ML20100N235
| ML20100N235 | |
| Person / Time | |
|---|---|
| Site: | Beaver Valley, Davis Besse, Perry, 05000000 |
| Issue date: | 12/31/1984 |
| From: | Ginn R, Miller R, Williams H CLEVELAND ELECTRIC ILLUMINATING CO. |
| To: | |
| Shared Package | |
| ML20100N233 | List: |
| References | |
| NUDOCS 8504180516 | |
| Download: ML20100N235 (44) | |
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Contents 1984 Highlights, Financial Summary and Quarterly Stock Prices 1 Letter to Share Owners 2 The Yearin Review 4 Advanced Technologies Help Company Meet Higher Demand 4 Financial Condition Remains Sound 8 Five-Year Construction Budget Announced 12 l Marketing Program Helps Customers Stay Competitive 15 Customer and Community Relations Programs Expanded 17 Management's Discussion and Analysis of Financial Condition and Results of Operations 18
- Management's Statement of Responsibility -
i for Financial Statements 20 l Report of Independent Accountants 20 Financial Statements and Notes 21 ! Financial and Statistical Review 1974-1984 34 l l Inflation Accounting 36 Board of Directors 38 . Committees of the Board of Directors 38 Principal Officers and Executives 39 GeneralInformation 40 i Service Area Map 41 Quarterly Earnings and Dividends Per Share of Common Stock Cover (dollars) The keystone of the Company's construction program is Unit 1 of the Perry Nuclear St20 l Power Plant. Unit 1is scheduled to be completed and generating electricity around the end of 1985. Beneath the Unit 1 reactor vessel. Company technologistJames too _ Magoon (left) and engineering aide Mary MacKinnon inspect the electrical cables that carry the signals from the position indicator probes to the :ontrolroom. The probes 80 give the position of the controlrods in the reactor vessel. g f 2 Dmdends 50
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1984 Highlights
- Earnings per share for the year reached a record high of $3.64, up 11% from 1983.
- Common Stock quarterly dividend per share was increased 34 effective in November 1984. Total payment of $2.43 represents a 5.2% increase over 1983.
- Perry Unit 1 and common facilities construction was more than 97% complete at year end 1984.The unit is scheduled to be completed around the end of 1985.
- Nearly $56 million was raised through the Dividend Reinvestment and Stock Purchase Plan, including $21 million from more than 25,000 participants in the Customer Stock Purchase Program.
- We became the first company in the nation to offer its customers and share owners the opportunity to set up an IRA to invest in its own stock.
- A record one-year total of about $500 million of new capital was raised through financings and stock plans in 1984.
- The Davis-Besse Nuclear Power Station generated 13% of the Company's electricity in 1984 and saved our customers about $50 million between refuelings.
- In 1984 we had the fewest complaints per customer filed with the PljCO of any energy utility in Ohio.
FinancialSummary Percent 1984 1983 Change Eamings Per Share of Common Stock $ 3.64 $ 3.28 11.0 Dividends Paid Per Share of Common Stock $ 2.43 $ 2.31 5.2 BookValue Per Share of Common Stock $ 21.51 $ 20.79 3.5 Common Stock Share Owners 131,998 132,378 (0.3) Operating Revenues (000) $ 1,215,353 $ 1,210,316 0.4 Operating Expenses (000) $ 953,242 $ 951,954 0.1 Quarterly High and Low Prices Net income (000) $ 291,632 $ 246,026 18.5 of Common Stock Earnings Available for Common Stock (000)_ $ 248,279 $ 207,600 19.6 Kilowatthour Sales (Millions of Kilowatthours) Residential 4,446 4,412 0.8 Commercial 4,397 4,265 3.1 524 Industrial 7,997 7,514 6.4 23 23 Other 433 446 (2.9) Total 17,273 16,637 3.8 20% E 19h g_ 19Pa m 18 % IBM 18 4 17
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[ E E 16 % 16Ya is 13 7 C 1st 2nd 3rd 4th 1st 2nd 3rd 4th i983 1984 1
l D2ar.$ hare Owner: In his inaugural address on January 21, President Reagan said to the Amencan ' people: "We are creating a nation once again vibrant, robust and alive. But there are many mountains left . to climb." l Those sentiments are as appropriate - Q for our Company and Northeast Ohio j . as they are for the nation as a whole. C in many ways, our service area is a j microcosm of the United States. The recession hit us hard. We aren't out of the woods yet. But a new vitality is infusing this region. In 1984, Northeast Ohio made dramatic progress toward economic recovery. For The Illuminating Company, that
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welcome trend translated into higher demand for electricity and increased ', I sales to all major classes of customers. 'g Annual earnings reached a record level. l The common stock dividend was raised Robert M. Ginn for the 26th consecutive year. to replace aging facilities. To hilp favored with many basic assets that l This Company is supplying the electricity fund that construction, the Company will sustain the momentum of recovery. essential to this area's economic raised a record amount in financings The Company will continue its efforts development. Our innovative reduction during 1984. Some of our innovative to stimulate business and industrial of rates for off peak energy is helping financing strategies are detailed in this expansion. Additionally, we will industries regain their competitive edge report. One example is our new CElelRA, continue to support the many civic,
. the market. The application of electric-in the first Individual Retirement Account cultural and educational activities that powered technologies that produce in the nation offered by a company contribute to the quality of life in greater energy efficiency enables com-which invests in its own stock. Northeast Ohio.
mercial and residential customers to reduce overall costs. In 1985, new Some 55,000 customers are share The Company, too, faces its own share programs will be implemented to give owners of the electric company that of challenges. Along with many others , residential customers greater selectivity serves them. Through a customer stock in our industry, we chose nuclear tech-in their electricity usage and more purchase program started in 1983, The nology for new power generation at control over their energy costs. Illuminating Company has made owner- the time it held its greatest promise. ! ship in a corporation both prudent and Constantly changing regulatory require-Prov.i ding electric energy is our job,
. affordable for thousands of people ments, soaring capital costs and but, as this Annual Report illustrates, with modest incomes, thus contributing unrelenting negative publicity over the we cannot carry out that function wit,1 to the promise of America's free past decade have diminished, but not a narrow viewpoint. We beheve we are enterprise system. destroyed, the benefits of nuclear more than Just an electricity supplier.
'.'..But there are many mountains energy. To date, we have made good We are a full-service electric energy j left to climb." progress towards completion of Unit 1 company.
of the Perry Nuclear Power Plant. We
'.' .once again vibrant, robust That statement, too,is true for North- are moving toward fuel load in mid-and alive." east Ohio and for this Company. Our
, 1985. We have successfully passed many
. service area has yet to regain its former hurdles that tripped up nuclear projects To meet the electnc power needs of economic strength. But the area is Northeast Ohio for inany years to come, elsewhere in the nation. Our success we have an ongoing construction gives us confidence that we can make I
program to meet increased demand and nuclear energy work for the benefit of ' share owners and customers alike. 2
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Rghard A Mdier Harold L Wiikams The acid rain issue presents a second Ught, continues its competitive policies our employees are meeting competition major challenge. In the past, most of and has announced plans to further its from other energy sources by recog-the blame for acid rain has fallen unfairly wasteful duplication of electric facilities. nizing that the quality of our service on Midwestern power plants. S 2ch to customers determines our own in the summer of 1984, the Company simplistic views of the problem led t Company,s well-being. nearly reached an agreement with the proposed solutions that carried high City administration. It would have ended Our Company, our investors and our price tags but offered no assurance of the destructive, tax-subsidized efforts benefits. Newer, more comprehensive employees have been meeting challenges of a department of municipal govern- and achieving success for more than studies by a broad range of scientific ment to take business away from a a century. We are confident that this authonties show that the problem of tax-paying investor-owned utility. pattern will continue. acid rain is more pervasive and the Regrettably, the mayor rebuffed that solutions are more elusive than pre-agreement. Nevertheless, we have Sincerely, viously thought. continued in good faith to negotiate Given reasonable time, electric utilities some resolution with Cleveland's City will do their part by developing new generating techniques for the cleaner Council. As of this writing, the Council has a proposed agreement under review h[.d 7ef / burning of coal. Such an approach Robert M. Ginn Certainly, there are " mountains left Chairman promises a f ar more productive use of to climb." But the year 1984 was one of 9 " " P o clutant th putt on existing generating units. It also will sc bes nd he tee # MY k In our stewardship of The Illuminating Richard A. Miller l spare our customers unnecessary rate Company, we balance time-tested **S'd*
- l increases, thus keeping our industrialized I
service area more competitive and management prudence with the flex-l more replete with job opportunities. ibility needed in today's world of ffgg transition. The following pages of this A third challenge continues to be our Harold L Williams Annual Report tell how our engineering Decu;ve Vice President troubled relations with the City of special sts are applying the newest I Cleveland. The City's Municipa! Electric technological advances to the production Light Plant, known locally as Muny of electricity. This report illustrates that February 15,1985 l 1 3
The Yearin Review increase the availability of coal-fired and improvement projects, Davis-Besse Economic recovery was clearly evident units, to enable them to generate more saved our customers about $50 million electricity from less fuel and to extend through the pnce advantage of nuclear throughout Northeast Ohio in 1984. their service lives. fuel over coal. Davis-Besse returned to Company operations geared up to meet an increase in electricity demand. service in January with a new con-The Company's computerized system Eamings reached a record level and the of performance evaluation and testing figuration for uranium fuel which will enable it to operate for about 18 months dividend was increased. Construction of power plant equipment and its pre-neared the final stage on a 1,205- ventive maintenance program continued between refuelings instead of the to keep equipment downtime to a previous maximum of about 12 months. megawatt generating unit at the Perry Nuclear Power Plant-the keystone in minimum while saving on operating costs. our building program to power North.
, Substantial progress was made in 1984 east Ohio into the 1990s. in 1984, the Company co,ntinued its on a $90 million program designed
. to increase the availability of three of Program to automate major substations, Advanced Technologies the Company's largest generating units. to improve its transmission system and H;/p Company Meet The boilers for Avon Lake Unit 9, to upgrade distribution facilities.
Higher Demand Eastlake Unit 5 and Lake Shore Unit 18 Plans are under way for new computers As the Northeast Ohio economy are being converted from pressurized at our System Operation Center that accelerated in 1984, so did the demand operation to a balanced draft system will capitalize on today's technological for electricity from all major classes that will significantly reduce maintenance advances. Among other benefits, the of customers, most significantly the costs and downtime for each un.it. new equipment will extend monitoring Two of the convers,ons i are scheduled capabilities on the nine-state, regional industrial sector. to be completed in 1985 and the other network of interconnected power Kilowatthour sales to industries increased in 1987- sources to which we have access through 6.4 percent over those of 1983. the East Central Area Reliability Council. Commeraal sales rose 3.1 percent and The Davis-Besse Nuclear Power Station-residential sales were up 0.8 percent, for which we own w.ith its operator, The The Illuminating Company pioneered an increase in total sales of 3.8 percent. Toledo Edison Company, continued its computerized system operations 15 strong performance in 1984. During years ago to effectively meet routine Northeast Oh,o ii,s favored with a solid the 11 months preceding an outage in and unexpected fluctuations in elec-industrial base and broad diversity in its September for refueling, maintenance tricity demand. Our current facility rnanufacturing. The Company's 7,500 v monitors electrical load and equipment industrial customers typically account t'y, ^- qp.aD operations and scans for potential for 45 percent of total sales. The p n *: ' problems. As demand increases, com-impressive gain in industrial sales gave - gy' ' AMI J puters determine which generating the Company's financial results a boost ' ' '%j
/ units can supply the needed power most in 1984. E ^
W economically. The end result is reliable Automotive production increased. I _ 9 service to customers at the lowest Renewed vigor also was evident among
- possible cost.
manufacturers of heavy machinery, appliances, electrical components, plastics, chemicals, biochemicals, brass, aluminum and other products. Power Generation Upgraded in 1984, the Company carried out several equipment upgrade projects to Environmentalimprovement is a continuing The Company applies modem technology Company challenge-one on which we to improve service. Locating faults in under-have spent about $485 million in the past ground cables once was a difficultjob that decade alone. Completion in 1985 of this prolonged customer power outages. Today, new, $50 million precipitator for Unit 9 of vibration monitoring equipment, used here the Avon Lake Plant will enable us to run by underground cable splicers Gerald Parrish Avon Lake's largest coal-fired unit at full (left) and Jim Nageotte, quickly locates the capacity and stillstay within tough govem- trouble spot allowing faster repair. mentlimits on fly ash emissions. i l l l 4 l
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i l Environmental While nuclear power is an economicat, .. , improvements Continue safe and clean energy source, constantly l Changing regulatory requirements con. , i in 1984, the Company spent $32 t.inue to cause construction delays and y , million to meet federal and state air I and water quality standards at coal-higher capitalinvestment. At the same , g ,- l fired power plants. Over the past 10 time, public concerns over aad rain and 4 , g,, sulfur emissions from coal-burning 4g years, about $485 million has been l p wer pl nts could adversely affect our 4 4., _s spent on pollution control programs. ability to generate electricity from coal. ' One current project is a $50 millicn Thus,we are studying several new ' '~# precipitator being installed on Unit 9 at technologies that would allow con-j the Avon Lake Plant. By removing j nearly 100 percent of the fly ash tinued use of Ohio coal with substantial reductions in sulfur emissions.
*7 p 1 residue produced in the coal-burning W 8 " "**
Two promising options that could be process, the new precipitator will allow Avon Lake,s largest generator to used for new plants are coal gasification, O*"O , which removes sulfur during the - l operate at full capacity while still conversion of coal to gas, and fluidized a meeting government fly ash emission
$ n d *Nw*T*'
j limitations.The project is scheduled for
- completion by the end of 1985.
est e nt te to draw out sulfur. b n ess ** *$MY { The U.S. Environmental Protection
- Company engineers also are investigating l Agency is under court order to revise its two technologies that could be applied Y
, stack he,ight regulations regarding ~ to either new or existing units. One is j power plant sulfur emissions. The coal-cleaning, which separates sulfur l Cornpany already has reduced sulfur from coal before combustion.The . j emissions by 41 percent in the past otheris a double-alkali scrubber M*" - 4 decade. New rules, which may be issued " ( in mid-1985, could require further a Nt ma W h tM combustion gases. The Company is significant reduct,ons i in sulfur emissions helping to fund a demonstration plant
. at our two largest power plants.
now testing the double-afkali system. It j Rasearch Looks to the Future pr mises simplified maintenance,less
; waste products and smatter space re- ! Because 10 to 15 years are needed quirements than conventional scrubbers. -
l to build new power plants, we must
! plan now to meet the energy needs of Compressed air energy storage is 1 our service area in the mid to late 1990s. another major focus of Company re-
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I We are exploring various generation search. It could provide a relatively low-cost way to rneet peak demand. g . l
, options to find the most cost effective .
