ML20128F121
| ML20128F121 | |
| Person / Time | |
|---|---|
| Site: | Perry  |
| Issue date: | 05/22/1985 |
| From: | Maugans E CLEVELAND ELECTRIC ILLUMINATING CO. |
| To: | |
| Shared Package | |
| ML20128F097 | List: |
| References | |
| NUDOCS 8505290561 | |
| Download: ML20128F121 (7) | |
Text
{{#Wiki_filter:- , . . . . . - - .. - . -- ~ t-May 22, 1985 UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION BEFORE THE ATOMIC SAFETY AND LICENSING BOARD I i In the Matter of )
)
THE CLEVELAND ELECTRIC )- ILLUMINATING COMPANY, ET AL. ) Docket Nos. 50-440
) 50-441 (Perry Nuclear Power Plant, )
Units 1 and 2)- ) AFFIDAVIT OF EDGAR H. MAUGANS State of Ohio )
) ss County of Cuyahoga )
i EDGAR H. MAUGANS, being duly sworn, deposes and says:
- 1. I am Vice President - Finance of The Cleveland
' Electric Illuminating Company ("CEI"). As Vice
_ President-Finance, I am CEI's chief financial officer and am directly responsible for all financial matters of CEI. Under my direction are the activities of the Corporate Relations, Controller's, Treasury, Rates and Technical Studies, and L Pension and. Insurance Departments.
- I have served as Vice President-Finance since 1977. I am a member and former l
chairman of.the Central Area Power Coordiniating Organization ; l ("CAPCO") Accounting and Finance Committee.
- 2. I was graduated from Findlay College, Findlay, Ohio, in 1956 with a Bachelor of Science Degree, majoring in Mathematics. I have undertaken graduate studies in probability 8505290561 850524 PDR A
ADOCK 05000440 PDR l
and in applied statistics at the former Case Institute of Technology and in business administration at Western Reserve University.
- 3. Since joining CEI in 1956, my experience has included the direction of technical and analytical studies in a wide
. variety of corporate financial planning areas, including long-range forecasting, economic analysis, rate design, accounting, budgeting and financing.
- 4. I represent CEI on the Financial Executive Committee of the Edison Electric Institute. I am also a member of the Financial Executives Institute and the American Statistical Association. I have personal knowledge of the matters set forth herein and believe them to be true and correct.
- 5. As indicated in the Affidavit of Murray Edelman, Perry Nuclear Power Plant, Unit No. 1 (including common facilities) is approximately 98.2% complete on a physical basis as of March 31, 1985.
- 6. The ownership of Unit 1 (including common facilities) is divided among the co-owners as follows:
CEI 31.11% Ohio Edison Company ("OE") 30.00% Pennsylvania Power Company ("PP") 5.24% Duquesne Light Company ("DL") 13.74% The Toledo Edison Company ("TE") 19.91%
- 7. The cost to complete construction of Unit 1 (including common facilities) is approximately $598 million, as of March 31, 1985. This amount includes $363 million in cash
cnd $235 million in additional Allowance for Funds Used During Construction ("AFUDC"). As of. March 31, 1985, a total of
$3.347 billion had been expended on Unit 1 (including common facilities), of which $2.399 billion was in cash and $948 million in AFUDC.
- 8. The cost to complete Unit 1 construction (as of March 31, 1985) is allocated among the co-owners as follows:
CEI OE PP DL TE Total (in millions of dollars) Cash $115 $108 $20 $50 $70 $363 AFUDC 68 71 13 38 45 235 Total $183 $179 $33 $88 $115 $598 This compares with the amounts expended to March 31, 1985 by the co-owners: CEI OE PP DL TE Total (in millions of dollars) Cash $ 764 $ 704 $123 $330 $478 $2,399 AFUDC booked 248 336 52 120 192 948 Total $1,012 $1,040 $175 $450 $670 $3,347
- 9. The construction budgets for 1985 for each of the co-owners, together with the cash requirements for construction of Perry, are as follows:
L CEI - OE . PP DL TE ' TOTAL , (in millions 1mE dollars except for percent figures) -
? Perry-1 $137 $133 $23 $61 $88 $442 Perry 2 22 --- --
5 6- 33 Total Perry. 159 133. 23 66 94 -475 Total Cash Constr'. $355-390 $412 $43 $229 $229 $1,268-1,303
' Perry as %
of Total ~ 45-41 32 53 29 41 36-37.
- 10. Funds to support the construction budgets would come primarily from the external financing sources, i.e. debt and-
. preferred and common stock, as appropriate for each company.
- 11. Considering the amount of cash required to complete construction of Perry-Unit 1, the size of the companies' construction budgets, and the available sources of funds and backup credit arrangements, the co-owners should be able
.readily to raise the additional funds required to finance the -remaining construction on Perry ~ Unit 1. This is evidenced by the co-owners continued ability to raise substantial sums through external financing. For example, in 1984 CEI raised a record one-year total of about $500 million through securities issues. Similarly, in 1984 through securities issues, DL raised about $200 million, OE about $700 million, PP about $50 million, and TE about $300 million.
- 12. In addition to the sources of funds identified in
. Paragraph 10 above, each co-owner either has arranged, or is in the process of arranging, for backup credit agreements to provide the cash necessary to complete both Perry Unit 1 and e
Beaver-Valley Power Station, Unit 2. .These arrangements will
~
provide additional protection in the' event that there are
. future disruptions'in'the capital markets-or other developments-which adversely affect the ability to access the sources of funds' identified above. The status of each co-owners arrangements is'as follows:
CEI: has $100 million in existing credit arrangements reserved for this purpose. CEI and.its agent bank have reached. tentative
~
agreement on the proposed' terms for an
- additional $150 million revolving credit facility. It is' expected that this additional backup credit arrangement will be completed by June, 1985.
OE: .in January 1985 arranged a revolving credit agreement with 21 major banks which provides for borrowings of up to $500 million. In addition, OE has $20 million'in existing' credit' arrangements.
'PP . has $30 million in existing credit arrangements.
DL: has-increased an existing revolving credit
- facility from $60 to $100 million and has
~
arranged an additional $125 million revolving credit facility. TE: has completed a 5 year revolving underwriting facility agreement.which enables TE to sell up , to $25 million in short-term notes. Also, TE is in the process of negotiating a $200 million revolving credit agreement with a group of 1
commercial banks which TE expects to be completed by June 1985.
/
Edgar H. M ns Subscribed and Sworn this M M day of May, 1985.
'Y N[aryPublic v JOSEPH M. DERNOSKY Notary Publ.c Stata cf Ohio Cuy, Cty.
My Comm;ssion Expiros Oct. 23, 1986
- i. _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ -__
-ATTACHMENT 1 FINANCIAL DOCUMENTS l
l Th e C leve land Electric Illuminating' Company 1984 Annual Report '
;1985 Earnings Announcement .
' Prospectus, Common Stock, April 8, 1985 1984 Form 10-K
~
Ohio Edison Company.
,f 1984 Annual Report i 1985 Statement of Income Prospectus, Common Stock, April 1, 1985 i 1984 Form 10-K The Toledo Edison Company' 1984 Annual Report 1985 First1 Quarter Report to Shareowners Prospectus, Common Stock, March 28, 1985 1984 Form 10-K
. Pennsylvania Power Company
-1984 Annual Report 1985 Statement of Income D- -Official Statement, Pollution Control Revenue Bonds, December 13, 1984 1984 Form 10-K
'Duquesne' Light Company 1984. Annual. Report 1984 Fourth Quarter Report to Stockholders l Prospectus, Common' Stock, November 5, 1984 1984 Form 10-K
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Ccnt:nts 1984 Highlights, Financial Summary and Quarterly Stock Prices 1 Letter to Share Owners 2 The Year in Review 4 Advanced Technologies Help Company Meet Higher Demand 4 Financial Condition Remains Sound 8 Five-Year Construction Budget Announced 12 Marketing Program Helps Customers Stay Competitive _ 15 Customer and Community Relations Programs Expanded 17 Management's Discussion and Analysis of Financial Condition and Results of Operations 18 l Management's Statement of Responsibility for Financial Statements 20 ; Report of Independent Accountants 20 Financial Statements and Notes 21 Financial and Statistical Review 1974-1984 34 , inflation Accounting 36 Board of Directors 38 . i Committees of the Board of Directors 38 l Principal Officers and Executives 39 ! Generalinformation 40 Service Area Map 41 ' ) ( Quarterly Earnings and Dividends Per Share of Common Stock Ccver (dollars) The keystone of the Company's construction program is Unit 1 of the Perry Nuclear
$120 Power Plant. Unit 1 is scheduled to be completed and generating electricity around the end of 1985. Beneath :he Unit I reactor vessel, Company technologistJames ,oo -
Magoon (left) and engineering aide Mary MacKinnon inspect the elmrical cables that cany the signals from the position indicator
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probes to the control room. The probes .80 give the position of the controlrods in the reactor vessel. g 60 5 2 Dondends 50 40 -
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e 1984 Highlights
- Earnings per share for the year reached a record high of $3.64, up 11% from 1983.
- Common Stock quarterly dividend per share was increased 34 effective in November 1984. Total payment of $2.43 represents a 5.2% increase over 1983.
- Perry Unit 1 and common facilities construction was more than 97% complete at year end 1984. The unit is scheduled to be completed around the end of 1985.
- Nearly $56 million was raised through the Dividend Reinvestment and Stock Purchase Plan, including $21 million from more than 25,000 participants in the Customer Stock Purchase Program.
- We became the first company in the nation to offer its customers and share owners the opportunity to set up an IRA to invest in its own stock.
- A record one-year total of about $500 million of new capital was raised through financings and stock plansin 1984.
- The Davis-Besse Nuclear Power Station ger:erated 13% of the Company's electricity in 1984 and saved our customers about $50 million between refuelings.
- In 1984 we had the fewest complaints per customer filed with the PUCO of any energy utilityin Ohio.
FinancialSummary Percent 1984 1983 Change Earnings Per Share of Common Stock $ 3.64 $ 3.28 11.0 Dividends Paid Per Share of Common Stock $ 2.43 $ 2.31 5.2 BookValue Per Share of Common Stock $ 21.51 $ 20.79 3.5 Common Stock Share Owners 131,998 132,378 (0.3) Operating Revenues (000) $ 1,215,353 $ 1,210,316 0.4 Operating Expenses (000) $ 953,242 $ 951,954 0.1 Quarterly High and Low Pr(es Net income (000) $ 291,632 $ 246,026 18.5 of Common Stock Eamings Available for Common Stock (000)_ $ 248,279 $ 207,600 19.6 Kilowatthour Sales (Millions of Kilowatthours) Residential 4.446 4,412 0.8 Commercial 4,397 4,265 3.1
$24 Industrial 7,997 7,514 6.4 23 23 Other 433 446 (2.9) l Total 17,273 16,637 3.8 2
20% 0 " tg 19 E m . 18 ) 18 > 18W 18 IIN 17 5 17 E M M 16 1s 1 13 C ht 2nd 3rd 4th ht 2nd 3rd 4th 1983 1984 1
l Doar Share Owner:
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In his inaugural address on January 21, President Reagan said to the American people: "We are creating a nation once again vibrant, robust and alive. . But there are many mountains left - to climb." I Those sentiments are as appropriate for our Company and Northeast Ohio as they are for the nation as a whole. ~ In many ways,our service area is a microcosm of the United States. The k p recession hit us hard.We aren't out of the woods yet. But a new vitality is infusing tnis region. In 1984, Northeast Ohio made dramatic progress toward economic recovery. , , For The liluminating Company, that c welcome trend translated into higher f demand for electricity and increased sales to all major classes of customers. Annual eamings reached a record level. The common stock dividend was raised Robert M. Ginn for the 26th consecutive year. to replace aging facilities.To help favored with many basic assets that This Company is supplying the electricity fund that construction,the Company will sustain the momentum of recovery. essential to this area's economic raised a record amount in financings The Company will continue its efforts development. Our innovative reduction during 1984. Some of our innovative to stimulate business and industrial of rates for off-peak energy is helping financing strategies are detailed in this expansion. Additionally,we will , industries regain their competitive edge report. One example is our new CElelRA, continue to support the many civic, in the market. The application of electric- cultural and educational activities that the first Individual Retirement Account in the nation offered by a company contribute to the quality of life in g e ter ner ef cien e ab m-which invests in its own stock. Northeast Oh,io, mercial and residential customers to reduce overall costs. In 1985, new Some 55,000 customers are share The Company, too, faces its own share l programs will be implemented to give owners of the electric company that of challenges. Along with many others serves them. Through a customer stock in our industry, we chose nuclear tech-residential customers greater selectivity purchase program started in 1983, The nology for new power generation at
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in their electricity usage and more contral over their energy costs. Illuminating Company has made owner- the time it held its greatest promise. ship in a corporation both prudent and Constantly changing regulatory require-Providing electric energy is our job, affordable for thousands of people ments, soaring capital costs and with modest incomes, thus contributing unrelenting negative publicity over the e c nnot ca o t h tf n th to the promise of America s free past decade have d,minished, i but not a narrow viewpoint.We befieve we are enterpnse system. destroyed, the benefits of nuclear more than just an electricity supplier. energy.To date, we have rnade good We are a full-service electric energy '.'..But there are many mountains left to climb." progress towards completion of Unit 1 company. of the Perry Nuclear Power Plant.We
"..once again vibrant, robust That statement, too, is true for North- are moving toward fuelload in mid-and alive." east Ohio and for this Company. Our 1985. We have successfully passed many service area has yet to regain its former hurdles that tripped up nudear projects T ' ec n mic strength. But the area is elsewhere in the nation. Our success N h io or m n a me, gives us confidence that we can make we have an ongoing construction nuclear energy work for the benefit of program to meet increased demand and share owners and customers alike.
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Richard A Miller Harold L Williams l The acid rain issue presents a second Light, continues its competitive policies our employees are meeting competition major challenge. In the past, most of and has announced plans to further its from other energy sources by recog-the blame for acid rain has fallen unfairly wasteful duplication of electnc facilities. n ng that the quality of our service on Midwestern power plants. Such to customers determines our own ' in the summer of 1984, the Company simplistic views of the problem led t Company,s well-being. nearly reached an agreement with the
- proposed solutions that carried high City administration. It would have ended Our Company, our investors and our price tags but offered no assurance of the destructive, tax-subsidized efforts employees have been meeting challenges 4 benefits. Newer, more comprehensive of a department of municipal govern- and achieving success for more than 4
studies by a broad range of scientific ment to take business away from a a century We are confident that this authorities show that the problem of pattern will continue. tax-paying investor-owned utility. acid rain is more pervasive and the Regrettably, the mayor rebuffed that solutions are more elusive than pre ~ agreement. Nevertheless, we have - Sincerely, viously thought. continued in good faith to negotiate Given reasonable time, electric utilities some resolution with Cleveland's City will do their part by developing new generating techniques for the cleaner Council. As of this writing, the Council has a proposed agreement under review. h 2sf / Robert M. Ginn burning of coal. Such an approach Certainly, there are " mountains left Chairman promises a far more productive use of to climb." But the year 1984 was one of capital and a more effective elimination significant achievement for this Company of pollutants than putting scrubbers on existing generating units. It also will and the customers it serves.
# MV in our stewardship of The illuminating Richard A. Miller spare our customers unnecessary rate g increases, thus keeping our industrialized Company, we balance time-tested service area more competitive and management prudence with the flex-more replete with job opportunities. ibility needed in today's world of .g g transition. The following pages of this A third challenge continues to be our Harold L Williams
/ nnual Report tell how our engineenng becutive Vice President troubled relations with the City of . .
speci lists are applying the newest Cleveland The City's Municipal Electnc technological advances to the production Light Plant, known locally as Muny of elettncity. This report illustrates that February 15,1985 3
The Yearin Review increase the availability of coal-fired and improvement projects, Davis-Besse Economic recovery was clearly evident units, to enable them to generate more saved our customers about $50 million , electricity from less fuel and to extend through the price advantage of nuclear throughout Northeast Ohio in 1984. their service lives. fuel over coal. Davis-Besse returned to Company operations geared up to meet an increase in electricity demand. The Company's computerized system service in January with a new con-Earnings reached a record level and the of performance evaluation and testing figuration for uranium fuel which will enable it to operate for about 18 months dividend was increased. Construction of power plant equipment and its pre- , n:ared the final stage on a 1,205- ventive maintenance program continued between refuelings instead of the to keep equipment downtime to a previous maximum of about 12 months. megawatt generating unit at the Perry Nuclear Power Plant-the keystone in minimum while saving on operating costs. our building program to power North- * * " "
, Substantial progress was made in 1984 cast Ohio into the 1990s. on a $90 million program designed in 1984, the Company co,ntinued its
. to increase the availability of three of Program to automate major substations, Advanced Technologies the Company's largest generating units. to improve its transmission system and Help Company Meet The boilers for Avon Lake Unit 9, to upgrade distribution facilities.
Higher Demand Eastlake Unit 5 and Lake Shore Unit 18 Plans are under way for new computers As the Northeast Ohio economy are being converted from pressurized at our System Operation Center that accelerated in 1984, so did the demand Operation to a balanced draft system will capitalize on today's technological for electricity from all major classes that will significantly reduce maintenance advances. Among other benefits,the of customers, most significantly the costs and downtime for each unit. new equipment will extend monitoring Two of the convers, ions are scheduled capabilities on the nine-state, regional industrial sector. to be completed in 1985 and the other network of interconnected power Kilowatthour sales to industnes increased in 1987. sources to which we have access through The Davis-Besse Nuclear Power Station, the East Central Area Reliability Council. ommercial s es rose 3.1 r nt and residential sales were up 0.8 percent, for which we own with its operator,The The Illuminating Company pioneered an increase in total sales of 3.8 percent. Toledo Edison Company, contmued its computerized system operations 15 strong performance in 1984. Durin9 years ago to effectively meet routine North 3ast Oh,o ii ,s favored with a solid the 11 months preceding an outage in and unexpected fluctuations in elec-industrial base and broad diversity in its September for refueling, maintenance tricity demand. Our current facility manufacturing. The Company's 7,500 monitors electrical load and equipment
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industrial customers typically account for 45 percent of total sales. The y- ,
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operations and scans for potential x, 1 problems. As demand increases, com-impressive gain in industrial sales gave Q~ e t - 44 l puters determine which generating the Company's financial results a boost in 1984.
