ML20116F012
| ML20116F012 | |
| Person / Time | |
|---|---|
| Site: | Beaver Valley, Perry, 05000000 |
| Issue date: | 12/31/1984 |
| From: | PENNSYLVANIA POWER CO. |
| To: | |
| Shared Package | |
| ML20116E772 | List: |
| References | |
| NUDOCS 8504300517 | |
| Download: ML20116F012 (27) | |
Text
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, x PENNSYLVANIA POWER COMPANY 1984 ANNUAL REPORT I PDR
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Highlights i i For the Years Ended December 31, 1984 1983 Change j g gg U (in Millions) M Kilowatt-Hour Sales . 3,805.6 3,396.5 + 12.0% Operating Revenues. $213.2 $191.2 + 11.5% ses.4 : Fuel Expense . 56.1 47.7 + 17.7% - j-:2- .:3 "pesoamen Operating income. 44.5 44.0 + 1.2% Allowance for Funds Used During Construction, Net. 24.4 18.4 + 32.4% interest Expense. 39.8 35.1 + 13.5% .. ss4.c -
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Net income (i). 45.4 34.3 + 32.2% Earnings on Common _,,,. Stock (i) 36.4 27.0 + 34.7% is24s Dividends on Capital Stock . $ 29.8 $ 26.6 + 12.2% ~ sac.s > Capital Expenditures: Construction of Facilities. S 80.9 $ 71.6 Nuclear Fuel. 12.4 8.5 Capital Leases . 1.1 3.2 , S 95.4 $ 83.3 + 14.5% internally Generated Funds . 31.4 26.7 + 17.6% Net Financing Activities . 55.0 57.3 - 4.0% Return on Average Common Equity . 16.0 % 13.0 % (i) 1984 includes a noncash depreciation adjustment of $6.7 million which increated net income and earnings on common stock (See Note 2). The Company Contents Pennsylvania Power Company (Penn Power or Financial Highlights. .1 the Company) provides electric service to Letter to Stockholders . .2-3 approximately 127,400 customers in Western Operating Statistics. .4 Pennsylvania. The Company furnishes electric Selected Financial Data . .5 service in 139 communities, as well as rural Management's Discussion and Analysis. .6-7 areas, and also sells electric energy at wholesale Balance Sheets .8-9 to five municipalities. The Company's service Statements of income. .10 area has an estimated population of 350,000. Statements of Capitalization. .11 The Company, with headquarters in New Castle, Statements of Retained Earnings. .12 Pennsylvania, is a whollyawned subsidiary of Statements of Capital Stock and Ohio Edison Company e ~ - ~ ~ ' ~ Other Paid-in Capital .12 (Edison). x Statements of Sources of Funds for Property Additions .13 n ,, , m Statements of Taxes . .14 Notes to Financial Statements .15-23
\ Auditors' Report .24
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Directors and Officers. .inside Back Cover 1 _ _ _ J
Letter to the Stockholders The year 1984 was a successful one for the Company with Record operating revenues several notable accomplishments. Operating revenues totaled $213.2 million, an 11.5 percent increase from 1983. A $15.4 million rate increase approved by
* /ncreased sales and new rates produced record operating the Pennsylvania Public Utility Commission (PPUC) in April revenues. 1984 contributed to the increase.
*For the fourth year in a row, a gain was posted in net The PPUC required the Company to make a noncash income. adjustment that decreased the depreciation reserve and, thus,
*A long and costly dispute between the Company and its increased not income for the year by $6.7 million. Net income, municipal resale customers was successfully resolved. excluding the depreciation change, increased by 12.5 percent
- Off-system sales hit a record high. over 1983.
For the second year in a row, the Company reduced Record sales maintenance expenses, but financing and operating costs Sales increased by 12 percent from 1983 to a record 3.8 continue to rise, adversely affecting the Company's earnings billiori kilowatt-hours due to increased industrial use and potential. As a result, the Company has a $20.4 million retail substantial gains in off-system sales. Sales to retail and rate increase request pending before the PPUC. Filed in wholesale customers of 3.4 billion kilowatt-hours for 1984 were October 1984, a final decision by the Commission on the only two percent below 1981, a record year. request for new rates is expected by July 1985. Industrial sales of 1.9 billion kilowatt-hours were up 13.7 p;rcent from 1983, lagging 1981 by only 3.5 percent and Company reaches agreement with municipalities IIading 1982, the recession's downturn year, by 24 percent. We are pleased to report that the Company and the five Sales to other utilities were more than doubled due to a full municipalities it provides wholesale electric service have y:ar of sales from the long-term contracts made in 1983. reached a seven-yeas agreement that ends equally as many years of legal and regulatory controversy. The agreement, accepted by the Federal Energy Regulatory Commission (FERC) in December, began September 1,1984. The five boroughs are now being charged the applicable retail rate, set 4 - ti ~ , .y ' ., r by the PPUC, for their electric service. The boroughs have 8@ agreed not to intervene in the Company's rat 7 cases. W Additionally, the Boroughs of Ellwood City and Grove City dropped an antitrust action and other litigation against the M.p 7 M~ '.{
,y ct Company pending before courts and FERC.
mux- , .- I M I. '- bk No short-term debt outstanding l j , e t .v - ,, , , . The Company minimized bank borrowing throughout 1984 i L[';Qnj@ N and, like 1983, had no short-term debt outstanding at the end
'+ 'e' of the year. Along with funds remaining from a December 1983
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, bond issue and funds generated internally, the 1984
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; construction program was financed by taking advantage of a l
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receptive capital market to issue $20 million in first mortgage p?ft , , _.g; bcnds, $10 mil l ion in preferred stock and $12.7 million in f J s c t pollution control notec. A sale of $12 million of common stock to the parent company, Ohio Edison, was made in December. s T - 7, i A portion of the proceeds from the 1984 financings will fund 4 i 1985 capital requirements. The remainder of the 1985 o ~4 construction funds and maturing obligations will be met with
, 'j 4 W planned issues of additional first mortgage bonds, pollution control notes, and common stock as well as funds generated
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, internally.
Air quality construction program completed in 1984, construction work was completed on the air quality control project for Unit 7 at the W. H. Sammis Plant, partially owned by the Company. The Company's share of the project amounted to $19 million. The completion of the project concluded the Company's program to bring its coal-fired generation in compliance with air quality regulations. However, special interest groups using circumstantial evidence continue e.ciuo nonutiary propre, nuci.ar ru.i and capaai i.as to pressure Congress for " acid rain" legislation requiring more auenn.o costly controls. Before a new round of expensive projects is 2
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- PENN POWER r quired to satisfy " acid rain" lobbies, there should be take advantage of reduced billing demands for electric home rzsonable assurance of real benefits. So far, that assurance heating and water heating systems, under a new interruptible is missing, and we're doing everything we can to convince rate. The rate applies to add-on heat pumps, dual-fuel Congress to recognize this fact. resistance heaters and certain water heaters operated in line It appears the Company will not need to install cooling with a radio-controlled, load-shedding device.
tow:rs, estimated to cost as much as $32 million, to meet We foresee continued sales growth within our service area mt r quality thermal standards for the New Castle Power for 1985, but at a slower pace compared to other parts of the PI:nt. The Penncylvania Department of Environmental state and nation. Our 1985 goal is to increase new business by Resources accepted a proposal made by the Company in May 115 mi: lion ki!owatt-hours. 1984 that provides an afternate means of compliance. Reaching out Property additions and improvements In addition to our ongoing effort to improve the area's P nn Power will spend approximately $214 million for economic outlook through plant expansions and jobs, we property additions and improverrents over the next five years. started an emergency fund to aid our hardship customers Construction of facilities amounted to $81 million in 1984 and along the way. Project REACH started with a corporate gift. ars budgeted at $69 million this year. The joint development of Then, we enlisted the support of our employees, our powir plants and transmission facilities with the Central Area customers and the Salvation Army. Together, we're helping our Pow r Coordination Group (CAPCO) continues to constitute neighbors in need pay their energy bills this winter, it's been a the greater part of current construction activities. successful and gratifying program. The Company has partial ownership in three CAPCO nucl:ar units, one operating and two under construction. In tribute Unit 1 at the Beaver Valley Power Station supplied 21 percent Clyde M. Whittaker, a director of the Company since 1960, of the Company's electric generation in 1984. The unit had an passed away in July 19d4. Mr. Whittaker was retired chairman impressive operating record in 1984, achieving a 93 percent of the board of Universal-Rundle Corporation, New Castle. We operating availability for the year before the unit went off line greatly associate his presence on the board with our for scheduled refueling and maintenance in October. During successes. He is deeply missed. the planned shutdown, modifications were completed that now permit 15 months of continuous operation between refuelings. Thanks to dedicated employees Th3 unit returned to service in January 1985 and the next The Company's ability to succeed during this period of rifu: ling is planned for early 1986. economic resurgence pays particular tribute to the The projected completion cost for Unit 1 at CAPCO's Perry perseverance and dedication of Penn Power employees. Our Nucl:ar Plant is $3.9 billion, amounting to $204 million for the plans for future successes could not be in better hands. Company based on its 5.24 percent share of ownership. The unit is expected to be completed by late 1985. The - construction schedule and budget for Unit 2 is currently under - c# ' ^~' r viIw. Deferred coal costs Chairman of the Board The PPUC issued an order pertaining to the recovery by the Company of deferred costs for coal from Quarto mines used at /] th3 Bruce Mansfield Plant. As it stands, the order could result A- Ad-in unrecovered costs, detailed in Note 8. The Company has President tpp!aled the decision to Pennsylvania's Commonwealth Court. New Castle, Pennsylvania New peak load The combination of hot weather and increased industrial activity resulted in a new peak demand of 597 megawatts on Jun 3 13, 1984. The previous peak demand was 577 megawatts recorded in 1981. Aggressive and innovative sales efforts P:nn Power's aggressive marketing efforts produced more th;n 360 million kilowatt-hours of new business in 1984. The C:mpany added an economic development rider to its industrial rates in 1984 as an incentive ::r manufacturers to cxp nd or locate within Penn Power territory. The rider ext nds over five years and offers reduced charges for any new or additional demand. Also, residential customers can 3 l l
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~ . Operating Statistics 1984 1983 1982 1981 1980 Revenue from Electric Sales (Thousands):
Residential. . . .. .. $ 69,133 $ 63,994 $ 61,628 $ 52,649 $ 50,251
. Commercial . . . .. .. . .. 35,542 36,841 36,068 30,225 28,374 Industria! . ... . ... .. 77,210 61,959 61,611 64,787 58,623 Other... ... ... .. . ... . 6,963 6,989 7,082 5,347 5,472 Subtotal . . . . . .. . .. . . 186,848 169,783 166,389 153,008 142,720 Sales to Utilities. . ... . . 9.305 4,277 20 24 73 l Total. .... . . $198,153 $174,060 $166,409 $153,032 $142,793 !
I Revenue from Electric Sales-%: Residential . . . .... . . .. ... . 34.9 % 36.7 % 37.0 % 34.4 % 35.2 % Commercial . . . . . . . . . . . . . ... .. ... . 17.9 21.2 21.7 19.8 19.9 Industrial . . . . ... ...... ... ... 39.0 35.6 37.0 42.3 41.0 Other ......... ... . . .. . . . 3.5 4.0 4.3 3.5 3.8 I Subtotal . . . . . . . . . .. . .. . . 95.3 97.5 100.0 100.0 99.9 Sales to Utilities. . . . .... ....... . . 4.7 2.5 - - 0.1 Total. . . .. . . . ... _ 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Kilowatt. Hour Sales (Mi!! ions): Residential . . .. .. . . 890.7 876.0 865.0 862.4 845.5 Commercial . . . ... .. .. . . 548.4 589.5 578.2 566.1 -536.9 Industrial . . . ...... .. .. . . 1,849.7 1,627.3 1,487.7 1,915.8 1,737.2 Other.. ... . .. .. .. . 125.9 123 7 125.5 131.5 129.7 Subtotal . .. .... . ... . . 3,414.7 3,216.5 3,056.4 3,475.8 3,249.3 Sales to Uti'ities. . . . . . . . 390.9 180.0 1.0 1.0 2.1 Total. . ... . ... . . . 3,805.6 3,396;5 3,057.4 3,476.8 3,251.4 Customers Served at December 31:
. Residential . .. . . ....... . . .. . . 113,368 112,768 111,931 111,12I 110,012 Commercia! . . . . . . . . . .. . . . . 13,601 13,474 12,994 12,902 12,839 Industrial . . . . . . ... .. . . . . 285 104 106 109 107 i Oth( r . . . . . . ......... .. . .. 128 129 122 118- 117 Total... . .. . . ... 127,382 126,475 125,153 124,250 123,075 Residential Customer Averagem Average Kwn Used per Residential Customer. .. 7,884 7,804 7,755 7,813 7,726 , Average Price per Kwh-Residential (Cents) . 7.76 7.30 7.12 6.10 5.94 Kilowatt-Hours Generated (Millions) . . 4.063.5 3,563.7 3,546.7 3,834.6 3,146.0 Kilowatt. Hours Purchased and (Interchanged),
Net (Millions) . . . . (59.4) (3.3) (400.2) (266.4) 296.5 I Prak Load (Megawatts) . . . . .. 597 567 562 577 548 1 Cost of Coal per Million BTU. . . $ 1.50 $ 1.57 $ 1.66 $ 1,66 $ 1.41 G:neration Capability: Coal . . . . . . . . 77.7 % 77.7 % 77.7 % 77.7 % 77.5 % i Oil. . . .. . .. .. . 6.1 6.1 6.1 6.1 6.3 Nuclear. . . . . .. . . 16.2 16.2 16.2 18.2 16.2 Total. .. .. . . . 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Scurces of Electric Generation: Coal . . ........ . . .... .. .. .. 79.3 % 77.1 % 66.7 % . 78.3% 97.7 % Oil.. .... . .. .... .. .
- 0.1 0.2 0.7 Nuclear. . .... ... .. . . . .. 20.7 _
22.9 13.2 21.5 1.6 Total. ...... .. .. ... .. .. 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Number of Employees at December 31 . . 1,828 _ _ 1,838 1,868 1,779 1,682 i 4
a Selected % "'"" " " Financial Data 1984 1983 1082 1981 1980 (Dollars in Thousands) Operating Revenues . . .. . $213,150 $191,172 $185,883 $174,488 $157,208 Operiting income . . . . .. . . $ 44.519 $ 43,977 $ 40,590 $ 37,412 $ 32,427 t
$ 45,404 $ 34,343 $ 29,392 $ 24,936 $ 20,822 Net income (i). . .... . ..
Eirnings on Common Stock (i) . . . $ 36,439 $ 27,047 $ 23.294 $ 19,331 $ 15,590 Cash Dividends on Common Stock . . $ 20,862 $ 19,203 $ 18,324 $ 15,876 $ 14,301 Tot:J Assets at December 31. . . . . . $875,604 $797,180 $710,886 $637,607 $588,624 Utility Plant. . . .... .. $923,420 $829,915 $733,395 $649,350 $599.982 Depreciation Reserve. .. . 171,483 157,329 137,016 124,115 113,044 Net Utility Plant . .. . .. _$751,937 $672,586 $596,379 $525,235 $486,938 Property Additions . . . . S 95,383__ $ 83,337 $ 86,f>89 $ 52,858 $ 57,204 Long. Term Obligations. . . . $ 52,179 $ 4 ! .351 $ 22,847 - - CAPITALIZATION: Common Stockholder's Ecuity . . $247,096 $219,474 $199,680 $194,666 $170,755 Pref;rred Stock-Not Subject to Mandatory Redemption . .. 41,905 41,905 41,905 41,905 41,905 Subject to Mandatory Redemption. . . . . .. 56.562 47,471 33,395 26,298 27,200 Long. Term Debt . . . . .. . .. . . . . 317,764 _ 323,363 295,405 262,011 242,194 TotI.! Capitalization .... .. . . $663,327 $632,213 $570,385 $524,880 $482,054 CAPITALIZATION RATIOS: Common Stockho! der's Equity . . 37.3 % 34.7 % 35.0 % 37.1 % 35.4 % P.ef;rred Stock-Not Subject to Mandatory Redemption . . 6.3 66 73 8.0 8.7 Subject ta Mandatory Redemption. . 8.5 7.5 5.9 5.0 5.6
- Long-Term Debt . . . . . .. . . . 47.9 51.2 51.8 49.9 50.3 Totil Capitalization .. . .. .. . 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
(i) 1984 includes a noncash depreciation adjustment of $6,751,000 which increased net income and earnings on common stock (See Nute 2). i l 4 5
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i _ l Management's Discussion and Analysis l of Results of Operations ! and Financial Condition i i Results of Operations i Results of operations for 1984 reflect the improved
! economy in the Company's service area. Increased total l kilowatt-hour sales of 12.0% and a rate increase effective in April 1984 contributed to increased earnings on common stock
- of 9 8% (excluding the effect of a noncash depreciation j adjustment to incon.e in 1984 as discussed below) recorded 4
over 1983 levels. l ' l Increased operating revenues of 11.5% in 1984 compared I to 1983 resulted primarily from a $15.4 million rate increase that became effective in April of 1984 .vhich accounted for approximately one half of the totalincrease. Also contributing to this increase was a 13.7% increase in kilowatt-hour sales to f 1: , 4
. the Company's industrial customers and increased bulk power sales to non associated utilities resulting from two long-term contracts entered into in mid-1983. The 1983 operating j revenue increase of 2.8% was primarily due to a $10.8 million rate increase that became effective in September of 1982.
I Industrial kilowatt-hour sales increased in 1983 following a ] substantial decrease in 1982. In addition, increased bulk power sales to non-associated utilities in mid-1983 contributed to this increase. Partially offsetting this 1983 revenue increase was a reduction to the levelized energy cost rate. Fuel costs increased in 1984 compared to 1983 resulting principally from greater quantities of fuel consumed due to improved availability of the Company's generating units and j increased generation required to supply the demand for
! increased sales within the system and to non-associated utilities for bulk power sales. The reduction in fuel costs in a 1983 from 1982 was primarily attributable to reduced I consumption of coal as a result of outages to generating units
- at the New Castle Plant and Sammis Unit No. 7 during the year 1983. Net purchased and interchanged power expenses decreased in 1984 compared to 1983 due to improved availability of the Company's generating units. The increase in net purchased and interchanged power expenses in 1983 over 1982 was principally due to reduced deliveries of power to Ohio Edison in 1983 and increased purchases of low-cost power resulting principally from the Company's contractual obligations with Ohio Valley Electric Corporation.
Other operation expenses increased in 1984 over 1983 due primarily to increased employee benefits, injuries and l damages, legal costs associated with the recently settled j antitrust case, and expenses relating to rate cases.
- The provision for depreciation and amortization increased in 1984 over 1983 due primarily to the amortization of the retail portion of terminated construction project costs approved by the PPUC in April 1984. In addition, depreciation increased due to a higher level of utility plant in service.
Other income increased in 1984 compared to 1983 due to a noncash depreciation reserve adjustment of $6,751,000 necessitated by a PPUC rate order. The adjustment resulted in a reduction to the Company's reserve for depreciation and reflects previously recorded depreciation not recovered in l l l 6
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retail rates but which will be recovered in future rates. Increrses in interest on long-term debt and preferred stock dividend requirements in 1984 and 1983 reflect the effects of financing for the Company's construction program. The increase in allowance for funds used during construction resulted principally from capitalizing financing costs applicable to higher levels of construction work in progress. Increased interest on nuclear fuel obligations reflects the Company's increased investment in nuclear fuel during 1984 l l l and 1983. l Information with respect to the estimated effects of inflation l l l upon the Company is given in Note 10 of Notes to Financial Statements. Capital Resources and Liquidity l The 1985-1989 construction budget is currently estimated - I I to be $214,000,000; the issuance of additional common stock and other securities will be necessary to fund a portion of this new construction. During the came five-year period, maturities of, and sinking fund requirements for, long-term debt, long-term obligations and preferred stock will require the expenditure by the Company of approximately $140,000,000. In addition, the Company expects to invest approximately
$40,000,000 for nuclear fuel during the 1985-1989 period.
