ML20084A507
| ML20084A507 | |
| Person / Time | |
|---|---|
| Site: | Beaver Valley |
| Issue date: | 12/31/1994 |
| From: | CENTERIOR ENERGY |
| To: | |
| Shared Package | |
| ML20084A425 | List: |
| References | |
| NUDOCS 9505300370 | |
| Download: ML20084A507 (37) | |
Text
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CENTE R M
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793 97 Annual Report 1994 PR ADOC 0 0 0 34 I PDR
. _ _ _ _ - . . . ~ . _ _ _ _ _ _ . _ . . _ _ _ _ _ . _ . - _ . - . _ - - - _ _ - - - - - . . _ _ _ _
s Net Cashfrom Operating Activities Contents . - _ _
(in inillions) s.. . ,
2 Letter to Share Owners 5*' ; ; -
4 Finance m'
- e !. :. .
5 Revenues m, 7 Customers e . . . .
53, _e* e . . .-
8 Employees sw
- 9 Power S,upply _. -
e . . e e 11 Management's Statement of l l l l l Responsibility for Financial . ,, y, y, W Statements 11 Report of Independent
,b d Preferred Stock outstanding Public Accountunts af }earEnd (in millions) 12 Management's Financial 5*d "'
Analysis, Financial Statements and Notes . 3 3 3 3 33 Executives of Centerior 5'""'
e
- e :. :. e Energy Corporation and , y , ,, _. , e e_
Centerior Service Company . . e e suo, . * * .
- 34 Financial and Statistical _* * * * *_
Review soui _
36 Board of Directors ,, . . .
37 Share Owner Information ! ! I I I w 91 9.' 91 W Operation andMaintenance Excluding fueland Lease Expense (in snillions)
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l Financial Summary
_.% 1994 1993 Vc Change Earnings (Loss) Per Share of Common Stock _ $ 1.38 $ (6.51) -
l Write-Offs and Other Charges Per Share of Common Stock 5 -
5 7.95 --
Eamings Per Share of Common Stock Excluding Write-Of fs and Other Charges $ 1.38 5 1.44 (4)
Dividends Declared Per Share of Common Stock $ .80 $ 1.60 (50)
Ik>ok Value Per Share of Common Stock at Year End $ 12.71 S 12.14 5 Closing Common Stock Price at Year End S 8X 5 13X (33)
Common Stock Share Owners at Year End 149,237 163,602 (9)
Common Stock Shares Outstanding at Year End (millions) 148 147 1 Operating Revenues (million ) 5 2,421 $ 2,474 (2)
Operating Eyrnses (millions) 5 1,843 5 2,161 (15)
Net income (Loss) (millions) 5 204 $ (943) -
Return on Aserage Common Stock Equity 11,191 (40.3)Vc -
Return on Average Common Stock Equity Euluding Write-Offs and Other Charges l l .l ?c 7.17c -
Kilowatt hour Sales (Millions of Kilowatt-hours)
Residential 6,980 6.974 0 Commercial 7,481 7,306 2 Industrial 12,069 11,687 3 Wholesale 1,842 3,027 (39)
Other 1,074 1,022 5 Total 29,446 30.016 (2)
Employees at Year End 6,767 6,748 0 Quarterly Range Of Common Stock Prices 1994 liigh Low 1993 liigh Low ist Quaner $13% SiO% lst Quarter $20 518 %
2nd Quarter 11 % 9% 2nd Quarter 19 % 17 %
3rd (Juarter 10 % 8% 3rd Quarter 18 % 17 %
4th Quarter 4% 8 4th Quarter 17 % 12 1
generai industry uncertainiy. contributed to a 219
_ drop in the 1)ow Jones Utility Average-the biggest The electric utility industry, the markets served b) decline in eight years. Ilut investors also had that industry, Centerior Energy itself-escrything i- specific concerns about Centerior: the decline in our changing rapidly and profoundly. slock price was 339. We are addressing such Our industry is becoming more competitive, concerns by implementing the strategic plan and more varied, and far less predictable. demonstrating its ability to augment resenues and Our customers, themselves faced with sweeping reduce costs, thereby increasing cash flow and change in an increasingly global economy, are ultimately rebuilding share ow ner value.
becoming far more demanding where both price and it was in pursuit of this strategy that we cut service are concerned. our common stock disidend a year ago, and this
! And in response to all this Centerior is made it possible for us to retire fixed income i transforming itself, committing itself to dealing obligations of $136 million during 1994. Our goal is aggressively with the challenges that f ace us. to r-duce such obligations by a cumulative total of 1 We took our first $1.3 billion by 2(H)l This is essential to our l'uture
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major steps toward competitisenest It's w hy the dividend cut was not
, meeting these only necessary but in the best interests of share k . r;.T CI challenges in owners over the long term.
t 4w january 1994 One of the keys to sustained cash flow,
% cutting our nonluel retail resenues, increased slightly in common stock 1994 despite the f act that milder weather had a dnidend in hall, significantly negative impact on residential sales.
writing oft assets Strong growth in industrial resenues made this of $1.023 billion possible, which means that if the weather factor had after tases, and remained constant. nonfuel retail revenues would announcing a base been up substantially. Contracts have become multi faceted an important f actor in our industrial market, helping
. j strategic plan, us to build stronger relationships with major KrM Ma N.Muw~.
Though the months customers. We now have contracts with customers ,
since then bas e not been f ree of problems - accounting for two thirds of our industrial sales:
unexpected repair needs greatly increased the cost of among these customers are our 20 largest. More a refueling and maintenance outage at our Perry than 809 of our industrial contracts will not be up Nuclear Power Plant. for esample-they base been for renewal until 1997 or later, and increasing months of progress overall. We met our 1994 goals numbers of our largest commercial customers also f or nonfuel retail resenues and. most importantly, are signing contracts.
for cash flow. We kept withm our target for con- Consistent cash flow growth will require not only ,
struction expenthtures and came scry close to our retaining present customers but increasing revenues target for operation and maintenance expenses despite year by year. 'T his key strategic objective will become the unespectedly high costs of the Perry outage. especially important in 1996, w hen our earnings will lhis progress was just a stait, howeser, and it
, be measured almost entirely in cash terms and had little impact on the price of our common stock. deterrals will no longer be a significant factor.
, The disappomting performance of our stock in 1994 in 1994. in pursuit of new revenues we was largely a reflection of industry-wide conditions- descloped and launched an ambitious marketing Concern about rising mierest rates along with i
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1 plan, One of the purposes of this plan is to broaden for their patience in challenging times. Everything the ways in which our present residertial, commercial being done at and by Centerior is aimed at building and industrial customers use electricity. Another is to share owner value over the long term, foster economic development in our service area, it is for this reason that we have established an which after years of recession now has low incentive compensation program that rewards our unemployment along with robust activity in a variety work force when-but only when-key objectives of major industries. are achieved. For the same reason we have frozen Another source of revenue growth is the the base salaries of our top executives for the next restructuring of rates. Our rates have not changed three years, linking their opportunities for increased ;
since 1991, but the Rate Stabilization Program compensation directly to the performance of our approved by the Public Utilities Commission of Ohio common stock. This assures that our leadership team in 1992 permits us to apply for new tariffs that will win only if our share owners win first.
would become effective in 1996. New tariffs are The following pages are a brief report on justified by our current return on insestment, and progress to date in the achievement of our strategic could provide us v ith the kind of pricing flexibility objectives, and on where we intend to go from here.
needed in an increasingly competitive market. We believe we have made a good beginning, but we We're making progress in cost reduction. know it is nothing more than a beginning. The Operation and maintenance expenses exclusive of strategic plan is a guide that covers eight years, and fuel and purchased power were 139 lower in 1994 seven of those years are still ahead of us. They will than in 1990. The fact that 1994*s O&M expenses bring many additional changes, some of which may were $108 million lower than those for 1990, and require adjustments of our plan. An immense amount
$56 million lower than those for 1993 when one- of work, including almost all the work of achieving time charges are excluded, is especially significant our objectives, still lies ahead. In 1994 we built the in light of the costs of the Perry outage. foundation on which that work can and will be done.
The improvements made to the Perry plant As we move into year two, I am grateful for during its outage hase already contributed to better the support (and, yes, for the patience) of our share performance. They also constitute an important step owners. I am likewise grateful for the immense in the necessarily gradual process of turning Perry contributions of the talented and committed men and into what our Dasis-Hesse Nuclear Power Station women who make up the Centerior work force. It is already is: a world-class generating facility. We the quality of our team, more than any other single expect to complete that process by 1998, when Perry thing, that makes me confident about the future. I will hate undergone two more scheduled outages. l O&M espenses both at Davis-Besse and at our Sincerely, fossil fueled plants hase been reduced significantly ,
over the past sescral years. DavivHesse completed the shortest refueling and maintenance outage in its j history in 1994, returning to service just 46 days l after shutting down. The one scheduled outage aside. Robert J. Farling its availability rate in 1994 was 1009. Chairman, President and Ail these positise deselopments-good cash Chief Executive Officer generation, debt and cost reduction. preparations for further change-are steps toward the achievement of February 24,1995 the strategic plan. The ultimate purpose of that plan is to repay our share owners for their support and 3
Financo
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Provide share owners a total return-dividends plus price appreciation- Keeping cash flow at satisfactory levels will exceeding that of the Standard & Poor's requite two things above all First it will require 500 IndeX. revenue growth. This is the subject of our second strategic objective, and it will become particularly
" Cash is king-cash is the key to escrything mportant when, starting in 1996, deferrals are we're trying to do,' says Gary Leidich, no longer a significant part of reported earnings.
Centerior's chief financial officer. Second it will require firmness in controlling "Our long-term goal is to rebuild the costs and aggressiveness in reducing costs wherever corporation's financial strength by reducing our this can be done without damaging our ability debt, and doing that requires cash. We want to to serve and satisfy customers. With revenues position oursches to compete effectively, rising and costs stable, more dollars can fall to and to do that we have to reduce our fixed the bottom line and be used' for the continuing costs. Again, what it takes is cash." reduction of debt and preferred stock.
In 1994 the total return for the Standard Operation and maintenance expenses
& Poor's 500 Index was 1.3"<. The return for exclusive of fuel and purchased power but Centerioi share owners, by contrast, was -274. neluding plant leases amounted to $755 million We're still a long way, clearly, from achieving in 1994. This total was very close to our target our first objective. for the year. The comparable earlier totals were We did, however, make progress toward that $811 million in 1993,$784 million in 1992 and objective. And we did so in the ways that matter $801 million in 1991. The level achieved in 1994 most: by keeping spending under control and is especially gratifying in light of the $18 million using available cash for the gradual reduction of that unanticipated repair needs added to the debt and preferred stock, cost of the Perry plant's outage. Without these
. additional costs, we would have been $7 million Of the 5569 million in cash that Centerior below our Op s, Mng target in W.
generated from operating activities in 1994,
$118 million went for common stock dividend The target for 1995 is $760 million-payments. Another $205 million in cash was used slightly higher than the previous year's total for capital espenditures. The balance--the part because of the costs of putting new marketing that demonstrates most clearly the importance of capabilities in place and improving customer our focus on cash-was used to retire nuclear service. From 1996 through the remaining years fuel lease obligations of $110 million and fixed- of the strategic plan, we will be committed to income obligations of $136 million. avoiding any increases in O&M spending, even adjustments for inflation. Payroll expense for 4
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1994 was not only far below the previous par's that can be decisive in highly competitive l
total-an almost inevitable result of 1993's early markets. Throughout our service area a pattern is i retirement program-but also significantly below becoming apparent whenever our large industrial I what we had planned. customers renew their contracts. The new Construction expenditures in 1994 totaled contracts often are for longer periods of time,
$257 million, $2 million under target. The target and often they involve increased use of for 1995 is $260 million. The annual construction electricity.
g,eather Adjusted expenditures average called for in our five-year More than NonfuelRetail Retrnues ever before, (in millions) forecast is now $250 million. The comparable 5:m, average two years ago was $329 million. Capital Centerior _
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investment is being limited to projects that are is helping 1 ,
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- neccuary for system reliability or expansion. customers . . . . 9. _
to use $m
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- Revenues
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"- j productivity. I l l l Increase revenues in an increasingl}' This in turn
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C0!npetitive market, is leading to plant expansion and increased "What we're doing," says Al Temple, who in demand for power.
.1994 became Centerior's vice president of sales in 1994 a growing list of established and marketing. "is introducing highly competitive Centerior customers decided to expand their techniques for mamtaining and enhancing our operations or make new use of innovative revenues into what was until recently a traditional electrotechnologies in our service area. Each such utility company. This is innovative, it's necessary, decision brings new jobs, new economic vitality, and it's immensely productive "
and new demand for electricity in the years ahead.
The pursuit of higher revenues starts with The customer base is maintained finally maintaining our current customer base. This is through a demonstrated ability to deal with com-achieved partly through objective number three, petition from municipal electric systems. Partly increased customer satisfaction.
as a result of our actions, proposals for the study it is achieved also through the contracts of possible municipalization were turned back in discussed in the chairman's letter-contracts 1994 in the cities of Toledo and Garfield licights.
which enable us to build the kinds of relationships lly the end of the year the expansion of the 5
i l
i Cleveland Public Power system had slowed decision. Both companies considered locations in significantly. Two of CPP's largest industrial other states.
customers, American National Can and Pierre's Centerior's economic development programs ,
French Ice Cream, returned to Centerior in 1994.
contributed significantly to all.of these expansion ,
Late in the year CPP was reporting its expansion and site selection decisions.
program to be behind schedule and over budget. '
The struggle user municipalitation were higher in 1994 than in the previous year continues, of course. In Toledo, advocates despite the fact that, esen by year-end, our new '
continue to push for voter approval of fundmg for sales and marketing capabilities wete still being a municipali/ation study. Centerior is among the put into place. The increase was sufficient to most experienced unlities in the U.S. in dealing offset both a 1.34 drop in residential revenues with such matters, and we have a long record of caused by last summer's generally, mild success in showing voters and city officials alike temperatures and lower fuel cost recovery that municipalisation is rarely if eser in the revenues. Toledo Edison, whose service area has public interest. long been economically sluggish; experienced a F
In 1994 we also launched a marketing plan 2.8% increase in industrial revenues-solid aimed partly at developing new sources of evidence of improving business conditions.
revenues, and before year-end this was producing We now have not only new sales and i
results. In the fall, after negotiations in which marketing objectives but an organization designed Centerior played a sery active role, the American to achieve them.' Automation and other improve-Steel and Wire unit of Birmingham Steel ments have increased the time that Centerior announced its decision to build a $100 million bar representatives spend actisely selling by upwards mill in the Cleveland suburb of Cuyahoga licights. of 20,000 hours0 days <br />0 hours <br />0 weeks <br />0 months <br /> per year. This translates into more f Owens Corning announced that it will build a calls on customers, better knowledge of customer ,
590 million headquarters-complete with all- needs and increased ability to meet those needs, electric heating and cooling-in downtown Toledo.