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$ units can supply the needed power most economically. The end result is reliable Automotive production increased. E service to customers at the lowest Renewed vigor also was evident among '
possible cost. manufacturers of heavy machinery, , appliances, electrical components, l plastics, chemicals, biochemicals, brass, aluminum and other products. ; Power Generation Upgraded i in 1984, the Company carried out several equipment-upgrade projects to i Environmentalimprovement is a continuing The Company applies modem technology Company challenge-one on which we to improve service. Locating faults in under-have spent about $485 million in the past ground cables once was a dift cultjob that decaJe alone. Completion in 1985 of this prolonged customer power outages. Today, new, .'50 million precipitator for Unit 9 of vibration monitoring equipment, used here the Avm Lake Plant willenable us to run by underground cable splicers Gerald Parrish Avon Lake 's largest coal-fired unit at full (left) and Jim Nageotte, quicklylocates the capacity and stillstay within tough govem- trouble spot allowing faster repair. ment limits on fly ash emissions. 4
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%ny of the tests reeded to ha:(! c!a.'.n E < tenor hqhting thdt enhdn(es the beauty (0515 die Der *0FmPL1 b> CO'"Ddny (PC% 'C !d n 3 Cf drCh+let fure dnd InCled$P5 Se(Urs(y t$
3? Cuf 0.\ n ldbOf.)*O"y [f%konP OvP, J q) 0,n] DODU drI fy dmOng GUT C U5f0fDef 5 l: tin ]'3 (J f'r (P\ ? !W h.'M. e d n 3n.&lP > d CGe\ e' HWe, the AfDd$d StOnP lhdDel, lOCJfed On
;> < of ydter u'rc e to het Ofe . ent aev % tt e cd'npus of Case Western Reserve 1o
- e Tsw in D D'nq U% ef,,'fy. 51,? (ly high pre 85GTP 5Gdium uG.? (Oddy5fDO5?COS? PY?Clenthqhtnq
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i; 3:p j ( Envircnmsnta; While nuclear power is an economical, y # .2 ...
- Improvaments Continue safe and clean energy source, constantly g .;..
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( changing regulatory requirements con- y . l in 1984, the Company spent $32 tinue to cause construction delays and gj- , y ,; million to meet federal and state air higher capital,nvestment. i At the same gi 2 m n. i and water quality standards at coal- , time, public concems over aad rain and ~Q fired power plants. Over the past 10 sulfur emissions from coal-buming 7 7a jj , years, about $485 million has been j g.c i p wer plants could adversely affect our 94 .f e - spent on pollution control programs. i ability to generate electricity from coal. .M m~. . . . ,
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One current project is a $50 million Thus,we are studying several new precipitator being installed on Unit 9 at technologies that would allow con- #' ^ 2
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the Avon Lake Plant. By removing tinued use of Ohio coal with substantial c.: -~ s.ef , nearly 100 percent of the fly ash reductions in sulfur emissions. 5:' ( # ~ ~.: "- i W. ; ' residue produced in the coal-buming 7 I Two pronssing options that could be p ,,; . g.,f.,:,
.y - .( , ! process, the new precipitator will allow .
used for new plants are coal gasification, .- - Avon Lake's largest generator to
! - operate at full capacity while still which removes sulfur during the y'4.. . .
7.. s.
, conversion of coal to gas, and fluidized n : -
- meeting govemment fly ash emission bed combust. ion, which introduces
.s. - e. . ,.s limitations.The project is scheduled for t7 7; 7 limestone into the combustion process ys ~ l . . c.
completion by the end of 1985. to draw out sulfur. 4 . . .. , ; . The U.S. 2nvironmental Protection Company engineers also are investigating if<-1. ' .7: Ni Agency is under court order to revise its t
. :)
stack height regulations regarding two technologies that could be appiied j - t ,. . ' gisk. l r power plant sulfur emissions. The to either new or existing units. One is 6.; , p,... . g . . . . ,. , co 1-cleaning, which separates sulfur g;. ...:- - .f;." - } Companyemissions by already 41 percenthas in thereduced from coal before combustion. The sulfur *y- peiht r p. R : past
- p. ' . .
otheris a double-alkalt scrubber W,. s fg 4 decade. New rules, which may be issued
, in mid-1985, could require further process that removes sulfur from the g l. .
g
- significant reductions in sulfur emissions c mbustion gases. The Company is y .p. , .. .
- .f g ;
at our two largest power plants. helping to fund a demonstration plant ::: :> - - now testing the double-alkali system. It 71 T Y [, .-' ' . promises simplified maintenance, less 'q i Rastarch Looks to the Future Because 10 to 15 years are needed waste products and smaller space re-quirements than conventional scrubbers. {Q 7 M ](
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- .3 . 41
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to build new power plants, we must 7. 417.i. departmentuitima' thy?theMa%'whoc managers
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Compressed air energy storage is plan now to meet the energy needs of our service area in the mid to ' ate 1990s. another major focus of Company re- G'g.jecommend y{.yo'mppsc%s w , , . We are exploring various generation search. It could provide a relatively 9 .. . company w@. ! hether our. . .l$ options to find the most cost-effective low-cost way to meet peak demand. g . and deve!opment effort In a compressed air system, the most 3 s.cparticipatesn;a demon. . means of providing electricity. i;e 5'rdt*" project or pu. c hase . y . . r efficent coal and nuclear units would be used to pump air into an underground I D. 'a new p:r duct. TheM : g;p ,
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cavern during low-demand periods. c. N M N ' '
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t ' ~ l , - At high-demand times, the air would be released and mixed with fuel to U f .an'd economic con
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- id/@7rEphrations andgg4 Q s 2
i f.. . drive combustion turb,nes. i ;* course potential value to the: c 4 {" k3:.\:::Co'nipany'and J. . M - i N Y%: .,T itPcus
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+ . . . .q - -Many of the ennovat#ons: '
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W. C L j). .; 7rnent!on'ed Report are the end&$ n'thrs .Arfn . . al W ' ,. h ., .'
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- in i o' e nm' ore assurance W J n N Y .'O
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._ . $ ., . .&.. 3.: . .] { , power Northeast Ohy,intcP ,( - -.
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- " g- the 21st Ce,ntury [; j;; - 4*
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l ! Industry Coaliti:n Adds to operations.The increase in AFUDC was when we wanted to do them to obtain the best terms available. To further Research Capabilities partially offset by higher interest charges and preferred dividends and keep down the cost of capital, we l The illuminating Company is a member , structured the terms and size of some an maease in outstanding common of the Electric Power Research Institute shares. AFUDC i ,s a non-cash credit for financings to appeal to specific (EPRI), our industry's national center institutional demands. In addition, we m ney invested in facilities under con- i for administration of research and struction but not yet in the rate base. took advantage of various techniques development relating to electric utility , f r ffenng and timing secunty sales. operathns. Sales were up 3.8 percent from the This enabled us to select the best 1983 level,with a strong increase Through EFRI, our Company has access method of sale when demand was coming in the first half of the year to the most up-to-date advances in elec- high and rates were favorable. because of the economic recovery and trical systems, generating technologies, The Company raised a record one-year colder than normal weather. During i the second half, sales declined slightly total of about $500 million through ct v t e co m n our dust . relative to the second half of 1983 secunty issues in 1984. These included Developments by this research institute because of slower economic growth and about $91 million from two common have done much to improve the cooler than normal weather, particularly stock issues, about $163 million efficiency, safety and reliability of both when compared to the unusually hot through three sales by public authorities nuclear and fossil-fuel power plants, summer of 1983. of tax-exempt bonds to finance pollution saving the industry and its customers c ntrol facilities, $175 million from Effective in November, the Company millions of dollars. three sales of first mortgage bonds and raised the quarterly common stock Additionally, EPRI provides a wide range dividend to 63 cents per share, up from fe nye ent and Stock P rchase Plan of computer programs.These have 60 cents, for a new indicated annual and employee stock purchase plans-helped the Company i,mprove trans- rate of $2.52. Dividends paid in 1984 mission tower design, increase the were 5.2 percent higher than those in the Spring of 1984, we also efficiency of underground cable instal- paid in the previous year. The year 1984 increased our outstanding bank term lation, better formulate long-range marked the 26th consecutive year of loans to $175 million from the $134 plans, train operating personnel and dividend increases and the 83rd straight million outstanding for most of 1983. plan for the most economical and safe year of cash dividend payments on The overall terms were extended at operation of nuclear plants. common stock.Those records are reduced interest rates. matched by few other elr : S. utilities in the country. 1985 Financing Needs Lower Financial Condition R rnains Sound 1984 Financings Raise 985, we exp t a t 290 Eirnings Reach Record Level Record Amount ; ;g Even with no increase in electric base We ended 1984 with a balanced capital We plan to raise funds through the rates during 1984, the Company structure of 41 percent common equity, sale of first mortgage bonds, from tax-achieved record earnings per share of 48 percent debt and 11 percent pre- exempt bonds issued through public
$3.64, up 11 percent from 1983. The ferred and preference stock.Those authorities and through the sale of earnings improvement came primarily results are consistent with Company preferred stock. Unlike past years, we from an increase in the allowance for objectives of 40-42 percent common expect to meet all of our needs for funds used during construction (AFUDC), equity, a maximum of 48 percent debt, common equity capital through the higher sales and lower fuel and pur- and 10-12 percent preferred and Dividend Reinvestment and Stock chased power expenses charged to preference stock. Purchase Plan and various employee i stock purchase programs.
Our balanced structure at the beginning of 1984 gave us the flexibility to do the
, types of financings we wanted to do Our technical experts worked with those of The nation's second largest steelproducer, the Adalet Division of Scott Fetzer to find LW Steel, is headquartered in Cleveland and V ' the best electrical and economic solutions is the Company's largest customer. With to theirinduction melting fumace require- assistance from Company engineers, LW ments. The result is high energy efficiency Steel boosted the efficiency ofits electric f, -
and improved productivity for this Cleveland manufacturer of aluminum castings. arc fumaces, more than doubling their productivity over the past 25 years.
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} Dollars Raised Through Dividend CElslRA Offared in Late 1984 Rein ment and Stock Purchase Plan We believe we are the only company l in the nation to offer an Individual ,
j Retirement Account (IRA) which i seo , invests solely in its own stock. The new 557 CElelRA allows investors to combine **g l ' [% 9 IRA tax benefits with the high yield . *
! offered by our common stock. It ,
achieves all the tax benefits of other i
! . . IRAs-deduction of cash investments I E from taxable income and deferral of do taxes on both dividends and any ..
capital gains. . 6 4 3a Rate Case Decision Expected } in February . in April 1984, the Company filed with , , 2o The Public Utilities Commission of Ohio , for a $180 million, or 15 percent, electric
,,, rate increase.The request includes i ew construction work in progress for Perry P Unit 1 in addition to that amount *P'** '
already in rate base. A decision is . [ ! expected in late February.
'80 '81 '82 '83 '84 Ohio Retains CWIP with Changes #^ N W -
7% mph We view as a positive move the passage es emA Credit Ratings Remain at of a law which continues to authorize ye**Wlww , ! Investment Grade the construction-work-in-progress Me
- i The Company's first mortgage bond (CWIP) allowance in Ohio. This allowance provides utilities the opportunity to %
! ratings remain at investment grade begin recovering through rates the levels despite having been lowered by financing costs for construction work the credit rating agencies in 1984. , neanng completion.The law resolves - Moody's investors Service lowered its the uncertainty that had surrounded rating on our bonds from A2 to A3, CWIP. While the new measure is more _ 4p .. preferred stock from A3 to Baa and , commercial paper from P1 to P2. restrictive than previous law, it is far n4A 7 l Standard & Poor's Corporation lowered more favorable than alternat,ves i that w skpekw its rating on our first mortgage bonds had been proposed. p8me ; l twice during the year, from A to A-i The new law reaffirms the discretion - t l and then to BBB +. Standard & Poor's, of the Commission to indude CWIP in , i ) however, did affirm the rating on our rate base for construction projects that s -" i, preferred stock at BBB and on our are at least 75 percent complete. A - g l commercial paper at A2. These ratings major change from previous law is to W ly e , - . I changes have increased borrowing costs. limit allowances to 10 percent of a - ptility's rate base (excluding CWIP) In taking its action to lower our credit instead of the 20 percent allowed ratings, Standard & Poor's cited the increased cost of our nudear construction before, w,ith one exception. The , , , program and the "largely indifferent allowance for sulfur and nitrous oxide -. . tenor of Ohio regulation." Once Perry p Ilution control equipment projects is ' penmtted up to the old maximum of Unit 1 is completed and fully induded , in rate base, more than half of our 20 percent. However, the total CWIP . !
- planned nudear generating capacity allowance cannot exceed 20 percent. g - .
j will be earning a retum.This should j p' ' l improve the Company's cash flow, an #*** - 1 important consideration in determining
- credit ratings. * -
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Under the new law,CW!? can be acid rain legislation and the possibility billion, including AFUDC. The total cost included in rate We for as long as 48 of bulk power sales to other utilities for all five CAPCO companies is now months before completion of the in the 1990s. estimated at about $3.9 billion. project (longer under certain conditions). Our current estimate of construction Several milestones in Unit l's con-Once the construction project is com-program expenditures for the 1985- struction and licensing were passed in pleted and in rate base, the revenues den,ved from CWlP are credited back to 1989 period, including the alternatives 1984. The Nuclear Regulatory Com-discussed above, ranges between $1.9 mission again reported that it found no customers over a period equal to the time CWIP had been ,ncluded. Th,si ,is and $2.4 billion, including AFUDC. significant weaknesses in our con-i Most of the five-year budget is for the struction or quality assurance programs. done by excluding the amount of CWIP completion of Perry Unit 1 and Beaver Additionally, the Commission stated from rate base dun,ng this payback Valley Unit 2.The lower estimate that it would schedule its licensing period so that rates will produce less assumes that no significant expenditures review activities to coincide with our revenues. During th,si payback period, will be made on Perry Unit 2 in 1986 completion schedu!e. tn allowance equivalent to AFUDC on through 1989; the higher estimate the CWIP amount excluded is added to In September, we reached another assumes construct. ion of the un.it will rate base to be recovered in rates after milestone at Perry when a hydrostatic the payback period over the remaining 5".**.during the period with com- test of the reactor vessel was success-lifa of the project.The effect of these ! I"ll YC *P.eted.The reactor vessel and
, nit 2 i d scu ed be o E pe ures its supporting systems make up the provisions is to phase into rate base the for 1985 are expected to range from total cost of the proj,ect from the time single m st ,mportant i system at Perry.
$550 to $600 million; 1984 expend-CWIP starts to the time the payback The test was done to venfy that the i.tures totaled $582 million.
period ends. system would hold water at levels Perry Unit 1 Nears Completion higher than normal operating pressures Five-Year Construction By year end, Unit 1 of the Perry Nuclear in November, the C Cudget Announced Power Plant was 97 percent complete. another major irement requ,ompany ,, passe for obtaining The 1,205 megawatt unit is schedufed n operating licens We Project a two percent annual an evaluated exera,e forfrom se, teams Unitthe1. Dunn increase in peak electrical demand in to be completed around the end of 1985. The schedule is tight, but we Nuclear Regulatory Commission and our service area. Compounded over the Federal Emergency Management the next 20 years, that growth rate will believe it is achievable.
, Agency assessed our ability and that of mean about a 50 percent ,ncrease i in The Company owns Perry Unit I with the municipal and county authorities within demand. In addition to complet,n9 i four other member companies of the a 10-mile radius of Perry to safeguard Perry Unit 1 and Beaver Valley Unit 2, Central Area Power Coordination Group the public in the unlikely event of a we are studying vanous altematives to (CAPCO). The Company is the plant's serious accident at the plant. Par-meet that demand and to replace ag,ng i builder and operator, with a 31 percent ticipating in the exercise were hundreds generating units. The alternatives . share of the project, or 375 megawatts. of Company employees as well as At year end,433 of Unit l's 455 systems hn e s of others f s a , ou y us g the ne te nolog sus ,
above, extending the life of some had been turned over from construction . . . to testing. Moreover,221 of its systems soaa, service agences. existing generating capacity, long-term power purchases and completing the already have passed testing and either The Company is confident that licensing second unit of the Perry Nudear are already in operation or are ready progress will continue on schedule in Power Plant. for Operation. 1985. Originally, intervenors raised 46 h C mpany's share of Per Unit s $ Many factors are being considered to
, . ensi card he o ar ed 16, dettrmine the most economical alter- 9 9 native. These include not only capital in 1984,is estimated at about $1.2 investment but also operation, main-tenance and fuel expense, potential Electric heat pumps are providing cost-effective space conditioning in thousands of homes throughout our service area. This home uses an electric geothermalheat pump to achieve comfortable warmth and efficient cooling year-round.
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i of which 11 already have been resolved. meet regulatory requirements,the industrial Sector Benefits From We believe we can resolve the five estimated completion date of the unit Electric-Powered Technologies rem ining issues in a timely manner. has been changed from late 1986 t More manufacturers in Northeast Ohio about the end of 1987.The schedule The Company is proud of the progress are turning to laser systems, robotics, made at Perryin 1984.We do not expect the finil months of construct,on, i sj p ti b twe n Uni B ae th , j' electric furnaces, induction heating, ion nitriding, plasma-arc cutting and other and Perry Unit 1. The additional time testing and licensing to be easy, and inn vative electnc-powered technologies ermits the CAPCO companies to unforeseen problems can arise, but we to improve productivity and lower costs. concentrate resources on the com-have confidence i ,n our ability to meet letion of Perry Unit 1 and increases For example, by recommending operating 9~ the time between the addition of the and equipment changes, Company Work Remains Minimal on Perry units to rate base. engineers helped LTV Steel, head-Unit 2 quartered in Cleveland, more than As a result of the changes announced ' b Throughout 1984, construction was
-kept to a minimum on the second unit in January 1985, the Company's share of the estimated cost of BeaverValley (rna'ce h ears o LTV Steel, the nation's second largest at Perry, a 1,205-megawatt unit the Unit 2 is now about $1 billion, including steel producer, plans to install a $130 Company also owns with its CAPCO AFUDC. Total estimated cost of the million steel galvanizing line in one of partners. Our share of the unit is 375 project for the CAPCO companies is about ts local facilities. By using a new electro-megawatts.We are pn, man,ly doing $3.9 billion.
galvanizing technology that coats steel only the Unit 2 work necessary to the on both sides, LTV Steel expects to operation of Unit 1. Perry Unit 2 with Marketm.g Program Helps produce a more rust-resistant, flat-rolled its sharm of facilities common with Unit Customers Stay Competitive steel for the automotive indu:try. This 1 is about 57 percent complete. As new operation is expected to add some As part of the Company's marketing 50 megawatts to our load in late 1986. any u e it reg rd n the pr gram in 1984,we continued advising industrial and commercial customers in another marketing project, Company futura of Perry Unit 2. The CAPCO n the newest equipment, systems and representatives worked with Ford companies are continuing to evaluate technologies to best meet their needs. engineers on the installation of induc-til options with respect to Unit 2. Our marketing representatives help tion holding furnaces that have helped See Note L of Notes.to Consolidated customers utilize new electrical systems Ford's casting plant improve both Fin ncial Statements.. and processes. These result in more cost- production and quality. BeaverValley Unit 2 effective ways to use electricity because we recognize that efficient use of On our recommendation, the Southerly
' Construction Progress WasteWaterTreatment Plant of the energy will improve their competitive In addition to Perry, the Company position. A goal of our marketing effort Northeast Ohio Regional Sewer District owns cbout 25 percent, or 204 mega- is to seek electric applications for our now heats eight buildings with electric watts, of BeaverValley Unit 2 now under customers that will benefit both the heat pumps that draw waste heat from construction by our CAPCO partner- customer and the Company. Processed sewage.This innovative Duquesne Light Company. By year end system is providing significant fuel-cost 1984, that unit was 83 percent complete. Using computer programs, we are savings by eliminating the need for oil expanding our market research efforts or natural gas for space heating.