The Company's current budget forecast reflects expenditures of approximately $69,000,000 for new construction in 1985. Also, approximately $27,000,000 of first mortgage bonds mature in 1985 and are expected to be refunded. At December 31,1984, the Company had available approximately $22,000,000 of temporary cash investments and approximately $13.000,000 of funds held in escrow from I l previous pollution control financings. The Company also has I __
$30,000,000 of short-term bank lines of credit available for interim financing purposes, none of which had been drawn down at December 31,1984. All of the current lines expire December 31, 1985; however, all unused lines may be canceled by banks. The Company expects to 'inance the majority of its 1985 capital requirements through the issuance of additional first mortgage bonds, common stock and I pollution control notes. The Company also expects to invest i approximately $6,000,000 for additional nuclear fuel in 1985 through the incurrence of additionallong-term obligatiors Based upon earnings as of December 31,1984, the Company would be permitted, under its first mortgage indenture, to issue approximately $31,000,000 principal amount of first mortgage bonds assuming an interest rate of 14%, or under its charter, would be permitted to issue i
approximately $41,000,000 of preferred stock assuming a dividend rate of 13.5%, or to issue some lesser combination of l both first mo'tgage bonds and preferred stock. The Company has a rate case pending with the PPUC which, if gra.ited in full, is designed to produce additional annual revenues of approximately $20,400,000. New rates are expected to become effective by July 16,1985. l 7
1 l M anCe i Sheets l 1 l l Assets l At December 31, 1984 1983 (In Thousands) Utility Plant: In service, at original cost . . .. ... . .. . .. . .. . . ... . . $611,615 $576,258 Less-Accumulated provision for depreciation. . . ... . . .. . 171,483 157,329 l 440,132 418,929 i Construction work in progress-Electric plant . .. ... .. .... ... . .... . . .. .. . . . ..... 265,139 220,420 Nuclear fuel . . . ..... .... .. ....... .. ..... .. . . 46,666 33,237 311.805 253,657 751.937 672,586 Other Property and investments . . . . .... . ... .. .. .. . .. . . . 2,706 2,688 Current Assets: Cash...... ..... ... . . .. ....... . . . . .... ... . . . 624 635 Temporary cash investments, at cost, which approximates market value. . . . .... .. ... . . .. . . 21,900 22,993 Receivables-Customers (less accumulated provision of $112,000 and
$432,000, respectively, for uncollectible accounts) . . . .. . ... .. 15.963 14.212 Parent company. . . .... . ... ... . . .. . .. . . 18,435 16,762 Other . . .. .. . . .. ..... . . .. .. . . .. . .. . 12,020 14,447 Materials and supplies, at average cost-Fuel . . . . . .. . . . . . . ... .. .. . . ... . ... . 11,209 8,871 Other . . . . ... .. ...... .. .. ... . .. .. . .. . ...... .... 5,494 5,072 Prepayments . . . . . . . . . . . .. .. ... .. . .. . 817 426 86,462 83,418 Deferred Charges Deferred Quarto coal and energy costs (Note 8) . . . . . . . . . . . . . . . . . ..... . .. 10.902 9,879 Unamortized costs of terminated construction projects (Note 3). . . . . . . ... .... . 14.818 16,000 Oth e r. . . . . . . . . . . . . . . . . . . . . . .. . .. .. . .... ..... ..... ..... 8,779 12,609 34,499 38,488 i
$875,604 $797,180 .
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= PENN POWER Capitalization and Liabilitics At December 31, 1984 1983 (In Thousands)
C pitalization (See Statements of Capitalization): Common stockholder's equity. . , $247.096 $219,474 Preferred stock-Not subject to mandatory redemption 41,905 41,905 Subject to mandatory redemption. 56,562 47,471 Long-term debt. 317,764 323,363 663.327 632,213 Long-Term Obligations: Nuclear fuel (Note 6) . . . . 47,129 32,614 Capital leases (Note 4) 5,050 8,737 52,179 41,351 Curr:nt Liabilities: Currently payable preferred stock, long-term debt and long-term obligations. 34,014 5,241 Notes payable to banks (Note 7). . Accounts payable-Parent company. 3,879 2,069 Other . . 40,002 41,610 Accrued taxes 4,603 4,562 Accrued interest. 8,068 6,978 Other. . 8,164 4,987 98,730 65,447 Def;rred Credits: Accumulated deferred income taxes. . 36,931 31,002 Accumulated deferred investment tax credits 19,443 15,179 Energy costs recovered in advance , - 3,569 Other. 4,994 8,419 61,368 58,169 Commitments, Guarantees and Contingencies (Notes 4 and 8).
$875.60_4 $797,180 The accompanying Notes to Financial Statements are an integral part of these ba'ance sheets.
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Statements cf Income For the Years Ended December 31, 1984 1983 1982 (In Thousands) Operating Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $213.150 $191,172 $185.883 i Operet;ng Expenses and Taxes: 1 Operation-Fuel..... ... .. . . . .. . . . .. 56,124 47,666 61,974 Purchased and interchanged power, net. . . . (4,410) (3.818) (14.534) Other operation expenses . . . . . . .. . 43,477 36,339 32,841 Total operation. . . . ... . ...... . 95.191 80,187 80,281 Maintenance . . . . . . . . . .. .. .. .. .. . 18,263 18,467 18.585 Provision for depreciation and amortintion .... . . .. 18,810 16,845 15,857 General taxes . . ...... .... . ..... . 15,733 13.475 12.590 income taxes. . . . . . . .. . . .. . 20,634 18.221 17,980 Total operating expenses and taxes. . . 168,631 147,195 145,293 Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,519 43,977 40,590 Other income and Deductions: Allowance for equity funds used during construction. . . . . . . . . . . . . . . . . .. 15,997 12,219 10,464 Miscellaneous, net (Note 2) . . ... . . .. .... . 8.137 892 763 income taxes-credit . ... .... .. . . .. . .. .. . 8.150 6,149 3,871 Total other income and deductions . .. . . ... . . . 32.314 19,260 15,098 Total income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 833 63,237 55,6E8 Net interest: Interest on long-term debt . ....... . . . . . . . 33,640 30,300 27,019 Interest on nuclear fuel obligations . . . . . . . .. . 5,030 2.931 1,063 Allowance for borrowed funds used during construction, net of deferred income taxes. .. . . . . . (8,357) (6.173) (4,340) Other . . . . . . . . . . .... .. . . ... .... . . 1,116 1,836 2,249 Net interest . .. ..... . . .. . . ... . . 31,429 28,894 26,296 Not income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,404 34,343 29,392 Preferred Stock Dividend Requirements . . . . . . . . . . . . . . . . . . . . . . . . . 8,965 7,296 6,098 Esmings on Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36,439 $ 27,047 $ 23,294 The accompanying Notes to Financial Statements are an integral part of these stateme its. I 10 L
i m Statements of == = genn gOwen Capitalization
- At December 31, 1984 1983 (in Thousands)
Common stockholder's equity: Common stock, $30 par value,6,500,000 shares authorized 5.890,000 and 5.490,000 shares outstanding, respectively. $176,700 $164,700 Other paid-in capital. . 200 177 Retained earr.ings (Note Sa) . 70,1S6 54,597 Total common stockholder's equity . 247,096 219,474 Optional Redemption Price Number of Shares Aggregate Outstanding (In 1984 1983 Per Share Thouscnds) Pr:ferred stock (Note 5b): Cumulative, $100 par value AuthoMed-1,200.000 shares Not bubject to Mandatcry Redemption: 4 24 % - 4.64 % . 141,043 141,049 $102.98 - 105 00 $14,614 14,105 14,105 7.64% - 8.00% . 118.000 118.000 104.47 - 105.27 12.374 11,800 11,800 8.48% - 9.16% . 160On0 160.000 105.20 - 106.87 16,966 16.000 16.000 Total not subject to mandatery redemption . 419.049 419.049 $43,954 41.905 41.905 Subject to Mandatory Redemption (Note Sc): 8.24% . 85,000 90,000 $108.24 $ 9.200 8.500 9,000 10 50 % . 100,000 100.000 109.04 10.904 10,000 10,000 11.00 % . 55.616 59,708 112.11 6,235 5,562 5,971 11.50 % . 150.000 150,000 103.29 15.494 15.000 15.000 13 00 % . 100.000 - 113.00 11,300 10.000 - 15.00 % . 80.000 80.000 114 62 9.169 8.000 8,000 Redemption within one year (500) (500) Total subject to mandatory redemption . 570.616 479,708 $62.302 56,562 47,471 Leng-term debt (Note 5d): First mortgage bonds-13.32% weighted average interest rate, due 1985 through 1989. 97.890 37,512 9 54% weighted average interest rate, due 1990 through 1994. 61,890 99,890 9.33% weighted average interest rate, due 1995 through 1999. 23,940 11,890 8.52% weighted werage interest rate, due 2000 through 2004. 54.240 67.620 9.26% weighted average interest rate, due 2005 through 2008. 41,040 42.088 Total first mortgage bonds . 279.000 259.000 Secured notes and obligation-5 88% weighted average interest rate, due 1985 through 1989 - 328 263 8.45% weighted average interest rate, due 1990 through 1994 9,204 8,104 7.72% weighted average interest rate, due 1995 through 1999 9 261 8,086 10.09% weighted s<erage :nterest rate, due 2000 through 2004. 36.098 28,839 7.34% weighted average interest rate, due 2005 through 2009 12,720 22,369 12.00% weighted average interest rate, due 2010 through 2014. 12.700 - 80.311 67,661 Amount held by Trustee. _ (13.305) (2.572) Total secured notes and obligation. 67.00f 65,089 Net unamortized ciscount on debt. , 14) (676) long-term debt due within one year . (27 +28) (50) Totallong-term debt , 31; 3 323.363 Total capitalization. $661327 $632,213 The accompanying Notes to Financial Statements are an integral part of these statements. 11 --. J
Statements of Retained Earnings For the Years Ended Dacember 31, 1984 1983 1982 (in Thousands) Balance at beg 6nning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 54,597 $ 46,820 $ 41,850 Net income. . . . ... . . . 45,404 34,343 29,392 100,001 81,163 71,242 Deduct: Ca:,h dividends on common stock . . . . . . 20,862 19,203 18,324 l Cash dividends on preferrisd stock. 8,943 7,363 6,098 29,805 26,566 24,422 Balance at end of period (Note Sa). . $ 70,196 $ 54,597 $ 46,820 Statements of Capita 1 Stock and Other Paid-In Capital Preferred Stock Subject to Not Subject to Mandatory Common Stock Mandatory Redemption Redemption Other Number Par Paid-in Number Par Number Par of Shares Value Capital of Shares Value of Shares Value (Dollars in Thousands) Balance, January 1,1982. . . 5,090,000 $152,700 $116 419,049 $41,905 267,984 $26,798 Sale of 15.00% Series of , Preferred Stock . . . .
- - - - - 80,000 9,000 l Preferred Stock Sinking ,
Fund Redemptions- j 8.24% Series . . . . . .
- - - - - (5,000) (500) i 11.00% Series. . - - 44 - - (4,033) (403) ,
Balance, December 31,1982. 5,090,000 152,700 160 419,049 41,905 338,951 33,895 Sale of Common Stock . . . . . 400,000 12,000 - - - - - Sale of 11.50% Series of Preferred Stock . . . . . . . - - - - - 150,000 15,000 Preferred Stock Sinking Fund Redemptions-8.24% Series . . . .
- - - - - (5,000) (500) 11.00% Series . . . . . . . . . - - 17 - - (4,243) (424)
Balance, December 31,1983. 5,490,000 164,700 177 419,049 41,905 479,708 47,971 Sale of Common Stock . . . . 400,000 12,000 - - - - - Sale of 13.00% Series of Preferred Stock . . . . . . . - - - - - 100,000 10,000 Preferred Stock Sinking Fund Redemptions-8.24% Series. . .
- - - - - (5,000) (500) 11.00% Series. . . . .
- - 23 - - (4,092) (409)
Balance, December 31,1984. . 5,890,000 $176,700 $200 419,049 $41,905 570,616 _$57,062 The accompanying Notes to Financial Statements are an integral part of these statements. t 12 L
m Statements of Sources
- gruugowen l of Funds for Property Additions For the Years Ended December 31, 1984 1983 1982 (In Thousands)
Int:rnally generated funds-N;t income . .
$ 45,404 $ 34,343 $ 29,392 Principal noncash items-Depreciation and amortization . .
17,112 21,325 16,128 Deferred Income taxes, net . 15,052 13,585 6,653 Investment tax credits, net. . 4,264 3,182 7,847 Allowance for equity funds used during construction. (15,997) (12,219) (10,464) Deferred fuel and energy costs, net (4,592) (6,924) 1,898 61,243 53,292 51,454 Less-Dividends on common stock . 20,862 19,203 18,324 Dividends on preferred stock 8,943 7,363 6,098 31,438 26,726 27,032 Fin ncing activities-Common stock 12,000 12,000 - Pr:ferred stock . 10,000 15,000 8,000 Long-term debt . 21,776 27,955 39,173 Long-term obligations . . 17,043 13,156 22,847 R: payment of preferred stock, long-term debt and long-term obligations. (5,779) (10,776) (6,708) Notes payable to banks - - (11,400) 55,040 57,335 51,912 N;t change in current assets and current liabilities excluding notes payable to banks and currently payable preferred stock, long-term debt and long-term obligations-Cash and temporary investments . 1,104 (15,036) (1,044) Receivables. . . , (997) 2,898 2,931 Materials and supplies . . (2,760) 3,917 (344) Accounts payable . 202 1,896 (7,545) Accrued taxes. . 41 (2,350) 2,877 Accrued interest . . 1,090 217 3,096 Miscellaneous, net . 2,786 1,037 1,038 1,466 (7,421) 1,009 Other, not-Allowance for equity funds used during construction . 15,997 12,219 10,464 Deferred income taxes on allowance for borrowed funds used c'uring construction . . (8,872) (6,559) (4,291) M.acellaneous, net . 314 1,037 763 7,439 6,697 6,936 Total Sources of Funds for Property Additions. S 95.383 $ 83,337 $ 86,889 Property Additions-Electric plant . $ 80,862 $ 71,592 $ 68,533 Nuclear fuel. 13,429 8,526 16,146 Capital leases . 1,023 3,207 - Nonutility property. _ 69 12 210
.$ 95.383 $ 83,337 $ 86,889 Th3 accompanying Notes to Finar.cial Statements are an integral part of these statements.
13 _j
h Statements === esuu powen cf Taxes For the Years Ended December 31, 1984 1983 1982 (In Thousands) General Taxes: State gross receipts. S 8,503 $ 7,727 $ 7,473 R;al and personal property, 3,669 2,212 2,172 St:te capital stock , 1,788 1,902 1.675 Social security and unemployment . 1,713 1,587 1,207 Miscellaneous. 60 47 63 Total general taxes . $ 15,733 $ 13,475 $ 12,590 Provision for income Taxes: Currently payable-Federal. $ 614 $ 647 $ 1,644 State. 1,426 1,217 2,256 2.040 1,864 3,900 Deferred, net (see below)- Federal. 12,079 10,708 5,253 State. 2.973 2,877 1,400 15.052 13.585 6,653 Investment tax credits, net of amortization, 4.264 3,182 7,847 Total provision for income taxes. $ 21,356 $ 18,631 $ 18,400 Income Statement Classification of Provision for income Taxes: Operating expenses, $ 20,634 $ 18,221 $ 17,980 Other income . . .. (8,150) (6,149) (3,871) Allowance for borrowed funds used during construction . 8.872 6,559 4.291 Total provision for income taxes. $ 21.356 $ 18,631 $ 18,400 Sources of Deferred income Taxes: Allowance for t orrowed funds used during construction, which is credited to plant S 8,872 $ 6.559 $ 4,291 Excess of tax over book depreciation, net . 4,096 4,145 3,375 Cost of terminated construction projects, net. (609) (43) 460 Deferred fuel and energy costs, net . 2.365 3,567 (977) Deferred interest on leased nuclear fuel, net . (2,089) (608) (13) Nuclear fuel disposal costs . 1,786 (575) (497) Other, net . 631 540 14 Net deferred income taxes. $ 15.052 $ 13,585 $ 6,653 Reconciliation of Federal income Tax Expense at Statutory Rate to Total Provision for income Taxes: j Book income before provision for income taxes. $ 66,760 $ 52,974 $ 47,792 Federalincome tax expense at statutory rate . $ 30.710 $ 24,368 $ 21,984 increases (reductions)in tares resulting from: Allowance for equity funds used during construction, which does not constitute taxable income. . (7,359) (5,621) (4,813) Excess of tax over book depreciation, net, (223) (839) (1,307) State income taxes, net of Federal income tax benefit . 2,375 2,211 1,974 Depreciation reserve adjustment (Note 2) . (3,106) - - Other, net. (1.041) (1,488) 562 Total provision for income taxes. . $ 21,356 $ 18,631 $ 18.400 The accompanying Notes to Financial Statements are an integral part of these statements. 14 k ..
A Nates to the == eenuvowen Financia1 Statements L (1) Summary of Significant Accounting Policies: The Company, a wholly-owned subsidiary of Ohio Edison
- Company (Edison), follows the accounting policies and u wii.nt Noi*"'N "'E w E" o[r"e"rs"[#p practices prescribed by the Pennsylvania Public Utility c.n. rating Units in Service Depreciation Progress Interest Commission (PPUC) and the Federal Energy Regulatory Commission (FERC).
W. H sammis No 7. . $ 16.073 $ 8.340 $ 168 20 80 % Bruce Mansfield Revenues- No.1. No 2 and No 3 . 84.389 17.6:5 230 5 76 % 21.129 17 50 % The Company's residential and commercial customers are Beaver Vaney No 1. . . 163.889 35.804 5 24 % Perry No.1 a No 2 . - - m;tered on a cycle basis. Revenue is recognized for electric
~
service based on meters read through the end of the month. Revenues from the Company's largest customer, Sharon Steel Corporation, amounted to approximately $23,894,000,
$22,846,000 and $19,370,000, in 1984,1983 and 1982, All nuclear fuel in process relates to the CAPCO units but is r spectively. These amounts represented 11.2%,12.0% and not segregated among therr.
10.4%, respectively, of the Company's total operating rmnues. Nuclear Fuel-The Company amortizes the cost of nuclear fuel based on Deferred Fuel and Energy Costs- the rate of consumption. The Company also makes provision The Company recovers fuel and energy costs, in excess of for future disposal costs associated with nuclear fuel. amounts recovered through base rates, from its customers through an annual "levelized" energy cost rate (ECR). The Allowance for Funds Used During Construction (AFUDC)- ECR, which includes adjustment for any over or under AFUDC represents the net financing costs capitalized to collection from customers, is recalculated each year. construction work in progress during the construction period. Accordingly, the Company defers the difference between The borrowed funds portion reflects capitalized interest actual energy costs and the amounts currently recovered from payments and the equity funds portion represents the noncash its customers. capitalization of imputed equity costs which are charged to Reference is made to Note 8 with respect to accounting for construction. AFUDC varies according to changes in the level tha cost of coal received from Quarto Mining Company of construction work in progress and in the cost of capital. The (Quarto). Company computes AFUDC utilizing a net of tax rate, which is consistent with the rate treatment. The AFUDC rate related to Utility Plant and Depreciation- nuclear fuel financed only 15 rough the incurrence of long-term Utility plant reflects the original cost of construction, obligations (see Note 6) is based on actual interest accrued on including payroll and related costs such as taxes, pensions the obligations during the period. The annual rates used by the and other fringe benefits, administrative and general costs and Company for all other construction projects were 9.45% allowance for funds used during construction (see AFUDC). during 1984 and 9.25% during 1983 and 1982. The Company provides for depreciation on a straight-line basis at various rates over the estimated lives of property Income Taxes-included in plant in service. The annual composite rate for Details of the total provision for income taxes are shown on dectric plant was 3.2% in 1984 (see Note 2),1983 and 1982. the Statements of Taxes. The deferred income taxes result The Company provides for the estimated cost of from timing differences in the recognition of revenues and d: commissioning the radioactive components of its only expenses for tax and accounting purposes. nuclear generating unit in service, in accordance with a PPUC The Company allocates the income tax benefit which rate order. Amounts collected from customers for results from interest expense related to construction work in decommissioning are accumulated in an escrow account. progress, to income taxes-credit included under other income and deoactions on the Statements of Income. Common Ownership of Generating Facilities- For income tax purposes, the Company claims liberalized The Company and other Central Area Power Coordination depreciation and, consistent with the rate treatment, generally Group (CAPCO) companies own, as tenants in common, provides deferred income taxes. The Company expects that vIrious power generating facilities. Each of the companies is deferred taxes which have not been provided will be collected obligated to pay a share of the construction costs of any jointly from its customers when the taxes become payable, based owned facility in the same proportion as its ownership interest. upon the established ratemaking practices of the PPUC and Tha Company's portion of operating expenses associated with the FERC. As of December 31, 1984, the cumulative net th se jointly owned facilities is included in the corresponding income tax timing differences for which deferred income taxes op rating expenses on the Statements of Income. The have not been provided were approximately $100,000,000. amounts reflected on the Balance Sheet under utility plant at The Company defers investment tax credits utilized and December 31,1984, include the following: amortizes these credits to income over the estimated life of the 15
_-- ~_.. - . - -
;Notesbnunmn E
, rellted property. At December 31, 1984, approximately The Company provides a minimum amount of j
< $10,000,009 of unused investment tax credits were available noncontributory life insurance to retired employees in addition 1 t) offset future Federal income taxes payable. These credits to optional contributory insurance features. Health care cxpire at the end of the following years: benefits, which include certain employee deductibles and co-payments, are also available to retired employees, their 1996. ......... . .................. $ 2,000,000 dependents and, under certain circumstances, to their
-1997........................ ....... 2,000,000 survivors. The Company pays insurance premiums to cover a 1998.......... .... .... ....... ... 4,000,000 portion of these benefits in excess of set limits; all amounts up i 1 1999............. .......... . .... 2,000,000 to the limits are paid by the Company Expenses associated I
$10,000,000 with health care and life insurance benefits for retirees l amounted to $456,000 in 1984 and are charged to income l during the applicable payment periods. I
.The Company's trusteed, noncontributory pension plan Signincent Parent Company h-covers most full-time employees. Upon retirement, employees Operating revenues for 1984,1983 and 1982 include receive a monthly pension based on length of service and $10,693,000, $12,745,000 and $14,141.000, respectively, compensation. Pension costs for 1984,1983 and 1982, were attributable to transactions with Edison. Such revenues
- $4,393,000, $3,397,000 and $2,987,000, respectively Of those resulted primarily from Edison's purchase of capacity from the l amounts, $1,827,000, $1,309,000 and $666,000, respectively, Company's ownership interest in Beaver Valley Unit No.1.