In the course of making such changes we. ,
in February 1995. Aluminum Corporation of broke down'our long-term objectise-52.87- !
America announced its selection of a site in the billion in retail revenues in 200l-into year-by-Toledo Edison service area for a new automotive year goals. The goal for 1995 is 51.98 billion, supply manufacturing facility, and North Star weather-normalized and exclusive of fuel cost .
Steel announced a site sersed by TE for a 5450 recovery, a 24 increase oser 1994.
million steel mill. North Star cited competitive Both the marketing plan and the new clectric rates as an important factor in its organization responsibic for implementing it are ;
6 i
_ _ _ _ _ _._ _.- , - _ - _ . ~ . _ -
i focused on our three primary market segments: Edelman, executive vice president. l residential, commercial and industrial. Results- " Accomplishing that is going to take two oriented research is providing valuable knowledge things: knowledge and action. We have to know of the customer subgroups that are most important enough to position ourself as the customer's in each segment. This knowledge, in turn, is partner. And we have to be constantly taking being used to develop marketing programs aimed action in response to what the customer tells us."
at those areas where opportunities for new uses When we launched our strategic plan of electricity-and therefore for increased early in 1994, our third obj.ective was focused on sales-appear to be greatest. These programs are g producing sales. A major canned food producer, I WeatherAdjusted l.us orability. l_
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for exarnple, chose electricity as the heat source Since then, 3 for a new shrink-wrapping process because of its we have g _ .,_
superiority 10 natural gas in such applications. E
- 5 e decided that !
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As part of the implementation of the customer l e o e o e I n ._o* e e e
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l marketing plan. one new program is being satisfaction $
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', -eo o e e e-introduced in each segment each fiscal quarter. is a more o e e o e e e e e in the industrial segment this began with electro- significant "
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le I-o technologies for non-ferrous metters and with measure u * * * *
- l l l l I inf rared electric heat as a drying technology for than favor- l I w w e of w customers in the metals and coatings business. ability (the The first programs introduced in the commercial dif ference is somewhat technical in addition to sector involved exterior lighting and supplemental being significant), and we have changed this lighting. Each such program is aimed at a market objective as a result.
niche where Centerier can offer a technology that Staying competitive over the long term prosides new answers to customer needs, es. We know that, and therefore one of the aims of our strategic plan is to assure the competitiveness of Centerior's prices, bUStOmerS Hut customer satisfaction is crucial, too: wheneser
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, , multiple suppliers are approximately equal in Ras,se our custurner satisfaction rating, price, the one that does the best job of satisfying "To fulfill our siuon for the Centerior of the customer is likely to dominate the market.
the f uture, we base to be sure that our customers in 1994 we expanded the means by which are happy with our sersice. say s Murray we gather information about our customers, their 7 <
1 i
I opinion of our products and services and the hase been formed to nmve forward with the potential for using electricity to meet more of implementation of these recommendations in each their wants and needs. We also broadened the market segment, range of customers about w hom we Probably the greatest potential for radical systematically collect inlormation, includinF change in our ability to satisfy the people we commercial and industrial customers in our serse lies in the work of two teams created late research for the first time. The Customer Focus in 1994 to re-engineer CenteriorN fic.ancial 2000 program, in which csecutives call on large management and customer sersice operations.
customers, sers ed the crucial purpose of helping Early in 1995 these teams cons erged on a single to keep management m direct contac.t with the shared objectise: to develop plans for making our evolving needs of the businesses we serse and core processes-power generation, transmission, the realities of a fast-changing market. distribution, services-the responsibility of newly The scar brought new kinds of action, too. created strategic business units each of w hich lloth in Clesciand and in Toledo, making use of would be a distinct profit center. In the next year lessons learned in the af termeth of a catastrophic this study of an SilU based structure for 1993 summer storm, we opened Emergency Centerior could open the way to unprecedented information Centers, Actisated nearly a doten times pains not only in customer satisfaction but in by year end, these centers provided better informa- efficiency as well.
tion about outages while f reeing our dispatchers and system operation personnel to work uninter-rupted on power restoration. I)escribed by the Pubiic utinnes Commission of Ohio as a moaci EmpIoyees W w- ww2 ,
of emergent) preparednew, they w.di be f.urther Alaxilni~C CinploVCC Corninitutent to improsed in 1995 with computen/ed mapping Corporate obj.ecto:res i and new information links to police departments.
In 1995, with so much information now
" Employee commitment-real commitment that available for use, our emphasis is shifting toward goes beyond a simple willingnew to trade a day's action. An extensis e study of Centerior's resi- work for a day's pay-doesn't happen auto-dential, commercial and industrial customers has '"a t ic a H) .' says senior vice president Fred Lange.
resulted in the deselopment of six sets of recom. "You have to make it happen. The two most mendations basing to do with power quality, important things we're doing to make it happen service restoration, and othet kc) factors in at Centerior are pay f or perfc rmance, with customer perception of our performance.1 cams perfortnance measured in terms of our strategic S
objectives, and the empowerment of our people." absenteeism, safety, and contributions to our 13right Ideas cost saving program and the Leads As the chairman's letter explains on page 3, the base salary of Centerior's senior executives Generate Sales revenue-building program. Its has been frozen and their incentive compensation safety element goes beyond accident statistics and has been linked to the performance of our common provides rewards for actions taken to prevent f1 stock. This is pay for performance in the most accidents. Italf of total incentive compensatmn '
for 1995 will be keyed to these measures, and f hasic sense of the term, starting at the top.
four of them must be achieved before any payout in 1994 the incentise compensation becomes pouible. The other half will depend on opportunities of the Centerior work force at large the achievement of each employce's group or were made dependent upon ten performance dep artment goah.
measures, each of them directly connected to revenues or cmts or some other aspect of our limp werment at Centerior means giving strategic plan. The achiesement of each measure employees nmre control over their own jobs by prmiding them with the means and the opportunity required superior performance, a special challenge because of the 19'4 decrease in our work force to do those jobs better. It means enabling them to since 1992. At least six had to be achiesed make decisions, to utilize the training, information before there could be any payout. Some of these and communications provided by the company, and measures became esen more challenging--a lew, uhimately to improve service to the customer.
such as production unit availability and power Pay for performance, because n ghes employees production cmt, were put out of reach-by the a bigger stake in the results of their work, is an protracted outage at the Perry plant. Against this important part of this, background it is particularly impressive that by 3 car end the men and women of Centerior had
- achieved six of the measures and in doing so had earned a cash award of $500 per eligible employce.
Power Supply For 1995 the performance measures hase NCdHCc Variable power Supply COSIS 10 a been refined to sis: resenues, customer satisf action. Inore cornpetit/re / crc /,
power production, cash flow, espenditures,
" Performance and cost reduction are closely and an employee achievement indet As in 1494, nked in the case of a power plant," says Don the goah connected with each measure are chal-Shelton, the senior sice president with lenging. Ilut they are also completely achievable, ility for Centerior's nucicar generating The employee indes, for esample, encompasses 9
..m_ . _._._ ____ _ _ . . . - -_ __
i facilities. You work to improve performance The near-term objective for the Perry plant.
- because the results show up on the bottom line, by contrast, is to improve production performance f a v Performante improvement is the biggest driver in output by means of a three year program that ;
cost control l' will be completed in 1996 after the next refueling l Variable power production costs, though oulage. At that point the groundwork will be listed fifth among our prime objectives, are far prepared for raising performance to the level of from last in importance or in priority, The goal Davis Ilesse.
for 1995 is 2.19 cents per kilowatt-hour. Over the O&M spending at Centerior's fossil-fueled long term we will be pursuing various ways of plants was $78 million in 1994, compared with reducing these costs to the lowest possible level. 580 million the year before. The 1995 budget The job of improving output and calls for another reduction. We have initiatives performance-and thereby getting better financial under way to produce continuing reductions in results-is currently at very different stages at future years. Among our options are predictive the two nuclear plants operated by Centerior. The instead of preventive maintenance, and new team-Davis-Besse facility, which completed a lengthy building efforts focused on greater productivity. !
and costly upgrading in 1985 and 1986, today is We achieved our 1994 fuel cost goal of widely recognised as a world-class operation-as 1,35 cents per kilowatt hour. Delivered fossil fuel being, in fact, one of the top-performing nuclear costs for the year were $1.44 per million BTU's-facilities not only in the U.S. but the world. well below our $1.50 goal. '
In 1994 it met or exceeded its objectives for :
Cleveland Electric illuminating and Toledo '
availability, fuel and operation and maintenance Edison were two of only three Ohio utilities to cost per kilowatt hour, and O&M and capital ,
reduce their total delivered coal costs per million -
expenditures.
BTU's during 1994. CEl's delisered fuel costs The challenge for Davis-llesse is to keep were the lowest in the state. !
output at its current high level while shortening Our nuclear fuel costs were 1.022 cents refocling outages and improving processes so ,
per kilowatt hour in 1994, well below 1993's that greater productivity can be achieved with a
!.065 cents. >
progressively smaller work force. The most persuasive esidence that this challenge is being i t
met is Davis-llesse's success in meeting its 1994 objectises and the fact that its 1994 refueling )
outage was, at 46 dap, the shortest in its history. ;
10
t Our Board of Directors is responsible for determining Managern@nt,s Statement of whether management and the independent public ac.
Responsibility for Financial countants are carrying out their responsibilities. The Staternents Board is also responsible for making changes in manage- ;
ment or independent public accountants if needed. j The management of Centerior Energy Corporation is The Board has appointed an Audit Comm i ttee, comprised ,
responsible for the consolidated financial statements in entirely of outside directors, which met two times m this Annual Report. The statements were prepared in 1994. The Committee recommends annually to the accordance with generally accepted accounting princip!cs.
Board the firm of independent pubhc accountants to be Under these principles, some of the recorded amounts reta.ined for the ensuing year and reviews the audit ap-are estimates which are based on an analysis of the best pr ach used by the accountants plus the results of their i information available, audits, it also oversees the adequacy and efTectiveness j We maintain a : e m of internal accounting controls of our internal accounting controls and ensures that our '
designed to assure that the financial records are substan- accounting system produces financial statements which !
tially complete and accurate. The controls also are de- present fairly our financial position.
signed to help protect the assets and their related records. .
./
We structure our control procedures such that their costs , 10 l do not exceed their benefits.
G Our internal audit program monitors the internal account- ,
mg controls. This program gives us the opportunity to assess the adequacy and effectiveness of existing controls / "#" # $###
and to identify and institute changes where needed. In addition, an examination of our fmancial statements is conducted by Arthur Andersen LLP, independent public
[
E. Lyle Pepin accountants, whose report appears below.
, Controller and '
ChiefAccounting Ofcer l
Report of Independent disciosures in the financial statements. An audit also Public Accountants includes assessing the accounting principles used and a significant estimates made by management, as well as To .he Sharc Owners and evaluating the overall financial statement presentatien.
Beard of Directors of We believe that our audits provide a reasonable basis for Centerior Energy Corporation: our opinion.
We have audited the accompanying consolidated balance in our opinion, the financial statements referred to above l
sheet and consolidated statement of preferred stock of present fairly, in all material respects, the financial posi-Centerior Energy Corporation (an Ohio corporation) and tion of Centerior Energy Corporation and subsidiaries as subsidiaries as of December 31,1994 and 1993, and the of December 31,1994 and 1993, and the results of their related consolidated statements of income, retained earn- operations and their cash fiows for each of , three ings and cash flows for each of the three years in the years in the period ended December 31,193 a con-period ended December 31,1994. These financial state- formity with generally accepted accounting principles.
ments are the responsibility of the Company's manage-As discussed further in Note 9, a change was made in the ment. Our responsibility is to express an opinion on these financial statements based on our audits. method of accounting for postretirement benefits other than pensions in 1993.
We conducted out audits in accordance with generally accepted auditing standards Those standards require that we plan and perform the audit to obtain reasonable gg[
assurance about whether the financial statements are free 4 of material misstatement. An audit includes examining, Cleveland. Ohio on a test basis, evidence supporting the amounts and February 17,1995 11
common stock should improve. Further improvement in Management's Financial Analys,s i severai key financial measures should lead to a higher invest r valu ti n f Centerior Energy. Substantial pro-Outlook gress in these areas was made in 1994. Strong cash flow Strategic Plan continued in 1994 and fixed-income obligations were reduced by $136 million. Also, total operation and main-We made significant strides in achieving the objectives of tenance expenses declined $88 mil l ion, exclusive of one-our comprehensive strategic action plan announced in time charges in 1993.
January 1994. The strategic plan was created to strengthen our financial and competitive position through We are taking aggressive steps to increase revenues the year 2001. Its objectives are to maximite share through our enhanced marketing plan and to control owner return, achieve profitable revenue growth, become e sts. The full impact of these elTorts will take time. In the meantime, to increase share owner value, we must an industry leader in customer satisfaction, build a winning employee team and attain increasingly competi- raise revenues by restructuring rates. Accordingly, we are tive power supply costs. To achieve these objectives, we preparing to file a request with The Public Utilities will continue to control expenditures and reduce our Commission of Ohio (PUCO) for our two utility subsidi-outstanding debt and preferred stock. In addition, we rics, The Cleveland Electric illuminating Company will insease revenues by finding new uses for existing (Cleveland Electric) and The Toledo Edison Company assets and resources, implementing new marketing pro- (Toledo Edison) (collectively, the Operating Compa-grams and restructuring rates when appropriate. We will nics) to be effective in 1996. Meaningful cost control and also improve the operating performance of our generat- marketing strategies will mitigate the need for additional ing plants and take other appropriate actions. rate increases and help us meet competition.
During 1994, we inade progress toward most of our long- Competition term objectises. We initiated a marketing plan designed . ,
e are impkmenu,ng strategies designed to create and to increase our retail revenues (exclusive of fuel cost .
enhance our competitive advantages and to overcome the recovery revenues and weather influences) by 2-3% ar nu-c mpetitive disadvantages that we face due to regulatory ally through 2001. Our new customer service activities and tax constra nts and our high retail cost structure.
are intended to raise our customer satisfaction rating.