As tnnounced in January 1985,the to determine how various marketing CAPCO companies decided to reduce strategies and long-term energy options Studies by Company engineers per-their 1985 cash expenditures for Beaver will affect large segments of customers. sueded the Regional Transit Authority Valley Unit 2 by about $100 million. (RTA) to use an electric earth-storage Our share of the reduction is about We also are continuing to develop heating system to meet the unique
$25 million, bringing our estimated innovative rate designs to encourage needs of its new central rail maintenance 1985 expenditures for the unit down commercial and industrial customers to facility. That system already has saved to a bout $86 million, excluding AFUDC. increase their energy use in off-peak
, substantially on operating expenses, penods. The rate des,gnsi permit more while increasing RTA's off peak elec.
As a consequence and also to recognize efficient use of facilities while reducing construction delays encountered to tricit use~ average energy costs. Major office construction throughout our service area signals the future growth in commercial electricity sales. One example is this new headquarters building for the Standard Oil Company of Ohio being built on Geveland's Public Square. It was added to our system in 1984 and will be the down-town area's largest consumer of electricity Reflected on the building's facade is a Cleveland landmark, the Terminal Tower. 15
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. , ,. 4 137,000-square-foot Summit I office f ...," ' ; "n
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building, for example, reflects the ':'
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representatives helped the owners s .-
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additional buildings are planned for the ; .y
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for the Great Northern Corporate ,i. ., . ,f '.
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Center complex in North Olmsted, a t y .. j ; ;J. ,. ,,'," '- - 7' , suburb of Cleveland. Long-range plans
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service area. Recognizing the growth potential in l ' ' [~{.
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efficient, all-electric system for Burger ; King that serves as a model for the many fast food chains in Northeast Ohio. The restaurant incorporates a heat = recovery system that uses waste heat The company and its employees play a from refrigeration equipment to leading role on many community service heat water and also reclaims heat from projects Through the community involve-the ventilating system Energy costs ment Program started in 1984 (see story on of the new system are 10 percent lower the next page), the Company supported the than a gas system volunteer etforts of one ofits employees to assist on provrding the Julie 9tiliart School Rus!dential Programs Meet in Lyndhurst with computer faalities for Competition teamong-ompaired students Natural gas companies stepped up their competition with us for residential customers and aggressively promoted use of natural gas heating among 1 16 l
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existing and prospective customers. To Emplaytes Promsts Company a . l meet this competition, we strengthened and Community Growth ~ ' "7 1 . our mass media communications and Some 5,800 employees are the Mwpp44, Company marketing personnel expanded * ' - their activities with service area buMers. Company,s mosti ,mportant link to , %,,,, customers and to the many communities .. d l We developed new rate designs for within our service area. residential customers as a financial P Each year,the Company provides a incentive to those willing to limit or broad range of training and educational shift specific loads to off-peak hours. assistance programs to help hundreds - We intensified research efforts in the of employees enhance their skills. Many "" l residential market, placing major emphasis on innovative applications of our employees hold memberships in business and professional organizations
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such as closed-loop, groundwater heat to help refine their skills and keep up- % pumps and dual fuel systems. to-date on new developments in their To demonstrate our commitment to respective fields. -- we customer service, Cornpany home To help employees gain maximum economists communicated with over benefit from the computer processes g,4 _r 78,000 people involving hundreds of available to them in performing their E', presentations to community groups jobs, the Company set up a walk-in .Y ' and visited all-electric homes to provide information center in 1984. information about efficient use of T Also in 1984,the Company purchased .9 electricity. a modem,262,000-square-foot office building in Independence. Some 200 D D~ j Custcmer and employees have moved to this new Ccmmumty Relations facility, easing overcrowded conditions ***.Te Programs Expanded at the downtown Cleveland head- **7* quarters. Further moves will be made Nzw Programs Enhance Custcmer Relations in 1985. The Independence building offers new flexibility in long-term
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in 1984, the Company increased cost- Pl anning. Further,it provides the . w effective customer communication parking and security features needed for e. we through radio, television and newspaper 24-hour staffing and has the required w messages, the Company Speakers space for computers, word processors . Bureau, notices on electric bills and and other modern office equipment. - - special meetings and mailings. Many employees actively participated A new printer that uses a faser beam in community service groups, local to shoot images onto paper allows us government and many other worth- _ to include timely messages to customers while activities during 1984. Encouraging on monthly electric bills without sacri. such interaction is a Community ficing our economical postcard-style in.olvement Program established in p ' 1984. Through this program, the w billing format. We are among the first utilities in the country to use this cost- Company now contributes funds to e ***
- effective approach. qualified service, educational, welfare *O nd community projects in which The Company has the best record of employees are involved. (See article any major energy utility in the state for on this page).
resolving customer concerns without formalintervention by The Public As another sign of community involve-
- Utilities Commission of Ohio. One ment, Company employees in 1984 reason is the Company's special hotline pledged donations to the United Way ..
connecting our offices to the Com- campaigns in their home communities + mission's headquarters in Columbus. that went over the $1 million mark for the third year in a row. . W Recogn..izing that many Northeast Oh.io ww; y families are still recovering from the Through the Com,,any's Affirmative 4, , recession, we made special efforts in Action Program, equal employment 1984 to help those having difficulty opportunity is ensured for all. paying their electric bills. As one The people who work at The Illuminating example, we made deferred payment Company are strongly committed to arrangements for nearly 25,000 top-quality performance both on and customers.We also granted t,me,exten-i off the job. They share their Company s sions for many accounts and advised commitment to customers and to the 6 customers on how to apply for state betterment of Northeast Ohio. and federal energy assistance programs. t 17 i
! rn U Managernent's below book value through our share thereby increasing the cost of and the Discussion and Analysis of owner, customer and employee stock difficulty in obtaining external funds. Financial Condition and purchase plans. It may be necessary to We have filed a request with The Public Results of Operations issue additional common stock below Utilities Commission of Ohio (PUCO) book value through public offerings in for a $180,000,000, or 15%, increase Capital Resources and Liquidity the future to maintain a balanced in electric rates. An order is expected in capital structure. late February 1985.We will continue We carry on a continuous program our diligence in seeking fair rate levels of construct,ng i new facilities to meet Ratio of Market Price to Book Value in order to maintain as strong a financial antiopated demand for electricity in Year End position as possible. See "Results of our service area, to replace worn-out (pemen0 Operations" and Note M of " Notes to facilities and to comply with pollution Consolidated Financial Statements" for control regulations. For the three years discussions of our recent rate increases 99 cnded December 31,1984, our capital Son and other rate matters. requirements for our construction program were approximately $1.5 billion. 90
- 1 One of our financial objectives is to This amount includes an allowance for maintain a balanced capital structure.
funds used during construction (AFUDC) so E Our financing activity is planned to which is explained in Note A of " Notes u achieve a capitalization structure of to Consolidated Financial Statements." ' M 40-42% common equity, a maximum For a discussion of our commitments of 48% debt and 10-12% preferred and related risks at year end 1984, and preference stock. At year end 1984, 6 our capitalization structure was 41% including those involved with our con-struction program, see Note L of " Notes common equity,48% debt and 11% to Consolidated Financial Statements." 50 preferred and preference stock. Al-though common equity is our most As discussed elsewhere in this Annual pemanem Snanchg, R port,the cost of our 1985-1989
' "P'"S** '* .
we believe that it is important to construction program is estimated to maintain its level at 40-42% of total 3 ringe from $1.9 billion to $2.4 billion capitalization in order to support the (induding AFUDC, but exclud.ing nudear credit ratings of our senior securities. full). Substantial additional expendi- 2 Financing plans for 1985 are discussed tures may be necessary if we are required elsewhere in this Annual Report.The to modify or add to our existing facilities io types, amounts and timing of financings to comply with future pollution control - beyond 1985 cannot be determined at regulations. o this time. To finance construction,we rely on so si 82 83 84
" 'p to our construction program financing ment o r terna enerated fun in 1984, Moody's investors Service and Standard & Poor's Corporation lowered needs, we must refinance $290,627,000 Ov:r the 1982-1984 period, we raised their ratings of certain securities of the of maturing debt and preferred stock.
about 60% of our construction Also, we are required to offer to expenditures through bank borrowings Company as discussed elsewhere in this Annual Report, thereby increasing purchase $127,600,000 of preferred and security sales. At year end 1984 we had about $130,000,000 of cash' our borrowing costs. and preference stock dunng the,same penod. See Notes E, G and H of Notes and temporary cash . investments Our ability to finance is contingent to Consolidated Financial Statements" ' cvailable. Assuming adequate and upon obtaining sufficient and timely ' for further information regarding our tim:ly rate relief, we expect to finance rate increases. Without adequate rates, first mortgage bonds and preferred about one-third to one-half of our it would be impossible to earn a fair stock. A portion of the debt which construction program over the next return for our common stock share matures in the five-year period has 1 five years through the issuance of owners. Inadequate rates also would very low interest rates. We expect that secunties, with larger proportions in impair our ability to generate funds investors in new issues of long-term the earlier years- internally and could result in a further debt and preferred stock will continue 1 The capital requirements of our lowering of our secunties ratings, to demand relatively high interest and construction program and our need to dividend rates in the future and that maintain an appropriate mix of debt our embedded cost of capital will and equity capital have resulted in the continue to increase as we replace sale of common stock at prices below maturing low-cost securities with more book value during the 1982-1984 expensive debt and equity. period.These sales have resulted in dilution of the book value of out- ) standing common shares. We are continuing to issue common stock 18
The amount of first mortgage bonds Sources of Electric Revenue increases 7.4% in Januaiy 1983. In October 1983, l the Company can issue is limited by our (millions of dollars) electric rates were reduced 1%. For Mortgage and Deed of Trust. See Note further details on matters affecting rates, C of " Notes to Consolidated Financial see Note M of " Notes to Consolidated Stat:ments" for a discussion regarding $2* Financial Statements." We did not seek
'S' the amount of additional first mortgage is U
""' an increase in electric rates for 1984 i bonds we were permitted to issue at g because of the cost containment and I December 31,1984. There are no iso deferral program we implemented early restrictions on issuing additional in 1983. This program,which carried authorized preferred stock and te into the first quarter of 1984, placed przfer:nce stock. II ;T > - strict controls on hirings and promo-y, (j g ('l tions, sharply reduced overtime and Fixed Charges Coverage Ratio 100 limited expenditures for materials and (times eamed) , , , ,
']ky;i supplies. These measures enabled us to 8 defer our need for additional rate relief g
64
'4r m4"'35"
- 4 N in until 1985.
4 :3 U,sf'II'3 7 4 I 4o Our net rate increases over the 1982-3, H L} k! g 1984 period and higher kilowatthour 3 30 m 22. 20 t ig sales in 1983 and 1984, coupled
, in man E with effective cost control and higher 23 2d bit AFUDC, offset the effects of inflation on
-20 W operating expenses,;ower kilowatthour 2
sales in 1982, higher interest expense,
-# stock sales and the de:ay between the g
,g time our costs go up and the time we 1 so si 82 83 84 receive a rate increase to cover those increased costs. Consequently, sarnings the second straight year, we experienced per share rose in each of the last three o
growth in kilowatthour sales to our years, reaching a record level of $3.64 80 si 82 si 84 industrial customers. After a 14.5% in 1984.The ratio of earnings to fixed decline in industrial sales in 1982 as a charges (SEC method) rose to 3.0 in result of the recession which began in 1982 and 3.2 in 1983 and declined We use short-term financing such as bank lines of credit and the sale of .1981, our industrial sales were up 6.1% slightly to 3.1 in 1984. commercial paper to give us flexibility Fuel and purchased power expense ainin ndustri sal reflects ont nu ng in timing our long-term f,nanangs. i accounted for about one third of our improvement in the local manufac_ Money raised through these short-term turing sector. Fuel Costs arrangements is primarily used to finance temporarily our construction The harsh winter our service area (cents per kilowarthour) program.We have a total short-term experienced in early 1984 more than borrowing capability of $206,300,000 offset the effect of a relatively mild 24 - in tha form of bank lines of credit and summer, thereby contributing to revolving loan commitments. Some of increases in residential and commercial 22 E ca sales in 1984 of 0.8% and 3.1%, Nudear these lines are held in reserve to ensure that we will be able to pay off commer- respectively, over the 1983 levels. Total 20 - cial paper and variable interest notes sales increased 3.8% in 1984. The u E E= when they are due. See Note J of " Notes improving economy and an extremely E to Consolidated Financial Statements" hot summer in 1983 had benefited is N E for details of our credit arrangements. residential and commercial sales that l year. Residential sales were up 1.8% in 14 g Results of Operations 1983 a'ter a 0.9% dedine in 1982. u E Sales in the commercial sector grew The following chart shows the factors which have affected our electric 1.7% in 1983 compared with 0.4% io III rcvenues in each of the last five years. growth in 1932. Total sales in 1983 l os Th? economic recovery in our service increased 2.9% versus a 7.7% decline g g in 1982. 6 m m area which began in 1983 continued . through 1984. Evidence of this recovery The PUCO granted us electnc rate , in our local economy is that in 1984, for increases of 10% in March 1982 and 02 - o
'80 '81 '82 '83 '84 19
total operating openses in 1984. Totti R U Management's ] Report cf fuelcxpense for the year was down a i 11% from 1983 due to a combination Statement of Independent Accountants of lower unit fuel costs, greater fuel Responsibility for efficiency experienced in the operation FinancialStatements of our generating units and a reduction KN < in the provision for deferred fuel costs. The management of The Cleveland < See Note A of " Notes to Consolidated Electric illum,nating i Company is respon-
, To the Board of Directors and the Financial Statements" for a discussion sible for the consolidated financial Share Owners of The Cleveland of fuel costs. statements which appear in this Annual Electric illuminating Company:
Report. The statements were prepared Purchased power expense represents in accordance with generally accepted We have examined the consolidated the net cost of our energy exchanges accounting principles which are appro. balance sheet and the statement of with other utilities. The amount varies priate in the circumstances.These capitalization of The Cleveland Electric from year to year depending upon the principles require that certain amounts Illuminating Company and its subsidiaries avflability of our power plants,the must be recorded based on estimates. at December 31,1984 and 1983 and energy demands of our customers, the Such estimates are based on an analysis the related consolidated statements of prica of electricity available from other of the best information available income, retained earnings, and of utilities and opportunities for the sale regarding the amounts to be estimated. changes in financial position for each of energy. In 1984, net purchased of the three years in the period ended power expense was up from 1983 We mainta.in a system of internal December 31,1984. Our examinations bec:use of increased demand and accounting controls. The control pro- of these statements were made in more generating unit outages. It was redures are designed to assure that accordance with generally accepted mor: economical for us to replace the the financial records are reasonably auditing standards and accordingly lost generation and meet the demand cornplete and accurate. They also are included such tests of the accounting with power purchases rather than with designed to help protect the assets and records and such other auditing pro-our other generating units. their related records.We make an effort cedures as we considered necessary in to ensure that the costs of our control the circumstances. In 1983, net purchased power expense procedures do not exceed the benefits. w s up from 1982.The effect of . As discussed in Note L to the consolidated a an i ema a pr decreased unit fuel costs exceeded the financi I statements,the Company impact of higher kilowatthour sales acc ntin9 cannot now predict when, if ever, or at and resulted in a slight decrease in controls. This program is des.igned to what cost Perry 2 will be completed; total fuel expense from 1982, ex mine whether the controls are and,if not completed, whether The adequate and effective. Also, an Public Utilities Commission of Ohio will Nudiar generation accounted for examination of the financial statements allow recovery of costs associated with 10%,15% and 13% of our total fuel- is conducted by Price Waterhouse, the Unit' fired electric generation in 1982,1983 independent accountants, whose and 1984, respectively. opinion appears at the right. In our opinion, subject to the effects Other significant items affecting The Board of Directors of the Company
, , ftaternent o s adjus ents if any, camings per share were increased pay . is responsible for determining whether as might have been required had the ments of interest and preferred stock management and the independent outcome of the uncertainty referred to dividends and a greater number of, accountants are carrying out their in the preceding paragraph been outstanding common shares resulting responsibilities. The Board has appointed known, the financial statements referred )
from additional external financing. The an Audit Committee, comprised entirely to above present fairly the financial impact of the increases in these items of outside directors. The responsibilities position of The Cleveland Electric partially offset the related increases in of the Audit Committee are described I Illuminating Company and its subsidiaries th2 amount of AFUDC.The amount of elsewhere in this Annual Report. as of December 31,1984 and 1983, AFUDC reflected in eamings per share and the results of their operations and has grown because of increased the changes in their financial position investment in construction work .in for each of the three years in the period J progress, primarily at Perry and Beaver ended December 31,1984,in conform-Villey Unit 2. AFUDC was 69% of our ity with generally accepted accounting earnings in 1984 compared to 55% in principles consistently applied. 1983 and 61% in 1982. For a further discussion of AFUDC and for information concerning the continuation of AFUDC accruals for Perry Unit 2, see Notes A PriceWaterhouse tnd L, respectively, of " Notes to Cleveland, Ohio Consolidated Financial Statements." February 8,1985 For a discussion of how we are affected by inflation, see " Supplementary information Concerning the Effects of inflation." 20
I l O income Statement The Cleveland Electric Illuminating Company andSubsidiaries For the Year Ended December 31, 1984 1983 1982 (Thousands of Dollars) . OPERATING REVENUES Electric $1,200,465 $1,194,162 $1,091,054 Steam 14,888 16,154 17,517 Total Operating Revenues 1,215,353 1,210,316 1,108,571 OPERATING EXPENSES - Operation
- Fuel 285,188 320,792 330,674 Purchased power 28,224 12,185 (1,395)
Other 190,563 182,439 168,802 503,975 515,416 498,081 Maintenance 90,325 88,029 81,789 Depreciation and amortization 95,274 94,196 86,588 Taxes, other than Federal income tax 132,313 126,883 106,804 Federal income tax 131,355 127,430 106,382 Total Operating Expenses 953,242 951,954 879,644 NET OPERATING INCOME _ 262,111 258,362 228,927 NONOPERATING INCOME Allowance for equity funds used during construction 130,421 87,052 76,896 Other income and deductions, net 3,680 3,805 (2,481) Federal income tax - credit 35,099 23,291 22,254 Total Nonoperating income 169,200 114,148 96,669 INCOME BEFORE INTEREST CHARGES 431,311 372,510 325,596 INTEREST CHARGES Long-term debt 177,246 151,257 134,250 Short-term bank loans, commercial paper and other 3,618 2,717 9,822 Allowance for borrowed funds used during construction (41,185) (27,490) (27,440) Total Interest Charges 139,679 126,484 116,632 NET INCOME 291,632 246,026 208,964 Dividend requirements on preferred and preference stock 43,353 38,426 38,295 EARNINGS AVAILABLE FOR COMMON STOCK $ 248,279 $ 207,600 $ 170,699 EARNINGS PER COMMON SHARE $ 3.64 $ 3.28 $ 3.01 DMDENDS DECLARED PER COMMON SHARE $ 2.43 $ 2.31 $ 2.19 F' l O Retained Earnings Statement For the Year Ended December 31, 1984 1983 1982 (Thousands of Dollars) BALANCE AT BEGINNING OF YEAR $ 388,217 $ 325,463 $ 280,285 ADDITIONS Net income 291,632 246,026 208,964 DEDUCTIONS Dividends declared Preferred stock 39,799 33,636 33,900 Preference stock 4,197 4,418 4,418 Common stock 164,690 145,077 124,841 Costs of issuing equity securities - 141 627 Total Deductions 208,686 183,272 163,786 8ALANCE AT END OF YEAR $ 471,163 $ 388,217 $ 325,463 The accompanying notes are an integralpart of these financial statements. 21
e a Lj Enlarsee Sheet at December 31 ASSETS 1984 1983 PROPERTY AND PLANT ( ETsands of Dollars)
' Utility plant Electric in service $2,864,332 $2,794,873 Steam in service 44,561 43,262 2,908,893 2,838,135 Less accumulated depreciation and amortization 798,979 722,492 2,109,914 2,1?3,643 Construction work in progress 2,113,650 ,1p 6,653 4,223,564 1,732,296 Nuclear fuel in trust 67,418 58,599 Other property, less accumulated depreciation 27,859 11,545 4,318,841 3,802,440 POLLUTION CONTROL CONSTRUCTION FUNDS - unexpended 61,422 18,618
- CURRENT ASSETS Cash and temporary cash investments 130,711 42,693 Amounts due from customers and others, net 116,477 111,928 Materials and supplies, at average cost 31,028 29,640 Fossil fuel inventory, at average cost 78,033 58,870 Taxes applicable to succeeding years 101,678 99,884 Other 3,802 3,612 461,729 346,627 DEFERRED CHARGES Unamortized costs of terminated projects 46,089 49,154
- Accumulated deferred Federal income taxes 7,597 12,240 Other 30,763 38,348 84,449 99,742
$4,926,441 $4,267,427 CAPITALIZATION AND LIABILITIES CAPITAUZATION (See statement of Capitalization)
Long-term debt $1,883,648 $1,518,883
. Serial preferred stock With mandatory redemption provisions 247,218 261,000 Without mandatory redemption provisions 144,021 144,021 Serial preference stock with mandatory redemption provisions 45,600 57,000 Common stock equity 1,592,810 1,355,488 3,913,297 3,336,392 ,
OTHER NONCURRENT UABluTIES 81,361 68,941 l CURRENT UABILITIES Current portion of long-term debt and preferred stock 49,483 59,410 Notes payable to banks and others 19,100 19,100 Accounts payable 143,378 121,198 Accrued payroll and vacations 17,904 16,119 Federal income taxes 10,860 12,301 Other taxes 129,402 125,016 Interest 40,272 36,322 Other- 6,932 7,251 417,331 396,717 DEFERRED CREDITS Unamortized investment tax credits 265,365 218,589 Accumulated deferred Federal income taxes 215,362 192,483 Other 33,725 54,305 514,452 465,377 COMMITMENTS AND CONTINGENCIES - See Note L
$4,926,441 $4,267,427 The accompanying notes are an integral part of these financial statements.