! wire charged to operating expenses; the balances were Purchased and interchanged power, net, reflects credits of l primarily billed to the other CAPCO companies or charged to $7,973,000, $8,290,000 and $18,467,000 due to the
. construction. Such costs include the amortization of unfunded Company's net delivery of interchanged power to Edison past sonnce costs on an actuarial basis over approximately 35 during 1984,1983 and 1982, respectively in addition, other 4 years in 1984 and 1982, and 40 years in 1983. The Company operation expenses for 1984,1983.and 1982 include i funds pension costs accrued. A comparison of accumulated $3,535,000, $2,794,000 and $2,251,000, respectively, j plan benefits and plan net assets from the two latest actuarial primarily attributable to data processing services rendered by a i ' reports is as foHows: Edison to the Company ; June 30, . ._ .;.
(2) Depreciation Reserve M 1984 1983 In the third quarter of 1984, the Company made a noncash [ . Actuarial present value of depreciation reserve adjustment of $6,751,000 as required by . accumulated plan benefits: a PPUC rate order. The adjustment resulted in an increase to Vested . . . . . . . . . . . . . . $24,879,000 $22,468,000 other income and a decrease to the Company's reserve for Nonvested . . . . . . . . . . . 4,606,000 3,500,000 depreciation and reflects previously recorded depreciation not
$29,485,000 $25,968,000 recovered in retail rates, but which will be recovered in future
' Net assets available for
. benefits . . . . . . . . . . . . . . . $46,952,000 $45,233,000 (3) llerminated Construction Projects:
, Assumed rate of return for in January 1980, the Company and all other CAPCO -
- actuarial present value of companies terminated plans to construct four nuclear i accumulated plan benefits . 8% 8% generating units. Costs (including settlement of all asserted
! claims resulting from termination) unrecovered by the 1 Company as of December 31,1984, applicable to these units , The above total actuarial present value of accumulated amounted to approximately $14,818,000.~ The Company is plan benefits reflects pension benefits applicable to eligible recovering these costs from customers but is not earning a e.,y;u,::: based upon present salary levels and past years of retum on the unamortized investment. The remaining period I [ service accumulated through the valuation date. This is the of recovery is approximately nine years. . generally accepted reporting procedure currently set forth by j
. the Financial Accounting Standards Board. The Company's (4) Leeses:
, annual contribution to the plan, however, considers estimated The Company leases a portion of its nuclear fuel I l ultimate salary increases due to inflation and other factors and requirements, certain transmission facilities, computer E the estimated total service expected to be accumulated by equipment, office space and other property and equipment i e,,p v,::1 This is a widely recognized funding technique and under cancelable and noncancelable leases. Consistent with is consistent with the recommendation of the Company's the regulatory treatment, rental payments for capital and
- cctuary. In addition, the actuary recommended, and the operating leases are charged to operating expenses on the l Company utilized, a discount rate of 7% for funding purposes Statements of income. Such costs for the three years ended
' Differences between funding bases and reporting December 31,1984 are summarized as follows: I requirements can have a significant effect on the comparisons 1 l above I
16 b
A
= PENN POWER iss4 iss: iss2 operations. The optional redemption prices shown on the Statements of Capitalization will decline to eventual minimums
*""# per share according to the Charter provisions that establish interest on cap <au.d iessa. . s 3.s24 s 3.000 s- each series.
Amortuation of capstalleases . 4.828 4.219 - Ap other leases. . 1 218 1.427 4 618 w.i ,entai p.yments . s o s7o s s.s4e s 4.eis (c) Preferred Stock Subject to Mandatory Redemption-The Company's 8.24% Series and 11.00% Series each include provisions for a mandatory sinking fund to retire a minimum of 5,000 shares and 4,000 shares, respectively, Certain leases entered into prior to January 1,1983, which every year on December 1 and January 1, respectively, at would be reflected as capital leases on the Balance Sheets, $100 per share plus accrued dividends. Its 15.00% Series and h;v) not yet been capitalized as permitted by Statement of 11.50% Series each include provisions for a mandatory Fin:ncial Accounting Standards No. 71 (SFAS No. 71). If they sinking fund to retire a minimura of 3,200 shares and 15,000 had been capitalized, total assets and liabilities would have shares, respectively, on July 15 of each year beginning in 1988 incr:ased by $5,515,000 and $5,703,000 at December 31, and 1949, respectively, at $100 per share plus accrued 1984 and 1983, respectively. Also, in accordance with SFAS dividends. The Company's 13.00% Series includes a provision No. 71, the December 31,1983 Balance Sheet and Statement for a mandatory sinking fund to retire a minimum of 5,000 of Sources of Funds for Property Additions for 1983 have been shares on July 1 of each year beginning in 1990, at $100 per restited to include capital leases entered into during 1983. share plus accrued dividends. The Company's 10.50% Series The future minimum rental commitments as of includes a provision for mandatory redemption of the entire December 31,1984, for leases reported as capital leases and ' series on April 1, 2040, at $100 per share plus accrued noncancelable operating leases are: dividends. The Company's sinking fund requirements for the next five capital Operating years are: Leases Leases 1985. $ 3,319,000 $ 1,183,000 1985. . $ 500,000 1986. 2.987,000 1,139,000 1986. . 900,000 1987. 1,022,000 1,124,000 1987. 900,000 1988. 726,000 1,113,000 1988. 1,220,000 1989. .. 500,000 1,098.000 1989. .. .. . 2,720,000 Years thereafter . 9,789,000 13,757,000 Tot:J minimum lease payments. 18,343.000 $19.414,000 Less: Amount representing The mortgago and its supplements, which secure all of the estimated executory costs Company's first mortgage bonds, serve as direct first h ' mortgage liens on substantially all property and franchises, ntenanc a'nd other than specifically excepted property, owned by the insurance) included in total minimum lease Company. payments . 3.044.000 Based on the amount of bonds authenticated by the Trustee Net minimum lease payments. 15,299,000 through December 31,1984, the Company's annual sinking Less: Amount representing and improvement fund requirements for all bonds issued interest . 7.527,000 under the mortgage amounts to $2,784,000. The Company Present value of net expects to satisfy these requirements in 1985 by certifying minimum lease payments. . $ 7,772.000 unfunded property additions of 166-2/3% of the required amount. As of December 31, 1984, the Company's sinking fund (5) Capitalization: requirements for certain series of first mortgage bonds and (a) Retained Eamings- maturing long-term debt for the next five years are: Under the Company's Charter, the Company's retained earnings unrestricted for payment of cash dividends on the 1985. $27,428,000 Company's Common Stock were $46,338,000 at 1986. 2,428,000 December 31,1984. 1987, 2,428,000 1988. 5,441,000 (b) Preferred Stock- 1989. . 60,493,000 At the Company's option, all preferred stock may be redeemed in whole, or in part, at any time upon not less than The weighted average interest rates shown on the 30 nor more than 60 days notice, unless otherwise noted. Statements of Capitalization relate to long-term debt Redemption of all preferred stock issued within the past five outstanding at December 31,1984. yeIrs is subject to certain restrictions regarding refunding Total secured notes outstanding at December 31,1984 and
)
17 _ _ _ _ _ _ _ _ _ _ _ _ _ _ . _ _)
. Notes wnnnua 1983, exclude $13,305,000 and $2,572,000, respectively, of (7) Notes Payable to Banks and Lines of Credit:
certain pollution control notes, the proceeds of which were The Company has lines of credit with banks that provide for thin in escrow pending their disbursement for construction of borrowings of up to $30,000,000 at the prevailing prime or pollution control facilities. The Company's obligations to repay similar interest rate. Short-term borrowings may be made c:rtain pollution control notes are secured by series of first under these lines of credit on the Company's unsecured notes. mortgage bonds. All of the current lines expire December 31,1985; however, all unused lines may be canceled by the banks. (6) Long-Term Obligations: The Company maintains cash balances on deposit with Pennsylvania Power Fuel Corporation (a corporation in banks to provide operating funds and to assure availability of which the Company has no ownership interest) provides funds $8,000,000 of the lines of credit and for other banking for the procurement of nuclear fuel on behalf of the Company. arrangements. Such compensating balances, net of " float", Th3 Company also participates in arrangements wherein the are expected to be maintained at an average of approximately Cintral Area Energy Trust (CAET) finances the acquisition of $700,000 and are not subject to any contractual restriction nuclear material that will ultimately be used to fuel various against withdrawal. The Company is required to pay CAPCO generating units. Under ordinary circumstances, the commitment fees that vary from a flat rate of 3/8% to a Company will make payments for nuclear fuel as it is variable rate of 5% of the applicable prime interest rate to consumed. Financing on behalf of the Company of up to assure the availability of $16,000,000 of the lines of credit.
$48,000,000 is currently available through the Pennsylvania Power Fuel Corporation, either through revolving credit (8) Commitments, Cuarantees and Contingencies arrtngements or the issuance of commercial paper, which is Construction Program-supported by a bank letter of credit, or a combination of both. The Company's current budget forecast reflects Financing of up to $29,000,000 is available to CAET on behalf expenditures of approximately $214,000,000 for property of the Company, subject to certain limitations. additions and improvements from 1985 through 1989, of which The Company accrues interest applicable to the nuclear approximately $69,000,000 is applicable to 1985. In addition, futi obligations (for fuel which is not included in utility plant in the Company expects to invest approximately $40,000,000 for s rvice) which is subsequently capitalized, net of income tax nuclear fuel during the 1985-1989 period, of which effect. No direct borrowings have been or are expected to be approximately $6,000,000 is applicable to 1985. The major made against the line of credit available to the fuel portion of the Company's construction activities during this corporation; the fuel corporation has issued and has five-year period relates to the CAPCO companies' program for outstanding commercial paper supported by the line of credit. the joint development of power generation and transmission To the extent that borrowings are less than the $48,000,000 facilities, available under this credit line, the fuel corporation must pay a The CAPCO companies are continuing to review the status commitment fee of 1/8% to 1/2% on the available portion of of Perry Unit 2. Until this review has been completed, there will tha line of credit. It also pays a fee of 5/8% to 7/8% for the be no defined schedule for the completion of Unit 2. Possible latter of credit on the aggregate amount of outstanding alternatives being reviewed with respect to Unit 2 include commercial paper. Interest on CAET purchase commitments is temporary cessation of work on the Unit and termination of the at rates which vary from 1-1/8% to 1-1/2% over the interest Unit. Presently, the only significant work being performed on rrt s applicable to certain dealer placed commercial paper. Unit 2 is that necessary to enable Unit 1 to be placed in Ths effective average annual interest rates applicable to service. This work is expected to be completed sometime in nuclear fuel obligations were 11.9%,10.6% and 12.0% during 1985. Whether under those circumstances it would still be 1984,1983 and 1982, respectively appropriate to continue capitalizing AFUDC (as described in The Company presently expects to make payments Note 1) to Unit 2 is uncertain at this time. Accordingly, if the applicable to these obligations during the next five years as CAPCO companies do not decide to resume significant follows: construction, the Company may not be able to include the AFUDC in net income. Instead, a reserve may be provided for 1985. . $ 3,364,000 AFUDC capitalized to Unit 2 prospectively. Currently, the 1986. . 7,844,000 Company's AFUDC for Unit 2 is being included in net income l 1987. . . . 8,315,000 at a rate of approximately $600,000 per month.
1988... .. . 9,271,000 1989. .. . 6,968,000 18 1
i
== PENN POWER W
As of December 31, 1984, the Company had invested Although the PPUC issued an order which found that the approximately $57,300,000 applicable to Perry Unit 2. Delays Company was not imprudent in initiating and continuing the in the completion of the Unit can be expec(ed to increase its Quarto project, it prescribed a method for recovery of the total cost by amounts which are not presently determinatie. If current cost of Quarto coal and the deferred Quarto coal costs a decision were made to terminate Unit 2, certain costs which (amounting to $9,916,000 at December 31,1984) which could cre currently assigned to Unit 2 would be reassigned, where result in a substantial underrecovery of Quarto coal costs. The appropriate, to Unit 1. However, cancellation charges payable Company has appealed the order to the Commonwealth Court to contractors and other costs of termination could be of Pennsylvania. If the PPUC method stands and no other incurred. The Company is currently recovering costs means of recovery could be found or anticipated, a loss applicable to previously terminated construction projects from equivalent to the amount not recoverable would be incurred. its customers. Based on this past exper:ence, the Company Although unable to predict the final resolution of this matter, would expect to recover its investment in Unit 2 through its management believes that its ultimate disposition will not have rails if the Unit were terminated. a material adverse effect upon the Company's results of operations. Quarto Project-The Company, together with the other CAPCO companies, Environmental Matters-has cntered into a long-term coal supply contract with Quarto. Various federal, state and local authorities regulate the Tbs CAPCO companies have also agreed to guarantee Company with regard to air and water quality aqd other sey: rally, and not jointly, their proportionate shares of Quarto's environmental matters. The Company estimates that dibt and lease obligations incurred while developing and compliance requires additional capital expenditures of equipping the mines: As of December 31, 1984, the approximately $4,000,000, which is included in the Company's share of the guarantee was $29,507,000. construction estimate given above under " Construction Under the terms of the coal supply contract, which expires Program" for 1985 through 1989. Dec:mber 31,1999, the Company must reimburse Quarto for On December 5,1984, the Federal Environmental its share of the costs of operating the Quarto mines, including Protection Agency (EPA) denied a petition from the thos3 costs associated with mine construction, whether or not Commonwealth of Pennsylvania and the states of New York it receives coal from Quarto. These payments will permit and Maine, which sought to force the EPA to make findings Quarto, over the life of the contract, to mest the debt and lease under Section 126 of the Clean Air Act. Section 126 provides a obligations it incurred while developing and equipping the remedy for a downwind state that can show adverse impact min:s. The Company's total payments under this contract, because air pollution regulations in an upwind state causes including amounts related to mine construction costs, nonattainment of air quality standards in the downwind state. amounted to $8,995,000, $10,708,000 and $9,369,000 during The petition complained of excessive particulate and sulfur 1984,1983 and 1982, respectively. Under the coal supply diox:de (SO2) emissions from a number of sources in Ohio and contract, the Company's future minimum payments related other states, including Sammis Unit No. 7. Seven northeastern solely to mine construction costs are: states have appealed the EPA's decision to the U. S. Court of Appeals for the District of Columbia, asking that the decision be reviewed, reversed, modified or set aside. Edison, along 1985. $ 2,855,000 with other electric utilities and others, has petitioned to 1986. 2,785,000 intervene in the case. The Company is unable to predict the 1987. 2,715,000 outcome of these proceedings. 1988. 2,645,000 As part of the reauthorization of the Clean Air Act, 1989. 2,575,000 legislation has been introduced in Congress to address the Y;ars thereafter . 22,409,000 so-called " acid rain" problem. Various bills introduced thus far would require reductions in SO2 emissions from utility power Following the end of the development period, the Company plants and other sources locEted in several states, including w1s ordered by the PPUC to defer recovery of the cost of Ohio and Pennsylvania. The Company is unable to predict Outrto coal in excess of generally prevailing market prices, whether the proposed bills will be enacted and, if so, to what p nding further proceedings. As a result of that order the extent,if a.1y, the SO2 emission limits at the Company's plants Company began deferring a portion of the cost of Quarto coal, rath;r than including such costs in its energy cost rate. l 19
+
Notes %nunuen would be affected. Substantial changes in the SO2 emission rewritten by DER to implement the plan which is expected to ) limits could result in the need for changes in coal supply or eliminate the need for off-stream cooling at the plant. ' significant capital investments in flue gas desulfurization equipment to assure compliance. If flue gas desulfurization Other Legal Actions and Complaints-
~ equipment were to be installed on all of the Company's In December 1984, the FERC approved settlement 9enerating units to achieve complience, a circumstance that agreements between the Company and its five municipal may be physically impossible because of space limitations at resale customers. The agreements terminated with prejudice one of the Company's plants, the Company estimates that the an antitrust suit brought in 1977 by two of these customers in capital costs associated with such installation could exceed which violations of the Sherman and Clayton Acts and i $100,000,000. The Company expects that any such capital damages of $12,583,000 (to be trebled) were alleged. The l
coats, as well as any increased operating costs associated agreements also terminated several rate case proceedings j with such equipment, would ultimately be recovered from its before the FERC and appeals to the Court of Appeals for the customers. District of Columbia. For the seven years beginning in October 1983, the U. S. Court of Appeals for the District September 1,1984, these five customers will be charged the of Columbia reversed several significant portions of the EPA's Company's applicable prevailing retail electric rates. No regulations on the methods used by the EPA to determine the damages, costs or attorney fees on behalf of these customers Emount of stack height credit for establishing individual source were paid by the Company in the settlement. emission limitations. In July 1984, the U. S. Supreme Court The PPUC is investigating an outage of Beaver Valley Unit denied a utility industry request to review the Court of Appeals
- No.1 which occurred during the period March-August 1979.
decision. On November 8,1984 the EPA proposed new stack The outage had been ordered by the Nuclear Regulatory height regulations to conform with the court's decision. Final Commission to analyze possible seismic deficiencies of regulations are to be issued by April 4,1985. Such changes safety-related piping and pipe supports in the Unit. The PPUC could result in more stringent emission limitations for some has ordered that the operating company of the Unit make s'xisting plants and increased capital costs and operating refunds to that company's customers based upon that cxpenses. The Company is studying the proposed new company's expenditures for purchased replacement power regulations and is currently unable to predict their ultimate during the outage. The PPUC is currently investigating the 6ffect if adopted as proposed. Company's liability, if any, for the outage and whether refunds On October 2,1984, the Pennsylvania Department of are due to the Company's customers for purchased Environmental Resources (DER) approved a Company plan replacement power expenses incurred during the outage regarding thermal discharges at its New Castle Plant. The plan which were included in its energy clause. If the Company is involves correlating river flow and temperature conditions with required at some future time to make such a refund, it is not - plant generating operations to effect an alternate thermal expected that the amount would be material to the Company's effluent limitation under Section 316(a) of the federal Clean results of operations. Water Act. The Company's discharge permit is currently being 5 l l l 20 L
PENN POWER (9) Summary of Quarterly Financial Data: The following summarizes certain operating results for the four quarters of 1984 and 1983. Three Months Ended (Unaudited) March 31, June 30, September 30, December 31, 1984 1984 1984(l) 1984 (In Thousands) Operating Revenues. $ 51,157 $ 53,891 $ 54,750 $ 53,352 Opsrating Expenses and Taxes. 40,438 42,517 42,242 43,434 Operating income. 10,719 11,374 12,508 9,918 Other income and Deductions. 5,897 6,191 13,263 6,963 Met Interest. 7,599 7,674 7,949 8,207 Net income . S 9,017 $ 9,891 $ 17,822 $ R,674 Earnings on Common Stock . $ 6,937 $ 7,804 $ 15,421 $ 6,277 (i) Includes a noncash depreciation adjustment of $6,751,000 which increased net income and earnings on common stock (See Note 2). Three Months Ended March 31, June 30, September 30, December 31, 1983 1983 1983 1983 (In Thousands) Operating Revenues. $ 46,966 $ 45,724 $ 50,189 $ 48,293 Operating Expenses and Taxes. 34,992 35,087 39,817 37,299 Operating income. 11,974 10,637 10,372 10,994 Other income and Deductions. 4,356 4,571 4,885 5,448 Net Interest. 7,261 7,194 7,359 7,080 Met income . $ 9,069 $ 8,014 $ 7,898 $ 9,362 Earnings on Common Stock . $ 7,395 $ 6,341 $ 6,042 $ 7,269 , 21
- . . . _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ b
Notes <nmnnua (10) Supplementary Financial Data-Financial Reporting and Changing Prices (Unaudited) Statement of Financial Accounting Standards No. 33,
" Financial Reporting and Changing Prices" (SFAS No. 33), as Cmended, provides for the preparation of supplementary financial information to disclose the estimated effects of inflation and changes in prices on property, plant and -
equipm9nt. This data is presented in accordance with SFAS No. 33; however, it is not intended as a substitute for earnings reported on a historical cost basis. i l Results of Operations Adjusted for the Effects of Changing Prices for the Year Ended December 31,1984 (Thousands of average 1984 dollars) Historical income from continuing operations . . . . . . ... . $ 36,439 inflationary Effects on Common Equity: Capitalinvestments Effects-Increase in specific prices (Current cost) of property held during the year (i). . .... . . . .. 23,178 Change in general price level on property held during the year . . . .. . .. (45,351) Adjustment to net recoverable cost . . . . . . .. . . . . .. . 17,009 Additional provision for depreciation . .. . ... . (22,176) Advantage from the decrease in purchasing power of net monetary liabilities . . . .... ..... .. .. . . .. .. . .. 18,707 N;t erosion of common stockholder's equity. . . . . (8,633) Income from continuing operations adjusted for changing prices (ii) . .
