ML19345G446

Forwards Annual Financial Rept 1980 & Other Financial Info Demonstrating Cash Flow Adequate to Pay Retrospective Premium

ML19345G446
Person / Time
Site:	Davis Besse
Issue date:	04/02/1981
From:	Maugans E CLEVELAND ELECTRIC ILLUMINATING CO.
To:	Saltzman J Office of Nuclear Reactor Regulation
Shared Package
ML19345G447	List: ML19345G446 ML19345G450
References
NUDOCS 8104070261
Download: ML19345G446 (2)

Text

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v e cLEVELANc enc mot a TELEPwCNE '2'6, 622 w/) a :LL;,vs. A?.,Ci S.OG e 55 stauc 50vant j

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Ser.mp Tre Be:t f.ccance :n :ee Nat:an Edgar H.Maugans e ct es.e s. m....< t

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P clear Reacter Regulation A/

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~4ashingten, D.C. 20555 ' Q-y Re: Ecchet No. 50-3!.6 Le ar M.r. Salt -- : Eetrespective Pre i= Guarantee

• he Cleveland Electric Ill=inating Cc=pany hereby provides the docu::ents described belev and enclosed herewith as evidence of its guarantee of its share (15,138,C00) of the retrospective pre:i= which say be levied against the Davis-Eesse Unit No.1 ree.cter licensees durirg calendar year 1%1.

1. The Cleveland Electric M-irating Cc=pacy 1960 Annual Eeport which includes certified financial state:ents for the calendar year 1%0.

2. The Cleveland Electric Ill=inating Cc=pany 1960 Fcurth .

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Q arter Raarterly Review .tich includes financial state-ments for the quarter ending rece=ber 31,1960 (the 1961 First Q arter Qaarterly Review is nct yet ava"able).

3 An Estimate of Cash ?csition and Scurce Of F=ds actual 1960 and projected 1981.

Acccrdingly, The Cleveland Electric Illu=inating Cc=pany believes that

, a cash flow can te generated which would be =cre than ade7:ste s"" * +

te regaired to pay any retrcspective pre =iu: in the a: cunt of $5,133,CCO.

Sincerely, e--

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s E. H. Mangans [A00 Y Vice ?n sident-Finance f I

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Enclcsures cc: Dccald G. Sicholsen Vice President, Finance Toledo Edisen Cc._pany THIS DOCUMEllT C0tiTAINS 8

POOR QUAllTY PAGES 104o70 2.6\

1981 Internal Cash ficy Projection for Davis-Besse Unit No.1 Nuclear Pcwer Station (Dollars in Thousands) 1980 1981 Actual Pro.jeeted Retained Earnings (l) ......................  % 721 $ Adjustments Depre ciation and A:::oiti:ation . . . . . . . . . . . 64,6h0 85,741 Deferred Incom Taxes and Investant Tax Credits ........................... 30,330 40,151 Allowance for Funds Used During Construction........................... (65,92h) (76,500)

Tot al Adjus tme nt s . . . . . . . . . . . . . . . . . . . . . . . . . 29,ch6 49,392 Internal Cash Flow ........................ $hl,767 $49,392 Average quarterly Cash Flow ............... $10,h41 $12,3h8 Percentage Ownership in Unit .............. Davis-Besse Unit No.1 = 5138%

Maximum Total Contingent Liability ........ $ 5,138 $ 5,138 (1) " Retained Earnings" mans net incom after incem taxes and divi-dends paid. The Ccmpany does not publish its projections of these "

amounts. Accordingly, net income after taxes and dividends paid '

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used in the 1981 projected data, although contrary to the Cc=pany's expectations, has been assumed to be zero. The figures shown for the 1981 projection year are those ncn-cash items necessary to establish that its maximum total contingent liability can be satis-fied from internal cash flow.

EEEIIIIEAII2E I, Edgar H. Maugans, Vice President-Finance of The Cleveland Electric Illuminating Company, hereby certify that the foregoing Estimate of Cash Position and Source of Funds for calendar year 1981 is derived frem accu-rate data and reasonable assumptions and is a reasonable estimate.

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l l 3 i Contents 1980 Highlights l l

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Page

• Earnings per share were $2.26, down from 1979.

j Financial Summary . 2 1980 Highlights 3

• Common stock dividends were increased 2c

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Letter to Share Owners . 4 Per 9uarter, effective with the February 15,1981 Area Development 6 payment, the 23rd consecutive year of increase.

i Construction Program. . .. 7

• A $73 million rate increase became effective i

Financing . 9 for retail electric customers. f Rates . . 11

• Application for a $172 million (19.6%) increase tion Prog ams. in electric rates was filed with The Public Utilities

100th Anniversary Commemoration 15 Commission of Ohio. i Directors and Officers . . 24

• A mistrial was declared in the antitrust case; Committees of the Board of Directors . 25 May^ 18,1981 has been set for retrial of the case.

Management's Discussion and Analyds of Financial Condition and Results of Operations . 26

• 1980 peak load of 3,304 megawatts, second Management's Statement of Responsibility for highest m Company history, was recorded mJuly.  !

Financial Statements . .T

• A new coal-fired unit, Mansfield 3, came on

, Financial Results . . . 29 line in September as scheduled. The Company i Report of Independent Accountants . 41 owns nearly 25 per cent of the CAPCO unit built, .

Financial and Statistical Review 1970-1980. 42 44 by Pennsylvania Power Company. l Inflation Accounting . .

I Share Owner Information. . 46

• Construction program for 19811985 is $1.7 Service Area Map . 47 billion. l l

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Dear Share Owner:

As we near the conclusion of avast spending The Illuminating Company this year marks program to meet current environmental stan-the 100th anniversary oiits founding. Our century dards, Congress is to begin debate on a of service to Cleveland-Northeast Ohio has rewriting of the Clean Air Act. The likely focus spanned good times and bad, war and peace, of this debate is acid rain, the causes and effects prosperity and depression. of which are not yet understood. A number of The great legacy of our history is what it studies on this subject are in progress involving, teaches us about our future. We have succeeded both government and the electric utility industry.

foi a century because we have recognized and It is our hope that tids issue will not be addressed fulfilled the expectations of our customers for by an emotional rush of ill conceived legislation reliable electric energy. That remains our mis- but will be subjected to dispassionate study and sion. At each stage of our Company's history analysis so that legislation, if, in fact, any is we have had the managerial flexibility and the necessary, will be insightful and responsive to technological expertise to match our service real needs.

to the needs of our customers. That remains With your help, we hope also to see the end our goal. of the use of the regulatory process for other Our nation's electric service is distinguished than its legitimate purpose. The Federal govern-by t to factors: it is the most reliable in the ment, for example, under the Public Utility world and it is predominantly investor owned. Regulatory Policies Act has instructed state We know that if we are to continue to hold a regulators to consider adopting a rate structure place in the American free enterprise system that would provide below-cost electric energy we must continue to supply the energy our for some minimum use level. This so-called customers need when they need it. Lifeline rate is intended to assist low-income Management's primary task is to perform in users in meeting rising energy costs. In our view, such a way as to merit the continued support of electric rate regulation is not the proper way

customers, employees and investors who have for society to meet its obligation to the less fortunate. Even if it were pr6per, this effort been and will be partners in the building of an energy-independent America. misses its target because many of the poor use The need for such an active partnership has large amounts of electricity. Under Lifeline never been more apparent nor have the oppor- rates, larger users would subsidize smaller ones.

tunities for success been so great. The new Legislation is pending in Congress that would Administration in Washington seems more provide a tax incentive to dividend reinvestment.

willing than any in recent years to end govern- Passage would be of help to utilities in their ment's regulatory excesses and to strike a balance efforts to raise the money for new facilities.

between the costs and the benefits of regulation. We hope that you will make your voice We have learned from experience that the more heard on these and other issues of importance government has become involved in out affairs, to c tr Company.

the more expensive it has become to operate our ile have been fortunate over the years to l Company. Nowhere is this more apparent than has e had a balanced public utility regulatory in the area of environmental regulation. cr. mate in Ohio. This climate is established by regulatory laws that have offered responsible commissioners some flexibility in dealing with sensitive problems. It is essential that this climate be maintained.

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l1 While we face many problems in these dif6- are now establishing the standards of service cult times, we are optimistic about the future. that will be examined by our successors 100 With your encouragement, the Administration years hence. That alone should spur us to do and Congress will curb government's 6 scal and our very best in the time we have. We believe regulatory excesses and the inflation they have we will be judged favorably.

wrought. Inflation is our greatest deterrent to We are 6nancially sound. We are meeting improved 6nancial results. With your support, our responsibility of providing reliable electric we are optimistic that Ohio's balanced regulatory service at a fair price. We are addressing today's climate can be preserved. We have been a part challenges and problems while building for to-of the growth and development of our advan- morrow. We have in place dedicated managers tageously located Northeastern Ohio service and a skilled work force who have inherited

, territory and are optimistic about its economic the service traditions of the past and who I future because we know that its basic strengths recognize their responsibility to the future.

-its people and the industry they created- With your help we expect to make the electric remain intact and are eager to get going again, energy necessary to meet the aspirations of l As we enter our second century, we are those we serve.

optimistic about the Company's future and its sincerely, l ability to meet the c~;.allenges of tomorrow. We

. . ' Q s ; % .; .+ }*[ - 6 .7 !l Robert M. Ginn, President y  ;

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Our Mission: 're""'"'e m "e:r > r~

gam F r im t hat * : m e * > r wa a r a ma?m ha3enernrm " """"

Matching Growth with Power stru u hne ~ cntev ~ ne a r .noependen<e Over *he remainder :d 'his s >nt ury oa! and m Amenca thrives on energy As a nanon we evolved nuclear powered plants wd! ncreasmely bear int from an agranan society 'o an ;ndustrial pant as we maior share or the country 3 energy t,urden Coa! and I learned to use t he bountifui tuel suppnes . hat underhe uramum are a:ter all the only plentitul atfordaba l our sod and pros en fumestic energy sourtes avadable to us. l I

The OPEC od embargo of 197 3 however re'.eaied Perhap3 ew +echnoingies wnten w e supp< +rt w di a ternbie truth - our energy future hes not m our wn provide arternate enerey sourte, but 1t :s unkke!y hat hands but m the hands those who would use our these wdl .ontnbute substantial amountc of rehabic electncity untu the year ACO and neyond The task of The Illummatmg Company today as :t Energt forJoc. s b been w the past 100 years is to provide :ts cus-

- rrip' , . Qf.- f ? F *omers with a dependable suppiy of e! ectr:c energy to 3

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.[ sustam the er< >wth or the Ceveland-Northeast Ohio I

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.. 1yg. .. .  : regio t Durme the 1%1 W83 per:od k ui >wat t hou r

, p 147 if . 1 usage wdl mcrease about three per cent per year as the

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for the region oi atw.ut two per cent compounded l'* .,.

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, udustnal bedrock supports more than 50 000 com-g ..  : *' -= . ga; ; e 9.N merc:ai busmesses and about 630 000 homes i in MO our :ndustrial ammercial and resident:ai Y,1 E

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nc!ubind 30f! !!SSue' h r*S no t iet'n bi < >r i 'la r', .\, r< n N  % d3 d ?' m E ro mi "Ne dua ' -O I'e : n ' e % We *?en

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'- re % !S *n new '.<Se5 Or e:ei r e He re ne )? 'he **% CL new e,ec:re n:e uaeo gam. , m & +e roa e e\ ;w n 7

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! businesses have been injured most, actisity among The outlook ova the next several years for com-

! nonferrous metals producers, chemical processors mercial construction is good as there appears to be a 2 and other industries also declined, although to a far continuing demand for ofsce space throughout the lesser degree. In 1950, major auto and steel manufac- area. Plans have been announced aireedy,by Medical i turers purchased 21 per cent fewer kilowatthours than Mutual. Ohio Bell and Superior Square for new down-i in 1975 while sales to all other industrial customers town buildings which will add nearly 1.6 million j l were otT only six per cent. In fact. recovery appears to square feet over the next two years. In addition, the ,

i have begun among our industrial customers as fourth Cleveland Clinic revealed plans for a $300 million  !

quarter sales were up nine per cent over the third expansion which will double the Clinic's size within I quarter. the decade. Phase One of the Clinic s master plan will Our commercia! and residential customers were begin this year.

affected least by the recession as kilowarthour sales Moreover, we expect construction of a m.mber of were up about three per cent in each group. In both suburban o$ce buildings hospitals and shopping

! cases, extremes in the weather increased the use of complexes during the 1980s.

j space crnditioning systems. Similarly, the industrial segnent will show increased <

Power demand peaked at 3.304 megawatts on July expansion activity over the next several years. Major j 21, the second highest peak in the Companys history modernization and expansion projects are slated for  !

i and 6.7 per cent above the 197', peak. The size of the the area's auto plants. Both Union Carbide and Schio i

peak is signi5 cant because it occurred in spite of the will make multimillion dollar investments in new i l downturn in the economy.That is why our construction research and development facilities and the National i j program is so vital to the continuing growth of the Aeronautics and Space Administration is contemplating j

service area. We must always be able to meet that peak further a Mitions to its Lewis Research Center. These ,

demand if we are to spare our customers blackouts are but a .w of the steps industry in our region will and brownouts. be taking it continues its renewal and expansion of l i During 1980, construction activity demonstrated plant and 'ipment during the 1950s. l the inherent strength of our market place. About 5.4 For 19E e are expectir.g sales increases in each l l major seg,

million square feet of new commercial space was of our business-industrial. commercial -

added in the area. Still, at year end, downtown cEce and reside._ Our forecast is for a six per cent gain

buildings had a 97 per cent occupancy rate, one of the in kilowatth sales to industry, a four per cent gain

highest in the nation. ,

in commert and about a two per cent gain in residential. Im ion has dampened new home con-

,' struction as only 3me 3,400 new homes were built in I 1980, half the n. sber built in 1979. When inflation l snally begins to rt ede, there should be a resurgence in new home conss ictionof allkinds-single family, m . o condominiums and )artments.

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Our Obligatie Building to Meet vower Needs

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.' , 'l e success of any public utility is measured by its

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when they need it. The Illuminating Companys record in this regard is one of the best in the nation. For 100 j

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! - 4, . met them with well planned and well-managed con-struction programs for new generating plants and

' transmission and distribution systems.

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• tion program when. in September, the third and Enal unit of the Bruce Mansheld coal-dred plant was put

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.p inic service on schedule. Our share of Mansseld Unit j$ 3. built by our CAPCO partner Pennsylvania Power l Energy for Lifestyle i

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8 Company cost us $153 mainon and represents nearly transmission and distribution f acihties l 25 per cent of the Umt s SOO-megawatt capacity in addition to our major construction projects we We now have three nuclear generating umts in must continuously up;rade replace. service and vancus stages of completion. Perry Umts 1 and 2 are momtor the existing systems to assure maximum scheduled to come on hne m 1984 and 1988. respectively rehabihty and availability To ensure rehabdity even m "hese two Units are a $3.9 billion prcject bemg built the face of catastrophic events. the Company dev ' 3ps by the Company Our 31 per cent share of the Plant s and rednes numerous computer systems and models 2.410-megawatt capacity will represent an investment To assure maximum availabihty and reliabihty we of 51.2 billion. have stepped up the pace of improvements to existing The third nuclear project Beaver Valley Umt 2 is generatmg umts. I being built by CAPCO member Duquesne Light A study has already begun et alternatives for meet-Company at Shippingport Pennsylvama andis ing the energy needs of our area in the 1940s.

scheduled to be put mto service m 1986. We will own Research and development. vitally important to our nearly 25 per cent. or 211 megawatts. of this Unit. industry and the Company is carne i out m a umque Extensive modifications were made to the Davis- way. Because members of the electric utthty industry Besse Nuclear Power Station dunng 1980 as it under- share common technologies. we 6nd it advantageous went its 6rst refueling. These modi 6 cations were to pool R&D monies for joint etTorts The mam R&D prescribed by the Nuclear Regulatory Commission thrust is carried on under the auspices of the Elec'nc and mvolved new instrumentation. cnanges m hre Power Research Institute iEPRIL With an annual protection equipment and improved pipe support budget of some 5270 million. EPRI is conducting systems. As a result. Davis-Besse. which complied literally hundreds of R&D projects all aimed at with safety standards at the time of licensmg. now 6nding new ways to provide electncity more econom-

.neets the latest NRC regulations. ically. efbciently. safely and with minimum impact on the environr,ent.