22 i
, -.. .c ., . - . . , - . - . . - ... . . - ..
Na Capitalization at December 31 The Cleveland Electric illuminating Company and Subsidiaries ] 1984 1983 1984 1983 T (Thousands of Dollars) (Percent of "~.- Capitalization) -- LONG-TERM DEBT (a)
,==
First mortgage bonds - maturing through 2020 at rates of 2%% to 16%%
$1,315,191 (Less $43,291,000 in 1984 and $55,000,000 in 1983 classified as current) $1,609,800 Collateral pledge notes - secured by First Mortgage Bonds maturing in __
]
2012 at semiannual equivalent rates of 11,72% to 14.57% 47,120 43,370 g Term bank loans - matunng 1986-1993 at variable rates (Average rates -= were 11.49% in 1984 and 10.10% in 1983) 175,000 106,000 _yg Pollution control notes - maturing through 2012 at rates of 5.6% to % 6.7% (Less $410,000 in 1984 and 1983 classified as current) 57,020 57,430 == Other - net (5,292) (3,108) y 1,883,648 " Total Long-term Debt 1,518,883 48 45 SERIAL PREFERRED AND PREFERENCE STOCK - cumulative, without par value,4,000,000 and 3,000,000 authorized shares, respectively [ Preferred Stock without mandatory redemption provisions G Annual 1984 -W Dividend Shares 33 Series Rate Outstanding JiE A $7.40 500,000 50,000 50,000 "!M B $7.56 450,000 45,071 45,071 di 500,000 48,950 48,950 'M L Adjustable (b) 144,021 144,021 a Preferred and Preference Stock with mandatory redemption provisions (Less $5,782,000 in 1984 and $4,000,000 in 1983 classified as current) j Annual Mandatory Redemption Provisions (c) Shares w to be _, 1984 Redeemed M Annual Shares Shares at Dividend Out- Beginning to be Holders' E Series Rate standing on Price Redeemed Option - Preferred: J C 3 7.35 230,000 8-1-84 $ 100 10,000 - 23,000 24,000 ] E $ 88.00 45,000 6-1-81 $1,000 3,000 - 45,000 48,000 - F $ 75.00 50,000 11-1-85(d) $1,000 - 16,667 50,000 50,000 -
- G $ 80.00 32,000 8-1-84(d) $1,000 - 8,000 32,000 40,000 S H $145.00 26,718 6-1-85 $1,000 1,782 - 26,718 28,500 -:
I $145.00 31,500 6-1-86 $1,000 1,969 - 31,500 31,500 m J $113.50 29,000 6-1-87 $1,000 5,800 - 29,000 29,000 ? - K $113.50 10,000 6-1-91 $1,000 10,000 - 10,000 10,000 247,218 261,000 Preference: _=_. 1 $ 77.50 45,600 4-1-84(d) $1,000 - 11,400 45,600 57,000 Total Preferred and Preference Stock 436,839 462,021 11 14 -5
=
COMMON STOCK EQUITY Common shares, without par value,85,000,000 authorized, 74,040,175 j and 65,198,089 outstanding in 1984 and 1983, respectively 1,121,647 967,271 _1 Retained earnings (e) 471,1 f,3 388,217 -J- i Total Common Stock Equity 1,592,810 1,355,488 41 _4,1 ] TOTAL CAPITAllZATION $3,913,297 $3,336,392 100 100 _- (a) Long-term debt matures during the next five years as follows: $43,701,000 in 1985 (classified as a current liability on the consolidated Balance sheet), _-
$40,410,000 in 1986, $13,410,000 in 1987, $14,410,000 in 1988 and $124,510,000 in 1989.
(b) The adjustable rate is based on the highest of certain factors but not more than 13% or less than 75 The average rate was 12.89% in 1984. (c) Amounts to be paid for preferred stock wNch must be redeemed during the next five years are: $5,782,000 in 1985 (dassified as a current liability on the w consolidated Balance sheet), $7,751.000 in 1986 and $13,551.000 in 1987,1988 and 1989. In addition, the Company must offer to purchase preferred - stock having a redemption price up to $19,400,000 in 1985, $36.067.000 in both 1986 and 1987, $36,066,000 in 1988 and none in 1989. - (d)This is the date the Company must offer to redeem. Any resultirig redemption would occur four months later. (e) As of December 31,1984 there was no restriction on the right of the Company to pay dividends in any amount up to all of the eamings retained in the
]
business. The aqompanying notes are an integral part of these financial statements. .; G 23 .5
"- ' em -m
Changes in Financial Position The Cleveland Electric I!!uminating Company and Subsidiaries [ For the Year Ended December 31, I 1984 1983 1982 ( (Thousands of Dollars) F FINANCIAL RESOURCES PROVIDED [ Net income $291,632 $245,026 $708,964 s items not affecting working capital i Depreciation and amortization 95,625 94,336 86,622 [ Deferred Federal income tax 73,467 89,125 72,103 Allowance for equity funds used during construction (130,421) (87,052) (76,896) Other 783 620 918 Total financial resources provided from operations 331,086 343,055 291,711 Sales of securities " First mortgage bonds 337,900 125,000 277,600 Preferred stock - 48,950 - Common stock 154,377 65,638 179,711 7 Total sales of securities 492,277 239,588 457,311 Term bank loans and collateral pledge notes 72,750 37,270 6,100 Nuclear fuel trust obligations 8,819 5,848 52,751 Pollution control funds expended 66,196 - 18,559 e Working capital decrease (a) - 59,957 - 1 Other - 7,591 6,007 ( Total Financial Resources Provided $971,128 $693,309 $832,439 FINANCIAL RESOURCES USED Additions to utility plant $582,288 $490,705 $422,170 l Allowance for equity funds used during construction (130,421) (87,052) (76,896) 451,867 403,653 345,274
, Retirement of debt and preferred stock 78,810 99,105 121,600 E Dividends 208,686 183,130 163,786 Pollution control construction funds deposited 109,000 840 -
e Deferred fuel costs 9,790 - - p Nuclear fuel in trust 8,819 5,848 52,751
' Decrease in short-term debt and other borrowings 76,200 40 Working capital increase (a) 84,560 - 72,828 Other 19,596 693 - - Total Financial Resources Used $971,128 $693,309 $832,439 r
SUMMARY
OF CHANGES IN WORKING CAPITAL (a) Cash and temporary cash investments $ 88,018 $ (16,624) $ 34,621 i Amounts due from customers and others, net 4,549 10,070 7.451 i Fossil fuel inventory 19,163 (16,533) 6,630
+ Taxes applicable to succeeding years 1,794 12,754 23,520
[ Accounts payable and accrued payroll and vacations (23,965) (30,782) 12,120 2 Federal income and other taxes payable (2,945) (17,157) (8,229) ,
, Other (2,054) (1,685) (3,285)
Change in Working Capital (a) $ 84,560 $ (59,957) $ 72,828 { j (a) Other than short-term borrowings and cdrrent portion of long-term debt.
?
The accompanying notes are an integralpart of these financialstatements. i s I e l
; 24 1
] Note 3 to Ccnsolidated Fin ncl:I St:t:m:nts Note A - Summary of Significant Accounting Policies determined by a formula set by the FERC. The rate We are required to follow the accounting principles and Npresents an average of the cost of money paid on funds rules set by The Public Utilities Commission of Ohio (PUCO) tied up in construction. The rate is compounded and the Federal Energy Regulatory Commission (FERC). A semiannually. The part of the rate which represents interest description of our significant accounting principles follows. is reduced to recognize that interest is tax deductible.
The amount of AFUDC is reflected in two parts of our Consolidation income statement: an addition to Nonoperating Income as Our financial statements include the accounts of three the Allowance for Equity Funds Used During Construction wholly-owned subsidiaries, which in the aggregate are and a reduction of Interest Charges as the Allowance for immaterial. Borrowed Funds Used During Construction. On the balance sheet, the AFUDC becrwries part of Construction Work in Property and Plant P(09('55-Electric and Steam Utility Plant is carried on the books at The amount of AFUDC recorded in each accounting period original cost as defined by tha FERC. The costs of varies. The variation occurs because of (1) the number of maintenance and repairs are charged to Operating Expense dollars spent on constru: tion, (2) the length of the as incurred. The cost of replacing or improving property is construction period and (3) the rate used in computing charged to Property and Plant. The cost of property retired, AFU0C. The rates were 10.66% in 1984,10.35% in 1983 plus any removal cost, less any salvage realized, is charged and 10.00% in 1982. to Accumulated Depreciation and A.mortization. FederalIncome Tax Depreciation The depreciation expense we report on our income We report depreciation expense on our income statement statement is different from the depreciation expense we as a current cost of doing business to account for the use to calculate Federal income tax. There are several normal using up of our property. Depreciation is deducted reasons for this difference. First, AFUDC and certain in equal amounts over the estimated useful life of the overheads are excluded from the cost of assets which we property. For example, if we estimate that an item will be are allowed to depreciate for tax purposes. However, these useful for 10 years, we charge one-tenth of its value to costs are included in the cost of assets we depreciate on depreciation expense each year. However, in the case of our income statement (book depreciation). Second, the the Davis-Besse Nuclear Power Station (Davis-Besse), we Portion of depreciation expense representing nudear unit utilize the units-of-production depreciation method which decommissioning costs (see Note C)is not deductible for bases depreciation on the ratio of the amount of electrical tax purposes until cash payments are made. Third, the energy it produces in the accounting period to its total period of time over which the Internal Revenue Service estimated energy production over its useful life. (IRS) allows the cost of assets to be depreciated is shorter than the period of time (useful life) wa use. Finally, the IRS Terminated Projects allows some of the depreciation we are entitled to in future years to be used early. Beginn'ng with property Costs associated with terminated nuclear generating units a ons ma& in Octder M, h tax hons are being amortized over a period approximating 15 years' resulting from these differences are not applied which began in 1983. See Note D. tax expense oni the ,ncome statementods in we the pen,to reduce obtain them. They are deferred for allocation to income Allowance for Fur'ds Used During L.onstruction over the useful life of property through a procedure called The PUCO and the FERC allow us to include as part of the normalization. At December 31,1984, the cumulative net total cost of constructing new assets the cost of money amount of income tax timing differences for which paid on funds which are tied up in construction projects, deferred income taxes have not been provided amounted This is called Allowance for Funds Used During to about $500,000,000. Construction (AFUDC) . When we place new property in service during the year, When a construction project is completed or, to the extent the IRS allows us a credit against taxes due for 10% of the the PUCO allows it in rate base after it is at least 75% investment we have made in the new asset. This is called completed, the funds invested in it are no longer the investment tax credit. We record Federal income tax on considered tied up in construction and we stop recording our income statement as though it were not reduced by AFUDC. The cost of the project at that time, including this credit. We recognize the tax savings from this credit i AFUDC, is treated as a new asset and is included in a over the life of the property involved through the subsequent rate case to determine the rates we charge our normalization procedure. customers for service. Because the resulting rates include a Our Federal income taxes are lowered because we can factor for all these costs, we are being allowed to recover deduct our interest charges from income. This reduction of pety, mdudsg ANDC, om the taxes is split between Operating income and Nonoperating use ulli the rope l Income. The tax reductions resulting from interest actually The amount of AFUDC for an accounting period is paid on funds invested in property currently being i determined by apply:ng a rate of AFUDC to the funds tied constructed are recorded in Nonoperating income. The tax up in construction. The annual AFUDC percentage rate is reductions of interest paid on all other funds are recorded in Operating income. 25 w
O Notes to Consolidated Finanei:1 Statements Revenues and nuclear fuel is used, we transfer the cost to the income statement as fuel expense. Nuclear fuel expense Customer meters are read or estimated and billed on a also includes a factor for the cost of the ultimate disposal monthly basis. Operating revenues are recorded in the recounting period during which the meters are read, of spent nuclear fuel which is being recovered through rates. A fuel factor is added to our base rates for electric service. This fuel factor is designed to recover from custome.s what Any difference between the cost of fuel actually used and the amount collected from customers through the rate fuel we actually pay for fuel. It is changed every six months , , after a hearing before the PUCO. Our steam fuel rate is factor is deferred. The deferred amount is taken into adjusted each month for what we paid for fuel in the a,ccount to adjust the fuel factor for a subsequent six-month penod. preceding month, Accounts Receivable Fuel When we make a payment for coal or oil, it is recorded on Amounts due from customers and others was reduced by the allowance for uncollectible accounts of $3,226,000 the balance sheet as Fossil Fuel inventory. When we make and $2,247,000 in 1984 and 1983, respectively. a lease payment for nuclear fuel, we record it on the balance sheet as Deferred Charges - Other. As the fossil Note B - FederalIncome Tax Federal income tax, computed by multiplying the income before taxes by the statutory rate of 46%, is reconciled to the amount of Federal income tax recorded on our books as follows:
% of % of % of Pre-Tax Pre-Tax Pre-Tax 1984 Income 1983 Income 1982 Income Uhousands Uhousands (Thousands of Dollars) of Dollars) of Dollars)
Book income before Federal incon e tax $387,887 $350,165 $293,093 Tax on book income at statutory rate $178,428 46.0 $161,056 46.0 $134,803 46.0 - Decreases in tax due to: Allowance for funds used during construe. tion 78,939 20.4 52,689 15.0 47,994 16.4 Other items 3,233 0.8 4,228 1.3 2,681 0.9 82,172 21.2 56,917 16.3 50,675 17.3 Tctal FederJ income tax expense $ 96,256 24.8 $104,139 29.7 $ 84,128 28.7 Federal income tax expense is shown in the income statement as follows: 1984 1993 1982 Uhousands Uhousands Uhousands of Dollars) of Dollars) of Dollars) l C,wrating Expenses Current tax provision $ 56,029 $ 38,309 $ 34,279 Changes in accumulated deferred Federal income tax: Accelerated depreciation and amortization 23,957 20,727 19,498 Other items 4,594 3,387 1,461 Investment tax credit deferred, less amounts amortized 46,775 65,007 51,144 Total charged to operating expenses 31,355 127,430 106,382 Nonoperating Income Current tax provision (33,240) (22,763) (22,254) Deferred tax provision (1,859) (528) - Total Federal income tax expense $ 96,256 $104,139 $ 84,128 The income tax we paid in 1984 and 1983 ,,as reduced by investment tax credits of $54,881,000 and $71,201,000, respectively. 26
Note C- Depreciation Note E-First Mortgage Bonds We compute book depreciation on all of our utility plant, Condensed information on outstanding first mortgage with the exception of Davis-Besse, using the straight-line bonds is as follows: method of deducting from revenue the total cost of At December 31, property in equal installments each year over its estimated Year of interest Maturity Rate 1984 1983 useful life. The amount depreciated takes into account our estimate of the money expected to be received when we (Thousands of Dollars) dispose of the property (salvage) and our estimate of the 1984 7.55 % $ - $ 25,000 cost of dismantling and removing it (removal cost). 1984-A 12.25 % - 30,000 1985 2.75% 25,000 25,000 When a nuclear un.t .i is retired from service, we will have 1985-A 11.50 % 18,291 18,291 additional costs called decommissioning costs. For 1986 3.375 % 25,000 25,000 Davis-Besse, decommissioning is assumed to occur in 2011 1986-A and B 5.25% 5,000 5,000 when the radioactive components and structure will be 1989 3.00 % 20,000 20,000 sealed in a vault-like enclosure and, at a later date, the 1989-A 15.25 % 40,000 40,000 entire facility will be removed from the site. The 1989-B 14.375 % 50,000 - depreciation for Davis-Besse which we currently record on 1990 Through 199 10.58%(a) 296,970 171,970 1995 Through 1999 10.02%(a) 10,675 10,675 the books and recover in rates indudes a factor for our share of these decommissioning costs. The factor used during the 1982 through 1984 period was authonzed by
$ h h
2010 Through 2020 ( 10.72%(a) 1Q 945.055 1 782,155 the PUCO in 1980 and is based on an estimate of
$27,000,000 representing such costs expressed in 1980 Less arnounts classified as current 1 5
"'* $1,609,800 $1,315,191 At December 31,1984, the reserve for Accumulated Depreciation and Amortization induded $4,200,000 for (a) Percentages are weighted average rates for the period.
such decommissioning costs. There are no restrictions on the use of funds currently being recovered from customers The first mortgage bonds are issued under our Mortgage
. through rates. which places a first lien on almost all the property we own Annual depreciation provisions as a percentage of the and franchises we hold to secure the repayment of the first depreciable cost of plant are as follows: mortgage bonds.