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) means of providing electricity. In a compressed air system,the most j efficent coal and nuclear units would
, . . , be used to pump air into an underground ,4 '
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cavem during low-demand periods. At high demand times,the air would yneh+ i { be released and mixed with fuel to I t drive combustion turbines. }
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Industry Cccliti:n Adds to operations. The increase in AFUDC was when we wanted to do them to obtain Research Capabilities partially offset by higher interest the best terms available. To further charges and preferred dividends and keep down the cost of capital, we l The illuminating Company is a member , ! an increase in outstanding common structured the terms and s,ze i of some of the Electric Power Research Institute , l (EPRI), our industry's national center shares. AFUDC is a non-cash credit for financings to appeal to specific m ney invested in facilities under con- institutional demands. In addition, we for administration of research and development relating to electric utility struction but not yet in the rate base. took advantage of various techniques operations. Sales were up 3.8 percent from the f r ffenng nd timing security sales. This enabled us to select the best Through EPRI, our Company has access 1983 level, with a strong increase coming in the first half of the year method of sale when demand was to the most up-to-date advances ,n i elec- high and rates were favorable. because of the economic recovery and trical systems, generating technologies, colder than normal weather. During The Company raised a record one-year ct v e co m n our dus . the second half, sales declined slightly total of about $500 million through relative to the second half of 1983 secunty issues in 1984. These included Developments by this research institute because of slower economic growth and about $91 million from two common have done much te improve the cooler than normal weather, particularly stock issues, about $163 million efficiency, safety and rdiability of both when compared to the unusually hot through three sales by public authorities nuclear and fossil-fuel power plants, summer of 1983. of tax-exempt bonds to finance pollution saving the industry and its customers control facilities, $175 million from Effective in November, the Company millions of dollars. three sales of first mortgage bonds and raised the quarterly common stock Additionally, EPRI provides a wide range $64 million through our Dividend dividend to 63 cents per share, up from of computer programs.These have 60 cents, for a new indicated annua Reinvestment and Stock Purchase Plan I helped the Company improve trans- and employee stock purchase plans. rate of $2.52. Dividends paid in 1984 mission tower design, increase the were 5.2 percent higher than those In the Spring of 1984, we also efficiency of underground cable instal- paid in the previous year. The year 1984 increased our outstanding bank term lation, better formulate long-range marked the 26th consecutive year of loans to $175 million from the $134 plans, train operating personnel and dividend increases and the 83rd straight million outstanding for most of 1983. plan for the most economical and safe year of cash dividend payments on The overall terms were extended at operation of nuclear plants. common stock. Those records are reduced interest rates. matched by few other electric utilities Financial Condition in the country. 1985 Financing Needs Lower R: mains Sound than 1984 1984 Financings Raise in 1985, we expect to raise about $290 Earnings Reach Record Level Record Amount million through several security offerings. Even with no increase in electric base We ended 1984 with a balanced capital We plan to raise funds through the rates during 1984, the Company structure of 41 percent common equity, sale of first mortgage bonds, from tax-achieved record earnings per share of 48 percent debt and 11 percent pre- exempt bonds issued through public I
$3.64, up 11 percent from 1983.The ferred and preference stock.Those authorities and through the sale of I earnings improvement came primarily results are consistent with Company preferred stock. Unlike past years, we from an increase in the allowance for objectives of 40-42 percent common expect to meet all of our needs for i funds used during construction (AFUDC), equity, a maximum of 48 percent debt, common equity capital through the higher sales and lower fuel and pur- and 10-12 percent preferred and Dividend Reinvestment and Stock l chased power expenses charged to preference stock. Purchase Plan and various employee Our balanced structure at the beginning stock purchase programs.
of 1984 gave us the flexibility to do the types of financings we wanted to do Our technical experts worked with those of The nation's second largest steelproducer, l
, the Adalet Division of Scott Fetzer to find LW Steel, is headquartered in Cleveland and l the best electrical and economic solutions is the Company's largest customer. With to theirinduction melting fumace require- assistance from Company engineers, LW l ments. The result is high energy efficiency Steel boosted the efficiency ofits electric f, -
ar,d improved productivity for this Cleveland manufacturer of aluminum castings. arc fumaces, more than doubling their productivity over the past 25 years. l 8
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1 I i .yym -:,q.:: y_w.q; y 7::.y .:; l' Rh Q%:ym.i .(- Af: V$ f ' b Dollars Raised Through Dividend CElelRA Offered in Late 1984 M Employee's # :. ~},i.1 Reinvestment and Stock Purchase Plan M:!Fas innovators?['Wc a*:'p%;.4 f . v .'. We believe we are the only company pac . x.v %% :.y ,g.g (millions) in the nation to offer an Individual j
- J*A? 9.
N@?.Many company ideas of::-mnovations':':'t.y , Retirement Account (IRA) which .esult:fr:om' .
- sso
- invests solely in its own stock. The new i ' '"P . Y"' 'Th'Y 8
h*** 'h' M. i':
' A g """" $? C' ."5'9 h "' 5'h ' ' ' : J' ' .k i
ss7 CElelRA allows investors to combine
', IRA tax benefits with the hi 9Yh ield M d N % "P'"Y
<- *o*n*s.'They have the' best :"*E* S
& ".. N.
.r i Shae owners h ti
,gc.. opp grtun,iti,es toie'e 'what' M..
offered by our common stock. It so achieves all the tax benefits of other IRAs-deduction of cash investments ?j' F3 and to eOluate the f bene'itb l from taxable income and deferral of . 1 of new equip ~ ment & ' pro . . M ' g taxes on both dividends and any h.'.J%dur'es/The{uNdersta l:,ff: the need'to' keep costs down: capital gains. -3 -9 ,
, Rate Case Decision Expected :f. , . ',
3a 9 m February p;,- jgni through I
., [. .
2 In April 1984, the Company filed with s. impfov.ement g i 1..; l The Public Utilities Commission of Ohio M : .. startedfnearly130.g.q . y 20 l for a $180 million, or 15 percent, electric Mi *"d " 9 '"9 - T I' .' ( ,,,
"O rate increase. The request indudes y{ " 12 .> : M .
r
,g a construction work in progress for Perry Qg ' . .; : J . 4x
.y:
I Unit 1 in addition to that amount j- . already in rate base. A decision is t 1 ' lw I ; ? expected in late February. J#' ' l# { , o \,c } '80 '81 '82 '83 '84 Ohio Retains CWIP with Changes b.
'V. n.,
.h if ?
q l\
- We view as a positive move the passage j .;.X X.(y ?
} Credit Ratings Remain at of a law which continues to authorize M n. . ;z . :. i investment Grade the construction-work-in-progress
~
1 .3 i. l The Company's first mortgage bond (CWIP) allowance in Ohio. This allowance j@;.D.. -7 . , .:- 1 .
~ .[' ;
ratings remain at investment grade pr vides utilities the opportunity to
- y. , ...:' 7 levels despite having been lowered by begin recovenng through rates the y .y;u, ; .
. . c y :-
the credit rating agencies in 1984. financing costs for construction work y f.x . , j c ;. ne ring completion.The law resolves ;.4 7 - H;.] Moody's Investors Service lowered its ' the uncertainty that had surrounded ;,.y g - s, ; :q rating on our bonds from A2 to A3, i preferred stock from A3 to Baa and CWIP. While the new measure is more ;. 3 x . Q ; .:.( ; commercial paper from P1 to P2. restrictive than previous law, it is far g g ;. f'g Standard & Poor's Corporation lowered more favorable than alternatives that
- g. g . .._,, ;j.j its rating on our first mortgage bonds had been proposed. e(
twice during the year, from A to A- The new law reaffirms the discretion A.- . , ,
"!G . ! and then to BBB +. Standard & Poor's, of the Commission to indude CWIP in b" o. ; .' ~
{ however, did affirm the rating on our rate base for construction projects that N M' preferred stock at BBB and on our are at least 75 percent complete. A C ...
.. : .r..
commercial paper at A2. These ratings major change from previous law is to Q. . - Oy changes have increased borrowing costs. limit allowances to 10 percent of a 4.6 ;--.'~1 utility's rate base (exduding CWIP) l in taking its action to lower our credit instead of the 20 percent allowed A ':L]
./ + < ' -
.j; . . '
ratings, Standard & Poor's cited the y1- - s before, with one exception. The ,.. . increased cost of our nudear construction .
'r program and the "largely indifferent allowance for sulfur and nitrous oxide ; j '
' pollution control equipment projects is ;. ; .:
.3 tenor of Ohio regulation." Once Perry . . ,
permitted up to the old maximum of q L:
;; ; c.1: y . !
Unit 1 is completed and fully included l in rate base, more than half of our 20 percent. However, the total CWIP ;.7. . ; . . jngenuity; $g5 , ! planned nudear generating capacity allowance cannot exceed 20 percent. 7.y.q reachmq impinationls-p 9$k, 7, : will be earning a return.This should improve the Company's cash flow, an 6P W . jngo[<,c-[ s ~
,'Mn'.,1/ '
tion irfthe :.'((past ' important consideration in determining T.b years . cum'uiative sAngsi. '47 - credit ratings. Qtotal ss7 m ition %f.'.' fI {
- d :.4costsithe Operations 3 E *' -
7.J 6,pmpsvement Prograriiga.;<.b. '; }; i I d[rproven
~: success er 7Qj g/gt,$Q 11 [
Under the new law, CWIP can be acid rain legislation and the possibility billion, including AFUDC. The total cost included in rate base for as long as 48 of bulk power sales to other utilities for all five CAPCO companies is now months before completion of the in the 1990s. estimated at about $3.9 billion. project (longer under certain conditions). Our current estimate of construction Several milestones in Unit l's con-Once the construction project is com-program expenditures for the 1985- struction and licensing were passed in plited and in rate base, the revenues 1989 period, including the alternatives 1984. The Nuclear Regulatory Com-d: rived from CWIP are credited back to discussed above, ranges between $1.9 mission again reported that it found no customers over a period equal to the time CWIP had been included. Th,si ,is and $2.4 billion, including AFUDC. significant weaknesses in our con-Most of the five year budget is for the struction or quality assurance programs. done by excluding the amount of CWIP completion of Perry Unit 1 and Beaver Additionally, the Commission stated from rate base dun,ng this payback Valley Unit 2.The lower estimate that it would schedule its licensing period so that rates will produce less
, assumes that no significant expenditures review activities to coincide with our revenues. During this payback penod, wll be made on Perry Unit 2 in 1986 completion schedule.
an allowance equivalent to AFUDC on through 1989; the higher estimate in September, we reached another the CWIP amount excluded is added t assumes construction of the unit wil milestone at Perry when a hydrostat,c rate base to be recovered in rates after i the payback period over the remaining resume,during the period w,ith com- test of the reactor vessel was success-i life of the project. The effect of these h*t,o2 i discu ed be o E pen ures fuHy completed. The reactor vessel and provisions is to phase into rate base the its supporting systems make up the for 1985 are expected to range from total cost of the project from the time $550 to $600 million; 1984 expend-singk most @am spm at % CWIP starts to the time the payback The test was done to venfy that the tures totaled $582 miHion. system would hold water at levels period ends. Perry Unit 1 Nears Completion higher than normal operating pressures. Five-Year Construction By year end, Unit 1 of the Perry Nuclear in November, the Company passed,, Eudget Announced Power Plant was 97 percent complete. another major requirement for obtaining The 1,205-megawatt unit is scheduled an operating license for Unit 1. Dunng We prc. ject a two percent annual an evaluated exero,se, teams from the increase in peak electrical demand in to be completed around the end of 1985. The schedule is tight, but we Nuclear Regulatory Commission and our service area. Compounded over believe it is achievable. the Federal Emergency Management the next 20 Years, that 9rowth rate will Agency assessed our ability and that of mean about a 50 percent increase in The Company owns Perry Unit 1 with the municipal and county authorities within demand. In addition to completin9 four other member companies of the a 10-mile radius of Perry to safeguard Perry Unit 1 and Beaver Valley Unit 2, Central Area Power Coordination Group the public in the unlikely event of a we are studying vanous alternatives to (CAPCO). The Company is the plant's serious accident at the plant. Par-meet that demand and to replace ag,ing builder and operator, with a 31 percent ticipating in the exercise were hundreds generating units.The alternatives . share of the project, or 375 megawatts. of Company employees as well as include combinations of the following: At year end,433 of Unit l's 455 systems hundreds of others from state, county using the new technologies discussed had been turned over from construction nd local governments and health and above, extending the life of some to testing. Moreover,221 of its systems socal service agencies. existing generating capacity,long-term power ourchases and completing the already have passed testing and either The Company is confident that licensing second unit of the Perry Nuclear are already in operation or are ready progress will continue on schedule in Power Plant. for operation. 1985. Originally, intervenors raised 46 The Company's share of Perry Unit 1, issues with the Atomic Safety and Many factors are being considered to following budget increases announced Ucensing Board. The Board admitted 16, determine the most economical alter. native. These include not only capital in 1984,is estimated at about $1.2 investment but also operation, main-tenance and fuel expense, potential Electric heat pumps are providing cost-
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of which 11 already have been resolved. meet regulatory requirements,the Industri:1 Sector Benefits From We believe we can resolve the five estimated completion date of the unit Electric-Powered Technologies remaining issues in a timely manner. has been changed from late 1986 t More manufacturers in Northeast Ohio about the end of 1987. The schedule are turning to laser systems, robotics, The Company is proud of the progress 0re time betwe n th ,n . made at Perryin 1984.We do not expect P' electric furnaces, induction heating, ion 3 yIde e s , th2 final months of construct,on, i nitriding, plasma-arc cutting and other and Perry Unit 1. The additional time innovative electnc-powered technologies testing and licensing to be easy, and ermits the CAPCO companies to unforeseen problems can an,se, but we to improve productivity and lower costs. concentrate resources on the com-ve co fidence in our ability to meet For example, by recommending operating letion of Perry Unit 1 and increases
'"9 the time between the addition of the and equipment changes, Company Work Remains Minimal on Perry units to rate base. engineers helped LTV Steel, head-Unit 2 quartered in Cleveland, more than As a result of the chan9es announced double its output from two electnc arc Throughout 1984, construction was .inJanuary 1985, the Company's share furnaces over the past 25 years. Now, k pt to a minimum on the second unit of the estimated cost of BeaverValley LTV Steel, the nation's second largest at Perry, a 1,205-megawatt unit the Unit 2 is now about $1 billion, including steel producer, plans to install a $130 Company also owns with its CAPCO AFUDC. Total estimated cost of the million steel galvanizing line in one of partn:rs. Our share of the unit is 375 project for the CAPCO companies is about its local facilities. By using a new electro-megawatts.We are primarily doing $3.9 billion. galvanizing technology that coats steel only the Unit 2 work necessary to the on both sides, LTV Steel expects to operation of Unit 1. Perry Unit 2 with Marketm.g Program Helps produce a more rust-resistant, flat-rolled its share of facilities common with Unit Customers Stay Competitive steel for the automotive industry. This 1,si about 57 percent complete. As new operation is expected to add some As part of the Company's marketing announced in April 1984,there are 50 megawatts to our load in late 1986.
rogram in 1984, we continued advising many uncertainties regarding the
. dustrial and commercial customers in in another marketing project, Company future of Perry Unit 2. The CAPCO n the newest equipment, systems and representatives worked with Ford companies are continuing to evaluate technologies to best meet their needs. engineers on the installation of induc-all options with respect to Unit 2.