Our employees achieved enough of their established Currently our most pressing competition comes from objectives for the year to receive a $500 per cligible municipal electric systems in our service area. Our rates employee incentive compensation award. The work un- are generally higher than thos of municipal systems due dertaken during refueling outages at the Davis-Besse largely to their exemption from taxation, the lower cost Nuclear Power Station (Davis-Hesse) and Perry Nuclear financing available to them, the continued availability to Power Plant Unit I (Perry Unit 1) as well as the outage them of lower cost power through short-term power work at our fossil-fueled plants should help us achieve purchases and their access to cheaper governmental nur long-term objective of reducing variable power costs power N are seeking to address the tax disparity to a more competitive level. Another long-term objective through the legislative process. In 1994, the Ohio Gover-to be achieved over the planning period is to provide nor's Tax Commission recommended the replacement of share owners a total annual return greater than the the gross receipts and personal property taxes currently Standard & Poor's Corporation (S&P) 500 Index. While levied only on investor-owned utilities and collected there was a slight gain in the S&P 500 Index in 1994, through rates with a difTerent tax collected from custom-electric utility stocks in general, and Centerior Energy ers of all electric utilities, including municipal systems.
Corporation (Centerior Energy) common stock in partie- Investor-owned utilitics would reduce rates upon repeal ular, declined sharply. The climb in interest rates and of the existing taxes. We are now working to submit this increased investor concern about the competitiveness of proposal to the Ohio legislature.
the electric utility industry caused the Dow Jones Utility We face the threat that municipalities in our service area Average to drop 21% in 1994. The total return on our common stock in 1994, including dividends was -27% cpd establish new systems and continue expanding existing systems. We are respondmg with aggressive mar-Irnestors placed a lower valuation on our stock principally because of our high retail cost structure relative to kI"E I' E'**8 lmd by emphasizing the value of our service and the risks of a mumcipal system: substantial, certain neighboring utilities and municipal electric long-term debt; no guarantee of low-cost wholesale elec-tricity; the ditliculty of forecasting costs; and the uncer-As discussed below, we are taking steps to improve our tainty of market share as a result of our aggressive competitiseness. As these etTorts unfold and if interest competition. Generally, these municipalities have deter-rates decline and insestor concerns about the electric mined that descloping a system is not feasible or have utility industry diminish the total annual return for our agreed with us not to pursue development of a system at 12
this time. Although some communities continue to be tory accounting measures. See Regulatory Accounting interested in municipalization, we believe that we offer below and Note 7. We decided that, once the deferral of the best value and most reliable source of electric service expenses and acceleration of benefits under the Rate in our territory. Stabilization Program are completed in 1995, we should no longer plan to use these measures to the extent we The largest municipal system in our service area, Cleve- have in the past.
land Public Power (CPP),is constructing new transmis-sion and distribution facilities extending into eastern Regulaton Accounu,ng portions of Cleveland. CPP also plans to expand to western portions of Cleveland. CPP's expansion reduced As described in Notes 1(a) and 7, the Operating Compa-our annual net income by about $4 milhon m 1993 and nies comply with the provisions of Statement of Finan-
$3 milhon m 1994. We estimate our net mcome wdl cial Accounting Standards (SFA3) 71. We continually continue to be reduced by an additmnal $4 milh,on to $5 monitor changes in market and regulatory conditions and mdhon each year in the 1995-1999 period because of consider the effects of such changes in assessing the CPP's expansion. Despite CPP's expansion efrorts, we continuing applicability of SFAS 71, Criteria that could have been successful m retaming most of the large give rise to discontinuation of the application of SFAS 71 industrial and commercial customers m the expansion include: (1) increasing competition which significantly areas by providing economic incentives m exchange for restricts the Operating Companies' ability to establish sole supplier contracts. We have similar contracts with rates to recover operating costs, return requirements and customers m other parts of our service area. More than the amortization of regulatory assets and (2) a signifi-80% of our industrial revenues under contract will not be cant change in the manner in which rates are set by the up for renewal until 1997 or later. As these contracts PUCO from cost-based regulations to some other form of expire, we expect to renegotiate them and retain the regulations. In the event we determine that the Operat-
,:ustamers. In addition, an increasing number of CPP ing Companies no longet meet the criteria for following customers are converteg back to our ser ice. SFAS 71, we would be required to record a before-tax The Energy Policy Act of 1992 will increase competition charge to write off the regulatory assets shown in Note 7, in the electric utility industry by allowing broader access In addition, the Operating Companies would be required to a utility's transmission system. It should not signifi. to evaluate whether the changes in the competitive and cantly increase the competitive threat to us since we have regulatory environment which led to discontinuing the been required to wheel electricity to municipal systems application of SFAS 71 would also result in an impair-in our service area since 1977 under operating licenses ment of the net book value W their property, plant and for our nuclear generating units. Further, the government equipment.
could eventually require utilities to deliver power from other utilities or generation sources to their retail custom-The write-oliin 1993 of the phase-in deferred operating ers. To combat this threat, we are offering incentives expenses and carrying charges (phase-in deferrals) dis-such as energy-efficiency improvements and reductions in cussed in Note 7 resulted from our conclusion that demand charges for increased electricity usage to our projected revenues for the 1994-1998 period would not industrial and commercial customers in return for long. provide for recovery of such deferrals as scheduled by the PUCO orders. This short time frame for recovery of the term commitments.
phase-in deferrals is a requirement under the accounting standard for phase-in plans of regulated enterprises, Rate Matters SFAS 92. The remaining recovery periods for all remain.
Under the Rate Stabilization Program discussed in Note ing regulatory assets are between 17 and 34 years. We 7, we agreed to freeze base rates until l996 and limit rate believe the Operating Companies' rates will provide for increases through 1998. In cxchange, we are permitted recovery of these assets over the relevant periods and to defer through 1995 and subsequently recover certain SFAS 71 continues to apply.
costs not currently recovered in rates and to accelerate the amortization of certain benefits. Amortization and Nuclear Operations recovery of the deferrals are expected to begin in 1996 with future rate recognition and will continue over the We have interests in three nuclear generating units-average life of the related assets, or between 17 and 30 Davis-Besse, Perry Unit I and Beaver Valley Power years. The continued use of these regulatory accounting Station Unit 2 (Beaver Valley Unit 2) - and operate the measures in 1995 will be dependent upon our continu- lirst two. Davis-Besse and Beaver Valley Unit 2 have ing assessment and conclusion that there will be probable been operating extremely well, with each unit having a recovery of such deferrals in future rates. Our analysis three-year availability at crage at year-end 1994 that ex-leading to certain year-end 1993 financial actions and our ceeded the three-year industry average of 80% for strategic plan also included an evaluation of our regula- similar reactors. How ever, the three-year availability av-13 l
erage of Perry Unit I was below the three-year industry high as $500 million. Ilowever, we believe that the availability average for that reactor type. actual cleanup costs will oc substantially lower than $500 million, that the Operating Companies' share of any in 1994, Davis-Hesse had an availability factor of 88% cleanup costs will be substantially less than 100% and Further, Davis-Besse completed the shortest refueling that most of the other PRPs are fmancially able to and maintenance outage in its history in 1994, returning contribute their share. The Operating Companies have to service just 46 days after shutting down. We are in the accrued a liability totaling $13 million at December 31, process of upgrading Perry Unit I to the same level. For 1994 based on estimates of the costs of cleanup and their seven months in 1994, Perry Unit I was out of service for proportionate responsibility for such costs. We believe its fourth refueling and maintenance outage. Work was that the ultimate outcome of these matters will not have also performed in connection with the comprehensive a material adverse elTect on our financial condition or course of action developed in 1993 to improve the operat- results of operations.
ing performance of Perry Unit 1. Work in connection with that course of action is ongoing.
Merger of the Operating Companies We externally fund the estimated costs for the future We continue to seek the necessary regulatory approvals to decommissioning of our nuclear units. In 1993 and 1994* complete the merger of the Operating Companies which we increased our decommissioning expense accruals be- we announced in 1994. The Operating Companies plan cause of revisions in our cost estimates. See Note 1(d), to seek preferred stock share owner approvalin mid-1995.
The merger is expected to be efTective in 1995, Our nuclear units may be impacted by activities or events beyond our control. Operating nuclear units have exper-ienced unplanned outages or extensions of scheduled Inflation outages because of equipment problems or new regula- Although the rate of inflation has cased in recent years, tory requirements. A major accident at a nuclear facility we are still affected by even modest inflation which causes anywhere in the world could cause the Nuclear Regula- increases in the unit cost of labor, materials and services, tory Commission to limit or prohibit the operation or licensing of any domestic nuclear unit. If one of our g g g 7g ,
nuclear umts is taken out of service for an extended period for any reason, including an accident at such unit or any 1992 1994 Cash Requirements other nuclear facility, we cannot predict u hether regula-tory authorities wo. We need cash for normal corporate operations, the
>se unfavorable rate treat-J include taking our alrected mandatory retirement of securities and constructing and ment. Such treatrr unit out of rate base, ...creby not permitting us to recover m difying facilitics. Construction is needed to meet antic-spated demand for electric serv ce, comply with govern-our investment la and earn a return on it, or disallowing certain construction or maintenance costs. An extended rr. nt regulations and protect the environment. Over the outage coupled with unfavorable rate treatment couki three-year period 1992-1994, construction and mandatory hase a material adverse efTect on our financial condition retirement needs totaled approximately $1.3 billion. In and results of operations.
ddition, we exercised options to redeem and purchase approximately $900 million of our securities.
liarardous Waste Disposal Sites We raised $1.7 billion through security issues and term bank loans during the 19921994 period. The Operating The Comprehensive Environmental Response, Compen- Companies also utilized short-term borrowings to help sation and Liability Act of 1980 as amended meet cash needs. Although write-offs of our Perry Nu-(Superfund) established programs addressing the cleanup clear Power Plant Unit 2 (Perry Unit 2) investment and of haiardous waste disposal sites, emergency prepared- phase in deferrals in 1993 negatively alTected earnings, ness and other issues. The Operating Companies have they did not adversely alTect cash flow. See Notes 4(b) been named as "potentially responsible parties" (PRPs) and 7.
i for three sites listed on the Superfund National Priorities l_ist (Superfund List) and are aware of their potential 1995 and Beyond Cash Requirements mvolvement in the cleanup of several other sites. Allega-tions . hat the Operating Companies disposed of hazard- Esnmated cash requirements for 1995-1999 for Cleveland ous waste at these sites, and the amounts involved, are Electric and Toledo Edison, respectively, are $802 mil-often unsubstantiated and subject to dispute. Superfund lion and $288 million for construction and $832 million provides that all PRPs for a particular site can be hekt and $378 million for the mandatory redemption of debt liable on a joint and sescral basis. If the Operating and preferred stock. Cleveland Electric expects to finance l Companies were held liable for 100% of the cleanup costs externally about two-thirds of its 1995 cash requirements j of ab of the sites referred to above, the cost could be as of approximately $451 million and about one-third ofits 14
~
1996 cash requirements of approximately $320 million. next several years. However, the availability and cost of Toledo Edison expects to meet nearly all ofits 1993 and capital to meet their external financing needs also depend 1996 cash requimments of approximately $145 million upon such fcctors as financial market conditions and and $154 million, respectively, through internal cash gen- their credit ratings. Current credit ratings for the Operat-eration and current cash resources. The Operating Com- ing Companies are as follows:
panics expect to meet nearly all of their 1997-1999 %,,
requirements through internal cash generation and cur- Investors rent cash resources. If economical, additional securities MI service. Inc.
8 ge may be rdeemed under optional redemption provisions. $],,"d ef Cleveland Electric +
W: < xpen that our continued strong cash flow will reduce Unsecured notes for Toledo Edison B+ B1 borrowmg requirements and outstanding debt and pre- Preferred stock B b2 ferred stock during this period.
In 1994, the common stock dividend was lowered which Cash e,penditures to comply with the Clean Air Act reduced our cash outflow by over $110 million annually.
. Amendments of 1990 (Clean Air Act) are estimated to We are using the cash to redeem debt and preferred be approximately $87 million over the 1995-1999 period. stock more quickly than uould otherwise be the case. This i See Note 4(a). has helped improve our capitalization structure and fixed l charge coverage ratios, both of which are key measures i Liquidity considered by securities rating agencies in determining credit ratings. Improved credit ratings and less outstand- ,
Additional first mortgage bonds may be issued by the ing debt and preferred stock, in turn, will lower our Operating Companies under their respective mortgages nterest costs and preferred dividends.
on the basis of property additions, cash or refundab!c first mortgage bonds, if the applicable interest coverage test is met, each Operating Company may issue first mortgage Resulfs of Operatw, ns bonds on the basis of property additions and, under 1994 ,s,1993 certain circumstances, refundable bonds. At December 31,1994, Cleveland Electric and Toledo Edison would Factors contributing to the 2.1% decrease in 1994 operat-have been permitted to issue approximately $487 million ing revenues are as follows:
and $525 million of adJitional first mortgage bonds, Millims J.ngrease t Decrease) in Operating Revenues of Dollars KWII Sales Volume and Mix 5 10 Wh les le Revenues (47)
The Operating Companies also are able to raise funds through the sale of subordinated debt and preferred and h";*[n'",','g('C'"" j p*eference stock. Under its articles of incorparation, Total g Toledo Edison cannot issue preferred stock unless certain earnings coverage requirements are met. At December Centerior Energy experienced good retail kilowatt hour 31,1994, Toledo Edison would have been permitted to sales growth in the industrial and commercial categories issue approximately $28 million of additional preferred in 1994; the sales growth for the residential category stock at an assumed dividend rate of 12%. There are no was lessened by weather conditions, particularly during restrictions on Cleveland Electric's ability to issue pre- the summer. The revenue decrease resulted primarily ferred or preference stock or Toledo Edison's ability to from milder weather conditions in 1994 and 39% lower issue preference stock, wholesale sales. Weather reduced base rate revenues approximately $15 million from the 1993 amount. Al-Centerior EnerFy may raise funds through the sale of though total sales decreased by 1.9%, industrial sales common stock under various employee and share owner increased 3.3% on the strength of increased sales to large plans. In 1995, the Operating Companies plan tn raise automotive manufacturers and the broad-based, smaller funds through the sale of first mortgage bonds and the industrial customer group. This growth substantiated an collateralization of accounts receivable. economic resurgence in our service area, particularly in We have a $205 million revolving credit facility which Northw stern Ohio. Residential and commercial sales increased 0.1% and 2.4%, respectively. Other sales de-runs through mid-1996. See Note 12. We had $186 creased by 28% because of the lower sales to wholesale million of cash and temporary cash investments at the end customers attributable to expiration of a wholesale power of 1994. The Operating Companies are unable to issue agreement, softer whoicsale market con &tions and lim-commercial paper because of their below investment ited power availability for bulk power transactions at grade commercial paper ratings.
