ML20195C626

Ohio Edison Co 1987 Annual Rept

ML20195C626
Person / Time
Site:	Beaver Valley
Issue date:	12/31/1987
From:	Rogers J OHIO EDISON CO.
To:
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ML20195C529	List: ML20195C524 ML20195C612 ML20195C626 ML20195C644
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NUDOCS 8806220241
Download: ML20195C626 (44)

Text

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A nnu.il Report 19S' i

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The Ohio Edison System is the 17th largest insestor. owned electric system in the United i

States, based on total kilowatt. hour sales. Ohio l> resident s Message.. . . .2 Edison Company is headquartered in Akron, Review of Operations.. . .5 Ohio, and its subsidiary, linnsylvania Ibwer Financial Review. . .. M Company, is headquartered in New Castle, Stc,.Lholder Information.. . .40 linnsylvania. Together, the Companies provide Directors and Management.. . . 41 electric service to more than 1,000,000 custom.

ers within an area of approximately Service Area Ohio Edison Company and 9,000 square miles in central and northeastern  :

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l Coser Empimees who operate our Syst.-m Control Center help ensuv that customers receive a rehable and economical supply of electricity. But our commitment to our customers runs much deeper. In thia report, three of our nearly 7,300 employees descnbe their news en meeting special customer needs. All of them know, as employees and stockholders, that their hard work, dedication and imuhrment in the community con.

tnbute to our success.

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l Financial Highlights For the Years Ended December 31 1987 1986 Change iln millmns, cuept per share amounts)

Kilowatt Hour Sales 29,710.4 28,165.6 + 5. 3 " l Operating Revenues $1,779.6 $ 1,741.9 + 2.2%

Fuel Expense 403.8 422.8 - 4.5 %

Operating income 397.5 392.4 + 1.3%

Allowance for Funds Used During Construction, Net 324.6 320.8 + 1.2%

Interest and Other Charges 374.8 410.4 - 8.7%

Net income 412.9 410.8 + 0.5 %

Earnings on Common Stock 364.7 359.8 + 1.3%

Earnings per Common Share $2.40 $2.47 - 2. S %

Dividends per Common Share $ 1.96 $1.92 + 2.1 %

Dividends on Capital Stock $345.0 $330.8 + 4.3%

Capital Expend! ures:

Construction of Facilities $673.6 5717.8 Nuclear Fuel 24.7 52.0 Other Capital trases 6.9 6.4 Total $705.2 $776.2 - 9.1 %

Internally Generated Cash 153.7 247.5 - 37.9%

Net Financing Activities 1,039.3 355.7 Return on Averagc Common Equity 13.8 % 14.9 %

Operating Rcwnues (blbons) Earnings per Share Return on Awrage Common Equity 12.50 - 15.9*, -

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President's Message Major accomplishments in 1987 will yield both The purchase of our power by other utilities short-term and long-term benefits for the Company increased 7.1 percent. Most of these sales are to and its shareholders. Most important of these was utilities that rely heavily on oil for their generation the completion of two new nuclear units. bringing and, therefore, tend to fluctuate with oil prices.

to an end the need for extensive and costly financing However, a long-term sales arrangement with to support their construction. Potomac Electric Power Company, which took Along with completion of these units, we were effect in June, will help stabilize these fluctuations successful in negotiating sale and leaseback agree- and will produce some 5150 million of annual ments for a large share of our ownership, which revenue through the year 2005 as well.

significantly improved our ca;h position while Sale / Leasebacks Improw Cash Ibsition lessening the rate impact of these units on our The sale and leaseback agreements mentioned customers. Unfortunately, adverse regulatory and earlier covered a large portion of our ownership of court decisions relating to nuclear construction the Perry Nuclear Power Plant Unit 1 and Beaver costs led to a 555 million pre-tax charge against Valley Power Station Unit 2, raising more than earnings in 1987. As a result, earnings per share $1.3 billion.

were 52.40 compared with $2.47 the previous year.

This $1.3 billion enabled us to fund most of our We are pleased, however, that the imestment 1987 construction program as well as retire about community apparently sees our progress outstrip- 5400 million of high-interest debt, preferred and ping the setbacks. Despite the stock market "crash" preference shares. The money will ako be used in 1987, we were one of only five of the nation's to pay for our 1988 construction program estimated major electric companies that showed a net gain at 5235 million, w hich is down dramatically from in market value for the year; and, three major the 5700 million to 5800 million range of the securities rating firms have each upgraded the past several years.

credit quality of the Company.

Rate impact of the New Units Economy and Sales Improve Now that Perry I and Beaver Valley 2 are in com-The economy continued to show impiovement and mercial operanon, we are trying to work the cost kilowatt-hour sales in our own area reflected this of these units into rates in such a way as to have a wich a 5.1 percent increase, more than double the minimum impact on our customers and not growth of the previous year.

impede growth.

Industrial sales showed the strongest gain, up We have already scored our first success in this 6.3 percent. This uptrend was at least partially regard. A rate agreement we negotiated with the due to the comparative value of the U.S. dollar in staff of the Public Utilities Commission of Ohio world markets, which makes locally manufactured (PUCO) and the Ohio Office of Consumers' Counsel export goods such as steel, machinery and elec-for recovering Perry 1 costs represented a tronics more price-competitive.

5152 million increase, less than one-third of w hat Commercial sales increased 4.0 percent and resi-had been widely predicted. The PUCO approved l dential sales were up 3.6 percent, with extreme the new rates in January 1988, weather conditions contributing to heavy demand We wi 1 make every effort to include Beaver for both heating and cooling: On July 20, cus-Valley 2 in future rates in similar fashion. The tomer demand set a new system load peak of 5848 million sale / leaseback agreement we 4,579 megawatts.

negotiated for this unit was a big step in that i direction. Over the first three years alone, the agreement reduces by about $150 million the revenue cequired to provide a return on our investment in Beaver Valley 2. I 2

Some Costs Disallowed in a separate January 1988 action, the PUCO ruled that nearly 5628 million of Perry I con-struction costs incurred through March 21,1986, "Ahh"ugh we still face some financial uncertainties would be disallowed on grounds of "imprudence." concerning the regulatory treatment of our nuclear The precise extent to which this will affect each construction costs, s.e are in far better shape to deal of the Ohio companies that are partners in the with themJ project is not yet known.

But, the Ohio Commission's findmg was especially .. _ . , -

T frustrating, since the Pennsylvania Commission .

had presiously ruled that there was no imprudence y y in this project and that all Perry construction costs  !

should be allowed. -

The decision was also at odds with conclusions -.

of a SI-million review conducted by independent l7 1 auditors appointed by the Commission and mer-

• rode its ow n staff recommendation. The Commis- ,

sion's decision is being appealed.

Positioned for the i uture Although we still face some financial uncertainties A

concerning the regulatory treatment of our nuclear construction costs, we are in far better shape to deal with : hem.

= Our enrrtot nuclear plant construction program is completed and financed. -

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= We now hase all the generating capacity we expect our customers to need through the Justin T. Rogers, Jr.

PreuJent

> ear 2000.

. We started 19SS with 5778 million in cash and March 1. Im temporary insestments, gising us the flexibility to selectisely retire more high-interest debt and pay fc.- future system improsements.

= We base successfully held operating expenses to a minimum; one of our largest, coal, has averaged the lowest in the state for nearly fise years.

= Our marketing efforts to increase sales to other utilities and in our service area base had a sig-nificant impact on resenues.

With this kind of progress, and the performance of well-trained employees u ho can adapt to changing business conditions, we are confident of our abihty to meet the challenges of the future.

Thank you for your continued support. l 3

Unit 2 at the Beaser Valley Ibwer Station was one of two nuclear units that began commercial operation

-bringing our current plant construction program to an end.

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Review of Operations Area Sales increase 5.1 Percent that should create about 1,300 jobs and add An improving local economy coupled with 56.6 million in annual electric sales resenue.

more use of electric heating and air-conditioning Other price incentive rates help existing contributed to a 5.1 percent increase in 1987 industries with high energy consumption and kilowatt hour sales in our area. interruptible loads, such as steel companies, to The biggest increase was in sales to industrial remain competitise when our cost of providing customers, up 6.3 percent over 1986 sales. Steel service is lower.

I companies, our largest industrial group, used Also, our "Power Commander" optional rate 4.6 percent more power, reflecting their im- package saves customers up to 50 percent on proved competitiseness. space and water heating. This program has en-Commercial sales increased 4.0 percent abled us to reach 39 percent of the new home as service and retail businesses opened or ex- heating market in 1987. And,it has also helped panded operations. increase the use of space- and water-heating Residential sales were up 3.6 percent partly systems by commercial and industrial customers, because of rising new home construction. Also, weather conditions resulted in heavy heating and air-conditioning use.

Sales to other utilities improved 7.1 percent.

As oil prices began rising late in the year, more eastern electric companies switched from their oil-fired units to our economical coal-fired power.

An 18-year sales agreement with the Potomac Electric Power Company (PEPCO), which took effect in June, will help stabilize our market share An increase in home construction and new business of utility sales. We are supplying PEPCO with pow th mmbined to push the number of our custom-electricity that will produce an average of about 5150 million in annual revenue, en oser the one-million mark.

Special Rates Stimulate Sales ^* 7,:

s Since 1984, our special economic development . ~~ ." '

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.e c rates have provided start-up opportunities for i 74 companies that began new operations or ex- .

g , f- y panded existing facilities. These price-incentive .j, -d 6

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rates have increased our annual revenue by about f :.. '

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$22.9 million and helped create 4,585 job oppor- i ,' ,-

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"some customers need Sale /Iraschacks Strengthen Cash lbsition special help that we During 1987, agreements to sell, then lease f, .

• can offer through our back, portions of two nuclear generating units on n assistance pro-were completed. Both agreements immediately .

grams; or we can refer improved our cash position and enabled us to them to other agencies.

reduce financing costs. If you really listen to in September, we signed an 5848 million k '

cuuomers, you can sale / leaseback agreement for nearly half of our , ._ .; help them."

investment in Unit 2 of the Beaver Valley Power ru oa u.

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Station. Earlier in the year, a 5509 million sale / leaseback for about 30 percent of our investment in Unit I of the Perry Nuclear Power Plant was completed. We have combined owner-ship and leasehold interests of 41.88 percent of Beaver Valley 2 and 35.24 percent of Perry 1.

With the help of funds from the sale /

leasebacks, arrangements were made to retire about 5330 million of high-interest debt, re-ducing annual interest expenses by about 550 million. Several issues of preferred and preference stock were also redeemed, which The New hanti mtor corp. mmtd in Youngsion n eliminated some $10 million in annual dividend from Indiana mainly because of the area's resources pay ments. And, a major portion of our 1987 and uate and local support for new busincu.

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Controls Reduce Fuel Costs .

We continued reducing fuel costs by negotiating . /

< m more flexibility into coal contracts and making - -

timely purchases in the spot market. As a result, @ '

Ohio Edison's fuel charge on customers' bills -

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The Company also negotiated a long-term Peak Records Confirm Need For ther contract that significantly reduces the cost of July 20,1987, was a day that tested the capability one major supply of coal. As lead company for of the Ohio Edison System. High temperatures the Central Area Power Coordination ' Group and humidity, plus strong industrial and com-(CAPCO), we arranged the sale of the Quarto mercial activity, combined to drive our peak Mining Company to the Consolidation Coal demand to a record 4,579 megawatts. That Company. The North American Coal Corpora- demand level, which wasn't expected before tion began operating Quarto in 1969 to provide 1995, surpassed our 1986 record by more than I a reliable source of coal for the Bruce hiansfield 300 megawatts. An additional 1,124 megawatts 1

Plant. Although North American achieved sig. were sold to other electric companies to help nificant cost reductions, our effort to bring them meet similar increases in demand. At the further savings led to the sale of Quarto. A new time of our peak record, we used 98 percent of coal supply agreement with Consolidation Coal our available generating capacity.

reduces our expected fuel costs by about

$175 million oser the next 13 years. The CAPCO companies that own the Bruce Mansfield Plant, in addition to Ohio Edison and Penn Power, are the Cleveland Electric illuminating Company, Toledo Edison Company and Duquesne 1.ight Compa ny.

Two Units Begin Commercial Operation The Perry 1 and Beaver Valley 2 nuclear units were completed in 1987, bringing our current power plant construction activity to an end. The efficiency of our bill payment processing cente.-

The Duquesne Light Company declared has enabled us to realire a sasings of more than Beaver Valley 2 in commercial operation on 5500,000 annually.

November 17 Perry 1, operated by the Cleveland Electric illuminating Company, reached that important milestone the next day.

Construction of another unit, Perry 2, was t e, o- '

suspended in 1985, and various options for its future are under review. Those options include /

suspending construction indefinitely, resuming -

work on the unit, and terminating the unit. "

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The popularity of recreational and leisure actisities has contributed to healthy grow th along the I.ake Eric shore.

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As a result of h>w temperatures, we also reached a new winter load peak record of 4,496 megawatts on January 5,1988. The , .. T.ou only base one new record beat the presious winter high of  ;. -

am to m Ae a good 4,105 megawatts set in January 1979. -

4 first impression. Our e

The system load peak record and continuing ,

customer Information high demand for power demonstrated the need I '

s stem helps us do that for our new generating units.  :

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Keeping Rates Competitise f amers more quickly With completion of Perry 1 and Beaver Valley 2, ,

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l we are now concentrating efforts on bringing their costs into rates with the least impact < u a "

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In April 1987, the Company reached an agreement with the staff of the Public Utilities Commission of Ohio (PUCO) and the Ohio

, Office of Consumers' Counsel for new rates that would increase annual revenue by 5152 million for Perry I costs. The PUCO approsec' the new rates in f anuary 1988.