Our marketing representatives help tion holding furnaces that have helped See Note L of Notes t,o Consolidated customers utilize new electrical systems Financial Statements., Ford's casting plant improve both and processes. These result in more cost- production and quality. Beaver Valley Unit 2 effective ways to use electricity because we recognize that efficient use of On our recommendation, the Southerly Construction Progress WasteWaterTreatment Plant of the energy will improve their competitive in addition to Perry, the Company position. A goal of our marketing effort Northeast Ohio Regional Sewer District owns about 25 percent, or 204 mega- is to seek electric applications for our now heats eight buildings with electric watt 3, of Beaver Valley Unit 2 now under customers that will benefit both the heat pumps that draw waste heat from construction by our CAPCO partner, customer and the Company. processed sewage.This innovative Duquesne Light Company. By year end system is providing significant fuel-cost 1984, that unit was 83 percent complete. Using computer programs,we are savings by eliminating the need for oil expanding our market research efforts or natural gas for space heating. As announced in January 1985,the to determine how various marketing CAPCO companies decided to reduce strategies and long-term energy options Studies by Company engineers per-th:ir 1985 cash expenditures for Beaver will affect large segments of customers. suaded the Regional Transit Authority Valley Unit 2 by about $100 million. (RTA) to use an electric earth-storage Our share of the reduction is about We also are continuing to develop heating system to meet the unique
$25 million, bringing our estimated innovative rate designs to encourage needs of its new central rail maintenance 1985 cxpeno2ures for the unit down commercial and industrial customers to facility.That system already has saved to about $86 million, excluding AFUDC. increase their energy use in off-peak substantially on operating expenses, penods.The rate designs permit more while increasing RTA's off-peak elec-As a consequence and also to recognize efficient use of facilities while reducing tricity use' construction delays encountered to average energy costs.
Major office construction throughout our servic2 area signals the future growth in commercial electricity sales. One example is this new headquarters building for the Standard Oil Company of Ohio being built on Cleveland's Public Square. It was added to our system in 1984 and will be the down- , town area's largest consumer of electricity. Reflected on the building's facade is a Cleveland landmark, the Terminal Tower. 15
New Office Construction Heralds - ,.. -
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m_ s- - efficient, all electnc system for Burger - - - King that serves as a model for the many fast food chains in Northeast Ohio The restaurant incorporates a heat recovery system that uses waste heat from refngeration equipment t The Company 3nd its employees play a leading role in many community service heat water and afso reclaims heat from projects Through the Community Involve-the ventdating system Energy costs ment Program started in 1984 (see story on of the new system are 10 percent lower the next page). the Company supported the than a gas system voluntee efforrs of one of its employees to JSsiSr in providing the Julie Billiar1 School Residential Programs Meet in Lynchurst with computer facilities for Competition : earning impaired students Natural gas companies stepped up their competition with us for residential customers and aggressively promoted use of natural gas heating among i
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existing and prospective customers. To Employees Promota Ccmpany meet this competition, we strengthened and Community Growth our mass media communications and Some 5,800 employees are the Company rnarketing personnel expanded Company's most important link to their activities with service area builders. customers and to the many communities We developed new rate designs for within our service area. residential customers as a financial Each year, the Corrpany provides a i incentive to those willing to limit or broad range of training and educational l shift specific loads to off-peak hours assistance programs to help hundreds n If**' We intensified research efforts in the of employeee enhance their skills. Many m -
- residential market, placing major of our employees hold memberships in , ,
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emphasis on innovative applications business and professional organizations ,, i such as closed-loop, groundwater heat to help refine their skills and keep up- ' 3 pumps and dual fuel systems. to-date on new developments in their . gg . . To demonstrate our commitment to respective fields. 4;ph4e ;
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l customer service, Company home To help employees gain maximum economists communicated with over 78,000 people involving hundreds of benefit from the computer processes available to them in performing their ;%[X*F~h F l presentations to community groups and visited all-electric homes to provide jobs, the Company set up a walk-in information center in 1984. 4i, hp i j information about efficient use of Also in 1984, the Company purchased ecnicity. j a modern,262,000-square-foot office I
- building in Independence. Some 200
; Customer and employees have moved to this new CCmmunity Relaflons facility, easing overcrowded conditions '*
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Prcgrams Expanded at tne downtown Cleveland head- [j Nzw Programs Enhance quarters. Further moves will be made ' 1. ~ in 1985. The Independence building - i Customer Relations offers new flexibility in long term In 1984, the Company increased cost. planning. Further,it provides the - 1 ' effective customer communication through radio, television and newspaper messages, the Company Speakers parking and security features needed for 24-hour staffing and has the required space for computers, word processors e Bureau, notices on electric bills and and other modern office equipment. special meetings and mailings. Many employees actively participated . A new printer that uses a laser beam in community service groups, local j to shoot images onto paper allows us government and many other worth- - to include timely messages to customers while activities during 1984. Encouraging . y on monthly electric bills without sacri- such interaction is a Community &4 involvement Program established in @mW
- ficing our economical postcard-style [
l billing format. We are among the first 1984. Through this program, the nw j utilities in the country to use this cost. Company now contributes funds to . effective approach. qualified service, educational, welfare i and community projects in which
; The Cornpany has the best record of employees are involved. (See article any major energy utility in the state for on this page).
resolving customer concems without
- 3 formal intervention by The Public As another sign of community involve- ** .
i
; Utilities Commission of Ohio. One ment, Company employees in 1984 *** .
reason is the Company's special hotline pledged donations to the United Way . 1 connecting our offices to the Com. campaigns in their home communities s l j mission's headquarters in Columbus. that went over the $1 million mark for wwam w4 l < the third year in a row. er Recognizing that many Northeast Oh.io Through the Company's Affirmative y families are still recovering from the ,
!' recession, we made special efforts in Action Program, equal employment 1984 to help those having difficulty opportunity is ensured for all.
paying their electric bills.'As one The people who work at The Illuminating
; example, we made deferred payment Company are strongly committed to j arrangements for nearly 25,000 top quality performance both on and i 4
customers. We also granted time exten- off the job. They share their Company's sions for many accounts and adv, ised commitment to customers and to the customers on how to apply for state betterment of Northeast Ohio.
- and federal energy assistance programs.
! 17
r-- l Management's below book value through our share thereby increasing the cost of and the Discussion and Analysis of owner, customer and employee stock difficulty in obtaining external funds. Financial Condition and purchase plans. It may be necessary to We have filed a request with The Public Results of Operations issue additional common stock below Utilities Commission of Ohio (PUCO) book value through public offerings in for a $180,000,000, or 15%, increase Capital Resources and Liquidity the future to maintain a balanced in electric rates. An order is expected in capital structure. late February 1985.We wilI continue W2 carry on a continuous program our diligence in seeking fa,ir rate levels of constructing new facilities to meet Ratio of Market Price to Book Value in order to maintain as strong a financial anticipated demand for electricity i n Year End position as possible. See Results of our service area, to replace wom-out cpercent; Operations" and Note M of " Notes to facilities and to comply with pollution Consolidated Financial Statements" for control regulations. For the three years discussions of our recent rate increases 99 ended December 31,1984, our capital 10 0 % and other rate matters. requirements for our construction program were approximately $1.5 billior. 9a
- One of our financial objectives is to This amount includes an allowance for maintain a balanced capital structure.
funds used during construction (AFUDC) so n Our financing activity is planned to achieve a capitalization structure of j which is explained in Note A of " Notes u 1 to Consolidated Financial Statements." 3 40-42% common equity, a maximum I
' of 48% debt and 10-12% preferred For a discussion of our commitments i and related risks at year end 1984, and preference stock. At year end 1984, 6 our capita!ization structure was 41%
including those involved with our con-struction program, see Note L of " Notes common equity,48% debt and 11% to Consolidated Financial Statements." 50 preferred and preference stock. Al-though common equity is our most As discussed elsewhere in this Annual **P'"S'V' I '* I permanent financing, Report, the cost of our 1985-1989 . - we believe that it is important to construction program is estimated to m ta,n range from $1.9 billion to $2.4 billion 30 i qs level at 40-42% of total c pitalization in order to support the (including AFUDC, but excluding nuclear credit ratings of our senior securities. fuel). Substantial additional expendi- 20 Financing plans for 1985 are discussed tures may be necessary if we are required elsewhere in this Annual Report. The to modify or add to our existing faci!ities to types, amounts and timing of financings to comply with future pollution control beyond 1985 cannot be determined at regulations. this time.
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o To finance construction,we rely on so '81 82 83 84 In 1984, Moody's investors Service and to our construction program financing m nt o r nterna enerated fun . needs, we must refinance $290,627,000 Over the 1982-1984 period, we raised Standard & Poor's Corporation lowered their ratings of certain securities of the of maturing debt and preferred stock. about 60% of our construction Also, we are required to offer to expenditures through bank borrowings Company as discussed elsewhere in this Annual Report, thereby increasing purchase $127,600,000 of preferred and security sales. At year end 1984, our borrowing costs. and preference stock dunng the same we had about $130,000,000 of cash period. See Notes E, G and H of ,' Notes and temporary cash . investments Our ability to finance is contingent
, to Consolidated Financial Statements" available. Assuming adequate and upon obtaining sufficient and timely for further information regarding our tim:ly rate relief, we expect to finance rate increases. Without adequate rates, first mortgage bonds and preferred about one-third to one-half of our it would be impossible to earn a fair stock. A portion of the debt which construction program over the next return for our common stock share matures in the five-year period has five years through the issuance of owners. Inadequate rates also would very low interest rates. We expect that securities, with larger proportions in impair our ability to generate funds investors in new issues of long-term the earlier years. internally and could result in a further debt and preferred stock will continue The capital requirements of our lowering of our securities ratings, to demand relatively high interest and construction program and our need to dividend rates in the future and that maintain an appropriate mix of debt our embedded cost of capital will and equity capital have resulted in the continue to increase as we replace sals of common stock at prices below maturing low-cost securities with more book value during the 1982-1984 expensive debt and equity.
period. These sales have resulted in dilution of the book value of out-standing common shares. We are l continuing to issue common stock i ( 18
The amount of first mortgage bonds Sources of Electric Revenue increases 7.4% in January 1983. In October 1983, the Company can issue is limited by our (millions of dollars) electric rates were reduced 1%. For Mortgage and Deed of Trust. See Note further details on matters affecting rates, E of " Notes to Consolidated Financial see Note M of " Notes to Consolidated Statements" for a discussion regarding s2m Financial Statements." We did not seek the amount of additional first mortgage bonds we were permitted to issue at
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an increase in electric rates for 1984 because of the cost containment and December 31,1984. There are no 160 deferral program we implemented early restrictions on issuing additional in 1983. This program, which carried authorized preferred stock and le into the first quarter of 1984, placed preference stock. ,,g strict controls on hirings and promo-tions, sharply reduced overtime and Fixed Charges Coverage Ratio im limited expenditures for materials and (times eamed) supplies. These measures enabled us to 80 , defer our need for additional rate relief g 4i "'
- m until 1985.
4 40 Our net rate increases over the 1982-3- W ,
, 1984 period and higher kilowatthour 31
! 30 20 sales in 1983 and 1984, coupled 3 e um, E with effective cost control and high?r
,3 24 -u AFUDC, offset the effects of inflation on
'- M E -20 operating expenses, lower kilowatthour I
2 sales in 1982, higher interest expense. g stock sales and the deiay between the 1 _-e g so si 82 83 84 time our costs,go up and the time we receive a rate increase to cover those increased costs. Consequently, earnings the second straight year, we experienced per share rose in each of the last three o growth in kilowatthour sales to our years, reaching a record level of $3.64 so si 82 83 84 industrial customers. After a 14.5% in 1984.The ratio of earnings to fixed decline in industrial sales in 1982 as a charges (SEC method) rose to 3.0 in result of the recession which began in 1982 and 3.2 in 1983 and declined We use short-term financing such as bank lines of credit and the sale of .1981, our industrial sales were up 6.1% slightly to 3.1 in 1984. commercial paper to give us flexibility gaininindustria sal ref Fuel and purchased power expense cont nu ng in timing our long term financings. accounted for about one-third of our Money raised through these short-term mProvement in the local manufac-arrangements is primarily used to tunng sector. Fuel Costs finance temporarily our construction The harsh winter our service area (cents per kilowatthour) program. We have a total short-term experienced in early 1984 more than borrowing capability of $206,300,000 offset the effect of a relatively mild 24 in the form of bank lines of credit and summer, thereby contributing to revolving loan commitments. Some of increases in residential and commercial 2.2 E C these lines are held in reserve to ensure sales in 1984 of 0.8% and 3.1%, Ndar that we will be able to pay off commer- respectively, over the 1983 levels. Total 2o cial paper and variable interest notes sz!es increased 3.8% in 1984. The improving economy and an extremely
,, E E-when they are due. See Note J of " Notes to Consolidated Financial Statements" hot summer in 1983 had benefited is E for details of our credit arrangements. residential and commercial sales that year. Residential sales were up 1.8% in 14 lll g g a Resi'its of Operations 1983 after a 0.9% decline in 1982. E E E The following chart shows the factors which have affected our electric Sales in the commercial sector grew 1.7% in 1983 compared with 0.4% io IIIE revenues in each of the last five years. growth in 1982. Total sales in 1983 increased 2.9% versus a 7.7% decline 08 The economic recovery in our serv. ice E E E E in 1982. 6 E E E E arza which began in 1983 continued through 1984. Evidence of this recovery The PUCO granted us electric rate in our local economy is that in 1984, for increases of 10% in March 1982 and 02 - -
0
'80 '81 ~82 83 '84 19
l totil operating expenses in 1984. Total il LJ Management's f 1 ! fuel expense for the year was down LJ R portcf [ 11% from 1983 due to a combination Statement of Independent Accountants l cf lower unit fuel costs, greater fuel Responsibility for FinancialStatements efficiency experienced in the operation of our generating units and a reduction , atdme in the provision for deferred fuel costs. The manage, ment of The Cleveland See Note A of " Notes to Consolidated Electric illuminating Company is respon-To the Board of Directors and the Financial Statements" for a discussion sible for the consolidated financial Share Owners of The Cleveland of fuelcosts. statements which appear in this Annual Electric illuminating Company: Report. The statements were prepared Purchased power expense represents in accordance with generally accepted We have examined the consolidated the net cost of our energy exchanges accounting principles which are appro. balance sheet and the statement of with other utilities. The amount varies priate in the circumstances. These capitalization of The Cleveland Electric from year to year depending upon the principles require that certain amounts Illuminating Company and its subsidiaries avillability of our power plants,the must be recorded based on estimates. at December 31,1984 and 1983 and energy demands of our customers, the Such estimates are based on an analysis the related consolidated statements of pric2 of electricity available from other of the best information available income, retained earnings, and of l utilities and opportunities for the sale regarding the amounts to be estimated. changes in financial position for each ! of energy. In 1984, net purchased of the three years in the period ended I power expense was up from 1983 We maintain a system of internal December 31,1984. Our examinations l because of increased demand and accounting controls. The control pro- of these statements were made in mora generating unit outages. It was cedures are designed to assure that accordance with generally accepted more economical for us to replace the the financial records are reasonably auditing standards and accordingly lost generation and meet the demand cornplete and accurate. They also are included such tests of the accounting with power purchases rather than with designed to help protect the assets and
, records and such other auditing pro-our other generating units. their related records.We make an effort cedures as we considered necessary in to ensure that the costs of our control the circumstances.