certain times because of generating plant outages. Lower The foregoing financing resources are expected to be 1994 fuel cost recovery revenues resulted from favorable suflicient for the Operating Companies' needs over the changes in the fuel cost factors. The weighted averages 15
of these factors dropped by 5% and 6% for Cleveland years for Northern Ohio. Residential and commercial Electric and Toledo Edison, respectively, sales also increased as a result of colder late-winter For 1994, operating revenues were 31% residential,30% temperatures in 1993 which increased electric heating-commercial, 31% industrial and 8% other and kilowatt- related demand. As a result, total sales increased 3.1% in hour sales were 24% residential,25% commercial,41% 1993. Residential and commercial sales increased 4.6%
industrial and 10% other. The average prices per kilo- and 3.1%, respectively. Industrial sales increased 1.2%.
watt hour for residential, commercial and industrial cus- Increased sales to large automotive manufacturers, petro-tomers were 5.11, $.10 and $.06, respectively- leum refiners and the broad based, smaller industrial i Operating expenses were 15% lower in 1994. Operation customer group were partially oliset by lower sales to and maintenance expenses for 1993 included $218 million large steel industry customers. Other sales increased 5.9%
of net benefit expenses related to an early retirement because of increased sales to wholesale customers. Base program, called the Voluntary Transition Program rates and miscellaneous revenues decreased in 1993 (VI;p), and other charges totaliag $54 million. Two other primarily from lower revenues under contracts having significant reasons for lower operation arJ mamtenance expenses in 1994 were a smaller work force and ongoing reduced rates with certain large customers and a declining cost reduction measures. More nuclear generation and rate structure tbd to usage. The contracts have been less coal fired generation accounted for a large part of the negotiated to nicet competition and encourage economic lower fuel and purchased power expenses in 1994. De- growth. The decrease in 1993 fuel cost recovery revenues preciation and amortiration expenses increased primarily resulted from changes in the fuel cost factors. The because of higher nuclear plant decommissioning ex- weighted average of these factors increased slightly for penses as discussed in Note 1(d) Deferred operating Toledo Edison but decreased 5% for Cleveland Electric.
expenses were greater primarily because of the wnte-off of $172 million of phase-in deferred operating expenses in .
1993 as discussed in Note 7. The 1993 deferrals also For 1993, operating revenues were 31% residential,29%
included $84 million of postretirement benefit curtail. commercial,30% industrial and 10% other and kilowatt-ment cost deferrals related to the VTP. See Note 9(b). hour sales were 23% residential, 24% commercial, 39%
Federal income taxes increased as a result of higher industrial and 14% other. The average prices per kilo-pretax operating income. watt hour for residential, commercial and industrial cus-As discussed in Note 4(b), $5H3 million of our Perry Unit tomers were $.11, $.10 and $.06, respectively. The 2 investment was written olT in 1993. Also, as discussed changes from 1992 were not significant.
in Note 7, phase-in deferred carrying charges of $705 million vcre written off in 1993. The change in the Operating expenses increased 14% in 1993. The increase federal income tax credit amounts for nonoperating in- in total operation and maintenance expenses resulted come was attributable to these write-olTs. from the $218 million of net benefit expenses related to the VTP, other charges totaling $$4 million and an g993 K 1992 increase in other operation and maintenance expenses.
The increase in other operation and maintenance ex-Factors contributing to the 1.5% increase in 1993 operat- penses resulted from higher environmental expenses, ing revenues are as follows: power restoration and repair expenses following a July 1993 storm in the Cleveland area, and an increase in other hmettlkswJlafstnhutm I Kwli sales volunie and Ma $ o.s p stretirement benefit expenses. See No'e 9 for mforma-Ibc Rates and Mkccllaneous (18) tion on retirement benefits. Deferred operating expenses f uel Con Recovery Resenuet A) decreased because of the write-oft of the phase-in de-Toul 1$ ferred operating expenses in 1993. Federal income taxes decreased as a result of lower pretax operating income.
The revenue increase resulted primarily from the dilTerent weather conditions and the changes in the composition of As mentioned above, $583 million of our Perry Unit 2 the sales mix among customer categories. Weather ac- investment was written of' '93. Credits for carrying counted for approximately $47 million of higher 1993 charges recorded in nonoi rating income decreased be-base rate revenues. Ilot summer weather in 1993 boosted cause of the write-oli of the phase-in deferred carrying residential, commercial and wholesale kilowatt hour charges in 1993. The federal income tax credit for nonop-sales. In contrast, the 1992 summer was the coolest in 56 erating income in 1993 resulted from the write-olTs.
16
'Incomo Statement canwia enero ce an a aa saaaria, j
_fqtjhe years ended Decernber 31.
1994 1993 1992 (millions of dollars, j except per share amounts)
Operating Reienues $2,411 $2.474 $2.438 Operating Expenses
' Fuel and purchased power 442 474 473 Other operation and maintenance 595 652 623 Generation facilities rental expense, net 160 159 161 Early retirement program expenses and other -
272 -
Total operation and maintenance 1,197 1,557 1,257 Depreciation and amortization 278 258 256 i' Taxes, other than federal income taxes 309 312 318 Deferred operating expenses, net (55) 23 (52)
Federal income taxes 114 11 122 l
1.843 2.161 1.901 1 Operating Income 578 _ 313 537 Nonoperating income (less)
Allowance for equity funds used during construction 5 5 Other income and deductions, net 8 (6) 4 Write-off of Perry Unit 2 -
(583) -
Deferred carrying charges, net 40 (649) 100 Federal income taxes - credit (expense) (6) 398 (7) 47 (835) IN Income (Imss) Before Interest Charges and Preferred Diiidends 625 _1122) 641 Interest Charges and Preferred Dividends Debt interest 361 359 365 Allowance for borrowed funds used during construction (6) (5) (1)
Preferred dividend requirements of subsidiaries 66 67 M 421 __4ll 429 Net income (less) $ 2N $ (943) $ 212 Aterage Number of Common Shares Outstanding (millions) 147.R 144.9 141.7 Earnings (less) Per Common Share $ 1.3R $(6 51) $ 1.40 ]
Dividends Declared Per Common Share $ 80 $ 1.60 $ 1.60 Retained Earnings L
For the years ended December 31.
~
1994 1993 1992 (millions of dollars)
Hetained Earnings (Deficit) at Heginning of Year $1122) $. 652 $ 669 Additions Net income (loss) 204 (943) 212 Deductions Common stock dividends (118) (231) (226)
Other, primarily preferred stock redemption expenses of subsidiaries (1) (1) (3)
Net increase (Decrease) 85 lL121) (17)
Retained Earnings (Deficit) at End of Year $(438) $ (523) $ 652 The accompanying notes are an integral part of these statements.
17
' Balance Sheet December 31.
1994 1993 (millions of dollm)
ASSETS Property, Plant and Equipment Utility plant in service $ 9,770 $ 9,571 Less: accumulated depreciation and amortization 2.906 2.677 6,864 6,894 Construction work in progress 129 181 6,993 7,075 Nuclear fuel, net of amortization 293 344 Other property, less accumulated depreciation 50 41
_73)M 7.460 Current Assets Cash and temporary cash investments 186 225 Amounts due from customers and others, nel 211 221 Unbilled revenues 93 124 Materials and supplies, at average cost 139 136 Fossil fuel inventory, at average cost 29 32 Taxes applicable to succeeding years 252 250 Other 16 5 926 993 I)cierred Charges and Other Assets Amounts due from customers for future federal income taxes 1,046 968 Unamortiied loss from 11eaver Valley Unit 2 sale 101 105 Unamortired loss on reacquired debt 86 92 Carrying charges and operating expenses 957 862 Nuclear plant decommissioning trusts 82 56 Other 157 174
__.2d22 2.2 51 Total Assets $10491 $ 10,710 The accompanying notes are an integral part of this statement.
18
a Centerior Energy Corporation and Subsidiaries December 31.
1994 1993 (millions of dollars)
CAPITAL.lZATION AND LIABILITIES Capitalization Common shares, without par value (stated value of $357 millien and $345 million for 1994 and 1993, respectively): 180 million authorized; 148 million (excluding 2.7 million shares in Treasury) and 147 million (excluding 2.7 million shares in Treasury) outstanding in 1994 and 1993, respectively $ 2,320 $ 2,308 Retained earnings (deficit) (438) (523)
Common stock equity _
1,882 1,785 Preferred stock With mandatory redemption provisions 253 313 Without mandatory redemption provisions 451 451 Long-term debt _ M22 _LQ12
. 6.283 6 568 Currrnt I. labilities ,
Current portion of long-term debt and preferred stock 373 127 j Current portion of nuclear fuel lease obligations 83 111 :
Accounts payable 144 188 I Accrued taxes 384 378 Accrued interest 90 87 Other 75 75 1.149 . 966 I)cierred Credits and Other l_ labilities Unamortized investment tax credits 279 329 Accumulated deferred federal income taxes 1,778 1,579 Unamortized gain from Ilruce Mansfield Plant salc $25 551 Accumulated deferred rents for liruce Mansfield Plant and 13eaver Valley Unit 2 139 128 Nuclear fuel lease obligations 219 254 Retirement benefits 176 160 Other 143 175 3.25.2 3,176 Total Capitalization and Liabilities $10.691 $ 10,710 ,
?
?
19
Casn FIows c ,,,,,t., e. ,,,, c.,n ,.,, ..s s.o.isi.,1,,
For the years ended December 31.
1994 1993 1992 (minions of dollars)
Cash Flows from Operating Acthities (1)
Net income (Loss) $ 204 $ (943) $ 212 Adjustments to Reconcile Net income (Loss) to Cash from Operating Activities:
Depreciation and amortization 278 258 256 Deferred federal income taxes 95 (452) 95 Investment tax credits, net - -
(14)
Unbilled revenues 31 (10) (6)
Deferred fuel (17) 5 1 Deferred carrying charges, net (40) 649 (100)
- 1. cased nuclear fuel amortization 98 86 126 Deferred operating expenses, net (55) 23 (52)
Allowance for equity funds used during construction (5) (5) (2)
Noncash early retirement program expenses, net -
208 -
Write-off of Perry Unit 2 -
583 -
Changes in amounts due from customers and others, net 10 1 7 Changes in inventories -
26 (10)
Changes in accounts payable (44) 45 (5)
Changes in working capital alrecting operations -
25 8 Other noncash items 14 18 3 Total Adjustments M 1.460 307 Net Cash from Operating Activities $69 517 519 Cash Flows from Financing Actiiltles (2) llank loans, commercial paper and other short term debt -
(50) 50 First mortgage bond issues 77 300 600 Secured medium-term note issues -
128 138 Term bank loans and other long-term debt issues -
40 135 Preferred stock issues -
100 74 Common stock issues 12 71 53 Reacquired common stock -
1 (3)
Maturities, redemptions and sinking funds (214) (434) (1,013)
Nuclear fuel lease obligations _ (110) (106) (117)
Common stock dividends paid (118) (231) (226)
Premiums, discounts and expenses (1) _113) (14)
Net Cash from Financing Activities (354) (194) . (323)
Cash I' lows from Imessing Acthities (2)
Cash applied to construction __ (205) (209) (200)
Interest capitalized a3 allowance for borrowed funds used during construction (6) (5) (1)
Sale. and leaseback restructuring fees - -
(43)
Contributions to nuclear plant decommissioning trusts (26) (9) (8)
Other cash received (applied) (17) _ ).2 (28)
Net Cash from Investing Activities (254) (191) _... ( 2 80)
Net Change in Cash and Temporary Cash Intestments _132) 132 (84)
Cash and Temporary Cash iniestments at lleginning of Year 275 93 177 Cash and Temporary Cash iniestments at End of Year $ I Rf> $ 225 $ 91 (l} Interest paid (net of amounts capitali:ed) was $300 million, $293 million and $299 million in 1994,1993 and 1992, respctively. Income tases paid were $6 million, $30 million and $32 million in 1994,1993 and 1992, respectively.
(2) Increases in Nuclear Fuel and Nuclear Fuel Lease Obligations in the Balance Sheet resultingfrom the noncash capitali:ations under nuclearfuel agreements are excludedfrom this statement.
The accompanying notes are an integralpart of this statement.
20
Stat: ment of Preferred stock c .n a c, ...i., s.-n ..s s.o.isi.,1,.
L Current 1994 Shares Call Price December 31.
Outst1rt.d.ing Per Share 1994 1993 Cl.EVEl AND El.ECrRIC t millions or dollars)
Without par value,4.000,000 preferred shares authorized Subject to mandatory redemption:
$ 7.35 Series C 140,000 $ 101.00 $ 14 $ 15 88.00 Series E 18,000 1,019.13 18 21 Adjustable Series M 100,000 100.00 10 20 9.125 Series N 410,766 102.03 41 59 91.50 Series Q 75,000 -
75 75 88.00 Series R 50,000 -
50 50 90.00 Series S 75,000 -
74 74 282 314 1.ess: Current maturities _M 29 1 46 _2M Not subject to mandatory redemption:
$ 7.40 Series A 500,000 101.00 50 50 7.56 Series B 450,000 102.26 45 45 Adjustable Series L 500,000 100.00 49 49 42.40 Series T 200,000 -
97 97
_2.41. _2n TOI.I'DO EDISON
$100 par salue, 3,000,000 preferred shares authorized and $25 par value, 12,000,000 preferred shares authorized Subject to mandatory redemption:
$100 par $9.375 83,500 101.98 8 10 25 par 2.81 400,000 25.62 10 _)]
18 40 Less: Current maturities _.11 __12 7 28 Not subject to mandatory redemption:
$100 pai $ 4.25 160,000 104.625 16 16 4.56 50,000 101.00 5 5 4.25 100,000 102.00 10 10 8.32 100,000 102.46 10 10 7.76 150,000 102.437 15 15 7.80 150,000 101.65 15 15 10.00 190,000 101.00 19 I9 25 par 2.21 1,000,000 25.25 25 25 2.365 1,400,000 27.75 35 35 Series A Adjustable __ 1,200,000 25.75 30 30 Series B Adjustable __ 1,200,000 25.75 _)0 _JQ 210 2dQ CENTERIOR ENFRGY Without par value, 5,000,000 preferred shares authorized, nane outstanding - -
Total l' referred Stock, with Mandatory Redemption Protisions $253 $311 Total Preferred Stock, without Mandatory Redemption Protisions $451 $451 The accompanying notes are an integral part of this staternent.