1984 1983 1982 The issuance af additional first mortgage bonds is limited by two provisions of the Mortgage. Under the more Electric plant 3.3% 3.4% 3.2% restrictive of these provisions, we would have been Steam plant 2.6% 2.6% 2.6% permitted at December 31,1984 to issue approximately
$912,000,000 of additional first mortgage bonds. This amount fluctuates depending upon the remaining amount Note D - Termm.ated Projects of bondable property and upon earnings and interest rates.
In January 1980, the CAPCO companies terminated their if Perry 2 had been canceled at the end of 1984, this plans to construct four nudear generating units which amount would have been about $225,000,000 less. See were in various stages of construction start-up. Our rate Construction Program under Note L for a discussion of the case orders provide specific revenue to recover these costs status of Peny 2. through the method used to calculate the allowed rate of return on rate base ano authorize us to amortize the Note F- Leases unamortized terminated unit costs. Ohio law does not _ permit recovery of these costs through rates as an We have existing agreements for the leasing of certain operating expense. The unamortized costs of the vehicles, unit trains and other equipment, buildings and terminated units are not induded in our rate base. nuclear fuel. When the PUCO determines what rates are to be charged ' to our customers, it treats the rents on all the above leases as an operating expense. Accordingly, we record those rents as an operating expense on the income statement. Statements of Financial Account:ng Standards No.13 and No. 71 require that not later than 1987 we account for certain leased assets as though we owned them. At that time, only our nuclear fuel leases will result in any significant increase in the assets and liabilities reported on our balance sheet. All the rental payments we make for nur.h fuel and unit trains are recorded initially in balance shed fuel accounts. As the fuel is used, these costs are transferred to fuel 27
O Notes to Consolidated Financi:1 Staternents expense on the income statement. We paid rent of We can exercise our right to buy back Series E Preferred $14,767,000 in 1984, $12,388,000 in 1983 and Stock before June 1,1986 only under certain conditions. $8,180,000 in 1982 for nuclear fuel and unit train leases. Series E Preferred Stock cannot be redeemed prior to June Lease payments under all other leases were not material. 1,1986 as part of a refunding involving the use of pr ceeds of sales of debt, other preferred stock or stock Some of our leases have noncancelable terms of more than ranking higher than the Sen,es E with an effective annual one year. We have to make the following payments under c M of less dan 8.8Yo. In a these leases after December 31,1984,- n, wp may not re through the sale of stock h w@ich is junior es E.to the Year Amount A total of 3,000 shares of Series E Stock was bought back (Thousands of Dollars) and retired annually in 1982,1983 and 1984 pursuant to 1985 $ 4,130 its mandatory redemption provision. 1986 3,676 A total of 8,000 shares of Series G Stock was bought back and retired in 1984 pursuant to its mandatory offer to j repurr.hase provision. 1989 1,501 Later Years 4,622 Tiare are no restrictions on our right to issue and sell Total $18,517 authorized shares of Serial Preferred or Preference Stock. W2 did not include in the above table the payments we Note H - Serial Preferred Stock without must make under our nuclear fuel leasing arrangements. Mandatory Redemption Frovisions Sinc? the paym,ents are made when fuel is used, we do In December 1983, we sold 500,000 shares of Series L not know the timing or total amount of the rental Preferred Stock which did not have mandatory redemption payments. Sae Nuclear Fuel under Note L for a description provisions. Series L Preferred Stock cannot be redeemed of our nuclear fuel leases and commitments. prior to January 1,1989 as part of a refunding involving the use of the proceeds of sales of debt or preferred stock Note G - Serial Preferred and Preference Stock with an effective annual cost of less than the annual wkh Mandatory Redemption Provissocs dividend of the Series L Preferred Stock. We have assured the owners of our Series F Preferred We have the right to buy back and retire Serial Preferred Stock a minimum dividend return of 6.96% on their Stock which does not have mandatory redemption investment after deducting any Federal income tax on the provisions. The redemption prices (plus dividends accrued dividends received on the stock. If certain income tax laws to the redemption dates) are as follows: are changed such that their after-tax return is lower, we would have the option to do one of two things: buy back Price at the Series F at $1,000 per share plus accrued dividends or December 31, Eventual exchange Series F for a new series of preferred stock with Series 1984 Through Minimum a dividend rate high enough to provide a 6.96% after-tax A $102.50 11-30-86 $101.00 return. B $103.78 7-31-87 $102.26 L $111.36(a) 12-31-84(a) $100.00 We have the n.ght to buy back and ret. ire shares of Serial Preferred and Preference Stock which have mandatory (a) The redemption price of Series L changes on January 1,1985 to redemption provisions. The redemption pnces (plus $109.69 and rernains in effect until December 31,1985. dividends accrued to the redemption dates) are as follows: Price at Note I- Common Shares issued December 31 Eventual and Reserved for Issue Series 1984 Through Minimum Shares of Common Stock sold during the three years j Preferred: ended December 31,1984 were as follows: C $ 103.00 7-31-88 $ 100.00 1984 1983 1982 E $1,088.00 5-31-86 $1,000.00
$1,015.00 2-28-86 $1,000.00 Public Sale , 5,000,000 - 9,000,000 F
G $1,026.67 11-30-85 $1,000.00 Dividend Reinvestment
$1,000.00 and Stock Purchase H (a) 5-31-91 3,329,015 3,021,125 1,362,141 Plan I (b) 5-31-92 $1*000'00 Emp oyee Savings Plan 419,318 29a,584 282,162 J (c) 5-31-87 $1,000.00 Emp ee Thrift Plan 92,538 71,767 75,775 Key ployee incentive Preference: Stock Plan 335 20,471 -
1 $1,019.38 7-31-85 $1,000.00 1978 Key Employee Stock Option Plan _ 880 11,560 - egi ng unel',1 at 1'.068 68; Total Shares 8,842,086 3,423,507 10,720,078 (c) Beginning June 1,1986 at $1,050.44. 28
o
- Stock options held by employees to purchase unissued Borrowings under the variable interest note agreements
- { shares of Common Stock under the Key Employee must be paid back wher= the bank requests such P : Incentive Stock Plan and the 1978 Key Employee Stock repayment. Interest is based on the rate for high quality Option Plan are granted at 100% of the fair market value = commercial paper in the 30-180 day maturity range.-
on the date of the grant. The shares which were actually bought during the three years ended December 31,1984 Cornmercial paper and variable interest notes outstanding are backed by at least an equal amount of unused bank
. were sold at option prices ranging from $15.69 to $18.59.
Shares under outstanding. options held by employees were imes f aedit to ensure our any to repay them.
. as follows: The unused portion of the above credit arrangements, Key E,nployee after deducting $19,100,000 of outstanding borrowings Incentive Stock Plan (a). under the variable interest note agreements and an equal
- 1984 1983 1982 amount of bank lines held to cover such borrowings, Options Outstanding amounted to $168,100,000 at December 31,1984.
2 at December 31 Most borrowings under short-term bank lines of credit do
, . Shares 87,645 122,601 - 148,642 not require compensating balances but do require a fee of Option Price __ $18.59 to $17.63 to $17 63 to approximately 0.3% per year to be paid on any unused 4
$22.43 $22.43 - ' $22.43 portion of the lines of credit. The average daily cash balance in our bank accounts satisfied informal 1978 Key Employee compensating balance arrangements under which we Stock Option Plan maintain balances at banks depending on what we 1984- 1983 1982 borrow.
4 Options Outstanding
~ L at December 31 Note K- hoperty Owned with Other Utilities Shares 519,727 389,007 374,705 .
Option Price $15.69 to Some of the generat.ing units which we own or are
$15.63 to $15.69 to
$20.25 $20.25 $20.25 building are owned with other utilit,es.i Each company .
. owns an undivided share ir. the entire unit.: All the owners (a) Undw the tems of the Key Employee incentive stock Plan, no further are tenants in Common. This means that each company U 4
$ 7 M $" N ,Yn"'d,' $$$j*d"9
- has the right to a percentage of the generating capability of each unit equal to its ownersh,ip share. We are -
W2 calculate earnings per share based on the average obligated to pay for our share of the construction and
' number of shares outstanding throughout the year. The operating costs of each unit. We are not responsible for
- weighted average shares outstanding in each of the last the other owners' shares. See Construction Program under three years are as follows: Note L '
~ 1982- 56,739,806 Utility Plant at December 31,1984 includes the following fl983 63,213,562 - facilities owned as tenants in common with other-1984 6E 190.548 utilities:
Company Ownership L Note J. Short-Term Borrowing Arrangements Electnc Construction : Avilable bank credit arrangements are as follows: - Plant Work I At December 31, Facility Percent in Service in Progress l Type 1984 1983- hnds f Douars) (Thousands of Donars) Davis-Besse 51.38 $460,259 $ 14,556
.. Bank lines of credit Bruce Mansfield 1_ 6.50 25,977 179
- (borrowings at or near Bruce Mansfield 2_ 28.60 117,151 647 prime interest rate) - $156,300 $170,300 Bruce Mansfield 3_ 24.47 156,851 465 Eurodollar revoMng credit- 640,435.
$ 30,000 Beaver Valley 2 24.47 -
$ 30,000 agreement
. Variable interest note - Perry 1 and Com-
- $ 20,000. $ 20,000 mon Facilities 31.11 - 981,991 iagreements
~
Perry 2 31.11 - 321,988 j Any borrowings under the Eurodollar agreement are made Eastlake 5 68.80 114,238 1,731 and paid back in U.S. dollars. There are no requirements Seneca Pumped that minimum cash balances (compensating balances) be Storage Hydro-maintained at the banks involved. However, a fee of W% electric Plant 80.00 54,840 366
- to %% per year is paid on any unused part of this.' $929,316 $ 1,%2,358 borrowing agreement. The interest rate on borrowmgs .is -
; %% t) %% (depending on usage) above the rate which specified banks pay for Eurodollar deposits in the London Separate depreciation records are kept for Davis-Besse Linterbank market. property and Seneca property. The accumulated '
29
. O Notes to Consolidated Financial Statements depreciation for Davis-Besse at December 31,1984 was completion with no reason to believe at this time that an
$67,284,000. The accumulated depreciation for Seneca at operating license will not be issued.
December 31,1984 was $13,415,000. Depreciation on all . other in-service property owned with other utilities has Perry 2, exdusive of the common facilit.ies, is about 44% been accumulated on an account basis along with all other complete. Including its share of the common facilities, i depreciable property rather than by specific units of Perry 2 is 57% complete. The Unit had been scheduled for depreciable property. Our share of the operating expense completien la 1988 and our 375-megawatt share of its of properties owned with others is induded in our income cost. had been estimated at about $800,00,0,000, induding AFUDC. The CAPCO companies are review:ng several statement. alternatives with respect to Perry 2, including resumption of full construction, with a new estimated cost and Note L - Commitments and Contingencies CU"'E! taken ? tion into date, account or review. in this cancelation. Manythefactors are These indude Construction Program increasing cost of construction, the high cost and difficulty of financing and tiie increased risks associated with W2 carry on a continuous program of constructing facilit.ies construction and licensing. On the other hand, also needed to meet antiapated demand for electnc service. , induded are the potentially greater capacity needs The major part of our current construction program is our nationwide due to increasing demand and cancelations of share of three nudear generating unit projects - Perry 1 other generating projects, the probable high cost of and 2 ana Beaver Valley 2. They are being constructed by retrofitting fossil-fuel units to satisfy possible acid rain the five CAPCO compan,es, i induding the Company, pollution control regulations and the comparatively low Duquesne Light Company (Duquesne), Ohio Edison cost of completing Perry 2. It is uncertain when this review Company, Pennsylvania Power Company and The Toledo will be completed. Edison Company. The scheduling, voluntary delay or cancelation of a project must be approved by all the in the meantime, the only significant work being CAPCO companies. We are constructing Perry 1 and 2 and performed on Perry 2 is that necessary to enable Perry 1 to Duquesne is constructing Beaver Valley 2 for the CAPCO be placed in service. This work is expected to be completed companies. Our share of the three units and the amounts sometime in 1985. Even if the CAPCO companies do not we invested in them (including AFUDC) at December 31, decide during 1985 to increase construction significantly at 1984 are set forth in Note K. Perry 2, we plan to continue capitalizing AFUDC for that
. Unit as construction work in progress because we believe Perry 1 and the facilities to be used .in common with Perry that cost should be recovered through rates if and when 2 are about 97% complete and are scheduled for the Unit is completed. However, if Perry 2 were to be completion around the end of 1985. The estimated cost of
, canceled, recovery of AFUDC for the Unit would be less our 375-megawatt share is about $1.2 billion, induding certain as described in the next paragraph. In consideration AFUDC. The completion schedule for Perry 1 and common of the above factors, we plan to credit AFUDC for Perry 2 facilities is tight, but we believe it is achievable. The to a deferred credit reserve instead of continuing to credit operating license proceedings are well along. However, a it to income. Absent a change in circumstances, we expect few issues remain to be resolved, perhaps with heanngs .in to start such accounting deferral about mid-1985. Such which intervenors may participate and could appeal deferral would not affect cash flow, but it would cause an resulting in delay. We believe, based on our knowledge of equal reduction in reported earnings from what they the quality of construction, recent inspections and reviews otherwise would be. Such reduction could be material by the Nuclear Regulatory Commission and other depending on the duration of the deferral. The AFUDC for regulatory agencies and the ments of the issues, that we Perry 2 is expected to average about $3,000,000 per should be permitted to load fuel and receive a full month in 1985.
operating license without significant delay. If Perry 2 were canceled, we would seek authorization Beaver Valley 2 is about 83% complete. In early 1985, from the PUCO to recover our investment in that Unit 'and the CAPCO companies decided to reduce their 1985 cancelation costs, if any) from our customers in rates over expenditures for Beaver Valley 2. As a result, our estimated a period of years. Ohio law currently allows recovery of , 1985 expenditures for the Unit are reduced by such costs as described in Note D. Other methods of l
$25,000,000 to $86,000,000, excluding AFUDC. Because recovery also may be available. However, we hava no cf the reduced level of expenditures and also to recognize assuranca that recovery would be allowed if Perry 2 were construction delays encountered to meet regulatory canceled. If, at the time of such a cancelation, it appears requirements, the estimated completion date of the Unit unlikely that recovery would be allowed, then our was delayed from late 1986 to about the end of 1987. The investment in Perry 2 (induding AFUDC) and any effect was to increase the estimated total cost of Beaver cancelation costs would have to be written off, after Valley 2. The estimated cost of our 204-megawatt share adjustment for taxes. The amount to be written off increased by $100,000,000 to about $1 billion, induding would be reduced to exdude equipment usable for AFUDC. Approximately $70,000,000 of the increase Perry 1 or otherwise. We estimate such a write-off as represents AFUDC. Beaver Valley 2 is progressing toward 30
iof December 31', '1984 would have been 'about - Purchases p i$200,000,000 Based on our current financial position and Material and services needed to build new plant and
- level of annual i,ncome, a wnte-off of such a magnitude equipment must be ordered in advance so that it will be '
r : Jwould have a material adverse effect on income in the penod in which it were to occur and on' retained earnings, available when needed. At December 31,1984, such but our ability to continue paying dividends would not be commitments amounted to- - Limpaired solely because of such a write-off. Construction program (induding
- In September 1983, the Ohio ~ Office of Consumers, Perry 1 and 2 and Beaver Valley 2) _ $254,000,000 ,
LCounsel, the City of Cleveland, the Commissioners of ' Nuclear mateiial acquisition and.