[

Over the next five years the Company expects to

) invest 11.7 billion m new construction. The major portion is slated for construction of the new genera-tmg capacity at the Perry and Beaver Valley Plants.

Also mcluded is $126 million for pollution control equipment About 1300 millicn will be spent for

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Financing Energy Construction  !

,3 About half of the $15 billion we need to spend over I 19 6 comtant coau; g the next 6ve years will have to be raised in the capital '

q markets. 1

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arranging snancings over the years at the lowest possible cost to the benest of our customers and share l

owners. At the same time. during this very dif6 cult i penod we preserved a relatively strong snancial posi- .

200 tion compared to te overall industry record. l l Stated simply. our Snancial objectives remain: ,

! (1) to provide a fair total ri.Nrn to our share owners:  !

12) to maintain earnings grown that will support divi- ,

dends attractive enough to gire our common stock l IW competitive appeal: (3) to maintain our credit ratings ,

so that additional bonds and preferred stock can be l sold to raise needed capital at reasonable cost: ad ,

(4) to attain a capital structure of 38 to 42 per cent '

common equity.12 to 14 per cent preferred stock and a s n 78 79 so 81 82 a3 s4 85 maximum of 48 per cent debt. I Actual Est: mated l l l l

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Energy for the '80s and beyond i Customer energy demands are met most economically by

\ sharing ownership ofgenerating facilities with the other

, members of the Central Aree Power Coordination Gmup.

! (Fa' Leftl The Bruce Martsheid Plant's third generating l

unit started service ;n late September as scheduled. The ,

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Company owns about 25 per cent of the SOO megawatt , a l capacsty of this coal-l ired CAPCO umt. (Centeri First 6 - -

- _pf gp9 A'+mn; refueling of the Davis-Besse Nuclear Pbwer Station began in .gi m i April. The Company owns 51 per cent of the Station. Here.  ; .a % -

, W. , s ' :'y , ~: . 3 J-i,%, g , w ,X VJJ the reactor is ocened for inspection prior to fuel-handling. - '; ~ -

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Extensive modifications were made to meet new NRC requirements to make the Station even safer. (Righti The h * ,a L- .O %%' 2 Perry Nuclear Power P! ant is being built and will be <~ W y ' ,e '

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• operated by the Company. The Company's share of the Plant is about 31 per cent. The first unit. planned for

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service in 1984. is about 70 per cent complete. Perry is V:, ,* }_,

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the largest construction project in Ohio, employing over 3 000 people.

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o December o pay tor water pc;!ut:on cor..roi fac:h- a me 'he N'e s.* ew 'r. . at se Ea>rla b Pr er ?l;ct in nes at tour generatma plants and a steam heatmg plant. :j.m .,,g c ,,7 p; y ., s , ,m .s y ,, , ,,.g,,.

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ut:hty The mitla! var;u m .nterest rate prov:sion saved  % ,,,, g ye yg,uj; , ,n,.,g; ,ej ,,

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notes - ts ru nJ :unas sec. ree b aur nrst mi,r'pze nonds the arrancement .a br:ng e a t :tal.>t up to Sno milhon rv Apr i W Last year we raised 519 milhon

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nis arrangement A xey eature at * .is nnanc:ng

s that :nterest osts are averaged over a ;vnod or nme

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h ] 'J J U y !P*"Ilr% :a:I , !! 'M I \ t hdn* ra %e 5 M i T.III 'n nT:idin J [r' Jdte alC e men t d DTe! erred stik.K And I Di . U ' ' ' ' ' " l ' hr ud h a !a t-cXe:np ' nr. Int:n; A. r n.! + , i, a r ; [ _- lbstu' $N: T , 7

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about 5120 million of hrst mongage bonds some af which may be pnvately piace d We recently renegot:ated 59 =lhon af mtermed: ate-term bank ;oans and arranged an addit 2cnal 5 50 mnbon bnngmg the total to 5134 milhon This amount wil! be pata :n annuai payments of $26 8 rmilion from 1954 througn 1985 This nrmng :s partcularly sigmscant oecause our annual iut!ays for currem construc*on _

programs snould peak this cear The new repaymen* ' ' '

scheduie comeices with the ume trame :n wn:ch zur three nuclear umts wd; be placed :n serc:ce Can- On le we biec an acco:a: en : 3r a 5:~2 3equentiv as the cost or new fac:hties a reilecte ! .n mi;!;on rate ncrease Instead or us ng sa.eD m r :a.

rates we wu! be acie to generate more cash mternai!v data 2rc whn ' 2e'ermme :ests we asxed *ne recucmg the amount we need to snance externai!y PUCo's u se a : recas: :est cear m ms _ase :b: *ne The hnanc:ng pian :or :9M ontams suisc:ent f.ex- year m wn ch he new rates .eu.; ecome "dec* ;-

Cli!!V O allow U$ . .aneuver:ng rnem a accommecate we ee::et> a re:as :est cear w: rerm: : 2rs enang:ne marxe :nna: : ens and nterest ratus "ur re:le: ;ur ren s ,s:s ans: '. e . : a <eer race w -

customers and share QWners are nuS as5ured thas we :3: n 4 7 f.a:4C C A 3eC:s:s r n nw Jade .s eXpe e wlil attempt 'O aCCOmpi;5h Jur snanC:nds at :ne .Cwest ear'c n :he secenc .;uar - - :r:

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In order

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12 On Tar iarv 10 ;W1 we m e a notu >! :ntent to nie with the PL CO a turther rate merease application or 5:14 milhon over the amount curramly requested l We will make ..ur tormai nhng !ater +his year This request whah would amount to a 10 per t.ent increase recogniz es milation cor.tinuing at a double-digit rate A Ject 31on is expected : rom t he PUCO early next year.

Throughout the past year we took very positn e steps to try to counter the etfects at mtLition and recession on our operations. Costs were reduced Our employees through an ongoing Operations Improve-m a .ind ihe en s ironnient ment Program submitted more than 1000 suggestions The Campans s commitment to environmental 2morove- which resulted m savmes or 5 2 milhon. We deterred  !

ment connnued m 19SO w th compienon or electrostanc numerous capitai spendmg programs. We hmited new l vrecipitator systems at *our generanng plants Total cost of htring and redu:ed overtime We have kept nnventories the precipitatur program is $130 million Below the last at fuel and equ1pment at the lowest levels possible or four precipitators at the Eastlake Power Plant nears These strmgent measures have not yet imperiled our completion for seruce in eariv 1981 These large comple^ pnmary responsibility to provide power and service deuces are desyned to remove more than 99 5 per cent but a prolongation of these measures could base an or the t?v ash contazned m flue gas adverse effect in the future.

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Our Citizenship: Helping *-m:"

Preserve the Environment i".m~ w'a r.

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is hrmly nxed in .ts service area The environment ,,.,,, ,. . , . . ,, ,

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Durmg 1980 the Company spent about 592 mu, lion .j , , , , , , . ,,

on environmentai .mprovement programs The .

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primary focus of these expenditures was on air quailty and a number of ongoing water qualay projects l Our most vexmg pollution problem mvolves the Federal Environmental Protection Agency ,EPAt and new limitations it has imposed on sulfur diouce emissions at our Avon Lake and Eastlake Plants We l I.'j / @

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smce 19M when thev were hrst promulgated in the . =. J L .. M.1 , '

• 4~ <-V ensuma vears we ha've been able to aemonstrate to the EPl t' hat its origmal limitations were more restric-  ?

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tive than needed We have been monitoring the g-c  %'

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ambient air quahty at each site with our own momtor- f j ,g ..

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mg systems and will submit our data to the EPA m 1 March 1981 We beneve we can contmue to burn Ohio . . f,g.g.

,v.J  : $ k , g - ? --%

coal without hurtmg ambient an quah! and without '. '

J  % k. $ h '- -

~ [? ,'

• ? 4 N adversel, affecting pubhc health We will keep .

work ng with the EPA to achxve that ooiective *

.. 3, .

l If more strmgent hmitations are hnally imposed we will f ace ' ery expensive choices We will have p .y; g'yJ Z,.. ; .

e

(

i either to begin buying high-cost ;ow-su! fur ccal from , , i, . . . -

~

6W^ ,. u as--

sources outside Ohio or to spend hundreds of milhons .t a . . ......c.- ..:

of dallars to mstall and operate scrubbing equipment - Dee . A . * ..-....i~..P .. ".~., l

.j ' '

l so that we can contmue ta barn high-sulfur Ohio coal 4 7 -

• ' -4F 4 The Company is not opposed to all regulations and standards from the numerous State and Federal

$g' '. C [.~ v . f . E v .. -

agencie, Rather we would like to see these agencies A .

empicy the kmd of analysis that 'bjectively weighs q_, . gp I the cost or a regulation with its dirut beneht. 4- ggg yn Wt, n a.

Our Imperative: -

Communicatinoo with Customers -

s Commumcatmn with customers is a " Ital part of our j ; o service For exampie our customer service people who are commumcatmg daily on a one-to one basis g .

- ~-;

y y( ; p with customers handle more than s00 000 phone , ' Pap.-

cails and visits each vear ipectahsts serve our mdustrial and commercial

g ',n,',

h l i customers showmg them ways to use electricity more p 3 y ,

ersc: ntly and assisting tnem in pianmng enerey f -

7 '

requiremems ror new sanstructu:m and expansion.

These speciah >ts also provide techmcal services to '

desempers a chnects and engineers _

l

i 14 i

l Similarly, residential representatives and home Whatever success we've enjoyed as a company is 1 economists work not only with homemakers, but with directly attributable to the high caliber and dedication home builders through seminars and presentations to of our 5,000 employees. In large measure, it is our

explain new insulation and construction methods and employees' enthusiasm and selflessness that has I equipment such as the heat pump. They also encourage enabled the Company to achieve so much over the the ef6cient use of electric energy for heating and years. In good times and in dif6 cult times we have cooling. been assured of their support, con 6dence and cooper- ,

1 All of these specialists share a common bono with ation. For that, we are most grateful. l 4

their peers throughout the Company - training. On the-

! job training is provided to all of our 5,000 employees, 1 .rfording them the opportunity to be the best at their ~~ ~

tasks. In addition, employees may take advantage of Company sponsored and taught Personal Develop-

~~ Nh' NN l ment Prograras as well as adult education programs N g ,

! through.which they can earn undergraduate and -

l l advanced degrees at local colleges and universities. N<

Training takes on added importance as we prepare

• i for the time when we will commence operation of the ,

Perry Plant. By the tims we are granted our operating , p i

license for the 6rst unit which is scheduled to come N

.N into service in just three years, we will have trained \ f, some 230 people in various disciplines, including 40 licensed operators whose training costs $50,000 each,

\

I plant maintenance specialists, administrators, engi- ..

_ 1 l neers, health physics and chemistry technicians and N l i in plant non licensed operators. The second unit will l require an additional 90 similarly trained employees i

before 1988.

Never before in our history has the need for com- ,

munication been more critical. We must use every - g, available means to heighten public understanding of M t

4 how a regulated public utility works and the energy issues that threaten all Americans. An informed public

g, ,

l can be our greatest ally as we strive to meet the tough s a energy challenges of the future. g In a very real sense, oui plant operators, line crews, p ,

meter readers and 6 eld supervisors-the people who c< .

shoulder the day to-day burden of keeping the power gfl flowing-are our nrst-line communicators. They do .

~'W their jobs so well that many people take the casual flip g of a light switch and instant illumination for granted. $@GQg.gg g .M Some of our employees are featured in our current . . , , wg s ' mwg informational advertising program, "The Energy Makers

• Various employees speak out through news-

,. g" PC q '*u 9W papers, television and radio on energy ef6ciency, intiation, service reliability, safety and consumer assistance programs among other themes. This cam-paign provides the public with answers to questions l most frequently asked. It also shows our customers Energy for the future i that The Illuminating Company is made up of real On the road to energy independence, the electric car l people who wark hard to make energy at a reasonable symbolizes new sources of future demand for electricity.

cost. As the " energy makers: our employees are a This station wagon. re-engineered for electric use by the source of energy information in their neighborhoods, Cleveland-based Electric Vehicle Associates, Inc., is also churches, clubs and among Geir friends. a reminaer of the continuing challenge to anticipate and serve new demand, as the Company has done for the past i 100 years.

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!:Is iniapprodadon d the contnbutions made powereo manufactunng plants. So :t was that by employees past and present that we oclude when Charles Francas Brush sum.nated Puoir I thls spedal anruversary sectron in cur 1980 . p Square with arc bghts one evemng :n 1879 l Annu.J Report. CleveLinders dwerved the dawn of c n rw f]

more dynamr aqe

. Yesteryear's employees h ave left a legacy l

ois Wear datrahm d exceGence whrh ,

This was the age of electr'c:ty. wnrh w l b,tod.sy a mcavadng force for those el us to begin in camest su months later wnh I entrusted with the responsibsty d providing Thomas Alva Edson's invennon of the l

' ncandescent !ight buib. Two years therear'er power for our Cleveland-Northeast Ohio area.

i Much d what our Company has become, we Years of semce it would be Charles Brush's own Brush E'ectnc owe to the foreaght and hard work d those Light and Power Company, the ancestor of

.sho came before us.  ; ,o The Cleveland Elecmc Illuminating Company What was Cleveland. Northeast Ohio like a of today, that would begm to bnng the benetts when The Cleveland Electric W U1O Way We WeTe of Edison's mventon to C;eselanders so Company was mcorporated? It was a town of began a penod of progress and growth that prom:se,well-sttuated for industrial and has trought the convenwnce. comfort and commerdal development and eaoer to be . economy of electnc service to the s1gorous.

aboct the bustness d worldng. buJding and ' tndustrial-commercial C'eveland-Northeast growing. Yetit was a place ci ed and gas c Ohio area and the many hou2nds of families lampo, d horses and buggles and of water- that enjoy Bving here.

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"The Beginning"

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4. . .o In 1881 an. crews e by horse

_ __ ., ;'" ~~ L ','~ ~ $ ;.' i and wagon to smng th.i hrst seruce 7-j ;iy,r;fJrg 'pa- imes across the roeitops of a

'4 t '-, - Is+Le downtown Cleseiant only tbree-

. .,L.sse,zst%

sr u . <e.. <. < . -, -d- , quarters of a square mde :n sue

-w..<<.,(--./..~.* There are 100 000 people hvmg m s

[g'_gf jj'y 't Cleveland and only 88 elecmc street lamps m use D ~.jp4

y. A a .

s.-4, O e.,.di 'j"w'[ By 1893, the year that The Brush E'ecmc . Lght and Power Company l

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• merges with The C:eveland General Eec*nc Company. there r.re approx-S'<.w a. ,- .h.~. 4

s. ..a.p*

.<,...s a J f.-',,; g,,, :mately 400 customers A growng C;eveiand dedrates its Soldiers and Sadors Monument on Public Square m 1894 The same sear. our

-Cp"'" d T 2" C '.~.~~ ' Corrpany adopts The Cleveland Eecmc IUummatmg Company as its name in 1895. ws complete constructon of a power plant on Canal Road I.'M' h'. ~.a.a21.'l~[' ( *a ,' s2'_Y' ", i- *~I to accommodate rocTeasmg demand a s .

m.,,. A s .s._ .< Turn-of.the-centu.v C:etehnd is a burJing town of infant industry and

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imm: grant workers. In 1900. CEI serves 1300 customers. Cleveland is at

'J.1* [ .'. d.' l i~. "" 381.000 m population and stdl growmg

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..%. !.'7 As CEI Grows Up With ClevelandI rv i, m n ,,,,,.,.,,w,,n a

1 F l LJiacn Licetric 'righ__t.

Meeung rrunutes.1881. . I i m -, . . .. m , . n . m a n The Brush Electric Ught ...o.e.~,m, u ,

arid Power Co. is formed. . ., n a n m. .i. -

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'3.f' # ? Mtwgat($Vailtbadiare brmgMg products to 6ar4M .i [

7 < g [H g j A city at ahordable pricies MDe costs 8Cw quart tr J 11910/ Sugar #.s6ca pound Amongthe nationy@y' ' - fq* ,

i e S ,, *r g */ best bargains, tco, is the pnce of CEl Wectrap t i rt , - ,);2hme,

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[' 'Qt.( ChvehndIndustryoncoverselectnci:yas at$

f '] . s: lh' j'M. 4 .) 3' safe,.andrehaNe murce of powercGrowfng. ' . b- ~ ~ _

A3; - <- 1 ;.f... ". ;' . . Q' ) A p/ - r g,- ~Bdemand'deates '

the need for'rnde capacty. e Iny; v7j 1911, is4Nthe firstintt of our new Lake Sh' ore' g q I M n'

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/ .-~.v. ^' P.K i ,ff Q ', $ . , Plantintorperation to accommodate a peak tomi

. ; ct 27.000 kilowatts for our 30.000 customers.