$ 27,806 (i) At December 31,1984, net property, plant and equipment, adjusted for changes in specific prices (current cost) was !
$1,214,783,000, while historical cost (net recoverable cost) was $741,721,000. 1 (ii) Income from continuing operations, adjusted for changes in specific prices (current cost) would be $14,263,000,, if only I the amount reportable as additional provision for depreciation was included in the adjustment.
l l i i 22 , a L
A PENN POWER Comparison of Supplementary Financial Data For the Years Ended December 31 1984 1983 1982 1981 1980 (Dollars in Thousands) Oper ting Revenues-Historical . . . $213,150 $191,172 $185,883 $174,488 $157,208 Adjusted to Average 1984 Dollars. $213,150 $199,308 $200,029 $199,278 $198,166 Income (Loss) from Continuing Operations-Historical . . . . $ 36,439 $ 27,047 $ 23,294 $ 19,331 $ 15,590 Adjusted for changing prices (Average 1984 Dollars) . .. . . $ 27,806 $ 20,536 $ 17,084 $ 5,161 $ (3,068) R: turn from Continuing Operations on Av: rage Common Equity-Historical . . 16.0 % 13.0 % 11.8 % 11.1 % 9.9% Adjusted for changing prices . 12.2 % 9.5% 8.0% 2.6% (1.5)% Effective income Tax Rate-Historical . .. .. 32.0 % 35.2 % 38.5 % 25.1 % 26.4 % Adjusted for changing prices 36.7 % 40.8 % 45.6 % 45.2 % 72.7 % Excess of increase in the Specific Lev;l of Frices on Property, Plant and Equipment Over General Price Changes (Av: rage 1984 Dollars) . $ (22,173) $ 2,275 $ 10,506 $ (867) $ (28,166) Adv:ntage Resulting from the Decrease in Purchasing Power of Net Monetary Liabilities (Av: rage 1984 Dollars) . ... $ 18,707 $ 16,661 $ 14,532 $ 32.634 $ 46,123 Year End Common Stockholder's Equity-Historical . $247,096 $219,474 $199,680 $194,666 $170,755 Adjusted for changing prices (Average 1984 Dollars) . . $243,950 $225,428 $212,562 $215,989 $206,838 Av: rage Consumer Price Index. 311.1 298.4 289.1 272.4 246.8 The increase in specific prices of property held during the methods used for computing the historical cost provision for y: r attempts to measure increasing asset values which depreciation. No inflation adjustment has been reflected for cpproximate dollars that would have to be spent today to income taxes, in conformity with the reporting requirements of c:cquire property, plant and equipment identical to assets SFAS No. 33. curr:ntly owned. The Company uses the Handy-Whitman During periods of inflation, the Company's net monetary Ind;x of Public Utility Construction Costs and the Bureau of liabilities (principally long-term debt and preferred stock) will Labor and Statistics engineering indices to calculate the be repaid with do!!ars having less purchasing power than curr nt cost of those assets. The indices are applied to actual dollars had when the original liability was incurred. This dol! Irs spent on large construction projects according to the economic benefit is portrayed on the summary as the yeir of expenditure. For all other plant facilities, the current advantage from the decrease in purchasing power of net cist is determined based upon the year the facilities were monetary liabilities, which serves as an offset to the placed in service. inflationary effects of replacing the Company's property, plant Additional depreciation expense adjusted for the change in and equipment. (pecific prices was determined using the same rates and i l 23 l j
l Auditors' Report ARTliUn ANDERSEN & CO. S Ew Yo nx , N . Y. To the Board of Directors of Pennsylvania Power Company: We have examined the balance sheets and statements of capitalization of Pennsylvania Power Company (a Pennsylvania corporation and a wholly-owned subsidiary of Ohio Edison Company) as of December 31,1984, and 1983, and the related statements of income, retained earnings, capital stock and other paid-in capital, sources of funds for property additions and taxes for each of the three years in the period ended December 31, 1984. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the financial statements referred to above present fairly the financial position of Pennsylvania Power Company as of December 31,1984, and 1983, and the results of its operations and the sources of funds for property additions for each of the three years in the period ended December 31,1984, in conformity with generally accepted accounting principles applied on a consistent basis after giving retroactive effect to the change, with which we concur, in the method of accounting for capital leases as discussed in Note 4 to the financial statements. hto/Luk F 0. February 8,1985. 24 L _ _ _ _ _ _ _ _ _ _ _ _
Directors Officers Robert H. Carlson Justin T. Rogers, Jr. Senior %ce President Universal-Rundle Chairman of the Board Corporation, a plumbing fixture manu-facturer, New Castle, Pennsytvania A. Wayne Cole President A. Wayne Cole President of the Company. New Castle, J. F. Dunlevy Pe nnsylvania %ce President J. F. Dunlevy J. R. Edgerfj Vice President of the Company, New Castle, Vice President and Pennsylvania General Counsel J. R. Edgerly W. F Reeher Vice President and General Counsel of the %ce President Company, New Castle, Pennsylvania Robert P. Wushinske D. Bruce Mansfield Secretary and Treasurer Retired-formerfy Chairman of the Board and President of the Company, Akron, Ohio B. D. Burford Comptroller Joseph J. Nowak President of Sawhill Tubular Division, R. P. Armstrong* Sharon, Pennsylvania, and Tex. Tube Assistant Comptroller Division Houston Texas, both pipe and tubing divisions of Cyclops Corporation Angeline Comparone Assistant Secretary V. A. Owoc Executive Vice President of the Company's F. A. Fazzone parent, Ohio Edison Company, Akron, Ohio Assistant Treasurer W. F. Reeher W. A. Margraf Vice President of the Company, New Castle, Assistant Treasurer j Pennsyfvania
- Retired January 1,1985 Justin T. Rogers, Jr.
Chairman of the Board of the Company, and President of its parent, Ohio Edison Company, DIVISION MANAGER Akron, Ohio J. R. Topper Mercer County W. H. Sammis Retired-formerly Chairman of the Board and Mr. Rogers is prerMent of the parent company, President of the Company, Akron, Ohio Ohc Edison Company The pnncipal employment of all other officers is with the Company. D. W. Tschappat
' Executive Vice Presidar't of the Company's REGISTRAR for Preferred Stock:
parent, Ohio Edison Company, Akron, Ohio First Seneca Bank and Trust Company, Washington Centre, New Castle, Pennsyfvania G. Leo Winger 16101 President and Chief Operating Officer
' of Steel Castings Corporation, Undcast Canada TRANSFER AGENT for Preferred Stock:
Inc., a castings manufacturer, Sharon, Office of the Company, New Castle, Pennsyfvania Pennsylvania 16103 PRINCIPAL OFFICES: 1 E. Washington Street P. O Box 891 New Castle, Pennsylvania 16103 (412)652-5531 Pennsylvania Power Company is an equal opportunity employer. t
- l__________________ _ _ _ _ . . _
r l i U. S. Postage Bulk Rate PAID Permit No.158 New Castle, Pa. Pennsylvania Power Company
- 11. hhuwton Street.150 l'>os X!il Sl1N!) 'l ( ) >
New Castle. tu 161(G
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Ohio Edi; n The Ohio Edison System is the 18th largest investor-owned electric system in the United l States, based on total kilowatt hour sales. It includes the Ohio Edison Company, headquartered in Akron, Ohio, and the Pennsylvania Power Company,in New C:stle, Pennsylvania. Together, the Com-prnies provide electric service to more than 978,000 customers within an area of approx-
. Imately 9,000 square miles in central and northeastern Ohio and western Pennsylvania.
1 1 I l I Contents 2 Prcsident's Message 4 Electric Sales Reflect Economic Recovery and Growth l 17 FinancialReview l 40 StockholderInformation 41 Directors. Officers and Division Managers l
\
l i On the cover l A unique view of new environmental control equipment at the coal fired W.H. Sammis Plant.
Financial Highlights For the Years Ended December 31 1984 1983 Change (in milhons. except per share amounts) Kilowatt-Hour Sales 26,764.2 24.345.4 +9.9% Operating Revenues $1,637.1 $1.515.9 +8.0% FuelExpense 422.8 420.3 +0.6% Operating income 342.7 302.8 + 13.2 % Allowance for Funds Used During Construction, Net 256.9 203.7 + 26.1 % interest and Other Charges 371.6 319.8 16.2 % Net income 339.3 272.4 + 24.6% Earnings on Common Stock 290.7 227.8 + 27.6 % Earnings Per Common Share $2.50 $2.22 + 12.6 % Dividends Per Common Share * $1.84 $1.80 +2.2% Dividends on CapitalStock $263.0 $230.8 + 14.0 % Capital Expenditures: Construction of Facilities $800.4 $690.8 Nuclear Fuel 60.8 55.0 Capital Leases 6.9 25.3
$868.1 $771.1 + 12.6%
Internally Generated Funds 222.1 217.3 +2.2% Net Financing Activities 581.6 496.6 + 17.1 % Return on Average Common Equity 15.9 % 14.2 % 'The quarterty dividend was increased to 47 cents per share ($1 A8 on an annual basis) beg 6n eng with the dividend payable on March 29.1985. l operating Revenues Earnings Per Share Return on Average Common Equity (in bilfrons of dopars) (in dollars) (In percent) 18 3 00 18
- M 15 2.50 15
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M=n M E E 2 00 I_ 1.2 12 _ m
.9 1 50 9 80 81 82 83 84 80 81 82 83 84 80 81 82 83 84 LQ Extraord# nary M Ordinary 1
President's We are especially pleased with these financial Message results considering the difficult operating, environmental, regulatory and financial prob-lems we have had to overcome since the j? ., late 1970s. Even with many of these problems behind us, j and our good financial performance in 1984, we don't expect smooth sailing ahead. We still have tough problems to deal with, includ- l ing those related to nuclear power and the possibility of new " acid rain" legislation. Nuclear Power's Future Nuclear power will have an important part in this country's energy future. But for now, controversy has placed seemingly endless regulatory and legislative roadblocks in front of utilities building or operating plants.These , x roadblocks have caused construction delays V and higher financing costs, forcing some utilities to abandon projects well along in construction. M While this situation certainly gives cause for concern with regard to our own nuclear program, the picture does have a brighter side. In 1984, seven new nuclear units The Company's overall financial performance received operating licenses. Already,90 in 1984 was our best in nearly a decade. nuclear units, including Unit 1 of the Beaver With a healthier local economy, sales to Valley Power Station in which we share industrial customers increased 9.2 percent ownership, are meeting 13 percent of the over 1983. Our sales to commercial and nation's total demand for electricity. l residential customers wea also up. And We expect Unit 1 at the Perry Nuclear Power ' power sales to other electnc companies Plant to join that list around the end of this year. ; increased 57.4 percent to a record high. Not only has it met all Nuclear Regulatory In all, total kilowatt-hour sales were 9.9 per- Commission requirements to date, but the cent higher than in 1983, reaching nearly 27 Commission has recognized the quality con-billion kilowatt-hours. trol program as a strength of the Perry project.
- Because of the stronger sales and new Although the schedule is tight, The Cleveland l electric rates, revenues for the year were Electric illuminating Company, which is more than $1.6 billion,8 percent better than heading up construction of Perry, reports in 1983; earnings climbed to $2.50 per share that the unit's systems will be tested and I
, of common stock, an increase of nearly ready for fuel loading this summer. To help 13 percent. assure completion of Perry Unit 1 on schedule, I work on the second unit has been reduced and j relates mainly to facilities shared by both units.i Ohio Edison and Penn Power will own about ! 35 percent of the power from the Perry units.l l i I i l t 2
The Duquesne Light Company is moving for-ward with Beaver Valley Unit 2, but emphasis has shifted toward completion and testing of systems for operation near the end of 1987. Ohio Edison's share of the unit is about 42 percent. During the past 12 months, new total project budgets were announced. The budget for Perry Unit 1, including common facilities shared with Perry Unit 2, was raised from
$2.8 billion to $3.9 billion. The budget for Beaver Valley Unit 2 was revised from $3.1 billion to $3.9 billion.
As a back-up source of funds, should it be needed, we arranged a $500 million, six-year credit agreemot with 21 major banks. This credit arrangement gives the Company more flexibility in the timing of future security sales at lower interest rates. And, it further sepa-rates us from those utilities having trouble raising money to finish their nuclear projects.
Acid RIin" Controversy Turning to the problem of " acid rain," there is continued pressure on Congress to pass As covered later in this repo , .e are focus-laws requiring costly controls. Special inter- ing a great deal of our attention on area est groups have made " acid rain" a sensitive development and marketing strategies to political issue by relying on a campaign that's stimulate sales growth. Our goal is to add long on rhetoric and short on proof. Their 695 million kilowatt-hours of new business unproven charges about coal-burning plants in 1985. We will also continue our aggres-being the major cause of the " acid rain" sive pursuit of power sales to other electric problem are preying on the anxieties of companies.
people and include demands for huge I believe these efforts and our recent per-expenditures on new control equipment. formance will help preserve the quality of No one can legitimately accuse us of being your investment in the Company. indifferent to protecting the environment. My optimism is supported by our employees' We've just completed $510 million of track record. Their resourcefulness and environmentalimprovements at six of our determination have played an important part power plants. in moving the Company forward. I thank A major part of that program was at the W.H. them for their hard work. And, a special Sammis Plant, where we spent nearly $409 word of thanks to you for your understanding million on elaborate air quality control sys- and support. tems. All of our power plants now meet cur- J rent clean-air standards. But before a new round of expensive projects - - is required to satisfy " acid rain" lobbies, there should be reasonable assurance of Justin T. Rogers, Jr. real benefits. So far, that assurance is miss- President ing, and we're doing everything we can t convince Congress to recognize this fact. March 1' 1985 Optimism for the Future These concerns notwithstanding, there is reason to be optimistic about the future. Along with the steady improvement in sys-tem operations and the reduction in the size of our construction program, we see con-tinued moderate growth in the local economy and a resulting increase in electric sales. 3
Electric Sales Reflect Electric sales increased 9.9 percent in Econornic Recovery and Grcwth 1984 as business in our area continued to accelerate. One of our largest customer groups, the auto industry, made dramatic gains. With domestic car production up 44.1 percent nationally, there was sigr.ificant activity among the many auto-related companies we serve. As a result, our sales to these companies increased 8.7 percent over 1983. But improving car sales is only part of the i story. With more computerized operations Total System Electric Sales 30 and robots on the assembly line, the auto
**"""*") e industry serves as a good example of how
,5 g Midwest industries are using electricity and 20 high technology to stay competitive.
Area steel companies have also been stream-
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of efficient electric furnaces, especially in the production of high-quality and specialty steel. 5 - In Youngstown, LTV Steel Company added 80 81 62 83 84 Campbell Works seamless piping mill. At U.S. Steel Corporation's Lorain facility, about D i] M\
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7f,-fip%p F # C F 47 $140 million was spent on a new continuous caster mill. t e \M 7 /.
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Although steel manufacturing is well below its peak years, there has been renewed g jk ' h - activity. Our electric sales to this industry n , vi M' ~ were up 2.7 percent over 1983. b# " ,jm ~re- m g x, i As the auto and steel industries continue to meet the test of changing markets and the _ 7, 1 F
=I i-?f challenge of foreign producers, we expect
@i'CE %" ?h !} them to continue as a strong long-term
, l Lasaq- kg market for us.
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Qhg 7,gl i 7 -t p There are also signs of new economic growth. Loca!Iy, companies made major s investments for new or larger facilities that totalled $200 million. M , One of the most promising opportunities for A . j. if g business expansion is the polymer industry.
, f, 'h Demand for rubber, plastics and other
/ N,h polymer compounds has been steadily 7
fa increasing.
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NQ Four of the most familiar names in tires-Firestone, General, Goodrich and Goodyear
-have international headquarters in Akron.
. They also have major research facilities here
-- and are front runners in the development and production of polymer products. Also, D The University of Akron with its Institute of Polymer Science has gained worldwide
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. l, With rnarufacturing ar'd consurner spending up, electnc sales followed the rise in the local econorny.
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With such a solid foundation in polymers. plus the many other local companies gaining a larger share of the marke', our service j area has a head start in this growing industry Promoting Economic Expansion Local communities are more aggressively , pursuing new ousiness They have well- l trained people and sound strategies for pro- l moting the mar y benefits of moving to this l area To boost their ef forts, we work with com- t munity 'eaders and hold training programs on how to attract new business System industrial Sales ,p L ., _ -f hd
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, ilf Pennsylvania offer many economic advan-tages The area is centrally located within 5
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500 miles of over 100 million people. Excel- advantage of the plan, adding automobile lent highway and rail transportation systems parts manufacturing, a meat processing line tie our service area with major population and other operations. They are providing 475 centers. A skilled work force, quality educa- jobs and should increase our annual revenues tion and job training opportunities offer com- by about $4.4 million. panies a valuable pool of people. And in ncentive rates are also available for busi-what is emerging as the most important nesses that shif t energy use to off-peak l advantage of all, the area is rich in fresh erioh For exa@e, a steel many using water, a major requirement of many manu-a 10-megawatt electric furnace to melt facturing processes scrap metal during of f-peak hours can save approximately 40 percent of its electric cost. Stimulating Industrial Sales With energy costs a primary consideration In all, we added nearly 1 billion kilowatt-for manufacturers, in 1984 we established a hours of new business in 1984, representing special five-year pricing plan that encour- about $50 million in revenues. Our goal is to ages the growth of business. Companies add another $40 million of new business qualify if they meet certain requirements for in 1985. the size of the new or expanded facility, the number of new people employed and the Expanding the Residential Market amount of new demand for electricity. The Although many believe electric companies plan offers a significant savings in energy have no competition, a major share of the costs. home energy market-space and water By the end of the year,10 companies took heating-is open to competition. The rest,
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mainly air condit oning and appliances. is almost entirely oJrs. Because of the compehtive choice between home heating systems, we have intensified our sales efforts to increase our share of this important market We're vigorously promoting add-on heat pumps and dual fuel systems I that offer clean, efficient and comfortable electric heat To make electric heating more price compet-itive, we introduced " Power Commander," a new incentive plan that enables residential Elsctric Heating Customers
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ing As part of the " Power Commander" ' I mu "' ' * " agreement. a Company-installed radio M" " '
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Last year. 2,461 heating customers were added. bringing the total to 84,910 We set a
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goal of adding another 2,700 heating cus- million of 1984 revenues. tomers in 1985 In addition to $5 milhon in We will continue pursuing this market and 1984 revenues. these heating sales enable have set a goal of $132 milh ]n for 1985 us to make better use of our generating units, especially at night when customer demand Power for the Future is lower New electnc apphances, heat pumps, electric furnaces in steel mills, robotics and coiaput-Sales to Other Utilities ers illustrate that electncity 6 the powe' of Another market that continues to grow is the the future sale of our power to other electnc companies From 1975 to 1983. electnc use in the United Many companies often find their own gen- States has increased 25 percent. While use ) erating cost higher than we are able to offer of other energy forms has dropped This l And the transmission network that makes trend will continue. particularly because of I U S electnc service the most rehable in the hmited gas and o'l reserves We expect world can also be used to sell power to that by the year 2005. Our customers' peak buyers hundreds of miles away demand will be 31 percent higher than the As a result. we have sold power to a number estimate for 1985 But economic conditions of companies including Potomac Electnc or other circumstances could push this Power Corcpany. General Pubhc Utihties figure higher Atlantic City Electnc Company. the Michigan To have rehable supplies of power for growth. Pool and Ontano Hydro Total kilowatt-hour Ohio Edison. Penn Power and three other sales to electnc companies increased 57 4 utihties of the Central Area Power Coordina-percent over 1983 and represented $117 4 tion Group (CAPCO) are financing the
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N FditP+,d h r construction of generating units at the Perry Nuclear Power Plant in North Perry, Ohio, and the Beaver Valley Power Station in Shippingport, Pennsylvania. Nearest to completion is the 1,205-megawatt Perry Unit 1, scheduled to begin operating in late 1985. Ohio Edison and Penn Power own 35.24 percent of this unit being built by The Cleveland Electric illuminating Company. Perry Unit 1 is in the final stages of federal - licensing procedures. After a number of reviews and inspections by the Nuclear s sgtsy,sy,eg utmties Regulatory Commission (NRC), it has n E_ consistentiy received good marks for construction, quality assurance procedures and safety systems. g ~~ Beaver Valley Unit 2 is now scheduled to be 2 completed at about the end of 1987. Ohio Edison owns 41.88 percent of this 833-i megawatt unit being built by the Duquesne E 80 ei 82 aa 84 Light Company. Its sister facility, Unit 1, has been producing power since 1976 and in
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1984 recorded an outstanding 93-percent operating availability before refueling began in October. Building a nuclear plant requires top quality design and construction and also extensive testing and inspection before the NRC approves a plant for commercial operation. The CAPCO companiea are committed to seeing tha' these requirements are met. Also under construction by the CAPCO com-panies is Perry Unit 2, the status of which is currently under review. Until the review is systsm construction costs completed, however, there will be no scheduie
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As the System's construction program moves ahead, our efforts to raise noney to finance it continues. Two recent accomplishments, . e early financing of the 1985 construction
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Even more significantly, the need to finance There is. in fact, strong evidence that the projects is easing. With the completion of acidity of rain is not increasing And. perhaps our extensive environmental improvement more importantly, soll conditions appear to program and new generating units scheduled cause more acidification than any other _ to begin operating soon, our construction source With such uncertainty, we oppose costs should drop steadily from the $800 the pressure being put on Congress to require million in 1984 to $425 million in 1989. that our industry spend billions of dollars to
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Environmental Laws Must Consider Costs Representing U S. utilities at an international Complying with environmental laws carries meeting in Belgium. Ohio Edison President an expensive price tag for us and our Justin T Rogers, Jr . summarized our position customers. At our seven-unit \N H. Sammis " Depending upon the particular bill, the cost Plant alone. our cost was $409 million In all. to the electnc utility industry is estimated at we've spent nearly $1 bilhon to meet envi- up to $222 bilkon With hundreds of billions ronmental regulations of dollars at stake, and senous doubts about results, we feel that Congress must some-But already. some environmental groups are how be convinced to base answers to ' acid demanding more. They're pushing for legisla- rain' questions on science. not emotion tion to curb so-called " acid rain ' Despite or pohtics. mounting evidence that raises senous ques-tions about the cause and effect of acidity We recognize that concerns about acid in rainfall their demand is for still more rain must be addressed But there is too costly controls httle hard evidence to accurately determine 1 _ i h .u u k v .. Y '
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. g the cause and effect. We are, however, sup- some 1,300 families received credit toward porting and participating in research to their energy bills. The Salvation Army and accurately identify the problem as well as other charitable organizations administer the most cost-effective remedy. " Project Reach!