In 1983, net purchased power expense procedures do not exceed the benefits. was up from 1982.The effect of . As discussed in Note L to the consolidated decr:ased unit fuel costs exceeded the We have an internal audit program financial statements, the Company impact of higher kilowatthour sales which monitors the internal account.ing cannot now predict when,if ever, or at and resulted in a slight decrease in c ntrols. This program is designed to what cost Perry 2 will be completed; total fuel expense from 1982. examine whether the controls are and,if not completed,whether The adequate and effective. Also, an Nucl ar generation accounted for Public Utilities Commission of Ohio will examination of the financial statements j; 10%,15% and 13% of our total fuel- is conducted by Price Waterhouse, fired electric generation in 1982,1983 independent accountants, whose the n t' and 1984, respectively. opinion appears at the right. In our opinion, subject to the effects Oth:r significant items affecting The Board of Directors of the Company earnings per share were increased pay- taternent o c adjus e ts f any' is responsible for determining whether as might have been required had the mints of interest and preferred stock management and theindependent dividends and a greater number of outcome of the uncertainty referred to accountants are carrying out their in the preceding paragraph been outstanding common shares resulting responsibilities. The Board has appointed known, the financial statements referred from additional external financing. The an Audit Committee, comprised entirely impact of the increases in these items to above present fairly the financial of outside directors. The responsibilities position of The Cleveland Electric partially offset tne related increases in of the Audit Committee are described the amount of AFUDC.The amount of Illuminating Company and its subsidiaries elsewhere in this Annual Report. AFUDC reflected in earnings per share as andof theDecember 31,1984 results of their and operations an 1983' d has grown because of increased . investment in construction work in the changes in their financial position progress, primarily at Perry and Beaver for each of the three years in the period ended December 31,1984, in conform-Valley Unit 2. AFUDC was 69% of our t earnings in 1984 compared to 55% in .ty i with generally accepted account.ing , 1983 and 61% in 1982. For a further pnnaples consistently applied. I discussion of AFUDC and for information I conceming the continuation of AFUDC l accruals for Perry Unit 2, see Notes A PriceWaterhouse 1 (nd L, respectively, of " Notes to Cleveland, Ohio Consolidated Financial Statements." February 8,1985 For a discussion of how we are affected by inflation, see " Supplementary Information Concerning the Effects of Inflation." 20
Income Statement The Cleveland Electric Illuminating Company and Subsidiaries For the Year Ended December 31, 1984 1983 1982 (Thousands of Dollars) OPERATING REVENUES Electric $1,200,465 $1,194,162 $1,091,054 Steam 14,888 16,154 17,517 Total Operating Revenues 1,215,353 1,210,316 1,108,571 OPERATING EXPENSES Operation Fuel 285,188 320,792 330,674 Purchased power 28,224 12,185 (1,395) Other 190,563 182,439 168,802 503,975 515,416 498,081 Maintenance 90,325 88,029 81,789 Deprecation and amortization 95,274 94,196 86,588 Taxes, other than Federal income tax 132,313 126,883 106,804 Federal income tax 131,355 127,430 106,382 Total Operating Expenses - 953,242 951,954 879,644 NET OPERATING INCOME 262.111 258,362 228,927 NONOPERATING INCOME Allowance for equity funds used during construction 130,421 87,052 76,896 Other income and deductions, net 3,680 3,805 (2,481) Federal income tax- credit 35,099 23,291 22,254 Total Nonoperating income 169,200 114,148 96,669 INCOME BEFORE INTEREST CHARGES 431,311 372,510 325,596 INTEREST CHARGES i Long-term debt 177,246 151,257 134,250 Short-term bank loans, commercial paper and other 3,618 2,717 9,822 Allowance for borrowed funds used during construction (41,185) (27,490) (27,440) Total Interest Charges 139,679 126,484 116,632 NET INCOME 291,632 246,026 208,964 Dividend requirements on preferred and preference stock 43,353 38,426 38,295 EARNINGS AVAILABLE FOR COMMON STOCK $ 248,279 $ 207,600 $ 170,699 EARNINGS PER COMMON SHARE $ 3.64 $ 3.28 $ 3.01 DMDENDS DECLARED PER COMMON SHARE $ 2.43 $ 2.31 $ 2.19 R LJ Retained Earnings Statement For the Year Ended December 31, 1984 1983 1982 (Thousands of Dollars) BALANCE AT BEGINNING OF YEAR $ 388,217 $ 325,463 $ 280,285 ADDITIONS Net income 291,632 246,026 -208,964 DEDUCTIONS . Dividends declared Preferred stock 39,799 33,636 33,900 Preference stock 4,197 4,418 4,418 Common stock 164,690 145,077 124,841 Costs of issuing equity securities - 141 627 Total Deductions 208,686 183,272 163,786 BALANCE AT END OF YEAR $ 471,163 $ 388,217 $ 325,463 The accompanying notes are an integral part of these financial statements. 21.
Bal:nc2 Sheet Lt Dec1mber 31 ASSETS 1984 1983 PROPERTY AND PLANT (Thousands of Dollars) Utility plant Electric in service $2,864,332 $2,794,873 Steam in service 44,561 43,262 2,908,893 2,838,135 Less accumulated depreciation and amortization 798,979 722,492 2,109,914 2,115,643 Construction work in progress 2,113,650 1,616,653 4,223,564 3,7?,2,296 Nuclear fuel in trust 67,418 % 599 Other property, less accumulated depreciation 27,859 i1,545 4,318,841 3,802,440 POLLUTION CONTROL CONSTRUCTION FUNDS - unexpended 61,422 18,618 CURRENT ASSETS Cash and temporary cash investments 130,711 42,693 Amounts due from customers and others, net 116,477 111,928 Materials and supplies, at average cost 31,028 29,640 Fossil fuel inventory, at average cost 78,033 58,870 Taxes applicable to succeeding years 101,678 99,884 Other 3,802 3,612 DEFERRED CHARGES Unamortized costs of terminated projects 46,089 49,154 Accumulated deferred Federal income taxes 7,597 12,240 Other 30,763 38,348 84,449 99,742
$4,926,441 $4,267,427 CAPITALIZATION AND LIABILITIES CAPITAUZATION (See statement of Capitalization)
Long-term debt $ 1,883,648 $1,518,883 Serial preferred stock With mandatory redemption provisions 247,218 261,000 Without mandatory redemption provisions 144,021 144,021 Serial preference stock with mandatory redemption provisions . 45,600 > 57,000 Common stock equity 1,592,810 1,355,488 3,913,297 3,336,392 OTHER NONCURRENT UABluTiES - 81,361 68,941 CURRENT LIABIUTIES Current portion of long-term debt and preferred stock
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c- -- 49,483 59,410 Notes payable to banks and others . _ 19,100 19,100 Accounts payable , , . . 143 378 121,198 Accrued payroll and vacations _ 17,904 16,119 Federal income taxes 10,860 12,301 Other taxes 129,402 125,016 Interest _ 40,272 36,322 Other 6,932 7,251 417,331 396,717 DEFERRED CREDITS Unamortized investment tax credits 265,36 218,589 Accumulated deferred Federal income taxes 215,362 192,483 Other 33,725 54,305 COMMITMENTS AND CONTINGENCIES - See Note L
$4,926,441 $4,267,427 The accompanying notes are an integral part of these financial statements.
22
i 4 Capit:llcti:n ct Dec2mber 31 The Cleveland Electric illuminating Company and Subsidiaries m 1984 1983 1984 1983 (Thousands of Dollars) (Percent of C*P **' *i "I ( LONG-TERM DEBT (a) I First mortgage bonds - maturing through 2020 at rates of 2%% to 16%% -, (Less $43,291,000 in 1984 and $55,000,000 in 1983 classified as current) $1,609,800 $1,315,191 Collateral pledge notes - secured by First Mortgage Bonds maturing in _ 2012 at semiannual equivalent rates of 11,72% to 14.57% 47,120 43,370 r Term bank loans - maturing 1986-1993 at variable rates (Average rates .: were 11.49% in 1984 and 10.10% in 1983) 175,000 106,000 = Pollution Control notes - maturing through 2012 at rates of 5.6% to . 6.7% (Less $410,000 in 1984 and 1983 classified as current) 57,020 57,430 Other - net (5,292) (3,108) Total Long-term Debt 1,883,648 1,518,883 48 45 " SERIAL PREFERRED AND PREFERENCE STOCK - cumulative, without par value,4,000,000 and 3,000,000 authorized shares, respectively Preferred Stock without mandatory redemption provisions Annual 1984 Dividend Shares - Series Rate Outstanding A 500,000 50,000
$7.40 50,000 B $7.56 450,000 45,071 45,071 .
L Adjustable (b) 500,000 48,950 48,950 _ 144,021 2 144,021 ' Preferred and Preference Stock with mandatory redemption provisions (Less $5,782,000 in 1984 and $4,000,000 in 1983 classified as current) - Annual Mandatory Redemption Provisions (c) Shares to be : 1984 Redeemed f Annual Shares Shares at - Dividend Out- Beginning to be Holders' ? Series Rate standing on Price Redeemed Option 1 Preferred: 6 C E
$ 7.35
$ 88.00 230,000 45,000 8-1-84 6-1-81
$ 100
$1,000 10,000 3,000 23,000 45,000 24,000 48,000 f
1 F $ 75.00 50,000 11-1-85(d) $1,000 - 16,667 50,000 50,000 ? G H
$ 80.00
$145.00 32,000 26,718 8-1-84(d) $1,000 6-1-85 $1,000 1,782 8,000 32,000 26,718 40,000 28,500 j
I $145.00 31,500 6-1-86 $1,000 1,969 - 31,500 31,500 " J $113.50 29,000 6-1-87 $1,000 5,800 - 29,000 29,000 1 K $113.50 10,000 6-1-91 $1,000 10,000 - 10,000 10,000 5 247,218 261,000 i Preference: . j 1 $ 77.50 45,600 4-1-84(d) $1,000 - 11,400 45,600 57,000 - Total Preferred and Preference Stock 436,839 462,021 11 14 n
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COMMON STOCK EQUITY Common shares, without par value,85,000,000 authorized, 74,040,175 and 65,198,089 outstanding in 1984 and 1983, respectively 1,121,647 967,271 Retained earnings (e) 471,163 388,217 Total Common Stock Equity 1,592,810 1,355,488 41 41 = TOTA,L CAPITAUZATION $3,913,297 $3,336,392 100 100 L (a)long-term debt matures during the next five years as follows: $43,701,000 ir 1985 (dassified as a current liability on the consolidate 3dlance Sheet),
$40,410,000 in 1986, $13.410,000 in 1987, $14,410,000 in 1988 and $124,510,000 in 1989.
(b) The adjustable rate is based on the highest of certain factors but not more than 13% or less than 75 The average rate was 12.89% in 1984. e (c) Amounts to be paid for preferred stock which must be redeemed during the next five years are: $5,782,000 in 1985 (dassified as a current liability on the i consolidated Balance Sheet), $7,751.000 in 1986 and $13,551,000 in 1987,1988 and 1989. In addition, the Company must offer to purchase preferred stock having a redemption price up to $19,400,000 in 1985, $36,067,000 in both 1986 and 1987, $36,066,000 in 1988 and none in 1989. . (d) This is the date the Company must offer to redeem. Any resulting redemption would occur four months later. (e) As of December 31,1984 there was no restriction on the right of the Company to pay dividends in any amount up to all of the earnings retained in the business. - The accompanying notes are an integralpart of these financialstatements. 23
f (m O Changes in Finanelal Position The Cleveland Electric illumin: ting Company and Subsidiaries For the Year Ended December 31, 1984 1983 1982 (Thousands of Dollars) FINANCIAL RESOURCES PROVIDED Net income $291,632 $246,026 $208,964 Items not affecting working capital Depreciation and amortization 95,625 94,336 86,622 Deferred Federal income tax 73,467 89,125 72,103 Allowance for equity funds used during construction (130,421) (87,052) (76,896) Other 783 620 918 Total financial resources provided from operations 331,086 343,055 291,711 Sales of securities First mortgage bonds 337,900 125,000 277,600 Preferred stock - 48,950 - Common stock 154,377 65,638 179,711 Total sales of securities 492,277 239,588 457,311 Term bank loans and collateral pledge notes 72,750 37,270 6,100 Nuclear fuel trust obligations 8,819 5,848 52,751 Pollution control funds expended 66,196 - 18,559 Working capital decrease (a) - 59,957 - Other - 7,591 6,007 Total Financial Resources Provided $971,128 $693,309 $832,439 FINANCIAL RESOURCES USED Additions to utility plant $582,288 $490,705 $422,170 Allowance for equity funds used during construction (130,421) (87,052) (76,896) 451,867 403,653 345,274 Retirement of debt and preferred stock 78,810 99,105 121,600 Dividends 208,686 183,130 163,786 Pollution control construction funds deposited 109,000 840 - Deferred fuel costs 9,790 - - Nuclear fuel in trust 8,819 5,848 52,751 Decrease in short-term debt and other borrowings - 40 76,200 Working capital increase (a) 84,560 - 72,828 Other 19,596 693 - Total Financial Resources Used $971,128 $693,309 $832,439 SUMiMARY OF CHANGES IN WORKING CAPITAL (a) Cash and temporary cash investments $ 88,018 $ (16,624) $ 34,621 Amounts due from customers and others, net 4,549 10,070 7,451 Fossil fuel inventory 19,163 (16,533) 6,630 Taxes applicable to succeeding years 1,794 12,754 23,520 Accounts payable and accrued payroll and vacations (23,965) (30,782) 12,120 Federal income and other taxes payable (2,945) (17,157) (8,229) Other (2,054) (1,685) (3,285) Change in Working Capital (a) $ 84,560 $ (59,957) $ 72,828 (a) Other than short-term borrowings and current portion of long-term debt. The accompanying notes are an integralpart of these finandalstatements. I J 24
Notes to Consolidated Financi:1 Statements Note A - Summary of Significant Accounting Policies determined by a formula set by the FERC. The rate We ara required to follow the accounting principles and represents an average of the cost of money paid on funds rules set by The Public Utilities Commission of Ohio (PUCO) tied up in construction. The rate ,si compounded and th! Federal Energy Regulatory Commission (FERC). A semiannually. The part of the rate which represents interest description of our significant accounting principles follows. is reduced to recognize that interest is tax deductible. The amount of AFUDC is reflected in two parts of our Consolidation income statement: an addition to Nonoperating income as Our financial statements induce the accounts of three the Allowance for Equity Funds Used During Construction wholly-owned subsidiaries, which in the aggregate are and a reduction of Interest Charges as the Allowance for immat: rial. Borrowed Funds Used Dunng Construction. On the balance sheet, the AFUDC becomes part of Construction Work in Property and Plant Progress. Electric and Steam UtiUty Plant is carried on the books at The amount of AFUDC recorded in each accounting period original cost as defined by the FERC. The costs of varies. The variation occurs because of (1) the number of maintenance and repairs are charged to Operating Expense dollars spent on construction, (2) the length of the as incurred. The cost of replacing or improving property is construction period and (3) the rate used in computing charged to Property and Plant. The cost of property retired, AFUDC. The rates were 10.66% in 1984,10.35% in 1983 plus any removal cost, less any salvage realized, is charged and 10.00% in 1982. to Accumulated Depreciation and Amortization. FederalIncome Tax Depreciation - The depreciation expense we report on our income We report depreciation expense on our income statement statement is different from the depreciation expense we as a current cost of doing business to account for the use to calculate Federal income tax. There are several norrnal using up of our property. Depreciation is deducted reasons for this difference. First, AFUDC and certain in equal amounts over the estimated useful life of the overheads are exduded from the cost of assets which we property. For example, if we estimate that an item will be are allowed to depreciate for tax purposes. However, these useful for 10 years, we charge one-tenth of its value to costs are induded in the cost of assets we depreciate on depreciation expense each year. However, in the case of our income statement (book depreciation). Second, the the Davis-Besse Nudear Power Station (Davis-Besse), we portion of depreciation expense representing nudear unit utilize the units-of-production depreciation method which decommissioning costs (see Note C) is not deductible for bases depreciation on the ratio of the amount of electrical tax purposes until cash payments are made. Third, the energy it produces in the accounting period to its total period of time over which the Internal Revenue Service estimated energy production over its useful life. (IRS) allows the cost of assets to be depreciated is shorter than the period of time (useful life) we use. Finally, the IRS Terminated Projects allows some of the depreciation we are entitled to in Costs associated with terminated nudear generating units future years to be used early. Beginning with property additions made in October 1976, the tax reductions are being amortized over a period approximating 15 years' which began in 1983. See Note D. resulting from these, differences are not applied to reduce tax expense on the income statement in the periods we obtain them. They are deferred for allocation to income Allowance for Funds Used During Construction over the useful life of property through a procedure called The PUCO and the FERC allow us to indude as part of the normalization. At December 31,1984, the cumulative net total cost of constructing nov assets the cost of money amount of income tax timing differences for which paid on funds which are tied up in construction projects. deferred income taxes have not been provided amounted This is called Allowance for Fends Used During to about $500,000,000. Construction (AFUDC) . When we place new property in service during the year, When a construction project is completed or, to the extent the IRS allows us a credit against taxes due for 10% of the the PUCO allows it in rate base after it is at least 75% investment we have made in the new asset. This is called completed, the funds invested in it are no longer the investment tax credit. We record Federal income tax on considered tied up in construction and we stop recording our income statement as though it were not reduced by AFUDC. The cost of the project at that time, including this credit. We recognize the tax savings from this credit AFUDC, is treated as a new asset and is induded in a over the life of the property involved through the subsequent rate case to determine the rates we charge our normalization procedure. customers for service. Because the resulting rates indude a factor for all these costs, we are being allowed to recover Our Federal income taxes are lowered because we can
'" h cos of the perty, ,ncluding i AFUDC, over the deduct our interest charges from income. This reduction of usefull 9 taxes is split between Operating income and Nonoperating income. The tax reductions resulting from interest actually The amount of AFUDC for an accounting period is paid on funds invested in property currently being determined by applying a rate of AFUDC to the funds tied constructed are recorded in Nonoperating income. The tax up in construction. The annual AFUDC percentage rate is reductions of interest paid on all other funds are recorded in Operating income.