21 i
1
month to record the estimated amount of unbilled reve-C Notes to the Financial Statements nues for kilowatt-hours sold in the current month but not
, billed by the end of that month.
(1) Summary of Signif,icant A fuci factor is added to the base rates for electric service.
Accattnting Policies This factor is designed to recover from customers the costs of fuel and most purchased power. It is reviewed (a) General Centerior Energy is a holding company with two electric utility subsidiaries, Cleveland Electric and Toledo (c) Fuel Expense Edison. The consolidated financial statements also in-The cost of fossil fuel is charged to fuel expense based on clude the accounts of Centerior Energy's wholly owned invent ry us ge. The cost of nuclear fuel, including an subsidiary, Centerior Service Company (Service Com-interest component, is charged to fuel expense based on pany), and Centerior Energy's four other wholly owned the rate of consumption. Estimated future nucicar fuel subsidiaries, which in the aggregate are not material.
disp s 1 e sts are being recovered through base rates.
During 1994, Cleveland Electric transferred its common stock investments in three wholly owned subsidiaries to The Operating Companies defer the differences between Centerior Energy via property dividends and Centerior actual fuel costs and estimated fuel costs currently being Energy formed the fourth w holly ow ned subsidiary. The recovered from customers through the fuct factor. This Service Company provides management, financial, ad- matches fuel expenses with fuel-related revenues, ministrative, engineering, legal and other services at cost Owners of nulear gennatm, g plants are assessed by the to Centerior Energy, the Operating Companies and the .
federal government for the cost of decontammation and other subsidiaries. The Operating Companies operate as separate companies, each serving the customers in its decommissioning of nuclear enrichment facilities oper-servicc arca.The preferred stock,litst mortgage bonds ated by the United States Department of Energy. The assessments are based upon the amount of enrichment and other debt obligations of the Operating Companies are outstanding securities of the issuing utility. All signifi- services used in prior years and cannot be imposed for cant intercompany items have been eliminated in rn re than 15 years (to 2007). The Operating Companies consolidation.
have accrued the liability for their share of the total assessments. These costs have been recorded in a de-Centerior Energy and the Operating Companies follow ferred charge account since the PUCO is allowing the the Uniform System of Accounts prescribed by the Fed- Operating Companies to recover the assessments through eral Energy Regulatory Commission and adopted by the their fuel cost factors.
PUCO. Rate-regulated utilities are subject to SFAS 71 which governs accounting for the elTects of certain (d) Depreciation and Amortization types of rate regulation. Pursuant to St AS 71, certain The cost of property, plant and equipment is depreciated mcurred costs are deferred for recovery m future rates' over their estimated useful lives on a straight-line basis.
See Note 7. The Service Company follews the Uniform The annual straight-line depreciation provision for non-System of Accounts for Mutual Service Companies nuclear property expressed as a percent of average depre-prescribed by the Securities and Exchange Commission ciable utility plant in service was 3.4% in 1994,3.5% in (SEC) under the Public Utility llolding Company Act 1993 and 3.4% in 1992. The annual straight-line depreci.
II ation rate for nuclear property is 2.5%.
The Operating Companies are members of the Central The Operating Companies accrue the estimated costs of Area Power Coordination Group (CAPCO). Other decommissioning their three nuclear generating units.
members are Duquesne 1.ight Company, Ohio Edison The accruals are required to be funded in an external Company and its uholly onned subsidiary, Pennsylvania trust. The PUCO requires that the expense and payments Power Company. The members have constructed and to the external trusts be determined on a levelized basis operate generation and transmission facilitics for their by dividing the unrecovered decommissioning costs in "5"'
current dollars by the remaining years in the licensing peri d f each unit. This methodology requires that the (b) Retenues net earnings on the trusts be reinvested therein with the Customers are billed on a monthly cycle basis for their intent of allowing net earnings to ofTset inflation. The energy consumption based on rate schedules or contracts PUCO requires that the estimated costs of decommis-authorized by the PUCO or on ordinances of individual sioning and the funding level be reviewed at least every municipalities. An accrual is made at the end of each five years.
22
In 1994, the Operating Companies increased their annual (e) Property, Plant and Equipment decommissioning expense accruals to $24 million from ..
Property, plant and equipment are stated at onginal cost the $8 million level in 1992. The accruals are reflected in less am unts ordered by the PUCO to be written otT.
current rates. The increased accruals were derived from Construction costs include related payroll taxes, retire-recently updated, site-specific studies for each of the ment benehts, fringe benefits, management and general units. The revised estimates reflect the DECON method
. . . overheads and allowance for funds used during construc-of decommission ng (prompt decontamination), and the
.. . t. ion (AFUDC). AFUDC represents the estimated com-locat. ions and cost charactenstics specific to the un.ts, i
and include costs associated with decontamination, dis- p site debt and equity cost of funds used to finance mantiement and site restoration. c nsnuctmn. hs noncash aHowann a gredited to in-come. The AFUDC rates averaged 9.8% m 1994,9.9% in l The revised estimates for the units in 1993 and 1992 1993 and 10.8% in 1992.
dollars and in d ellars at the time of license expiration, Maintenance and repairs for plant and equipment are assuming a 4% annual inflation rate, are as follows:
charged to expense as incurred. The cost of replacing 1.icense Lyirauon ruture plant and equipment is charged to the utility plant ac-Grnsr2tn.tL5i! .__ynt. Ams unt counts. The cost of property retired plus removal costs, dollars) after deducting any salvage value, is charged to the Da<is-ucwe 2017 5346(t) 5 862 accumulated provision for depreciation.
Perry tinit 1 2u26 2%(t) 908 Ileaver Valley Unit 2 2027 J14(2) 4 w g @M (f) Deferred Gain and Loss from Sales of Utility Plant Of , """"[ [ $"} The sale and leaseback transactions discussed in Note 2 resulted in a net gain for the sale of the Bruce Mansfield The updated estimates reflect substantial increases from Generating Plant (Mansfield Plant) and a net loss for the de prior PUCO-recognized aggregate estimates of $257 sale of Beaver Valley Unit 2. The net gain and net loss million in 1987 and 1986 dollars. were deferred and are being amortized over the terms of leases. See Note 7. T hese amortizations and the lease .
The classi6 cation, Accumulated Depreciation and Amor- expense amounts are reported in the income Statement as tization, in the llalance Sheet at December 31,1994 Generation Facilities Rental Expense, Net.
includes $98 million of decommissioning costs previously expensed and the earnings on the external trust funding. (g) Interest Charges This amount exceeds the llalance Sheet amount of the external Nuclear Plant Decommissioning Trusts becaus Debt interest reported in the income Statement does not the reserve began prior to the external trust funding. The include interest on obligations for nuclear fuel under trust earnings are recorded as an increase to the trust c nstruction. That interest is capitalized. See Note 6.
assets and the related component of the decommissioning Losses and gains realized upon the reacquisition or re-reserve (included in Accumulated Depreciation and demption of long-term debt are deferred, consistent with Amortiration). the regulatory rate treatment. See Note 7. Such losses and gains are either an.ortized over the remainder of the The statiof the S!!C has questioned certain of the current rigin 1 life f the debt issue retired or amortized over accounting practices of the electric utility industry, in-the life of the new debt issue when the proceeds of a new ciuding those of the Operating Companies, regarding the issue are used for the debt redemption. The amortiza-recognition measurement and classification of decom-tions are included in debt interest expense.
missioning costs for nuclear generating stations in the linancial statements. In response to these questions, the (h) Federal Income Taxes Financial Accounting Standards lloard is reviewing the '
accounting for removal costs, including decommission. We use the liability method of accounting for income ing. If such current accounting practices are changed, taxes in accordance with SFAS 109. See Note 8. This l the annual provision for decommissioning could increase; method requires that deferred taxes be recorded for all ,
the estimated cost for decommissioning could be re- temporary differences between the book and tax bases of
! corded as a liability rather than as accumulated deprecia- assets and liabilities. The majority of these temporary tion; and trust fund income from the external dilTerences are attributable to property-related basis dif-decommissioning trusts could be reported as in estment ferences. Included in these basis differences is the equity income rather than as a reduction to decommissioning compa, m of AFUDC, which will increase future tax expense. expense when it is recovered through rates. Since this 23
component is not recogniicd for tax purposes, we must in April 1992, nearly all of the outstanding Secured Lease record a liability for our tax obligation. The PUCO Obligation Bonds (SLOBS) issued by a special purpose permits recovery of such taxes from customers when corporation in connection with financing the sale and they become payabic. Therefore, the net amount due leaseback of Beaver Valley Unit 2 were refmanced from customers through rates has been recorded as a through a tender olTer and the sale of new bonds having a deferred charge and will be recovered over the lives of the lower interest rate. As part of the refinancing transac-related assets. See Note 7. tion, Toledo Edison paid $43 million as supplemental rent to fund transaction expenses and part of the tender investment tax credits are deferred and amortifed over premium. This amount has been deferred and is being the lives of the applienble property as a reduction of amortized over the remaining lease term. The refmanc-depreciation expense. See Note 7 for a discussion of the ing transaction reduced the annual rental expense for amortitation of certain unrestricted excess deferred taxes the Beaver Valle- Jnit 2 lease by $9 million.
and unrestricted investment tax credits under the Rate Stabilization Program- Future minimum lease pcyments under the operating leases at December 31,1994 are summarized as follows:
(2) Utility Plant Sale and Le ^m""'
, (mittions of Leaseback Transactwns nam 1995 $ 166 The Operating Companies are co-lessees of 18.26% (150 i993 igg megawatts) of Beaver Valley Unit 2 and 6.5% (51 1997 t65 megawatts). 45.9% (358 megawatts) and 44.38% (355 1998 165 megawatts) of Units I,2 and 3 of the Mansfield Plant, i999 i7g respectively, all for terms of about 29W years. These i ,,,y,,, 3239 leases are the result of sale and leaschack transactions completed in 1987
" 'II"'"" #""""* "")""" #
Under these leases, the Operating Companies are respon- Rental expense is accrued on a straight-line t asis over the sihle for paying all tases, insurance premiums, operation terms of the leases. The amount recorded in 1994,1993 and maintenance expenses and all other similar costs for and 1992 as annual rental expense for the Mansfield their interests in the units sold and leased back. They Plant leases was $115 million. The amounts recorded in may incur additional costs in connection with capital 1994,1993 and 1992 as annual rental expense for the improvements to the units. The Operating Companies Beaver Valley Unit 2 lease were $64 million, $63 million have options to buy the interests back at the end of the and $66 million, respectively. Amounts charged to ex.
leases for the fair market value at that time or renew the pense in excess of the lease payments are classified as leases. Additional lease provisions provide other Accumulated Deferred Rents in the Balance Sheet, purchase options along with conditions for mandatory termination of the leases (and possible repurchase of the Toledo Edison is selling 150 megawatts ofits Beaver leaschold interests) for events of default. These events Valley Unit 2 leased capacity entitlement to Cleveland include noncompliance with several financial covenants Electric. We anticipate that this sale will continue discussed in Note ll(d). indefinitely.
r l
24
(3) Property Owned with Other Utilities and Investors The Operating Companies own, as tenants in common with other utilities and those investors w ho are owner-participants in various sa!e and leaseback transactions (Lessors), certain generating units as listed below. Each owner owns an undivided share in the entire unit. Each owner has the right to a percentage of the generating capability of each unit equal to its ownership share. Each utility owner is obligated to pay for only its respective share of the construction costs and operating expenses. Each Lessor has leased its capacity rights to a utihty which is obligated to pay for such Lessor's share of the construction costs and operating expenses. The Operating Companies' share of the operating expenses of these generating units is included in the Income Statement. The llalance Sheet classification of Property, Plant and Equipment at December 31,1994 includes the following facilities owned by the Operating Companies as tenants in common with other utilities and Lessors in. Plant Construction Service Ownership Ownership Power in Work in Accumulated iicMMLK !hil Date Share Megawaus Joureg Smigg Proerew Denreciation (millions of dollard Seneca Pumped Storage 1970 80 0u% 351 Ilydro $ 66 $- $ 22 tiastlake Unit 5 1972 68.80 41t Coal 156 1 - ;
Perry Unit i 1987 51 02 6n9 Nuclear 2,817 9 51l l ttcaver Valley Unit 2 and l
Common heilities (Note 21 1987 26 12 214 Nuclear IAx0 _,,,3 ,,192 Total $wo }jj }jg Depreciation for Eastlake Unit 5 has been accumulated with all other nonnuclear depreciable property rather than by specific units of depreciable property.
(J) Construction und Contingencies in Perry unit 2 at December 31,1993 after we deter-mined that it would not be completed or sold. The write-(a) Construction Program off totaled $583 million ($425 million after taxes) for our The estimated cost of our construction program for the 64.76% ownership share of the unit. See Note 14.
1995-1999 period is $1.154 billion, including AFUDC of
$64 million and excluding nuclear fuel. (c) llazardous Waste Disposal Sites The Clean Air Act requires, among other things, signifi- The Operating Companies are aware of their potential cant reductions in the emission of sulfur dioxide and involvement in the cleanup of three sites listed on the nitrogen oxides by fossil fueled generating units. Our Superfund List and several other waste sites not on such strategy provides for compliance primarily through list. The Operating Companies have accrued a liability greater use oflow-sulfur coal at some of our units and the totaling $13 million at December 31,1994 based on use of emission allowances. Total capital expenditures estimates of the costs of cleanup and their proportionate from 1991 through 1994 in connection with Clean Air responsibility for such costs. We believe that the ulti-Act compliance amounted to $35 rmilion. The plan will mate outcome of these matters will not have a material require additional capital expenditures over the 1995- adverse elTect on our financial condition or results of 2004 period of approximately $157 million for nitrogen operations. See Management's Financial Analysis-oxide control equipment and plant modifications. In addi- Outlock-Ilazardous Waste Disposal Sites.
tion, higher fuel and other operation and maintenance expenses will be incurred. The anticipated rate increase associated with the capital expenditures and higher ex. (5) Nncitar Operations and penses would be about 1-2% in the late 1990s. Cleve- Con /Ingencies land Electric may need to install sulfur embsion control technology at one ofits generating plants after 2005 w hich (a) Operating Nuclear Units could require additional expenditures at that time.