- Geauga County, Ohio, and certain community groups pr cessing into fuel $199,000,000
. petitioned the PUCO and the Ohio Power Siting Board to Usually we can cancel advance orders but often we must
? investigate the need for Perry 2. The petition requests an pay the manufacturers for what they have already spent e Lorder to cease construction of Perry 2, to cease accruing for labor and materials and sometimes a penalty.
i AFUDC on that Unit and to prohibit the use of proceeds of
' securities issues to finance Perry 2. We believe the petition Nuclear fuel is without merit and will oppose it vigorously. Under some orcumstances, the request of the petitioners, were it to be We have lease and trust arrangements which are financing granted, could require cancelation of the Unit. an inventory of nuclear material and fuel and which will assist in the financing of the commitments for nuclear
( Nuclear generating p' rojects in the electric utility industry, material stated above. We believe that this inventory and ,
. induding those of the CAPCO companies, have these commitments will provide a nuclear fuel supply n _ experienced substantial cost increases, construction delays ' lasting into the mid-1990s. When the future of Perry 2 is
" ' . and,~in the case of some non-CAPCO utilities, licensing determined, a more definitive estimate will be made as to difficulties. These have been caused by various factors, how long the supply will last. Substantial additional nuclear
;induding inflation, required design changes and rework, material will have to be obtained in the future to supply
' allegedly faulty construction, objections by groups and fuel over the remaining useful life of these Units.-
govemmental officials, limits on the ability to finance, limits -
. on the use of proceeds of secun,ty issues, difficulty in The maximum amount which can be financed. by us under obtaining needed rate increases, reduced forecasts of ne leasing anangement is $280,000,000. It is a long-t energy requirements and economic conditions. This lease with the ex, i sting lenders i be,ng able to cancel th ,erm expenence indicates that the risk of significant cost financing commitments to the lessor after three years,eir .
inceases, delays and licensing difficulties remains present notice. Our share of the other arrangement, leases and a i hrough t to completion of any project,induding Perry 1 trust combined, is $90,000,000, subject to cancelation by
- and 2 tnd Beaver Valley 2. the lessor after one year s notice. The trust must sell material it owns to any of the lessors, the Company or a The successful completion of the CAPCO construction - third party prior to fabrication into nudear fuel assemblies.
program requires the continuing ability of the CAPCO The lease and borrowing rates are based on bank prime - f
^ companies to pay for their shares. To continue such ability, and commercial paper rates. Under the leases, rental - J
- each CAPCO company must continue to obtain adequate payments are made as the fuel is burned in a generating and timely rate relief. There can be no assurance that such unit. As these payments are made,' the amount of credit
[ ' rate relief always will be forthcoming or that some other available to the lessor is renewed and therefore available to , ~ event will not adversely affect financial markets or nuclear satisfy nudear fuel commitments.
- projects generally, or a CAPCO company or nuclear project At December 31,1984, under these arrangements, the
- . in particular, so as to impair the ability of a CAPCO lessors had invested a total of $188,643,000 in nudear g (company to pay for its share. If any CAPCO company were material and costs of processing it into fuel. Induded under g not to pay for its share, any or all of the other CAPCO those leases is nudear fuel in the Davis-Besse reactor with
, - companies,could, as a practical matter, be forced to acce,pt a remaining cost of $15,752,000 as of December 31,
;a sol on involving substantial losses or additional financal 1984. Nudear fuel with a cost of $27,997,000 was
~
subsequently added to that reactor in early January 1985. Some regulatory authorities have undertaken proceedings Rental payments are being made for the fuel in the to determine whether recovery in rates of part of the cost reactor. The trust at December 31,1984 had invested 4 of a completed construction project should be diallowed $67,418,000 in nuclear material which is induded in Other L or deferred, due to findings of excess capacity or Noncurrent Liabilities on the balance sheet. Statement of . , Jimprudent management of the project or due to a desire - Financial Accounting Standards No. 71 will require balance Lto phase-in over a period of time tne rate increase sheet treatment as described in Note F of all our existing otherwise allowable. There can be no assurance that such nuclear fuel arrangements not later than 1987. _ proceedings will not be undertaken with respect to Perry 1 , a or Beaver Valley 2 (or Perry 2;if completed). We believe L that any disallowance or deferral of recovery of our. share ' _of the costs of those Units would be unjustified, except . 1such deferral of recovery as may be provided by the PUCO
;under the construction work in progress law of Ohio as Vdescribed in Note M.
31
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o O Notes to Consolidated Financial Statements Guarantees operating revenue by $10,600,000 in 1984 and to ; ncrease eWc operating revenue by $111,100,000 in Under two long-term coal purchase arrangements, we 1983 and $131,400,000 in 1982. have agreed to guarantee the mining companies' loan and lease obligations. At December 31,1984, the principal On April 3,1984, we filed an application with the PUCO amount of the mining companies' loan and lease for a $180,000,000, or 15%, electric rate increase. Any obligations was $79,229,000. Under one of these increase granted is expected to be effective in early 1985. arrangements, we are required to pay the mining company Approximately $50,000,000 of this rate increase request is any actual out-of-pocket idle-mine expenses, as advance based on induding more construction work in progress payments for coal, when the mines are idle for reasons (CWIP)in rate base for Perry 1. About $30,000,000 of our beyond the control of the mining company. current annual revenue is derived from Perry 1 CWIP already induded in rate base. Nudear Unit Liabilly Under Ohio law applicable to our pending rate case, CWIP The owners of Davis-Besse maintain a nudear insurance can be included in rate base when construction of the program to the maximum extent currently available. The project is at least 75% complete, but only in the aggregate maximum coverages at January 31,1985 for a nudear amount of up to 20% of rate base exduding CWIP. Such incident at Davis-Besse induded $620,000,000 nudear inclusion is at the discretion of the PUCO. liability coverage for injury to persons and their property Ohio law has been amended, effective April 10,1985, to and $1,060,000,000 for damage to the owners, property, retain the current discretion of the PUCO to permit induding leased fuel, and dean-up costs. The Atomic inclusion of CWIP in rate base when projects are at least Energy Act limits the owners' nuclear liability to the 75% complete, but to limit the amount included to 10% amount of the nudear liability coverage. Damage to our of rate base exduding CWIP, except that up to 20% can property, leased fuel and clean-up costs combined could be induded for sulfur and nitrous oxide pollution control exceed the property insurance by a substantial amount. projects. CWIP may be induded for a period not longer The owners also are obligated to pay retrospective than 48 consecutive months plus any time needed to premiums up to $10,000,000 per year to cover any liability comply with changed governmental regulations, standards insurance daims arising out of a nuclear inadent at any or approvals, plus up to another 12 months for good cause nudear unit in the United States and up to $8,300,000 per
, shown. When the project is completed and included in rate nudear inadent to cover any property damage insurance base, an amount equal to the CWIP is excluded from rate claims. base for a period equal to the time it had been included.
We have insurance coverage of $1,400,000 per week for The result is to credit back to customers after the project is the cost of a,ny replacement power purchased during the completed the revenues derived from induding the CWIP 52-week penod starting 26 weeks after any inadent at in rate base before completion. During the period of Davis-Besse and $700,000 per week for the next 52 exdusion, the equivalent of AFUDC accrues on the weeks. The cost and duration of replacement power could exduded portion and will be recovered in rates over the substantially exceed the insurance coverage. Also, we are useful life of the completed project. The effect of this obligated to pay retrospective premiums up to $3,500,000 provision is to phase into rate base the total cost of a per nuclear inadent to cover any replacerne,nt power project over a period starting when CWlP is first included insurance daims arising out of a nudear inadent at any in rate base and ending when the exdusion period ends. If l nudear unit in the United States. a project is canceled or is not completed within the Similar insurance will be obtained for Perry 1 and 2 and allowable period of time after indusion of its CWIP has Beaver Valley 2. started, then CWIP must be exduded from rate base and any revenues which resulted from such prior indusion must Lawsuits be offset against future revenues over the same period of time as the CWIP had been included. These amendments Several lawsuits and governmental actions are pending. We do not apply to our current rate case and any CWIP bei; eve, based on the opinion of our counsel, that the previously induded in rate base. ultimate disposition of these matters will not have a ' material adverse effect on our financial condition or Note N - Pension and Postret/rement Health ! income. and Life Insurance Benefits Note M- Rate Matters We pay the full cost of a pension plan for our employees. Under the plan, an employee who has worked at the The PUCO allowed us to increase electric rates by 10% on Company at least 5,10 or 20 years (depending on the March 19,1982 and by 7.4% on January 7,1983. The person's age when leaving the Company) can begin PUCO ordered a 1% reduction in rates starting October 1, receiving a pension benefit at or after age 55. The amount 1983. The effect of the amount and timing of these rate of the person's benefit depends on length of service and orders on each year's change from the preceding year's earnings. The benefit is reduced by a portion of social electric operat;ng revenue was to decrease electric security benefits. The benefit of an employee who retires 32
m
' after age 65_is' determined as if the individual were age 65, believe that FAS-36 disclosures are very misleading because
. except in the case of a retired employee who had been they understate the amount which the entry age normal
- rehired. If the person retires before age 62, and in certain method tells us should be in the fund now to provide -
, l cases before age 65, the employee's benefit is reduced. pension benefits as they become payable under a plan L The plan also pays benefits when an employee dies or is intended to continue indefinitely. We are making the Ldisabled . following disclosures only because we are required to do
- SU' 4 L W2 annually deposit money into the plan to fund the cost
'of benefits arising from employee service and earnings in At January 1
, ;the current year. We also deposit money to fund each year 1984- ' 1983 La portion of the cost of future benefits arising from past - service and eamings because of amendments to the plan. Miions of Dollas) ' ' in 1984, our total payment to the fund was $15,300,000. Actuarial present value of accumulated We deposited $15,300,000 in 1983 and $12,100,000 in - plan cenefits under FAS-36:
- L1982. Of these amounts, we recorded on the income Vested $167 $143-Estatement $9,570,000 in 1984, $10,211,000 in 1983 and - Nonvested 16 14' n $8,014,000 in 1982. The remainder was recorded on the. Total $183' $157' s ~ balance sheet, mostly as construction costs. Value of assets held in the plan $2% $244-4 The amount we' deposited into the pension plan is 4
'detemined by a method known as the entry age normal Under both methods of determining the plan's liability, the '
method. It is used by many private' pension plans. This one which we use and the FAS-36 method, we estimated
< t method takes into account estimated increases in that the earnings of the plan would average about 6%%
employees' future earnings in an effort to levelize the per year over the life of the plan. During 1984, a new
- bfunding of pension benefits over their working lives. The . mortality table was adopted for the plan to reflect current
; liability of the plan as of January 1,1984 determined conditions. The net effect of the change was to increase
- under this method was slightly more than the value of the - the present value of accumulated plan benefits by -
7, assets in the plan on that date. $13,300,000 at January 1,1984 which is reflected in the I . Statement of Financial Accounting Standards No. 36 abe tak (FAS-36) requires us to disclose accumulated pension plan in addition to providing pension benefits, the Company -
; liability without consideration of future increases in provides certain health care and life insurance benefits for -
- employees' earnings, as though the plan were terminated substantially all employees when they retire with pension -
- at the dates shown in the table below. Therefore, the benefits. The cost of retiree health care and life insurance 7 .. disclosures below, required by FAS-36, compare liacility of benefits is recognized as expense as premiums are paid.
i the plan determined on one basis with assets accumuiated - For 1984, those costs totaled $823,000.
- on a different basis. We and our pensior, consultants
!l Notr 0 - Quarterly Results of Operations (Unaudited)
- . Ths following is a tabulation of the unaudited_ quarterly results of operations for the two years ended December 31,1984.
I Quarters Ended March 31 June 30 Sept.- 30 Dec.31 (Thousands, except per share amounts) ._ 1983. [ l Total operating revenues $299,600 $290,480 $351,041 $269,195 ~
~ Net operating income $ 58,935 $ 58,965 $ 87,717 $ 52,745
~ ' Net income - $ 56,236 $ 52,192 _ $ 81,601 $ 55,996
- ;Eamings'available for common stock $ 46,690 $ 42,668 $ 72,121 $ 46,121 c Averag2 common shares 62,026 62,568 63,488 64,689
~
' [Ermings per common share $ .75 $ .68 $ 1.14- $- .71
- 1964-
$298,597 - $298,009 $333,183 $285,563
~
Tctal operating revenues Net operating income $ 67,710 $ 60,244 $ 81,814 $ 52,343 iNet income _ $ 72,878 $ 65,344 $ 87.637 $ 65,772
- Eamingsa' vailable for common stock $ 61,978 $ 54,396 $ 76,762 - $ 55,143 Average common shares - 65,693 66,709 67,722 71,919 Eimings per common share $ .94 $ .82 $ 1.13 $ .77 33
) Financial and Statistical Review E74-1984 1984 1983 1982 1981 TOTAL OPERATING REVENUES 1,215,353 1,210.316 1,108,571 1,012,9 Residential 375,597 385.076 343,757 310/,
Commercial 338,625 334.660 304,801 263,6 Industrial 441,285 430,209 393,794 386E Other Electnc (includes Sales for Resale) 44,958 44,217 43.702 39,9 Steam Heating 14.888 16,154 17,517 12. t TOTAL OPEr1ATING EXPENSES 953,242 951,954 879.644 820) Fueland Purchased Power 313,412 332,977 329,279 351,4 Other Operating Expenses 280,888 270,468 250,591 224,2 Depreciation and Amortization 95.274 94,196 86,588 85,2 Taxes Other Than FederalIncome Tax 132,313 126.883 106.804 91,6 FederalIncome Tax 131,355 127,430 106,382 67.5 NET OPERATING INCOME 262,111 258,362 228.927 192,7 NONOPERATING INCOME 169.200 114.148 96,669 75,? Allowance for Equity Funds Used During Construction 130,421 87.051 76.896 48,9 Other income and Deductions 38,779 27.096 19,773 26,7 income Statement INCOME BEFORE INTEREST CHARGES 431,311 372.510 325.596 268,6 (Thousandsof Dollars) 116,632 INTEREST 139,679 126,484 112,6 Long and 5hort term interest 180.864 153,974 144,072 146,2 Allowance for Borrowed Funds Used Dunng Constructon _ (41,185) (27.490) (27,440) (34js INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 291.632 246,026 208.964 155,2 Cumulative Effect of Change in Depreciation Method on Perods Pnor to January 1,1979 - - - - NET INCOME (a) 291.632 246,026 208,964 155,7 PREFERRED AND PREFERENCE DMDEND REQUIREMENTS _ 43,353 38.426 38,295 343 EARNINGS AVAILABLE FOR COMMON STOCK 748,279 207,600 170,669 120f EARNINGS PER SHARE BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 3 64 $ 3 28 5 3 of 5 2 CUMULATIVE EFFECT PRIOR TO JANUARY 1,1979 - - - - TOTAL EARNINGS PER SHARE (a)(b) $ 3 64 5 3.28 5 3 01 $ 2 DIVIDENDS PER SHARE (b) $ 2.43 $ 2.31 $ 2.19 $ 2 TOTAL ASSETS 4.926,441 _ 4,267,427 3,872,909 3.406# Utility Plant-Total 5,022,543 4,454,788 4.010.532 3,610.8-Accumulated Utility Plant Depreciation and Amortizaton _ (798.979) (722,432) (679.890) (621.1 Other Property 95,277 70.144 64,216 23, Current and Other Assets 607,600 464,987 478.051 392,% - TOTAL CAPITAUZATION AND UABluTIES 4,926,441 4,267,427 3,872,909 3.406M Balance Sheet Long. term Debt i,883.648 1.5i8,883 i.441,822 1,328,q Year end Preferred and Preference Stock: With Mandatory Redemption Provisions 292.818 318.000 322.000 325,E (Thousandsof Dollars) 144,021 95,071 Without Mandatory Redemption Provisions 144,021 95,@ Common Stock Equity
- 592,810 1,355,488 ',227.095 1,002,9 Deferred FederalIncome Taxes ,480,727 411.072 322.188 2364 Other Uabilities and Credits 532,417 5*9,963 464,733 418,0 UTluTY PLANT ADDIT lONS (c) 582,288 490.705 422.170 409.2 UTluTY PLAf.T RET'9EMENTS 14,533 46,449 22,533 13,F NUMBER OF COMMON SHARES (b) 74,040,175 65,198.089 61,774.582 51,054,2 KWHR SALES (Thousands) 17.273,057 16,637,472 16,165,157 17,507/2 Residential 4,446.352 4.412,154 4,335.605 4.375.7 Commercial 4.396,395 4,265,023 4.194.177 4,178,4 Industnal 7,997,000 7,513.673 7.082.261 8,279,M Other(includes 5 ales for Resale) 433,310 446.622 553,114 673,6 ELECTRIC CUSTOMERS-YEAR END 714,768 712.833 711,222 711,3 Residential E 44,904 643,065 641,705 642,3 Commercial 61,934 62,075 61,861 60,7 Industrial 7,521 7,274 7,235 7,2; Other 409 419 421 5 RESIDENTIALSALES DATA Average Kwbr per Customer 6,646 6,608 6,490 6.5%
Average Revenue per Customer $ 563 60 $ 579 49 $ 524 63 $ 4665 Average Revenue per Kwbr 8.484 8 774 8 084 7. Operating Stati5 tics ,_ ELECTRIC PRODUCTION Net Available for Service Area (Thousands of Kwbr) 19,096,414 18,461,867 17.677,831 18,93 @ Net Generation (Thousands of Kwhr) 16,818,455 17,152,981 17,032,759 17,297,5d Net Received from Others (Thousands of Kwbr) 2,277,959 1,308,886 645,072 1,639,E BTU per Kwhrof Net Output 10,416 10,452 10.475 10.4 Fuel Cost per Million BTU 163.284 169 084 174 728 175 CoalCost per Ton 5 44.25 5 46 66 $ 45.51 $ 461 Annual Net 60 Min. Max. Load 4 W 3.371,000 3,404.000 3.090,000 3,447,Q Net System Capability- KW-at Time of Peak 4,329,000 4.441.000 4,699,000 4,367,6 STEAM HEATING Sales-Pounds (Thousands) 1,306,626 1.281,499 1,501,077 1.612,18 Customers-Year End 256 274 312 31 EMPLOYEES-YEAR END 5,830 5,339 5,411 5,1C (a) The 1978 net income and eamings per share calculated on a pro forma bases to reflect the units-of-production method of deprecation are $102,942,503 and $2.31, respectrvely The pro forma effect of the adoption of this deprecation method on 1977 was not matenal. 34
p The Cleveland Electric illuminating Company and Subsidiaries 1980 1979 1978 1977 1946 1975 1974 893,566 824,267 717,092 659,290 543,148 523,165 463,937 268,787 237,612 213.520 200,765 160,015 154,020 140.030 220,677 194,899 172,251 165,049 129,286 121,653 109.185 323,764 322.909 278,4G5 251,181 197,189 180,890 177,246 65,273 55,799 42,831 31.611 45,730 55,679 29,946 15.065 13,048 10,085 10.684 10,928 10,923 7,530 743,051 688,788 599,289 542,871 441,401 433,614 375,159 360,347 349,027 307,429 265.771 234,107 246,984 199,252 194.881 162,636 140,996 127,330 102,794 94,539 85,122 64,619 59 443 56,774 43,307 35,874 33,046 31,632 81,630 '9,455 68 756 58,807 51,925 48,735 43,653 41,574 38.227 25,314 47,656 16,701 10,310 15,390 150,515 135,479 117,803 116,419 101,747 89,551 88,778 62,440 47,621 42,226 49,484 25,346 17,681 8,472 40,873 33,432 29,890 35,265 24,706 16,983 7,854 21,567 14,189 12,336 14,219 1,640 698 618 212,955 183,100 160,029 165,903 128,093 107,232 97,250 87,572 69,566 61,016 54,175 46,413 42,464 36,509
'112,623 85,299 72,071 67,889 56,750 50,511 44,717 (25,051) (15,733) (11,055) (13,714) (10,337) (8,047) (8,208) -125,383 113.534 99,013 - 111,728 81,680 64,768 60,741 4.125 - - - - -
125,383 117,659 99,013 111,728 81,680 64,768 60,741 27,711 25,587 23,575 22,907 18,005 14,696 10,067 97,677 92,072 75,438 _ 88,821 63.675 50,072 50,674 2.26 $ 2.31 $ 2.20 $ 2.91 $ 2.38 $ 2.11 $ 245
- .11 - - - - -
2.26 $ 2.42 $ 2.20 $ 2.91 $ 2.38 5 2.11 5 2.45 2.00 $ 1.92 5 1.84 $ 1.76 $ 1.71 $ 1.65 $ 1.60 3,094,462 2,678,786 2,331,541 2,117,135 1,842,999 1,513,247 1,354,065 3.215.339 2,842,253 2,523,996 2.232,111 1,955,701 1.693.614 1,526,659 (557,859) (521,175) (476.983) (429,150) (396,338) (373,851) (355,841) 21.137 19.503 15,034 13,753 12,849 9,942 7,433
' 415,845 338,205 269,494 300.421 270,787 183,542 175,814 3,094,462 2,678,786 2,331,541 2,117,135 1,842,999 1,513,247 1,354,065 1,211,528 973,991 920,973 885,899 747,392 673,003 553,144 260,500 232,000 232,000 185,000 135,000 75,000 63,000 95,071 95,071 95,071 95,071 95,071 95.071 95,071 912,731 820.411 708,883 633,744 511,333 419,990 346,736 192.451 162,122 140,677 119,299 72,318 63,267 43,348
, 422,180 395,191 233,937 198,122 281.885 186,916 252,766 398,088 329,869 300,765 286,739 275.524 181.673 173,899 25,002 11,612 8,880 10.329 13,437 14,718 11,362 3 288.629 41,271,574 35,995,365 32,388,055 28,347,544 24,351,499 20,748,110 t 8,159,754 19.030,453 18,364,437 18,066,428 18.070,291 18,133.826 17,601,686 4,463.147 4,352,983 4,288,865 4,200,116 4,045,158 3,984,004 3,830,305
?,148.990 4,041,134 3,933,586 4.007.123 3,808,897 3.685,878 3.527,382 8,062,172 9,268.600 8,992.919 8,874,796 8,475,983 7.822,419 8.819,205 1,485 445 1,367,736 1,149,067 984,393 1,740,253 2,641,525 1,424,794 710,557 708,219 702,538 696,547 693,425 689,133 684,728 642,845 641,856 637,609 632,740 630,581 627,719 623,988 60,070 58.690 57,310 56,241 55,178 53,765 53,070 7,210 7,232 7,167 7,112 7,206 7,190 7,212
/32 441 452 454 460 459 458 6,686 6,557 6,517 6.412 6.187 6.116 5,914 405 09 $ 357 86 $ 324 91 $ 307.11 $ 245 16 $ 237.02 $ 216 69
- 6.054 5 484 5 004 4 804 3 974 3 884 3 674 18,722,616 19,645,001 19,254,857 19.098,231 18,331,384 17,271.169 17,817,763 L5,325,948 17.069,914 16,882,669 18,123,528 16,747,626 16.213.012 18,040,100 3,396 668 2,575 087 2,372,188 974,703 1,583,758 1,058,157 (222.337) 10,635 10,634 10.536 10,401 10,322 10,454 10.569 156 924 142.514 131 804 117.504 105 554 111.144 102.264 39 31 $ 35.20 $ 30.73 1 25 72 $ 23.98 $ 24 93 $ 21.53
, 3,325.000 3.233.000 3,327,000 3,381,000 3,140,000 3,022,000 3.080,000 4,353,000 4,509,000 4.462,000 4,088.000 3,797,000 3,569,000 3.724,000 1,979,397 2,004,680 2,210,886 2,374,510 2,359,677 2,263 645 2,274,025 348 365 369 372 385 399 406 4,991 4,963 4,831 4.790 4,840 4,947 4.982 (b) Adi usted for the 3 for 2 stock split, effectw December 16,1977. (c) Exc!udes $56,022,606 of termenated projects rectassifed to Deferred Charges n 1979 35
_7 Lj Statement ofincome fmm Continuing The Cleveland Electric Illuminating Company and Subsidiaries !