We also promote state and public financial Financial Help for Customers in Need assistance programs Through such means Despite everything we're doing to keep our as the Home Energy Assistance Program electric service reasonably priced and to and Ohio Energy Credits Program. public stimulate new business, some people, of ten funds are available to help elderly. Iow-through no fault of their own, have trouble income and other needy customers. paying their energy bills. To give these people a helping hand. we spearheaded the " Project Reach" customer assistance program in the fall of 1984. It provides financial help to handicapped. Iow-income elderly and unemployed customers. With an initial gift of $70.000. Ohio Edison and Peni Power sought the support of employees and customers by offering to contribute 50 cents, up to $120.000 annually, for every dollar they donate. By the end of 1984. nearly $170.000 in con-tributions were collected or pledged and
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Financial Review Contents 18 Management's Discussion 19 Management Report 20 Selected Financial Data 20 Common Stock information 21 Consolidated Financial Statements 37 Auditors' Report 38 Consolidated Financial Statistics 39 Consolidated Operating Statistics 17
Man:gement's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations Scheduled and forced outages at the Company's W.H. R:sults of operations for 1984 showed healthy improve- Sammis Plant were primarily responsible for the 6.4% ment by many financial indicators, increases in earnings increase in maintenance costs experienced in 1984 on common stock and earnings per share of common compared to 1983. This is contrasted by the maintenance stock of 27.6% and 12.6%, respectively, were achieved cost reductions experienced at that plant in the prior year. ov:r 1983 levels. The increase in eamings per share of The outages at the W.H. Sammis Plant and the Companies' common stock resulted despite a significant increase in increased kilowatt-hour sales resulted in an increase of the weighted average number of shares of common stock 13.3% in purchased and interchanged power during 1984. outstanding in 1984. Return on average common equity The decrease in purchased and interchanged power in 1983 was 15.9% in 1984 compared to 14.2% and 13.5% in was the result of the improvement in generating unit 1983 and 1982, respectively. This significant financial availability experienced in that year compared to 1982. performance was achieved primarily due to the improved De Cmies' on-going construction programs, requiring economic conditions within the Companies, service area the continuation of debt and equity financing, resulted in a and continued success in the bulk power sales market. higher level of interest expense and preferred dividend indicative of improved economic conditions was a 9.2% requirements in 1984. During 1984, the Companies increased increase in kilowatt hour sales to the Companies, industrial their net long-term debt outstanding by $438,831,000, customers in 1984 compared to 1983. Kilowatt-hour sales consisting of $515,700,000 of new long term debt with an to the Companies residential and commerc :al customers effective annual interest rate of 13.3% offset by long-term were up slightly, with increases of 1.5% anc 0.1%, respect-debt maturities of $76,869,000 which carried an effective iv:ly. In addition to the increased kilowatt-hour sales t annual interest rate of 7.0%. The Companies also raised customers, the Companies achieved a 57.4% increase .in
$61,250,000 through the issuance of additional preferred sites to other utilities.
stock. As the Companies' construction projects proceed and Also contributing to the 1984 earnings increase was a until the projects are placed in service and/or included in rate
$6,751,000 noncash adjustment to Penn Pbwe:'s depreciation base, the total allowance for funds used during construction r: serve, which increased earnings per share by $.06 during (AFUDC) will continue to increase in order to capitalize the tha third quarter. This adjustment, which was ordered by appropriate financing costs which are not currently recovered th3 Pennsylvania Public Utility Commission (PPUC), through rates.
r:flects previously recorded depreciation not recovered in Information with respect to the estimated effects of inflation r: tait rates but which will be recovered in future rates, and upon the Companies is given in Note 10. is included in Miscellaneous incomo on the Consolidated Statements of income. Excluding the elfect of this Capital Resources and 1.lquidity cdjustment in 1984, the increases in 1984 earnings on The Companies' 1984 capital requirements for their construc-common stock and earnings per share would have been tion programs, capital leases and nuclear fuel, were approxi. 24.6% and 9.9%, respectively, and the earned retum on mately $868,000,000, of which approximately $582,000,000 av: rage common equity would have been 15.5%. was financed ex'emally. Over the last five years, construction Increased operating revenues, resulting from rate increases costs were approximately $3,500,000,000, of which approxi-mately $2,700,000,000 was provided from extemal sources. gt:nted in 1984 in addition to a 9.9% increase in total The 19851989 construction program is currently estimated to kilowatt hour sales, woro partially ofIset by decreases to be $2,600,000,000; the issuance of additional common stock th3 Companies' fuel recovery rates in 1984 compared to 1983. Due to the nature of the Companies' fuel recovery and other securities will be necessary to fund a major portion clauses, a reduction in fuel recovery rates, while decreasing of this new cons'ruction. The Companies have additional cash requiremer,ts of approximately $79,000,000 in 1985 and total revenues, does not create a corresponding reduction
$1,100,000,000 for the 19851989 period to meet matunties of in carnings; this results from the objective of matching fu:1 revenues and expenses accomplished by the use of and sinking fund requirements for, long-term debt, long-term deferred fuel accounting, The direct correlation between obligations, and preferred and preference stock.
the fuel recovery rates charged to the Companies' cus- The Companies' current financing plans for 1985 include tomers and fuel prices is illustrated by the very slight the issuance of up to: 0,700,000 shares of common stock increase in fuel costs in 1984, despite an 8 6% increase in through the Dividend Reinvestment and Stock Purchase kilowatt hour output from the Companies' generating units Plan; 6,000,000 additional shares of common stock through compared to 1983. The reduced fuel rates charged to public or private sales; $100,000,000 of preferred stock; customers in 1984 were mado possible due to lower prices $60,000,000 of pollution control notes; and $240,000,000 of paid for coal. A similar situation occurred in 1983 compared other long term debt (of which $60,000,000 was issued or to 1982 due to the lower prices paid for coal in 1983- committed to be issued by the end of February 1985). Addi-tionalinvestments in nuclear fuel of approximately $40,000,000 in 1985 will be made through the incurrence of additional long term obligations. m i
At December 31,1984, the Companies had approximately ance period, is required when the project is placed in service. l $121,000,000 of cash and temporary cash investments, and However, during the revenue offset period, AFUDC will be approximately $241,000,000 of funds held in escrow from accumulated on that portion of plant in service not included previous pollution control financings. The Companies also in the rate base valuation and will subsequently be recovered have $50,000,000 of short-term bank lines of credit available from customers in future periods. to them for interim financing purposes. In January 1985, the The Companies currently have rate cases pending before the Company arranged a bank revolving credit agreement providing PUCO and the PPUC which, if granted in full, are designed to for borrowings of up to $500,000,000. The agreement will ncrease annual revenues by approximately $135,000,000 txtend to the end of 1987 at which time any outstanding and $20,000,000, respectively. Penn Power filed its rate borrowings may be converted to an amortizable term loan for increase request in October 1984, and the Company's an additional three-year period. This agreement will benefit application was filed in January 1985. Rate orders are both customers and stockholders because it will give the anticipated during the third and fourth quarters of 1985, Company more flexibility in the timing and terms of future securities issues. The Company was granted a retail base rate increase, effective August 1,1984, which was designed to produce Management Report additional annual revenues of approximately $35,400,000; the Company requested $127,200,000 in its rate filing made in The consolidated financial statements were prepared by October 1983. The Public Utilities Commission of Ohio the management of Ohio Edison Company, who take (PUCO) allowed $115,000,000 of construction work in responsibility for their integrity ad objectivity. The progress (CWIP) to be included in the Company's rate base, statements were prepared in conformity with generally th:reby permitting the Company to recover financing costs accepted accounting principles and are consistent with related to certain construction projects on a current basis; other financial information appearing elsewhere in this however, no allowance was provided for current recovery of report. Arthur Andersen & Co., independent public financing costs applicable to Perry Unit 1, a nuclear generating accountants, have expressed an opinion on the Company's unit scheduled for operation in late 1985. The PUCO cited the financial statements, as shown on page 37. delays which had taken place with respect to the completion The Company's internal auditors, who are responsible to date for the Unit and alleged that the Unit would not be in the Audit Committee of the Board of Directors, review the service during the period that the new rates would be in results and performance of operating units within the offect. The Company had been recovering financing costs Company for adequacy, ef fectiveness and reliability of applicable to $126,300,000 of its investment in that Unit accounting and reporting systems, as well as managerial under the prior rates approved by the PUCO. Penn Power and operating controls. requcsted a rate increase of $19,900,000 in its rate filing in July 1983, of which the PPUC granted a $15,400,000 retail The Audit Committee consists of four non employee base rate increase effective April 11,1984. directors whose duties include: consideration of the adequacy of the internal controls of the Company and the Those rate increases, plus a January 1984 PUCO order objectivity of financial reporting; inquiry into the number, concerning the Company's electric fuel component rate extent, adequacy and validity of regular and special audits which has allowed the Company the opportunity for recovery conducted by independent public accountants and it e of current and deferred Ouarto coal costs as discussed in internal auditors; the recommendation of indepe ndent Note 7, have had a favorable effect on the Company's accountants to conduct the normal annual audit and internal cash generation. The Company's deferred Quarto special purpose audits as may be required; and reporting coal costs, amounting to $57,375,000 at December 31,1983, to the Board of Directors the Committee's findings and any have been reduced to $27,640,000 at December 31,1984- recommendation for changes in scope, methods, or in January 1985, the Governor of Ohio signed into law a procedures of the auditing functions. The Audit Committee CWIP bill that had been pending for several months. This law held three meetings during 1984. continues to give the PUCO discretionary authority to grant a , rnsonable allowance for CWIP in rate base under certain con- /) 7f / -
/
ditions. While the law also continues to allow CWIP for other , . (/AwC " /6 /4tA29 th n pollution control projects to be considered for inclusion V. A. Owoc W. A. DanielI in r;to base, it has reduced to 10% of rate base (exclusive of Executive Vice President Comptroller CWIP) from '0% allowed under prior law, the amount of non. Chief FinancialOfficer pollution control CWIP includable in rate base. Ibtlution con-trol CWIP may continue to be included up to 20% of rate base exclusive of CWIP Also, il CWIP is allowed in rate base, a revenuo offJet period, similar in duration to the CWIP allow-19
f On o Edison Company Selected Financial Data 1984 1983 1982 1981 1980 (In thousands, except per share amounts) Operating Revenues $1,637,104 $1,515,852 $1,429,626 $1,279,649 $1,080,869 Operating fncome 342,713 302,751 269,640 252,381 169,383 Income Before Extraordinary items 339,333 272,400 195,571 183.020 135,150 Net income 339,333 272,400 215,729 197,062 135,150 Errnings on Common Stock 290,694 227,843 181,496 163,892 101,403 Errnings per Share of Common Stock (based on weighted average number of shares outstanding during the year) Before Extraordinary items 2.50 2.22 1.89 2.10 1.52 Earnings on Common Stock 2,50 2.22 2.13 2.30 1.52 Dividends Declared per Share of Common Stock 1.84 1.80 1.76 1.76 1.76 Tot:1 Assets at December 31 6,690,098 5,960,374 5,247,138 4,460,274 3,979,965 Prtferred and Preference Stock Subject to 1 Mandatory Redemption 158,483 158,112 152,E60 151,141 156,450 t.ong-Term Debt 2,449,502 2,132,137 2,005,436 1,759,771 1,594,384 t.ong-Term Obligations 822,234 759,843 656,655 447,484 265,000 Common Stock Data The Company's Common Stock is listed on the New York and Midwest Stock Exchanges and is traded on other registered exchanges. Price Range of Common Stock 1964 1983 First Quarter High-Low 13-3/4 11-3/4 15-7/8 13-7/8 Second Quarter High-Low 12 9-3/8 16-1/8 14-3/8 Third Quarter High-tow 12-1/8 9-7/8 15-1/4 14 Fourth Quarter Hign-Low 14-1/8 11-5/8 16 11-7/8 Warly High-Low 14-1/8 9-3/8 16-1/8 11-7/8 Prices are as quoted on the New Wrk Stock Exchange Composite Transactions. Classification of Holders of Common Stock as of December 31,1984 Holders of Record Shares Held Number % Number % Individuals 185,858 88.70 56,771,012 46.44 , Fiduciaries 19.263 9.19 4,492,592 3.68 Brokers 70 0.03 1,334,450 1.09 Nominees 419 0.20 56,867,993 46.52 l Banks & Financial Institutions 21 0.01 44,223 0.04 Insurance Companies & Other Corporations 1,982 0.95 1,549,572 1.27 Chiritable, Religious & Educational Institutions 470 0.23 247,786 0.20 Pensions, Profit Sharing & Other Investment Trusts 1,446 0.69 929,008 0.76 Total 209.529 100.00 122.236,636 100.00 I As of January 31,1985, there were 209,225 holders Quarterly dividends of 46c and 45c per share were paid on the of 122,489,026 shares of the Company's Common Stock. Company's Common Stock during 1984 and 1983, respectively. Information regarding retained earnings available for payment of cash dividends is given in Note 4b. l 20
m.o u wm m Consolidated Statements of income Fc7 trta Wars Ended Decernber 31 1984 1983 1982 (In thousands, except per share arnounts) Operating Revenues $1,637,104 $1,515,852 $1.429,d26 Operating Expenses and Taxes- , Operation-Fuel 422,805 420,336 432,749 Purchased and interchanged power, net 56,659 50,026 52,607 Other operation expenses 267,288 234,526 221,129 Total operation 746,752 704,888 706,485 Maintenance 179,313 121,544 139,615 Provision for depreciation and amortization 131,340 124,572 105,072 General taxes 116,880 126,818 114.569 income taxes 150,106 135,279 94,245 Total operating expenses and taxes 1,294,391 1,213,101 1,159.986 Operating income 342,713 302,751 269,640 Other Income and Deductions: Allowance for equity funds used during construction 152,567 121,814 84,210 Miscellaneous, net 28,928 20,812 16,871 Income taxes-credit 82,383 64,923 59,166 Total ofher income and deductions 263,878 207,549 160,247 TotalIncome 606,591 510,300 429,887 Net Interest and Other Charges-Interest on 'ong term debt 267,391 233.626 211,765 Interest on long-term obligations 89,780 73,177 80,092 Allowance for borrowed funds used during construction, net of deferred income taxes (104,351) (81,901) (76,088) Other interest expense 5,473 5,702 12,449 Subsidiary's preferred stock dividend requirements 8,965 7,296 6,098 Net interest and other charges 267,258 237,900 234,316 Income Before Extraordinary item 339,333 272,400 195,571 Extraordinary item-Gain on exchange of common stock for first mortgage bonds (Note 8) - - 20,158 Net income 339,333 272,400 215,729 Preferred and Preference Stock Dividend Requirements 48,639 44,557 34,233 Earnings on Common Stock $ 290,694 $ 227,843 $ 181,496 Weighted Average Number of Shares of Common Stock Outstanding 116,171 102.414 85,241 Earnings Per Share of Common Stock (based on weighted average number of shares outstanding during the year): Before extraordinary item (after preferred and preference stock dividend requirements) $2.50 $2.22 $1.89 Extraordinary item - -
.24 Earnings on common stock $2.50 $2.22 $2.13 Dividends Declared Per Share of Common Stock $1.84 $1.80 $1.76 The accompanymg Notes to Consolidated Financial staternents are an integral part of these staternents.
21 j
Omd Ed. son Cmn Consolidated Balance Sheets At December 31 1984 1983 Assets (In thousands) Utility Plant: In service, at original cost $4,043,391 $3,700,313 t.ess-Accumulated provision for depreciation 1,161,565 1,062.173 2,881,826 2.638,140 Construction work in progress-Electric plant 2,785,977 2,351,089 Nuclear fuel 277,746 216,905 3,063,723 2,'07,994 5,945,549 5,206,134 Other Property and Irwestments 69,560 63,614 Current Assets. Cash 5,147 2,781 Temporary cash investments, at cost, which approximates market value 115,930 112,993 Receivables-Customers (less accumulated provisions of $1,310,000 and
$1,541,000, respectively, for uncollectible accounts) 135,322 132,968 Other 20,169 19,416 i Materia's and supplies, at average cost- 1 Fuel 87,499 69,047 i Other 44,822 45,657 I Prepayments 46,990 41,184 455,879 424,046 Deferred Charges: 4 Deferred Quarto coal and other energy costs (Note 7) 38,542 67,254
)
Property taxes 57,601 52,575 Unamortized costs of terminated construction projects (Note 2) 84,378 94,747 Other 38,589 52,004 219,110 266,580
$6,690,098 $5,960,374 Capitanzabon and Liabilities Capstalezabon (See Consolidated Statements of Capitalization):
Common stockholders' equity $1,947,357 $1.711,974 Preferred stock-Not subject to mandatory redemption 363,585 312,335 Subject to mandatory redemption 56,000 60,000 Preference stock-Not subject to mandatory redemption 50,000 50,000 Subject to mandatory redemption 45,922 50,641 Pr:ferred stock of consolidated subsidiary-Not subject to mandatory redemption 41,905 41,905 Subject to mandatory redemption 56,561 47,471 t.ong-term debt 2,449,502 2,132,137 5,010,832 4,406,463 Long-Term Obhgations. Construction energy trust (Note 5) 500,000 500,000 Nuclear fuel (Note 5) 290,323 219,364 Capitalleases (Note 3) 31,911 40,479 822,234 759,843 Current Liabelsbes. Currently payable preferred and preference stock, long-term debt and long-term obligations 79,124 94,532 Notes payable to banks (Note 6) Accounts payable 171,796 154,727 Accrued taxes 52,915 52,564 Accrued interest 83,107 67,891 Other 61,975 44,072 448,917 413,786 Delerred Credets. Accumulated deferred income taxes 178,440 158,437 j Accumulated deferred investment tax credits 145,409 107,390 1 57,601 Property taxes 52,575 Energy costs recovered in advance 9,094 33,335 , Other 17,571 28,545 1 408,115 380,282 l c_. .t .e 3, Guarantees and Contmgencies (Notes 3 and 7)
$6.690,098 $5.960,374 The accornparrpng Notes to Conschdated Financial statements are an integral part of these balance sheets.