Our three nuclear units may be . impacted by activities or events beyond our control. An extended outage of one of (b) Perry Unit 2 our nuclear units for any reason, coupled with any Perry Unit 2, including its share of the facilities common unfavorable rate treatment, could have a material ad-with Peny Unit 1, was approximately 50% complete verse elTect on our financial condition and results of
}
when construction was suspended in 1985 pending con- operations. See discussien of these risks in Management's sideration of various options. We wrote off our investment Financial Analysis - Outk>ok Nuclear Operations.
25
(b)- Nucler Insurance with remaining lere payments of $128 million, $91 The Price-Anderson Act limits the public liability of the milli n and $24 million, respectively, at December 31 owners of a nuclear power plant to the amount provided 4: The nuclear fuel amounts financed and capitalized als mc uded interest charges incurred by the lessors by private insurance and an industry assessment plan. In m unt{ng i to $11 milhon 1994, in$14 milhon m 1993 the event of a nuclear incident at any unit in the United States resulting in losses in excess of the level of private and $15 million in 1992. The estimated future lease am rtization payments based on projected consumption insurance (currently $200 million), our maximum poten-are $99 milhon m 1995,$91 milhon in 1996, $80 milhon tial assessment under that plan would be $155 million
. m 1997,$73 milhon in 1998 and $62 milhon in 1999.
(plus any m. !1at. ion adjustment) per .meident. The assess-ment is limited to $20 million per year for each nuclear incident. These assessment limits assume the other (7) Regulatory Matters CAPCO companies contribute their proportionate share ..
of any assessment.
The Operating Compan.ies are suo.icct to the provisions of SFAS 71. Regulatory assets represent probable future The utility owners and lessees of Davis-Besse, Perry and revenues to the Operating Companies associated with Beaver Valley also have insurance coverage for damage certain incurred costs, which they will recover from to property at these sites (including leased fuel and customers through the ratemaking process. Regulatory cleanup costs). Coverage amounted to $2.75 billion for assets in the Balance Sheet are as follows:
each site as of January 1,1995. Damage to property could .nsgeber n exceed the insurance coverage by a substantial amount. 1994 1993 If it does, our share of such excess amount could have a
("Mr"s") I material adverse effect on our financial condition and Amounts due from customers for future rederal results of operations. Under these policies, we can be income tases $1.046 5 968 ussessed a maximum of $22 million during a policy year if Unamortieco loss from Beaver valley Unit 2 sale _ 101 105 the reserves available to the insurer are inadequate to pay Unamortized loss on reacquired debt 86 92 Pre-phase-in deferrals' 570 587 claims arhing out of an accident at any nuclear facility Rate stabilizati n Pr gram deferrah 387 275 covered by the insurer.
Total $ tion $2 n27 We also have extra expense insurance coverage, it in-
- Represent dererrais or operating expenses and carrying charges for ciudes the incremental cost of any replacement power rerry Unii t and Beaver valley Unit 2 in 1987 and 1988 which are purchased (over the costs which would have been in- being amortized over the lives or the related property.
curred had the units been operating) and other incidental expenses after the occurrence of certain types of acci-As f Dech 31, N, cudome rates pmvW for dents at our nuclear units. The amounts of the coverage recom f au me bove regulatory assets, except those rel ted to the Rate Stabilization Program discussed be-are 100% of the estimated extra expense per week during I w. The remaining recovery periods for all of the the $2-week period starting 21 weeks after an accident regul tory assets listed above range from 17 to 34 years, and 80% of such estimate per week for the next 104 Operanng Companies continuaHy assess the ekts weeks. The amount and duration of extra expense could "I C mpetiti n and the changmg industry and regulatory substantially exceed the insurance coverage. .
environment on operations and their ability to recover the regulatory assets. In the event that the Operating (6) N#c/ cur l',#c/ Companies determine that future revenues would not be pr vided for recovery of any regulatory asset, such asset Nuclear fuel is nnanced for the Operating Companics would be required to be wntten o!T. See Management's through leases w.it h a special-purpose corporation. At ncial Anahsis - OuM Regulatory Anoudng.
..n December 31,1994, $307 million of nuclear fuel was financed ($157 million from intermediate-term notes and The Operating Companics will file a request with the
$150 million from bank credit arrangements). The inter. PUCO to restructure rates to increase revenues to be mediate term notes mature in 1996 and 1997. The elTective in 1996 which will include provision for recovery Operating Companies severally lease their respective por- of the Rate Stabilization Program deferrals. We believe tions of the nuclear fuel and are obligated to pay for the that rates will be set at a level consistent with cost-based fuel as it is consumed in a reactor. The lease rates are regulations and will provide revenues to recover the then-l hased on various intermediate-term note rates, bank rates current operating costs, return requirements and amor-l and commercial paper rates. tization of all regulatory assets listed above.
The amounts financed include nuclear fuel in the Davis- The Rate Stabilization Program that the PUCO approved Besse, Perry Unit I and Heaver Valley Unit 2 reactors in October 19 82 was designed to encourage economic 26
growth in our service area by freezing base rates until pleted in 1995, we should no longer plan to use regulatory 1996 and limiting subsequent rate increases to specified accounting measures to the extent we have in the past.
annual amounts not to exceed $216 million for Cleveland Electric and $89 million for Toledo Edison over the 1996-1998 period. (8) FelleralIncome Tax _
As part of the Rate Stabilization Program, during the The components of federal income tax expense (credit) 1992-1995 period the Operating Companies are allowed recorded in the income Statement were as follows:
to defer and subsequently recover certain costs not cur- s 1993 m rently recovered in rates and to accelerate amortization (ngns,)or of certain benefits. The continued use of these regula- opc,3,;n, g,p,nse,;
fory accounting measures will be dependent upon our Current 5 70 5 99 5 71 continuing assessment and conclusion that there will be Dererred J ll) J probable recovery of such deferrals in future rates. Total Charged to operating Expenses 1 14 .J _l]U Nonuperating income:
The regulatory accounting measures we are eligible to c ,,,, n , (43) (34) (33) record through December 31,1995 include the deferral of Deterred J J2M) J post in-service interest carrying charges, depreciation ex- Total Expense (Credit) to Nonoperating pense and property taxes on awets placed in service after income _g n93) __2 February 29,1988 and the deferral of Toledo Edison Total rederal Income Tax Expense (Credit) _ E M7) M operating expenses equivalent to an accumulated excess rent reserve for Beaver Valley Unit 2 (which resulted The deferred federal income tax expense results from the from the April 1992 refinancing of SLOBS as discussed temporary ditTerences that arise from the different years in Note 2). The cost deferrals recorded in 1994,1993 and certain expenses are recognized for tax purposes as 1992 pursuant to these provisions were $106 million, opposed to financial reporting purposes. Such temporary
$95 million and $84 million, respectively. The regulatory differences affecting operating expenses relate principally accounting measures also provide for the accelerated to depreciation and deferred operating expenses whereas amortiration of certain unrestricted excess deferred tax those afTecting nonoperating income principally relate to and unrestricted investment tax credit balances and in. deferred carrying charges and the 1993 write-olis.
terim spent fuel storage accrual balances for Davis-Besse.
The total amount of such regulatory benefits recognized Federal income tax, computed by multiplying the income pursuant to these prosisions was $46 million in both before taxes and preferred dividend requirements of sub-1994 and 1993 and $12 million in 1992. sidiaries by the statutory rate (35% in 1994 and 1993 and 34% in 1992),is reconciled to the amount of federal The Rate Stabili/ation Program also authorized the Op- income tax recorded on the books as follows:
erating Companies to defer and subsequently recover the g g9y g incremental expenses associated with the adoption of (mations or do!Iars) the accounting standard for postretirement benefits other Book Incon'e (t.ou) Berore Federal Income D' E**E than pensions (SFAS 106). In 1994 and 1993, we deferred $6 million and $96 million, respectisely, pursu-Ta o on w income non) at g e ,3, ) 3g ant to this provision. Amortization and recovery of these Inacase (Decrease) in Tas:
deferrals are expected to commence in 1996 and to be write-orr of Perry Unit 2 - 46 -
completed by no later than 2012. See Note 9(b). r write-otior hase-in dererrals - 28 -
Depreciation 3 (6) (9)
In 1993, upon completing a comprehensive study which Rate siabdization Program _ (27) (30) t)7 led to our current strategic plan, we concluded that other items _1 17 ._2 projected revenues would not provide for recosery of Total l ederal Income Tat Espense (Credit) , g 5 tu7) g deferrals recorded pursuant to phase-in plans approved by the PUCO in 1989. Such deferrals were scheduled to be For tax reporting purposes, the Perry Unit 2 abandonment recovered oser the 1994 through 1998 period. The total was recognized in 1994 and resulted in a $307 million phase-in deferred operating expenses and carrying loss with a corresponding $107 million reduction in fed-charges written off at December 31,1993 were $172 eral income tax liability. Because of the alternative I
million and $705 million, respectively (totaling $598 minimum tax (AMT), $62 million of the $107 million million after taxes). See Note 14. Additionally, based on was realized in 1994. The remaining $45 million will not our assessment of business conditions we concluded be realized until 1999. Additionally, a repayment of that, once the deferral of expenses and acceleration of approximately $32 million of previously allowed invest-benefits under our Rate Stabilization Program aie com- ment tax credits was recognized in 1994.
27
In August 1993, the Revenue Reconciliation Act of 1993 Pension and VTP costs (credits) for 1992 through 1994 was enacted. Retroactive to January 1,1993, the top were comprised of the following components:
marginal corporate income tax rate increased to 35%. jy993 9 L993 g The change in tax rate did not materially impact the (mations or uollars) results of operations for 1993, but increased Accumulated I'["[C ,', (CdiIe6n W W W Deferred Federal Income Taxes for the future tax obliga- period 5 13 s is $ 15 tion by approximately $90 million. Since the PUCO has Interesi cost on projected benefit obligation , 26 37 38 historically permitted recovery of such taxes from cus-
^""l'"* ' PI '" **'eis (2) (65) (24)
Net amortization and deferral (.M) ,4 R) tomers when they become payable, the deferred charge, Net pension costs (credits) 3 (9) (16)
Amounts Due from Customers for Future Federal In- VTP cost - 205 -
come Taxes, also was increased by $90 million. settlement gain ._= R) _,.=
Under SFAS 109, temporary differences and carryfor- Net costs (crests) W E S wards resulted in deferred tax assets of $596 million and The following table presents a reconciliation of the funded deferred tax liabilities of $2.374 billion at December 31, status of the plan.
1994 and deferred tax assets of $619 million and de-mbe ferred tax liabilities of $2.198 billion at December 31, 1993. These are summarized as follows: (millions of
,,pscember 31. dollars) 1994 1993. Actuarial present value of benefit obligations:
(millions of Vested benefits $278 $333 dollars) Nonvested benefits _2 j2 Property, plant and equipment $2,035 51.845 Accumulated beneSt obligation 280 370 Deferred can>ing charges and operating expenses __ 215 200 Effect of future compensation levels ,J2 ,,,.j]
Net operating loss carr> forwards (144) (108) Total projected benefit obligi: tion 317 423 Investment tas credits (156) (183) Plan assets at fair market value _,,).62 ,,)Js Sale and leaseback transactmns (128) (127) l'unded status 45 (37)
Other (44) (54) Unrecognized net loss (gain) from variance between assumptions and experience (79) 11 Net deferred tas habdity R 77x 51379 Unrecognized prior service cost 10 10 For tax purposes, net operating loss (NOL) carryforwards Transition asset at January I 1987 being amortized of approximately $412 million are available to seduce "'r I D'' M) M) future taxahle income and will expire in 2003 through N 'j,','j" ,d["' , ",'f"d',d f"g ~~'-
2009. The 35% tax elTect of the NOLs is $144 million.
Additionally, AMT credits of $168 million that may be A September 30,1994 measurement date was used for carried forward indefinitely are available to reduce future 1994 reporting. At December 31,1994, the settlement regular tat (discount) rate and long-term rate of return on plan assets assumptions weie 8.5% and 10%, respectively. The (9) Retircinent Ucnv/I/S long-term rate of annual compensation increase assump-tion was 3.5% for 1995 and 1996 and 4% thereafter. At (a) lletirement income Plan December 31, 1993, the settlement rate and long-term We sponsor a noncontributing pension plan which cosers rate of return on plan assets assumptions were 7.25%
all employee groups. The amount of retirement benefits and 8.75%, respectively. The long-term rate of annual generally depends upon the length of service. Under compensation increase assuraption was 4.25%.
certain circumstances, benefits can begin as early as age Plan assets consist primarily of investments in common
- 55. Our funding policy is to comply with the Employee stock, bonds, guaranteed investment contracts, cash Retirement income Security Act of 1974 guidelines, equivalent securities and real estate.
In 1993, we offered the VTP, an early retirement pro-gram. Operating expenses for 1993 included $205 million (b) Other Postretirement Benefits of pension plan accruals to cover enhanced VTP benefits We sponsor a postretirement benefit plan which provides and an additional $10 million of pension costs for VTP all employee groups certain health care, death and other benelits paid to retirees from corporate funds. The $10 postretirement benefits other than pensions. The plan is million is not included in the pension data reported in the contributory, with retiree contributions adjusted annu-following table. A credit of $81 million resulting from a ally. The plan is not funded. We adopted SFAS 106, the settlement of pension obligations through lump sum accounting standard for postretirement benefits other payments to almost all the VTP retirees partially offset than pensions, efTective January 1,1993. The standard the VTP expenset requires the accrual of the expected costs of such benefits
during the employees' years of service. Prior to 1993, the (f0) (Juarantees costs of these benefits were expensed as paid, which was consistent with ratemaking practices. Cleveland Electric has guaranteed certain loan and lease obligations of two coal suppliers under two long-term The components of the total postretirement benefit costs coal supply contracts. Toledo Edison is a party to one of for 1994 and 1993 were as follows: these contracts. At December 31,1994, the principal hi;onh amount of the loan and lease obligations guaranteed by dollars) the Operating Companies under both contracts was $67 Service cost for benefits earned during the period 52 5 3 million. In addition, under the contract to which Toledo Interest cost on accumulated postretirement benerst . . .
i obhgation is 16 Edison is not a party, Cleveland Electne may be Amortintion of transition obligation at January 1,1993 responsible for mine closing costs when the contract is 8
v1 curta terminated. At December 31,1994, the unfunded costs of tc ( nc e sto minion transition obligation adjustment) .
_El closing this mine as estimated by the supplier were $54 hal cat $ E! l!.l.! million.