3 1 *- J.- T ' , ,] { ' j y5. : ., e 'n these sears, electr c ' amp sales <ve hnsk.

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, , D .~i ~Bratenabl. Erst Ceveiai .. r'udid, Cewtand '  ;

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f. y,f gM 4, (f$  %%', '%- H*ughts, Leewood and Rocky River

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'% Electricity- the baryatn of the Centurvi 1?^ Giad 'or ekan

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e6c+nc nuhting W13 construction d our 75 Phbere Square headquarterw..

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,c  ;, lti a prosperous ano euw .me >n Amerta The Ford l Motor Compar.v ranes rs ages tc 55 3 as A;exander l

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$, G<enom Bell maks re hr,r mast o uast *etepnuw i x i.4. The CMv.anc Eectnc :mm re r g O rpany l

,Y, expards .rs terwor, w nc uce %r 3t Cuyahoga p i

} n ,,4,, , Cauctv Our L 3 "rcre Pa >t opanaed '.919. s 4 I

< cns:dered Me Wrwr xnse ste m powered pant :n  ?

2 me wcdd. . 'b j n'; - The Unrte states e,*ers WW I T50usard5 of for.at men are :,ent te : ora v.at ., ca.;ed ' tre 4ar to end -

,, . .5 Wdt' M todusfT / $ JCafAed L mLC'f:OD5 prodOCIX>n '

and CEhs caited on w produce reeded power In j

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j U g ;;; )r".'] ,. additxm. we gain many 'wi custemes and expand sur semc, to mse.npstcmm By 1920ae are s

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6 w.,. m.ng%er w000 cemers over semes the .

~The War to End War 'p$;

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. .. . We exbbe me hrst 'r.ree elecmc homes o I g 'V 5 .. *Q Ceveland in 1921. E'ecmc tmcks with elecmc cable- d '

f . >y#* }

',a" s' pu3ersare in service throughout our ternterv. And in

.Id.'"~ 1924, we produce a mcung p:cture entitied"The .( %g, '.

"I i*d W ; Heart'c4 Cleveland" to prornate 'ar area and the 7 $ i _ ~_ ,

y ON  !;M,'f hbetihIt4(Celectricliv<r9' Fj yl *

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o l Y ? *^ ',fr &, % CEfi expanting to meet neta chaftengest-pf - . .;;.yds:'D - < ;'f' , ,> g' c ' .P.43!"?. .M*hndcabeptricr;19W VI@% @ ;Z;u w&. btO W

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. , : - ? . -.g* .- " J 'y ,6. wartme, a construction program of $35 m:D!on.fy

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E brws Hew.tt to Equai "One Srnan Step for a Man -

< >pp< m'un.tv Empicyment campaagn.

7 ,g The decade that begins with JFK and Came!ct Mayfield Serwce Center

-~

packs many surpmes The %etnam War. ree Part of '60s decentrahzation A .., 4_ assassinaticns. the Beat:es the Great soc.ety and , 4 . .

@4 v $ finadv a man on the moon h.. . - -b 4[4 - l%'

!L f c.Y.Ib N M N.Djj if[- Change also character 2es CErs '60s exper'ence -

lg~ /).1' ?f Decentrahanon is the theme as we improve our l 4

c customer service by opemng our Soion, Hul. East .

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. j a ,r u . In 1%7, CEI and four other utdines form tne

<-m.3.; g;,y,t fAPCO power pocito lnterconnecnons :ncrea,e and to construct targer, rehab.hty more or 4

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'the Company not onhJgets its first computer system,

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but a TV qac show ent:tled. 'It's Acaderme" '

' We cooperate to form five-company Great Strides in CEI Customer Servicel CAPCO power pool 1%7.

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As the '70s begin, Ntxon ditridsidown theWtnamh~ g.i  % R'55VD Q fQ3it.%KftheQffM.Q @XJ War inflation heats updfs arpage of specWinterest Mk.c M@D --

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severe eters of 19H and 1978 em harder- #l$ o t? Easy On Energy, Easy Wu"~, q to <uruve'. A N a.A fD V , , .'u1 ~~

The can goes'ouMn tim 70s for American ened.7* '

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[.A ..., . .. , 'J) independence sources to secure'a strong a'rsdfutCElinve .re..The Seneca ts in, hew  % ..

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Operation Center to 'mprove economy of power / ' . T.. , ' l .[$

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o promote efficient use of electricity.  ; ( .. _ M- . ' . . ,.,, 4 .

CEIinvests in American energy sources:

Nuclear. Hwiro and Coal!

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-Ne l';l . ' g'y .. "The Future is Purchased by the Present"

, I We have come from the Age of Edison to the Nuclear ,

We owc our strer.g.n and growth as a Company to the Age in one short century. By ever accommodatmg our . ',egacy r>f institutionai exceHence we base :nherned from the i commun:ty% needs for power, we have grown ' rom a smal dedicated emp!ovees of vestenjeafs CEl. They base laoorec utility with three.' quarters of a mile of service area to one of- well to eauip CEI wah the means and ' lex;bity necessary to l the nation's foremost producers of elec+nc erergy wrth 1,700 weather ruo World Wars and countless crcas:ons of financa l square mi.es of terrtery We nave grown in veratng and poiitral turmoi These professional men and women i have set a standard bv which we connnue to ccaduct todas s l capactiv frorn a few tnousand kdowatts to over 4.5 milixm l

kihuarts Where once we served approx:matelv 400 business of brnyg Wectncity to Nor'heast Ohio in the most Ceveiencers. *oday we proude reliatie elecmc wrvre to e$cient way possble f near5; r*o mdhon Nortteast Ohioans And we are proud of We !ook 'n t%r Jedicarian to excellence as our modei n .

d ew xcomp!ishmerts strengthenmg The Ccelanu '.c*ric il:urrunatmg Company f Yes what does :t *ake to suruve one hundred vears of - f sias o meet 6e erergy challey of :be tuture. And we

<tange wd cr sent;e> Ard anat uuaames are crmcal to our ao so uth 3 certa:n v tt:at our Compan'; s ftcure can be os mt:naed aon:tv to conrrnnt #frua ener;v feastons w:th as mund as the deosions we make todat

he same clear . won as n tne pas:'

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2a Board of Directors Piincipal Ofncers and Executives Leigh Carter ,55 Chairman President and Chief Execut:ve Or6cer of Tremco Inc. manuf acturer of specialty chemical products p 73n g .x genae. 53 , e p.,m,,, . _

and a whoily owned subsidiarv of The B F Goodnch Co Enero Area v .m Jen us i

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Robert M. Ginn 15 71 President or the Company Rooert J Farhnya , < < Pesse,' r -

Aam:n:st-arae an wes l l

Roy H. Holdt 60' Chairman and Chief Executive Off2cer of White Con- l solidated Industries Inc manufacturer of consumer and industrial products John Lansdale. Jr.164 . .. . . . . . . . . . . . . . . . . . . . _. . .,. .m.-

Partner m the law nn, of Squire Sanders & Dempsey .

' ; z 4 gjjgaf Richard A. Miller ,54! .

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% hw2.@s . -s MJW Executive Vice President of the Company  ! [ ' 4- ,. < @U ~ - ? , 4; y

Karl H. Rudolph 66t n..

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1 Consultant and retired Chairman a..d Chief Executive  : N, : . .,! - %~k< .f

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Craig R. Smith 55)1 j -

President of the Industr:al Group of Bendix Corporation. .~. -

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The Industrial Group is a producer of machmes and -

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accessones for the metalworkmg industrv. Also Chair- ,

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man President and Chief Executive Of6cer of The ,

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Warner & Swasey Company a wholly owned subsidiarv -

or Bendix Corporation. ' *

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Charles E. Spahr ,6/1

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• p ^' y Director or severai companies and retired Chairman and , f 3 ,

8-Chief Executive Of6cer of The Standard Oil Comp .y .. . . .

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,O hioi manufacturer of petroleum products chemicals c  ? ~ f - '

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and plastics and suppher or coal & 4y "g ,

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Herbert E. Strawbridge ;631 V; - " ,

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Chairman and Chief Executive Of6cer of The Higbee e Company a department store . ,i; .

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Richard B. Tullis 16 71  ; ': 4 J Chairman of the Executive Committee of Harris Corpo- I

<g~- Y W. f%" T' E - . .

ration manufacturer of communication and information * ..

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processmg equipment

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6 %, .~ ^p Harold I . Williams .541  ;

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Executive Vice President of the Company .

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? John J Misac :591 Vice President- l Dismbunon & Serwes j l Ralph M. Besse Ne wton D. Flack 35; Dmsmn Cha:rman Ementus of the Board of Directors Manager-Steam Poser Dmsson i

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l Elmer L. Lindseth Dalwyn R. Davidson ,62' , ice j P esident- System Engmeer'ng Chairman Ementus of the Board of Directors & canstruc:wn l

l Seated.

Harcid L Wilhams ,54' Execure.e V:c e P'esident John W Fenker 54- :ce P*es; dent -

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. , ensumg year and reviews tne resu,ts or the :naependen: ,

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statements and the audit practices empioved bv he p  ;: jN1 Y accountants and the Company The Comm:ttee m er gg(g$ )?

sees the estabi snment and admmistrat:on bv manage

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Chmn l Carv C R Sm:ch

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... anv. President and all Vice Presidents

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impracticable to call together the ennre Board The g..

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- Committee has the same authonty as the Board except

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t may not elect prme: pal of6cers or nil vacancies !

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on the Board or on the Executive Committee j < .

.,- K H Rudoirh ;Chmn ' R .U Gmn. C R Smen C E Stahr 4

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Employee Savmgs Plan. also reviews the mvestmem 7, .c , ..

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pension fund :nvestment managers and the Emciove-

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N.ominating Com. iittee l The Nominatme Cm mutee recommends to t he BoarJ l 9anding candidates to be nommated for elect:on as directors at Richard A Miner 54. Exec:.an e the annual meetmg aad to 611 n.y vacancies on tne l ', ce !%;dem Board When r-:ewmg notentiai candidates the Cem l

un D wngnt v. , < c I%:jev - mutee considers %gestions made bv share >w ners I

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' .ement

• LPshmg R K y Ruy wm ( R Smy ( z Scyhr yEs r y cr;_;;(

l Edgar H Maugans an . ce l .h '8:deM - Sa'Tce l l ipa:ed l

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26 Management's Discussion and Analysis of Financial Condition and Results of Operations Capital Resources and I.Iquidity The Csmpanys The Company will cont.nue to take aggressive n ed for capital and its liquidity requirements are actions to maintain as strong a 6nancial position as shaped primarily by its continuous program of possible. Absent needed rate increases in the future, constructing facilities needed to meet anticipated the Companys ability to generate funds internally and demand for electric service and pollution control to earn a fair return for its common stock share owners regulations. Over the years 1978-1980, the Company would be adversely affected and secudties ratings spent $1,085,000,000 on its construction program could be lowered.

(including al!owance for funds used during con- Two of the Companys 6nancial objectives are to struction). Over the 6ve-year period 1981-1985, the maintain a balanced capital structure and to preserve cost of the program is estimated to be $1,700,000,000. securities ratings. Financing activity is planned to Details are discussed elsewhere in this Annual Report. achieve a capitalization structure of 38-42% common At December 31,1980, the Company had commitments equity,12-14% preferred and preference stock and a totaling $270,800,000 principally related to the con- maximum of 48% debt. At year end 1980, the Companys struction program. . capitalization structure was 37% common equity.

To fmance construction, the Company relies heavily 14% preferred and preference stock and 49% debt.

upon external 6nancing sources to supplement inter- Currently, the Companys first mortgage bonds are nally generated funds. Dunng 1978-1980, the Company rated "Aa* by Moodys Investors Service and "AA

• by

. rtis. i about 70% of its construction expenditures Standard & Poofs Corporation. Its preferred stock is through borrowings and the issuance of 6rst mortgage rated "a* by Moodys and "A

• by Standard & Poors.

bonds, notes and preferred, preference and common Lowered ratings would make 6nancing more difficult stocks. Approximately one-half of the 1981-1985 and increase the cost of capital.

program is expected to be raised through the sale of During the last three years, the Company has various securities and borrowings, followed its practice of funding its construction The Companys ability to fmance is contingent upon program temporarily through use of bank lines of obtaining adequate and timely rate increases. Retail credit and commercial paper designe,d to give the electric rate increases of 9.2% and 9.0% were granted Company maxunum flexibility in timing its long-term by The Public Utilities Commission of Ohio effective financings. See Note K of " Notes to Consolidated May 8,1979 and July 14,1980, respectively. In addition, Financial Statements" for the details iegarding credit increases in steam, wholesale power and street lighting - arrangements and the Balance Sheet for the amount of rates were placed into effect at various times in the short-term debt outstanding. Periodically, the amount 1978-1980 period. Despite these rate increases, of short-term debt is lowered through the issuance of earnings per share from continuing operatiora have long-term securities and term bank loans. The

. been essentially flat in the 1978-1980 period and the Company has a total short term borrowing capability ratio of earnings to 6xed charges decEned (2.59,2.67 of $240,000,000 in the form of bank lines of credit and md 2.33, respectively). These results occurred because revolving loan commitments which are used primarily ir.flation outstripped rate increases, regulatory lag to support commercial paper. At year end 1980, the frustrated achievement of rates of return allowed by Company had on deposit with trustees $71,943,000 of the PUCO and large amounts of capital had to be funds to 6 nance pollution control facilities under raised for the construction program during times of construction.

high money costs. Financing plans for 1981 are discussed elsewhere

. In an effort to minimize the impact of regulatory in this Annual Report. The types, amounts and timing

. Irg, the Company has reduced the time between of fmancings beyond 1981 cannot be determined at requests for non emergency rate increases to the this time.- ~

minimum allowed by law. Also, a forecast test year has Over the 197,1-1985 period, the Company must been requested in the current rate request. Requests refmance $326,508,000 of maturing debt and preferred for rate increases and cost cutting efforts are discussed stock outstanding at December 31,'1980. Also, the clsewhere in this Annual Report. Company is required to offer to purchase certain preferred and preference stock for redemption in 1984 and 1985 in the amount of $19,400,000 each year. A

portion of the debt maturing has very low interest In the three-year perial, the most significant factor rates. It is expected that refinancing will be done at affecting kilowarthour sales was the recession in 1980.

much higher rates, thereby increasing the Company's Sales to industrial customers were down 13% in 1980 cost of capital. from 1979. The decline was due primarily to lower The issucnce of 4dditional first mortgage bonds is sales to automobile and steel manufacturers. However.

limited by two provisions in the Company's Mortgage it ppears that economic recovery is taking place in the and Deed of'IYust. At December 31,1980, the Company service area as sales to industrial customers in the would have been permitted to issue approximately fourth quarter of 1980 were 9% above those in the third-

$500.000,000 of additienal 5st mortage bonds. This quarter of 1980.

amount will fluctuate depending , con future bondable property additions, future earning. 'nd interest rates.

Fuel Costs There are no restrictions on the issuance of serial lc Per Milhon BTC) preferred stock and serial preference stock.

In 1979 and 1980, common stock was sold at a price a, below book value. The need for additional equity capital in order to maintain a balanced capital structure may make it necessary to issue common stock below book value in the future. m Results of Operations The accompanying chart sets forth what the Company believes to be reasonable ou estimates of the factors contributing to the net increase #

in electric operating revenues in 1978,1979 and 1980 from the respective prior year.

coal 100 Sources of Electric Revenue Increases tMulions of Dollars) ,

Nuclear ,..

5120 76 77 78 79 '80 100 Fuel and Purchased Power expense is the most significant component of Operating Expenses. The total of these two items increased in the 1978-1980 period C3 because of the rising prices or coal and oil.

Nuclear generation moderates the effect of the rising g ,

cost of fossil fuel. Nuclear generation accounted for 8%,9% and 7% of total electric generation in 1978, 1979 and 1980, respectively. Nuclear generation is w expected to contribute somewhat higher percentages e of total electric generation in the next several years.