22
Ohio Ec son Compaw Consolidated Statements of Capitalization At December 31 1964 1983 Common Stockholders' Equity- (In thousands) Ccmmon stock, $9 par value, authanzed 155.000,000 shares-122,236.636 and 108.460,054 shares outstanding, respectrvety (Note 4a) $1,100,130 $ 976.140 C; tor pandin capital 529.596 494.520 Retamed eamings (Note 4b) 317,631 241.314 Total common stockholders' equity 1.947,357 1.711.974 Optional Redemphon Pnce Number of SharesOutstanding Aggregate 1984 1983 F%r Share (in Thousands) Preferred Stock (Note 4c)- Cunmlatrve, $100 par value- Authorized 6.000,000 shares Rot Subject to Mandatory Redempton: 390%-724 % 973,350 973.350 $103.38-108 00 $102.034 97,335 97.335 7.36 % -8.20 % 800.000 000.000 $104 68-105 35 84.046 80,000 80.000 8 64 % -9.12 % 850,000 850.000 $106 48106 84 90.670 85,000 85.000 Total not stbi ect to mandatory redemphon 2.623.350 2.623.350 $276.750 262.335 262.335 Subtect to Mandatory Redempton (Note 4d): 10 48 % -10.76 % 576.810 615.000 $107.86-111.87 $ 63.338 57,681 61.500 Redempton within one year (1,681) (1.500) Total subject to mandatory redempton 56.000 60.000 Cumulative, $25 par value- Authonzed 8,000.000 shares Wat Sublect to Mandatory Redempton:
$3.50 Seres 2.000,000 2.000,000 $28 75 $ 57,500 50,000 50.000 Senes A 2,050.000 -
$25 00 51250 51,250 -
4.050.000 2.000.000 $108.750 101.250 50.000 Preference Stock (Note 4c)- Cumulatrve, no par value- Authorized 8.000,000 shares Wat Subiect to Mandatory Redempton:
$3.92 Seres 2.000.000 2.000.000 $11.42 $ 62.840 50,000 50,000 Subrect to Mandatory Redempton (Note 4e):
$95 00-5102.50 Seres 26,100 27.000 $1,070.0&1.078 50 $ 27.999 26,100 27,000
$1.80 Seres 1,589.096 1,622.546 $15.58 24.750 24.035 24.541 Redempton withm one year (4.213) (900)
Totai sublect to mandatory redempton 1.615.1 % 1.649.546 $ 52,749 45.922 50.641 Preferred Stock of Consolidated Subsedary (Note 4c): Cumulative. $100 par vntue- Authorized 950,000 shares Not Subject to Mandatory Redempton: 4.24 % -916 % 419.049 4 t 9.049 $102 98106 87 $ 43.954 41,905 41.905 Subject to Mandatory Redemption (Note 4d) 8 24 % -15 00 % 570.616 479.708 $103 24114 62 $ 62.302 57,061 47.971 Redemption withm one year (500) (500) Total subrect to mandatory redernpton 56,561 47.471 Largierm Debt (Note of)- First mortgage bonds' Oho Edison Company-915% weghted average interest rate, due 1985-1989 160,679 186.455 15 51 % weighted average mterest rate, due 1990-1994 398.252 218 252 10 07% weghted average interest rate, due 1995-1999 129,345 129.345 8.50% waghted average mterest rate. due 2000-2004 197,876 197.876 9 09% weghted average interest rate, due 2005-2009 274.310 274.310 13 44% weghted average interest rate. die 2010-2014 200.000 150.000 1,360.462 1.156 238 Rennsylvania Fbwer Company-10.61% weghted average mterest rate, die 1985-2008 279.000 259.000 Total f rst rnortgage bonds 1,639.462 1.415238 Secured notes and obligatons: Oho Edson Company-9 73% weghted average mterest rate, due 1985-2014 484.172 282215 Amount held by Trustee (106,138) (985) 378.034 281230 Ohio Edson Fmance N V -17 38% weighted average interest rate, die 1987-1988 150,(X)0 150.000 Ibnnsytvania Fbwer Company-9 48% weghted average interest rate, due 1985-2014 80,311 67.661 Amount held by Trusiee (13.305) (2.572) 67,006 65.089 Total secured notes and abiqations 595,040 4 % 319 Unsecured notes of Ohm Edson Company.1136% weghted average oferest rate, due 1986-2014 402.000 402.000 Amount held by Trustee (114.823) (93.555) Total unsecured notes of Oho Edson Company 287.177 308.445 Net unamortized escount on debt (18.987) (11.128) Lang term debt due withm one year (53,190) (76,737) Total long term d' tit 2.449.502 2.132,137 Total Capitanzaban $5.010.832 $4.406.411 The cccompanyng Notes to Conschdated F mancial Statements are an integral part of these statements. 23
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% taaon Compw Consolidated Statements of Retained Eamings For the War's Ended Decenber 31 1984 1983 1982 (In thousands) Balance at beginning of period $241,314 $200,439 $171,191 Net income 339,333 272,400 215,729 580,647 472.839 386.920 Deduct: . Cash dividends on preferred and preference stock 49,100 45,468 34,488 Cash dividends on common stock 213,916 185,309 151,289 i Capital stock expense - 748 704 1 263,016 231.525 186,481
$317,631 $241,314 $200,439 f
Balance at end of period (Note 4b) I Consolir6ted Statements of Capital Stock and Other Paid in Capital Preferred and Preference Stock Not Subject to Subject to Common Stock Mandatory Redemption Mandatory Redemption Number Par Other Paid- Number Par or Number Par or of Shares Value in Capital of Shares Stated Value of Shares Stated Value (Dollars in thousands) Balance, January 1,1982 78,675,703 $708.081 $349,772 3.042,399 $304,240 2,960,844 $152,917 Sale of Common Stock 10,000,000 90.000 42,000 - - - - Dnndend Reinvestment Plan 4.644.622 41,802 17,647 - - - - Exchange of Common Stock for First Mortgage Bonds 2.650,600 23.855 9,463 - - - - Conversion d $1.80 Preference Stock 110,919 999 610 - - (110,919) (1,678) Sale of $3.92 Series of Preference Stock - - 2,940 2,000.000 50,000 - - Sale of 15% Series of Preferred Stock - - - - - 80.000 8,000 Preferred Stock Sinking Fund Rec,cu pa o-824% Series - - - - - (5,000) (500) 10.48% Series - - 284 - - (13.130) (1,313) 10.76% Series - - 435 - - (20,000) (2,000) 11.00% Series - - 44 - - (4,033) (403) Balance, December 31,1982 96.081,844 864,737 423,195 5,042,399 354,240 2,887,762 155.023 Sale d Common Stock 5,000,000 45,000 33,350 - - - - Dividend Reinvestment Plan 7,138,575 64,247 33,056 - - - - Conversion of $1.80 Preference Stock 239,635 2,156 1,332 - - (239,635) (3,624) Sale of $3.50 Series of Oass A Preferred Stock - - 3,140 2,000,000 50,000 - - Sale of 11.5% Preferred Stock - - - - - 150,000 15,000 Preferred Stock Sinking Fund Reucu pb o-8.24% Series - - - - - (5,000) (500) 10.48% Series - - 270 - - (24.630) (2,463) 10.76% Series - - 160 - - (20,000) (2,000) 11.00% Series - - 17 - - (4,243) (424) Balance, Decdnber 31,1983 108,460,054 976,140 494,520 7,042,399 404,240 2,744,254 161,012 Sale d Conanon Stock 3.673,400 33,061 13.599 - - - - Dividend Renwestment Plan 10,067,071 90,604 23,333 - - - - Employee Stock Ownership Plan 2,661 24 12 - - - - Conversion of $1.80 Preference Stock 33,450 301 187 - - (33,450) (506) Capital Stock Expense - - (2,548) - - - - () Sale of Series A Cass A Preferred Stock - - - 2,050,000 51,250 - - Sale d 13% Preferred Stock - - - - - 100,000 10,000 Preferred and Preference Stock Sinking Fur.d Reeopikis-8.24% Series - - - - - (5,000) (500) I 10.48% Series - - 252 - - (18,190) (1,819) 10.76% Series - - 218 - - (20.000) (2,000) 11.00% Series - - 23 - - (4,092) (409)
$102.50 Series - - - - -
(900) (900) Balance, December 31,1984 122.236.636 $1,100.130 $529,596 9,092.399 $455.490 2.762,622 $164,878 The -m,,,g Notes to Conschdated Financial Statements are an integral part of these statements. 24
Grao Ed. son company Consolidated Statements of Sources of Funds for Property Additions For the Years Ended December 31 1984 1983 1982 Internally generated funds- (In thousands) income before extraordinary item $339,333 $272,400 $195,571 Principal noncash items-Depreciation and amortizat:on 142,260 139,978 107,025 Deferred income taxes, net 113,551 80,814 91,832 investment tax credits, net 38,026 53,670 7,312 Allowance for equity funds used during construction (152,567) (121,814) (84,210) Deferred fuel and energy costs, net 4,471 23,009 4,609 485,074 448,057 322.139 Less-Dividends on common stock 213,916 185,309 151,289 Dividends on preferred and preference stock 49,100 45,468 34,488 222,058 217,280 136,362 Financing activities-Common stock 160,633 175,653 224,767 Preferred and preference stock 61,250 68,140 60,940 Long-term debt 375,154 252,800 295,833 Long-term obligations 82,329 88.224 209,171 Repayment of preferred and preference stock, long-term debt and long-term obligations (97,790) (88,191) (43,295) Notes payable to banks - - (74,400) Sale of tax benefits - - 10,480 581,576 496,626 683,496 Net change in current assets and current liabilities excluding notes payable to banks and currently payable preferred and preference stock, long-term debt and long-term obligations-Cash and temporary investments (5,303) (51,462) (48,266) Receivables (3,107) (11,475) (9,063) Materials and supplies (17,617) 22,446 (12,045) Accounts papble 17,069 20,951 (8,942) Accrued taxe3 351 1,449 4,041 Accrued interest 15.216 10,155 17,754 Miscellaneous, net 12,097 12,463 (16,082) 18,706 4,527 (72,603) Other, net-Allowance for equity funds used during construction 152,567 121,814 84,210 Sale of utility property - - 13,568 Deferred income taxes on allowance for borrowed funds used during construction (92,502) (76,982) (67,127) Miscellaneous, net (14,306) 7,866 (3,673) 45,759 52,698 26,978 Total Sources of Funds for Property Additions $868,099 $771,131 $774,233 Property Additions-Electric plant $799,572 $689,646 $6/S,633 Nuclear fuel 60,842 55,032 124,292 Capitalleases 6,855 25,333 - Nonutility property 830 1,120 1,308
$868,099 $771,131 $774,233 The accompanying Notes to consohdated Financtal statements are an integral part of these statements.
25
- - - - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ . I
Consolidated Stat;m:nts cf Taxes For the Wars Ended December 31 1984 1983 1982 General Taxes- (in thousands) State gross receipts $ 71,044 $ 65,495 $ 56,808 R:al and personal property 48,717 47,099 45,028 Social security and unemployment 12,649 10,097 8,990 Miscellaneous 4,470 4,127 3,743 Total general taxes $136,880 $126,818 $114,569 Prwision for income Taxes: Currently payable-Federal $ 5,778 $ 10,119 $ 324 State 2,616 2,507 2,532 ) Foreign 254 228 206 8,648 12,854 3,062 Deferred, net (see below)- Federal 108,154 75,947 88,666 State 5,397 4,867 3,166 113,551 80,814 91,832 Irivestment tax credits, net of amortization 38,025 53,670 7,312 Total provision for income taxes $160,225 $147,338 $102,206 income Statement Classification of Provision for income Taxes: Operating expenses $150,106 $135,279 $ 94,245 Other income (82,383) (64,923) (59,166) Allowance for borrowed funds used during construction 92,502 76,982 67,127 Total provision for income taxes $160,225 $147,338 $102.206 Sources of Deferred Tax Expense: Allowance for borrowed funds used during construction, which is credited to plant $ 92,502 $ 76,982 $ 67,127 Excess of tax over book depreciation, net 25,045 23.081 17,387 Pensions and taxes charged to utility plant, net 4,923 4,153 2,675 Deferred fuel and energy costs, net (1,805) (10,202) 7,000 Deferred interest on leased nuclear fuel, net (5,824) (3,165) (2,840) Cost of terminated construction projects, net (3,952) (3,258) 384 Other, net 2,662 (6.777) 99 Total deferred tax expense, net $113,551 $ 80,814 $ 91,832 Reconciliation of Federal Income Tax Expense at Statutory Rate to Total Provision for income Taxes: Bcok income before provision for income taxes $499,558 $419,738 $317,935 Federal income tax expense at statutory rate $229,797 $193,079 $146,250 increases (reductions)in taxes resulting from: Allowance for equity funds used during construction, which does not constitute taxable income (70,181) (56,034) (38,737) Excess of book over tax depreciation 10,163 9,115 4,026 Gain on exchange of common stock for first mortgage bonds, which does not constitute taxable income - - (9,273) Other, net (9,554) 1,178 (60) Total provision for income taxes $160,225 $147,338 $102,206 The acenymg Notes to Conschdated Fmancial staternents are an otegral part of these statements. 26
N:;t:s to Consolidat d Financial Stat:m:nts 1 Summary of Significant Accounting Policies: Utility Plant and Depreciation-l The consolicated financial statements include Ohio Edison Utility plant reflects the original cost of construction, includ-Company (Company) and its wholly owned subsidiaries, ing payroll and related costs such as taxes, pensions and Pennsylvania Power Company (Penn Pbwer) and Ohio Edison other fringe benefits, administrative and general costs and Finance NV. All significant intercompany transactions have allowance for funds used during construction (see AFUDC). been eliminated. The Company and Penn Power (Companies) The Companies provide for depreciation on a straight-line follow the accounting policies and practices presenbed by basis at various rates over the estimated lives of property The Public Utilities Commission of Ohio (PUCO), the included in plant in service. The annual composite rates for Pennsylvania Public Utility Commission (PPUC) and the electric plant were 3.5% in 1984,3.4% in 1983 and 3.3% in Federal Energy Regulatory Commission (FERC). 1982. The Company's depreciation rates include provisions Remnues- for the estimated decommissioning costs for its only nuclear The Companies' residential and commercial customers are generating unit in service. Penn Power provides for the cost metered on a cycle basis. Revenue is recognized for electric of decommissioning radioactive components only, in service based on meters read through the end of the month. accordance with a PPUC rate order. Deferred Fueland Energy Costs- Common Ownership of Generating Facilities-The Company recovers fuel-related costs from its retail The Companies and other Central Area Power Coordination customers through an electric fuel component (EFC). The Group (CAPCO) companies own, as tenants in common, EFC is an estimated fixed rate per kilowatt-hour included on various power generating facilities. Each of the companies is customer bills for a six month period and is based upon fuel- obligated to pay a share of the construction costs of any related costs for the preceding six-month period. Any over or jointly owned facility in the same proportion as its ownership under collection resulting from the operation of the EFC is interest. The Companies' portions of operating expenses included as an adjustment to the EFC rate in a subsequent associated with these jointly owned facilities are included in six month period. Accordingly, the Company defers the the corresponding operating expenses on the Consolidated difference between actual fuel-related costs incurred and Statements of Income. The amounts reflected on the the amounts currently recovered from its customers. Consolidated Balance Sheet under utility plant at December 31,1984, include the following: Penn Pbwer recovers fuel and energy costs from its retail customers through an annual "levelized" energy cost rate , L='ag cogg- s (ECR). The ECR, which includes adjustment for any over or cene,at.na unas m senxe oemec. anon nomess inte,esi under collection from customers, is recalculated each year. on mmsams) Accordingly, Penn Power defers the difference between L",C',',',,, ,2 am ,3 [2Y7 suon 3E E actual energy costs and the amounts currently recovered Beave, vaw e m 127m 2 69ooe 52 50+. from its customers. ((*j ,'2 2 2 $$ $' . Reference is made to Note 7 with respect to accounting for W $ U M 386 1295.730 $2.659 989 the cost of coal received from Quarto Mining Company es comnwacees awaveio seaver vaw ,2 (Quarto)- All nuclear fuel in process relates to the CAPCO units but is not segregated among them. Nuclear Fuel-The Companies amortize the cost of nuclear fuel based on the rate of consumption. The Companies also make provision for future disposal costs associated with the nuclear fuel. 27
Notes to Consolidated Financial Statements-(Continued) ! Allowance for Funds Used During Construction (AFUDC)- The Companies defer investment tax credits utilized and AFUDC represents the net financing costs capitalized to amortize these credits to income over the estimated life of construction work in progress during the construction period. the related property. At December 31,1984, approximately AFUDC is not capitalized on that portion of any construction $46,000,000 of unused investment tax credits were available project included in rate base. The borrowed funds portion to offset future Federal income taxes payable. These credits reflects capitalized interest payments and the equity funds expire at the end of the following years: portion represents the noncash capitalization of imputed 1996 $ 2,000,000 equity costs which are charged to construction. The 1997 2,000,000 Company also charged AFUDC to certain projects which 1998 12,000,000 were completed but not yet included in rate base during 1999 30,000,000 1983 and 1984, in accordance with a PUCO order. AFUDC varies according to changes in the level of construction work $46,000,000 in progress and in the cost of capital. The Companies com-pute AFUDC utilizing a net of tax rate, which is consistent Retirement Benefits-with the rate treatment. The AFUDC rate related to assets The Companies' trusteed, noncontributory pension plans financed only through the incurrence of long-term obligations cover almost all full-time employees. Upon retirement (see Note 5) is based on actual interest accrued on the obli- employees receive a monthly pension based on lerigth of gations during the period. The annual rates used by the service and compensation. Pension costs for 1984,1983 Company for all other construction projects were 10.70%, and 1982 were $20,483,000, $16,904,000 and $15.448,000, 10.90% and 10.32% during 1984,1983 and 1982, respec- respectively. Of those amounts, $14,369,000. $11,913,000 tively. Penn Power's rates applicable to such projects were and $10,350,000, respectively, were charged to operating 9.45% in 1984 and 9.25% in 1983 and 1982. expenses; the balances were charged primarily to construc-tion. Such costs include the amortization of unfunded past e hew service costs on an actuanal basis over approximately 35 Details of the total provision for income taxes are shown on ye rs in 1984 and 1982, and 40 years in 1983. The Companies the Consolidated Statements of Taxes. The deferred income fund pension costs accrued. A comparison of accumulated taxes result from timing differences in the recognition of pl n benefits and plan net assets from the two latest actuarial revenues and expenses for tax and accounting purposes. reports is as follows: The Companies allocate the income tax benefit which results
^' *"* 30- 1984 '983 from interest expense related to construction work in progress to income taxes-credit included under other income and Actuanal present value of ed plan benefits:
deductions on the Connlidated Statements of income. ccun;u 9 $194.518.000 $176.732.000 For income tax purposes, the Companies claim liberalized Nonvested 20.987.000 16.939.000 depreciation and, consistent with the rate treatment, $215.505.000 $193.671.000 generally provide deferred income taxes. The Companies Net assets available for benefits $316.537.000 $314.323.000 expect that deferred taxes which have not been provided will Assumed rate of return for actuanal be collected from their customers when the taxes become present value of accumulated plan payable, based upon the established rate making practices benefits 8% 8% of the PUCO, the PPUC and the FERC. As of December 31 The above total actuarial present value of accumulated plan 1984, the cumulative net income tax timing differences for benefits reflects pension benefits applicable to eligible which deferred income taxes have not been provided were employees based upon present salary levels and past years approximately $700,000,000. d see mWM M@ N hts & Ris b Proceeds from the sales of certain tax benefits in the generally accepted reporting procedure currently set accordance with provisions of the Economic Recovery Tax forth by the Financial Accounting Standards Board. The Act of 1981 are being amortized over the life of the related Companies' annual contributions to the plans, however, property. Proceeds attributable to investment tax credits were consider estimated ultimate salary increases due to inflation recorded as additional deferred investment tax credits; the and other factors and the estimated total service expected remaining amounts were recorded as reductions to utility to be accumulated by employees. This is a widely recognized plant in service. funding technique and is consistent with the recommendation of the Companies' actuary. In addition, the actuary recom-mended, and the Companies utilized, a discount rate of 7% for funding purposes. Differences between funding bases and reporting requirements can have a significant effect on the comparisons above. 28
The Companies provide a minimum amount of noncontrib- Certain leases entered into prior to January 1,1983, which utory life insurance to retired employees in addition to would be reflected as capital leases on the Consolidated l optional contributory insurance features. Health care Balance Sheets, have not yet been capitalized as permitted bancfits, which include certain employee deductibles by Statement of Financial Accounting Standards No. 71 and co-payments, are also available to retired employees, (SFAS No. 71). If they had been capitalized, total assets their dependents and, under certain circumstances, to and liabilities would have increased by $37,665,000 and their survivors. The Comparties pay insurance premiums $40,431,000 at December 31,1984 and 1983, respectively. to cover a portion of these benefits in excess of set limits, Also in accordance with SFAS No. 71, the December 31, all amounts up to the limits are paid by the Companies. 1983 Consolidated Balance Sheet and the Consolidated Expanses associated with health care and life insurance Statement of Sources of Funds for Property Additions for benefits for retirees amounted to $3,597,000 in 1984 and are 1983 have been restated to include capital leases entered charged to income during the applicable payment periods. into during 1983. 2 Terminated Construction Projects: The future minimum rental commitments as of December 31, in January 1980, the Companies and all other CAPCO 1984, for leases reported as capital leases and noncancel-companies terminated plans to construct four nuclear able operating leases are: generating units. Costs (including settlement of all asserted Caoital Operating claims resulting from termination) unrecovered by the *** *** Company and Penn Fbwer as of December 31,1984, app'ic-able to these units amounted to approximately $69,560,000 1985 $ 14,104,000 $ 10,421,000 and $14,818,000, respectively. The Company is recovering 1986 13,138,000 9,689,000 these costs from its PUCO jurisdictional customers through 1987 7,051,000 7,775,000 1988 5,883,000 7,218,000 an increment to the allowed rate of return in rate cases and Penn Power (and the Company with respect to its FERC juris. 1989 4,983,000 6,671,000 Years thereafter 75,730,000 105,680,000 dictional customers)is recovering these costs as an operating expense allowance. Neither company is earning a return on Total minimum lease the unamortized investment. The remaining periods of re- payments 120,889,000 $147,454,000 covery for the Company and Penn Power are approximately 8 and 9 years, respectively. i.ess: Amount representing estimated executory costs 3 t. eases: (such as taxes, mainte-The Companies lease a portion of their nuclear fuel require- nance and insurance) ments, certain transmission facilities, computer equipment, included in total minimum office space and other property and equipment under lease payments 22,948,000 cancelable and noncancelable leases. Consistent with the regulatory treatment, the rental payments for capital and Net minimum lease opsrating leases are chaiged to operating expenses on the payments 97,941,000 Consolidated Statements of Income. Such costs for the three Less: Amount representing years ended December 31,1984, are summarized as follows: interest 56,583,000 1984 1983 1982 Present value of net minimum lease payments $ 41,358,000 (in thousands) Intercst on capitalized leases $13,524 .$10,325 $- Amortization of capital leases 15,283 12,808 - All other leases 12,120 11,645 20,776 Total rental payments $40,927 $34,778 $20,776 29 , _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ J
N tzs ta C:nsolidst:d Fin:nci:1 St:t m:nts-(Continued) l l 4 Capitalization: Statements of Capitalization will decline to eventual (a) Common Stock- minimums per share according to the Charter provisions Through the Dividend Reinvestment and Stock Purchase that establish each series. Plan, holders of common, preferred and preference stock The Convertible Adjustable Series A Preferred Stock is con-can acquire additional shares of the Company's common Ne Wo be Wag's common stock only during a stock by automatically reinvesting all or a portion of their s ecified period each quarter and may be converted, based dividends and by making optional cash payments. Upon market price at the time of conversion, to not more Purchases are made at a pnce equal to 100% of the than 6.15 shares nor less than 2.08 shares of common average closing price for the Company's common stock for d ed he d preferred stock surrendered for each of the five New York Stock Exchange trading days conversion. The Company may, at its option, elect to pur-ending on the investment date. At December 31,1984, the
&se W @ M lieu d &lig d wm M ag Company had 5,823,487 shares of common stock reserved Convertible Adju?, table Series A Preferred Stock surrendered for issuance under this plan, 1,326,600 shares reserved for issuance under a continuous shelf registration program, W eh s@ to Ms limions 1,589,096 shares reserved for possible conversion of the (d) Preferred Stock Subject to Mandatory Redemption-
$1.80 Preference Stock,5,000,000 shares reserved for pos- The Company's 10.48% Series and 10.76% Series each sible conversion of the Convertible Adjustable Series A include provisions for a mandatory sinking fund to retire a Preferred Stock arid 497,339 shares reserved for issuance minimum of 20,000 shares every year on December 1, and through the payroll-based employee stock ownership plan. January 1, respectively, at $100 per share plus accrued dividends. Penn Power's 8.24% Series and 11% Series (b) Retained Eamings-each ,nclude i provisions for a mandatory sinking fund to Under the Company's indenture, the Company's consoli-retire a minimum of 5,000 shares and 4,000 shares, dated retained earnings unrestricted for payment of respectively, every year on December 1, and January 1, cash dividends on the Company's common stock were respectively, at $100 per share plus accrued dividends. $245,584,000 at December 31,1984. Penn Power's 15% Series and 11.50% Series each include (c) Preferred and Preference Stock- provisions for a mandatory sinking fund to retire a minimum At the Companies' option, all preferred and preference of 3,200 shares and 15,000 shares, respectively, on July stock may be redeemed in whole, or in part, at any time 15 of each year, beginning in 1988 and 1989, respectively, upon not less than 30 nor more than 60 days notice, unless at $100 per share plus accrued dividends. Penn Power's otherwise noted. Redemption of all preferred and pref- 13.00% Series includes a provision for a mandatory sinking erence stock issued within the past five years is subject to fund to retire a minimum of 5,000 shares on July 1 of each certain restrictions regarding refunding operations. The year beginning in 1990, at $100 per share plus accrued optional redemption prices shown on the Consolidated dividends. Penn Power's 10.50% Series includes a pro-vision for mandatory redemption of the entire series on April 1,2040, at $100 per share plus accrued dividends. The sinking fund requirements for the next five years are: 1985 $2,181,000 1986 4,900,000 1987 4,900,000 1988 5,220,000 1989 6,720,000 30
l I I (e) Preference Stock Subject to Mandatory Redemption- The weighted average interest rates shown on the The $102.50 Series includes a provision for a mandatory Consolidated Statements of Capitalizaticn relate to long-sinking fund to retire a minimum of 900 shares on July 1 in term debt outstanding at December 31,1984. each year at $1,000 per share plus accrued dividends. The _ Total secured and unsecured notes outstanding at
$95.00 Series and $1.80 Series each include provisions for December 31,1984, and December 31,1983, exclude a mandatory sinking fund to retire a minimum of 1,800 and
$234,266,000 and $97,112,000, respectively, of certain 100,000 shares, respectively, on July 1 and October 1, ollution control notes, the proceeds of which were then respectively, in each year beginning in 1985, at $1,000 and in escrow pending their disbursement for construction of
$15.125 per share, respectively, plus accrued dividends.
