loan Participants listed in Schedule II thereto, as j Original Loan Participants, CTC Mansfield Funding Corpora-tion, Meridian Trust Company, as Owner Trustee, IBJ Schroder Bank & Trust company, as Indenture Trustee, and ; Cleveland Electric and Toledo Edison, as Lessees (Exhibit { J 28(a), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10d(8)(b) Form. of Amendment No. 1 to the Participation Agreement constituting Exhibit 10d(8)(a) above (Exhibit 28(b), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10d(9) Form of Ground Lease dated as of September 15, 1987 be-tween Toledo Edison, Ground Lessor, and The First National Bank of Boston, as Owner Trustee under a Trutt Agreement dated as of September 15, 1987 with the Owner Participant named therein, Tenant (Exhibit 28(e), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). , 10d(10) Form of Site Lease dated as of September 30, 1987 between l Toledo Edison, Lessor, and Meridian Trust Company, as 1 Owner Trustee under a Trust Agreement ~ dated as of September 30, 1987 with the Owner Participant named { therein, Tenant (Exhibit 28(c), File No. 33-20128, filed i by Cleveland Electric and Toledo Edison). 10d(11) Form of Site Lease dated as of September 30, 1987 between l Cleveland Electric, Lessor, and Meridian Trust Company, as Owner Trustee under a Trust Agreement dated as of September 30, 1987 with the Owner Participant named therein, Tenant (Exhibit 28(d), File No. 33-20128, filed j by Cleveland Electric and Toledo Edison). l 10d(12) Form of Amendment No. 1 to the Site Leases constituting Exhibits 10d(10) and 10d(11) above (Exhibit 4(f), File No. 3 33-20128, filed by Cleveland Electr'ic and Toledo Edison). , 1 E-5
.r 'I r Fyhibit Number- Document gd(13) ^ Form of Assignment,LAssumption and Further Agreement dated as_ of September 15, 1987 among The First National Bank of Boston, as Owner Trustee under a-Trust Agreement dated as of September 15, '1987 -vith the Owner Participant named therein, Cleveland Electric, Duquesne, Ohio Edison, Pennsylvania Power and Toledo Edison (Exhibj; 2fif), File No. 33-18755,- _ filed: by Cleveland Electric and Toledo Edison). .
10d(14) Form of Additional _ Support Agreement- ' dated as of
- September 15, 1987 -between The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated'as of September 15, 1987 with the Owner Participant named therein, and Toledo Edison -(Exhibit 28(g), File No.
33-18755, filed by cleveland Electric and Toledo Ediscn).. x10d(15) Form .of Support Agreement dated as 'of September 30, 1987
- between Meridian Trust Company, as Owner Trurtee under a l- Trust Agreement dated as of September 30, 1987' with the Owner Participant named there, Toledo Edison, Cleveland
- Electric, .Duquesne, Ohio Edison and Pennsylvania Power (Exhibit' 28(e),. File _ No. 33-20128, filed by Cleveland Electric and Toledo Edison).
10d(16) Form of Indenture, Bill of Sale, Instrument of Transfer I and Severance Agreement dated as of September 30, 1987- , between Toledo Edison, Seller, and The First National Bank , of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987 with the Owner Participant named therein, Buyer (Exhibit 28(h), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10d(17) Form of Bill of Sale, Instrument of Transfer anv' Severance Agreement dated as of September 30, 1987 between Toledo Ediscu, Seller, and- Meridian Trust Company, as Owner Trustee under a Trust Agreement dated.as of September 30, 1987 with the Owner Participant named therein, Buyer (Exhibit 28(f), File No. 33-20128, filed by Cleveland
. . Electric and Toledo Edison). i 10d(18) Form of' Bill of Sale, Instrument of Transfer and Severance :
Agreement dated as of September 30, 1987 between Cleveland Electric, Seller, and Meridian Trust Company, as Owner Trustee under a' Trust Agreement dated as of September 30, 1987 with the Owner Participant named therein, Buyer (Exhibit 28(g), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 18 Letter regarding change in accounting principals (Exhibit 18, June 30, 1988 Form 10-0, File Nos. 1-9130, 1-2323 and 1-3583). . 28(a) Annual Report on Form 11-K for the Centerior Energy Corpo- ! ration Employee Savings Plan (to be filed by amendment on - or before April 28. 1989 pursuant to Rule 15d-21). l l E-6 1 h
p i j: p.v y
./
r~ r .CENTERIOR ENERGY EXHIBITS
~ Exhibit Number Document
}
~
3a- Amended ' Articles of Incorporation of.Centerior Energy ef-factive' April 29, 1986 (Exhibit 4(a), File No.. 33-4790).