Our lower request for rates was possible because of such Company efforts as the 5509 million Perry I sale / leaseback and the long-term sales agreemcnt with PEPCO. These More than 51%.6 million was imested in 1987 l cfforts and others will help reduce the effect of for s tem imprmemems that help ensure the high Beaser Valley 2 costs on rates. We expect to file reliabilin &lutric sersite.

sometime in 1988 for rates that reflect Beaver Valley 2 costs. '4 "y"

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mission ruled Perry 1 was not in operation j l

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i within the time period considered for the case q Penn Power filed a new request on August 5 that

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Emironmental Efforts Have NationalImpact that can help meet those needs are then notified.

One of our goals is to help persuade federal in the program's first year, employees expressed and state gosernments that any new clean-air their concern by referring 138 cases to area legislation should consider cost-effectise tech- social services.

nology now being deseloped nationally. Four of .

Project Reach Helps 4,8001 amih.es our own mul timillion-dollar clean-coal research Since our Project Reach Program began m. 1984, projects are under way. Each has the potential nearly 5300,000 from employee, customer and of achieving clean-air goals at significantiv '

Company contributions has helped more than lower costs than with present technology. .

4,800 families pay their energy bills. Project in September, energy, environmental and Reach's financial assistance is available to qual-elected officials visited the Edgewater Plant to .

ifying low-income, unemployed, elderly and review progress on the largest of our projects, handicapped customers who apply through a the I.imestone injection hiultistage Burner designated social service agency.

(IlhlB). A 547 million pilot project, LlhiB is testing a more economical way to reduce gen-erating plant emissions. It imolves injecting lime into a coal-fired boiler to remove sulfur dioxide and installing special burners to reduce nitrogen oxides.

We also contribute funding and expertise to national research projects, including a 19-state network that monitors rain chemistry. And, through a well-funded national program called 1.ising I akes, we are working to reduce the acidity of water in selected lakes in the north. Eniployees in our Gatekeeper Program help look out eist region af the country. for the safety and comfort of elderly citizens who liw in our communities.

Gatekeeper Program Aids the Elderly in ceremonies hosted by President Ronald Reagan at the White House on July 23, Ohio Edison 4 receised a citation for its Gatekeeper Program. ,

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identify elderly citizens who may need special V t assistance. Participating social service agencies O

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Through sch ml programs, we pnnide children with safety tips aad show them how to identify empic.,ees w ho can help during emergencies.

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Crime Prevention Programs Expanded Ohio Edison's CrimeWatch and Penn Power's l

Utility Watch programs encourage employees "After you read met rs to observe and report suspicious activities and

.. aw hile, >ou get to know emergencies to local authorities.

customers and notice During the past year, we offered people an changes that could addinonal measure of security in highway travel. f

' -5'y / mean they need help.

Free, luminescent "Call Police" signs were dis- <1 Our programs like tributed through our office, and local police A o;, -

Gatekeeper and departments. Drivers can place the signs in "

CrimeWatch work."

wmdows of disabled vehicles, alerting passm.g ma n,, .

motorists and law enforcement officials that  %, wu they need help. Through 1987 we distributed about 150,000 signs.

Many customers also received free reflective safety stickers to make children more visible to night-time traffic. Customers can apply the stickers, endorsed by the National Safety Council, to clothing or bicycles.

Grants support Energy Education For the second year, Ohio Edison offered finan-cial awards to educators who develop and carry out energy education projects dealing with elec-tricity. All area educators and administrators of kindergarten through high school are eligible to students learn about electricity and energy use apply for grants of up to $300. For the 1987-1988 through projects funded by our Mini-grant Program, school year,12 educators received awards for projects ranging from computer programs on -

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elmricity to electrically heated greenhouses.

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Financial Review Management Report The consolidated financial statements were prepared by the management of Ohio Edison Company, who take responsibility for their integrity and objectivity. The statements were prepared in conformity with generally accepted accounting principles and are consistent with other financialinformation appearing elsewhere in this report. Arthur Andersen & Co., independent public accountants, have expressed a qualified opinion on the Company's financial statements, as shown on page 37.

The Company's internal auditors, who are responsible to the Audit Committee of the Board of Directors, review the results and perfornunce of operating units within the Company for adequacy, effectiveness and reliability of accounting and reporting systems, as well as managerial and operating controls.

The Audit Committee consists of five nonempk)yee directors w hose duties include: consideration of the ade-quacy of the internal controls of the Company and the objectivity of financial repo. ting; inquiry into the number, extent, adequacy and validity of regular and special audits conducted by independent public accountants and the internal auditors; the recommendation of independent accountants to conduct the normal annual audit and special purpose audits as may be required; and reporting to the Board of Directors the Committee's findings and any recommendation for changes in scope, methods or procedures of the auditing functions. The Audit Com-mittee heid three meetings during 1987.

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V. A. Owuc W. A. Daniels Executise Vice President Comptniller Cmef financial Officer 16

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Consolidated Statements of Retained Earnings Ohio Edison For the Years Ended December 31 1987 1986 1985 (in thousands)

Balance at beginning of year 5471,223 5391,235 $ 31',631 Net income 412,920 410,828 370,685 884,143 802,063 688,316 Cash dnidends on preferred and preference stock 47,691 50,693 52,573 Cash dnidends on common stock 297.341 280,147 244,508 345,032 330,840 297,081 Balance at end of vear 5539,111 5471.223 $191.215 Consolidated Statements of Capital Stock and Other Paid-In Capital Preferred and Preference hsk Not Subect to Subject to Common %xk NIandatory Redernptmn Af andatory Redempton Other Number Par Paid-In Number Par or Number Par or of Shares Value Capital of Shares Stated Value of shares Stated Value (Dollars in thwsands)

Balance, January :,1945 122,236,636 $1,100,130 5529,596 9,092,399 5455,490 2,762,622 5164,878 Sale of Common Stock 6,076,659 54,690 37,846 Dnidend Reimestment Plan 5,102,413 45,922 31,098 Capital Stock E xpense (2,427)

Sale of Senes B Class A  !

Preferred Stock 2,000,000 50,000 i Sale of 13.50% Preferred 5tock 200,000 20,000 )

Sale of 1150% Preferred Stock 150,000 15,000 Comeruons and Redempnons-Series A Class A 3,124,160 28,117 9,433 (I,502,000) (37,550) 51.80 $eries 549,403 4,945 3,080 (607,605) (9,190) 595.00 krics (1,800) (1,800) 5102.50 Series (900) (900) 8.24% 5eries (5,000) (500) 10.48% 5er,es 259 (18,840) (1,884) 10.76% 5eries 221 (20,000) (2,000)

I l .00% (,enes (1,0R 8) 11 (109)

Balance, December 31,1985 137,089,271 1,233,804 609,117 9,590,399 467,940 2,457,389 183,495 Sale of Common Stock 7,665,704 68,991 71,074 Dnidend Reimestment Plan 3,528,014 31,752 37,091 Capital Stock Espenw (1,099)

Comersions and Redempnons-Senes A Class A 1,029,392 9,265 3,108 (494,900) (12,373) 51.80 series 302,370 4,521 2,853 (522,381) (7,900) 595.00 Senes (1,800) (I,800)

$ 102.50 Series (900) (900) 8 24 % senes (5,000) (500) 1b.48% Senes (l7,970) (l,797) 10.76% 5enes 11 (2,710) (271)

I1.00% 5eries 1 (2,937) (294)

Balance, December 31,1986 149,814,751 1,348,333 722,156 9,095,499 455,567 1,903,691 170,033 Sale of Common Stock 584,300 5,259 7,151 Dn-idend Rein estment Plan 1,673,401 15,060 20,348 Capital Stock Expense (184)

Comersions and Redemptions-Series A Class A 110,448 994 333 (53,100) (1,327) 51.80 5enes 214,637 1,932 1,232 (232,888) (3,523) 53.92 Senes (10,400) (2,(XX),000) (50,000) 595.00 5cnes (1,800) (1,800) 5102.50 Senes (900) (900) 8.24% Series (5,000) (500) 10.49% 5 cries (40,000) (4,000) 10.76% Senes (17,290) (1,729) 11.00% Series (7,975) (797)

Balance. December il.19R7 152.197.537 51.171,5'/ A 5740.616 7.042.199 5404.240 1.597.838 5156,784 The aaompanymg Notes to Consohdated hnanual Statements are an mtegral part of rhne staternents.

24

. ~ . - ,- . - . . . _ , _ _ _ . . _ - - _ _ _ . - _ _ ._, _ _ _ _ _ _ _ . . _ .

Con $olidated Statement $ of Capitalization Ohio Edhon At Decernber 31 1987 1986 l Cornrnon Stockholders' Equity: (in ihousands)

Common stock,59 par value, authonred 175,000,000 shares-152,397 537 and 149,814,751 shares outstandmg, respectnely (Note Sa) 11,371,578 $1.348,333 Other padin capttal 740,636 722,156 Retained earnings (Note $b) 539,811 471.223 Total common stnckholders' equity 2,651.125 2,541,712 Number of Optional Redemption Pnce Shares Out randmg Aggregate ~

1987 1986 Per Share (In tFiouunds)

Preferred Stock (Note Sc):

Cumulative, $100 par salue-Authorized 6,000,000 shares Not Sub i ca to Mandatory Redemption:

3.90 % -7.24 % 973,350 973,350 $103.06108.00 $ 101.376 97,315 97,335 7.36 % -8.20 % 800,000 800,000 $ 104.68105.35 84,046 80,000 80,000 8 64% -9.12% 850,000 850,000 $ 104. 32 106.84 89,806 85,000 25.000 Total not subrect to mandatory redemption 2. A 21,150 2. A 21,140 $275,222 262,335 262.135 Subsect to hiandatory Redemption (Nexe 5dh 10.48 % -13.50 % AAn.non 717.290 $ 105.24110.50 3 70.544 66,000 71.729 Redemption wtthin one year (6,000) (1,729) local subect to mandatory redemption 60,000 68 /m Cumulatne, $25 par value-Authorued8,000,000 shares Not Sub i ca to Alandatory Redemption:

$ 3.50 5cnes 2,000,000 2,000,00n $28.75 $ 57,500 50,000 50,000 Senes A - 53,100 - - - 1,327

\enes R 2,000,000 2 J)00,000 $ 2 5.75 51,500 50,000 50,000 Total not sub iect to mandatorv redemroon 4,nno ono 4,n ( t ,100 $ 109,000 100,000 101,127 Preference Stock (Note 5ch Cumulatne, no par value-Authonzed 8,000,000 shares Not Sube:: to hiandatory Redempton:

$ 3.92 5enes -

2.ono.onn - - - 50,000 Subiect to Af andatory Redemption (Note 5eh

$95.00-$102.50 5cnes 18,000 20,700 $ 1,027.00 1,070.00 $ 19,105 18,000 20,700

$1.80 5enes 226,222 459,110 $ 15.58 3,524 3,422 6,945 Redemption within one tear (4,213) (4.2111 local sub i ect to mandato y redemption 244,2?2 479 Ato i 22,A29 17,209 21.432 Preferred Stock ni Consolidated Subimliary (Note Sc h Cumulative, $ Kid par ialue-Authorved 1,200,000 shares Not Sub iect to Alandatory Redemption:

4 24 % 9.16 % 419,049 419.n49 $ 102.94 105.20 $ 41 AS4 1

41,905 41,905 Subl ect to hiandatory Redemption (Note idh 8.24*4 -15.00 % A91.AI A ?oA.191 $ 103.29114.04 5 74,747 69,362 70,659 Redemrtiem uithin one 3 ear (1,220) (1,297)

Total subea to mandatory redemption 68,142 Aw,162 Iong. Term Debt INote SIh Hrst mortgage lxmds:

Ohio Edum Company-7.7h% weighted aserage interest rate, due 1987-1992 129,816 211,466 12.55% weighted aserage mterest rate, due 1993-1997 427,715 442,015 8.80% weighted average interest rate, duc 1998-2002 184,048 190,698 8 63% weighted aserage interes rate, due 2003-2007 224,518 224,518 11,38% weighted average interest rate, due 2008-2012 250,200 261,400 10.73% weighted average mterest rate, due 2014-2016 112,800 142,500 1,349,097 1,472,597 Fennsylvama IWer Company 9.R9% weighted aserage interest rate, due 1947-2008 249,818 229,244 local firu nmrigage bonds 1,594,915 1,701,M 41 5ecured notes and obhgauons:

Ohio I'dwm Company-9.94% weighted aserage interest rate, due 1987-2015 655.012 A 56,071 Ohio Fden hnance N V.-17.2 5% weighted aserage mteren rate, due 1987 a t ,noo IYnni)hana IWer Company-10.02% weighted aserage interest rate, due 1988-2015 134,411 134,411 Amount held b5 Trmtee (1,620) (2,224) 112,791 112,187 Total secured notes and obligations 767,80) 861,244 Unsecured notes of Ohio Edison Company,10.82% weighted aserage mtereu rate, due 1987-2014 350,000 365,200 Afnount held by Trustee (2 ),058) (24,901) btal unsecured notes of Ohio Fdmn Companv 128,942 .%14,299 Net unamortired discount on dek and other (17.055) (20,623) long-term debt due withm one year (220,505) (101.181) beat hmg. term debt 2,474,100 2,78),590 Total r apit ahr a tion 15,674,016 $ t ,9 tv, A A 4 The ascompany mg Notes tu Comohdated Fmanual $tatements are an meegral part of these statements.