25
Notes to Consolidated Financial Statements Revenues and nuclear fuel is used, we transfer the cost to the Customer meters are read or estimated and billed on a incorne statement as fuel expense. Nuclear fuel exp also includes a factor for the cost of the ultimate d,ense isposal monthly basis. Operating revenues are recorded in the accounting period during which the meters are read. of spent, nuclear fuel which is being recovered through rates. + A fuel factor is added to our base rates for electric service. This fuel factor is designed to recover from customers what Any difference between the cost of fuel actually used and we actually pay for fuel. It is changed every six months the amount collected from customers through the rate fuel factor is deferred. The deferred amount is taken ,into after a hearing before the PUCO. Our steam fuel rate is adjusted each month for what we paid for fuel in the account to adjust the fuel factor for a subsequent preceding month. six-month penod. Fuel Accounts Receivable When we make a payment for coal or oil, it is recorded on Amounts due from customers and others was reduced by the balance sheet as Fossil Fuel inventory. When we make the allowance for uncollectible accounts of $3,226,000 a lease payment for nuclear fuel, we record it on the and $2,247,000 in 1984 and 1983, respectively, balance sheet as Deferred Charges - Other. As the fossil Note B- FederalIncome Tax Federal income tax, computed by multiplying the income before taxes by the statutory rate of 46%, is reconciled to the amount cf Federal income tax recorded on our books as follows:
% of % of % of Pre-Tax Pre-Tax Pre-Tax 1984 Income 1983 Income 1982 Income (Thousands (Thousands (Thousands of Dollars) of DoHars) of Dollars)
Book income before Federal income tax $387,887 .$350,165 $293,093 Tax on book income at statutory rate $178,428 46.0 $161,056 46.0 $134,803 46.0 Decriases in tax due to: Allowance for funds used during construction 78,939 20.4 52,689 15.0 47,994 16.4 Other items 3.233 0.8 4,228 1.3 2,681 0.9 82,172 21.2 56,917 16.3 50,675 17.3 Total Federal income tax expense $ 96,256 24.8 $104,139 29.7 $ 84,128 28.7 Federal income tax expense is shown in the income statement as follows: 1984 1983 1982 (Thousands (Thousands (Thousands Operating Expenses f DoHan) of DoHan) of Douan) Current tax provision $ 56,029 $ 38,309 $ 34,279 Changes in accumulated deferred Federal income tax: Accelerated depreciation and amortization 23,957 20,727 19,498 Other items 4,594 3,387 1,461 Investment tax credit deferred, less amounts amortized 46,775 65,007 51,144 Total charged to operating , expenses 131,355 127,430 106,382 Nonoperating Income Current tax provision (33,240) (22,763) (22,254) Deferred tax provision (1,859) (528) - d Total Federal income tax expense $ 96,256 $104,139 $ 84,128 The income tax we paid in 1984 and 1983 was reduced by investment tax credits of $54,881,000 and $71.201,000, respectively.
-, j
. t 26 6 . .
Note C- Depreciation Note E - First Mortgage Bonds W2 compute book depreciation on all of our utility plant, Condensed information on outstanding first mortgage i with the exception of Davis-Besse, using the straight-line bonds is as follows: 1 method of deducting from revenue the total cost of Year of interest At Decernber 31, property in equal installments each year over its estimated useful life. The amount depreciated takes into account our Maturity Rate 1984 1983 estimate of the money expected to be received when we (Thousands of Dollars) dispose of the property (salvage) and our estimate of the 1984 7.55 % $ - $ 25,000 cost of dismantling and removing it (removal cost). 1984-A 12.25 % - 30,000 1985 2.75 % 25,000 25.000 When a nuclear unit is retired from service, we will have 1985-A 11.50 % 18,291 18,291 additional costs called decommissioning costs. For 1986 3.375 % 25,000 25,000 Davis-Besse, decommissioning is assumed to occur in 2011 1986-A and B 5.25% 5,000 5.000 when the radioactive components and structure will be 1989 3.00 % 20,000 20,000 sealed in a vault-like enclosure and, at a later date, the 1989-A 15.25 % 40,000 40,000 entire facility will be removed from the site. The 1989-8 14.375 % 50,000 - depreciation for Davis-Besse which we currently record on 1990 Through 1994 10.58%(a) 296,970 171,970 the books and recover in rates includes a factor for our B95 nr ugh 1999 10.02%(a) 10,675 10,675 share of these decommissioning costs. The factor used during the 1982 through 1984 period was authonzed by 2010 Through 2020 [3M 10.72%(a) 3$6$ 945,055 i$6 782.155 the PUCO in 1980 and is based on an estimate of
$27,000,000 representing such costs expressed in 1980 Less amounts classified as current 1 5 dollars.
$1,609,800 $1,315,191 At Decimber 31,1984, the reserve for Accumulated Depreciation and Amortization included $4,200,000 for (a) Percentages are weighted average rates for the period.
such decommissioning costs. There are no restrictions on the use of funds currently being recovered from customers The first mortgage bonds are issued under our Mortgage tFrough rates. which places a first lien on almost all the property we own Annual depreciation provisions as a percentage of the and franchises we hold to secure the repayment of the first depreciable cost of plant are as follows: mortgage bonds. 1984 1983 1982 The issuance of additional first mortgage bonds is limited by two provisions of the Mortgage. Under the more Electric plant 3.3% 3.4% 3.2% restrictive of these provisions, we would have been Steam plant 2.6% 2.6% 2.6% permitted at December 31,1984 to issue approximately
$91? '00,000 of additional first mortgage bonds. This amount fluctuates depending upon the remaining amount Note D - Termlaated Projects of bondable property and upon eamings and interest rates.
In January 1980, the CAPCO companies terminated their if Perry 2 had been canceled at the end of 1984, this plans to construct four nuclear generating units which amount would have been about $225,000,000 less. See were in various stages of construction start-up. Our rate Construction Program under Note L for a discussion of the case orders provide specific revenue to recover these costs status of Perry 2. through the method used to calculate the allowed rate of retum on rate base and authorize us to amortize the unamortized terminated unit costs. Ohio law does not Note Leases permit recovery of these costs through rates as an We have existing agreements for the leasing of certain operating expense. The unamortized costs of the vehicles, unit trains and other equipment, buildings and terminated units are not included in our rate base, nuclear fuel. When the PUCO determines what rates are to be charged to our customers, it treats the rents on all the above leases as an operating expense. Accordingly, we record those rents as an operating expense on the income statement. Statements of Financial Accounting Standards No.13 and No. 71 require that not later than 1987 we account for certain leased assets as though we owned them. At that time, only our nuclear fuel leases will result in any significant increase in the assets and liabilities reported on our balance sheet. All the rental payments we make for nuclear fuel and unit trains are recorded initially in balance sheet fuel accounts. As the fuel is used, these costs are transferred to fuel 27-
o O Notes to Consolidated Financial Statements expense on the income statement. We paid rent of We can exercise our right to buy back Series E Preferred
$14,767,000 in 1984, $12,388,000 in 1983 and Stock before June 1,1986 only under certain conditions.
$8,180,000 in 1982 for nudear fuel and unit train leases. Series E Preferred Stock cannot be redeemed prior to June Lease payments under all other leases were not material. 1,1986 as part of a refunding involving the use of proceeds of sales of debt, other preferred stock or stock Some of our leases have noncancelable terms of more than r nking higher than the Sen,es E with an effective annual one year. We have to make the followin9 payments under cost of less than 8.8%. In addition, we may not refund these leases after December 31,1984:
through the sale of stock which is junior to the Series E. Year Amount A total of 3,000 shares of Series E Stock was bought back (Thousands of Dollars) and retired annually in 1982,1983 and 1984 pursuant to 1985 $ 4,130 its mandatory redemption provision. 1986 3,676 A total of 8,000 shares of Series G Stock was bought back 48 and retired in 1984 pursuant to its mandatory offer to repurchase provision. 1989 1,501 ' Later Years 4,622 There are no restrictions on our right to issue and sell Total $18,517 authorized shares of Serial Preferred or Preference Stock. W2 did not include in the above table the payments we Note H - Serial Preferred Stoc,k without must make under our nuclear fuel leasing arrangements. Mandatory Redemption Provisions Since the payments are made when fuel is used, we do
, in December 1983, we sold 500,000 shares of Series L not know the timing or total amount of the rental Preferred Stock which did not have mandatory redemption payments. See Nuclear Fuel under Note L for a description provisions. Series L Preferred Stock cannot be redeemed of our nuclear fuelleases and commitments. prior to January 1,1989 as part of a refunding involving the use of the proceeds of sales of debt or preferred stock Note G - Seriai Preferred and Preference Stock with an effective annual cost of less than the annual with Mandatory Redemption Provisions dividend of the Series L Preferred Stock.
We have assured the owners of our Series F Preferred We have the right to buy back and retire Serial Preferred Stock a minimum dividend return of 6.96% on their Stock which does not have mandatory redemption investment after deducting any Federal income tax on the provisions. The redemption prices (plus dividends accrued dividends received on the stock. If certain income tax laws to the redemption dates) are as follows: are changed such that their after-tax retum is lower, we would have the option to do one of two things: buy back Price at the Series F at $1,000 per share plus accrued dividends or December 31, Eventual exchange Series F for a new series of preferred stock with Series 1984 Through Minimum a dividend rate high enough to provide a 6.96% after-tax A $102.50 11-30-86 $101.00 return. B $103.78 7-31-87 $102.26 We have the right to buy back and retire shares of Serial L $M 6(a) 12-3 b84(a) $100.00
. Preferred and Preference Stock which have mandatory (a) The redemption price of series L changes on January 1,1985 to redemption provisions. The redemption pnces (plus $109.69 and remains in effect untd December 31,1985.
dividends accrued to the redemption dates) are as follows: Price at Note I- Common Shares issued December 31, Eventual and Reserved for issue Series 1984 Through Minimum Shares of Common Stock sold during the three years Preferred: ended December 31,1984 were as follows: C $ 103.00 7-31-88 $ 100.00 1984 1983 1982 E $1,088.00 5-31-86 $1,000.00 F $1,015.00 2-28-86 $1,000.00 Public Sale , 5,000,000 - 9,000,000 G $1,026.67 11-30-85 $1,000.00 Dividend Reinvestment H (a) 5-31-91 $1,000.00 I (b) 5-31-92 $1,000.00 %nd
, Stock Purchase Employee Savings Plan 419,318 298,584 282,162 J (c) 5-31-87 $1,000.00 Emplo ee Thrift Plan _ 92,538 71,767 75,775 Key E yee incentive Preference: Sto an 335 20,471 -
1 $ 1,019.38 7-31-85 $1,000.00 1978 Key Employee Stock Option Plan 880 11,560 - nin une l',19 a Total Shares 8,842,086 3,423,507 10,720,078 (c) Brynning June 1,1986 at $1,0s0.44. 28
Stock options held by employees to purchase unissued Borrowings under the variable interest note agreements shares of Common Stock under the Key Employee must be paid back whenever the bank requests such Incentive Stock Plan and the 1978 Key Employee Stock repayment. Interest is based on the rate for high quality Option Plan are granted at 100% of the fair market value commercial paper in the 30-180 day maturity range. on the date, of the grant. The shares which were actually bought dunng the three years ended December 31,1984 Commercial paper and variable interest notes outstanding were sold at option pnces ranging from $15.69 to $18.59. are backed by at least an equal amount of unused bank Shares under outstanding options held by employees were lines of credit to ensure our ability to repay them. as follows: The unused portion of the above credit arrangements, Key Employee after deducting $19,100,000 of outstanding borrowings incentive Stock Plan (a) under the variable interest note agreements and an equal 1984 1983 1982 amount of bank lines held to cover such borrowings, , Options Outstanding amounted to $168,100,000 at December 31,1984. at December 31 Most borrowings under short-term bank lines of credit do Shares 87,645 122,601 148,642 not require compensating balances but do require a fee of Option Price _ $18.59 to $17.63 to $17.63 to approximately 0.3% per year to be paid on any unused
$22.43 $22.43 $22.43 portion of the lines of credit. The average daily cash i
balance in our bank accounts satisfied informal 1978 Key Employee compensating balance arrangements under which we Stock Option Plan maintain balances at banks depending on what we 1984 1983 1982 borrow. Options Outstanding at December 31 Note K- Property Owned with Other Utilities Shares 519,727 389,007 374,705 . . Option Price _ $15.63 to $15.69 to $15.69 to Some of the generating units which we own or are
$20.25 $20.25 $20.25 building are owned with other utilities. Each company owns an undivided share in the entire unit. All the owners (a) Under the terms of the Key Employee incentive stock Plan. no further options may be granted. Accordingly. only those shares relating t are tenants in common. This means that each company options outstanding at December 31,1984 may be issued. has the right to a percentage of the generating capability We calculate earnings per share based on the average obligated to pay for our share of the construction and number of shares outstanding throughout the year. The operating costs of each unit. We are not responsible for weighted average shares outstanding in each of the last the other owners' shares. See Construction Program under three years are as follows: Note L 1982 56,739,806 Utility Plant at December 31,1984 includes the following 1983 63,213,562 facilities owned as tenants in common with other 1984 68,190,548 utilities:
Note J ~ Short-Term Borrowing Arrangements Company Ownership Electric Construction Available bank credit arrangements are as follows: Plant Work At December 31, Facility Percent in Service in Progress Type 1984 1983 (Thousands of Dollars) (Thousands of Dollars) Davis-Besse 51.38 $460,259 $ 14,556 Bank lines of credit Bruce Mansfield 1_ 6.50 25,977 179 (borrowings at or near Bruce Mansfield 2 28.60 117,151 647 prime interest rate) $156,300 $170,300 Bruce Mansfield 3 24.47 156,851 465 Eurodollar revolving credit agreement $ 30,000 $ 30,000 Beaver Valley 2 24.47 - 640,435 Variable interest note Perry 1 and Com- ' agreements $ 20,000 $ 20,000 mon Facilities 31.11 - 981,991 Perry 2 31.11 - 321,988 Any borrowings under the Eurodollar agreement are made Eastlake 5 68.80 114,238 1,731 and paid back in U.S. dollars. There are no requirements Seneca Pumped that minimum cash balances (compensating balances) be Storage Hydro-maintained at the banks involved. However, a fee of Me% electric Plant 80.00 54,840 366 t2 %% per year is paid on any unused part of this
$929,316 $ l,962,358 - borrowing agreement. The mterest rate on borrowings is %% to %% (depending on usage) above the rate which specified banks pay for Eurodollar deposits in the London Separate depreciation records are kept for Davis-Besse interbank market, property and Seneca property. The accumulated 29
Y Notes to Consolidated Financi:1 Statements depreciation for Davis-Besse at December 31,1984 was completion with no reason to believe at this time that an
$67,284,000. The accumulated depreciation for Seneca at operating license will not be issued.