.3b : Regulations' of Centerior E'.ergy effective, April 28, 1987-(Exhibit 3b,1987 Form 10-4, File' No.1-9130).
L - 10s
- Indemnity. Agreements between Centerior and certain of its current directors'and officers.
4 10a(1)" Assumption Agreement, dated April 29, 1986, relating to. the assumption by Centerior Energy of all obligations of
. Toledo Edison'under agreements with John P. Villiamson,
' Paul M. Smart and Villiams R&D Associates, Inc. (Exhibit 19(b),. File.No. 1-9130);
10e(1)
- Consulting' Agreement,. dated February 1, .1989, with-R. M. Ginn pursuant,to which he is to provide consulting services to Centerior for-the period March.1, 1989 through February. 28, 1990.
- 10e(2)-
- Consulting Agreement, dated January 31, 1989, with
~P. M. Smart pursuant to which he is to provide consulting -
services to Centerior and Toledo Edison for the period February 1, 1990 through January 31, 1994. 22 List of subsidiaries (Exhibit 22, 1986 Form 10-K, File No. 1-9130).
- 24a
- Consent.of Independent Accountants.
- 24b
- Consent of Counsel for Centerior Energy.
. 25
- Powers of Attorney and certified resolution of Centerior Energy's Board of Directors authorizing the signing on behalf of Centerior pursuant to a power of attorney.
CLEVELAND ELECTRIC EXHIBITS Exhibit Number Document 3a Amended Articles of Incorporation of Cleveland Electric, effective October 30, 1987 (Exhibit 3, September 30, 1987 Form 10-0, File No.-1-2323).
~ ..' 3b
- Regulations of Cleveland Electric, dated April 29, 1981, as amended effective October 1, 1988.
1 E-7
h , G p , h Exhibit Number' Document l'
. '4b(1). Mortgage 'and Dee'd of Trust between Cleveland Electric'and' Guaranty- Trust Company of New York (now Morgan Guaranty Trust Company of New York), as Trustee, dated July 1, 1940 (Exhibit 7(a),-File No. 2-4450)...
Supplemental Indentures between Cleveland Electric and the
= Trustee, supplemental to Exhibit 4b(1), dated as follows 4b(2). July 1, 1940'(Exhibit 7(b), File No. 2-4450).
4b(3): August 18, 1944 (Exhibit 4(c), File No. 2-9887). 4b(4) ' December 1, 1947 (Exhibit 7(d), File No. 2-7306). 4b(5) September 1, 1950 (Exhibit 7(c), File No. 2-8587). 4b(6) June 1, 1951-(Exhibit 7(f),' File No. 2-8994). 4b(7) May 1, 1954 (Exhibit. 4(d), File No. 2-10830). 4b(8).: March 1, 1958 (Erhibit 2(a)(4), File No. 2-13839). 4b(9)- April =1, 1959 (Exhibit 2(a)(4), File No. 2-14753). 4b(10) December 20, 1967 (Exhibit 2(a)(4), File No. 2-30759). 4b(11) : January 15, 1969 (Exhibit 2(a)(5), File No. 2-30759). 4b(12) November 1,.1969 (Exhibit 2(a)(4), File No. 2-35008). 4b(13)
~ June 1, 1970 (Exhibit 2(a)(4), File No.- 2-37235).
4b(14) ' November 15, 1970 (Exhibit 2(a)(4), File No.. 2-38460).-
'4b(15) .May 1, 1974 (Exhibit 2(a)(4), File No. 2-50537).