23

(

Consolidated Balance Sheets ohio Edison At Decernber 31 1987 1986 (la thousanJs)

Assets Utility Plane In service, at c,iginal cost (Note 8) $7,221,442 $ 4,403,*i11 Irss- Accumulated prmision for depreciation 1,573,762 1,411,458 5.647,680 2,992,254 Constructam work in progress-Electric plant (Note 8) 468,288 3,941,558 Nuclear fuel 220,131 305,929 688.419 4,247,487 6.336,099 7,239,741

@r prhrt3ynd Inwstments 17,838 9,234 Current Assets:

Cash 1,378 1,652 Tempceary cash imtstments, at cost, which approximates market value 776,893 146,774 ,

Recenabks- l Customers (less accumulated prmisions of $3,947,000 ar,d

$2,750,000, respectnely. for uncollectible accounts) 156,397 142J04 Other 38,876 30,549 Materials and supplies, at a,trage cost-Fuel 73,631 68,719 Other 63,795 50,626 Prepay me nts 60,183 60,641 1,171,354 501,105 Deferred Chantes:

Deterred fuel costs (Note 8) 4,%I 4,357 Property taps 95,060 58,384 Unamortired costs of termmated construction pro;ects (Note 3) 36,225 63,193 Unamortised sale and leaseback costs 95,756 -

Deferred nuclear urut costs (Note 2) 89,073 - 1 Other 60.679 50,129 381,754 176,063

$ 7,907.04 9 $ 7,126,141 l Capita!uation and Liabilities Capitalkation (See Consohdated 5:atements of Capitatuationh Common c.cxkholderf equity $2,651,325 12,541,712 Preferred sic:k-Not subgct to mandatory redemptken 362,335 363,662 Subject to mandatory redemption 60,000 68,000 Preference stock-Not sobiect to mandatory redempti,n - 50,000 Subiect to mandatory redemption 17,209 23,432 Preferred stock of consohdated subudiary -

Not sub tect to mandatory redempoon 41,905 41,905 Sobieet to mandatory redempton 68,142 69,362 f ong-term debt 2,474,100 2,781,590 5.675,016 5,019,663 long-Term Obligations Construction energy trust (Note 6) 500,000 500,000 Nuclear fuel (Note 6) 269,726 259,696 Capitalleaws (Nore 41 89,032 122,575 858,758 882,23 Current Liabilities:

Currently payable preferred and preference stock,long-term debt and long-term obhgations 301,569 159,57f6 Notes payable to banks (Note 7) - -

Accounts payable 156,387 154,221 Aurued taxes 66,761 66,798 Accrued mterest 81,260 96,013 Accrued restnue refunds 37,435 2,276 Other _

70,585 54,024 713,997 532,910 Deferred Cred;ts:

Accumulated deferred neome taxes 205,108 239,805 Accumulated deferred imestment tax cred;ts 297,070 234.105 Property taxes 95,060 58,384 Fuel costs recovered in adv:nce 24,518 19,060

, Other 17,518 20,145 659,274 571,499 Commitments, Guarantees and Contingencies (Notes 4 aed 8)

$7.007,04 4 $7.926.141 The acconpanymg Mnes to Conddated Imamial Statements air an inter.1 part d these balance Vwers.

12

Consolidated Statements of inccme Ohio Edison For the Years Ended Decembee 31 1987 1986 1985 On thousarnis, ewept per shm amounts)

Operating Rewnues 51,779,556 51,741,900 $ 1,754,749 Operating Espenses and Tases:

Operation-l'uct 403,794 422,830 499,159 Purchased and interchanged pmer, net 55,809 39,388 30,802 Other operation expenses 352,883 275,984 271,142 Total operation 812,486 738,202 801.103 Maintenance 157,266 137,542 129,295 Prosision for depreciation and amortization 166,703 153,392 143.377 General taxes 154,504 143,441 136,206 Deferred nuclear unit costs (Note 2) (71,070) - -

Income taxes 162,199 176,966 164,414 Total operating expenses and taxes 1,382,088 1,349,543 1,374,395 Op: rating it,cume 397,468 392,357 380,354 Other income and Dedrictions:

Allmance for equity funds used during constructim 111,936 208,360 - 176,471 Miscellaneous, net (4,342) 18,666 27,458 Income tnes-credit 51,983 89.371 85,365 Total other income and deductions 259,577 316,397 289,294 Total income 657,045 708,754 669,648 Net Interest and Other Charges:

Interest on long-term debt 293,668 327,970 321,017 Interest on long term obligations 63,101 65,756 74.207 Deferred nuclear unit interest (Note 2) (18,003) - -

Allowance for borrowed funds uwd during construction, net of dcferred income taxes (112,641) (112,449) (111,240)

Other interest expense 6,917 5,438 4,962 Subsidiary's preferred stock dividend requirements 11,083 11,211 10,017 Net interest and other charges 244,125 297,926 298,963 Net income 412,920 410,828 370,685 Preferred and Preference Stock Dividend l Requirements 48,263 51,003 52,612 Earnings on Common Stock 5 364,657 5 359,825 5 318,073 Weighted Awrage Number of Shares of Common Stock Outstanding 151.770 145,527 129,926 ,

Earnings per Share of Common Stock (based on weighted aserage number of shares ouatanding during the 3 ear) 52,40 $2.47 52.45 Dividends Declared per Share of Common Stock 51,96 51.92 51.88 The actnrnpanpng Swes to Conwhdated rmanual staternents are an integral part of thew statemenet l

1

)

l l

21

_ ~ . . . _ . . _ - , _ ~ _

l l

[

Investments for additional nuclear fuel during the following seventeen months; thereafter, the reduction five years 1988-1992 are estimated to be approximately will cease. The new rates take into account the dis-

$174,000,000. During that same period, long-term allowance relating to Perry Unit 1 (see Note 8).

obligations related to nuclear fuel are expected to be On August 5,1987, Penn Power filed an application reduced by approximately $356.000,000 as the with the PPUC for an increase in electric rates which Companies recover such costs through their electric is designed to produce approximately 586,300,000 in rates. Investments in nuclear fuel of approximately additional annual operating revenues. The increase is

$38,000,000 will be made in 1988 through the in. proposed to be phased in over several years, such that currence of additional long-term obligations. all amounts deferred during the phase in period would At December 31,1987, the Companies had approx- be fully recovered by the end of the fourth year. This re-imately 5778,000,000 of cash and temporary cash quest includes the costs associated with Perry Unit 1. A investments (principally from the net proceeds of sale rate order is expected during the second quarter of 1988.

and leaseback transactions), and approximately As a result of placing Perry Unit I and Beaver Valley 523,000,000 of funds held in escrow from previous Unit 2 into commercial operation, the Company ex-pollution control financings. Denn Power also pects that it will experience declines in net income and has 530,000,000 of short-term bank lines of credit. earnings per share of common stock in 1988 which Based upon earnmgs as of December 31,1987, and could result in earnings per share being lower than after giving effect to the optional redemption of long- current dividend levels. However, since these declines term debt referred to above, the Company would be will be based for the most part on the effect of non-permitted, under the earnings coverage test contained cash items, the Company's cash flow position and thus in its first mortgage indenture, to issue at least its liquidity is not expected to be materially affected, 51,189,000,000 principal amount of first mortgage and in fact may improve. Because of this, such declines bonds at an assumed interest rate of 11.0%; however, should not affect the Company's ability to pay divi-available property additions (excluding Perry Unit 2 dends at pres (nt levels in 1988. The Company expects property additions) would limit the amount issuable to file a rate increase request with the PUCO during under this test to $45,000,000. Under the earnings 1988 which will reflect recovery of investment and co erage test contained in its Charter, the Company operating costs associated with Beaver Valley Unit 2.

could issue at least 51,396,000,000 of preferred stock New rates are not anticipated before 1989.

at an assumed dividend rate of 10.5%. If it were to issue both first mortgage bonds and preferred stock, some lesser combination of the two would be per-mitted. The Company is also currently able to issue ,

$984,000,000 principal amount of first mortgage

• bonds against previoudy retired bonds without the need to meet the abose restrictions.

On January 26,1988, the Company was granted a rate increase by the PUCO w hich included investment recmcry for Perry Unit I and associated operating costs. The rate increase is designed to ultimately pro-duce an additional $152,000,000 in annual operating revenues. Ini ially, howeser, these rates will be adjusted to reflect a credit to customers for amounts previously collected as an allowance for construction work in progress (mirror CWIP). This credit will reduce the rate increase by approximately $43,000,000 on ar.

annual basis mer a ten month period and will subse-quently be adjusted to credit customers with approx-imately $5,000,000 on an annual basis over the 20

A rafueling outage at Beaver Valley Unit I during 1986 The reduction in interest on long term debt during contributed to the increase in purchased and inter- 1987 resulted from the redemption of high coupon changed power when compared to 1985. long-term debt. Subsequent to December 31,1986, the The commercial operation of Beaver Valley Unit 2 Companies decreased their net long term debt out-and Perry Unit 1 in November 1987, contributed to standing by $194,400,000, consisting of $233,200,000 the increases in other operation, maintenance and oflong-term debt redemptions, which carried an depreciation expenses. The adverse effect of these effectise annual interest rate of 15.7%, offset by the additional expenses prior to recovery through electric issuance of $38,800,000 of new long-term debt with rates was somewhat offset by PUCO and PPUC ac- an effective annual interest rate of 10.0L Interest on counting orders which permit the Companies to defer long-term obligations declined in 1986 compared to certain Perry Unit I and Beaver Valley Unit 2 costs 1985 because of lower interest rates.

until their recognition in rates (see Note 2). Addi. Total AFUDC has increased oser the last two years tionally, the costs of displaced power resulting from due primarily to an increase in the construction base preliminary operatior5 at these umts, and asbestos upon which AFUDC is calculated. Partially offsetting removal at several of the Company's generating units, the revenue refund provision in connection with the were responsible for the increases in other operation mirror CWIP adjustment (described above) was addi-and maintenance expenses foc 1987. A reduction of tional AFUDC in 1987 of approximately $24,100,000, 514,400,000 in pension costs is reDected in other AFUDC will be significantly reduced beginning in 1988 operation expenses for 1986. The reduced pension due to the commercial operation of Perry Unit I and costs resulted from the Companies' adoption in 1986 Beaver Valley Unit 2 in the fourth quarter of 1987.

of a new pension accounting standard issued by the The electric utility industry is subject to inflationary Financial Accounting Standards Board (FASB). pressures similar to those experienced by all other 1 in addition to the $44,400,000 reserve and the industries. To the extent that the Companies incur

$8,300,000 write down of the four terminated nuclear additional costs or receive benefits resulting from the units descril ed above, other income for 1987 was fur- effects of inflation, it is anticipated that those effects ther reduced by an additional 511,000,000 write down will ultimately be redected in the Companies' rates.

of the Companies' unrecovered investment in the four nuclear generating units. The write down resulted Capital Resources and 1.iquidity from accounting standards prescribed by the FASB Capital requirements in 1987 for the Companies' which require the cost of such projects to be recognized construction programs, capital leases and nuclear fuel as an asset only to the extent of the present value of were approximately $705,000,000, of which approx.

revenues to be collected during the periad of cost imately 5453,000,000 was financed externally. Oser 4 l

recovery from customers. Parnally offsetting these the last five years these requirements wrre approxi- l l reductions was a gain of $27,700,000 recognized from mately $3,948,000,000, of which approximately the March 1987 sale and leaseback of a portion of the $2,357,000,000 was provided from external sources.

Company's interest in Perry Unit 1. In accordance with The 1983-1992 construction program and capital lease a PUCO order, the Company deferred income tax ex- requirements are currently estimated to be approxi-pense in excess of this gain, resulting in no after. tax mately $1,200,000,000 (excluding costs of nuclear effect on earnings. In September 1987, the Company fuel). The Companies base additional cash require-entered into additional sale and leaseback arrange. ments of approximately $1,057,000,000 for the ments for a portion of its ownership interest in Beaver 19881992 period to meet maturities of, and sinking Valley Unit 2. In accordance with a PUCO order, the fund requirements for,long term debt,long-term obli-Company deferred approximately $48,000,000 of loss gations (excluding nuclear fuel), and preferred and on the transaction along with all related income tax preference stock. In addition, the Company optionally expense, resulting in no after tax effect on earnings. redeemed $117,000.000 of long-term debt in January 1988. All or a major portion of maturing debt is expected te be refunded on or prior to maturity.

19

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l l . .

Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations Operating revenues were reduced in 1987 by a pro-Strong kilowatt hour sales increases in 1987 helped . vision for "mirror CWIP"(see Note 1) and the further to stabilize the Company's earninos from the effects of reduction in fuel recovery rates, which reflects the certain nonrecurring charges to imme during the year. Company's continued success in procuring fuel at

' Net income in 1987 wes up 0.5% over 1986; earnings competitive prices. The following summarizes the on common stock were up 1.3%, however, due to a sources of the changes in operating revenues during lower level of preferred and preference stock dividends 1987 and 1986:

in 1987. Earnings per share of common stock in 1987 1987 1986 were $2.40 compared to 52.47 in 1986; the weighted .

un minmno average number of shares of common stock outstand, Sales to Residential, Commercial -

and Industnal customers:

ing increased four peacent during the year. Return on increased kilowatt. hour sales 5 70.0 5 35.4 average common equity fell to 13.8% from 14.9% Change in base rates (0.1) 34.2 achieved in 1986. The table below summarizes the Decreased fuel recowry rates (15.9) (59.1) nonrecurring noncash charges to earnings in 1987: Total 54.0 10.5 Pronsion for rewnue refund 3.9 (6.5)

Reduction to Net Income Provmon for mirror CWIP (42.5) -

Reserw for disallowance of Perry Sales to utilities 18.6 (21.3)

Unit I costs (see Note 8) $32,700,000 Sales to all other custnmers 3.1 (0.3) i Wr re-off of terminated construction Other revenues (1.4) #.8 proiccts (see Note 3) 7.300,000 Net increase (decrease) 5 37.7 5 (12.8)

Dncounting of terminated construcuan Pmiects Smm A recent Supreme Court of Pennsylvania ruling l Mirror CWIP ad ustment i Uce Note 1) 1,200,000 with respect to the recovery of costs for four nuclea:

546.200m generating units terminated in 1980 resulted in a The reserve for disallowance of Perry Unit 1 costs decrease in operating revenuas, other income and reflects the after-tax effect of a 544,400,000 noncash income taxes in 1987 by $2,300,000,58,300,000 and reserve for a portion of the disallowance by the Public 53,700,000, respectively, and increased other interest Utilities Commission of Ohio (PUCO) of costs applic- expense by 5400,000. Additionally,in 1986 a settle-able to Perry Unit 1 (see Note 8). The other items are ment agreement was adopted by the Pennsylvania described below. These transactions reduced earnings Public Utility Commission (PPUC) whereby Penn in 1987 by 5.30 per share of ccmmon stock and pro- Power is currently making refunds to its custoiners in duced a lower reported common equity return com- connection with certain income taxes normalized in  !

pared to 1986. Absent these adverse items, the return prior years. The effect of this settlement decreased on average common equity wuuld have been 15.5% in operating revenues and income taxes in 1986 by 1987 compared to 14.9% in 1986. Results for 1986 56,500,000 and $7,200,000, respectively, and increased and 1985 reflect a reduction in pension expenso as other interest expense by $700,000, resulting in no discussed below. Additionally, earnings for 1985 material effect to 1986 net income. The net effects of reflect 5.17 per common share attributable to allow- these transactions are reflected abmr.

ance for funds used during construction (AFUDC) The decrease in fuel costs during the last two yeais relating to Perry Unit 2 which was no longer included was attributable to the following factors:

in net income as of July 1,1985. 1987 1986 Kilowatt-hour sales to system customers continued na min.ono to grow in 1987 with increases of 3.6%,4.0% and Reduced prices 5(19.1) s (21.4) 6.3% in sales to residential, commercial and industrial Change in mix of fuel consumption (1.2) (17.0)

Difference in net deferred fuel costs 1.3 (37.9) customers, respectively. Sales to other utilities were up 7.1%, bringing the increase in total kilowatt. hour sales

"d'"'' SI'" 5(76'3) to 5.5% compared to 986. The Companies' purchase of a portion of Cleveland Electric illuminating Company's Perry Unit 1 capacity combined with additional powcr being purchased for sale to other utilities, was primarily responsible for the increase in purchased and interchanged power in 1987.

8

Selected Financial Data Ohio Edison 1987 1986 1985 1984 1983 On douunds, curre per share anwunn)

Operating Rewnues $1,779,556 51,741,W)0 11,754,749 51,637,104 51,515,852 Operating income 397,468 392,357 380.M4 342,713 .__ 302,751 Net income 412,920 410,828 370,685 339,333 272,400 Earnings on Common Stock 364,657 359,825 318.073 290,694 227,841 Earnings per Share of Common Stock (based on weighted awrage number of shares outstanding during the >rar) 2.40 2.47 2.45 2.50 2.22 Dividends Declared per Share of Common Stock 1 96 1.92 1.88 1.84 1.80 Total Awts at December 31 7,907,045 7,926,343 7,1M,971 6,727,763 6,000,805 Preferred and Preference Stock Subject to Mandatory Redemption 145,351 160,794 176,694 158,483 158,112 inng Term Debt 2,474,100 2,781,590 2,691,615 2,449,502 2,132,137 inng. Term Oblications 858,758 882.271 772,934 856.671 797.125 i

Common Stock Data

, J The Company's Common Stock is listed on the New York and Midwest Stock Exchanges and is traded on other registered exchanges.

Price Range of Common Stock 1987 1986 First Quarter lingh-low 22 1/4 19 5/8 19-7/8 15 7/8 SeconJ Quarter High low 22 1/8 18 1/2 20-3/4 17 Third Quarter liigh-l.ow 23 1/4 19 1/8 22-1/2 18 Fourth Quarter liigh Low 21 1/2 16 1/2 21 19 1/8 Yeariv i fieh-Inw 21 1/4 16 1/2 22 1/2 15 7/8 Prses are bawd on rep,vn pubhd,ed m tac WallStrertfo nut kw New York $r<sk i uhange Canpower iranuaxms.

Classification of Holders of Common Stock as of December 31,1987 Iloiders c4 Reuwd Shares licIJ Number  % Number  %

IndisiA 21s 175,523 88.49 55,259,387 36.26 10 19,444 9.80 4,622,271 3.03 Bm.s i . 41 0.02 655,475 0.43 Nominees 280 0.14 89,085,226 58.46 Banks & 1inancialinuirutions 16 0.01 13,190 0.01 Insurance Companies & Other Corporations 1.396 0.71 1,683,953 1.11 Charitable, Religious & EducationalInstitutions 422 0.21 US,871 0.15

!Ynsins, Profit sharing & Other Imestment Trusts 1,231 0.62 842,164 0.55 Total 19R 353 100.00 152.197.537 100.00 As of January 31,1988, there were 198,156 holders of Quarterly dnidends of 49c and 48c per share were paid on the 152,400,735 shares of the Company's Common Stock. Company's Common Stock during 1987 and 1986, respectisely.

Information regarding retained earmngs available for pay ment of cash dnidends is gn en in Nore 5b.

17

Consolidated Statements of Cash Flow Ohio Edison For the Years Ended December 31 1987 1986 1985 Operating Activities: Un thousand>>

Net income 5 412,920 5 410,828 $ 370,685 Principal noncash items-Depreciation and amortization 109,289 181,807 176,441 Deferred income taxes 42,962 145,183 97,287 Imtstment tax credits, net 62,965 32,764 55,936 Provision for restnue refund 45,566 7,206 -

' Allowance for equity funds used during construction (211,936) -(208,360) (176,471)

Deferred fuel costs, net 4,884 2,826 41,325 Provision for Perry Unit I disallowance 44,400 - -

Deferred nuclear unit costs (89,073) - -

Write-off of terminated construction projects 19,751 - -

Gain on sale and leaseback (27,665) - -

W capital applicable to operations

_ orking (5,319) 6,093 9,550 Net cash provided from operations 498,714 578,347 574,753 Dividend Payments:

Common sto k 297,341 280,147 244,508 Preferred and preference stock 47,691 50,693 52,573 Total cash used for disidends 345,032 330,840 297,081 Financing Activities:

Common stock issued 52,309 228.655 215,131 less: Noncash comcrsions 4,491 19,747 45,575 Common stock cash proceeds 47,818 208,908 169,556 Preferred stock - - 85,000 Inng-term debt 38,725 314,344 212,915 tong-term obbgations 43,389 51,235 69,124 Sale and leaseback of utdity facihties 1,308,999 - -

Net change in funds held in escrow 6,184 89,995 123,458 Miscellaneous (3,784) 815 (2,120) 1,441,331 665,297 657,933 Noncash obligations incurred (43,389) (51,235) (69,124) ;

Total cash from new fmancing 1,397,942 614,062 588,809 i Repay ments-Preferred and preference stock 74,976 25,835 53,933

( less: Nor, cash comersions 4,574 20,273 46,108 Preferred and preference cash repayments 70,402 5,562 7,825  !

Long term debt 243,318 225,908 107,590 l

[nng term obligations 44,878 26,913 31,936 Total cash used for repayments 358,598 258,383 147,351 1 Net cash prmided from (mancing actisities 1.039,344 355,679 441,458 Investing Actisities:

Property additions 705,242 776,198 826,994 Principal noncash items-Allowance for equity funds used during construction (211,936) (208,360) t 176,471)

Deferred income taxes on allowance for borrowed funds used during construction excluding nudear fuel 68,206 87,658 86,310 Capitalized leases, net of deferred taxes (34,031) (53,050) (59,939)

Change in accounts payable 27,832 (1,425) 34,710 Long-term imestments - (19,500) -

Miscellaneous 7,868 1,672 170 Net cash used for imesting activities 563.181 583,193 711,774 Net increase in cash and temporary imestments 5 629,845 5 19.993 5 7.356 The aaompming Notes to Consohdated Fmanaal statemems are an integral pan of thew statemenet l

1 l

l I

25 l

I

Consolidated Statements of Taxes Ohio Edison For the Years Ended December 31 1987 1986 1985 General Taxes:

State gross receipts 5 73,085 5 74,253 5 71,369 Real and personal property 58,856 50,006 47,415 Social security and unemploy ment 13,583 13,776 12,545-Miscellaneous 8,980 5,406 4,877 Total general taxes 5154,504 5143,441 - $ 136,206 Prmision for Income Tases:

Currently payable-Federal 5 77,909 5 5,569 5 19,546 5 tate 4,069 2,861 4,382 Foreign 16 65 214 81,994 8,495 24,142 Deferred, net (see below)-

Federal 42,923 145,695 ~ 93,585 State 39 (512) 3,702 42,962 145,183 97,287 Imtstment tax credits, net of amortisation 62,965 32,764 55,936 Total prmision for income taxes 5187,921 5186,442 5177.365 Incoine Statement Classification of Pimision for Income Tues:

Operating expenses $ 162,199 5176,966 5164,414 Other iname (51,983) (89,371) (85,365)

Allowance for borrtmed funds used during construction 77,705 98,847 98,316 Total prm ision for income ta ses 5187,921 5186,442 5177,363 Sources of Deferred Tas Espense:

Excess of tax mer book depreciation, net $ 102,051 5 66,092 5 29,814 Alkwance for bornmed funds used during construction, w hich is credited to plant 77,705 98,847 98,316 Deferred fuel costs, net (1,940) (1,649) (19,055)

Deferred interest on leased nuclear fuel, net (11,545)

(455) (5,488)

Deferred nuclear unit costs 33,962 - -

Deferred sale and leaseback costs (128,524) - -

Reserw for plant cest diulkmance (11,681) - -

Excess of tax mer book rewnue, net (24,887) (3,330) -

Terminated construction projects, net (9,802) (4,073) (4,075)

Other, net 6,533 841 (2,225)

Net deferred tax expense 5 42,962 5145,183 5 97,287 Reconciliation of Federa! *,come Tas Espense at Statutory ., ate to Total Provision for income Tases:

Book income before pros ision for income enes 5600,841 5597,270 5548,050 lederal income tas expenw at statutory rate 5240,036 5274,744 5252,103 increaws (reduction 0 in ines resulting from:

Alhmance for equity funds uwd during construction, w hich does not constitute tauble income (84,668) (95,846) (81,177)

Excess of book mer tax depreciation 16,741 19,317 14.534 Sale and leawback tranuctions 16.468 - -

Other, net (656) (11,773) (8,095)

Total prmision for income enes 5187,921 5186,442 5177,365 i The anompnpos N<,nes to ComohJsed haanual smemem m an meegral rm ohhew sememem.

I I

26

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Iblicim under collection from customers,is recalculated each The consolidated financial statements include Ohio >rar. Accordingly, Penn Rnwr defers the difference between Edison Company (Company) and its w holly mmed sub- actual energy costs and the amounts currently recowred sidiaries, Itnnsylvania Rmer Company (Penn Rnwr) and from its customers. Reference is made to Note 8 with Ohio Edison Finance N.V. All significant intercompany respect to Itnn Rmer's recovery of the cost of Bruce transactions have been eliminated. The Company and Mansfield Plant coal.

Itnn Rnwr (Companies) follow the accoundng polVic' Utility Plant and Depreciation Utility plant reflects and practices prescribed by the Public Utilities Comnas- the on. .gmal cost of construction, including payroll and sion of Ohio (PUCO), the Itnnsylvania Public Utility related costs such as taxes, pensions and other fringe Comm.issjon (PPUC) and the Federal Energy Regulatory benefits, adtr.inistrative and general costs and AFUDC.

Commission (FERC). The Companies (except the Company with respect to Rewnues The Comnanies' retail customers are metered the Perry Plant) provide for depreciation on a straight-on a atle basis. Rewnue is recognized for electric senicc line basis at various rates over the estimated lives of based on meters read through the end of the month. The property included in plant in service. The annual com-Financial Accounting Standards Board (FASB) recently posite straight-line rates for electric plant were 3.5%,

issued Statement of Financial Accounting Standards 3.6% and 3.5% in 1987,1986 and 1985, respectively.