December 31,1984 was $13,415,000. Depreciation on all . other in-service property owned with other utilities has Perry 2, exclusive of the common facilit.ies, is about 44% been accumulated on an account basis along with all other complete. Including its share of the common facilities, depreciable property rather than by specific units of Perry 2 i
- depreciable property. Our share of the operating expense complet,s 57%and ion in 1988 complete. The Unit our 375-megawatt sharehad of its been s cost had been estimated at about $800,000,000, ,ncluding i
of properties owned with others is included in our income statement. AFUDC. The CAPCO companies are, reviewing several altematives with respect to Perry 2, including resumption of full construction, with a new estimated cost and c mpletion date, or cancelation. Many factors are being Note L - Commitments and Contingencies taken into account in this review. These include the Construction Program increasing costs of construction, the high cost and difficulty
- i of financing and the increased risks associated with Wa carry on a continuous program of constructing facilities construction and licensing. On the other hand, also I needed to meet anticipated demand for electric service. ,
included are the potentially greater capacity needs The major part of our current construction program is our nationwide due to increasing demand and cancelations of shire of three nuclear generating unit projects - Perry 1 other generating projects, the probable high cost of and 2 and Beaver Valley 2. They are being constructed by retrofitting fossil-fuel units to satisfy possible acid rain the five CAPCO companies, including the Company, pollution control regulations and the comparatively low Duquesne Light Company (Duquesne), Ohio Edison cost of completing Perry 2. It is uncertain when this review Company, Pennsylvania Power Company and The Toledo will be completed. Edison Company. The scheduling, voluntary delay or cancelation of a project must be approved by all the in the meantime, the only significant work being CAPCO companies. We are constructing Perry 1 and 2 and performed on Perry 2 is that necessary to enable Perry 1 to Duquesne is constructing Beaver Valley 2 for the CAPCO , be placed in service. This work is expected to be completed companies. Our share of the three units and the amounts sometime in 1985. Even if the CAPCO companies do not we invested in them (including AFUDC) at December 31, decide during 1985 to increase construction significantly at 1984 are set forth in Note K. Perry 2, we plan to continue capitalizing AFUDC for that Unit as construction work in progress because we believe Perry 1 and the facilities to be used in common with Perry that cost,should be recovered through rates if and when 2 are about 97% complete and are scheduled for . the Unit is completed. However, if Perry 2 were to be
. completion around the end of 1985. The estimated cost of canceled, recovery of AFUDC for the Unit would be less our 375-megawatt share is about $1.2 billion, including certain as descnbed in the next paragraph. In consideration AFUDC. The completion schedule for Perry 1 and common f the above factors, we plan to credit AFUDC for Perry 2 but we believe it is achievable. The to a deferred credit reserve instead of continuing to credit facilities is tight'e proceedings are well along.
operating licens However, a it to income. Absent a change in circumstances, we expect few issues remain to be res.olved, perhaps with hearings in
. to start such accounting deferral about mid-1985. Such which intervenors may partiapate and could appeal deferral would not affect cash flow, but it would cause an resulting in delay. We believe, based on our knowledge of equal reduction in reported earnings from what they the quality of construction, recent inspections and reviews otherwise would be. Such reduction could be material by the Nuclear Regulatory Commission and other deoending on the duration of the deferral. The AFUDC for regulatory agencies and the merits of the issues, that we Perry 2 is expected tu average about $3,000,000 per should be permitted to load fuel and receive a full month in 1985.
operating license without significant delay. If Perry 2 were canceled, we would seek authorization Beaver Valley 2 is about 83% complete. In early 1985, from the PUCO to recover our investment in that Unit (and the CAPCO companies decided to reduce their 1985 cancelation costs, if any) from our customers in rates over expenditures for Beaver Valley 2. As a result, our estimated a period of years. Ohio law currently allows recovery of 1985 expenditures for the Unit are reduced by such costs as described in Note D. Other methods of
$25,000,000 to $86,000,000, excluding AFUDC. Because recovery also may be available. However, we have no of the reduced level of expenditures and also to recognize assurance that recovery would be allowed if Perry 2 were construction delays encountered to meet regulatory canceled. If, at the time of such a cancelation, it appears requirements, the estimated completion date of the Unit unlikely that recovery would be allowed, then our was delayed from late 1986 to about the end of 1987. The investment in Perry 2 (including AFUDC) and any effect was to increase the estimated total cost of Beaver cancelation costs would have to be written off, after Valley 2. The estimated cost of our 204-megawatt share adjustment for taxes. The amount to be written off increased by $100,000,000 to about $1 billion, including would be reduced to exclude equipment usable for ,
AFUDC. Approximately $70,000,000 of the increase Perry 1 or otherwise. We estimate such a write-off as represents AFUDC. Beaver Valley 2 is progressing tovsard 30
of December 31,1984 would have been about Purchases $200,000,000. Based on our current financial position and level of annuaiincome, a wnte-off of such a magnitude Material and services needed to build new plant and equipment must be ordered in advance so that it will be would have a material adverse effect on income in the available when needed. At December 31,1984, such period in which it were to occur and on retained eamings' but our ability to continue paying dividends would not be commitments amounted to: impaired solely because of such a write-off. Construction program (including in September 1983, the Ohio Office of Consumers, Perry 1 and 2 and Beaver Valley 2)_ $254,000,000 Nucea ma "'$",' " " Counsel, the City of, Cleveland, the Commissioners of Geauga County, Ohio, and certain community groups pg ng nt fueI $199,000,000 petitioned the PUCO and the Ohio Power Siting Board to Usually we can cancel advance orders but often we must investigate the need for Perry 2. The petition requests an pay the manufacturers for what they have already spent order to cease construction of Perry 2, to cease accruing for labor and materials and sometimes a penalty. AFUDC on that Unit and to prohibit the use of proceeds of securities issues to finance Perry 2. We believe the petition Nuclear fuel is, without merit and will oppose it vigorously. Unde,r some arcumstances, the request of the petitioners, were it to be We have lease and trust arrangements which are financing granted, could require cancelation of the Unit. an inventory of nuclear material and fuel and which will assist in the financing of the commitments for nuclear Nuclear generating projects in the electric utility industry, material stated above. We believe that this inventory and including those of the CAPCO companies, have these commitments will provide a nuclear fuel supply experienced substantial cost increases, construction delays lasting into the mid-1990s. When the future of Perry 2 is and, in the case of some non-CAPCO utilities, licensing determined, a more definitive estimate will be made as to difficulties. These have been caused by various factors, how long the supply will last. Substantial additional nudear including inflation, required design changes and rework, material will have to be obtained in the future to supply allegedly faulty construction, objections by groups and fuel over the remaining usefullife of these Units. governmental officials, limits on the ability to finance, limits on thy use of proceeds of secunty issues, difficulty in The maximum amount which can be financed by us under obtaining needed rate increases, reduced forecasts of one leasing arrangement is $280,000,000. It is a long-term energy requirements and economic conditions. This lease with the existing lenders being able to cancel their expen:nce indicates that the n,sk of significant cost financing commitments to the lessor after three years' increases, delays and licensing d;fficulties remains present notice' Our share of the other arrangement, leases and a trust combined, is $90,000,000, subject to cancelation by P ' 9 and 2 and Bea e al ey 2 the lessor after one year's notice. The trust must sell material it owns to any of the lessors, the Company or a The successful completion of the CAPCO ccnstruction third party prior to fabrication into nuclear fuel assemblies. program requires the continuing ability of the CAPCO The lease and borrowing rates are based on bank prime companies to pay for their shares. To continue such ability, and commercial paper rates. Under the leases, rental each CAPCO company must continue to obtain adequate payments are made as the fuel is burned in a generating and timely rate relief. There can be no assurance that such unit. As these payments are made, the amount of credit rate relief always will be forthcoming or that some other available to the lessor is renewed and therefore available to event will not adversely affect financial markets or nuclear satisfy nuclear fuel commitments. projects generally, or a CAPCO company or nuclear project in particular, so as to impair the ability of a CAPCO At December 31,1984, under these arrangernents, the company to pay for its share. If any CAPCO company were lessors had invested a total of $188,643,000 in nuclear not to pay for its share, any or all of the other CAPCO material and, costs of processing it into fuel. Included under companies could, as a practical matter, be forced to accept those leases is nuclear fuel in the Davis-Besse reactor with a solution involving substantial losses or additional financial a emaining cost of $15,752,000 as of December 31, burdens. 1984. Nuclear fuel with a cost of $27,997,000 was subsequently added to that reactor in early January 1985. Some regulatory authorities have undertaken proceedings Rental payments are being made for the fuel in the to determine whether recovery in rates of part of the cost reactor. The trust at December 31,1984 had invested of a completed construction project should be disallowed $67,418,000 in nuclear material which is included in Other or deferred, due to findings of excess capacity or Noncurrent Liabilities on the balance sheet. Statement of imprudent management of the project or due to a desire Financial Accounting Standards No. 71 will require balance to phase-in over a period of time the rate increase sheet treatment as described in Note F of all our existing otherwise allowable. There can be no assurance that such nuclear fuel arrangements not later than 1987. proceedings will not be undertaken with respect to Perry 1 or Beaver Valley 2 (or Perry 2, if completed). We believe that any disallowance or deferral of recovery of our share of the costs of those Units would be unjustified, except such deferral of recovery as may be provided by the PUCO under the construction work in progress law of Ohio as described in Note M. 31
Notes to Consolidated Financi:1 Statements Guarantees operating revenue by $10,600,000 in 1984 and to increase electric operating revenue by $111,100,000 in Under two long-term coal purchase arrangements, we 1983 and $131,400,000 in 1982. have agreed to guarantee the mining companies' loan and lease obligations. At December 31,1984, the principal On April 3,1984, we filed an application with the PUCO amount of the mining companies' loan and lease for a $180,000,000, or 15%, electric rate increase. Any obligations was $79,229,000. Under one of these increase granted is expected to be effective in early 1985. arrangements, we are required to pay the mining company Approximately $50,000,000 of this rate increase request is any actual out-of-pock?t idle-mine expenses, as advance based on including more construction work in progress payments for coal, when the mines are idle for reasons (CWIP)in rate base for Perry 1. About $30,000,000 of our beyond the control of the mining company. current annual revenue is derived from Perry 1 CWIP already induded in rate base. Nuclear Unit liability Under Ohio law applicable to our pending rate case, CWIP The owners of Davis-Besse maintain a nudear insurance can be induded in rate base when construction of the program to the maximum extent currently available. The project is at least 75% complete, but only in the aggregate maximum coverages at January 31,1985 for a nuclear amount of up to 20% of rate base exduding CWIP. Such incident at Davis-Besse induded $620,000,000 nudear indusion is at the discretion of the PUCO. liability coverage for injury to persons and their property Ohio law has been amended, effective April 10,1985, to and $1,060,000,000 for damage to the owners' property, retain the current discretion of the PUCO to permit including leased fuel, and clean-up costs. The Atomic inclusion of CWIP in rate base when projects are at least Energy Act limits the owners' nudear liability to the 75% complete, but to limit the amount induded to 10% amount of the nudear liabil;ty coverage. Damage to our of rate base exduding CWIP, except that up to 20% can property, leased fuel and dean-up costs combined could be induded for sulfur and nitrous oxide pollution control exceed the property insurance by a substantial amount. projects. CWIP may be induded for a period not longer The owners also are obligated to pay retrospective than 48 consecutive months plus any time needed to premiums up to $10,000,000 per year to cover any liability comply with changed governmental regulations, standards insurance daims arising out of a nudear inadent at any or approvals, plus up to another 12 months for good cause nuclear unit in the United States and up to $8,300,000 per shown. When the project is completed and included in rate nudear inadent to cover any property damage insurance base, an amount equal to the CWIP is exduded from rate daims. base for a period equal to the time it had been included. We have insurance coverage of $1,400,000 per week for The result is to credit back to customers after the project is the cost of any replacement power purchased dun,ng the completed the revenues derived from induding the CWIP 52 week penod starting 26 weeks after any inadent at in rate base before completion. During the period of Davis-Besse and $700,000 per week for the next 52 exclusion, the equivalent of AFUDC accrues on the weeks. The cost and duration of replacement power could exduded portion and wdl be recovered in rates over the substantially exceed the insurance coverage. Also, we are useful life of the completed project. The effect of this obligated to pay retrospective premiums up to $3,500,000 provision is to phase into rate base the total cost of a per nudear ,inadent to cover any replacernent power project over a period starting when CWIP is first induded insurance daims arising out of a nuclear inadent at any in rate base and ending when the exclusion period ends. If nuclear unit in the United States. a project is canceled or is not completed within the fimilar insurance will be obtained for Perry 1 and 2 and allowable period of time after indusion of its CWIP has Beaver Valley 2. started, then CWIP must be excluded from rate base and any revenues which resulted from such prior inclusion must Lawsuits be offset against future revenues over the same period of time as the CWIP had been induded. These amendments Several lawsuits and governmental actions are pending. We do not apply to our current rate case and any CWIP believe, based on the opinion of our counsel, that the previously induded in rate base. ultimate disposition of these matters will not have a rnaterial adverse effect on our financial condition or Note N - Pension and Postretirement Health sncome. and Life Insurance Benefits We pay the full cost of a pension plan for our employees. Note M- Rate Matters Under the plan, an employee who has worked at the The PUCO allowed us to increase electric rates by 10% on Company at least 5,10 or 20 years (depending on the March 19,1982 and by 7.4% on January 7,1983. The person's age when leaving the Company) can begin PUCO ordered a 1% reduction in rates starting October 1, receiving a pension benefit at or after age 55. The amount 1983. The effect of the amount and timing of these rate of the person's benefit depends on length of service and orders on each year's change from the preceding year's earnings. The benefit is reduced by a portion of sodal electric operating revenue was to decrease electric security benefits. The benefit of an employee who retires 32
after age 65 is determined as if the individual were age 65, believe that FAS-36 disclosures are very misleading because except in the case of a retired employee who had been they understate the amount which the entry age normal rehired. If the person retires before age 62, and in certain method tells us should be in the fund now to provide cases before age 65, the employee's benefit is reduced. pension benefits as they become payable under a plan The plan also pays benefits when an employee dies or is intended to continue indefinitely. We are making the disabled. following disclosures only because we are required to do 5* We annually deposit money into the plan to fund the cost of benefits arising from employee service and earnings in At January 1, the current year. We also deposit money to fund each year a portion of the cost of future benefits arising from past 1984 1983 service and earnings because of amendments to the plan. MHions of Douars) In 1984, our total payment to the fund was $15,300,000. Actuarial present value of accumulated We deposited $15,300,000 in 1983 and $12,100,000 in plan benefits under FAS-36: 1982. Of these amounts, we recorded on the income Vested $167 $143 statement $9,570,000 in 1984, $10,211,000 in 1983 and Nonvested 16 14
$8,014,000 in 1982. The remainder was recorded on the Total $183 $157 balance sheet, mostly as construction costs. Value of assets held in the plan $296 $244 The amount we deposited into the pension plan is - determined by a method known as the entry age normal Under both methods of determining the plan's liability, the method. It is used by many private pension plans. This one which we use and the FAS-36 method, we estimated method takes into account estimated increases in that the earnings of the plan would average about 6%%
employees' future eamings in an effort to levelize the per year over the life of the plan. During 1984, a new funding of pension benefits over their working lives. The mortality table was adopted for the plan to reflect current liability of the plan as of January 1,1984 determined conditions. The net effect of the change was to increase under this method was slightly more than the value of the the present value of accumulated plan benefits by assets in the plan on that date. $13,300,000 at January 1,1984 which is reflected in the Statement of Financial Accounting Standards No. 36 above table. (FAS-36) requires us to disclose accumulated pension plan In addition to providing pension benefits, the Company liability without consideration of future increases in provides certain health care and life insurance benefits for employees' earnings, as though the plan were terminated substantially all employees when they retire with pension
. at the dates shown in the table below. Therefore, the benefits. The cost of retiree health care and life insurance disclosures below, required by FAS-36, compare liability of benefits is recognized as expense as premiums are paid, the plan determined on one basis with assets acumulated For 1984, those costs totaled $823,000.