4b(16). April 15, 1975 (Exhibit 2(a)(4), File No. 2-52995). 4b(17). April 16, 1975 (Exhibit 2(a)(4), File No. 2-53309). - 4b(18) .May 28, 1975 (Exhibit.2(c), -June'5, 1975 Form 8-A, File No. 1-2323). 4b(19). February 1, 1976 (Exhibit 3(d)(6),'1975 Form 10-K, File > Nc. 1-2323). 4b(20) November 23, 1976 (Exhibit 2(a)(4), File No. 2-57375 ). . -- ,
~4b(21) July 26, 1977 (Exhibit 2(a)(4), File No.- 2-59401). i 4b(22) September 27, 1977~(Exhibit 2(a)(5), File No. 2-67221)..
4b(23)- May 1, 1978 (Exhibit 2(b), June 30, 1978 Form 10-0, File No. 1-2323). 4b(24) September 1, 1979.(Exhibit 2(a),' September 30, 1979 Form 10-0, File No. 1-2323). 4b(25) April 1, 1980'(Cxhibit 4(a)(2), September 30, 1980 Form 10-0, File No. 1-2323). 4b(26) April 15, 1980 (Exhibit 4(b), September 30, 1980 Form 10-0, File No. 1-2323).
;4b(27)' May 28, 1980 (Exhibit 2(a)(4), Amendment 'No. 1, File No.
2-67221). 4b(28) June 9, 1980 (Exhibit 4(d), September 30, 1980 Form 10-0, File No. 1-2323).
, 4b(29) December 1, 1980 (Exhibit 4(b)(29), 1980 Form 10-K, File
. No. 1-2323). ,
4b(30) July 28, 1981 (Exhibit 4(a), September 30,- 1981, Form - ' 10-0, File No. 1-2323). 4b(31) August . 1, 1981 -(Exhibit 4(b), September 30, 1981, Form - 10-0, File No. 1-2323). 4b(32) March 1, 1982 (Exhibit 4(b)(3), Amendment No. 1, File No. 2-76029). I E-8
)
j -u [ L-
-Exhibit Number- Document-4b(33) July 15, 1982 (Exhibit 4(a), September 30, 1982 Form 10-0, File No. 1-2323).
l
.,4b(34) September 1, 1982 (Exhibit 4(a)(1), September 30, 1982 Form 10-0,-File No. 1-2323).
4b(35) November 1, 1982 (Exhibit 4(a)(2), September 30, 1982 Form 10-0, File No. 1-2323).
.4b(36) November 15, 1982 (Exhibit 4(b)(36), 1982 Form 10-K, File No. 1-2323).
-4b(37) May 24, 1983 (Exhibit 4(a), June 30, 1983 Form 10-0, File No. 1-2323).
4b(38) May 1, 1984 (Exhibit 4, June 30, 1984 Form 10-0, File No. 1-2323). 4b(39) May 23, 1984 (Exhibit 4, May 22, 1984 Form 8-K, File No. 1-2323). 4b(40) June 27, 1984 (Exhibit 4, June 11, 198? Form 8-K, File No. 1-2323). 4b(41) September 4, 1984 (Exhibit 4b(41), 1984 Form 10-K, File No. 1-2323). 4b(42) November 14, 1984 (Exhibit 4b(42), 1984 Form 10-K, File No. 1-2323). 4b(43) November 15, 1984 (Exhibit 4b(43), 1984 Form 10-K, File No. 1-2323). 4b(44) April 15, 1985 (Exhibit 4(a), May 8, 1985 Form 8-K, File
, No. 1-2323).
4b(45) May 28, 1985 (Exhibit 4(b), May 8, 1985 Form 8-K, File No. 1-2323).
. 4b(46) August 1, 1985 (Exhibit 4, September 30, 1985 Form 10-0, File No. 1-2323).
4b(47) September 1, 1985 (Exhibit 4, September 30, 1985 Form 8-K, File No. 1-2323). 4b(48) November 1, 1985 (Exhibit 4, January 31, 1986 Form 8-K, File No. 1-2323). 4b(49) April 15, 1986 (Exhibit 4, March 31,.1986 Form 10-0, File No. 1-2323). 4b(50) May 14, 1986 (Exhibit 4(a), June 30, 1986 Form 10-0, File No. 1-2323). Ab(51) May 15, 1986 (Exhibit 4(b), June 30, 1986 Form 10-0, File No. 1-2323).