(SFAS) No. 92 ' Regulated Enterprises-Accounting for T'ae PUCO ordered the Company to record deprecia-l Phase-in Plans," w hich, amone , other things, prescribes tion expense applicable to Perry Unit 1 on a uaits of the accounting treatment w hen a regulatory commission production basis. The Companies recognize as depre permits a project to be included in rate base while it is ciation expense estinuted nuclear deammissioning still classified as construction work in progress (CWIP) costs which are being recovered from their customers.

and subsequently requires a reduction to rate base after .

r Common Ow nership of Generatiog ncih. . ties The the project is placed in senice until amounts collected as

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CWIP from customers have been fully refunded (referred Group (CAPCO) compames own, as tenants m com -

"#'I" to as ,, mirror CV.IP.,). In anticipation of adopting the mon, vari us p wer generating facih. . ties. Each of the ,

new standard in 1988, the Company reduced fourth ,

' *P g N " "'.t s f any mtly j. ged wnedtofacihtypay ma the dare oW mnstrue quarter 1987 operating revenues by approximately ,

t \

same

$42,545,000 for rewnues required to be refunded to pr p rti n as its wnership interest. The Conypames customers mer the next two years. Partially offsetting p rtions f per ting expenses ass ciatekuri these this pnwision was the recording of additional allowance for funds used during construction ( AFUDC) of approx- pn@ wne 6ches are inp m & wespone ing perating expenses n the tonsolidated Statements imately $24,078,000, resulting in no material effect to net income.

f Inc me. The amounts reflectcJ ort the Consolidated . 4 ,

Balance Beet under utilit) plant a December 31,19o7, Deferred Fuel Costs The Company recowrs fuel-related inclus"e the following: >

costs from its retail customers through an electric fuel --

.; w ,g  %,,..,

component (EFC). The EFC is an estimated fixed rate per unerarna utanrunt r- ~ n k,r wa m cemran cs'

'"'" ' " " ' N"" '" P" "' * ' ' " * " "

• kilowatt-hour included on customer bills for a six month -

kr period and is based upon fuel-related costs for the pre- ta " " *'"*" ? )

sammis #7 5 235,4on > 9.200 4 ceding six month period. Any mer or under collection 5 4,200 68.80 %

resulting from the operation of the EFC is included as an B'"ganmeld '

adjustment to the EFC rate in a subsequent six-month f i, ,2 period Accordingly, the Company defers the difference andf3 718.600 212,300 1,o+ 50.68 %

betwren actual fuel related costs incurred and the amounts E*[n)^)'] ) ,,3 g og ,4ggo g,

currently recarred from its customers. Perry #1 and ,

4.,{4}g j Common a <

ltnn Rnwr recovers fuel costs from its retail customers ,

Faohnes ( %soo ' H,600 100 35.14 % s thmugh an annual "levelized,, energy cost rate (ECR,,. Ibry #2 - - 401,500 35.24 % i The ECR, which includes adjustment for any over or M .54 93.200 uoi300 su s,4oo

> W L ulude.. Wear f acI m pr.xeu whwh has not pet been n pwd to a 9euk nudor omt. j{t >

ao in.yaxheu mmeu, ua, u, .na i,ved a arr,ngemenu. ,

q 1

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Nuclear Fuel The Companies amortize the cost of Proceeds from the sales of certain tax benefits in nuclear fuel based on the rate of consumption. The accordance with prmisions of the Economic Recmery Companies' electric rates include amounts for the Tax Act of 1981 are being amortized owr the life of the future disposal of spent nuclear fuel based upon the related property. Proceeds attributable to imrstment tax formula used t'o compute payments to the United credits (ITC) were recorded as additional deferred I C; States Department of Energy. the remaining amounts were recorded as reductions to Allow ance for Funds Used During Construction e o,npa i s defer ITC utilized and amortire these AFUDC represents the net financing costs capitalized credits to income owr the estimated life of the related to CWIP during the construction period. The borrowed property. The Tax Reform Act of 1986 repealed the ITC funds portion reflects capitalized interest payments effective January 1,1986, except for certain transition and the equity funds portion represents the noncash

y. As of December 31,1987, approximately capitalization ofimputed equity costs which are 562,000,000 of unused ITC was available to offset future charged to construction. During 1987 the Lompany

. federal income taxes payable, of which approximately also charged AFUDC to Perry Unit 1 after its m-service

$10,000,000 expires at the end of 2001 with the remainder date for rate making purposes and prior to recovery through electric rates in accordance w th a PUCO order.

e p ring at the end of 2002.

The FASB recently issued SFAS No. 96,"Accounting AFUDC varies according to changes m the les el of for Income Taxes,"which, among other things, requires Cp and m the cost of cgpita,. The Companies com-a change in the method used by enterprises to account

ate AFUDC utihzmcc. net of tax rate, which is con-for deferred income taxes. Under the new standard, siltent with the rate tre tment. The AFUDC rate related to assets financed only through the mcarence which becomes effective in 1989, the Companies will be of long-term obligations (see Note 6) is based on required to write down their net deferred tax balances to actual interest accrued on the obligations during the reflect the new lower income tax rates incorporated .m 1 deriod. The annual races uwd by the Company and the Tax Refonn Aa of M. Innead encreadng in-k 'Penn Power for all othet + pnstructior r3rojects were c me due to this potential write down, the Companies

" # #' *** # * "" * # " "' # ** # ' # '# #~

11.4% and 10.1%, respectively, daring 1987 and approximately !!.0% for the' Company and 9.5% for tion t cost f senice in future r te proceedings. The Penn Power during 1986 and 1985. new standard will also require the Compam_es to record f a deferred tax liability for tax benefits that haw presiously incomc Taxes Details of the total p( nision for income been Oowed through to customers and an assumed taxes are shown on the Consohdated Statements of Taxes. deferred tax liabi'ity applicable to the equity component The deferred income taxt. eesolt from timing differrnces of AFUDC, for which no income tax timing difference

} in the recognition n.f nxnues anc%xpmses for tax and exists under current accounting standards. Since the

, acce pting pui ges. Companies expect that the additional deferred tax lia.

Compaiu. a"ocate 'belihe t.n benefit bilities will be collected from their customers when the

% hiu. results fro g mterey apcme related to CWIP to taxes become payable, an asset will be recognized for income taxes-o / lit include d.!r other income and that probable future rewnue.

f ',' / ded rctions on the Consolid.@til Statements of in A I Rcilncome tax pu'rp( kx, de Companies claim

• 9* * "' "# #

• P # *' O * ' " ""

liberalized depreciatam and. condrerc with the rate c ntnbutory defined benefit pension plans cover almost i

all full-time emt oyees. Upon reti ement, employees I treatment, generally pnwide deferred income taxes. The l Companies expect that deferred taxes which haw not receim a tu nthly pension based on length of service I been pnwided will be collected from their customy and compensation. Prior to July 1,1985, the Compam_es funded pendon cous accrued using h ben imnal when the taxes become payable, baw V gm the estab-lished rate making pra,ctices of the PU%. the PPUC

( and the FERC. As of December 31,1987, the cumulative act incorae tax timing differences fca which deferrrd

< Acome taxes haw not been provides 8 nre approxi \

mately $700,000,000.

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liability actuarial funding method. Effective July 1, Under the previous pension accounting standard, the 1985, the Companies changed to the projected unit Companies' pension costs for 1985 were 514,986,000, credit method for funding purposes and have not been Of this amount,59,829,000 was charged to operating required to make pension contributions since June 30, expenses; the balance was charged primarily to con-1985. Contributions of $10,300,000 were made dur- struction. Such costs included the amortization of ing the first six months of 1985. unfunded past service costs on an actuarial basis over The Companies adopted the provisions of SFAS No. 30 years.

87, "Employers' Accounting for Pensions," as of The Companies provide a minimum amouiit of January 1,1986, As a result, reported net income for noncontributory life insurance to retired employees in 1986 was approximately $7,800,000 (5.05 per share addition to optional contributory insurance features.

of common stock) higher than it would have been Health care benefits, which include certain employee under the previous accounting standard, deductibles and copayments, are also available to The following sets forth the funded status of the retired employees, their dependents and, under certain plans and amounts recognized on the Consolidated circumstances, to their survivors. The Companies pay Balance Sheets: insurance premiums to cover a portion of these bene-III'I"**C I II*II'; all amounts up to the limits M w3 19 e 1986 are paid by the Compam.es. Expenses associated with Yn"fN $1 g td'n health care and life insurance benefits for retirees vested benefits 52h4,970,000 $ 252,616,000 amounted to $4,444,000, $3,128,000 and $3,785,000 Nonvested benefits 6,090,000 18,278,000 in 1987,1986 and 1985, respectively, and are charged Accurnulated benefit oblication 5291,060.000 5270.894,000 to income during the applicable payment periods.

Actuanal present value of projected benefit obLgation 5388,534,000 5356,983,000 3.. Deferred Nuclear Unit Costs:

Plan assets at fair value 491,826,000 496,464,000 Plan assus in excess of The PUCO ordered the Company to d.fer nonfuel rroicCled benefit obligation 103,292,000 139,481,000 operation and maintenance costs relating to Perry Unit i Unrecognyed net loMgam) 7,686,000 (26,284,000) and Beaver Valley Unit 2, and depreciation expense, Unrecognued prior senice cost 273,000 294,000 .

Unrecognued net tranunon asset (105,388,000) (113,333,000) property taxes and interest expense associated with Tet penuon asset 5 5,863.000 5 158,000 Beaver VaPey Unit 2, from their respective in-service dates for rate making purposes until such costs are The assets of the plans consist primarily of recognized in the Company's electric rates; however, common stc4ks, Umted States government bonds with respect to Beaver Valley Unit 2, costs may not be and corporate bonds. Net pension costs for 1987 deferred after December 31,1988. The PPUC ordered and 1986 were computed as follows:

Penn Power to defer operation and maintenance costs 1987 1986 (net of energy savings from Perry Unit 1), depreciation ,

sen ice cost-benefiti carned expense, property taxes and interest expense associated I duang the penod 514,670,000 513,210,000 with Perry Unit 1, from its commercial operation date I

$ a$o F " 31,206,000 28,371,000 until such costs are recognized in Penn Power's electric i (14,625,000) (74,424,000) rates, Based on these orders, the Companies deferred I Return on plan assets Net deferral (amortuation) (36,956,000) 28,043,000 $g9,073,000 in 1987 for future recovery from their f Net pension cost 5(5,705.000) 5(4,800,000) retail custom,rs. j The assumed discount rate and rate of increase i in future compensation levels used in determining the l actuarial present value of the projected benefit obliga- l tion were 9% and 7%, respectivtly, for 1987 and 1986.

The assumed expected long term rate of return on plan assets was 9% for 1987 and 1986. ,

1 29

3. Terminated Construction Proiccis: ofIYrry Unit I and Beaver Valley Unit 2, respectively, in January 1980, the Companies and all other and simultaneously entered mto operating leases each CAPCO companies terminated plans to construct four having a basic lease term of approximately 29 years, nuclear generating units. Costs (including settlement During the term of the leases, the Company will con-of all asserted claims resulting from termination) un- tinue to be responsible, to the extent ofits combined recovered by the Companies as of December 31,1987, ownership and leaschold interest, for costs associated applicable to these units amounted to approximately with the units including construction expenditures,

$36,225,000. The Company is recovering these costs operation and maintenance expenses, insurance, nuclear from its PUCO jurisdictional customers through an fuel, property taxes and decommissioning. The leases increment to the allowed rate of return in rate cases, provide for adjustments to the basic rental payments The Companies are recmcring these costs from their for possible future changes in the federal tax code.

FERC jurisdictional ct.stomers as an operating expense The Company has the right, at the end of the respectise allowance. The remaining periods of recmery for the basic lease terms, to renew the leases for up to two Company and Penn Power are approximately 5 years years. The Company also has the right to purchase the and 4 years, respectively, facilities at the expiration of the basic lease term or the On October 15,1987, the Supreme Court of renewal term (if elected) for a purchase price equal to Itnnsylvania reversed a decision of the Common- the fair market value of the racihties.

wealth Court of Pennsylvania which affirmed the Consistent with the regulatory treatment, the rental PPUC's decision to permit Penn Ibwer to recover the payments for capital and operating leases are charged costs of the terminated units. The Supreme Court's to operating expenses on the Consolidated Statements decision was based on its interpretation of Section 1315 of Income. Such costs re0ccred on the Consolidated of the Pennsylvania Public Utility Code (which was in Statements of Income for the three years ended l effect at the time of the PPUC's rate order), which it December 31,1987, are summarized as follows: I concluded bars the recovery of such costs through the 39p ,9 , ,9g rate making process. Penn Power wrote off the un-amortized costs of the terminated units applicable to Intereu on opiulloses 5 2,194 510.8.1 513.452 its PPUC jurisdictional customen and established a Amonintion or npiol luses 21,537 i n,i s ' I t,038 liability for potential customer refunds of presiously Orc""ng inses 44.so 5.2 s0 4,R87 recovered costs, reducing reported net income by ap. Tout renul pn menn 578.s99 532.23 R 531.177 proximately 57,300,000 (S.05 per share of common In accordance with SFAS No. 71, the December 31, stock)in the fourth quarter of 1987. Penn Ibwer has 1986 Consolidated Balance Sheet and the Consolidated asked the U.S. Supreme Court to hear an appeal of the Statements of Cash Flow for the years ended December decision of the Supreme Court of Pennsylvania, 31,1986 and 1985, base been restated to recognire capital leases entered into prior to January 1,1983.

4, Icases:

The future minimum rental commitments as of The Companies lease a portion of their nuclear gen. December 31,1987, are:

erating facilities, nudear fuel, certain transmission facilities, computer equipment, office space and other capinl icases opeuting leases property and equipment under cancelable and non- ,lyl cancelable leases.