- Operations Adjusted for Changing Prices for the Year Ended December 31,1984 (Unaudited)
Current Cost Conventional Average Historical 1984 Cost , Dollars (Thousands of Dollars) Revenue $1,215,353 $1,215,353 Operation expense 503,975 503,975 Maintenance expense 90,325 90,325 Depreciation and amortization 95,274 226,793 Taxes other than Federal income tax 132,313 132,313 Federal income tax 131,355 131,355 Nonoperating income (169,200) (169,190) Interest expense 139,679 139,679 923,721 1,055,250 Net inccme - continuing operations $ 291,632 $ 160,103(a) Increase in specific prices of property and plant (b) $ 64,580 Adjustment to net recoverable cost 151,890 increase in general prices (237,304) Increase in general prices in excess of increase in specific prices after adjustment to net recoverable cost (20,834) Gain from decline in purchasing power of net amounts owed 96,206 Net price level adjustment $ 75,372 (a) including the adjustment to net recoverable cost, net income for 1984 would have been $311,993,000 in current cost dollars. (b) At December 31,1984, the current cost of property, piant and equipment net of accumulated depreciation was 56,3s9,281,000 while original (net recoverable) cost was $4,223,564,000. rq L Supplementary Information Concerning the Effects ofInflation As required by the Financial cost of land was trended using the restated property and plant figures by Accounting Standards Board, we have Consumer Price Index for All Urban vintage year. The depreciation . prepared information on the effects of Consumers. Certain other property provision was obtained by applying } inflation on operations. The methods was trended to current cost using current depreciation rates to the used to compute this data are other industry indices. average of beginning and t id-of-year experimental and subject to change by restated depreciable property. the Board. These data do not reflect Revenues and Expenses the "cusrent value" of our assets. Materials and Supplies They do not measure all the effects of Revenues and expenses (except for Balance sheet items such as fuel ,n inflation on our operations or predict deprecation) were assumed to i accumula:e evenly throughout the stock, materials and supplies were our future cash requirements. The effects described herein are not year. No adjustments were made to treated is, cash type items. Fuel the f.igures reported in the primary inventory is subject to rapid tu mover. recognized for income tax or ratemaking purposes. finanaal statements. No adjustments As such, we believe the original cost were made to Federal income tax of this item fairly represents its current expense. General cost. Current cost data reflects the cost of Depreciation Adjustment to Net Recoverable Cost A restated depreciation reserve was Under Ohio law, we can recover only Te rrent cos o a se as used to compute the current cost estimated by applying the what we paid for plant and - Handy-Whitman index of Public Utility estimate of property and plant net of equipment, so the values of these Construction Costs to the original cost depreciation. The reserve was items under the current cost method of structures and equipment. Original obtained,by applying cunent were adjusted to reflect the original deprecation rates by account to cost amount. 36
- j. L Five-Year Comparison of Selected The Cleveland Electric illuminating Company and Subsidiaries
!~ Supplementary Financial Data Adjusted for Effects of Changing Prices (Unaudited) Year Ended December 31, 1984 1983 1982 1981 1980 (Average 1984 dollars in thousands, except per share amounts) Revenue-as reported $1,215,353 $1,210,316 $1,108,571 $1,012,930 $ 893,566 as adjusted $1,215,353 $1,261,827 $1,192,931 $1,156,837 $1,126,371 Net income - Continuing Operations as reported $ 291,632 $ 246,026 $ 208,964 $ 155,734 $ 125,383 as adjusted $ 160,103 $ 115,800 $ 87,394 $ 49,135 $ 30,617 income (Loss) per Common Share as reported $ 3.64 $ 3.28 $ 3.01 $ 2.52 $ 2.26 as adjusted $ 2.35 $ 1.20 $ 0.82 $ 0.19 $ (0.10) Net Assets at Year End as reported $1,592,810 $1,355,488 $1,227,095 $1,002,206 $ 912,731 as adjusted $1,570,597 $1,389,431 $1,305,571 $1,107,589 $1,098,880 Increase in general prices in excess of increase in specific prices after adjustment to net recover-able cost $ 20,834 $ (4,057) $ (13,146) $ 140,456 $ 238,018 Gain from decline in purchasing power of net amounts owed $ 96,206 $ 86,642 $ 83,285 $ 181,332 $ 237,786 Cash Dividends Declared per Common Share as reported $ 2.43 $ 2.31 $ 2.19 $ 2.08 $ 2.00 as adjusted $ 2.43 $ 2A1 $ 2.36 $ 2.38 $ 2.52 Market Price per Common Share at Year End as reported $ 19.50 $ 18.63 $ 19.75 $ 16.00 $ 14.63 as adjusted $ 19.23 $ 19.09 $ 21.01 $ 17.68 $ 17.61 Average Consumer Price index 311.1 298.4 289.1 272.4 246.8 Increase in Genera / Prices in Excess of deferred tax balances were treated as current cost depreciation through increase in Specific Prices After cash type liabilities for this rates. Ohio law restricts recovery of Adjustment to Net Recoverable Cost computation. investment through depreciation charges to the original cost of plant. The increase in general price is Effects ofInflation on the Company The part of current cost we could not measured by the Consume F ice mc e was on1y partly offset by the Index for All Urban Consumers during Our 1984 revenue remained about the g in fr m hold,ngi cash type liabilities. 1984 (xceeded the overall increase in same as in 1983 despite an increase in prices of our property and plant. unit sales of electricity, while revenue We have to raise new capital to meet However, when the current cost of in average 1984 dollars declined growth needs at inflated costs of plant was adjusted to reflect net somewhat. This happened because construction and to replace worn-out recoverable cost, the difference fuel cost per kilowatthour, a major items at hiPer replacement costs. If between these price measures was component of revenue, was lower in rate adjustnients fail to compensate significantly reduced. the current year and because there for the cost of new capital, especially was a slight decrease in base rates in during times of inflation, a regular Gain from Decline in Purchasing ')ctober 1983. See Note M. erosion of the return on equity will Power of Net Amounts Owed Net, income from operations once ut r eed for r' ate re je . With inflation, holding cash type again increased in 1984 on both assets such as money and receivables historical and current cost bases. We continue to seek proper and results in a loss in purchasing power. These measures of income are timely rate increases and a regulatory Holding cash type liabilities such as different because we are not environment which is responsive to long-term debt results in a gain in permitted to recover the higher. the effe:ts of inflation on our purchasing power. Preferred stock and investment. 37
O Board Gf Directors Leigh Carter of the Board and retired Chairman and developer of new technologies and Vice Chairman of the Board and Chief Executive Officerof the Company products in the field of biotechnology Operating Officer of The BFGoodrich Craig R. Smith Richard B.Tullis Company, a producer of rubber, tires, Former Chairman of Bendix Automation Chairman of the Executive Committee chemicals and plastics. Also Chairman of Bendix Corporation, a wholly-owned and retired Chairman and Chief Executive of Tremco,Inc., manufacturer of specialty subsidiary of Allied Corporation. Bendix Officer of Harris Corporation, manufac-chemical products and a wholly-owned Automation is a producer of machines turer of communication and information subsidiary of The BFGoodrich Company and accessories for the metalworking processing equipment Robert M. Ginn industry Harold LWilliams Chairman and Chief Executive Off,cer i Executive Vice President of the Company Charles E. Spahr of the Company Director of several companies and. William J. Williams Roy H. Holdt retired Chairman and Chief Executive Director and Preddent of the Northeast Chiirman and Chief Executive Off,cer i Officer of The Standard Oil Company Ohio region of Huntington National of White Consolidated Industries,Inc., (Ohio), manufacturer of petroleum
, Bank and director and Executive Vice manufacturer of products for the home, products, chemicals, plastics and metals President of Huntington Bancshares pnnapally maj,or appliances, and and supplier of coal incorporated machinery and equ,pment i for industry Herbert E. Strawbridge Richard A.Millec Chairman of the Finance Committee and President of the Company retired Chairman and Chief Executive Ralph M.Eesse Officer of The Higbee Company, a Chairman Emeritus of the Board of Sister Mary Marthe Reinhard, SND President of Notre Dame College of Ohio Jepartment store Directors Allan J.Tomlinson, Jr. Elmer L Lindseth Karl H. Rudolph Chairman, President and Chief Executive Chairman Emeritus of the Board of Chairman of the Executive Committee Officer of SDS Biotech Corporation, a Directors O Committees of the Board of Directors Audit Committee The Audit Committee has the same authority as car'didates, the Committee considers Committee recommends to the Board the Board, except that it may not elect suggestions made by share owners.
the firm of independent accountants officers (other than assistant secretaries H. E. Strawbridge (Chairman), L Carter, to be retained for the ensuing year and and assistant treasurers), fill vacancies R. M. Ginn, R. H. Holdt, Sr. M. M. Reinhard, reviews the results of their examination on the Board or on the Executive K. H. Rudolph, C. R. Smith, C. E. Spahr, of the Company's financial statements Committee or authorize the & uance A.J. Tomlinson,le, R. B. Tullis, and the audit practices employed by of first mortgage bonds. W1. Williams i them and the Company. The Com- K. H. Rudolph (Chairman), R. M. Ginn, mittee oversees the establishment and R. H. Holdt, H. E. Strawbridge Nuclear Comm.ttee i The Nuclear Committee monitors, consults with and administration by manacement of cffective internal accounting controls Finance Committee The Finance makes recommendations to both cnd an accounting system designed to Committee reviews and recommends management and the Board regarding long-range financial policies and (1) progress of the Perry Nuclear Power produce financial statements which objectives and specific actions to ach, i eve Plant and Beaver Valley Power Station present fairly the financial position of these objectives. The Committee, acting Unit 2 construction proj,ects and all the Company. f r the Company as administrator of the objectives and strategies relating to C. E. Spahr (Chairman), St M. M. their completion and (2) the operation Company's Pension Plan and investment Reinhard, C. R. Smith, H. E. Strawbridge, , Program of the Employee Savings Plan, of all nuclear units in which the W1. Williams also reviews the investment performance Company has an ownersh,p ii ,nterest or Compensation Committee The of the pension fund trustee, other other output entitlement. Compensation Committee reviews and pension fund investment managers and C. R. Smith (Chairman), C. E. Spahr, approves the Company's overall the Employee Savings Plan trustee and A.J. Tomlinson, Jr. ' Compensation Plan, including the establishes objectives for the invest-pension and employee stock purchase ment of Pension Plan and Employee Planning Committee The Planning , Committee adv,sesi and consults with plans and, in particular, recommends Savings Plan assets. the remuneration of the Chairman, management and the Board on long-R. A. Miller (Chairman), R. M. Ginn, r nge strategic planning. Responsibilities President and all Vice Presidents. K. H. Rudolph, C. R. Smith, C. E. Spahr, of the Committee include reviewing L Carter (Chairman), R. H. Holdt, R. B. Tullis long-r nge objectives and the strategies, A.J. Tomlinson, Jr, W J. Williams Nominating Comm.ttee i The manpower and overall corporate Executive Committee The Executive Nominating Committee recommends to organization appropriate to meet Committee acts on behalf of the Board the Board candidates to be nominated those objectives. at times other than regular Board for election as directors at the annual R. M. Ginn (Chairman), L Carter, meetings when it is impracticable to meeting and to fill any vacancies on the R. A. Miller, A.J. Tomlinson,le, czll together the entire Board. The Board.When reviewing potential H. L Williams 38 1
,a Principal Officers and Executiver \
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r l O GeneralInformation i Dividend Reinvestment and Stock Morgan Guaranty Trust Company of Share OwnerInquiries Purchase Plan New York,30 West Broadway, New York, Communications regarding stock
~he Company has a Dividend Reinvest- N.Y.10015-Paying agent for the transfer requirements, lost certificates, ment and Stock Purchase Plan which 11%% Series due 1985-A dividends and changes of address provides share owners of record and 15%% Series due 1989-A should be directed to Share Owner customers a convenient means of 14%% Series due 1989-B Services at the Company. To reach Share purchasing shares of Company common 7%% Series due 1990 Owner Services by phone, call the stock at no additional cost by investing 8%% Series due 1991 following numbers:
a part or al. of their quarterly dividends 14% Series due 1991-A Local calls in and cash payments. Dividends reinvested 15%% Series due 1992 Cleveland area 622-9800, ext. 3700 in Company common stock under the 15%% Series due 1994-A Elsewhere Plan qualify for the tax deferral provisions 8%% Series due 2005 in Ohio 1-800-362-1237 of The Economic Recovery Tax Act of 9%% Series due 2009 1981. In addition, share owners and Outside Ohio 1-800-321-3206 9.85% Series due 2010 customers may establish Individual Retire- Please have your account number ready 8%% Series due 2011 ment Accounts (IRAs)which invest in when calling. 8%% Series due 2012 Company common stock through the 16%% Series due 2012-A Executive Offices Plan. Information and a prospectus 12%% Series due 2012-D llluminating Building relating to the Plan and the IRA may be 12%% Series due 2013-A 55 Public Square obtrined from Share Owner Services Inquiries regarding interest payments Cleveland, Ohio at the Company. Telephone Number (216) 622-9800 should be directed io either Manufac. Form 10-K The Company will furnish turers Hanover Trust Company or Mail Address to share owners, without charge, a copy Morgan Guaranty Trust Company of Post Office Box 5000 of its most recent annual report to the New York for the series of bonds for Cleveland, Ohio 44101 Securities and Exchange Commission which each acts as paying agent as (Form 10-K) and, upon payment of a noted above. The annual meet.ing of the share reasonable fee, a copy of each exhibit to owners of the Company will be held Form 10-K. Requests should be directed Common Stock April 23,1985. Owners of common Listed on the New York, Midwest and stock as of February 22,1985, the to the Secretary of the Company. Pacific Stock Exchanges; unlisted trading record date for the meeting,will be Independent Accountants on the Boston, Philadelphia Baltimore- entitled to vote on the issues.The Pric; Waterhouse,1900 Central National Washington and Cincinnati Stock official notice, proxy statement and Bank Building, Cleveland, Ohio 44114 Exchanges. New York Stock Exchange proxy will be mailed to share owners Bond Trustee and Registrar symbol-CVX. on or about March 15,1985. Morgan Guaranty Trust Company of Preferred Stock Notice: The annual report and the New York for all series. Listed on the New York Stock Exchange. financial statements herein are for the Communications regarding bond gener Iinf rmation of the share owners Registrar registration requirements and lost For Common Stock, Preference Stock of the Company and are not intended certificates should be directed to to be used m, connection with any sale 1 and Preferred Stock Morgan Guaranty Trust Company of AmeriTrust Company National Association r Purchase of securities. New York,30 West Broadway, New 900 Euclid Avenue York, N.Y.10015. Telephone Number Cleveland, Ohio 44114 (212) 587-6469. Transfer Agent Bond Paying Agent For Common Stock, Preference Stock Manufacturers Hanover Trust Company, and Preferred Stock 40 Wall Street, New York, N.Y.10015 The Cleveland Electric and AmenTrust Company National
, Illuminating Company Association,900 Euclid Avenue, Share Owner Services Cleveland, Ohio 44114-Co pay.ing P.O. Box 5000, Cleveland, Ohio 44101 Stock transfers may be presented at 2 i due 1985 Wells Fargo Secunties Clearance 3%% Series due 1986 Corporation,45 Broad Street, New 3% Series due 1989 York, N.Y.10004.