. 4b(52) February 25,-1987 (Exhibit 4b(52), 1986 Form 10-K, File No. 1-2323).
4b(53) October 15, 1987 (Exhibit 4, September 30, 1987 Form 10-0, File No. 1-2323). 4b(54) February 24, 1988 (Exhibit 4b(54), 1987 Form 10-K, File No. 1-2323). 4b(55)
- september 15, 1988.
10a Indemnity Agreements between Cleveland Electric and cer-tain of its current directors. 10a(1) Key Employee Incentive Stock Flan (Exhibit 4(d), File ilo. 2-37309). < 10a(2) 1978 Key Employee Stock Option Plan (Exhibit 1, File No. 2-61712). E-9
i l Exhibit Number Document 22 List of subsidiaries (Exhibit 22, 1986 Form 10-K, File No. 1-2323). 24a
- Consent of Independent Accountants.
24b
- Consent of Couns.1 for Cleveland Electric.
- 25. *Fovers of Attorney and certified resolution of Cleveland l
Electric's Board of Directors authorizing the signing on behalf of Cleveland Electric pursuant to a power of attorney. TOLEDO EDISON EXHIBITS l Exhibit Numbar Document 3a Amended Article.? of Incorporation of Toielo Edison effec- ; tive September 25, 1986 (Exhibit 3a, 1986 Form 10-K, File No. 1-3583). 3a(1)
- Certificate of Amendment effective July 31, 1987 to Amended Articles of Incorporation of Toledo Edison.
3b
- Code of Regulations of Toledo Edison dated January 28, 1987, as amended effective July 1-and October 1, 1988. l 4b(1) Indenture, dated as of April 1, 1947, between the Company and The Chase National Bank of the City of New York (now The Chase Manhattan Bank (National Association)) (Exhibit 2(b), File No. 2-26908).
Supplemental Indentures .between Toledo Edison and the Trustee, Supplemental to Exhibit 4b(1), dated as follows: 4b(2) September 1, 1948 (Exhibit 2(d), File No.- 2-26908). 4b(3) April 1, 1949 (Exhibit 2(e), File No. 2-26908). 4b(4) December 1, 1950 (Exhibit 2(f), File No. 2-26908). J 4b(5) March 1, 1954 (Exhibit 2(g), File No. 2-26908). 4b(6)_ February 1, 1956 (Exhibit 2(h), File No. 2-26908). 4b(7) May 1, 1958 (Exhibit 5(g), File No. 2-59794). 4b(8) August 1, 1967 (Exhibit 2(c), File No. 2-26908). l 4b(9) November 1, 1970 (Exhibit 2(c), File No. 2-38569). 4b(10) August 1, 1972 (Exhibit 2(c), File No. 2-44873). 4b(11)- ' November 1, 1973 (Exhibit 2(c), File No. 2-49428). 4b(12) July 1, 1974 (Exhibit 2(c), File No. 2-51429). 4h(13) October 1, 1975 (Exhibit 2(c), File No. 2-54627). 4b(14) June 1, 1976'(Exhibit 2(c), File No. 2-56396). 4b(15) October 1, 1978 (Exhibit 2(c), File No. 2-62568). . 4b(16) September 1, 1979 (Exhibit 2(c), File No. 2-65350). 4b(17) September 1, 1980 (Exhibit 4(s), File No. 2-69190). 4b(18) October 1, 1980 (Exhibit 4(c), File No. 2-69190)e 4b(19) April 1, 1981 (Exhibit 4(c), File No. 2-71580).