1El a After Perry Unit 1 becomes operational, scheduled for 2 1984, nuclear generdon is expected to provide about RateIncreases ,

-] 27 20% of the Company 1 total generation.

Sales Volume Change [5E Under the existir.g fuel cost ad,ustment clause, the 0 Company recovna approximately 90% of fuel cost Fuelcost change g ] .

increases. The Campany's rate schedules and contracts contain fuel cl.iuses applicable to virtually all electric

28 sales under which rates are adjusted monthly to reflect petition, all causing the City damages, trebled, changes in the average cost of fuel burned in the about $166,000,000. The Court declared a mistri preceding month. However, in the second half of 1981, because the jury was unable to reach a unanimou.

a new fuel cost adjustment law will apply to the verdict. A new trial is scheduled for May 18,1981.

Company. Adjustments will be made every six months. The disposition of claims by a major contractor ance a PUCO hearing. This procedure will tend to for the four terminated nuclear generating units.

levelize the effects of fuel costs on revenues and See Note E of " Notes to Consolidated Financial customers' bills for six months at a time. Any variation Statements:

in actual fuel costs incurred during the six month Possible action designed to reduce the price of period from the revenues recovered in the period will coal purchased from Quarto Mining Company, a be taken into account in setting the recovery factor for subsidiary of North American Coal Corporation.

the subsequent six months. The Company probably The CAPCO companies have guaranteed the loan will defer fuel costs incurred above or below the and lease obligations incurred by Quarto to develop unount billed until the subsequent six-month period one deep mine and expand another to supply coal so as to match fuel costs with the receipt of fuel to Mans 6 eld Units 1 and 2. At December 31,1980, rever.ues. So long as fuel costs remain relatively the portion guaranteed by the Company was about stable, the new procedure should have a minimal $57,000,000. Since the development period of the impact on cash flow. However, should fuel costs mines ended on May 31,1980, Quarto's production increase sharply in any six month period, there could costs, particularly at one of the mines, have be a drain on cash flow resulting in interest cost for remained very high causing the weighted average tdditional working capital. price of its coal to be substantially (about 72%) in Other signi6 cant factors affectir.g earnings per exces; of generally prevailing market prices. The share are the increased requirements for interest, CAPCO companies are studying what action should preferred and preference dividends and a greater be taken, if any, to alleviate the situation. The numbe Ammon shares outstanding due to external Company's portion of the guaranties allocable to 6nar cing needs and high interest rates. The impact of the mine experiencing the difficulty is about the increases in these items is somewhat offset by $28,000,000. On january 14,1981, the PUCO stated corresponding increases in the amount of the allowance in an order that it will permit the Company to for funds used during constructiori. See Note A of recover from customers through its fuel cost

" Notes to Consolidated Financial Statements: adjustment clause the portion of the coal price For a discussion of the impact of inflation on the which exceeds generally prevailing market prices Company,see SupplementaryInformationConcerning when the weighted average price of Quarto's coal the Effects of Inflation: approaches 25% above generally prevailing market The Company could be affected in the future by the prices for six months. From May 31,1980 until the following contingencies: order, the price of Quarto's coal has exceeded market by about $8,S00,000/of which about

~

The resolution, probably several years from now after exhaustion of all appeals by either party, of $3,700,000 has been recovered in rates, some or all the antitrust suit brought by the City of Cleveland of which may have to be refunded in 1981.

against the Company. In the trial last fall, the City The Company believes that the ultimate disposition claimed that the Company illegally monopolized of these three matters should not have a material the exchange and wholesale and retail sale d power adverse effect upon the Company's 6nancial position, by refusmg to interconnect with the City s Municipal although an adverse 6nal determination in any of them Electric Light Plant, refusing to trarsmit power to could have a material effect on income for the period it from other sources and engaging in unfair com- in which it occurs.

- Management's Statement of Responsibility for Financial Statements The management of The Cleveland Electric Illuminating Company is responsible for the preparation and presentatien of the consolidard .mancial statements included in this Annual Report. The 6nancial statements w tre prepared in accordance wit' generally accepted accounting principles appropriate in the circumstances and necessarily include certain amounts that were based on informed judgments and esti nates of events and transactions which affect the Company's operations.

Management has developed and maintained a system of internal accounting controls designed to reasonably assure, on a cost-effective basis, the integrity, objectivity and reliability of 6nancial records and the protection of Company assets. These controls are augmented by an internal audit program designed to evaluate their adequacy and effectiveness.

Furthermore, an examination of the nnancial statements is conducted by Price WMerhouse & Co., independent accountants, whose opinion appears elsewhere in this Annual Report.

The Board of Directors of the Company is responsible for ensuring that both management and the independent accountants ful611 their respective responsibilities relative to accounting and 6nancial reporting. The Board has appointed an Audit Committee compnsed entirely of outside directors. The responsibilities of the Audit Committee are described elsewhere in this Annual Report.

r.._ _ _ _ . . _ . . . . - _ _ _

. 29 THE' CLEVELAND ELECTRIC ILLUMINATING COMPANY and Subsidiaries '

Income Statement For the Year Ended December 31 1980 1979 1978 (Thousandsof Dollars)

OPERATING REVENUES (Note M)- --

Electri c . . . . . . . . . . . . . . . / . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  ! $878.501 $811,219 $707,007 Steam.........................'..........'...................... I 15.065 13,048 10.085

. i Total Operating Revenues . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . I 893,566 824,267 717,092 OPERATING EXPENSES -

Operation

_ ' ~ . 5' f ~

272,599 243,869 Fuel......

'768.096 Purchased power . . . . . . . . . . . . . . . . . . . . . i . . . . . . . . . . . . . . . . . . . . . . . 91.292 75,469 62,167 Other . . . . . . . . . . . . . . . . . . . . . . c. . . . . . . . . . . s . . . . . . . . . . . . . . <

128.782 109.832 92,773

. . .:88,170 457,900 398,809 Ma intenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . '

67,058 53,763 49,616 Depreciation and amortization (Notes B and E) . . . . . . . . . . . . . . . . . . . . . . . 64,619 59,443 56,774

'Ihres, other than Federal income tax . . . .. . . . . . . . . . . . . . . . . . . . . . . . . 81,630 79,455 68,756 Federal income tax (Note D) . . . . . . . ., . .,. . .. . ..... ... ;; . . c. . . . . . . . . 41.574 38,227 25,3? :

J<

Total Operating Expenaa* . . . . . . . . .~. s. . . .) .' .. . . . . i. l. . . . . . . . . . . 743,051 688.788 599,289 NETOPERATING INCOME '^ - 150,515 135,479 117,803 t

1

< NONOTERATING INCOME  : '

! Allowance for equity funds used during constructica . . . . . . . . . . . . . . . . . >! 40,873 33,432 29,890 Other income and deductions, net. . . . . . . . . . . . . . . . . . . . : . . . . . . . . . . . . . 7.605 4,889 7,026 Federal income tax-credit (Note D1. . . . . . . . . . . . . .. . . . . . . . .. . . . ..

13.962 9.300 5,310

'Ibtal Nonoperating Income; .*. . . . ... . . . . . . .f. . . . . . . . . . . . . . ;. . . . .

62.440 47,621 42,226 INCOME BEFORE INTEREST CHARGES . . ,. . . . . . . . . . . . . . . . . . . 212,955 183,100 160,029 t- w i .L

~ '

INTEREST CHARGES *'-

Long. term debt . . . . . . . . . . . . . . . . . . .u ; . . . /. . . . . .Oc. . . ...... 95.085 79.534 70,476 Short-term bank loans, commercial paper and other. . . . . . . . . . . . . . . . . . . 17,638 5,765 1,595 Allowance for borrowed funds used during construction .. .. . .y. . . . . . . . (25.051) (15,733) (11.055)

Total Interest Charges . . . . . . . . . . . . t . . c. . . . . . c. . .' . . .#.2 . '. . .~ . . . 87.572 69.566 61,016 INCOME BEFORE CUMULATIVE EFFECTOP ACCOUNTING CHANGE . . < 125,383 113,534 99,013 Cumulative effect of change in depreciation method '. M -

on periods prior to January 1,1979 (Note Bl . . ; . . 3. . /.i.>. . . . .'s . . . . .

- 4,125 -

~

NET INCOME . . . . . . .i . de .'. . .~.h .'. ; . . .J;M. .) . . .% . . ^dl. . . . . 125.383 117,659 99,013 Dividend requirements on preferred an.d preference stock ,. . . . .- . . . . . . . 27.711 25,587 23,575 EARNINGS AVAILABLE FOR COMMON ST. OCK; . . . . . .J. : i ,n,..;... . .

5 97.672 $ 92.072 5 75,438

, EARNINGS PER COMMON SHARE (Note C)? 'A .f ' d.C -

! Before cumulative effect of accounting ch ange . . ; .p. .;. ;'. ;9.C cr.'.~. . . . . 5 2.26 - $ 2.31 5 -2.20 l Cumulative effect of change in depreciation method oni , . i periods prior to January 1,1979 (Note B) : . . h . . ;;'. . . . .v.'. . ; . . . . . . . -

.11 -

l I 2.20

'Ibtal - ' N..c.. .

' .' ".~ m-. "w - mO n. . .......... $ 2.26 $ 2.42 $

DIVIDENDS DECLARED PER COMMON SHARE 1.. . . ; .:. . . . . . . . . . . . . . . , $ 2.00 $ 1.92 $ 1.84

' For the Year Ended December 31, l

Retained Earnings Statement  :

1978

[

,< . . , - . <G + ,

1980 1979

- (Thousandsof Dollars)

BALANCE AT BEGINNING OPYEART. . .. . . . .. .' . . . . $. .. . c[.' . . . . . . . . l"$245.716 $225,950 $218,697 ADDITIONS . e> V '. ' . . ' > <

Net income. . . . . . . . . . . . . . . t . ; . 2. .E M;.d.V ".j.~. . . . . . . . . . .

125,383 117,659 99,013 DEDUCHONS ,

.L $ ~ s "

(.