o lution control facilities. The Companies' obligations The annual sinking fund requirements are $4,213,000 for to repay certain pollution control revenue bonds are 1985 through 1989. secured by several series of first mortgage bonds. Certain The $1.80 Series is convertible at any time into common unsecured notes are entitled to the benefit of irrevocable stock at a price of $15.125 per share. Holders receive one bank letterc of credit of $213,885,000. To the extent that share of common stock for each share of $1.80 Preference drawings are made under those letters of credit to pay Stock converted, subject to adjustment under certain principal of, or interest on, the pollution control revenue conditions. bonds, the Company is entitled to a credit on the notes. The Company pays an annual fee of 5/8% to 7/8% of the (/) long-Term Debt-s me e sssg banks aM m The mortgages and thelr Supplements, which secure all of o g o re se N banks fw any dawings the Companies' first mortgage bonds, serve as direct first eun k mortgage liens on substantially all property and franchises, other than specifically excepted property, owned by the S Long-Term Obligations: Companies. Ohio Edison Energy Trust (OEET)- Based on the amount of bonds authenticated oy the OEET, which finances part of the Company's investment in Beaver Valley Unit 2, has two lines of revolving credit Trustees through December 31,1984, the Companies, , available to it for $400,000,000 and $100,000,000. The annual sinking and improvement fund requirements for all , bonds issued under the mortgages amount to $26,767,000. latter credit also serves as a standby facility in connection The Company expects to deposit funds in 1985 which with OEET comtnercial paper sales; total borrowings under will be withdrawn upon the surrender for cancellation of that credit and commercial paper outstanding may not exceed $100,000,000 at any time. a like principal amount of bonds, which are specifically authenticated for such purposes against unfunded property The Company has transferred its interest in Beaver Valley additions or against previously retired bonds. This method Unit 2 (exclusive of common facilities and transmission can result in minor increases in the amount of the annual facilities) to OEET, where the assets are used to secure sinking fund requirements. Penn Power expects to satisfy OEET borrowings. Under the agreement, the Company its requirements in 1985 by certifying unfunded property presently anticipates payments of $100,000,000 in 1986 additions of 166-2/3% of the required amount. and $80,000,000 in each year 1987 through 1989. As of December 31,1984, the Companies' sinking fund requirements for certain series of first mortgage bonds and maturing long-term debt for the next five years are: 1985 $ 53,190,000 1986 36,131,000 1987 161,137,000 1988 171,746,000 1989 94,695,000 31 _. I
Notes to Consolidated Financial Statements-(Continued) The Company accrues interest applicable to OEET which is The Companies accrue interest applicable to the nuclear subsequently capitalized, net of income tax ef fect. Interest f uel obligations (for fuel which is not included in utility plant on borrowings under the $400,000,000 line of credit includes in service) which is subsequently capitalized, net of a commitment fee of 1/2% on the unused portion of this income tax effect. No direct borrowings have been or are line. No d; rect borrowings have been or are expected to be expected to be made against the lines of credit available to made sgainst the $100,000,000 line of credit, but OEET has the fuel corporations; the fuel corporations have issued issued and has outstanding commercial paper supported by and have outstanding commercial paper supported by the this facility. To the extent that borrowings are less than the lines of credit. To the extent that borrowings are less than { $100,000,000 available under this line of credit, the Company the $503,000,000 available under these credit lines, the must pay a commitment fee of 1/2%. Under the standby fuel corporations must pay commitment fees of 1/8% to support, an irrevocable bank letter of credit has been issued 1/2% on the available portions of the lines of credit. They upon which OEET pays a fee of 1/8% of the amount of com- also pay fees of 5/8% to 7/8% for the letters of credit on mercial pacer notes outstanding. The effective aserage the aggregate amount of outstanding commercial paper. annual interest rates on OEET borrowings were 11.8%. Interest rates on CAET purchase commitments vary from 10.7% and 14.8% during 1984,1983 and 1982, respectively. 11/8% to 1-1/2% over the interest rate applicable to certain dealer placed commercial paper. The effective Nuclear fue! Financing- average annual interest rates applicable to nuclear fuel Ohio Edison Fuel Corporation and Pennsylvania Power Fuel bligations were 11.9%,10.6% and 12.6% during 1984, Corporation (corporations in which the Compan!es have no 1983 and 1982, respectively. ownership interest) provide funds for the procurement of nuclear fuel on behalf of the Companies. The Companies The Companies presently expect to make payments also participate in arrangements wherein the Central Area applicable to these obligations during the next five years Energy Trust (CAET) finances the acquisition of nuclear as follows: material that will ultimately be used to fuel various CAPCO generating units. Under ordinary circumstances, the 1985 $10,093,000 Companies will make payments for the nuclear fuel as it 1986 35,521,000 is consumed. Financing on behalf of the Companies of 1987 36,574,000 up to $303,000,000 is currently available through the fuel 1988 60,263,000 corporations, either through revolving credit arrangements 1989 46,334,000 or the issuance of commercial paper, which is supported by bank letters of credit, or a combination of both. 6 Bank Lines of Credit and Revolving Credit Agreement: Financing of up to $137,000,000 is available to CAET on The Companies have lines of credit with domestic banks behalf of the Companies, subject to certain limitations, that provide for borrowings of up to $50,000,000 at the pre-vailing prime or similar interest rate. Short-term borrowings may be made under these lines of credit on the Companies' unsecured notes. All of the current lines expire December 31,1985; however, all unused lines may be cancelled by the banks. Penn Power maintains cash balances on deposit with banks to provide openting funds, to assure availability of
$8,000,000 of the lines of credit and for other banking arrangements. Such compensating balances, net of
" float " are expected to be maintained at an average of approximately $700,000 and are not subject to any 32
contractual restriction agcinst withdrawal. Penn Power is As of December 31,1984, the Company and Penn Power required to pay commitment fees that vary from a flat rate had invested approximately $348,700,000 and $57,300,000, of 3/8% to a variable rate of 5% of the applicable prime respectively, applicable to Perry Unit 2. Delays in the com-interest rate to assure the availability of $16,000,000 of the pletion of the Unit can be expected to increase its total lines of credit. cost by amounts which are not presently determinable. If a decision were made to terminate Unit 2, certain costs in January 1985, the Company arranged a bank revolving w am nW ssigned b M 2 wod N massgnM credit agreement providing for borrowings of up to where appropriate, to Unit 1. However, cancellation charges $500,000,000. Interest rates on borrowings under the p y ble to contractors and other costs of termination could agreement will vary depending uoon the amount of the current borrowing, total borrowings then outstanding and, at the option of the Company, may be based upon the pre- Pending completion of the CAPCO review, the Company is vailing prime rate or certain other interest measurements. unable to predict whether the construction on Perry Unit 2 The Company must pay commitment fees of 1/2% on the will continue or, if continued, on what basis such continua-average daily unused portion of the credit agreement. In tion will proceed. If construction of Perry Unit 2 is termi-certain circumstances, borrowings under the agreement nated, the Company cannot now predict whether its invest-are required to be secured by the Company's first mortgage ment in Perry Unit 2 applicable to its PUCO jurisdictional bonds. At the Company's option, all obligations outstanding customers will be recoverable. If no means of recovery of at December 31,1987, may be converted into an amortiz- the costs of Unit 2, in the case of termination, were avail-able three-year term loan. able to the Company from its PUCO jurisdictional cus-tomers and no other basis for recovery could be found or 7 Commitments, Guarantees and Contingencies: anticipated, the Company would be required to write off the Construction Program- portion of its investment applicable to its PUCO jurisdic-The Companies' current budget forecasts reflect expendi- tional customers. Based upon the Company's investment tures of approximately $2,600,000,000 for property in Unit 2 as of December 31,1984, the Company estimates additions and improvements from 1985-1989, of which that this write-off could be in the range of $205,000,000, approximately $740,000,000 is applicable to 1985. In net of income tax effect. The Company does not presently addition, the Companies expect to invest approximately anticipate that a write-off of even this magnitude,if re- $256,000,000 for nuclear fuel during the 1985-1989 period, quired, would affect its ability to pay common stock divi-of which approximately $40,000,000 is applicable to 1985. dends at current levels, and studies being conducted indi-The major portion of the Companies' construction cate that the magnitude of any such write-off could be activities during this five year period relates to the CAPCO much smaller. If, despite its best current information, a companies' program for the joint development of power much larger write-off were required, depending upon the generation and transmission facilities. timing involved, such a write-off could temporarily affect The CAPCO companies are continuing to review the status the Company's ability to pay common stock dividends at of Perry Unit 2. Until this review has been completed, there current levels. Based on past experience, Penn Power will be no defined schedule for ti.e completion of Unit 2. would expect to recover its investment in Unit 2 through its Possib!e alternatives being ruewed with respect to Unit 2 rates if the Unit were terminated. This is also true for the include temporary cessation of work on the Unit and termi. Company with respect to its FERC jurisdictional customers. nation of the Unit. Presently, the only significant work being performed on Unit 2 is that necessary to enable Unit 1 to be placed in service. This work is expected to be completed sometime in 1985. Whether under those circumstances it would still be appropriate to continue capitalizing AFUDC (as described in Note 1) to Unit 2 is uncertain at this time. Accordingly, if the CAPCO companies do not decide to resume significant construction, the Companies may not be able to include the AFUDC in net income. Instead, a reserve may be provided for AFUDC capitalized to Unit 2 prospectively. Currently, the Companies' AFUDC for Unit 2 is being included in net income at the rate of approximately
$3,600,000 per month.
33
N;t:s to Consolidated Financial Statements-(Continued) l Ouarto Project- recovery of the deferred costs, which amounted to Th] Companies, together with the other CAPCO companies, $27,640,000 at December 31,1984. Although unable to have entered into a long-term coal supply contract with predict the ultimate level of recovery, the Company believes Quarto. The CAPCO companies have also agreed to guarantee that the PUCO's formula recovery method provides a severally, and not jointly, their proportionate shares of sufficient basis to recover the deferred costs and future Quarto's debt and lease obligations incurred while developing costs of Quarto coal under the jurisdiction of the PUCO. and equipping the mines. As of December 31,1984, the Although the PPUC issued an order which found that Penn Companies' share of the guarantee was $209,717,000. Power was not imprudent in initiating and continuing the l Under the terms of the coal supply contract, which expires Quarto project,it prescribed a method for recovery of the l D;cember 31,1999 the Companies must reimburse Quarto current cost of Quarto coal and the deferred Quarto coal I for their shares of the cost of operating the Quarto mines, costs (amounting to $9,916,000 at December 31,1984) including those costs associated with mine construction, which could result in a substantial underrecovery of Quarto whether or not they receive coal f rom Quarto. These pay- coal costs. Penn Power has appealed the order to the ments will permit Quarto, over the life of the contract, to Commonwealth Court of Pennsylvania. If the PPUC method meet the debt and lease obligations it incurred while stands and no other means of recovery could be found or i developing and equipping the mines. The Companies' total anticipated, a loss equivalent to the amount not recoverable payments under this contract, including amounts related to would be incurred. Although unable to predict the final mine construction costs, amounted to $103,464,000, resolution of this matter, management believes that its $92,644,000 and $80,709,000 during 1984,1983, and 1982, ultimate disposition will not have a material adverse effect r:spectively. Under the coal supply contract, the Com- Upon the Company's consolidated results of operations. panies' future minimum payments related solely to mine Environmental Matters-construction costs are: Various federal, state and local authorities regulate the 1985 $ 25,122,000 Companies with regard to air and water quality and other 1986 24,504,000 environmental matters. The Companies estimate that 1987 23,886,000 compliance requires additional capital expenditures of 1988 23,269,000 approximately $125,000,000, which is included in the 1989 22,659,000 construction estimate given above under " Construction Years thereafter 197,166,000 Program" for 1985 through 1989. On December 5,1984, the Federal Environmental Protec-Following the end of the development period, the Company tion Agency (EPA) denied a petition from the Common-was ordered by the PUCO, and Penn Power was ordered by wealth of Pennsylvania and the states of New York and the PPUC, to defer recovery of the cost of Quarto coal,n i Maine, which sought to force the EPA to make findings excess of generally prevailing market prices, pending under Section 126 of the Clean Air Act. Section 126 pro-further proceedings. As a result of those orders, the vides a remedy for a downwind state that can show Companies began deferring a portion of the cost of Quarto adverse impact because air pollution in an upwind state coal, rather than including such costs in their respective causes nonattainment of air quality standards in the down-fuel adjustment clauses. The Company has subsequently wind state. The petition complained of excessive particu-received PUCO orders which provide an opportunity for late and sulfur dioxide (SO2 ) emissions from a number of sources in Ohio and other states, including potentially all of the Companies' Ohio plants. Seven northeastern states have appealed the EPA's decision to the U.S. Court of 1 Appeals for the District of Columbia, asking that the deci-sion be reviewed, reversed, modified or set aside. The
)
34
Company, along with other electric utilities and others, 9 Summary of Quarterly Financial Data: has petitioned to intervene in the case. The Company is The following sumrnarizes certain consolidated operating unable to predict the outcome of these proceedings. results for the four quarters of 1984 and 1983. As a part of the reauthorization of the Clean Air Act,legisla. Three Months Ended March June September December Nnaudaem 31,1 W 30,1984 30.1984 31.1984 tion has been introduced in Congress to address the so. called " acid rain" problem. Various bills introduced thus (In thousands. except per share amounts) op r ting Revenues $420.453 $391.548 $416.794 $408.309 far would require reductions in SO, emissions from utility power plants and other sources located in several states, O " *" a es 330.524 309.150 326.981 327,736 including Ohio and Pennsylvania. The Company is unable o erating income 89.929 82.398 89.813 80.573 to predict whether the proposed bills will be enacted and, otner income and if so, to what extent, if any, the SO, emission limits at the Deductions 56.757 61.332 74.141 71.648 Companies' plants would be affected. Substantial changes Net Interest and in the SO, emission limits could result in the need for Other Charges 62.729 64.386 66.820 73.323 changes in coal supply, significant capital investments in Net income $ 83.957 $ 79.344 $ 97.134 5 78.898 flue gas desulfurization equipment or the closing of some Earnings on Common Stock $ 72.429 $ 67.827 $ 84.563 $ 65.875 coal-fired generating capacity to assure compliance. If Weighted Average Number flue gas desulfurization equipment were to be installed on of Shares of Common all of their generating units to achieve compliance, a cir- Stock outstandin 1 110.539 115.164 117.938 121.044 cumstance that may be physically impossible because of Eamings per Share space limitations at certain of their plants, the Companies of Common Stock $ 66 $.59 $.72 $.54 estimate that the capital costs associated with such instal-lation could exceed $1,000,000,000. The Companies expect that any such capital costs, as well as any increased oper. March June September December Three Months Ended 31.~983 30.1983 30.1983 31.1983 ating costs associated with such equipment, would ulti. mately be recovered from their customers. (in thousands, except per share amounts) operating Revenues $378.157 $364.478 $386.400 $386.817 in October 1983, the U.S. Court of Appeals for the District operating Expenses of Columbia reversed several significant portions of the and Taxes 302.104 296.956 308.288 305.753 EPA's regulations on the methods used by the EPA to deter- operating income 76.053 67.522 78.112 81.064 mine the amount of stack height credit for establishing indi. Other income and D vidual source emission limitations. In July 1984, the U.S. g, uc';es"t
,e and Supreme Court denied a utility industry request to review other Charges 59.472 57.578 60.017 60.833 the Court of Appeals' decision. On November 8,1984, the Net income $ 64.111 $ 60.004 $ 72.763 $ 75.522 EPA proposed new stack height regulations to conform Earnings on Common Stock 0 54.091 $ 48.708 $ 61.117 $ 63.927 with the court's decision. Such changes could result in more stringent emission limitations for some existing We'ghted Average Number f Sha of mon plants and increased capital costs and operating expenses. g 96.841 100.244 105.312 107.261 The Companies are studying the proposed new regulations Eamings per Share and are currently unable to predict their ultimate effect if f Common Stock $.56 $.49 $.58 $ 60 adopted as proposed.
8 Extraordinary income: During 1982, the Company exchanged 2,650,600 shares of its common stock for $53,432,000 principal amount of its cutstanding first mortgage bonds which were subsequently retired. The exchange resulted in a nontaxable gain of
$20,158,000, which is included as an extraordinary item on the 1982 Consolidated Statement of Income.