on a different basis. We and our pension consultants Note 0 - Quarterly Results of Operations (Unudited) The following is a tabulation of the unaudited quarterly results of operations for the two years ended December 31,1984. Quarters Ended March 31 June 30 Sept. 30 Dec.31 (Thousands, except per share amounts) 1983 Total operating revenues $299,600 $290,480 $351,041 $269,195 Net operating income $ 58,935 $ 58,965 $ 87,717 $ 52,745 Net income $ 56,236 $ 52,192 $ 81,601 $ 55,996 Earnings available for common stock $ 46,690 $ 42,668 $ 72,121 $ 46,121 Average common shares 62,026 62,568 63,488 64,689 Earnings per common share $ .75 $ .68 $ 1.14 $ .71 1984 Tctal operating revenues $298,597 $298,009 $333,183 $285,563 Net operating income $ 67,710 $ 60,244 $ 81,814 $ 52,343 Net income $ 72,878 $ 65,344 $ 87,637 $ 65,772 Eamings available for common stock $ 61,978 $ 54,396 $ 76,762 $ 55,143 Average common shares 65,693 66,709 67,722 71,919 Eamings per common share $ .94 $ .82 $ 1.13 $ .77 33
m Financial and Statistical Review 1974-1984 a I 1984 1983 1982 1981 TOTAL OPERATING REVENUES 1.215,353 1,210,316 1,108,571 1,012,93 5 Residential 375,597 385.076 348,757 310,40' 338,625 334,660 263,60
- Commercial 441,285 430,209 304.801 393,794 386,80
- Industnal 44,217 43,702 i Other Electnc (includes Sales for Resale) 44.958 14,888 16,154 17,517 39.91 12,19 s Steam Heating v TOTAL OPERATING EXPENSES 953,242 951,954 879.644 820,22 6
+ Fuel and Purchased Power 313.412 332,977 329,279 351,41l
[ Other Operating Expenses 280,888 270,468 250,591 224,29' Deprecation and Amortizaton 95,274 94,196 86.588 85,29
- 4xes Other Than FederalIncome Tax 132.313 126.883 106,804 91,64 131,355 127,430 106,382 67,57'
,1 Federalincome Tax NET OPERATING INCOME 262.111 258,362 228.927 192,70 5 NONOPERATING INCOME 169,200 114,148 96,669 75.71 5 4
Allowance for Equity Funds Used Dunng Constructon 130,421 87,052 76,896 48,97 Other Income and Deductions 38.779 27,096 19,773 26,74 1 Income Statement 431,311 372,510 INCOME BEFORE INTEREST CHARGES 325.596 268,41f i (Thoucands of Dollars) 126,484 112,68 INTEREST 139.679 116.632 Long and Short-term Interest . 180,864 153,974 144,072 146,71 Allowance for Borrowed Funds Used Dunng Construction _ (41,185) (27,490) (27,440) (34J JC
)
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 291,632 246.026 208,964 155 73 4?
?5 Cumulative Effect of Change in Deprecaten Method i on Perods Pnor to January 1,1979 - - - -
NET INCOME (a) 291,632 246 026 208.964 155,73-
' PREFERRED AND PREFERENCE DMDEND REQUIREMENTS ,,_ 43,353 38,426 38.295 34,91 j i EARNINGS AVAILABLE FOR COMMON STOCK 248.279 207,600 170.669 120 81 E EARNINGS PER SHARE BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 3 64 5 3 28 5 3 01 1 2.5 CUMULATIVE EFFECT PRIOR TO JANUARY 1,1979 - - - -
c TOTAL EARNINGS PER SHARE (a)(b) $ 3 64 $ 3 28 $ 3 01 $ 2% DIVIDENDS PER SHARE (b) $ 2 43 $ 2 31 1 2.19 $ 20 f 1 .-
- 4 TOTAL A55ETS 4 926.441 4,267,427 3.872.909 3,406 07, f Utility Plant-Total 5.022.543 4,454.788 4.010,532 3,610.895 i Accumulated Utility Plant Deprecation and Amortization _ (798.979) (722,492) (679.890) (621,353
- - Other Property 95,277 70,144 64,216 23,870 d- Current and Other Assets 607,600 464,987 478,051 392,663 4.926,441 4.267,427 3 872.909 3.406.075
{ _ M t TOTAL CAPITAUZATION AND UABlUTIES Long-term Debt 1,883,648 1,518,883 1,441,822 1,328,404 4 ~ Year end Preferred and Preference Stock: 318,000 322,000 325,000 With Mandatory Redempton Provisions 292.818 (Thousands of Dollars) Without Mandatory Redemption Provisens 95,071 ti 144.021 144.021 95.071 Common Stock Equity 1,592.810 1,355,488 1,227.095 1,002.106 3' Deferred Federalincome Taxes 480,727 411.072 322,188 236,481 g Other Liabilities and Credits 532,417 519,963 464,733 418 913 4! UTIUTY PLANT ADDITIONS (c) 582.288 490,705 422,170 409,277
- P UTIUTY PLANT RETIREMENTS 14.533 46,449 22,533 13,721 NUMBER OF COMMON SHARES (b) 74.040,175 65,198,089 61,774,582 51,054,503 Q_
;1 d KWHR 5 ALES (Thousands) 17,273.057 4,446,352 16,637,472 4.412,154 16.165,157 4,335.605 17,507,864 4,375,732 5 Residential
- .1 Commercal 4.396.395 4,265.023 4,194,177 4,178,459 J Industnal 7,997,000 7,513,673 7,082,261 8,279,700 433.310 446,622 553,114 673,973 d Other(includes Sales for Resale) 714,768 712,833 711,325 ELECTRIC CUSTOMERS-YEAR END 711.222 Residential 644,904 643,065 641,705 642,925 Commercal 61,934 62,075 61,861 60,714 34 Industnal 7,521 7,274 7,235 7,261
- 1. Other 409 419 421 425
" RESIDENTIAL 5 ALE 5 DATA h Average Kwhr per Customer 6.646 6.608 6,490 6.548
% Average Revenue per Customer $ 563 60 $ 579 49 $ 524 63 $ 466 55 Average Revenue per Kwbr 8 484 8 778 8 084 7.12 f"
Operating Statistics ELECTRfC PRODUCTION j- het Available for 5erwce Area (Thousands of Kwbr) 19,096,414 18,461,867 17,677,831 18,936,567 Net Generaton(Thousands of Kwbr) 16,818.455 17,152,981 17,032,759 17,297,523 [ 2,277,959 1,308,886 645,072 1,639,044 Net Received from Others (Thousands of Kwbr)
._ BTU per Kwbr of Net Output 10.416 10.452 10.475 10.582 b Fuel Cost per Milton BTU 163 284 44 25 169 084 46 66 174 724 45 51 175 14.
46 70 J Coal Cost per Ton 1 $ 5 $ Annual Net 60 Min. Max Load-KW 3,371,000 3,404.000 3.090,000 3.447,000 i [_ Net System Capability-KW-at Time of Peak 4,329,000 4,441,000 4,699,000 4.667,000 g- STEAM HEATING Sales-Pounds (Thousands) 1.306,626 1,281,499 1,501,077 1,612,151 L 256 274 337 E- Customers-Year End 312
+ EMPLOYEES-YEAR END 5.830 5,339 5.411 5,189 C (a) The 1978 net income and earnings per share calculated on a pro forma basis to reflect the unitoof producten method of depreciaton are $102,942,503 and $2 31, respectrvey The pro forma effect c,f the adoption of this deprecatior method on 1977 was not matenal.
34
The Cleveland Electric Illuminating Company and Subsidiaries 1980 1979 1978 1977 1976 1975 1974 893.566 824,267 717,092 659,290 543.148 523,165 463,937 268,787 237,612 213,520 200,765 160.015 154,020 140,030 220,677 194,899 172,251 165,049 129.286 121,653 109,185 323,764 322,909 278,405 251,181 197,189 180,890 177,246 65,273 55,799 42,831 31,611 45,730 55,679 29,946 15,065 13,048 10,085 10,684 10,928 10.923 7,530 743,051 688,788 599,289 542,871 441,401 433,614 375,159 360,347 349,027 307.429 265,771 234.107 246,984 199,362 194,881 162,636 140,996 127.330 102.794 85,122 94.539 64.619 59,443 56.774 43.307 35,874 33,046 31,632 81,630 79,455 68.756 58,807 51,925 48,735 43,653 41,574 38,227 25,334 47,656 16,701 10,310 15,390 150,515 135,479 117,803 116,419 101,747 89,551 88,778 - 62,440 47,621 42,226 49,484 26,346 17,681 8,472 40,873 33,432 29,890 35,265 24.706 16,983 7,854 21,567 14,189 12.336 14,219 1,640 698 618 212.955 183.100 160,029 165,903 128,093 107,232 97,250 87.572 69,566 61,016 54,175 46,413 42,464 36,509 112,623 85.299 72,071 67,889 56,750 50,511 44,717 (25,051) (15,733) (11,055) (13,714) (10,337) (8,047) (8,208) 125,383 113,534 99,013 111,728 81,680 64,768 60,741
- 4,125 - - - - -
125,383 117,659 99.013 111,728 81,680 64,768 60,741 27,711 25,587 23,575 22,907 18,005 14,6 % 10,067 97,672 92,072 75,438 88,821 63,675 50,072 50,674 ) 2 26 1 2.31 $ 2 20 $ 2 91 1 2.38 $ 2.11 1 2.45 11 - - - - - L 2.26 1 2.42 $ 2.20 $ 2 91 $ 2.38 $ 2.11 1 2 45 ) 2.00 $ 1 92 1 1 84 $ 1.76 $ 1 71 $ 1.65 $ 1.60 3.094,462 2.678,786 2.331.541 2,117.135 1,842,999 1,513,247 1,354,065 3,215.339 2.842,253 2.523,996 2,232,111 1,955,701 1,693.614 1,526,659 (557.859) (521,175) (476,983) (429,150) (396,338) (373,851) (355,841) 21.137 19,503 15.034 13,753 12,849 7,433 015,845 9.942 338,205 269,494 300.421 270,787 183,542 175,814 3,094.462 2,678.786 2,331,541 2.117,135 1,842,999 1,513,247 1.354,065 1,211,528 973.991 920,973 885,899 747,392 673,003 553.144 260,500 232,000 232.000 185,000 135,000 63,000 75.000 95,071 95,071 95.071 95,071 95,071 95,071 95,071 912,731 820,411 708,883 633,744 419,990 346,736 511.333 192,052 162,122 140,677 119,299 72,318 63,267 43,348 422,180 395,191 233,937 198,122 281,885 186.916 252.766 398,088 329,869 300,765 286,739 275,524 181,673 173,893 25,002 11,612 8,880 10,329 14,718 13.437 11,362 46,288,629 41,271,574 35,995.365 32.388,055 28,347,544 20,748,110 24.351.499 18,159,754 19,030,453 18,364,437 18,066.428 18,070.291 18,133,826 17,601,686 4.463,147 4,352,983 4,288.865 4,200,116 4,045,158 3,984,004 3,830,305 4,148.990 4,041,134 3,933,586 4,007,123 3.808,897 3,685.878 3,527.382 8,062,172 9.268,600 8,992,919 8,874,796 8,475,983 7.822,419 8,819,205 1,485.445 1,367,736 1,149,067 984,393 1,740,253 2,641,525 1,424,794 710,557 708,219 702,538 696 547 693,425 689.133 684.728 642,845 641,856 637,609 632,740 630,581 627,719 623,988 60,070 58,690 57,310 56,241 55,178 53,765 7,210 53.070 7,232 7.167 7,112 7,206 7,190 7.212 432 441 452 454 460 459 458 6.686 6,557 6,517 6,412 6,187 6,116 5,914 0 405 09 $ 35786 $ 324 91 $ 307.11 $ 245.16 1 237 02 $ 216 69 6 054 5 484 5 004 4 804 3 974 3 884 3 674 18,722,616 ~ 19,645,001 19,254,857 _.19,098,231 18,331,384 17,271,169 17,817,763 15.325,948 17.069,914 16.882.669 18,123.528 16,747,626 16.213,012 18.040.100 3,396 668 2,575,087 2,372.188 974,703 1,583,758 1,058.157 (222.337) 10,635 10.634 10.536 10,401 10.322 10,454 10,5f,9 156 924 142 514 131 804 117.504 105 554 111.144 102.264 0 Elii $ 35 20 $ 30 73 $ 25 72 1 23 98 $ 24 93 $ 21 53 3.325,000 3,233,000 3,327,000 3,381,000 3,140,000 3,022,000 3,080.000 4,353,000 4,509.000 4.462.000 4,088,000 3,797,000 3,569,000 3,724,000 l 1,979,397 2,004,690 2.210,886 2,374,510 2,359.677 2,263,645 2,274,925 348 365 369 372 385 399 406 4,991 4.963 4.831 4.790 4,840 4,947 4.982 (b) Adjusted for the 3 for.2 stock spht, effectwe December 16,1977. (c) Excludes $56,022,606 of terminated prosects redassfed to Deferred Charges in 1979. 35 L
Statement ofincome from Continuing The Cleveland Electric illuminating Company and Subsidiaries Operations Adjusted for Changing Prices for the Year Ended December 31,1984 (Unaudited) Current Cost Conventional Average Historical 1984 Cost Dollars (Thousands of Dollars) Revenue $1,215,353 $1,215,353 Oper: tion expense 503,975 503,975 l Maintenance expense 90,325 90,325 Depreciation and amortization 95,274 226,793 Taxes other than Federal income tax 132,313 132,313 Federal income tax 131,355 131,355 Nonoperating income (169,200) (169,190) Interest expense 139,679 139,679 923,721 1,055,250 Net income - continuing operations $ 291,632 $ 160,103(a) - Increase in specific prices of property and plant (b) $ 64,580 Adjustment to net recoverable cost 151,890 increase in general prices (237,304) Increase in general prices in excess of increase in specific prices after adjustment to net recoverable cost (20,834) Gain from decline in purchasing power of net amounts owed _ 96,206 Net price level adjustment _ $ 75,372 (a) including the adjustment to net recoverable cost, net income for 1984 would have been $311,993,000 in current cost dollars. (b) At December 31,1984, the current cost of proparty, plant and equipment net of accumulated depreciation was $6,359,281,000 while original (net recoverable) cost was $4,223,564,000. rq O Supplementary Information Concerning the Effects ofinflation As required by the Financial cost of land was trended using the restated property and plant figures by Accounting Standards Board, we have Consumer Price Index for All Urban vintage year. The depreciation prepared information on the effects of Consumers. Certain other property provision was obtained by applying inflation on operations. The methods was trended to current cost using current depreciation rates to the used to compute this data are other industry indices. average of beginning and end-of-year experimental and subject to change by restated depreciable property. the Board. These data do not reflect Revenues and Expenses the " current value" of our assets. Materials and Supplies They do not measure all the effects of Revenues and expenses (except for deprecation) were assumed to Balance sheet items such as fuel ,n i inflation on our operations or predict our future cash requirements. The accumulate evenly throughout the stock, materials and supplies were effects described herein are not year, No adjustments were made to treated as cash type items. Fuel recognized for income tax or the f,gures i reported in the pnmary inventory ,s i subject to rapid turnover. ratemaking purposes. finanaal statements. N,o adjustments As such, we believe the original cost were made to Federal income tax of this item fairly represents its current expense. General cost. Current cost data reflects the cost of Depreciation Adjustment to Net Recoverable Cost current replacement of existing assets. The current cost of assets was A restated depreciation reserve was Under Ohic law, we can recover only estimated by applying the used to compute the current cost what we paid for plant and Handy-Whitman Index of Public Utility estimate of property and plant net of equipment, so the values of these Construction Costs to the original cost deprecation. The reserve was items under the current cost method of structures and equipment. Original obtained were adjusted to reflect the original deprecat,by ion ratesapplying by account current to cost amount.