Dividends declared ... ,. n <

Preferred stock . . . . . . . . .v. . . . . . . : . k. . . ; . .,. .i." ....... ..... 22.949 21.010 20,720 Preference stock . . . . . . . . . . . . . . . . . . . : . a . .. . . . . . . . . . . . . . . . .. 4.417 4,417 2,012 Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . ; . . . . . . . '. . . . . . . . . . . . 85.296 71,842 62.758 Premium paid to redeem Series D preferred stock (Note H) . . . . . . . . . . . - - 6,000 Costs of issuing equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 624 270 Total Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112.667 97,893 91,760 BALANCE AT END OF YEAR . . . . . . . . . ........ ...... . . , $258.432 $245,716 $225.950

~~~

The accompanymg notes are an integral part of these (mancial statements.

30 . .

THE CLEVELAND ELECTRIC ILLUMINATING COMPANY and Subsidiaries Balance Sheet at December 31 1980 1979 Assets (Thousandsof Dollars)

PROPERTY AND PLANT (Notes E, F, G, L and N)

Utility plant - ..

- Electric in service .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

t $2,372.851 $2.CJ7,779 Steam in service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.404 29.502

, 2,404,255 2,097,281

' 521,175 Less accumulated depreciation and amortization (Note B) . . ... .... . 557.859 i 1,846,396 1,576,106 Construction work m progress . . . . . . . . . . . . . . . . . . . . . . . . . . . .  ! 811.084 744,972 4 2,657,480 2,321,078 Other property; 1ess accumulated 'epreciation . . . . . . . . . . . . . . . . . . . ...  ! 21.137 19,503 1

- 2,678,617 2,340,581

. POLLUTION CONTROL CONSTRUCTION FUNDS- held by trustees . . . . 71,943 43,898 CuRRENrASsETS j 9,124 2,868 Cash ( Note K) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..

U.S. government securities, at cost . . . . . . . . . . . . . . . . ............. ... - 4,300 Amounts due from customers and others, net . . . . . . . . . . . . . ..... ...... 104,883 78,311

- Materials and supplies, at average cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 24,545 22,146 3

. Fossil fuel inventory, at average cost . . . . . . . . . . ............... .. ..  ; 67,467 55,555

.'Ihxes applicable to succeeding y ears . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

58,111 53,760 Other......................................_........... ..

. 1.481 771 265,611 217,711 DEFERRED CHARGES .

- Unamortized costs of termmated projects (Note E) ..................... 54,244 56.023

, Other ...........................................................- 24.047 20,573 78.291 76,596 j $3.094.462 $2,673.786 Capitalization and Liabilities 1

CAPITALIZATION (See statement of Capitaliration)

Iong-term debt . . . . . . . . . . . . . . .. . . . . . . . . . . '. . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,211,528 $ 973,991 a Serialpreferred stock With mandatcry redemption provisions . ........... ......... ... 203,500 175,000

~ ' Without mandatory redemption provisionsi . . . . . . . . . . . . . . . . . . . . . . . . . j 95,071 95,071 Serial preference stock with mandatory redemption provisions . . . . . . . . . l 57,000 57,000 Common stock equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 912.731 820,411

2,479,830 2,121,473 CURRENT LIABILITIES-Current portion of Icng. term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,148 58,976 Notes payable to banks and others (Note K) . . . . . . . . . . .......... .... 166,937 86,334 l

Accounts payable . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91,081 100,671 .

Accrued payroll and vacations .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 11,466 11,510 4,070 10,497 Federalincome tar (Note D) ..... ......... ....... ........ ... ..

' Other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........ 102,415  %,108

. Interest..................................... .................. . 21,205 15,870 Other......................................................... 5.235 4.630 l ,

f 412,557 384,5 %

DEFERRED CREDITS <

Unamortized investment tax credits (Note D) . .. ... .. .... .... ... 84,f98 92,264 Accumulated deferred Federal income tax (Note D) . . . . . . . . . . . . . . . .

107,654 69,858 O the r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... .... ....... -

9.623 10.595 202.075 172,717 COMMITMENTS AND CONTINGENCIES (Note L)

$3.094.462 $2.678.786 The accomp.nying notes are an integral part of these financial statements.

31 T8E CLEVELAND ELECTRIC ILLUMINATING COMPANY and Subsidiaries L Capitalization at December 31 1930 1979 1980 1979 i LONG-TERM DEBT (a) . (Thousands of Dollarsi iPercent of capitalizatwn) j First Mortgage Bonds - maturing through 2013 at rates of 2%% to 12%% (Less $31,831,000 _ _

in 1979 clauified as current) (Note F] . . . . . . . . . . . . 51.030.091 5 858,500

' Term Bank loans (b)- maturing 1984-1988 at 100%

.to 105% of prime rate (Less $27,000,000 in 1979

• classified as current) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,000 57,000 Collateral Pledge Notes - maturing in 2010 at sermannual equiv;. lent rates of 11.75% to 14.90% (Note F) . . . . . . . . 19.100 -

Promissory Notes -maturing in 1983 at a rate of 14%

(Less $10,000,000 in 1980 at a rate of 15%%

classified as current) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 -

' Pollution Control Notes-maturing through 2012

} at rates of 5.6% to 6.7% (Less $105,000 '

in 1980 and 1979 classified as current) . . . . . . . . . . . . . . . . . 58.050 58.155 Other - net . . . . . . . . . . . . . . . . . . .......... .... ... 287 33j 1

^ 'IbtalIong-term Debt. . .. ............. ...... 1.211.528 973.9c 1 48.9 45.9 i- SERIAL PREFERRED AND PREFERENCE STOCK-cumulative, without par value,4,000,000 and 3,000,000 .

[ authorized shares, respectively (No es li and 1)

Preferred Stock without mandator redemption provisions

. Annual Dividend

. Series . Rate Shares

-A $7.40 500,000 50,000 50,000 B $7.56 450,000 45.071 45.071 Preferred Stock with mandatory redemption provisions~

i Annual Mandatory .

Dividend .

. Redemption  ;

Series Rate - Shares Price , ,

- C 5 7.35 250,000 $ 100 , 25,000 25,000 E $ 88.00 - 60,000 -  ; $1,000 1 60,000 3.00C-F. 5 75.00 50,000 s1.000 j 50,000 .50,000 i G-~ s 80.00 - :40,000 s1,000 40.000 40,000

^

, H . $145'.00 ' . 28,500 $1,000 -- i 28.500 --

1

+ 203,500- 175,000

. Preference Stock with mandatory redemption provisions - [

,- . Annual- ._ Mandatory 1 i - Dividend- _

Redemption 1

-Series - . Rate . Shares Price j

. 1 $77.50 57,000 - $1,000 1 57.000 57,000 ~

I i Total Preferred and Preference Stock i . . . . . . . . . . . . . . . 355.571 327.071 '14.3 15.4 i'i COMMON STOCK EQUITY .. .

Common s'. .res. without par vahm - 53,500,000 authorized (c)f 1 146,288,629 and 41.271,574 outstanding in 1980 and -

t 574,695 1979, respectively (Notes I and J) . . . . . . . . . . . . . . . . . . . . . 654.299 Retained earnings . . . . . . . . . . . . . . . u. . . . . . . . . . . . . . . . . . . l 258.432 245,716 p Total Common Stock Equity L . . . . . . . . . . . . . . . . . . . .- . . . l 912.731 820.411 36.8 -38.7

. TOTAL CAPITALIZATION 1. . . . . . . . . . . . . ........ ' $2.4 9.830 : $2.121.473 100.0 100.0 lal Long-term debt matures during the next five years as follows:510.105.000 in UdlicE6ed as a current liability on the consolidated

[

Balance Sheet): $20,105.000 in 1982: 5144,805.000 in 1983: $72,210.000 in 1984 and $60.501.000 in 1985.

~

~i bt The repayment provisions of the Companys term loans have been amend < J twice since 1979.The net effect of these amendments i~ - was to spread over the years 1984 1988 the repayment of the $84,000,000 due under these loans. Included in this amount was 1

327.000.000 which was originally due in 1980. Overall interest rates under these loans also were reduced. The Company ano ~

increased the term loans by $50,000,000 in 1981.

+

(c) At the April 1981 annual meet 'ig, share owners will be asked to increase the authorize'd common shares to 85l000.000.

- The accompanying notes are an mtegralpart ofdrese (mancialstatements.

-. , . . ~ . - .

2 . .

THE CLEVELAND ELECTRIC ILLUMINATING COMPANY and Subsidiaries Changes in Financial Position For the Year Ended December 31, 1980 1979 1978 (Thousandsof Douars)

FIdANCIAL RESOURCES PROVIDED .

Income before cumulative effect of .:ccounting change . . . . . . . . . . . . . . . . 5125,383 $113,534 5 99,013 Items not affecting working capital .

Depreciation and amortization . . . . . . . . _ . . . . . . . . . . . . . . . . . . . . . . . < 64.640 59,459 56,783 Deferred Federal income tax . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . 30,330 21,445 21,378 Allowance for equity funds used during construction , . . . . . . . . . . [40,873) (33.432) (29,890)

Other ..... .. .... ..... ................. ...... ........2 1.636 1.245 1.676 Total fmancial resources provided from operations . . . . . . . . . . .. 181,116 162,251 148,960 Cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . . . , - 4,125 -

Sales of securities ' .

First mortgage bonds . . . .', . . . . . . c. . . . . . . . . . . . . . . . . . . . . . . . . . . .

171,591 52,000 47,500 Preferred stock. . . . . . . _ . . . . . . . . . . . . . . . . . . . . . J. . . . . . . . . . . ..... 28,500 - 40,000 Preference stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. - - 57,000 Common stock . . . . . . . . . . . . . . . . . . . . .- ... . . . . . . ........... 79,604 91,762 , 67,886 Total sales of securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279,695 143,762 212,386 Term bank loans . . . . . . . . : . . . . . . . . . . . . . . ; . . . . . . . . . . . . . . . . . . . . . - 60,000 -

Promissory notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000 - -

Collateral pledge notes . . . . . . . . . . . . . . . . -. r. . . . . . /. . . . . : . . . . . . . . . . . 10,100 . - -

Pollution control funds expended by trusteese. . . . . . . . . . . ..... ..... 95,235 :72,405- 7,253 Increase in short term debt and other borrowings . . . _. . . . . . . . . . . . . . . . 80,431 63,327 -

Working capital decrease la) . . . . . . . . . . . . . . . . . . . . . . .-. . . . . . . . . . . . .

6,0Q 104,532 Total Financial Resources Provided '. . . . ;. . . . . . . . . . . . c. . . . . . . . . 5685,597 $511.947 ' $473,131 FINANCIAL RESOURCES USED -

Additions to utility plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5398,088

$385,892 ' $300,765 i Allowance for equity funds used during construction . . . . . .' . . . . . . : .'. . (40.873) (33.432p - (29l890) -

l

. 1 357,215 ' 352,460' - . 270,875 Retirement of 6rst mortgage bonds . . . . . . . . . . . . . . . n . . . . . . . . . . . . . .n 31,831 -~, -

Retirement of Series D preferred stock . . . . . n. . .................... - , -

' 56,000 Divide nds . . . . . .- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c. . . . . . . . . 112,662 :97,269-- ' < , 85,490 Pollution control construction funds deposited with trustees . . . . . . . . . . . . 123,300 _ f 52,000 '47,504 Decrease in short term debt and other borrowh gs . . . . . . . . . . . . . . . . . . 1 - - -

- 12,721

^

Working capital increase [a) s.. . . . . . . . . . . . . . . . . ............f..... 51,715 - -

Other.....'...............;.....................'.......... 8.874 - 10,218 . 545 Total Fin'ancial Resources Used . . . . . . . . . . . /. . . . . . . . . . . . . . . . ; $685.597 . $511,947 ' $473,131

~

~#-

SUMMARY

OF CHANG' ES IN WORKING CAPITAL (a)' . . _

U.S. government and commercial securities . . . . . . '. . . . . . . . . . . . . . . . ' s (4,300) $ 4,300 - $ (50,500)

Amounts due from customers and others, net . . . . . . . . . . . . . . -. . . . . . 26,572 ' 9,784 (17,204)

Fossil fuel inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . l 11,912 15,632 .(13,178)

Accounts payable and accrued payroll and vacations . . . . . . . . . . . . . . . . 1 9,634 - - [23,215) - - (30,670)

Federal income and other taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 (14,408)- (4.498)

Other . . . . . . . .. ............... ..................~..c. 7.777 1.830 11.518 Change m Working Capital (a) . . . . . . . ............. ...... 5 51,715 ' t -(6,077) $(104,532)

- "~~~~~

(-) Other than short term borrowings and current portion of long-term debt.

The accompanying notes are an integral pcrt of these finan:ial statements.

s l

- -~ _ __

. . 33 Notes tO Consolidated Financial Statements NOTE A-Summary of Significant Accounting Policies The Company is subject to thejurisdiction of The Public " Allowance for Equity Funds Used During Ccnstruction" Utilities Commission of Ohio (PUCO) and the Federal in Nonoperating Income and the " Allowance ft,r Borrowed Energy Regulatory Commission (FERC) with respect to Funds Used During Construction" in Interest Charges.

its accounting policies. A description of the Company's This allowance becomes part of Construction Work in principal accounting policies follows. Progress on the Balance Sheet and, when a construction Project is placed in service, the allowance is included in Consolidation the rate base (together with construction labor, material The consolidated financial statements include the and overhead costs capitalized) on which the Company ts accounts of the Company and its wholly owned subsid- entitled to earn a fa,r i rate of return. This accounting iaries, The CEICO Company and CCO Company. treatment thus provides for the cash recovery of such Property and Plant costs through rates, which include depreciation of those Electric Utility Plant is carried on the books at original capitalized amounts over the service life of Property and cost as defmed by the FERC. Steam Utility Plant and Plant. The amount of the allowance depends principally Other Property are carried on the books at cost to the on the amount of construction expenditures, the length Company. The costs of maintenance and repairs are of the construction period and the rate used in the com-charged to Operating Expense as incurred. The costs of putation of the allowance. The rate used to compute the renewals and betterments are charged to Property and allowance equated to 8%% in 1980 and 8% in 1979 and Plant. The cost of property retired, plus removal cost, less 1978, compounded semiannually, net of tax, and was salvage realized,is charged to Accumulated Depreciation . determined according to the formula established by the and Amortization. FERC. Beginning January 1,1981, the rate used was changed to equate to 9%% compounded semiannually, Depreciation net of tax.

The Company provides for depreciation of Property and Plant other than the Davis Besse Nuclear Power Station FederalIncome 7hr -

(Davis-Bessel, on a straight-line basis over its estimated For Federal income tax purposes, the Company claims useful life. The Company provides for depreciation of deductions for liberalized depreciation of qualifying Davis-Besse on a straight-line basis using the units-of- property and accelerated amortization for defense and production method (see Note B). . polluti,on control facilities. The Allowance for.Eunds _

Used During Construction, certain overheads capitalized Amortization of Terminated Projects as part of the cost of Property and Plant for accountmg The Company is amortizing the costs of terminated Purposes, and certam other items are ehnunated from nuclear projects to current operations over a 10-year taxable income for Federal income tax purposes. The period on a straight-line basis. This amortization is Company defers the tax reductions resulting from pursuant to an order of the PUCO.The Companyintends accelerated amortization of defense and pollution control to request similar treatment for all remaining costs , ,

facilities, liberalized depreciation of qualifying property which have been or may be incurred (see Note E). and the write-off of termmated projects.

Allowance for Funds Used During Construction The liability for Federal income tax is reduced by In accordance with the regulations of the PUCO and the investment tax credits. These credits have been deferred FERC, the Company capitalizes as part of the cost of ' and are being amortized over the estimated life of the 12roperty and Plant an allowance for the cost of funds property involved. The Company transfers from operating required to fmance construction work in progress. Such to nonoperating income the Federal income tax effect amount also is recorded in the Income Statement as the attributable to interest charges which relate to property not included in rate base.

Revenues Customers' meters are read and bills are rendered on a cycle basis. Revenues are recorded in the accounting period during which the meters are read.

l l

34 Notes tO Consolidated Financial Statements The Company's rate schedules contain a fuel cost The cumulative effect of the above cht.nge on the adjustment clause applicable to virtually all sales. Electric periods prior to January 1,1979 was $4,125,N0, or 11e per rates are adjusted monthly to reflect the fuel component, share, and has been included in 1979 net income. lf this as defined by the PUCO, of the preceding month's cost of change in accounting method were applied retroactively, electricity. Steam rates are adjusted monthly to reflect 1978 pro forma net income and earnings per share the fuel component, as defmed by the PUCO, of the (reported as $99,013,000 and $2.20, respectively) would current month's cost of steam. Ohio law has been revised have been $102,943,000 and $2.31, respectively.

to provide, in lieu of monthly fuel cost adjustments, that The depreciation provisions for Davis.Besse in 1979 all fuel costs be included in base rates with provision to and 1980 included a provision for the cost of decommis-change those rates every six months after a hearing sioning the plant after its service life, then estimated at before the PUCO.This new procedure is expected to be $20,000,000. The PUCO has issued an order which implemented for the Company in the third quarter of permits the nuclear decommissioning factor to be based 1981. (See Management's Discussion and Analysis of on a current estimate of $27,000,000 effective with the Financial Condition and Results of Operations). implementation of rates expected to be authorized early y in 1981.

The Company excludes from its composite electric Fossil and nuclear fuel costs are charged to expense in ,

rate and uses special rates for the depreciable portions of the month the fuel is consumed. Payments for the nuclear hydroelectne plant (rangmg from 1.8% to 8.33%) and fuel lease at Davis-Besse are accumulated in deferred charges and amortized to expense as the fuelis consumed. Pl ant held for future use (3 75 provided by applying a composite annual rate of 2.00%

until January 1,1979. Effective that date, the Company NOTE B-Depreciation began to depreciate sgn property on an individual Depreciation charge = for Electric Utility Plant, excluding account basis, with rates ranging from 2.22% to 3.42%.

nuclear plant, were provided annually by applying a These changes had no material effect on net income.

composite depreciation rate of 3.30% for the two years ended December 31,1979. Effective January 1,1980, the -

Company increased'this composite rate to 3.40%. The ~

NOTE C- Average Shares Outstanding , ,

effect of this change on net income for the year ended Ea'rnirigs per common share are baself on the foll'TJing o

December 31,1980 was not material. weighted average number of outstanding common shares:

In December 1979, the PUCO issued en order permitting

- ** - 8 the Company to change, both retroactivdy and prospec- -

^ do04 tively, its depreciation accounting for Davis.Besse.

Initially, depreciation on such property was on a straight-1980[..[. . .' ' .43,300,451 line basis over lts estimated useful life. Depreciation is The dilut.ive effect of stock options outstandm.g is less now charged to experse in proportion to the u ount of than le per share.

electricity generated in the accounting pe od by the plant.The adoptian of this method of depreci.. tion, which had no Federal income tax effect, increased 1979 net income and earnings per share, before the cumulative effect on periods prior to January 1,1979, by $5,089,000 and 13c, respectively.

1 l

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l

. a 35 NOTE D- FederalIncome 'Ihx Federal income tax, computed by multiplymg income before taxes by the statutory rate, is reconciled to the amount provided as follows:

Percent of Percent of Percent of Pre-Tax Pre-Tax Pre-Tax 1980 _ _ Income 1979 Income 1978 Income

{ Thousands [ Thousands (Thousands of Douarsi cf Douarsi of Douarst Book income before Federal income tax ~

and cumulative effect of accounting change . . . $152.995 $142,461 $119.037

'Ihx thereon computed at statutory rate . . . ... $ 70,358 46.0 $ 65,513 46.0 $ 57,124 48.0 Decreases in tax due to:

Excess of tax depreciation over book depreciation . . . . . . . . . . . . ..... .. 4,201 2.8 4,377 3.1 5,317 4.5 Allowance for funds used during construction . 30,325 19.8 22,616 15.9 19,654 16.5 Certain overheads capitalued per books . . . . . . 2.267 1.5 3,738 2.6 4,173 3.5 Other items . .. . . ... . . .. ...... 5,953 3.9 5.855 4.1 7,956 6.7 42,746 28.0 36.586 *. 5.7 37.100 31.2 Total Federal income tax expense. . . . . . . . $ 27,612 18.0 $ 28.927 20.3 $ 20.024 16.8 i Federal income tax expense is included in the Income Statement as follows:

1980 1979 1978 (Thousands (Thousands (Thousands of Douars) of Douarsi of Douars Operating Expenses Current tax provision . . . . . . . . . . . . . . . . . . . . $ 11,244 $ 16,783 $ 3,956 Changes in accumulated deferred Federalincome tax:

Liberalized depreciation and accelerated amortization . . . . . . . . . . .. . 16,106 - . 12,460 12,116 --

Terminated projects . . . . . . . . . . . ..... . 21,944 - -

Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . (254) (2,098) (960)

Investment tax credit deferred, less amounts amortized . . . . . . . . . . . . . . . . . . (7.466) 11.082 10.222 "Ibtal charged to operating expenses . . . . . . . . 41,574 38,227 25,334 Nonoperating Income Current tax provision . . . . ...... .... .. . (13,%2) (9.300) (5,310)

"Ibtal Federal income tax expense. . . . . . . . . . . $ 27,612 $ 28.927 $ 20.024 i

. For 1980, the Company incurred a loss for Federal NOTE E-Terminated Projects

income tax purposes largely resulting from the tar treat- In January 1980, the companies in the Central Area l ment of its investment in four nuclear units termmated Power Coordination Group (CAPCO), which includes i

in January 1980. For Federal income tax purposes, such the Company, terminated their plans to build four loss is carried back to offset taxes paid in prior years and nuclear units which were in the design stage. The ter-will result in a refund of such taxes which is expected to minated units were Davis-Besse 2 and 3 and Erie 1 and 2.

be minimal due to investment tax credit offsets. Expenditures for these projects amounted to $56,578,000 The liability for Federal income tax has been reduced through December 31. '380. The PUCO has authorized by investment tax credits amou::ti ;; t:: $13,907,000 in the Company to amorae and recover in rates $95,023,000 1979 and $ 12,226,000 in 1978. No similar reductions have of these costs over 10 years begmmng in July 1980. This been made for 1980 because of the net operating loss for amortization amounted to $2,3"4,000 in 1980. The un-tax purposes. The Company estimates that it has an amortized amount is classified on the Balance Sheet as unused investment tax credit carry-forward of approx- Deferred Charges. Intervenors have appealed to the imately $53,000,000 which can be used to reduce the Ohio Supreme Court requesting reversal of the PUCO Company's future Federalincome taxliability.The carry- order on this and certain other rate case matters.

forward period for these amounts will expire in 1986 and 1987.

l I

i I

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, 36 i

Notes to Consolidated Financial Statements 1

A major contractor has asserted claims for losses due The Companys Collateral Pledge Notes, $19,100,000 to the terminations and prior corcruction delays. The of which were outstanding at December 31,1980, have Companfs portion of the amount clairaed is approximately been issued pursuant to an agreement to issue notes 575,000,000. Negotiations are being held with the periodically up to a total of $60,000,000 at interest rates contractor, the amount and outcome of which cannot not to exceed 15%%.These notes are collaterally secured

. now be determined. The Company believes that its by $m,000,000 of the Companys First Mortgage Bonds.

potential liability, if any, 's substantially less than the Although the collateral amount is not recorded as out; amount claimed. .

standing First Mortgage Bonds on the books of the The Company intends to seek PUCO authority to Company, the 'IYustee recognizes the amount as out-j- amortize and recover in rates all costs incurred in con- standing under the terms of the Companys Mortgage.

nection with thoterminated units. The Companfs Mortgage, securing all First Mortgage I (jW Bonds, constitutes a direct lien on substantially all of the i property owned and franchises held by the Company other than certain excepted property.

NOTE F-First Mortgage Bonds i Series Interest At December 31.

Due issued Rate 1980 1979 iThousandsof Dollarst 1980 1975 8.65 % $ - $ 31,831 The Company, as part of its operations, has entered into 1982 1947 3% 20,000 20,000 the following leases:

i 1983 1983-A 1975 1980 8.85 %

9%%

50,000 74,70')

50,000 g Remaining Terms 1984 1977 7,55 % 25,000 25,000 Nuclear fuel (a) 1984-A 1980 12%% 30,000 ~ ,

- Unit trains 610 years (b) 1950 2%% 25,000 25,000 - OfEce space 7 years (b)

]- 1985 1985-A 11%% 18,291 Data processing and Mostly short-term agreements 1980 3%% ' 25,000 25,000 ofEce equipment ', having a fixed noncancelable 1986 1951 5%% 4,000 4,000 Construction and i term of less than one year IC25-A 1976 1986-B 1976 ' 5%% 1,000 - 1,000 .

tnaintenance equipment _ _

i i 1989 1954 3% 20,000 20,000 (al The lease term for the initial core of fuel for Davis-Besse extends 1990 1969 7%% . 50,000 60,000 through the middle of 1981.The lease term for reload fuel extends over 1991  : 1%9 - 8%% M,000 '35,000 the period the fuel is burned. Under the terms of the lesse for reload 1993 1958 3%% -30,000 30,000 fuel. rental payments are made as the fuel is burned and a monthly 3

1994 1959 4%% 25,000 - 25,000 ir.terest charge is paid on the value of the unused portion of the fuel.

2005 1970 8%% -75,000 :75,000 .~b)( Unit train leases include renewal options through 2011. The lease

2006-A 1976 7% 14,000 14,000 for office space can be renewed for two five year periods.

The PUCO has recognized the above lease agreements

.A 7% 50" 50

'1,000 1,000 as operating leases for ratemakmg purposes. Accordingly, i .2009 B 1979 7%

2009.C 1979 - 7% . 1,000 1,000 these leases also have been treated as operating leases for 2010 1975' 9.85 % 100,000 100,000 fmancial accounting purposes. Under the terms of State-2011 1976 8%%- 125,000 - 125,000' ment of Financial Accounting Standards No.13, the

~

2011.A 1980 (a) 48,600 -

l above leases for nuclear fuel and unit train coal delivery

-2012 1977 8%% 75,000 75,000 . equipment would be considered capitalleases. However, 2013 -1978 6.20 % 47,500 - 47,500 this fmancial accounting treatmcnt would not result in j 1,030,091 - 890,331 any material changes in the consolidated Balance Sheet less amounts classified as current - (31,831) or Income Statement.

- $1,030,091 $858,500 Payments under the leases for nuclear fuel and unit

trains are charged to Balance Sheet fuel accounts and are (al The interest rate paid equates to the arithmetic average of the subsequently amortized to fuel expense (see Note A-preceding 26 weekly interest indices which are based on the higher of either 67% of the interest rate applicable to 13-week United States Treasury bills or 73% of the interest rate applicable to United States Treasury securities adjusted to a constant maturity of 30 years. The Interest indices used are subject to a mmimum of 6% and a maximum of 12%.

• 37 Fuel). Lease payments made for nuclear fuel and unit must issue, in exchange for Series F, new preferred stock trains amounted to $7,240,000 in 1980, $8,932,000 in with an appropriately higher dividend rate or must redeem 1979 and $8,671,000 in 1978. Lease payments under all Series F at $1,000 per share plus accr ned dividends.

cther leases were not material. The outstanding Serial Preferred and Preference Stock ,

Following is a schedule of future minimum rental with mandatory redemption provisions may be redeemed payments under the operating leases having noncancel. at the option of the Company at the following per share tble lease terms in excess of one year as of December prices, plus dividends accrued to the redemption dates:

31,1980.

Redemption Year Amount Series Date Price Per Share phmandsof Dollarst Preferred C July 31,1983 and prior $110.00 1981 $ 3,775 August 1,1983 and 1982 3,000 thereafter . $103.00 - $101.00 1983 2,860 3 t,088.00 Prefen.ed E May 31,1986 and prior .

1984 2,601 June 1,1986 and 1985 2,344 .. 51,049.74 - 51,000.00 thereafter .

Later Years 5,459

• * **#I

'Ibtal $20.039 and prior.' 51,055.00 1982 ewi E7.-luded from the above table are the basic minimum March therea 1'fter . . 51,035.00 - $1,000.00 rental payments for the nuclear fuel reload lease which will be paid as fuel is burned. The basic rentals equate to Preferred G December 1.1983 through ,

the lessor's cost which totals $8,874,000.

• 9" '

1 and thereafter . . . $ 1,026.67- 51,000.00

- Preferred H June l.1990 through NOTE H-Serial Preferred and Preference Stock May 31,1991. .. . 51,0Ca.68 with Mandatory Redemption Provisions June l 1991 and thereafter . . 51,061.05 - $ 1,000.00 Mandatory redemption provisions on the outstanding Serial Preferred Stock are as follows: . . Preference 1 August 1,1981 through

~

July 31,1982. . . .. 51,038.75 Shares to -

August 1,1982 and be Redeemed Beginning Redemption thereafter . . . $ 1,032.29 - $ 1,000.00 Series Annually On Price (a)

C 10,000 S.1 84 - s 100 Furthermore, Series E, prict to June 1,1986, and Series E 3,000 6181 $1,000 F, prior to March 1,1982, cannet be refunded through the H 1,782 6185 51,000 use directly ' r indirectly (1) of funds borrowed or obtained (c) Plus dividends accrued to the redemption date.

through the sale of stock which ranks prior to or on a parity with the Serial Preferred Stock if the m, terest on Aggregate annual redemption requirements are such borrowing or the dividends on such stock results in

$3,000,000 each year for shares to be redeemed in 1981, an e'ffective cost to the Company of less than 8.80% for 1982 and 1983, $4,000,000 in 1984 and $5,782,000 in 1985. Series E and 7.50% for Series F or (2) from proceeds These obligations are cumulative. derived from the sale of equity securitiesjunior to Series E The Company is required annually to extend to the and Series F, respectively.

holders of Serial Preferred and Preference Stock an offer Changes in the outstanding Serial Preferred and to purchase outstanding shares as follows: Preference Stock with mandatory redemption provisions Number Redemption during the three years ended December 31,1980 were as of Shares Beginning on Price follows:

Preferred Series F 16,667 11 185 $1,000 Shares Sold Preferred Senes G 8,000 8184 $1,000 Price Per Preference Series 1 11,400 4184 51,000 Year Series Share Shares If any offer is accepted, payment is due four months af ter 1978 Preferred G $ 1,000 40,000 the otter date. The aggregate requirement, should such Preference 1 51,000 57,000 1980 Preferred H $1,000 28,500 offers be accepted in full, would be $19,400,000 in 19g4 r.nd 1985. The Company also has an agreement to issue its If the annual after. tax dividend yield of a corporate $145.00 Series I Preferred Stock at $1,000 per share with holder of Seri-s F is reduced to less than 6.%% due to a change in certain income tax laws, the Company either

l 1

38 Notes to Consolidated Financial Statements

~

delivery of 18,500 shares in June 1981 and 13,000 shares options held by employees in the Key Employee Incentive in August 1981. Stock Plan and the 1978 Key Employee Stock Option Part of the proceeds ($56,000,000) from the sale of Plan) were as follows:

57,000 shares of Series 1 Serial Preference Stock in 1978 Key Employee Incentive Stock Plan . 550,250 (a) was used to redeem 500,000 shares of Series D Serial 1978 Key Employee Stock Option Plan. . 600,000 Preferred Stock. The Series D Stock was redeemed at a Employee Savings Plan ... .. 380,484 price of $112.00 per share. The $6,000,000 premium on Employee Thrift Plan . . . . 78,829 rtdemption was charged to retained earnings. This Share Owner Dividend Reinvestment and Stock Purchase Plan. . 1,568.160 refunding transaction reduced total preferred and .

preference dividend requirements by approximately 3.177,723 31,600,000 annuaHy. Stock options held by employees to purchase unissued shares of Common Stock under the Key Employee Incentive Stock Plan and the 1978 Key Employee Stock NOTE I- Other Capital Stock Option Plan are granted at 100% of the fair market value Serial Preferred Stock Without Mandatory Redemption on the date of the grant. The shares which were issued Provisions under options exercised during the three years ended During the three years ended December 31,1980, there December 31,1980 were sold at option prices ranging were no sales or redemptions of Senal Preferred Stock from $17.63 to $18.59. Shares under outstanding options without mandatory redemption provisions. held by employees were as follows:

The outstanding Serial Preferred Stock without mandstory redemption provisions may be redeemed at IncentNe k Plan (at the option of the Company at the following prices, plus 1979 1978 1980 dividends accrued to the redemption dates:

Options Outstanding at Redernption December 31 -

Series Date Price Per Share Shares .. .. .. 154,148 166,849 303,827 Preferred A November 30,1981 Option Price . .. $17.63 to $17.63 to $17.63 to and prior . . . . . . . . . . . 3105.00 $22.43 522.43 $25.84 1secemberl.1981and . . . - .. u. -

thereafter . . . . . . . . . . .- $102.50- $101.00 1978 Key Employee Preferred B July 31.1982andprior . . . 3106.35 1980 1979 1978 August 1.1982 and thereafter . . . . . . . . . . . $103.78 - $102.26 Options Outstandmg at December 31 Common Stock 251,375 202,775 104,700 Shares Shares of Common Stock sold during the three years optio, Mc', , "," s16.94 to $17.88 to $20.25 ended December 31,1980 were as follows: 520.25 s20.25 1980 1979 1978 [al Uner the terms of the Key Employee Incentive Stock P!an, no further Ptions may be granted. Accordingly, only those shares relating to Public Sale . . . . . .. 4,000,000 4,500,000 3,000.000 options outstanding at December 31,1980 may be ,ssued. i Share Owner Dividend Reinvestment and Stock Purchase Plan .. 733,183 557,139 420,529 NOTE K-Short term Borrowing Arrangements l Employee Savings Plan 218,902 164,988 130.5118 Notes Payable to Banks and Others were as follows:

Employee Thrift Plan . . 64,496 50,236 43,449 Key Employee At December 31.

Ins entive Stock Plan . . 469 3.846 12,514 - g 1980 1979 Tb'.al . . . ... .. . 5.017.055 5.276.209 3.607.310 (Thousands of Dolhr*,

Bank loans . . . . . . .... . 5 17,087 5 19 99 Commercial Paper . . . .. .. 149,850 67,0 4

$166.937 $ 86.33A NOTEJ - Common Shares Reserved for Issue At December 31,1980, the authorized shares of Common Stock reserved for issuance under the following stock purchase plans (including shares under ttstanding

39 Bank credit arrangements available to the Company The CAPCO companies have entered into agreements are as follows: for fmancing certain of their future nuclear fuel require-ments through leases.The Company's share of the max.

At December 31.

imum costs which the lessor has agreed to fmance is D 1980