5 y2y 5 lyQ[

1990 26,191 pm 121,045,000 In 1987 the Company entered into sale and lease- 1991 16,766 000 122.146Mo back tr.msactions re' uing to a portion of its ownership interest in Itrry Unit i and Beaser Valley Unit 2. Unar 3.,',',2 s thereafter ib 3,$

Tout mmimum lease pay menn 5289.028,000 54.ol 6,U6.noo these arrangements, the Company received approxi- nuuto y ensa s7,969 moo mately $509,000,000 and 5848,000,000 from the sale setminimumius,paymenu 231,os9,mo Interest portion in6.796,noo present salue of net mmimum lease pnments 5124.26 3.noO 10

5. Capitalisatiom (d) Preferred Stock Subject to Mandatory Redemption (a) Common Stock Through the Dividend Reinvest- Annual sinking fund provisions for the Companies' ment and Stock Purchase Plan, holders of common, preferred stock, which are retired at $100 per share preferred and preference stock can acquire additional plus accrued dividends, are as follows:

shares of the Company's common stock by automat- series shares Date Beginning ically reinvesting all or a portion of their dividends Ohio Ednon-and by making optional cash payments. Shares of 10.48 % 20.000 ouember - 0) common stock purchased under the Plan by partici- 1036% 20.000 January 1 m 33 " 4' U 3""' I 3"3 pants may be, at the option of the Company, either gn, %,,,,,

newly issued shares or shares acquired in the open 8.24 % 5,000 Dnember 1 m market by an independent agent. The price of newly issued shares is the average of the high and low prices Q

11.50 %

4y g

15.oto Ja}u July 15 1989 for the Company's common stock on the investment 1100% 5.003 Juh 1 1990 date as reported in The WallStreet Journal report of New York Stock Exchange-Composite Transactions. %_ u;_, % 3,y

$ M S'N'$i [$3 3 The purchase price of shares acquired in the open market is the average purchase price paid by the in- The sinking fund requirements for the next fise dependent agent for the shares over the period of their years are:

purchase. At December 31,1987, the Company had 1988 s 7,220,000 3,522,320 shares of common stock reserved for issu- 1989 6,720,000 jy ance under this plan, 1,000,000 shares reserved for issuance under a continuous shelf registration program, djjpg 1992 14.220.000 322,686 shares reserved for possible conversion of the 51.80 Preference Stock, and 497,276 shares reserved (e) Preference Stock Subject to Mandatory Redemption for issuance through the payroll-based employee stock The $102.50 Series and $95.00 Series each include ,

ownership plan, provisions for a mandatory sinking fund to retire a i . minimum of 900 and 1,800 shares, respectively, on (b) Retamed Earnings Under the Company's inden-July 1 in ca h year at $1,000 per share plus accrued ture, the Company's consolidated retained earnings dividends. The 51.80 Series includes a provision for unrestricted for payment of cash dividends on the a mandatory sinking fund to retire a minimum of Company's common stock were 5467,064,000 at 100,000 shares on October 1 in each year at $15.125 December 31,1987.

per share plus accrued dividends. The annual sinking ,

(c) Preferred and Preference Stock At the Companies' fund requirements are 54,213,000 for 1988 and 1989, option, all preferred and preference stock may be re- 51,296,000 for 1990 and $900,000 for 1991 and 1992.

deemed in whole, or in part, at any time upon not less The $1.80 Series is convertible at any time into than 30 nor more than 60 days notice, unless other- common stock at a price of 515.125 per share. Holders wise noted. Redemption of all preferred and preference receive one share of common stock for each share of stock issued within the past fise years is subject to 51.80 Preference Stock converted, subject to adjust-certain restrictions regarding refunding. The optional ment under certain conditions. '

redemption prices shown on the Consolidated State: (f) Longterm Debt The mortgages and their supple-ments of Capitalization will decline to eventual mim-

, ments, w hich secure all of the Companies' first mortgage mums per share according to the Charter prosisions bonds, serve as direct first mortgage liens on substan-that establish each series.

tially all property and franchises, other than specifically excepted property, owned by the Companies.

Based on the amount of bonds authenticated by the Trustees through December 31,1987, the Companies' annual sinking and improvement fund requirements for all bonds issued under the mortgages amount to

$31,131,000. The Company expects to deposit funds in 1988 which will be withdrawn upon the surrender for

cancellation of a like principal amount of bonds, 31

w hich are specifically authenticated for such purposes interest accrued applicable to OEET was capitalized, against unfunded property additions or against pre- net of income tax effect, until the commercial opera.

viously retired bonds. This method can result in minor tion date of Beaver Valley Unit 2. The effective average increases in the amount of the annual sinking fund annualinterest rates on OEET borrowings were requirements. Penn Power expects to satisfy its require- 8.0%,8 A% and 9.8% during 1987,1986 and 1985, ments in 1988 by certifying unfunded property addi- respectively, tions at 166 2/3% of the required amount. .

As of December 31,1987, the Companies' sinking " ' ' ' ' ' " ' .." ' "'

• 8 " I"' "

and Pennsylvaraa Power Fuel Corporanon (corporations fund requirements for certain series of first mortgage bonds and maturing long-term debt for the next five in which the Companies have no ownerthip interest) provide funds for the procurement of nuclear fuel on I"''

behalf of the Companies. The Companies also partici-1988 5220.505.000 pate in arrangements wherein the Central Area Energy 1991 lypy 73,803,000 Trust (CAET) finances the acquisition of nuclear mJterial that Will ultimately be used to fuel various 1992 11L665ooo CAPCO generating units. Under ordinary circumstances, Amounts shown abme for 1988 include $117,109,000 the Companies make payments for the nuclear fuel as of first mortgage bonds optionally redeemed in January it is consumed. Financing on behalf of the Companies 1988. The weighted average interest rates shown on of up to $288,000,000 (of which 5284,000,000 had the Consolidated Statements of Capitalization relate to been utilized as of December 31,1987)is currently long term debt outstanding at December 31,1987, available through the fuel corporations, either through Total secured and tmsecured notes outstanding at revolving credit arrangements or the issuance of com-December 31,1987 and 1986, exclude $22,678,000 mercial paper, which is supported by bank letters of and $29,125,000, respectively, of certain pollution credit, or a combination of both. Financing of up to control notes, the proceeds of which were then in 5137,000,000(of which $100,000,000 had been utilized escrow pending their disbursement for construction of as of December 31,1987)is available to CAET on behalf pollution control facilities. The Companies' obliga- of the Companies, subject to certain limitations.

tions to repay certain pollution control revenue bonds The Companies accrue interest applicable to the are secured by several series of first mortgage bonds. A nuclear fuel obligations (for fuel which is not included j portion of the unsecured notes outstanding are entitled in utility plant in service) which is capitalized, net of to the benefit of irrevocable bank letters of credit of income tax effect. No direct borrowings have been or

$213,885,000. To the extent that drawings are made are expected to be made against the lines of credit under those letters of credit to pay principal of, or in. available to the fuel corporations; the fuel corpora-terest on, the pollution control revenue bonds, the tions have issued and have outstanding commercial Company is entitled to a credit on the notes. The paper supported by the lines of credit. To the extent Company pays an annual fee of 5/8% to 7/8% of the that borrowings are less than the $288,000,000 ;, vail-amounts of the letters of credit to the issuing banks able under these credit lines, the fuel corporations and is obligated to reimourse the banks for any must pay commitment fees of I / 8% to I /2% on the drawings thereunder, available portions of the lines of credit. They also pay fees of 5/8% to 7/8% for the letters of credit on the

6. long-Term Obligations: aggregate amount of outstanding commercial paper.

Ohio Edison Energy Trust (OF.ET) OEET, which inter ~t rates on CAET purchase commitments vary financed part of the Con any's imestment in Beaver from i 1/8% to 11/2% over the interest rate applic-Valley Unit 2, has $500,000,000 of term loans out- able to certain dealer placed commercial paper. The standing. The Company has transferred a portion of effective average annual interest rates applicable to its interest in Beaver Valley Unit 2 (exclusive of com- nuclear fuel obligations were 8.2%,8.0% and 9.5%

mon facilities and transmnsion facilities) to OEET, during 1987,1986 and 1985, respectisely.

where the assets are used to secure OEET borrowings.

Under the agreement, the trust arrangement will ex-pire December 31,1988, with amortization of the notes beginning in 1989. The Company presently anticipates payments of $120,000,000 in 1989,5140,000,000 in 1990,580,000,000 in 1991 and $160,000,000 in 1992.

32 l

The Companies presently expect to make payments against a possible write off of Perry Unit I costs. The applicable to these obligations during the next five $188,343,000 referred to above with respect to the years as follows: Company is based on the Company's ownership in-terest prior to the sale and leaseback. The Company is 393, 33ygg,ggg 1989 27,828,000 unable to predict the ultimate disnosition of this matter, 1990 41,441.000 in a January 1988 rate order authorizing the Company 3993

,99 h,M to increase its electric rates, the PUCO took account of the disallowance as described above.

Penn Power currently has a rate increase request 7 Bank L.mes of Cred.it: pending before the PPUC which includes its investment Penn Power has lines of credit with domesu.c banks in Perry Unit 1. In Penn Power's latest rate order, the that proside for borrowings of up to $30,000,000 a, PPUC found that no adjustment for imprudence the prevadmg pnme or similar interest rate. Shortgerm attributable to Perry Unit I should be made for all borrowmgs niay be made under these lines of credit on e penditures incurred through the Alarch 1986 fuel Penn Power s unsecured notes. Penn Power is required load. In a recent Duquesne Light Company (Duquesne) to pay commitment fees that vary from 3/8% to 1/2% rate case, the presiding Administrative Law judge, to assure the availability of those lines of credit. All of ruling on expenditures incurred from the fuelload the current lines expire December 31,1988; however, date to commercial operation, recommended no all unused lines may be canceled by the banks. .

adjustment for . imprudence. The Company will be

'#9" "E '# " Y " ' " # * # " " ' ' " '

8. Commitments, Guarantees and Contingencies: Valley Unit 2, but it cannot pred[ict with any degre Construction Program The Companies' current budget forecasts reflect expenditures of approximately

I"'Y b "'( ** 8 ** *Y E '

The CAPCO companies are continuing to review

$1,200,000,000 for property additions and improse-the status of Perry Umt 2. Currently, no significant ments from 1988-1992, of which approximately w rk is being performed on the Umt. As ofJuly 1,1985,

$235,000,000 is applicable to 1988. In addition,

• Companies stopped including AFUDC relating to the Companies expect to invest approximately U . 2 in net income. Until review of the status of

$174,000,000 for nuclear fuel during the 1988-1992 9t Umt 2 has been completed, there wdl be no defined period, of which approximately $38,000,000 is tchedule for its completion; the construction estimates applicable to 1988, f r the 19881992 period do not include any amounts The PUCO conduued an investigation of the pplicable to Perry Unit 2 if construction of the unit prudente of costs incurred in the construction of were t be resumed. Possible alternatives being reviewed Perry Unit 1 and a decision on the matter was issued with respect to Unit 2 include indefinite suspension of on January 12,1988. In the decision, the PUCO held c nstruction on the unit, resumption of work on the that $627,812,000 (of which $188,343,000 is assigned unit and termination of the unit. In accordance with in the decision to the Company) of Perry Unit I con-the CAPCO arrangements, none of these alternatives struction costs incurred through Atarch 21,1986,are to may be implemented without the approval of each of he disallowed. The PUCO indicated that the record in the CAPCO companies.

the proceedings disclosed that the total cost of the unit was estimated at the end of 1986 to be about

$5,000,000,000 but that its decision related to only

$4,153,000,000 of cost because the proceedings had not deseloped an adequate record relating to costs in-curred after h1 arch 21,1986. The PUCO indicated it was reserving decision on these latter costs. The Company has petitioned the PUCO for rehearing and could appeal the matter to the Ohio Supreme Court if the decision is nat modified. The Company provided a

$44,400,000 reserve in 1987 ($37,000,000 in the third quarter and $7,400,000 in the fourth quarter) 33

l Duquesne's claimed "de facto" abandonment, for upon the timing involved, such a write-off could tem-rate making purposes, of its 13.74% interest in Ittry porarily affect the Company's ability to pay common Unit 2 was accepted by the PPUC in its most recent stock dividends at current levels. Based on Section $20 rate case and Duquesne was allowed recosery ofits of the Pennsylvania Public Utility Code (which speci-investment in Perry Unit 2 over a ten-year period, fically permits utilities to recover return of, but not a Duquesne has advised the PPUC that it will not agree return on, prudently incurred costs of any partially to resumption of the construction ofItrry Unit 2. completed facility when cancellation is found by the Duquesne's decision was independently made and PPUC to be in the public interest for any generating does not represent a decision on the part of the Com- unit canceled after October 10,1985),IVnn Ibwer panies to abandon Unit 2 for rate making or any other believes it could recoser its investment in ltrry Unit 2 purposes. Howeser, any future decision on the status of with respect to its PPUC jurisdictional customers. If a Perry Unit 2 will have to take into account Duquesne's decision were made to terminate Perry Unit 2, con-position and ways will have to be found to accom. solidated net income wuuld be reduced at that time by modate its position if construction on the unit is the difference between the cost ofIVrry Unit 2 and the to resume. present value of resenue to be collected from PUCO As of December 31,1987, the Company and Penn and PPUC jurisdictional customers applicable to Power had imested approximately $345,300,000 and the unit.