)
36
5 x E Five-Yctr Ccmpari::n cf Selected The Cleveland Electric Illuminating Company and Suosidiaries E Supplementary Financial Data Adjusted for Effects of Changing Prices (Unaudited) L Year Ended December 31, 1984 1983 1982 1981 1980 (Average 1984 dollars in thousands. except per share amounts) R: venue as reported $1,215,353 $1,210,316 $1,108,571 $1,012,930 $ 893,566 as adjusted $1,215,353 $1,261,827 $1,192,931 $1,156,837 $1,126,371
! Nat income - Continuing Operations
$ 291,632 $ 246,026 as reported $ 208,964 $ 155,734 $ 125,383 as adjusted $ 160,103 $ 115,800 $ 87,394 $ 49,135 $ 30,617 7 income (Loss) per Common Share F as reported $ 3.64 $ 3.28 $ 3.01 $ 2.52 $ 2.26
- _ as adjusted $ 2.35 $ 1.20 $ 0.82 $ 0.19 $ (0.10)
! Nat Assets at Year End as reported $1,592,810 $1,355,488 $1,227,095 $1,002,206 $ 912,731 as adjusted $1,570,597 $1,389,431 $1,305,571 $1,107,589 $1,098,880 Increase in general prices in excess of increase in specific prices after adjustment to net recover-able cost $ 20,834 $ (4,057) $ (13,146) $ 140,456 $ 238,018 7 Gain from decline in purchasing power of net amounts owed $ 96,206 $ 86,642 $ 83,285 $ 181,332 $ 237,786 T
Cash Dividends Declared per Common Share k as reported 2.43
$ $ 2.31 $ 2.19 $ 2.08 $ 2.00 as adjusted $ 2.43 $ 2.41 $ 2.36 $ 2.38 $ 2.52 Market Price per Common Share at Year End
[ as reported as adjusted
$ 19.50 19.23
$ 18.63 $ 19.75 $ 16.00 $ 14.63
$ $ 19.09 $ 21.01 $ 17.68 $ 17.61 Average Consumer Price Index 311.1 298.4 289.1 272.4 246.8 Increase in General Prices in Excess of deferred tax balances were treated as current cost depreciation through
. Increase in Specific Prices After cash type liabilities for this rates. Ohio law restricts recovery of i Adjustment to Net Recoverable Cost computation. investment through depreciation The increase in general prices as charges to the original cost of plant. F measured by the Consumer Price Effects of /nflation on the Company The part of current cost we could not Index for All Urban Consumers during com was on1y partly offset by the Our 1984 revenue remained about the 1984 exceeded the overall increase in same as in 1983 despite an increase in g in fr m hold,ngi cash type liabilities. I prices of our property and plant. unit sales of electricity, while revenue We have to raise new capital to meet However, when the current cost of in average 1984 dollars declined growth needs at inflated costs of
- - plant was adjusted to reflect net somewhat. This happened because construction and to replace worn-out recoverable cost, the difference fuel cost per kilowatthour, a major items at higher replacement costs. If between these price measures was component of revenue, was lower in rate adjustments fail to compensate significantly reduced. the current year and because there for the cost of new capital, especially was a slight decrease in base rates in during times of inflation, a regular Gain from Decline in Purchasing October 1983. See Note M. erosion of the return on equity will
{ Power of Net Amounts Owed occu As a M, h WW be a Net income from operations once With inflation, holding cash type again increased in 1984 on both mg ar nd for rate rem _ assets such as money and receivables historical and current cost bases. We continue to seek proper and results in a loss in purchasing power. These measures of income are timely rate increases and a regulatory Holding cash type liabilities such as different because we are not environment which is responsive to L long-term debt results in a gain in permitted to recover the higher. the effects of inflation on our , purchasing power. Preferred stock and investment.
- 37
p O Boardcf Directors Leigh Carter of the Board and retired Chairman and developer of new technologies and Vice Chairman of the Board and Chief Executive Officer of the Company products in the field of biotechnology Operating Officer of The BFGoodrich Craig R. 5mith Richard B.Tullis Company, a producer of rubber, tires, Former Chairman of Bendix Automation Chairman of the Executive Committee chemicals and plastics. Also Chairman of Bendix Corporation, a wholly-owned and retired Chairman and Chief Executive of Trernco,Inc., manufacturer of specialty subsidiary of Allied Corporation. Bendix Officer of Harris Corporation, manufac-chemical products and a wholly-owned Automation is a producer of machines turer of communication and information subsidiary of The BFGoodrich Company and accessories for the metalworking processing equipment Robert M. Ginn , industry Harold L. Williams Chairman and Chief Executive Officer Charles E. Spahr Executive Vice President of the Company of the Company Director of several companies and. William J. Williams Roy H. Holdt retired Chairman and Chief Executive Director and President of the Northeast Chiirman and Chief Executive Officer Officer of The Standard Oil Company Ohio region of Huntington National of White Consolidated Industries, Inc., (Ohio), manufacturer of petroleum Bank and director and Executive Vice manufacturer of products for the home, products, chemicals, plastics and metals President of Huntington Bancshares , pnnapally major appliances, and and supplier of coal Incorporated machinery and equipment for industry Herbert E. Strawbridge Richard A. Miller Chairman of the Finance Committee and President of the Company retired Chairman and Chief Executive Ralph M.Besse Sister Mary Marthe Reinhard, SND Officer of The Higbee Company, a Chairman Emeritus of the Board of President of Notre Dame College of Ohio department store Directors Karl H. Rudolph Allan J.Tomlinson, Jr. Elmer L. Lindseth Chairman, President and Chief Executive Chairman Emeritus of the Board of Chairman of the Executive Committee Officer of SDS Biotech Corporation, a Directors Committees of the Board of Directors Audit Committee The Audit Committee has the same authority as candidates, the Committee considers ! Committee recommends to the Board the Board, except that it may not elect suggestions made by share owners. th? firm of independent accountants officers (other than assistant secretaries H. E. Strawbridge (Chairman), L. Carter, to be retained for the ensuing year and and assistant treasurers), fill vacancies R. M. Ginn, R. H. Holdt, Sr. M. M. Reinhard, reviews the results of their examination on the Board or on the Executive K. H. Rudolph, C. R. Smith, C. E. Spahr, i of the Company's financial statements Committee or authorize the issuance A.J. Tomlinson, Jr, R. B. Tullis, l cnd the audit practices employed by of first mortgage bonds. W1. Williams them and the Company. The Com- K. H. Rudolph (Chairman), R. M. Ginn, mittee oversees the establishment and R. H. Holdt, H. E. Strawbridge Nuclear Comm.ttee i The Nuclear administration by management of Committee monitors, consults with and effective internal accounting controls Finance Committee The Finance makes recommendations to both and an accounting system designed to Committee reviews and recommends management and the Board regarding produce financial statements which long-range financial policies and (1) progress of the Perry Nuclear Power present fairly the financial position of objectives and specific actions to achieve Plant and Beaver Valley Power Station th! Company. these objectives. The Committee, acting Unit 2 construction proj,ects and all for the Company as administrator of the objectives and strategies relating to C. E. Spahr (Chairman), St M. M. Company's Pension Plan and Investment their completion and (2) the operation Reinhard, C. R. Smith, H. E. Strawbridge, , Program of the Employee Savings Plan, of all nuclear units in which the W1. Williams also reviews the investment performance Company has an ownership interest or Compensation Committee The of the pension fund trustee, other other output entitlement. Compensation Committee reviews and pension fund investment managers and C. R. Smith (Chairman), C. E. Spahr, approves the Company's overall the Employee Savings Plan trustee and A.J. Tomlinson,1r. Compensation Plan, including the establishes objectives for the invest-pension and employee stock purchase ment of Pension Plan and Employee Planning Committee The Planning plans and,in particular, recommends Savings Plan assets. Comm,ttee i advises and consults with the remuneration of the Chairman, R. A. Miller (Chairman), R. M. Ginn, management and the Board on long-President and all Vice Presidents. range strategic planning. Responsibilities K. H. Rudolph, C. R. Smith, C. E. Spahr, of the Committee include reviewing L. Carter (Chairman), R. H. Holdt, R. B. Tullis A.J. Tomlinson,1t, Wl. Williams long range objectives and the strategies, Nominating Committee The manpower and overall corporate Executive Committee The Executive Nominating Committee recommends to organization appropriate to meet Committee acts on behalf of the Board the Board candidates to be nominated those objectives. at times other than regular Board for election as directors at the annual R. M. Ginn (Chairman), L. Carter, meetings when it is impracticable to meeting and to fill any vacancies on the R. A. Miller, A.J. Tomlinson,1c, c ll together the entire Board. The Board. When reviewing potential H. L. Williams 38
Principal Officers and Executives l I ' , Robert M Ginn RKhard A. Miller Harold L. Wilhams Murray R. Edelman l . I Robert J Farhng John W. Fenker Frank A Kender Edgar H Maugans l ,
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rq Lj GeneralInformation Dividend Reinvestment and Stock Morgan Guaranty Trust Company of Share Owner Inquiries Purchase Plan New York,30 West Broadway, New York, Communications regarding stock The Company has a Dividend Reinvest- N.Y.10015-Paying agent for the transfer requirements, lost certificates, ment and Stock Purchase Plan which 11%% Series due 1985-A dividends and changes of address provides share owners of record and 15%% Series due 1989-A should be directed to Share Owner customers a convenient means of 14%% Series due 1989 B Services at the Company. To reach Share purchasing shares of Company common 7%% Series due 1990 Owner Services by phone, call the stock at no additional cost by investing 8%% Series due 1991 following numbers: a part or all of their quarterly dividends 14% Series due 1991-A Local calls in and cash payments. Dividends reinvested 15%% Series due 1992 Cleveland area 622 9800, ext. 3700 in Company common stock under the 15%% Series due 1994-A Elsewhere Plan qualify for the tax deferral provisions 8%% Series due 2005 in Ohio 1 800-362-1237 cf The Economic Recovery Tax Act of 9%% Series due 2009 1981. In addition, share owners and Outside Ohio 1-800-321-3206 1 9.85% Series due 2010 1 customers may establish Individual Retire- Please have your account number ready 8%% Series due 2011 , ment Accounts (IRAs) which invest in when calling. 8%% Series due 2012 Company common stock through the 16%% Series due 2012-A Executive Offices Plin. Information and a prospectus 12%% Series due 2012-D llluminating Building relating to the Plan and the IRA may be 12%% Series due 2013 A 55 Public Square obtained from Share Owner Services Cleveland, Ohio inquiries regarding interest payments at the Company. Telephone Number (216) 622 9800 should be directed to either Manufac-Form 10 K The Company will furnish turers Hanover Trust Company or Mail Address to share owners, without charge, a copy Morgan Guaranty Trust Company of Post Office Box 5000 of its most recent annual report to the New York for the series of bonds for Cleveland, Ohio 44101 Securities and Exchange Commission which each acts as paying agent as (Form 10 K) and, upon payment of a noted above. The annual meeting of the share reasonable fee, a copy of each exhibit to owners of the Company will be held Form 10 K. Requests should be directed Common Stock April 23,1985. Owners of common to the Secretary of the Company. Usted on the New York, Midwest and stock as of February 22,1985, the Pacific Stock Exchanges; unlisted trading record date for the meeting, will be Independent Accountants on the Boston, Philadelphia Baltimore- entitled to vote on the issues. The Price Waterhouse,1900 Central National Washington and Cincinnati Stock official notice, proxy statement and Bank Building, Cleveland, Ohio 44114 Exchanges. New York Stock Exchange proxy will be mailed to share owners Bond Trustee and Registrar symbol-CVX. on or about March 15,1985. Morgan Guaranty Trust Company of Preferred Stock Notice: The annual report and the New York for al! series. Listed on the New York Stock Exchange. financial statements herein are for the Communications regarding bond Registrar generalinf rmation of the share owners registration requirements and lost For Common Stock, Preference Stock f the Company and are not intended certificates should be directed to to be used in connection with any sale and Preferred Stock Morgan Guaranty Trust Company of r purchase of securities. AmeriTrust Company National Association New York,30 West Broadway, New 900 Euclid Avenue York, N.Y.10015. Telephone Number Cleveland, Ohio 44114 (212) 587 6469. Transfer Agent Bond Paying Agent For Common Stock, Preference Stock Manufacturers Hanover Trust Company, and Preferred Stock 40 Wall Street, New York, N.Y.10015 The Cleveland Electric and AmenTrust Company National Illuminating Company Assoc,ation,900 Euclid Avenue, Share Owner Services Cleveland, Ohio 44114-Co pay.ing P.O. Box 5000, Cleveland, Ohio 44101 5 ie due 1985 Stock transfers may be presented at Wells Fargo Secunties Clearance 3%% Series due 1986 3% Series due 1989 Corporation,45 Broad Street, New York, N.Y.10004. 3%% Series due 1993 4%% Series due 1994 40 1
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- THE CLEVELAND ELECTRIC ILLUMINATING COMPANY , , , , ,
- P.O. Box 5000 o Cleveland, Ohio 44101 u.s. POSTAGE
-PAID CLEVELAND, OHIO PERMIT NO. 409 a
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