~~~

1979 549.262,000.

Under two of the Company's long. term coal contracts, Bank lines of credit it has agreed to guarantee the loan and lease obligations

@oregs a prime 5169.600 $101,200 of the mimng companies. The principal amount under interest ratel . ......... ...

Eurodollar revolving credit these guarantees amounted to 590,762,000 at December agreement . . .. . ..... . s 30,000 s 30.000 31,1980.

Vanable interest note Various legal actions, claims and regulatory proceed.

agreements. ..... .... 5 20.000 s 20.000 ings covering several matters are pending against the All transactions under the Eurodollar agreement are Company. The Company believes, based on the opinion caducted in U.S. dollars. The agreement contamt no of counsel, that the ultimate disposition of these matters should not have a material adverse efect upon the Com-coraensating balance requirement; however, a fee of

%% te %% per annum is paid on any unused credit.The Pany's snancial position, although an adverse 6nal interest rate on borrowings is % of a percentage point determmation in certain instances could have a material above the rate paid by certain designated banks for efect on income for the period in which it occurs.

Eurodollar deposits in the Iondon interbank market.

Borrowings under the variable interest note agree-ments are callable on demand. Interest is paid at the NOTE M - Rate Matters r:te for certain direct!y placed, high quality commercial Effective May 8,1979 and July 14, 1980, the PUCO paper in the 30-180 day maturity range. granted the Company annual increases in electric rates The Company maintains unused bank credit arrange- of 9.2% and 9%, respectively. These changes in rates ments equal to a mtmmum of 100% of its commercial increased 1979 electric revenue by approximately 546 paper issued and variable interest note borrowings million and 1980 electric revenue by an additional 547 outstanding. million.

The unused portion of the above credit arrangements. In July 1980, the Company Sled an application with after deducting bank lines held to cover outstanding . the_PUCO for an approximate $172 million increase,in commercial paper and variable interest notes, amounted electric rates. The PUCO is expected to hold public to 532.663,000 at December 31,1980. hearings on this application early in 1981. Under Ohio The average daily operating cash book balance in the law, any increase granted in this case will be efective Company's bank accounts was $5,700,000 in 1980 and early in the second quarter of 1981. The Company has

$ 5,100,000 during 1979. This operating balance satis 6ed also 61ed a notice of intent to apply in 1981 for a further informal compensating balance arrangements under increase in electric rates of approximately $114 million.

which the Company maintains balances at banks of Any increase granted woukibecome effective early in 1982.

54,000,000 to 58,000,000, dependmg on the amount of In 1978, the PUCO granted the Company a 25%

borrowings. increase in steam rates which became efective on January 1,1979 and an additional 5% increase which became eHective January 1,1980. These changes in rates NOTE L- Commitments and Contingencies increased 1979 steam revenue by approximately $2.3 niilli n and 1980 steam revenue by an additional 5.4 The Company plans to invest $1.7 billion in new plants million.The Company has 61ed a notice ofintent to apply and other facilities during the next hve years. Purchase in 1981 for a further increase in steam rates of approx-commitments at December 31,1980 are as follows:

imately $7 mEon.

Construction Program . . . . . . . . . . . $18t000,000 Nuclear Fuel Enrichment Services . . 5 89,807.000 All of the preceding commitments are customary and have been entered into in the normal course of business.

Generally, such commitments are revocable subject to reimbursement of manufacturers for expenditures in-curred and termmation charges where appropriate.

40 Notes to Consolidated Financial Statements NOTE N - Property Owned With Other Utilities amortization of prior ser rice costs over 25 years Contri-Certain of the Company's generating facilities are owned butions for pensions were 59,300,000, 58,600,000 and or are' being constructed with other utilities, principally 58,100,000 for 1980,1979 and 1978, respectively.Of these the members of CAPCO. Each company owns, as tenant amounts, $6,132,000 in 1980, $5.687,000 in 1979 and in common, a portion of specific generating units and has $5,411,000 in 1978 were charged to expense with the the right to the net capability and associated energy and remainder being ciarged to construction and other is severally, not jointly, obligated for the capital and c.ccounts.

operating costs equivalent to its respective ownership The fonding needs of the pan are deterr lined under a portions. valuation method (entry age normal) which is both Utility Plant at December 31,1980 includes the follow. recommended by the Company's actuaries and used by ing facilities owned with other utilities: the majority of private pension plans. Under this method, the contributions are determined by taking into account Company ownership anticipated changes in future salary levels, thereby Construction better ensuring that adequate funds will be available to Electric Work pay future benefits. On the basis of this method, the net Facility Percent in Service in Progress assets available for benefits were substantially equal to

(*"""d'd "l'"' the actuarial liability of the plan at January 1,1980.