In 1994 and 1993, we deferred incremental SFAS 106 The prices under both contracts which include certain expenses (in excess of the amounts paid) of $6 million minimum payments are sufficient to satisfy the loan and and $96 million, respectively, pursuant to a provision of lease obligations and mine closing costs over the lives of the Rate Stabilization Program. See Note 7. the contracts. If either contract is terminated early for any reason, the Operating Companies would attempt to The accumulated postretirement benefit obligation and reduce the termination charges and would ask the I accrued postretirement benefit cost are as follows: PUCO to allow recovery of such charges from customers Emmkd. through the fuel factor of the respective Operating
'9"4 N3 Company.
(millions or a uumuiaied emireii,ementbenetiiobhgaion (11) Capitalimrion attnbutable to:
Retired participants $(203) $(229) (a) Capital Stock Transactions and Common runy ei gibie utise pian participanii (1) (i) Shares Hescried for Issue Other active plan participants _j]l) _LW Accumulated postretirement lxnefit obligation ~
Shares sold, retired and purchased for treasury during the l (225) (258)
Unrecognieca net losi <sain) from sariance between three years ended December 31,1994 are l.isted in the assumptions and espenence (23) 14 followjng table.
t)namurtiled transition obligation .
_ 111 143 J9.il
. L.al 12L1 Accrued postretirement benefit cost induded in (thousands of shares)
Pelirement llenefits in the Balance Sheet _ $(111) $f101) Centerior Energy Common Stock:
Dividend Reinmtment and Stock Purchase Plan 683 3,542 2.570 A September 30,1994 measurement date was used for Employee Savings Pian 259 544 322 1994 reporting. At December 31,1994 and 1993, the Employee Purchase Plan 44 _12 -
settlement rate and the long-term rate of annual compen-sation increase assumptions were the same as those Tw' h$
Net increase u "$"
4xR Lly b)
M,Q discussed for pension reportingi n Note 9(a). At Decem-ber 31,1994, the assumed annual health care cost trend Preferred stock or subsidiaries subject )
rates (upplicable to gross eligible charges) are 8.5% for
'Q"j',' d
$90.00 Senes s Y
b - -
75 i
l medical and 8% for dental in 1995. Iloth rates reduce Cl{'lydOcetr[e Retirements gradually to a fised rate of 4.75% by 2003. Elements of 8r 00 Senes E (3) (3) (3) s sM Om) the obligation affected by contribution caps are signifi- ^d(i[en 9 [j cantly less sensitive to the health care cost trend rate than Toledo Fdison Retirements other ekmcats. If the assumed health care cost trend rates were increased by one percentage point in each I'* P"' IN3 25 par 2.81 53 (8m) 53 (800) future year, the accumulated postretirement benefit obli- Prer red or b id a es gation as of Decembcr 31, 1994 would increase by $7 Ctesciand Liectrie saics million and the aggregate of the sersice and interest cost '
Cl cl'and ectn Retirements components of the annual postretirement benefit cost Remarketed Series P - -
(1) would increase by 50.5 million. N't ( De'" ") U 'H .!J.S /.D I
l 29
Shares of common stock required for our stock plans in (c) Preferred and Preference Stock 1994 were either acquired in the open market or issued as Am unts to be paid for preferred stock which must be new shares.
redeemed during the next five years are $47 million in
- The floard of Directors has authorized the purchase in the 1995,$31 million in both 1996 and 1997, $16 million in open market of up to 1,500.000 shares of our common 1998 and $35 million in 1999.
(
I stock until June 30,1996. As of December 31,1994, e annual maMatory redemption provisions are as 225,500 shares had been purchased at a total cost of $4 I""'
million. Such shares are being held as treasury stock. shares To Price Be Beginning Per Ede.smd in Share The number of common stock shares reserved for issue cleveland tiiectric Preferred.
under the Employee Savings Plan and the Employee 5135 Suin C IW N 5 im Purchase Plar was 1,702,849 and 423,797, respectively, at f
l December 31,1994'
[
Adjustable series M 100.0uu 1991 100 25 se f Under an Equity Compensation Plan (Plan) adopted in g 1994, options to purchase shares of common stock and 88 00 Series R 50.000 200t* 1.000 restricted common stock awards were granted to manage- 90.00 seria s 18J50 1999 1,000 ment employees. Options were issued for 264,900 shares Toledo tidison Preferred:
at an exercise price of $13.20. The options expire 10 $100 par 59 375 16.65) 1985 100 years from the date of the grant and vest over four years. 25 par 2.81 400.000 1993 25 The number of shares available for issuance under the
- All outstanding shares to be redeemed on December I,2001.
Plan each year is determined by formula, generally 0.5%
of outstanding shares. The options and stock grants for in 1993, Cleveland Electric issued $100 million principal 1994 are conditioned upon the approval of the Plan by amount of Serial Preferred Stock, $42.40 Series T. The Centerior Energy common stock share owners at their Series T stock was deposited with an agent which issued April 1995 annual meeting. Shares of common stock Depositary Receipts, each representing % of a share of required for the Plan may be either issued as new shares, the Series T stock.
issued from treasury stock or acquired in the open market specifically for distribution under the Plan. The annualized preferred dividend requirement for the Operating Companies at December 31,1994 was $63 (b) Equity Distrihtition Restrictions million.
The Operating Companies make cash available for the The preferred dividend rates on Cleveland Electric's Se-funding of Centerior Energy's common stock dividends by ries 1. and M and Toledo Edison's Series A and il paying dividends on their respective common stock, g ,,g ; g which are held solely by Centerior Energy. Federal law conditions. The dividend rates for these issues averaged prohibits the Operating Companies from paying divi- 7.17%, 7.01%, 7.66% and 8.44%, respectively, in 1994, dends out of capital accounts. Ilowever, the Operating Companies may pay preferred and common stock divi- Preference stock authorized for the Operating Companies dends out of appropriated retained earnings and current are 3,000,000 shares without par value for Cleveland earnings. At December 31,1994, Cleveland Electric and Electric and 5,000,000 shares with a $25 par value for Toledo Edison had $144 million and $104 million, Toledo Edison. No preference shares are currently out-respectisely, of appropriated retained earnings for the standing for either company, payment of dividends. Ilowever, Toledo Edison is prohib-ited from paying a common stock dividend by a provision With respect to dividend and liquidation rights, each in its mortgage that essentially requires such dividends Operating Company's preferred stock is prior to its prefer-to be paid out of the total balance of retained earnings, ence stock and common stock, and each Operating which currently is a deficit. Company's preference stock is prior to its common stock.
t l
30
(d) Long-Term Debt and Other ratios, fixed charge coverage ratios and limitations on Borrowing Arrangements secured financing other than through first mortgage bonds Long-term debt,less current maturities, for the Operating r cutain other transactions. Two reimbursement agree-CompaAes was as follows:
ments rel t,mg to separate letters of credit issued in Actual connedon @ th sh ad kasead d kam Vahy or Ascrare Unit 2 contain several financial covenants afTecting
'"j,"li g Centerior Energy and the Operating Companies. Among b rorMamnty #*"d9Y ' 994 these are covenants relating to fixed charge coverage 1 i i tmillions or ratios and capitalization ratios. The write-o!Ts recorded at dollars) December 31,1993 caused Centerior Energy and the l$96-9 13.75 % $ 17 $ 21 8 h # n m M k m W m ve m e 1996-t9w 100 3 4 tained in a Cleveland Electric loan agreement and the two 1997 1999 10.88 18 18 reimbursement agreements. The affected creditors 1997 6 125 31 31 waived those violations in exchange for a subordinate 1998 10 00 I 1
mortgage security interest on the Operating Companies' im ( 20 2 2 properties. We provided the same security interest to 1999 7.25 loo 100 crdon becauw Mr agreements quh 7.89 603 607 ma o 2000-2004" 2005 2009 8.33 202 202 equal treatment. At December 31,1994, the Operating 2010-2014 8. i 3 396 396 Companies provided subordinate mortgage collateral for 2015-2019 81)0 526 526 $197 million of unsecured debt, $228 million of bank 2020-2023 8 53 666 W letters of credit and a $205 million revolving credit Secured medium term notes due 1996 2021 8.60 766 963 Notes due t 1997 9 '-
Dchentures duc 2002 8.70 135 135 Arrgflyv/fle/JfS Pollution control notes duc 1996-
- ois 10 30 151 158 Other - net Centerior Energy has a $205 million revolving credit Q) (8)
Total long Term Debt $1 w1 $4 nio Eg W N Service Company may borrow under the facility, with all Long term debt matures during the next live years as bomwings jointly and severally guaranteed by the Oper-follows: $326 million in 1995,$243 million in 1996,$95 ating Companies. Centenor Energy plans to transfer any million in 1997, $117 million in 1998 and $277 million in f its borrowed funds to the Operating Companies. The
,999, facility agreement as amended provides the participating banks with a subordinate mortgage security interest on The Operating Companies issued $266 million aggregate the Operating Companies' properties. The banks' fee is principal amount of secured medium term notes in 1992 0.625% per annum payable quarterly in addition to inter-and 1993. The notes are secured by first mortgage est on any borrowings. There were no borrowings under bonds.
the facility at December 31,1991 The facility agree-The mortgages of the Operating Companies constitute ment contains covenants relating to s mitalization and direct first liens on substantially all property owned and fixed charge coverage ratios.
franchises held by them. Excluded from the liens, among Short term borrowing capacity authwed by the PUCO other things, are cash, securities, accounts receivable, annually is $300 million for Cleveland Electric and $150 fuel, supplies and, in the case of Toledo Edison, automo- million for Toledo Edison. The Operating Companies tive equipment. are authorized by the PUCO to borrow from each other Certain unsecured loan agreements of the Operating on a short-term basis.
Companies contain covenants relating to capitalization 3i f __ ____ _ _-______________________________
(13) FinancialInstruments (11) Quarterly Results of Operations Except for the Nuclear Plant Decommissioning Trusts at (Un##dited)
December 31 1994, as discussed below, the estimated fair values at December 31,1994 and 1993 of financial The following is a tabulation of the unaudited quarterly results of operations for the two years ended December instruments that do not approximate their carrying amounts in the llalance Sheet are as follows: 33' 1994-Ouarters Ended
[hber 3L March 31. bne 30. Sept, 30. Esd 1994 i993 (mdlions of dollars, Carrying Fair Carrying Fair except per share amounts)
Amoynt fi!n ! Amocnt ,Lig (milhons of dollars) 1994 Asse ts: Operating Revenues $588 $596 $667 $ 570 Nuclear Plant Decommissioning Operating income $129 f134 $186 $ 129 Trusts $ H2 $ 82 $ 56 $ 59 Net income $ 3$ $ 42 $ 92 $ 35 Capitalitation and 1.iabihtics: Average Common Shares Preferred Stock, with Mandatory (millions) 147.4 147.9 148.0 148.0 i Redemption Provisions !!arnings Per Common (including current portion) _ 300 264 354 349 Share $ .24 $ .28 $ .62 $ .24 t ong Term Debt (including Dividends Paid Per current portion) 4,031 3,628 4.113 4.260 Common Share $ .20 $ .20 $ .20 $ .20 1
The Nuclear Plant Decommissioning Trusts at Decem- 1"3 U P "i"8 ""'" "" - $598 $m $m $ 578 ber 31,1994 included $46 million of federal governmental Operating income (Loss) , $122 $126 $106 $ (42) securities and $31 rm.th.on of mum. .cipal securit,es. i The $ 17 $(1,029)
Net income (Loss) $ 35 $ 34 securities had the following maturities: $19 million due Average Common shares within one year; $16 million due in one to five years, $17 (millions) 143.4 144.4 145.3 146.4 million due in six to 10 years; and $25 million due after Earnings (Loss) Per 10 years. The fair value of these trusts is estimated Common share $ .25 $ .23 $ .12 $ (7.02) based on the quoted market prices for the investment Qdj5 P{" , ,g 3 ,g 3 ,g , jg securities. As a result of adopting the new accounting standard for certain investments in debt and equity securi- Earnings for the quarter ended September 30,1993 were ties, SFAS 115, in 1994, the carrying amount of these decreased by $81 million, or $.56 per share, as a result of trusts is equal to the fair value. T he fair value of the the recording of $125 million of VTP pension-related Operating Companies' preferred stock, with mandatory benefits.
redemption provisions, and long term debt is estimated Earnings for the quarter ended December 31,1993 were based on the quoted market prices for the respective or tiecreased as a result of year-end adjustments for the similar issues or on the basis of the discounted value of $583 million write-olT of Perry Unit 2 (see Note 4(b)),
future cash flows. The discounted value used current the $877 million write-off of the phase-in deferrals (see dividend or interest rates (or other appropriate rates) for Note 7) and $58 million of other charges. These adjust-similar issues and loans with the same remaining ments decreased quarterly earnings by $1.06 billion, or m turities. $7.24 per share.
The estimated fair values of all other financial instru-ments approximate their carrying amounts in the Balance Sheet at December 31,1994 and 1993 because of their short-term nature.
32 1
Fa x e c u t i v e s of centerior Ener9y Corporation Chairman, President and Chief Executive Officer Robert J. Farling (58) Vice President lk rrence G. Linnert (48)
Executise Vice President Afurray R. Edelman (SS) Controller E. Lyle Pepin (53)
Senior Vice President Fred J. Lange. Jr. (45) Treasurer David 31. Blank (46)
Vice President Gary R. Leidich (44) Secretary .Janis T. Pertio (42)
Executives or cen terio r service company Chairman, President and Vice President-Chief Executi.e Olficer Customer Support Jacquita K. Han3erman (52)
(and Chairman Vice Pres.i dent-Finance
& CEO of
. & Administration Gary R. Leidich (44)
Cleveland Electnc -
and Toledo Edison) Robert 1. Farling (58) Vice President-Legal &
Executive Vice President-Governmental Affairs Operations & Engineering and General Counsel Terrence G. Linnert (48) ,
(and Vice Chairman 1 of Toledo Edison Vice President- !
and President of Transmission & Distribution Cleveland Electric) Afurray R. Edelman (SS) Operations David L. Afonseau (54)
Senior Vice President- Vice President-Fossil & Transmission and Nuclear-Davis flesse John P. Stet: (49)
Dktribution Operations Vice President-(and President Sales & Marketing Al R. 7i mple (49) of Toledo Edison) Fred ). Lange, Jr. (45)
Controller E. Lyle Pepin (53)
~
Senior Vice President-Nuclear (and Treasurer Durid Af. Blank (46)
Vice President- Secretary Janis T. Perrio (42)
Nuclear Perry) Donald C. Shelton (6/)
l l
Mmber en pareraheses ut.hnnes age.