35 j
Notes to Consolidated Financial Statements-(Continued) 10 Supplementary Financial Data-Financial Reporting and financial information to disclose the estimated effects of in-Changing Prices (Unaudite@ flation and changes in prices on property, plant and equip-Statement of Financial Accounting Standards No. 33, ment. This data is presented in accordance with SFAS No. 33; " Financial Reporting and Changing Prices" (SFAS No. 33), however, it is not intended as a substitute for earnings re-as amended, provides for the preparation of supplementary ported on a historical cost basis. Results of Operations Mjusted for the Effects of Changing Prices for the War Ended December 31,1984 (Thousands of average 1984 dollars) Historical income from continuing operations $290,694 Inflationary Effects on Common Equity-Capital Investments Effects-Increase in specific prices (current cost) of property held during the year (i) 137,599 Change in general pnce level on property held during the year (382,151) Adjustment to net recoverable cost 21),340 Mditional provision for depreciation (187,300) (212.512) Mvantage from the decrease in purchasing power of net monetary liabilities 145,614 N;t erosion of common stockholders' equity (66,898) income from continuing operations adjusted for changing prices (ii) $223,796 (i) At December 31,1984, net procerty, plant and equipment, adjusted for changes in specific prices (current cost) was $10,273.343,000, while historical cost (net recoverable cost) was $5,954,129,000. (ii) Income from continuing operations, adjusted for changes in specific prices (current cost) would be $103,394,000 if only the amount reportable as additional provision for depreciation was included in the adjustment. Comparison of Supplementary Financial Data For the Wars Ended December 31 1984 1%3 1982 1981 1980 (Dollars in thousands, except per share amour,ts) Operating Revenues-Historical $1,637,104 $1,515,852 $1,429,626 $1,279,649 $1.MO,869 Mjusted to average 1984 dollars $1.637,104 $1,580,427 $1,538.476 $1,461,505 $1,362,525 income (lass) from Continuing Operations-Historical $ 290,694 $ 227,843 $ 161.338 $ 149.850 $ 101,403 Adjusted for changing pnces (average 1984 dollars) $ 223,796 $ 176,282 $ 120,357 $ 62,139 $ (28,154) Income (Loss) from Continuing Operations per Common Share-Historical $2.50 $2.22 $1.89 $2.10 $1.52 Adjusted for changing prices (average 1984 dollars) $1.93 $1.72 $1.41 $ .87 $ (.42) Retum from Continuing Operations on Average Coramon Equity-Historical 15.9 % 14.2 % 12.3 % 13.5 % 9.7% Adjusted for changing prices 12.2 % 10.5 % 8.3% 4.9% (2.1)% Effective income Tax Rate-Historical 32.1 % 35.1 % 32.1 % 33.5 % 28.3 % Mjusted for changing prices 37.0 % 40.8 % 38.1 % 49.4 % 82.4 % Excess of increase in the Specific Level of Prices on Property, Plant and Equipment Over General Price Changes (average 1984 dollars) $ (244,552) $ 111,220 $ 359,423 $ (42.055) $ (211,358) Advantage Resulting from the Decrease in Purchasing Power of Not Monetary Liabilities (average 1984 dollars) $ 145,614 $ 126,879 $ 115.218 $ 246,718 $ 319,318 War End Common Stockholders
- Equity-Historical $1,947,357 $1,711,974 $1,488.371 $1,229.044 $1,067,524 Adjusted for changing prices (average 1984 dollars) $1,923,258 $1.754,121 $1,584,184 $1,360,143 $1,278.835 Cash Dividends Declared per Common Share-Histoncal $1.84 $1.80 $1.76 $1.76 $1.76 Mjusted to average 1984 dollars $1.84 $1.87 $1.90 $2.00 $2.20 War End Market Price per Common Share-Historical $13.50 $12.25 $14.00 $11.625 $11.875 Adjusted to average 1984 dollars $13.31 $12.55 $14.90 $12.84 $14.30 Average Consumer Price index 311.1 298 4 289.1 272.4 246.8 36
Auditors' Report l The increase in specific prices of property held during the To the Stockholders and Board of Directors of Ohio Edison l year attempts to measure increasing asset values which Company: approximate dollars that would have to be spent today t We have examined the consolidated balance sheets and acquire property, plant and equipment identical to assets consolidated statements of capitalization of Ohio Edison currently owned. The Companies use the Handy-Whitman Company (an Ohio corporation) and its subsidiary Index of Public Utility Construction Costs and the Bureau of
, companies as of December 31,1984, and 1983, and the Labor and Statistics engineenng ndices to calculate the current cost of those assets. The(indices are applied toeMehsNeMeMsofimpeMemim al sd M h pih @tal smes d Ms 6 actual dollars spent on large construction projects roperty additions and taxes for each of the three years in according to the year of expenditure. For all other plant the period ended December 31,1984. Our examinations facilities, the current cost is determined based upon the were made in accordance with generally accepted auditing year the facilities were placed in service standards and, accordingly, included such tests of the Additional depreciation expense adjusted for the change in accounting records and such other auditing procedures as specific prices was determined using the same rates and we considered necessary in the circumstances.
methods used for computing the historical cost provision ssed e My in 2te 7 m N moliN for depreciation. No inflation adjustment has been reflected ial MME N Mid mWe d Pg for income taxes, in conformity with the reporting Nuclear Unit No. 2 is currently being reviewed by the requirements of SFAS No. 33. CAPCO companies. Possible alternatives being considered During periods of inflation, the Companies' ret monetary include temporary cessation of work and termination of the liabilities (principally long-term debt and preferred stock) Unit. Because the Company is unable to predict the results will be repaid with dollars having less purchasing power of the review,it cannot now predict if construction of Perry than dollars had when the original liability was incurred. Unit No. 2 will be terminated, and if terminated, whether This economic benefit is portrayed on the summary as the the investment applicable to its PUCO jurisdictional cus-advantage from the decrease in purchasing power of net tomers will be recoverable. monetary liabilities, which serves as an offset to the inflationary effects of replacing the Companies' property, in w @inim s@ M me eM m me molidtM financial statements of such adjustment,if any, that might plant and eqt. oment. have been required had the outcome of the uncertainty referred to in the preceding paragraph been known, the financial statements referred to above present fairly the financial position of Ohio Edison Company and its subsidiary companies as of December 31,1984, and 1983, and the results of its operations and the sources of funas for property additions for each of the three years in the period ended December 31,1984, in conformity with generally accepted accounting principles applied on a consistent basis after giving retroactive effect to the change, with which we concur, in the method of accounting for capital leases as discussed in Note 3 to the consolidated financial statements. Gdu AdwQ ARTHUR ANDERSEN & CO. New York, N.Y. February 8,1985 37
. . . ____ _ _ _ _ _ _ _ _ _ . _ _ l
1 C:nstlidated Financial Statistics 1984 1983 1982 1981 1980 1979 1974 General FinanaalIrdormahon (Dollars in thousands, except per share amounts) Total Operating Revenues $1,637,104 $1,515,852 $1,429,626 $1,279,649 $1,080,869 $ 994,585 5 498,355 Operating income $ 342,713 $ 302,751 $ 269,640 $ 252,381 $ 169,383 $ 163,744 5 71,095 Earnings on Common Stock $ 290,694 $ 227,843 $ 181,496 $ 163,892 $ 101,403 $ 105,120 $ 51,035 Ratio of Eamings on Common Stock to Operating Revenues 17.8 % 15.0 % 12.7 % 12.8 % 9.4% 10.6 % 10.2 % Times Interest Eamed Before income Tax 2.34 x 2.31 x 2.02 x 2.11 x 2.05 x 2.31 x 2.18 x /
$5,945,549 $5,206,134 $4,522,733 $3,867,757 $3,435,267 $3,012.197 $1,615,265 Net Utility Plant at December 31 Property Mditons S 868,099 $ 771,131 $ 774.233 $ 568.044 $ 515.020 $ 476,746 $ 306.027 Capitalization at December 31:
Common Stockholders
- Equity $1,947,357 $1,711,974 $1,488,371 $1,229,044 $1,067,524 5 970,110 $ 484,713 Preferred and Preference Stock Not Subject to Mandatory Redempton 455,490 404.240 354.240 304,240 306,905 306.905 213,905 Preferred and Preference Stock Subject to Mandatory Redempton 158,483 158,112 152,560 151,141 156,450 150.850 -
Longterm Debt 2.449,502 2,132.137 2,005.436 1,759,771 1,594.384 1,410,782 867,796 Total Capitalization $5,010,832 $4,406.463 $4.000,607 $3,444,196 $3.125,263 $2.838.647 $1,566.414 Capitalization Ratios at December 31: Common Stockholders' Equity 38.9 % 38.9 % 37.2 % 35.7 % 34.2 % 34.2 % 30.9'o Preferred and Preference Stock Not Subject to Mandatory Redemption 9,1 9.1 8.9 8.8 9.8 10.8 13.7 Preferred and Preference Stock Subject to Mandatory Redemption 3.1 3.6 3.8 4.4 5.0 5.3 - Longterm Debt 48.9 48.4 50.1 51.1 51.0 49.7 55.4 Total Capitalization 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % tongTerm Obligabons et December 31 5 822.234 5 759,843 $ 656,655 $ 447,484 $ 265,000 - - Cost of Preferred & Preference Stock Outstanding at December 31 9.87 % 9.63 % 9.17 % 8 37 % 8.38 % 8.3G % 6.49 % Cost of Longterm Debt Outstanding at December 31 11.52 % 10.82 % 10.69 % 9.99 % 9.16 % 8.13 % 7.17 % Common Stot.k Data Eirnings per Average Common Share $2,50 $2.22 $2.13 $2.30 $1.52 $1.80 $1.68 Retum on Average Common Equity 15.9 % 14.2 % 13.5 % 14.6 % 9.7% 11.2 % 11.1 % Dmdends Paid Fbr Share $1.84 $1.80 $1.76 $1.76 $1.76 $1.76 $1.64 % Common Stock Dividend Payout Ratio 74 % 81 % 83 % 77 % 116 % 98 % 98 % Common Stock Dividend Yield at December 31 13.6 % 14.7 % 12.6 % 15.1 % 14.8 % 13.2 % 13.9 % Pnce/ Earnings Ratio at December 31 5.4 5.5 6.6 5.1 7.8 7.4 7.1 Shires of Common Stock Outstanding at December 31 (000) 122,237 108,460 96,082 78.676 68,526 59,622 31,695 Book Value per Common Share it December 31 $15.93 $15.78 $15.49 $15.62 $15.58 $16.27 $15.29 M;rket Price per Common Share Lt December 31 $13.50 $12.25 $14.00 $11.625 $11.875 $13.375 $11.875
)
Rato of Market Pnce to Book Value per Share at December 31 85 % 78 % 90 % 74 % 76 % 82 % 78 % 38
Consolidated Operating Statistics v. 1984 1983 1982 1981 1980 1979 1974 Revenue From Electnc Sales (thousands): Residential $ 571,878 $ 540,167 5 497,941 $ 442,267 $ 398,832 5360,273 $179.300 Commercial 400,291 385,277 356,325 308,599 268,788 240,458 122,009 Industrial 469,112 421,736 383,535 381,162 330,717 315,185 159,585 Other 57,921 69,278 67,828 53.993 50,420 42,607 22,641 Subtotal 1,49a,202 1,416.458 1.305,629 1,186,021 1,048,757 958,523 483,535 Sales to Utilities 11/,385 76,220 101,688 73,966 12,381 10,185 4.288 Total $1,616,587 $1,492,678 $1,407,317 $1.259,987 $1,061.138 $968,708 $487,823 Revenue From Electnc Sales-%: Residential 35.4 % 36.2 % 35.4 % 35.1 % 37.6 % 37.2 % 36.8 % Commercial 24,7 25.8 25.3 24.5 25.3 24.8 25.0 Industrial 29.0 28.3 27.3 30.2 31.2 32.5 32.7 Other 3.6 4.6 4.8 4.3 4.7 4.4 4.6 Subtotal 92.7 94.9 92.8 94.1 98.8 98.9 99.1 Sales to Utilities 7,3 5.1 7.2 5.9 1.2 1.1 0.9 Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Kilowatt-Hour Sales (millions): Residentral 6,836 6,735 6.733 6,747 6,801 6,650 5,610 Commercial 5,101 5,096 4,996 4,917 4.812 4,693 4,023 Industrial 9,161 8,386 7,708 9.352 8,909 9,830 9,631 Other 1,075 1.211 1,227 1,181 1,370 1,346 1,095 Subtotal 22,173 21,428 20,634 22,197 21,892 22,519 20.359 Sales to Utilities 4,591 2.917 3,361 2,465 502 441 323 Total 26,764 24.345 24,015 24,662 22,394 22,960 20,682 Customers Served at December 31: Residential 885,376 878.949 873,877 872,303 867,447 861,1 % 800,612 Commercial 90,810 90,072 89,706 89.231 88,505 87,425 83,111 Industrial 1,757 1,003 1,048 1,068 1,059 1.161 1,109 Other 721 736 724 711 704 693 586 Total 978,664 970,760 % 5,355 963,313 957,715 950,475 885,418 Average Annual Residential KWH Usage 7.762 7,695 7,723 7,760 7,870 7.780 7,070 Average Residential Price Per KWH 8.37c 8.02e 7.40c 6.56c 5.86e 5.42e 3.20e Cost of Coal Per Million BTU $1.59 $1.62 $1.75 $1.81 $1.50 $1.26 $.90 Generating Capability at December 31: Coal 89.1 % 89.2 % 86.2 % 86.3 % 86.1 % 85.1 % 92.2 % Oil 3.0 3.0 6.3 6.2 6.4 7.4 7.8 Nuclear 7,9 7.8 7.5 7.5 7.5 7.5 - Total 100.0 % 100.0 % 100.0 % 100.0 % 100 0 % 100.0 % 100.0 % Sources of Electric Generation: Coal 90,4 % 89.8 % 93.8 % 89.9 % 98.7 % 93 9 % 98.2 % Oil - - 0.1 0.2 0.6 2.0 1.8 Nuclear 9.6 10.2 6.1 9.9 0.7 4.1 - Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Peak Load-Megawatts 4,093 4,148 4,073 4,143 4.210 4,105 3.664 Number of Employees at December 31 7,611 7,702 7,885 7,669 7,503 7.157 6.156 39
1 Stockholder Information I I Stockholder Profile Dividend Reinvestment Plan Additionallnformation At the end of the year,209,529 At the end of 1984, more than Information and assistance on stockholders owned 122.2 71,000 stockholders were individual holdings, dividend million shares of Ohio Edison enrolled in the Company's payments, dividend reinvest-common stock. Approximately Dividend Reinvestment and ment, the transfer of stock or 29 percent of those stock- Stock Purchase Plan, represent- any stockholder matter can be holders are women,27 percent ing 31 percent of all stockholders. obtained by writing to Ohio are men and 32 percent are They reinvested $69.7 million in Edison Company, Stockholder joint holders. The remaining 12 dividends and made optional Services,76 South Main Street, percent are trusts, corporations, cash payments of $44.2 million Akron, Ohio 44308, or by calling
- institutions, brokers and other to acquire 10 mi' lion shares of (216)384-5509.
l investment groups. common stock during the year. Ohio Edison Company common l Nearly 75 percent of common The Plan was amended to stock is listed on the New York , stockholders own 300 shares or eliminate the discounted price and Midwest stock exchanges l less. They live in all 50 states for stock acquired, beginning and traded on other registered and many foreign countries. with optional cash payments exchanges under the "OEC" in November 1984 and the com- ticker symbol. Newspapars gen-Common Stock mon stock dividend payment in erally use the symbol "OhioEd" Dividend increased December 1984. Also, the pur- in stock listings. Effective the first quarter of chase price of acquired stock is A copy of our 1984 Annual 1985, the Company's Board of based on the average closing Report to the Securities and Directorsincreased the quarterly price for five days ending on the Exchange Commission, Form common stock dividend to 47 investment date instead of on 10.K, will be sent without charge cents per share from 46 cents. the average high and low sale to stockholders upon request. To Dividends of 46 cents per share price on that date. receive a copy, please write to of common stock outstanding Most participants in the Plan Gregory F. LaFlame, Secretary, were declared by the Board for may still exclude from their Ohio Edison Company,76 South each quarter of 1984. annualincome up to $750 Main Street, Akron, Ohio 44308. ($1,500 on a joint return) of tax- For information and assistance Dividend Income Taxability able dividends they reinvested. on the transfer or registration of Of total 1984 common stock But according to the Economic all classes of Company stock, dividends,56 percent was Recovery Tax Act of 1981, this contact: estimated to represent a return exclusion will continue only of capital and was nontaxable through 1985, unless extended Transfer Agent: for federalincome tax purposes by Congress. Transfer Agent unless the stock was sold. All Additionalinformation about the Ohio Edison Company preferred and preference stock Plan, and a Prospectus, can be 76 South Main Street dividends paid during 1984 were obtained by contacting Ohio Akron, Ohio 44308 taxable. These figures are sub- Edison's Stockholder Services. ject to final determination by Registrar: the Internal Revenue Service, Annual Meeting of Stockholders National City Bank, Akron and stockholders will be notified Stockholders are invited to at- One Cascade Plaza of any significant change. tend the 1985 Annual Meeting Akron, Ohio 44308 A provision of the Deficit Reduc- on Thursday, April 25, at 10 a.m., tion Act of 1984 requires certain local time, in the Company's changes in how a corporation General Office auditorium in calculates eamings to determine Akron, Ohio. Those unable to or the portion of dividends treated choosing not to attend can vote as a return of capital. We expect on the items of business by those changes to virtually elimi- filling out and returning the nate the possibility of return of proxy card, which is mailed to capital dividends beginning in each stockholder approximately 1985. 30 days before the meeting. 40
Ohio Edison 11 Board of Directors Officers Division Managers { Donald C. Blasius Justin T Rogers, Jr. Anthony N. Gorant Chairman of the Board and Chief Executive President Akron Division Onicer f The Lppan Company, Mansfield, J Ohio (appliances and fumishings). Member, Victor A.Owoc Denver G. Blosser Nominating Committee, Finance Committea Executive Vice President Bay Division William A. Derrick Douglas W.Tschappat James E. Markle independent Electrical and Mechanical Executive Vice President Lake Erie Division Engineering Consultant. also President of Lynn Firestone Malcolm E. Cash leisure Industries. Inc. Sandusky, Ohio Senior Vice President Mansfield Division (developer of real estate and residential buildings). Chairman, Compensation David R. Gundry Robert L. Kensinger Committee. Senior Vice President Marion Division Dr. Lucille G. Ford Robert J. McWhorter N. Rod Monahan Vice President. Dean of Businese Senior Vice President Springfield Division
- Administravon and Economics and Director of the Gill Center for Business & Economic Russell J. SEetrino Robert E. Dawson Education, Ashland College, Ashland.Ohic Vice Pres.i dent and General Counsel Stark Division Chairman, Nominating Committee; Member. Ronald D. Best David C. Bixler, Jr.
Finance Committee. Vice President Warren Division Robert L. Loughhead Frank E. Derry Peter A. Fetterolf Chairman of the Board, President and Chief Vice President Wungstown Division Executive Officer of Weirton Steel Corpora-tion. Weirton, West Virginia (steel products). Clyde W. Frederickson Member. Compensation Committee, Audit Vice President Committee. Management Changes John A. Gill Glenn H. Meadows Vice President Vice President Donald J. List retired on President and Director of McNeil Corporation, February 1.1985, after 38 years of service Akron. Ohio (various manufactured products). James D. Wilson with Ohio Edison. He was succeeded by Member, Compensation Committee. Audit Vice Pres.i dent former Akron Division Manager John A. Gill Committee. H. Peter Burg as head of administrative services, human Treasurer resources and industrial relations informa-John Nelson tion systems, purchasing and stores, and Chairman of the Board and Chief Executive William A. Daniels telecommunications. Officer of Commercial Shearing, Inc., Comptroller ibungstown Ohio (engineeredmetalcompo. With Mr. Gilfs election to vice president by nents). Member, Compensation Committee. Gregory F. LaFlame the Board of Directors, Anthony N. Gorant, Secretary former manager of the Bay Division, was Victor A. OWoC named manager of the Akron Division. Mr. Executive Vice President of Ohio Edison. Mark T. Clark go, ant was succeeded by former Alliance Member. Finance Committee. Assistant Treasurer District Manager Denver G. Blosser. Justin 7. Rogers, Jr. Warren G. Fouch Also, Charles N. Glasgow, former assistant President of Ohio Edison and Chairman of Assistant Comptrolle' secretary, retired November 1,1984, after the Board of its subsidiary, Pennaytvsnia 36 years of service with the Company. Power. Chairman FinanceCommittee; Harvey L. Wagner Member, Nominating Committee. pt Douglas W. Tschappat Joanne Martin Executive Vice President of Ohio Edison. Assistant Secretc.ry Frank C. Watson President and Director of The Youngstown Welding and Engineering Company, Youngstown. Ohio (nonferrous alloys). Chairman, Audit Committee; Member, Nominating Committee.
' William C. Zekan President and Chairman of the Board of A.
Schulman. Inc., Akron, Ohio (custom plastic compounds). Member. Audit Committee. Directors Emeritus D. Bruce Mansfield Walter H. Sammis Fred H. Zuck
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