Davis.Besse 51.38 5369,902 1 16.426 Statement of Financial Accounting Standards No. 36 Bruce Mansfield 1 6.50 24,397 528 [FAS-36) requires disclosure of the liabilities for accu-mulated plan benefits on a basis which ignores future e el f4:4 th,f43 *$ salary levels and their effect on these past service Beaver Valley 2 24.47 560 220,193 203,288 bene 6ts. However, the funding basis of the plan cannot Perry 1 24.47!a) -

Perry 2 24.47(a) - 185,801 ignore this factor because future salary levels are Eastlake 5 68.80 96,484 8,548 expected to increase. Therefore, the required FAS-36 Seneca Pumped Storage disclosure results in a comparison of funds which have Hydroelectric Plant 80.00 53.850 .455 accumulated on a basis which takes into account future 5806.268 $638,224 salary levels with liabilities which do not take the;n into account. The Company and its actuaries believe that

- ja) Effective July 1,1980 the Company has increased the percentage of . such a comparison is misleading because-the liabilities-its payments for the current construction cost of these units to 31.11%.

required to be disclosed by FAS-36 understate the Agreements are being developed to increase the Company's ultimate ownership in the completed units to 31.11%. . amount which ultimately will be needed to pay for all of the plan's bene 6ts. The funding of the plan under the Accumulated Depreciation and Amortization at FAS-36 method ts as follows:

December 31,1980 includes $9,635,000 for the Seneca Pumped Storage Hydroelectric facility and 519,008,000 for At January 1.

Davis-Besse. Depreciation on all other property owned 1980 1979 with other utilities has been accumulated on a composite _ imo na w wim, basis along with all other depreciable electric property Actuarial Present Value of rather than by specific units of depreciable property.The Accumulated Plan Benefits:-

operating expenses associated with those facilities in com- Vested . . . . . s110,189 5122.430 mercial operation are included in the Income Statement. Nonvested . . . .. . 4.380 7.079 3114.569 $129.509 Net Assets Available for Benefits. .. 5162,903 5143.230 NOTE O - Pensions The Company has a non-contributory pension plan which provides bene 6ts upon retirement between ages Under the entry age normal method and the method used m FAS-36, the assumed rate of return used in 55 and 70 for all regular employees with at least five ,

years'of service. Benefits paid are. based primarily on determining the actuarial present value of accumulated Pl an bene 6ts was 6%% and 5% for 1980 and 1979, respec-length of service and total earnings. However, no additional . ,

bene 6ts are accrued for service and earnings after age 65 tively. Certam actuarial assumptions used to determm, e and benefits are reduced in the event of retirement prior the January 1,1980 present value of accumulated, bene 6ts were changed to more closely anticipate actual to age 62.The plan also provides for disability and death benehts. It is the Company's policy to fund pension. cost experience under the plan. The net effect of these accrued consisting of a provision for current cost and changes, principally the rate of return assumption, reduced such value by $30,544,000.

41 .

NOTE P-Quarterly Results of Operations (Unaudited)

The following is a tabulation of the unaudited quarterly results of operations for the two years ended December 31,1980.

. Quarters Ended March 31 June 30 Sept. 30 Dec.31 1980 th. sands excep per share amount Total operating revenues . . . . 5217.433 $198.767 $247.326 5230.039 Net operating income. . . 5 30.047 5 30,873 5 49,410 $ 40.151 Net income . 5 24,913 5 25.052 5 43.830 $ 31,587 Earnings available for common stock . . 5 18.516 5 18.598 5 36,400 5 24.157 Average common shares . .. .. . . 41,393 41,655 43.860 46.147 Earnings per common share . . . . .. . $ .45 5 .45 5 .33 5 .52 1979 Total operating revenues . . .. . .. .. 5201,573 5197,092 5225,199 5200.402 Net operating income . .. ...... . . . 5 30.656 5 28,768 5 47.255 5 28.771 Income before the cumulative effect of accounting change . 5 24.368- 5 22,635 5 42.392 5 24,143 Net income . . . . . . . .. 5 28,489 3 22.635 5 42.392 5 24 143 Earnings available for common stock . . .. .. 5 22.092 5 16.238 5 35.995 5 17,747 Average common shares . . . . . . 36.085 36.286 38,720 41,176 Earnings per common share before cumulative effect of accounting change , 5 .50 $ .45 5 .93 5 .43 Total earnings per common share . .. . $ .61 5 .45 5 .93 5 .43 Report ofIndependent Accountants Pnce . _

,_ _ as, ~

= = c~o"~

gfaterhouse&Ca Ta the Board of Directors and the Share Owners of The Cleveland Electric Illummating Company:

l We have axammed the ,:onsolidated balance sheet and the consolidated statement of capitalization of The Cleveland Electric Illummating Company and its subsidiaries as of December 31,1980 and 1979, and the related consolidated statements of income, retained earnings, and changes in financial position for each of the three years in the period ended December 31, 1980. Our exammations were made in accordance with generally accepted auditing standards and accordingly included such tests of the accounting records and such other auditirg procedures as we considered necessary in the circumstances.

As described in Note B to the fmancial statements, the method of computing depreciation for the Davis-Besse Nuclear Power Station was changed in 1979.

In our opinion, the consolidated fmancial statements examined by t:5 present fairly the financial position of The l Cleveland Electric illummating Con.pany and its subsidiaries at Decembr 31,1980 and 1979, and the results of their operations and the changes in their hnancial position for each of the three years in the period ended December 31,1980, in conformity with generally accepted accounting principles consistently applied during the period except for the l

ch, nge, with which we concur, referred to in the preceding paragraph.

February 17,1981 Price Waterhouse & Co.

42 Financial and Statistical Review 1970 - 1980 - - .

1 l

._ l 1980 1979 1978 1977 l TOTAL OPERATING REVENUE . 893.5C6 824.237 717.092 659.2i Residential . . . 268.787 237.612 213.520 200.76 Commercial . . 220.677 194.899 172.251 165.04 '

Industrial . . . . . . . . . . . . . . . . . . . . . . . . 323.764 322.909 278.405 251.1E Other Electric (includes Sales for Resaie) .... . . 65.273 55.799 42.831 31.6-Steam Heating . . . . . 15.065 13.048 10,085 10 6E TOTAL OPERATING EXPENSES . 743.051 688.788 599.289 542.87 Fuel and Purchased Power . . . 359.388 348.068 306.036 259.7C Other Operating Expenses . . . . . . . . . 195.840 163,595 142,389 133.35 Depreciation and Amortization . . . . ... . .. . 64.619 59.443 58.774 43.3C Taxes Otner Thsn Federal income Taxes. .. . . 81.630 79,455 68,756 58E Federallncome Taxes .. .. . .. . 41.574 38.227 25.334 47.6t

,c_2 NETOPERATINGINCOME ... . . . 150.515 135.479 117.803 116.4' E NONOPERATING INCOME . . . . 62.440 47.621 42.226 49.4{

lS o Allowance for Equity Funds Used During Construction . 40.873 33,432 29.890 35.2E E3 Other tncome and Deductioas . . . .. .. . .. 21.567 14.189 12.336 14.2' 212.955 160.029 54 INCOME BEFORE INTEREST CHARGES . . . . .. 183.100 165.9C eg INTEREST. . ... .. . 87.572 69.566 61.016 54.1-Eg Long and Short tarm interest . . . . . . . . . . . . . . . . . . . . . 112.623 85.299 72,071 67,8 8g Allowance for Bowod Funds Used During Constructon. .; . ' (25.05 P (15,733) (11.055) (13.7 -

.E t INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE. . . . . . . . . . . . . . . . . . .

125.383 113,534 99.013 111.72 Cumulative Effect of Change in Depreciaten Method on Penods prior to January 1.1979 . . . . . . ..... ...

...l' . -

4.125 - -

NET INCOME (a) . . . . .. .. .. .... .I 125.383 117.659 99.013 111.72 PREFERRED AND PREFERENCE DIVIDEND R3OUtREMENTS . l 27.711 25.587 23.575 22.9C EARNINGS AVAILABLE FOR COMMON STOCK ,  ! 97.672 92.072 75.438 88.82 EARNINGS PER SHARE BEFORE CUMUt.ATIVE {

EFFECT OF ACCOUNTING CHANGE . . . . . . . . . . . . ..! $ 126 $ 2.31 $ 2.20 $ 2.9 CUMULATIVE EFFECT PPJOR TO JANUARY 1,1979 . . . .  ; - .11 - -

TOTAL EARNINGS PER SH ARE (b) . . . . . . . . ... .... .

DIVIDENDS PER SHARE (b). .. .. . ... .. .,$l$ 2.26 2.00 5

2.42 1.92 s

5 2.20 1.84 5

2.5 1.7 TOTALASSETS ... . ..... . . . . ... .. . . . . j 3 M 462 2.678.786 2.331.541 2.117.12 Utility Pf ant -Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..' 3.215.339 2.842.253 2.523,996 2.232,11 Accumulated Utility Plant Depreciation and Amortization . . (557.859) (521.175) (476,983) (429.15 2 Other Property . . . . . . . . . . .... . .. . . .... . 21.137 19,503 15.034 13.75 o $ Current and Orher Assets . . .. . . . .. 415.845 338.205 269.494 300.42 2c8 TOTAL CAPITALIZATION AND LIABILITIES . . . .. . .. . . 3.094 462 2.678,786 2,331,541 2,117.12 M53 Cm Long-term Debt. . ..

Preferred and Preference Stock:

............ .............j 1.211,528 973,991 . 920.973 m ._ 885,8S E4 m

• With Mandatory Redemption Provisions. . . . . . . . .

Without Mandatory Redemption Provisions .

.. 260.500 95.071 232,000 95,071 232.000 95.07T 185,00 95.07 To S>* ? Common Stock Ecurty . . . . . . . . . . . . .

Deferred Federal income Taxes . . . . . . . .

.. .. ... 912.731 192.452 820,411 162.122 709.883 140.677 633.7.:

119.29 32 2 .. ..........

233.937 t Current Liabihties and Other 9 edits . . . . . . . . . . . . .. 422.180 395.191 198.1 0 UTILITY PLANT ADDITIONS (c) . . . .. .... . ... . 398.088 329.869 300.765 286.7; UTILITY PLANT RETIR EM ENTS . . . . . . . . . . . . . . . . . . . . . . 25,002 11,612 8.880 10.32 NUMBER OF COMMON SHARES (b) . .. . ... ....... , 46.288.629 41,271,574 35,995,365 32,388.05 KWHR SALES (Thousands) . . . I 18.159 754 19,030.453 18.364M7 18.066.42 Residential .. .

Comrnercial .....

..... .................i

.... .... . . ... ... i 4.463.147 4.148.990 4.352.983 4,041,134 4.288.365 3.933.586 4.200.15 4.007,1-Industrial . . . . . . . . . . . . . . . . . . . . . . ....... . .....i 8.062,172 9.268.600 8,992,919 8.874.77 Other(includes Sales for Resale) . ..... .........l '

1.485.445 1.367,736 1.149.067 984.39 ELECTRIC CUSTOMERS-YEAR END . . .. . . .. . 710.557 708.219 702.538 696.5-Residential . . . . . . . .. ... ... . ... .. 642.845 641.856 637.6C's 632,72 Ce<nmercial .. . . ... .. . ....... .... . .. 60.070 58.690 57.310 56.2:

e trmstrial. . . . . . . . .... . . .. ............. 7.210 7,232 7.167 7,1 -

.9 Other . . .... ... ... . .. .. . ... 432 441 452 4r E RE3IDENTIAL SALES DATA j Average Kwbr per Customer ... .. .. . .....

6.686 6,557 357.88 6,517 324.91 $

6.4 -

307.-

O

- Average Revenue per Customer. . ...

Average Revenue per Kwhr . . . . . . . . . .

.. ..j t 405.09 6.05c 5.48e 5.00c 4a E ELECTRIC PRODUCTION j 18.722.616 19.645.001 19.254.857 19.098.2:

Net Avaitaufe for Service Area (Thousands) . . .. ...

E Net Generation . . . . . . . . . . . . .. .. .. ... .- 15.325.948 17,069.914 16.882.669 18.123.52 974 7'

& Net Received from Others . . . . . ..

BTU per Kwnr of Net Output

.. ) 3.396.668 10.635 2.575.087 10.634 2.372.188 10.536 10.4; O . . . .. .

1172 Fuel Cost per MJ1 ion BTU . ... .. . 156.92c 142.513 131.80c Coal Cost per Ton ................... . ...... , $ 39.31 5 35.20 $ 30.73 $ 25.-

Annual Net 00. Min. Max. Load.KW-Exct. interruptibles . 3.304.000 3.097.000 3.249.000 3.350.0; Net System Cacabdity-KW-Year End . 4.598.000 4,562.000 4.566,000 4.386.0C STEAM HEATING Sales-Pounds (Thousands) . . .. 1.979.397 2.004,680 2.210.886 2,374.5-Customers-Year End . . . . . 348 365 369 3-EMPLOYEES-YEAR END . . . 4.991 4.963 4,831 4.7:

(a) The 1978 net income and eamargs per share calculated on a pro forma basis to reflect the units of-production method of depreciaton are %32.942,503 and $2.31. respectrvery. The pro forma etfeet of the adoption of this depreciation method on 1977 was not matenal

43 TH5 CLEVELAND ELECTRIC ILLUMINATING COMPANY and Subsidiaries CTS 1975 1974 1973 1972 1971 1970 543,148 523,165 463.937 328.768 293.343 270.721 245.381 160.015 154.020 140,030 104,379 98,891 93.131 84,593 129.286 121,653 109,185 80,756 74,992 70,216 62,498 197,189 180.890 177,246 119,964 99,926 92.519 84,342 45,730 55.879 29.94o 17,832 13.966 10,709 10,193 10.928 10.923 7,530 5,837 5.568 4.146 3.755 441.401 433.614 375.159 255.276 224.473 208.397 191,958 231,564 243,369 218,648 100,450 75,199 69.698 63.888 105,337 98,154 65.836 72,795 71,722 66.002 59.208 35,874 33.046 31.632 30,965 27,336 25.433 21,734 51,925 48,735 43,653 40,906 36.203 32,556 28.716 16.701 10,310 15.390 10.160 14.013 14.708 18.412 101,747 89.551 88,778 73.492 68.870 62.324 53.423 26,346 17.681 8,472 7,642 5,567 4.023 4.869 34,706 16,983 7,854 6.363 5,958 3,908 4,980 9.640 698 618 1.279 (391) 115 (111) 128.093 107,232 97.250 81,134 74.437 66.347 58.292 46.413 42,464 36 509 31,720 25.365 24.684 17,559 56,750 50,511 44,717 35,161 27,907 26,697 20,743 (8,047) (8.208) (3.441) (2.542) (2.013) (3,184)

(10.337) 81,680 64,768 60,741 49,414 49,072 41,663 40,733

~

81,680 64.768 60,741 49,414 49.072 41.663 40.733 18,005 14.696 10.067 7.658 5,118 175 -

63.675 50.072 50.674 41.756 43.954 41.488 40.733 s=-

S 2.38 $ 2.11 5 2.45 S 2,03 5 2.15 $ 104 5 2.01

$ 3.38 5 2.11 5 2.45 5 2.03 $ 2.15 3 2.04 5 2.01 1.71 5 1.65 $ 1.60 5 1.55 5 1,52 5 1.49 5 1.44 5

1.842.999 1.513.247 1.354.065 1,152.335 1.057,091 895.641 815.828 1,955.701 1,693,614 1,526.659 1,364.122 1,228,840 1,106,797 995.618 (396,336) (355,841) (334,071) (313,109) (297,385) (282,749)

(373.851) 4,500 12,849 9.942 7,433 5,331 5,340 4.418 R70.787 183,542 175,814 116.953 136.020 81.811 98.459 1.842,999 1,513.247 1.354.065 1,152,335 1,057.091 8 % .641 815.828 F47,397 673,003 553,144 502,800 491,304 391,750 392,217 135,000 75,000 63,000 25,000