$56,200,000, respectively, applicable to Perry Unit 2. The FERC recently revised its policy with respect to Delay in the completion of the unit can be expected recosering the costs of terminated construction projects.

to increase its total cost by amounts w hich are not if Perry Unit 2 were terminated, the Companies would presently determinable. If a decision were made to be required to write off one-half of their respective terminate Unit 2, certain costs which are currently investments applicable to their FERC jurisdictional assigned to Unit 2 would be reassigned, where appro- customers if and to the extent that the FERC revised priate, to Unit 1. However, cancellation charges pay- policy is applicable. Under such circumstances, the l able to contractors and other costs of termination remaining costs, plus a return on the unamortired could be incurred. Pending completion of the CAPCO imestments, would be recovered from their FERC review, the Company is unable to predict whether the jurisdictional customers.

construction on Unit 2 will continue or,if continued, on what basis such continuation will proceed. N"## . *P# ' ' ' ' E' ' ' "

If construction of Perry Um.t 2 is terminated, the other CAPCO companies, have entered into an agree-Company would seek to recover its investment but ment with Consolidation Coal Company (Consol) cannot now predict whether its investment in Umt 2 under which Consol acquired all of the common stock applicable to its PUCO jurndictional customers will of Quarto Mining Company (Quarto) and restated in be recoverable. If no means of recovery of the costs of its entirety the coal supply contract for the Bruce Umt 2, m the case of termination, were available to Mansfield Plant. The CAPCO companies'several the C,ompany from .its PUCO j.urisdictional customers guarantees of certain Quarto debt and lease obliga-and no other basis for recovery could be found or an- tions are not affected by the changes in the agreement.

ticipated, the Company wuuld be required to write off As of December 31,1987, the Companies' share of the 2

the portion ofits investment applicable to its PUCO guarantee was $167,800,000. The price under the coal jurisdictional customers. As of December 31,1987, the '"I Y '"" "# * '.ncludes certain minimum pay-Company estimates that the maximt.m amount of such ments, has been determmed by Consol to be sufficient a write-off would be approximately $211,000,000, net to satisfy Quarto's debt and lease obligations. The Companies' total payments under the current contract L

, of income tax effect. The Company does not presently anticipate that a write-off of e en this magnitude,if with Consol and the previous Quarto contract, in-required, would of itself affect its ability to pay com- cluding amounts related to mine construction cost, mon stock disidends at current levels, and studies in-dicate that the magnitude of any such write-off could a be much smaller if, despite its best current informa-tion, a much larger write-off were required, depending

amounted to $89,094,000, $83,106,000 and On December 5,1984, the federal Environmental

$92,532,000 during 1987,1986 and 1985, respectively. Protection Agency (EPA) denica a petition from the Under the coal supply contract, the Companies' future Commonwalth of Pennsylvania and the states of New minimum payments related solely to mine construction York and hiaine, which sought to force the EPA to costs are:

make findings under Section 126 of the Clean Air Act, Secti.m 126 provides a remedy for a downwind state 1988 s 25,929,000 24.928 000 that can show adverse impact becaus: air pollution in 1989 1990 23,927.000 an upwind state causes nonattainment of air quality 3l((

, jj$3$ standards in the downwind state. The petition com- i Years thereafter 128.887,000 plained of excessive particulate and 50, emissions from a number of sources in Ohio and other states, including The PPUC ordered Itnn Power to defer Bruce hiansfield Plant coal costs in excess of generally prevailing market potentially all of the Companies' Ohio plants. Seven northeastern states have appealed the EPA's decision prices; houver, amounts deferred are being recovered to the U.S. Court of Appeals for the District of from customers during periods that generally prevail.

Columbia, asking that the decision be reviewed and ing market prices exceed Bruce hiansfield Plant coal resersed, modified or set aside. The Company, along costs. As of December 31,1987. Penn Power's un.

with other electric utilities and others, has intervened ,

recovered coal cost: amounted to $4,701,000.

in the case. The cast was argued in December 1985 Emironmental Niatters Various federal, state and and a second oral argument has been scheduled for local authorities regulate the Cong.anies with regard April 26,1988. The Company is unable to predict the I

w air and water quality and other environmental outcome of these proceedings.

! matters. The Companies estimate thct compliance In October 1983, the U.S. Court of Appeals for the requires additional capital expenca ares of approxi- D strict of Columbia reversed several significant por-mately $92,000,000, which is included in the con- tions of the EPA's regulations on the methods used struction estimate given above under "Construction by the EPA to determine the amount of stack height Program" for 1988 through 1992, credit for establishing individual source emission As a part of the reauthorization of the Clean Air limits. In July 1984, the U.S. Supreme Court denied a Act, legislation has been introduced in Congress t utility industry request to review the Court of Appeals' address the so-called "acid rain" problem. Vadous bills decision. On July 8,1985, the EPA issued new stack introduced would require reductions in emissions of height regulations to conform with the court's deci-sulfur dioxide (50 2) and oxides of nitrogen from utility sion; the new regulations were appealed to the U.S.

I power plants and other sources located in several states, Court of Appeals for the District of Columbia by the including Ohio and Pennsylvania. The Company is Companies and others. On January 26,1988, the i unable to predict whether legislation will be enacted Court reversed and remanded several significant por-and,if so, to what extent,if any, the emission limits at tions of the EPAijuly 1985 regulations. The EPA must the Companies' plants would be affected. Substantial review and promulgate regulations consistent with the changes in the en ission limits could result in the need Court's opinion. The Ohio Environmental Protection for changes in coal supply, significant cap:tal invest- Agency (Ohio EPA) and the Pennsylvania Department ments in flue gas desulfurization equipment or the of Environmental Resources most then review the etais-closing of some coal fired generating capacity to is-  !

sion limits under their respective State implementation sure compliance. If flue gas desulfurization equipment Plans and submit to the EPA for approval any revised were to be in,talled on all of their generating units t limits necessary to conform to the new regulations.

achieve compliance, a circumstance that may be phys- Such review could result in more stringent emission scally impossible beause of space limitations at certain limits for some existing plants and increased capital f of their plants, the Companies estimate that the capital costs and operating expenses. The Companies are costs associated with such installation could exceed currently unable to predict the outcome of these

$1,000,0G3,000. The Companies expect that any such proceed'ings.

capital costs, as well as any increased operating costs ,

associated with such equipment, would ultimately be recovered fmm their customers.

0 35 l

)

In June 1987, the EPA announced regulations 9. Summary of Quarterly Financial Data (Una dited):

cosering small particulate matter emissions from The following summarires certain consolidated oper-utility boilers Although the Companies have power ating results for the four quarters of 1987 and 1986, plants in one of the two counties in Ohio where EPA Atarch June september December computer modeling predicts excessise small particulate T h'" hl ath' l "d'd ll 1987 30 1987 30'3987 31987 emisdons will be found, the Companies are unable to un ihauaa, nurt en hm amounts) predict the ultimate effect of these regulations, Operanng Resenun 5445,748 5443,348 5472,525 5417,935 operanns Espensn With respect to the environmental proceedings and Tasn 335,062 337,131 354,995 354,700

( described above, the Companies expect that any addi. operating income i10,686 106,017 117,530 63,235 tional capital costs which may be required as a result O'hcrin me and 3,, , g9 ,, ,99, ,,,9 g ,9,g g ,

of such proceedings, as well as any required mcrease m, Net internt and operating costs, would ultirnately be recovered from Other Chargo 64,915 66.119 61,821 51,270 their customers. Net income st 20,460 5:15,905 5:03.707 5 72,848 The cooling water discharge permit issued by Ohio Earmnas on EPA in 1978 for the Comprny's Niles Plant contained C"* "'"" 5"" I 8*2 2 s103,617 s 91,447 5 6L391 a requirement for constructio

• of a cooling tower to eliminate the discharge of heated water to the Alahoning

• • dh$$',,

of common stock River. Ilecause of potential public health hazards, Ohio outstanding 150,715 151,699 152,279 152,386 EPA suspended the construction schedule in January Earmngs per shm 1985 pending the results of a health risk assessment "*** "5' d I'#2 #

study Ohio EPA subsequently determined that the ap.

Atmh June september December plicable water quality standards could be safely met Three Alonth Ended 31,1986 30,1986 30,1986 31,1986 by use of a thermalload management system which on ihouuna, nuri per ihm amounm would curtail operation of the Niles Plant to the extent Operating Roenun 5461.451 5421,565 5434,079 5424,805 necessary to protect the fish population. Accordingly, UP"j'j",8 ,,

Expenses 347,018 324,394 342,836 335,295 on hiay 1,1987, Ohio EPA issued a new permit for the op,,,,ing in,gm, 334,433 97,373 93,243 39,3 n Niles Plant w hich substituted the load management other income and system for the cooling tower, On hlay 6,1987, the Deductions 74.930 78 459 80.178 82 830 Justice Department, on behalf of the EPA, sued the Net Internt and o,her charga 77.162 75,674 74,961 70,129 Con,pany in the U.S. District Court for the Northern Net income 5:12,201 s 99,956 5 96,460 5:02,211 District of Ohio alleging violation of the expired per' tarnings on mit. The suit seeks a court order forcing construction common stock 5 98,916 5 87.106 s 83,971 5 89,832 of the cooling tower as required in the expired permit weighied Arrage anu seeks penalties for failure to adhere to the con. Number of shares struction schedule m. the expired permit. Ilecause the of Common st d Outstand ng 141,221 144,861 147,044 148,981 cooling tower provisions of the expired permit have Earmngs per share been superseded, the Company filed a Atorion to of common scott s.70 s.60 s.57 5.60 Dismiss the proceedings. In reply to this motion, the Plaintiff acknowledged that the request for injunctise relief may now be moot but insists that penalties for missing schedule deadlines are appropriate. The Court has not ye: ruled on the Company's motion. Although the maximum potential penaity exposure exceeds 56,000,000, the Company believes that the amount of any penalties that may be assessed will nat have a material adverse effect on the Company's results of operations.

36 l __ _ - - _ _ _ _ - _ - _ _ .

Auditors' Report 1

To the Stockholders and Board of Directors of Ohio Edison Company:

We base examined the consolidated b*nce sheets As discussed in Note 8 to the consolidated financial and consolidated statements of capitalitation of statements, the continued construction of Perry Unit 2 Ohio Edison Company (an Ohio corporation) and is currently being reviewed by the CAPCO companies, subsidiaries as of December 31,1987 and 1986, and Possible alternatives being considered include indefinite the related consolidated statements of income, retained suspension, resumption of work and termination of earnings, capital stock and other paid-in capital, cash the Unit. Because the Companies are unable to predict flow and taxes for each of the three years in the period the results of the review, they cannot now predict if ended December 31,1987. Our examinations were construction of Perry Unit 2 will be terminated and,if made in accordance with generally accepted auditing terminated, to what extent the Companies' invest-standards and, accordingly, included such tests of the ments will be recoverable, accounting records and such other auditing procedures in our opinion, subject to the effect of such adjust-as we considered necessary in the circumstances. ments,if any, that might have been required had the As discussed in Note 8 to the consolidated financial outcome of the uncertainties referred to above been statements, the PUCO has issued an order in which it known, the financial statements referred to above held that a portion of Perry Unit I construction costs present fairly the financial position of Ohio Edison incurred through March 21,1986, should be disallowed. Company and subsidiaries as of December 31,1987 The Company has a 30% combined ownership and and 1986, and the results of their operations and cash leasehold interest in Perry Unit 1. A petition for re- flows for each of the three years in the period ended hearing has been filed with the PUCO. The Company December 31,1987,in conformity with generally is unable to predict the ultimate disposition of this accepted accounting principles which, except for the matter. Pennsylvania Power has a rate increase request change in 1986 (with which we concur)in accounting pending which includes its investment in Perry Unit 1. for pension costs (see Note 1), have been applied on a The Company will be requesting recovery of its imest- consntent basis.

ment in Beaver Valley Unit 2 in a future rate proceeding.

The outcome of the regulatory process cannot be pre-dicted with any degree of certainty and, accordingly, we are unable to form an opinion as to what extent the Companies investments will be recoserable.

g g Anhur Andersen & Co.

New York, N.Y.

february 3,1988 t

37

Consolidated Financial Statistics Ohio Edison ,

1987 1986 1985 1984 1983 1982 1977 General FinancialInformation (Doitariin thousands,ewert nr share amounest Total Operating Rewnues $ 1,779,5 56 51,741,900 51,754,749 51,637,104 51,515,852 51,429,626 5 796,289 Operating income 5 397,468 5 392,357 5 380,354 5 342,713 5 302,751 5 269,640 $ 146,508 Earnings on Common Stock 5 364,657 5 359,825 5 318,073 5 290,694 5 227,843 5 181,496 5 87,R63 Ratio of Earnings on Common Stock to Operating Rewnues 20.5 % 20.7 % 18.1% 17.8 % 15.0 % 12.7 % 11.0 %

Times !nterest Earned Before lncome Tax 2.60x 2.46x 2.34 x 2.34x 2.31 x 2.02x 2.3 8 x  !