. E-10 4
l0, w I L
- Exhibit Number Document {
4b(20) November 1, 1981 (Exhibit 4(c), File No. 2-74485). 1 4b(21) June 1, 1982 (Exhibit 4(c), File No. 2-77763). 4b(22) September 1, 1982 (Exhibit 4(x), File No. 2-87323). 4b(23) April 1, 1983 (Exhibit 4(c), March 31, 1983 Form 10-0, File No. 1-3583). 4b(24) December 1, 1983 (Exhibit 4(x), 1983 Form 10-K, File No. 1-3583). 4b(25) April 1, 1984 (Exhibit 4(c), File No. 2-90059). 4b(26) October 15, 1984 (Exhibit 4(z), 1984 Form 10-K, File No. 1-3583). 4b(27) October 15, 1984 (Exhibit 4(aa), 1984 Form 10-K, File No. 1-3583). 4b(28) August 1, 1985 (Exhibit 4(dd), File No. 33-1689). 4b(29) August 1, 1985 (Exhibit 4(ee), File No. 33-1689). 4b(30) December 1, 1985 (Exhibit 4(c), File No. 33-1689). 4b(31) March 1, 1986 (Exhibit 4b(31), 1986 Form 10-K, File No. 1-3583). , 4b(32) October 15, 1987 (Exh) bit 4, September 30, 1987 Form 10-0, { File No. 1-3583). I l 4b(33)
- September 15, 1988.
10a
- Indemnity Agreements betvean Toledo tdison and certain of its current directors.
10a(1) Assumption Agreement, dated April 29, 1986, relating to the assumption by Centerior Energy of all obligations of Toledo Edison under agreements with John P. Villiamson, Paul M. Smart and Villiams R&D Associates, Iuc. (Exhibit 19(b), File No. 1-9130). Employment Agreement, dated February 16, 1984, between l 10e(1) Toledo Edison and Paul M. Smart (Exhibit 10(r), 1983 Form ' 1 10-K, File No. 1-3583). 10e(2) Consulting Agreement, dated January 31, 1989, with i P. M. Smart pursuant to which he is to provide consulting j services to Centerior and Toledo Edison for the period February 1, 1990 through January 31, 1994 (Exhibit 10e(2), 1988 Form 10-K, File No. 1-9130). 24a
- Consent of Independent Accountants.
24b
- Consent of Counsel for Toledo Edison.
25
- Powers of Attorney and certified resolution of Toledo Edison's Board of Directors authorizing the signing on behalf of Toledo Edison pursuant to a power of attorney.
~
28(b) Annual Report on Form 11-K for the Toledo Edison Savings Incentive Plan (to be filed by amendment on or before
- April 28, 1989 pursuant to Rule 15d-21).
Pursuant to Paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K, the Regis-trants have not filed as an exhibit to this Foim 10-K any instrument with E-11
)
, +
r respect to long-term debt if the total amount of securities authorized there- ' L under does not exceed 10% of the total assets of the applicable Registrant and its subsidiaries on a consolidated basis, but each hereby agrees to furnish to the Securities and Exchange Commission on request any such instruments. Pursuant to Rule 14a-3(b)(10) under the Securities Exchange Act of 1934, copies of exhibits filed by the Registrants with this-Form 10-K vill be fur-nished by the Registrants to share owners upon written request and upon re-ceipt. in advance of the aggregate fee for preparation of such exhibits at a r rate of $.25 per page, plus any postage or shipping expenses which would be incurred by the Registrants. p 6 1 W-E-12
f THE CLEVELAND ELECTRI P.O. BOX 97 5 PERRY. OHIO 44081 5 TELEPHONE (216) 259 3737 FROM CLEVELAND: 241 1650 5 ADDRESS 10 CENTER ROAD Serving The Best Location in the Nation Al Kaplan PERRY NUCLEAR POWER PLANT vlCE PRESOENT NUCLEAR GROUP April 12, 1989 PY-CEI/NRR-0988 L U.S. Nuclear Regulatory Commissio.1 Document Control Desk Washington, D.C. 20555 Perry Nuclear Power Plant Docket No. 50-440 Annual Financial Report 1988
Dear Sir:
Attached is the 1988 Financial Report and its Supplemental Form 10-K submitted by Centerior Energy Corporation. This report satisfies the conditions as specified under 10 CFR 50.71(b).
\
If you have any questions, please feel free to call. Very truly yours, 4 l Al Kaplan Vice President , Nuclear Grou,s AK/sc Attachment cc: T. Colburn Senior Repident Inspector USNRC, Regiot. III l l h s
+ _--_
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