33
Financial and Statistical Review Operating Resenues (millions of dollars)
Steam Total Total Total Heatmg Operstmg j Year R eudenml Comme rdal ladustrul Other Res ul Wholeule fles rie _ & Gas Revenues 1994 $758 722 758 137 2 375 46 2 421 -
$2 421 1993 768 716 754 143 2 381 93 2 474 --
2 474 1992 732 706 766 143 2 347 91 2 438 -
2 438 1991 777 723 783 188 2 471 89 2 560 -- 2 560 1990 719 669 779 190 2 357 70 2 427 -
2 427 1984 __ 548 454 636 88 1 726 24 1750 24 1774 Operating Espenses (millions of dollars)
Other Ocneration Deferred i uel & Operation I acihties Deprectation Taxes. Operatmg i ederal Total Purch.ned & Rental & Other Than Dpenses, income Operating Year Po.er M ainiena nce i trenw. Net Amorw iion MT Net Taxes F xpenws 1994 $442 595 !60 278 309 (55) I14 $1843 1993 _ 474 924(al 159 258 312 23(b) 11 2 161 1992 473 623 161 256 318 (52) 122 1 901 1991 500 633 168 243(c) 305 (6) 138 1981 199(I 472 698 165 242 283 (34) 96 I 922 1934 463 404 - 145 179 - 198 1389 income (Loss) (millions of dollars)
Federal income Other Deferred income (Ims)
Income & Carrying Taxes- Before Ogretmg AI U DC- Deductions, Charges, Credit Interest Debt Year inc ome ! ymiy Net Net (1 spense) Charges Inierest 1994 $578 5 8 40 (6) 625 361 1993 313 5 (589)(d) (649)(b) 398 (522) 359 1992 537 2 9 100 (7) 641 365 1991 579 9 6 110 (30) 674 381 1990 _ 505 8 (1) 205 (l3) 704 384 1934 385 213 12 --
69 679 310 Income (Lms) (millions of dollars) Common Stock (dollars per share & %)
Return on Preferred & Aserage Average Preference Net Sharcs Common AI U1W~ Sim k inwme Outst.ndmg brmogs Stak Dividends Book Yew Debt Dnklends (I md t mdhond ( Lmd l'qwiy Declared Yah e 1994_ _ $ (6) 66 $ 204 147.8 $ 1.38 II.! % $ .80 $12.71 1993 (5) 67 (943) 144 9 (6.51) (40.3) 1.60 12.14 1992 (1) 65 212 141.7 1.50 7.4 1.60 20.22 1991 (5) 61 237 139.1 1.71 8.4 1.60 20.37 1990 _ (6) 62 264 138.9 l.90 9.4 1.60 20.30 1934_ (76) 78 367 107.6(e) 3.41 (c) 16.4 2.29(c) 20.64(r)
N0ff IVM Jata is the result ol combming and restating Jarafor the Operating Companies.
lat incluJn earls retirement pnsram expenses and raher charges of $27 million in 1993 Ib) Ins luJes a rtw-egofph.ase m Jeferrait of $877 milhort in I99A convirring of $172 milhon ofJeferred operating .npenses and $ 705 million ofJeferred carrpng sharges
{c) In IY91. the Gi mring CompaGs adopted a chunge on aaountingfor nuclear plans Jepreslation. shanging from the units-of production method to the straight-Ime meth,rl ut a 3% rate.
l 34
r' I
Centerior Energy Corporation and Subsidiaries 1
1 Electric Sales (millions of KWil) Electric Customers (year end) Residential Usage 1 Average Average Average Pnce Revenue !
Industrial KWil Per Per Per Year 14 eside ntial CommerciaJ Indust rol Whoicule Other Tota! Rendential Commercial & Other Total Customer KWil Customer 1994 _ _ 6 980 7 481 12 069 1 842 1074 29 446 925 344 97 530 ti360 1 034 234 7 556 10.86c $820.89 l 1
1993._, 6 974 7 306 II687 3 027 1 022 30 016 924 227 96 491 12 219 1 032 937 7 546 11.01 830.99 199L _. 6 666 7 086 11551- 2 814 1 011 29 128 925 099 96 813 12 741 1 034 653 7 227 10.98 793.68 l 1991 _ 6 981 7 176 11559 2 690 1 048 2e 454 921 995 96 449 12 843 1 031 287 7 410 11.16 827.10 i 1990 _. 6 666 6 848 12 168 2 487 959 29 128 918 965 94 522 12 906 1 026 393 7 079 10.82 765.93 1984_,_ 6 404 5 794 11 441 578 871 25 088 888 816 85 825 11850 986 491 7 035 8.56 603.92 Imad (MW & %) Energy (millions of KWil) Fuel Net Efficiency-Scavonal Capacity C mPany G.enerated Peak Load Purchased f uel Cost Blu Per Year CapaNhty t omt M ,ergm th ior lowl Nuclear Total Power Total Per Kwll KWH 1994 6 226 5 291 15.0% 63.9% 18 146 11 824 29 970 922 30 892 1.35& 10 454 1993 6 226 5 397 13.3 61.6 21 105 10 435 31 540 273 31 813 1.39 10 276 199J 6 463 5 091 21.2 63.4 17 371 13 814 31 185 (122) 31 063 1.45 10 39) 1991 6 460 5 361 17.0 62.9 18 041 13 454 31 495 40 31 535 1.48 10 442 1990 6 437 5 261 18.3 63.6 21 114 9 481 30 595 413 31 008 1.52 10 354 19#4 5 384 4 659 I 3.5 66.1 19 930 4 303 24 233 2 621 26 854 1.71 10 349 Imestment (millions of dollard Construction Work in Total Utihty Accumulated Nuclear Properfy. Utiht y Progress Plant la Deprecution & Net & i erry I'uctand Plant and Plant Total Year Nervwe Amor1e itmn Plant Unit 2 Other Fquipment AddWons A uc t.
1994 $9 770 2 906 6 864 129 343 $7 336 $197 $10 691 1993 9 571 2 677 6 894 181 385 7 460 218 10 710 1992 9 449 2 488 6 961 781 424 8 166 200 12 071 1991 8 888 2 274 6 614 853 503 7 970 204 11 829 1990 N 636 2 039 6 597 921 568 8 086 251 11 681 19#4 4 282 1164 3 118 3 527 485(f) 7 130 939 8 050 Capitalliation (millions of dollars & %)
Preferred & Preference Preferred Stock, without Stak. with Mandatory Mandatory Redemption Year Common Nim k i quity Redemptum Proviuons Proviuons 1.ong. Term Debt Total IWi 51 882 30% 253 4% 451 7% 3 697 59% $6 283 I
1993 1785 27 313 5 451 7 4 019 61 6 568 1992 2 889 39 364 5 354 5 3 694 51 7 301 1991 2 855 38 332 4 427 6 3 811 52 7 455 1990 2 810 39 237 3 427 6 3 729 52 7 203 1984 2 403 39 451 7 344 6 2 994 48 6 192 (JI includes write-vjf ofl'erry linit 2 of $5M million in IWS 1 te) Anrage shares outstandang and related per share computations reffea the Cleveland Electric l Il-for-one enchange ratio and the Toledu Edison onef+one l euhance ratiofor Centerior Energy shares at the Jare of afsharion. April 29,19M (J) Restatedfor epa st of captualmtion of nuclearfuellease andpnancing arrangements pursuant to Statement of nnancial.tewunting Standards 71, s.
35
Board of oirectors Richard li Anderson (65) President and Chief lhecutise Robert J. Farling ISS) Chairman, President and Chief Officer of The Andersons Management Corporation, a Executive Officer of the Company and Centerior Service grain, farm supply and retailing finn.1986 Company.1988 Albert C. Rcrsticker (60) Prvsident and Chief Executive George H. Kault (63) Retired Chairman of Premix, Inc.,
Ollicer of Ferro Corporation, a producer of specialty a developer manufacturer and fabricator of thermoset chemical materials for manufactured products.1990 reinforced composite materials.1987 Leigh Carter (69) Retired President and Chief Operating Richard A. 3 filler (68) Retired Chainnan and Chief Officer of The lil:Gomlrich Company, a producer of Executive Officer of the Company and Centerior Service chemicals, plastics and aerospace products. Retired Company 1986 Chairman of Tremco, incorporated, a manufacturer of Frd E. 3 foster (6-/> Retired Vice Chainnan of the i specially chemical products and a wholly owned Advisory lloard of BP America Inc., a producer and ,
subsidiary of The ilFGoodrich Company.1986 retmer of. petroleum products.1986 Thomas A. Commes (52) President and Chief Operating Si ter 3fary 3farthe Reinhard, SND (65)
Of ficer of The Sherwin. Williams Company, a Director of Deselopment for the Sisters of Notre manufacturer of paints and painting supplies.1987 Dm of Cleveland, Ohio. Former President of Notre William F. Conway (64) President of William E Conway Dame College of Ohio.1986
& Associates, Inc., a management consulting finn.
Robert C. Sarage (57) President and Chief Executive ,
Retired Executive Vice President-Nuclear of Arizona Officer of Savage & Associates, Inc., an insurance, Public Service Company, an electric utility.1994 financial planning and estate planning firm.1990 Waync R. Embry (57) President and Chief Operating William J. Williams (66) Retired Chainnan of .
Officer of the Clescland Casaliers, a professional Iluntington National Bank.1986 basketball team. Chainnan of M.A.L Co., a fabricator ,
of hardboard, fiberglass and carpeting materials for the automotise industry.1991 Robert 31. Ginn Chairman Emeritus John it Williamson Chairman Emeritus humber in puenthews indn ines age.
Date ondu ares Jiru year on niat h electeJ ta ElvarJ Committees Of The Board Dnironmental Capital and Community (bmais e lhaman Audit thprndaures Responsthihty and Nominating Finance Resonn es Nuclear T. A. Commes. G.ll. Kaull. Sr. M.M. Reinhard. R.J. Farling. R.A. Mdler. EE. Mosier. R.P. Anderson, Chainnan Chainnan Chainnan Chainnan Chairman Chainnan Chairman R.P. Anderson A C. Hersoder W R. Embry L Carter L Carter W.R. Embry A.C. Bersticker L Caner W.E Conway R.A. Miller T. A. Commes T.A. Commes G.ll. Kaull W.E Conway W.R. Embry R.A. Miller EE. Mosier R. A. Mdler R.J. Farling R.C. Savage R.J. Farling Sr. M.M. Reinhard EE. Mosier R.C. Sasage W.J. Wilhams EE. Mo,ier W.J. Williams Sr. M.M. Reinhard R C. Savage W.J. Williams 36
m Share owner information Dividend Reinvestinent and Stock Purchase fixecutive Offices j Plan and Individual Retirement A ccount Centerior Energy Corporation (CX IRA) 6200 Oak Tree Boulevard The Company has a Dividend Reinsestment and Stock independence. Oli Purchase Plan which provides share owners of record and .IdCphone: (216) 447-3100 customers of the Companyi subsidiaries a convenient means FA N. W O 447-3240 of purchasing shares of Company common stock by investing AlallAddress all or a part of their quarterly dividends as well as making
, nt o n y C,opradon cash insestments, in addition, inthviduals may estaNish an mdividual retirement account flRA) u hich invests in Company comrnon stock through the I lan. Information relating to the C OH W W Plan and the CX*lRA may be obtained from Share Owner fndependent Accountants Services at the Company. Arthur Andersen L1,P CX.lRA Custodian 1717 East Ninth Street All communications about an esisting CXalRA should be Cleseland. Oli 44114 directed to the Custodian at the address or telephone numbers Cornmon Stock listed below:
- 1. sted on the New York, Chicago and Pacific Stock Society National llank Exchanges. Options are traded on The Pacific Stock Custodian. CX lRA Exchange. New York Stock Exchange symbol-CX.
P.O. Ilos 6477 New spaper abbreviation-CentEn or CentrEngy.
Clev eland. Oli 44101 Annual Alceling l In Cleveland area 737-5745 The 1995 annual meeting of the share owners of the Company will be held on April 25,1995. Owners of Elsew here in Ohio I-8(K)-362-0697, Extension $745 common stock as of February 24.1995, the record date Outside Ohio 1-800-321-1355, Estension 5745 for the niecting, will be eligible to vote on matters brought up for share owners, consideration.
Share Owner Services linvironmental Report Communications regarding stock transfer requirements, lost The Company will furnish to share owners, without charge, a certificates, disidends and thanges of addrew should be . .
directed to Share Ow ner Services at the Company. lo reach mpy of.a repon on as enummnental puf.onnanu. Requnts ould be directed to Share Owner Services.
Share Onner Services by phone, call:
In Clescland area M2-6000 or 447-2400 / orm IM The Company will furnish to share owners, without charge, Outside Cleveland area 1-800-433-7794 a copy of its most recent annual repon to the Securities and Please hase your account number ready when calling. Exchange Commission. Requests should be directed to Share
"""3'""~
investor Relations Inquines from security analysts and insatutional insestors Audl0 CUSSfilfS should be directed to Tenence R. Moran. Manager-Ins estor Share ow ners with impaired sision may obtain audio Relations. at the Company's mail address or by telephone cassettes of the Company's Quarterly Reports and Annual at (216) 447-2882. Report.1o obtain a canette. simply write or call Share Ow ner Services. There is no charge for this service.
7'ransfer Agent Centerior Energy Corporation j c,n,vsor rivern corporation Share Owner Sers n:es -
r r;J n as for med in Apnl 19% ur<m P.O. Hos 9466I w 'aa a the affiliation of The Cin cland Cles cland. Oli 44101 4661 w Hn trn niunn'natoy compaw
& C\nchnd and The Toleda [Jnon Compans.
Stock tran3fers may be presented at [,l fib $nng
- M ah anen of about $11 bdhon, Society Trust Company of New York i acun C""+'"> renionor [non n one of the I 3 llanoser St1uare,10th I hior #"""' '##"* */## " "'""'"
the nanon the ( entenar operann' l
l New York NY 10004 n ,,,, pan.,, sen e n mahon L
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Regs,strar & pwp!c m a wmbincJ sen n e area emea,e mac, in so,,ha,
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Society National llank l Corporate Trust Dn iuon Ohio N"d "PP"""""' ""clo3 v PO. llos M77 Cles eland. Oil 44101 37
Centerior Energy Corporation I?O. Ilox 94M>l Cleveland Oil 44101-4 Mil l
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