Net Utihty Plant at December 31 56,336,099 57,239,741 56,644,750 55,983,214 55,246,565 54,522,733 $ 2,403,810 Property AdJitions 5 705.242 5 776,198 5 826,994 5 868,099 5 771,131 5 774,233 5 358,105 Capitahution at December 3h '

Common $tockholders' Equity $ 2,651.325 52,541,712 52,234,156 51,947,357 51,711,974 51.488,371 5 867.292 Preferred and Preference Stock Not subject to Mandatory Redemption 404,240 455,567 467,940 455,490 404,240 354,240 261,905 Preferred and Preference Stock Subi ni to Mandatory Redemption 145,351 160,794 176,694 158,483 158,i l 2 152,560 ' 98 000 tong. Term Debt 2,474,100 2,781,590 2,691,615 2,449,502 2,132,137 2,005,436 1,189,821 Tbtal Capitahution 15,675,016 55,939,663 $ 5,570,405 55,010,812 54,406,463 54,000,607 $ 2,417,018 Capitahntion Ratios at Duember 31:

Common 5:mkholders' Equity 46.7 % 42.8 % 40.1 % 38.4% 38.9 % 37.2 % 35.9%

Prefer ed and Preference Stock Not Subp 7 to Mandatory Redemption 7,1 7.7 8.4 9.1 9.1 8.9 10.8 Preferred and Preterence Stock Subsect to Mandar.y Redemption 2.6 2.7 3.2 3.1 3.6 3.8 4.1 longterm Debt 43.6 46.8 48.3 48.9 48.4 50.1 49.2 Total Capitahntion 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0*. 100.0 %

l ong. Term obhgations at December 31 5 858,758 5 882,271 5 772,934 5 856,671 5 797,125 5 656,655 -

, Cost of Preferred A Preference 5tal Outstanding at December 31 9.38 % 9.66 % 10.00 % 9.87 % 9,63 % 9.17 % 7.85 %

Cost of long. Term Debt Outuandmg at December 31 10.66 % 11.05 % 11.45 % 11.52 % 10.82 % 10.69 % 7.45 %

Common StocL Data Earmngs per Aurage Common $ hare 52.40 $2.47 52.45 52.50 $2.22 52.13 $1.97 Return on Average Common Equity 13.8 % 14.9 % 15.2 % 15.9 % 14 2 % 13.5% 11.7 %

Dmdends Paid per share 51.96 51.92 51.88 51.84 51,80 $ 1.76 51.715 Common Stock Dmdend Peout Ratio 92 % 78 % 77 % 74 % 81 % 83 % 87 %

Common Stak Dnidend Yield at Desember 11 9.7% 9.8% 11.5 % 13.6 % 14.7 % 12.6*4 9.0%

Price /E arnings Ratio at Dnember 31 8.4 7.9 6.7 5.4 5.5 6.6 9.9 Shares of Common Stak Outstandmg ar December 31 (000) 152,398 149,815 137,089 122,237 108,460 96,082 31,207 4 Book Value per Common Share j at De ember 31 517,40 516.97 516.30 515.93 515.78 $15.49 516.94 I

l Market Price per Common Share

] at December 31 $20.125 519.50 516.375 $ 13.50 512.25 514.00 519.50 i Ratio of Market Price to Book Value j per Share at December 31 116 % 115 % 100 % 85 % 78 % 90 % 115 %

i 1

38 t

l

~ Consolidated Operating Statistks Ohio l'aixm j 1987 1986 1985- 1984 1983 1982 1977 Rcwnue From Electric 521euThunde Rcudential $ 622,348 5 615,262 5 600,481 5 571,878 5 540,167 5 497,941 5 2k4,512 Commercial 454,706 449,590 433,445 400,291 385,277 356,325 191,381 Industrial 452,564 449,392 476,257 469,112 421,736 383,535 236,414 Other 69,454 64,345 64,708 57,921 69,278 67,828 31,744 Subtotal 1,599,072 1,578,589 1,574,891 1,499,202 1,416,458 1,105,629 744,071 Sales to Utthries 156,633 137.994 159,262 Il7J85 76,220 101,688 7,823 Total 51,755,705 51,716,583 51,734,153 51,616,587 $ 1,492,678 51,407,317 5 751,896 Rcwnue From Electric Sales-%

Residential 35,4 % 35.8% 34.6 % 35.4 % 36.2 % 35.4 % 37.8 %

Commercial 25.9 26.2 25.0 24.7 25.8 25.3 25.5 Induurial 25.8 26.2 27.5 29.0 28.3 27.3 31.5 Other 4.0 3.8 3.7 3.6 4.6 4.8 4.2 Subtotal 91.1 92.0 90.8 92.7 94.9 92.8 99.0 Sales to Utihties 8.9 8.0 9.2 7.3 5.1 7.2 1.0 Total 100.0 % 100.0 % 100.0 % 100.0% 100.0 % 100.0 % 100.0 %

Kikmart-flour Sales (whomi-Residential 7,299 7,046 6,791 6,836 6,735 6,733 6.334 Comrnercial 5,782 5,560 5,266 5,101 5,096 4,996 4,549 Indatrial 9,067 8,533 8,751 9,161 8,386 7,708 9,671 Other 1,310 1,192 1,149 1,075 1,211 1,227 1,253 Subicaal 23.458 22J31 21,957 22.173 21,428 20,664 21,807 Sales to Utdmes 6,252 5,835 6,929 4,591 2,917 3,361 422 Total 29,710 28,166 28,886 26,764 24,345 24,023 22,229 Customers Serwd at December 3h Residentia! 902,466 894,164 888,107 885,176 878,949 873,877 836.500 Commercial 99,322 97,383 96,048 90,810 90,072 89,706 85,002 Industnal 2,452 2,239 2,021 1,757 1,003 1,048 1,147 Okher 881 8( 2 892 721 736 724 682 Total 1,005,121 994,588 987,068 978,664 970,760 965,355 923J31 Awrage Annual Residential LTh Usage 8,140 7,924 7,682 7,762 7,695 7,723 7,637 Awrage Reddential Prwe per LWh 8.53c 8.734 8.84c 8.37t 8.028 7.40< 4.49<

Cost of Coal per Mdimn Bru 51.38 51.44 51.53 51.59 11.62 51.75 50.96 Generating Capabdity at December 31:

Coal 77.9 % 89.1 % 89.1 % 89.1 % 89.2 % 86.2 % 85.2 %

Od 2.7 3.0 3.0 3.0 3.0 6.3 7.4 Nudear 19.4 7.9 7.9 7.9 7.8 7.5 7.4 Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

Sources of Electnc Generaton:

Coal 87,4 % 91.0 % 89.3 % 90.4 % 8 9. 8 *,, 93.8% 90.0 %

Oil - - - - -

0.1 2.6 Nudear 12.6 9.0 10.7 9.6 10.2 6.1 7.4 Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

Peak load-Megawatts 4,579 4,243 4,084 4,093 4,148 4,073 4,134 Number of Empic3res at Desember 31 7,266 7,383 7,496 7,611 7,702 7,885 6,609 I

39

Stockholder Information I Dividend and Tas Information Transfer Agent:

For each quarter of 1987, the Company's Board of Ohio Edison Company Directors declared common stock dis idends of 49 cents 76 South hiain Street, Akron, Ohio 44308 per share. As a result of the Tax Reform Act of 1986, Attention Transfer Agent the dividend exclusion of $100 for individual returns geg;s,,,y.

and $200 for joint returns was climinated. Also, National City Bank, Akron effective January 1,1987, long-term capital gains One Cascade Plaza, Akron, Ohio 44308 are taxed at the same rates as ordinary income. For information regarding these and other tax matters, New Board hiembers we suggest that you consult a tax adsiser. At the 1987 Annual hiecting of Stockholders, Robert H. Carlson and Charles W. Rainger were elec ed to Disidend Rein estment Plan two additional positions on the Board of Directors.

The Company's Dividend Reinvestment and Stock hir. Carlson, senior vice president, Plumbing Fixture Purchase Plan was changed in 1987 so that common Division, of Universal-Rundle Corporation in New stock is now purchased on the open market by an Castle, Pennsylvania, is also a director of Penn Power.

independent agent. The change eliminates the need hir. Rainger is president of Sandusky Foundry &

to issue additional shares and was implemented hiachine Company and chairman of the board of because of the Company's reduced need for addi-Sandusky Limited, a Glenrothes, Scotland, subsid-tional funds at this time. Ohio Edison pays all iary of Sandusky Foundry & hiachine Comparg.

brokerage commissions, which are included in the Effective April 28,1988, William C. Zekan is amount of gross dividends on the Form 1099 DIV.

retiring from the Board. A 1980 Board resolution For more information about the Plan, write or call makes any person who reaches the age of 69 years Stockholder Services.

ineligible for reelection as a director.

Annual Nicet;ng of Stockholders hianagement Deselopments Stockholders are invited to attend the 1988 Annual The Company's Board of Directors in September hiceting on Thursday, April 28, at 10:00 a.m. in the elected Russell J. Spetrino, vice president and general Company's General Office auditorium in Akron, Ohio.

counsel, to executhe vice president, hir. Snetrino Those not attending can vote on the items of busi-will continue to serve as general counsel. The Board ness by filling out and returning the proxy card also elected Anthony N. Gorant, former Akron mailed to each stockholder approximately 30 days Division man.ger, to vice president of division before the me: ting.

operations. He succeeded Senior Vice President Computer Bulletin Board senice introduced David R. Gundry, who retired after more than Stockholders who have personal computers equipped 40 years of service.

with modems are invited to try our new Bulletin Board With hir. Gorant's election to vice president, service, which began January 1. Avadable 5:00 p.m. Robert L. Kensinger, former manager of the hiarion to 7:30 a.m. and on weekends, the service features Division, was named Akron Division manager. Fred daily stock prices and selected financial data. To gain K. White, former Iondon District manager in the access to the Bulletin Board, dial 216 384-7937. Springfield Division replaced hir. Kensinger in Atarion.

Contacting stockholder Sersices Als , Warren Division hianager Dacid C. Bixler For assistance or information, call and ask for retired in October with 4C years of service. He was Stockholder Services at 1800-321-0468 in Ohio, or succeeded by Edward T. Beil, former superintendent 1800 633-4766 outside Ohio, hionday through f elecuic tran7missi n and distribution in the Friday, except holidays, from 8:00 a.m. to 4:30 p.m., Y ungst wn Dimon.

eastern time. Callers in the Akron area and in foreign in October, the Board elected hianager of Con-countries should use 216-384-5509. structi a and Project hianagement Barry hl. Niiller Stockholders can also write directly to Stockholder m vice president of engineering and construction. He Services, Ohio Edison Company,76 South hiain succeeded Snior Vice President Lynn Firestone who Street, Akron, Ohio 44308. retired after more than 39 years of service.

Vice Presient of Rates and Economic Studies Additional Information James D. Wilson retired in October after more than Form 10-K, the 1987 Annual Report to the Securities 33 years of service. Also retiring is Vice President of and Exchange Commission, will be sent without hlarketing P 3nald D. Best, effective Apr;l 1,1988, charge to stockholden upon request. For a copy, following 40 years of service.

please write to Gregory E LaFlame, secretary, at the address above.

40

Directors and Management Board of I'irectors Officers Dhidon Managers I Donald C. Blasius Justin T. Rogers, Jr. Robert !.. Kensinger Ch,irman and Chief becutise Offiser of the liome Produas Prendent Akron Dnison Group of El, Columbus, Ohio (2ir conditioners, Litshen l

\,ict r A. Om G,ary M. Stan j

cppliances, laundry pnducts and Litchen cabinets), hiember, i

bnance Committee. Esecutne Vice Pnudent Bay Dniuon Robert }{. Carlson Douglas W. TschaPpat James E. Alarkle Senior VKe Prc,ident, Plumbing hsture Dnnion, of Esecutise Vice T.c4 dent Lake Ene Dniuon Unisersal Rundle Corporation, New Cetle, IYnni> hania Russell J. Spetrino Atalcolm E. Cash (plumbing fnturesh hiember, Audit Committee. E secutise Vue President and hians6clJ Dniuon General Counsel Dr. I ucille G. Ford Fred K. White Vice Preudent for Academic Affairs Ashland College, ett p Qoner Seni r , ice Preudent hianon Daision Ashland, Ohio Chairman, Nominating Committee; Member, bnance Committee. }{. Itter Burg Springfield Dnidon Vice Preudent Robert L. Inughhead Robert E. Dawson Retired, formerly Chairman of the ikurd, Preddent and Chief Frank E. Derry sea,L pn ujon becutise Officer of Weirton Steel Corporation, Weirton, West Vice Prendent Virginia (steel productst Chairman, Compenution Committee; hiember, Audit Committee. Iohn A. Gill Wanen Dnision V. . ice Prendent Glenn }{. Meadows Anthony N. Gorant ung n on Presdent and Chief Esecutise Officer of hicNeil(Ohio) Vice President Corporatton, Akron, Ohio (urious manufaaured pnduad g

hiember, Compenunon Committee, Audit Committee.

Yke President William R. Miller David I., Yeager Retired, formerh Vue Prendent of Gmernmentalltrsonnel Vge p:cydent Relations, The Goodyear Tire and Rubber Company, Akron, Ohio (rubber and related products). Member, Compensanon Mark T. Clark Committee. Treasurer John Nelson TIIII'm ^* U'"I'I' Retired, formerly Chairman of the Board nd Chicf becutne Cornptroller Off cer of Commerual Sheanng. Inc., hungstow n, Ohio Gregory F. I aflame (engineercJ metal componentsL Member, Compenution Secretary Committee.

Warren G. Fouch Victor A. Owoc Auistant Comptroller becutne Vue Prendent of Ohio Ednon. Member F mance

""""#**' Joanne Martin Asdstant $ccretary Charles W. Rainger Theodore F. Struck,11 Preudent of Sandusky Ioundry A Machme Company, Anistant Treaa.urer Sandusk y, Ohio (centnfugal ca stingd Member, Compensanon Committee. l{arsey L. Wagner Justin T. Rogers, Jr.

Prendent of Ohio F dnon and Chairman of the Board ofits subediary, Penns) hania !%er. Chairman, Finanse Comnuttee; Member, Nominatmg Committee.

Douglas W. Tschappat becutne Vise Presdent of Ohio Edison.

Frank C. Watson Presdent of The Youngstow n Weldmg and E ngincenng Company, Wungstow n, Ohio (nonferrous alloy s). Chairman, Audit Commmee; Member, Nominanng Committee.

Wilham C. Zekan Chairman of the fkurd and Preddent of A. f -hulman,lne.,

Ak ron, Ohio (cuuom plasnc compounJs). Member, Audit Committee, Nominaang Committee.

Director Emeritus Fred 11. Zuck

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