^

~

_ _~

95,071 95.071 95,071 95,071 95,071 50,000 _

419.990 346,736 326,947 314,542 299,539 286.933

$11.333 30,479 72,318 63.267 43,348 34,312 34,444 31.021 186,916 252,766 168,205 121,730 123.873 105.657 281.885 181,673 173,899 145,470 134.893 123,241 105,575 275,524 13,437 14,718 11,362 10.188 12,850 12,062 10,425 28,347,544 24,351,499 20,748,110 20,611,034 20,499,420 20,400.326 20.307,009 17,601.686 17,747,663 15,173,048 14.064.775 13,822,095 18.070.291 18.133.826 3.984,004 3,830,305 3.910.018 3,730,365 3,530.655 3,442,683 4,045,158 2,983,877 3,808,897 3,885,878 3.527,382 3,569.689 3,356.419 3,144.640 8,4F5,983 7,822.419 8,819,205 9,103,173 7,298,700 6.813,918 6,793,952 1,740.253 2.641,525 1,424,794 1.164,783 787,564 575.562 601.583 693.425 689.133 684,728 678.426 672.165 663.749 657.520 630,581 627,719 623,988 618,266 612,845 605,889 600.816 55,178 53,765 53.079 52,291 51,645 50.285 49.037 Y,206 7,190 7,212 7,415 7,222 7,122 7,139 459 458 454 453 453 528 460 6,187 6.116 5,914 6.098 5.864 5.604 5.532 237.02 5 216.69 5 162.69 5 155.45 S 147.89 5 135.84 5 245.16 $

2.46c 3.97c 3.884 3.67c 2.67c 2.65c 2.64c 17,271.169 17,817,763 18.257,155 16,101.689 15.114.% 5 14.799.326 18.331.384 16,213.012 18,040,100 17,326.640 15,404.233 14.953,520 12,671.397 16,747,626 1.058.157 (222.337) 930,515 697,456 161.445 2.127.929 1.583.758 10,454 10.569 10,382 10.172 10.256 10.564 10.322 40,51c 36.26c 105.55c 111.14c 102.26c 48.40c 42.86c 24.93 $ 21.53 $ 11.05 S 9.94 5 9.03 $ 8.12

$ 23.98 $

2,750,000 2,517,000 3,065,000 2.937,000 2.934.000 3,119,000 2,822.000 3,906,000 3,615,000 3,764,000 3,769.000 3,775,000 3,400.000 3.235.000 2,274,925 2,154,390 2.450.656 2,390,495 2.378,702 2,359.677 2,263.645 406 416 427 450 470 385 399 4,869 4,840 4,947 4,982 4,853 4,898 4,972 (b) Adjusted for the 3-foe.2 stock spht, effective December 16,1977, (c) Exc udes $56.022.606 of terminated protects rec!assified to Deferred Charges in 1979.

l I

44 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY and Subsidiaries Statement of Income from Continuing Operations Adjusted for Changing a - -

Prices for the Year Ended December 31,1980 (Thousands of Dollars)

Conventional Constant Dollar Current Cost Historical Average Average Cost 1980 Dollars 1980 Dollars Revenue. . . . . $ 893,566 5 893,566 $ 893,566 operation expense . 488,170 488,170 488,170 Maintenance expense . . . . . 67,058 67,058 67,058 Depreciation and amortization .. . 64,619 138,040 165,713 Taxes other than Federalincome tax . . . . . 81,630 81,630 81,630 Federalincome tax . 41,574 41,574 41,574 Nonoperating income . . . . . (62,440) (62,440) (62.440)

Interest expense . .. 87,572 87,572 87,572 768,183 841,604 869.277 Net income-continuing operations . . 5 125,383 5 51,962(a) $ 24,289(a)

Increase in specific prices of property and plant (b) .

5 479,274 Reduction to net recoverable cost . . . .. 5(216,496) (200,028)

Increase in general prices. . . (468,069)

Increase in general prices in excess of increase in specific prices after reduction to net recoverable cost (188,823)

Gain from decline in purchasing power of net amounts owed . . .. .

188,639 188,639 Net price level adjustment . . . . . ... 5 (27,857) $ (184)

(a) Including the reduction to net recoverable cost, net income (loss) for 1980 would have been $(164,534) in constam dollars and

$l175,739) in current cost dollars.

(b) At December 31,1980, the current cost of property, plant and equipment net of accumulated depreciation was $4.3%,865 while

+

historicalinet recoverable) cost was $2.6a7,480.

Supplementary Information Concerning the Effects of Inflation ' ~

The Company has prepared the following information 'ncr^

i eased at rates different from tile rate of gen'e'ral pertaining to the effects of inflation on its operations as inflation.

prescribed by Statement of Financial Accounting Revenues and Expenses Revenues and expenses Standards No. 33. The concepts and procedures used

, exclusive of depreciation were assumed to accumulate to develop this mformation are experimental and evenly throughout the year, and no adjustments were subject to change by the Financial Accounting Standards made to historical information reported in the primary Board. These data do not represent the " current value financial statements. No adjustments were made to of the Company's assets and do not reflect all the effects Federal income tax expense.

of inflation on the Company's operations or the levelof the Company's future cash requirements. The effects Depreciation Constant dollar and current cost of inflation described herein are not recognized for estimates'of property, plant and equipment were either income tax or ratemaking purposes. determined by applying the indices specified to the historical cost of plant by vintage years. Restated i General The historical cost information adjusted for depreciation reserves (used to estimate property and general inflation (constant dollar) was determined by Pl ant, net of depreciation) were estimated by applymg converting historical costs of utility plant and certain ,

current estimates of depreciation rates on an account-other items into dollars of the same general purchasing by account basis to restated property and plant esti-power by applying the Consumer Price Index for All mates based upon the year in which the assets were Urban Consumers to the original cost of these assets. actually placed m service.The depreciation provisions The current cost information reflects the cost of were estimated by applying depreciat,on i rates m effect current replacement of existing plant assets. The during the year to the average of begmmng and end-cuitent cost of plant assets was estimated by applying f. year est,i mates of depreciable property.

the Handy-Whitman Index of Public Utility Construc-tion Costs to vintaged historical cost of structures and Materials and Supplies Balance sheet items such equipment. original cost of land by vintage was as fuelin stock and materials and supplies were treated trended using the Consumer Price Index for All Urban as monetary items. The investment in fuel inventory is Consumers. Certain other property was trended to subject to rapid turnover and, as such, the Company current cost using various industry indices. . believes the historical cost of this item adequately Current cost data ditTer from constant dollar data represents its current cost.

primarily because speci6c prices of plant assets have L

45 TNE CLEVELAND ELECTRIC ILLUMINATING COMPANY and Subsidiaries Five-Year Comparison of Selected Supplementary Financial Data Adjusted for Effects of Changing Prices (Average 1980 Dollars)

Year Ended December 31, 1980 1979 1978 1977 1976 iThousands. Except Per Share Amounts)

Revenue ca reported. . .. .. ... $893,566 $824,267 $717.092 $659,290 $543,148 in 1980 constant dollars . .. . . $893,566 $935,737 $905,723 $896.489 $786,211 N;t Income .

c.s reported - continuing operations . . .. $125,383 $ 113,534 in 1980 constant dollars . .. .. . $ 51,962 $ 65,399 in 1980 current cost dollars . $ 24,289 $ 34,568 Income (Loss) per Common Share as reported - continuing operations . . .. $ 2.26 5 2.31 in 1980 constant dollars . . ... . $ 0.56 $ 0.95 in 1980 current cost dollars ..... . .. . . $ (0.08) $ 0.15 N:t Assets at Year End as reported. . . .... .. . . ... . $912,731 $820,411 ct net recoverable cost . .. . .. . .. $871,757 $880,719 Increase in general prices in excess of increase in specibe prices after reduction to net recoverable cost . . .. . ... $188,823 $215,352 Gain from decline in purchasing power of net amounts owed ... ... ... . $188,639 $201,187 Cash Dividends Declared per Common Share as reported. . .. .. ... .. 5 2.00 $ 1.92 $ 1.84 5 1.76 $ 1.71 in 1980 constant dollars . . . . .. $ 2.00 $ 2.18 $ 2.32 $ 2.39 $ 2.48 Market Price per Common Share at Year End as reported. . ... .. . . $ 14.63 $ 16.25 $ 16.88 $ 22.50 $ 23.08 in 1980 constant dollars . . . 5 , 13.9'7 ,$ 17.44 5 20.53 $ 29.84 $ 32.68,_

Average Consumer Price Index. .. . .... 246.8 217.4 195.4 181.5 170.5 Reduction to Net Recoverable Cmt Ohio regula- electricity in 1980, while revenues in constant dollars tory law limits the Compar.y tc the 'ecovery of the decreased from prior years. This indicates that historical cost of plant and equipment. The value of inflation, as reflected in rates by the increasing cost of the plant an'! equip tent under both constant dollar service, was primarily responsible for historical cnd current cost valuations was consequently reduced revenue growth.

to the lower historicai cost recoverable amount. Net income from continuing operations on both constant dollar and current cost bases was substantially Insteue in General Prices im Excess of Increase bel w the histoncallevel. This occurred because the in Specific Prices After Reduction to Net Recover, Company is not permitted to recover current cost cble Cost The aggregate increase in speci6c prices measures of depreciation through rates: Ohio regula-of the Company's property and plant exceeded the tory law restricts recovery of mvestment through increase in general prices as measured by the Cen- ,

depreciation charges to the onginal cost of plant. The sumer Price Index for All Urban Consumers during mec vered current cost of facilities was only partially 1980. However, this theoretical " gain" from specific ffset by gains from the dech,ne m purchasing power price increases was more than offset when the current f de o iga ons.

of t was reduced to the lower historical cost ,g, must raise additional capital to meet growth requirements at inflation. impacted costs Grin from Decline in Purchasing Power of Net of construction and to replace worn-out facilities at an Amounts Owed During periods of inflation. holding inflated replacement cost. Inability to obtain matching monetary assets such as cash and receivables results rate adjustments to compensate for these capital in a loss in purchasing power. Conversely, holding infusions, especially during periods of high inflation, monetary liabilities such as long-term debt results in a portends a regular erosion of the achieved return on gnin in purchasing power. Preferred stock and deferred equity and, consequently, a regular need for rate relief.

~

obligations were treated as monetary liabilities for The Company continues to seek adequate and Ns computation. timely rate increases while pressing for a regulatory envir nment more responsive to the effects of inflation s.fects of inflation on the Company Historical n the Company and its mvestors.

revenues increased despite the decline in unit sales of

46 e, ., .

Share owner dividend reinvestment and stock Registrars purchase plan The Company has a Share Owner for Common Stoch Dividend Reinvestment and Stock Purchase Plan which AmerfIYust Company provides common stock share owners of record a Euclid Avenue and East 9th Street convenient means of purchasing additional shares of Cleveland, Ohio 44114 Company common stock automatically at no additional cost by investing quarterly dividends and/or additional Manufacturers Hanover Trust Company 4 New York Plaza, New York, N.Y.10015 cash payments Requests for information and a pro.

spectus relating to the Plan should be sent to Share for Preferred Stoch Owner dervices at the Company. AmertTrust Company For.n 10-K The Company will furmsh to share owners, Euclid Avenue and East 9th Street Cleveland, Ohio 44114 without charge, a copy of its most recent annual report to the Securities and Exchange Commission (Form 10-K) Transfer Agents and, upon payment of a reasonable fee, a copy of each exhibit to Form 10-K. Requests should be directed t fhe I ve and Electric illuminating Company the Secretary of the Company. Share Owner Services Independent Accountants P.O. Box 5000, Cleveland, Ohio 44101 Price Waterhouse & Co.,1900 Central National Bank Stanufacturers Hanover 'lYust Company Building, Cleveland, Ohio 44114 4 New York Plaza. New York. N.Y.10015 Bond Trustee and Registrar for Preferred Stock Morgan Guaranty 'IYust Company of New York for The Cleveland Electric Illummating Company -

all Series. Share Owner Services P.O. Box 5000, Cleveland, Ohio 44101 Communications regarding bond registration require-ments and lost certificates should be directed to Morgan Share Owner Inquiries Guaranty Trust Company of New York,30 West Communications regarding stock transfer requirements Broadway, New York, N.Y.10015 or lost certificates should be directed to the appropriate Bond Paying Agenta Stock 'IYansfer Agent. All communications regarding dividends and changes of address should be directed to Manufacturers Hanover 'Irust Company,40 Wall Street, Share Owner Services at the Company.To reach Share New York, N.Y.10015 and Ameri1Yust Company, Euclid Avenue and East 9th Street, Cleveland, Ohio 44114- -

- Owner Services by phone, use the followmg numbers:

Co-paying agents for the Local calls in Cleveland area 622-9800, ext. 2325 3% Series, Due 1982 3% Series. Due 1989 2%% Series. Due 1985 3%% Series, Due 1993 Elsewhere 3%% Series, Due 1986 4%% Series, Due 1994 in Ohio 1-800-362 1237 Outside Ohio 1 800-321 3206 Morgan Guaranty 'IYust Company of New York,30 West Broadway, New York, N.Y.10015 - for the Executive Offices Mail Address 8.85% Series, Due 1983 8%% Series, Due 2005 - Illummating Building Post Office Box 5000 7.55% Series, Due 1984 9%%' Series, Due 2')09 55 Public Square Cleveland, Ohio 44101 12%% Series, Due 1984-A 9.85% Series, Due 2010 Cleveland, Ohio 11%% Series, Due 1985-A 8%% Series, Due 2011 Telephone Number (216) 622-9800 7%% Series, Due 1990 8%% Series, Due 2012 8%% Series. Due 1991 Inquiries regarding interest payments should be The annual meeting of the share owners of the Com-directed to either Manufacturers Hanover Trust Com-Pany will be held on April 28,1981. Owners of common pany or Morgan Guaranty'IYust Company of New York for the series of bonds for which each acts as paying stock as of February 27,1981, the record date for the agent as noted above.

raceting, will be entitled to vote on the issues. The G.cial notice, proxy statement and proxy will be mailed Common Stock to share owners on or about March 16,1981.

Listed on the New York, Midwest and Pacific Stock Exchanges: unlisted trading on the Boston, Philadelphia-Baltimore-Washington, Cincinnati and Detroit Stock Exchanges. New York Stock Exchange symbol-CVX. Notice: The annual report and the fmancial statements herein are for the pneral information of the share Preferred Stock owners of the Company and are not intended to be used Listed on the New York Stock Exchange. in connection with any sale or purchase of securities.

l THE COMPANY 2rnisnes _.;-cmc ser<:ce "'

an area at apprcx:mateiv w sauare maes CanCO r O aenerating O units ex*endtra a mues a.ong me vou'n snore ur E W eG N D' mons r at ed Year C ns _ . . r.

Laac Erie tr m *ne Ohw P-nns e .ania oorcer O C# 1tf E * '^ 3 N on ne ent mrougn ne s at Avon Lan- o n k. e:u.e: 2 r. : 4 ra - r t he w est Tua. popu.at;on sers ed .s appr;x- P mec ;t a. LEI share mp. v. n R e sp n >.t. .

c ateiv 2 M '3 0 Eastlake 9 The C.3mean < a a memwr ;r me t,enua; ;n, ,5 6 3 5 ;. N,; o A,: .~ - '-,  % ;13 "- . ,nc.gt m a r. .

Area Power 'CMrdmat;G Group C A PC }

formed by repon:6 utmr. :ompanies to assure g, g

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.n Mr se v . - ~ ,- ~ 1 pester renaudity of >nterC nn*C* LOU 5 U"'" "E

.n ca3e or emergenc:cs and tet*er economies or Ntansfield 9

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n vr e p e7,3, . , n ,3 operation Otner memoers tnclude Duquesne an Liznt Compan y Oh.o Edimn orn:>any P-tm-

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and Ohio Power Company the Company s serv:ce area .s par 3r an :nterconnected Beaser Valley g system .mkmg contmenta! U 5 A and maior C: t *: 33 3 J00 -G- 'n Ser ce Dunesne Un:t82 s33 000 Zud. 70 ;M -gn: Ompany portions or Canada This .n:erna:;onai net-wcrk f urther anhances ne renaotbty and economy r >ur :ustomers e:ectric mrv:ce m 9 Ccai. Fired 6 Nuc. ear

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THE CLEVELAND ELECTRIC ILLUMINATING COMPANY , ,, ,

P.O. Box 5000 Clevelmd. Ohio M101 O

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