3%% Series due 1993 4%% Series due 1994 40
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THE CLEVELAND ELECTRIC ILLUMINATING COMPANY P.O. Box 5000 o Cleveland, Ohio 44101 l
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Ohio Edison The Ohio Edison System is the 18th largest investor owned electric system in the United States, based on total kilowatt hour sales. It includes the Ohio Edison Company, - headquartered in Akron, Ohio, and the Pennsylvania Power Company,in New Castle, Pennsylvania. Together, the Com. panies 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. I Contents 2 Pr:sident's Message 4 Electric Sales Reflect Economic Recovery and Growth 17 FinancialReview 40 StockholderInformation 41 Directors. Officers and Division Managers 1 On the cover A unique view of new environmental control equipment at the coal fired W.H. Sammis Plant.
rinancial Highlights por the Years Ended December 31 1984 1983 Change (In millions, 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% Fuel Expense 422.8 420.3 +0.6% Operating income 342.7 302.8 + 13.2% %JIowance for Funds Used During Construction, Net 256.9 203.7 + 26.1 % l0nterest and Other Charges 371.6 319.8 -- 16.2 % Wet income 339.3 272.4 + 24.6% [Eamings on Common Stock 290.7 227.8 + 27.6% @arnings 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: l Constructionof Facilities $800.4 $690.8 Nuclear Fuel 60.8 55.0 l Capital! eases 6.9 25.3 l $868.1 $771.1 + 12.6% l0nternally Generated Funds 222.1 217.3 +2.2% Wet Financing Activities 581.6 496.6 + 17.1 % @eturn on Average Common Equity 15.9 % 14.2 % Tim quarterty dividend was incrossed to 47 cents per share (s1Ja on an annual basis) beginning with the dividend payable on March 29,1985. f , oportting R: venues Eamings Per Share Retum on Average Common Equity
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. ' > t' Nuclear Power's Future
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concern with regard to our own nuclear 9.k .\ j'l,IO:t .[ ~\ 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 I 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 i 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. residential customers were also up. And We expect Unit 1 at the Perry Nuclear Power power sales to other electric 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 electric rates, revenues for the year were Electric illuminating Company, which is I 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 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, work on the second unit has been reduced and relates mainly to facilities shared by both units. Ohio Edison and Penn Power will own about 35 percent of the power from the Perry units. t 2
he Duquesne Light Company is moving for-nrd with Be ver Valley Unit 2, but cmphasis las shifted toward completion and testing af systems for operation near the end of 1987. Ohio Edison's share of the unit is about 42 perc:nt. During tha past 12 months, new total project audg:ts were announced. The budget for Perry Unit 1, including common facilities sh: red 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 aillion to $3.9 billion.
As a back-up source of funds, should it be needed, we arranged a $500 million, six-year credit agreement with 21 major banks. This credit arrangement gives the Company more ft:xibility in the timing of future security sales at lower interest rates. And, it further sepa-rat:s us from those utilities having trouble raising money to finish their nuclear projects.
" Acid R:In" Controversy ' Turning to the problem of " acid rain," there is continued pressure on Congress to pass As covered later in this report, we 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 rrM. ion 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 environmental improvements at six of our determination have played an important part power plants. n moving the Company forward. I thank them for their hard work. And, a special l A major part of that program was at the W.H. 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-rent clean-air standards. r But before a new round of expensive projects - is required to satisfy " acid rain" lobbies, . th:re 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 to March 1,1985 convince Congress to recognize this fact. Optimi:m for the Future Th;se concerns riotwithstanding, there is reason to be optimistic about the future. Along with the steady improvemer t in sys-
, t:m 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. l I 3 L .
Electric Sales Reflect Electric sales increased 9.9 percent in Economic Recovery and Growth 1984 as business in our area continued to accelerate. One of our largest customer groups, the auto industry, made dramat:c gains. With domestic car production up 44.1 percent i nationally, there was significant activity among the many auto-related companies we serve. As a result, our sales to these companies increased 8.7 percent over 1983j But improving car sales is only part of the story. With more computerized operations Totti System Electric Sales 30 and robots on the assembly line, the auto '
"" *"*"5 "4 m industry serves as a good example of how <
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- E uidwest industries are using electricity and high technology to stay competitive.
Area steel companies have also been stream
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production of high-quality and specialty steel. 5 In Youngstown, LTV Steel Company added 80 81 82 83 84 a $75 million modern rotary furnace at its Campbell Works seamless piping mill. At
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PC One of the most promising opportunities for e business expansion is the polymer industry.
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\ I Four of the most familiar names in tires-Firestone, General, Goodrich and Goodyear
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With such a solid foundation in polymers, plus the many other local companies gainin. a larger share of the market our service area has a head start in this growing industry Promoting Economic Expansion Local communities are more aggressively pursuing new business They have well-trained people and sound strategies for pro-moting the many benefits of moving to this area. To boost their ef forts, we work with com-munity leaders and hold training programs on how to attract new business. Systsm Industrial Sales
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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 incentive rates are also available for busi-what is emerging as the most ,important nesses that shift energy use to off-peak advantage of all, the area i,s rich in fresh eriods. For example, a steel company using water, a major requirement of many manu- a 10-megawatt electric furnace to melt facturing processes. scrap metal during off-peak hours can save pproximately 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 ci 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 conditioning and appliances, is almost entirely ours. Because of the competitive choice between i 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 = 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
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goal of adding another 2,700 heating cus- million of 1984 revenues. tomers in 1985. In addition to $5 million in We will continue pursuing this market and 1984 revenues, these heating sales enable have set a goal of $132 million for 1985. us to make better use of our generating units, especially at night when customer demand Power for the Future is lower. New electric appliances, heat pumps, electric furnaces in stael mills, robotics and comput-Sales to Other Utilities ers iiiustrate that electricity is the power of Another market that continues to grow is the the future. sale of our power to other electric companies. From 1975 to 1983, electric 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 And the transmission network that makes trend will continue, particularly because of U.S. electric service the most reliable in the limited gas and oil 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 Electric or other circumstances could push this b Power Company, General Public Utilities, figure higher. Atlantic City Electric Company, the Michigan To have reliable supplies of power for growth, Pool and Ontario Hydro. Total kilowatt-hour Ohio Edison, Penn Power and three other sales to electric companies increased 57.4 utilities of the Central Area Power Coordina-percent over 1983 and represented $117.4 tion Group (CAPCO) are financing the V
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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 s reviews and inspections by the Nuclear sgin n sy,esyty utilities Regulatory Commission (NRC), it has _ consistently received good marks for construction, quality assurance procedures - M and safety systems.
, l 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 Light Company. Its sistr r facility, Unit 1, has 80 et 82 83 84 been producing power since 1976 and in V y , ,- _ r . q b A t c f,v'R' y, .. _ 1",
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1984 recorded an outstanding 93-percent I operating availability before refueling began g in October. - Building a nuclear plant requires top quality , design and construction and also extensive h testing and inspection before the NRC approves a plant for commercial operation. , - - The CAPCO companies are committed to y seeing that these requirements are met. Also under construction by the CAPCO com-panies is Perry Unit 2, the status of which is
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As the System's construction program moves em ahead, our efforts to raise money to finance ! it continues. Two recent accomplishments, 4 4m early financing of the 1985 construction budget and a special arrangement for m back-up funds, if needed, now enable us to be more selective in timing financings at 8' e 83 84 es lower interest rates. w _'. 7 .' . ; r
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Even more significantly, the need to finance There is, in fact, strong evidence that the projects is easing. With tha completion of acidity of rain is not increasing. And, perhaps our extensive environmental improvement more importantly, soil 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 W. H. Sammis " Depending upon the particular bill, the cost Plant alone, our cost was $409 million In all, to the electric utility industry is estimated at we've spent nearly $1 billion to meet envi- up to $222 billion. With hundreds of billions of dollars at stake, and serious doubts about ronmental regulations. 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 politics. mounting evidence that raises serious 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. little hard evidence to accurately determme
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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 hnancial 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 Prog,am, public stimulate new business, some people. of ten funds are available to help elderly, low-through no fault of their own, have trouble encome 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, low-income elderly and unemployed customers. With an initial gift of $70,000, Ohio Edison and Penn Power sought the support of employees and customers by offenng to contnbute 50 cents, up to $120.000 annually, for every dollar they donate. By the end of 1984, nearly $170,000 in con-inbutions were collected or pledged and
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Financial Review l l t 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 11
Managem:nt's Discussion and Analysis of R:sults of Operations and Financial Condition Results of Operations Scheduled and forced outages at the Company's W.H. Results 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 earnings 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 th; 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 a%ved primarily due to the improved cconomic conditions .vithin the Companies, service area he Copies' owN WWim Nm Wi@ 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 commercial customers effective annual interest rate of 13.3% offset by long-term were up slightly, with increases of 1.5% and 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 sal:s to other utilities.
Cganies' 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 Pbwer's depreciation base, the total allowance for funds used during construction r
- s:rve, which increased earnings per share by $.06 during (AFUDC) will continue to increase in order to capitalize the th third quarter. This adjustment, which was ordered by appropriate financing costs which are not currently recovered th] 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: tail rates but which will be recovered in future rates, and upon the Companies is given in Note 10. is included in Miscellaneous Income on the Consolidated Statements of income. Excluding the effect of this Capital Resources and Liquidity adjustment 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 return on mately $868,000,000, of which approximately $582,000,000 av: rage common equity would have been 15.5%. was financed externally Over the last five years, construction increased operating revenues, resulting from rate increases costs were approximately $3,500,000,000, of which approxi-gr nted in 1984 in addition to a 9.9% increase in total mately $2,700,000,000 was provided from extemal sources. kilowatt hour sales, were partially ofIset by decreases to The 19851989 construction program is currently estimated to th] Companies' fuel recovery rates in 1984 compared to be $2,600,000,000; the issuance of additional common s'ock 1983. Due to the nature of the Companies' fuel recovery and other secunties will be necessary to fund a major portion cl;uses, a reduction in f uel recovery rates, while decreasing of this new construction. The Companies have additional total revenues, does not create a corresponding reduction cash requirements of approximately $79,000,000 in 1985 and in c:rnings; this results from the objective of matching $1,100,000,000 for the 19851989 period to meet maturities of fu:1 revenues and expenses accomplished by the use of and sinking fund requirements for, long-torm debt, long-term def;tred fuel accounting. The direct correlation between obligations, and preferred and preference stock. th] 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: 6,700,000 shares of common stock incr:ase in fucI 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 made poss!ble due to lower prices $60,000,000 of pollution control notes; and $240,000,000 of paid for coal. A similar nituation 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 coalin 1983. committed to be issued by the end of February 1985). Add - tionatinvestmentsin nuclear fuelof approximately $40,000,000 in 1985 will be made through the incurrence of additional long term obhgations. In
At December 31,1984, the Companies had approximately ance period, is required when the project is placed in service.
$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.
P" " " pany tran nk i gcredi agreementpr ng for borrowings of up to $500,000,000. The agreement will fUCO r d t e PPU nted in N e desig o nerease annual revenues by approximately $135,000,000 extend to the end of 1987 at which time any outstanding and $20,000,000, respectively. Penn Pbwer filed its rate borrowings may be converted to an amortizable term loan for increase request in October 1984, and the Company's en 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 flexibili?v in the timing and terms of future respectively. securities issues. The Company was granted a retail base rate increase, ofective 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) tilowed $115,000,000 of construction work in responsibility for their integrity and objectivity. The progress (CWIP) to be included in the Company's rate base, statements were prepared in conformity with generally thereby permitting the Company to recover financing costs accepted accounting principles and are consistent with rel ted to certain construction projects on a current basis; other financialinformation appearing elsewhere in this however, no allowance was provided for current recovery of report. Arthur Andersen & Co., independent public financing costs applicable to Ferry 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 dat] for the Unit and alleged that the Unit would not be in the Audit Committee of the Board of Directors, review the servica during the period that the new rates would be in results and performance of operating units within the cffect. The Company had been recovering financing costs Company for adequacy, effectiveness 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 Pbwer and operating controls. requested a rate increase of $19,000,000 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 r:13 increase effective April 11,1984. directors whose dulles 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, conc: ming the Company's electric fuel component rate extent, adequacy and validity of regular and special audits which his allowed the Company the opportunity for recovery conducted by independent public accountants and the of current and deferred Quarto coal costs as discussed in internal auditors; the recommendation of independent Note 7 have had a favorable offect on the Company's accountants to conduct the normal annual audit and int:rnal cash generation. The Company's deferred Ouarto 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 J:nuary 1985, the Govemor of Ohio signed into law a pror.edures 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 reasonable allowance for CWIP in rate base under cortain con-
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ditions. While the law also continues to allow CWIP for other than pollution control projects to be considered for inclusion y,A,o ,,e w,A,o,ni,gg in rat] base, it has reduced to 10% of rate base (exclusive of Docutive Vice President Cornptroller CWIP) from 20% allowed under prior law, the amount of non. Chief FinancialOfficer pollution contr01 CWIP includable in rate basa Pollution con-trol CWlP may continue to be included up to 20% of rate base exclusivo of CWIP. Also, if CWIP is allowed in rate base, o revenue offset period, similar in duration to the CWIP allow-19
TowoEdison corrvnny . Sebcted Fin:ncl:1 D:ta 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 income 342,713 302,751 269,640 252,381 169,383 Income Before Extraordinary items 339,333 272,400 195,571 183,020 135,150 j Net income 339,333 272,400 215,729 197,062 135,150 Earnings on Common Stock 290,694 227,843 181,406 163,892 101,403 Eamings 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 Cctnmon 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 Total Assets at December 31 6,690,098 5,960,374 5,247,138 4,460,274 3,979,965 Preferred and Preference Stock Subject to Mandatory Redemption 158,483 158,112 152,560 151,141 156,450 Longterm Debt 2,449,502 2,132,137 2,005,436 1,759,771 1,594,384 tongTerm Obligations 822.234 759,843 656,655 447,484 265,000 Common Stock Data The Company's Common Stock is listed on the New Wrk and Midwest Stock Exchanges and is traded on other registered exchanges. Price Ran8e of Common Stock 1984 1983 First Ouarter High-tow 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-Low 12 1/8 9-7/8 15 1/4 14 Fourth Ouarter High-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. CbsSilication 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 Banks & FinancialInstitutions 21 0 01 44,223 0 04 Insurance Companies & Other Corporations 1,982 0.05 1,549,572 1.27 Charitable, 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 As of January 31,1985, there were 209,225 holders Quarterly dividends of 464 and 454 por 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 Informahon regarding retained earnings available for payment of cash dividends is given in Note 4b. 20
~ ' Chic ideca Garcany Consolid:.ted Stat;m:nts of Incomo For the Wars Ended December 31 1984 1983 1982 (In thousands, except per share amounts)
Operahng Revenues $1,637,104 $1,515,852 $1,429,626 Operating Expenses and Taxes: Oper; tion-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 129,313 121,544 139,615 Provision for depreciation and amortization 131,340 124,572 105,072 Gener:I taxes 136,880 126.818 114,56t: 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 Ded'xtions: 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 other income and deductions 263,878 207,549 160,247 Totalincome 606,591 510,300 429,887 Not Interest and Other Charges: Interest on long term debt 267,391 233,626 211,765 Interest on long-term obligations 89,780 73,177 80,092 Allow nce for borrowed funds used during construction, net of deferred income taxes (104,351) (81,901) (76,088) Other interest expenac 5.473 5,702 12,449 Subsidiary's preferred stock dividend requirements 8,%5 7,296 6,098 Net interest and other charges 267,258 237,000 234,316 income Before Extraordmary 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 Requwements 48,639 44,557 34,233 Earnings on Common Stock 5 290,694 $ 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 dunng the year) Before extraordinary item (af ter preferred and preference stock dividend requirements) $2,50 $2.22 $189 Extraordinary item - - .24 E:rnings on common stock S2,50 $2.22 $2,13 D6vidends Declared Per Share of Common Stock $1.84 $180 $1.76 Ihe SCCompanying Noteg to Congolwl,qfed rinancial statement 3 4tt an integtal part or these glatements l 21 t i _ - - _ _ _ _ _ _ _ _ _ _ _ __ _ _ - _
On.o Ed: son Comrany Cons:lidated Binca Sheets At December 31 1984 1983 Assets (in thousands) Utility Plant: In service, at original cost $4,043,391 $3,700,313 i Less-Accumulated provision for depreciation 1,161,565 1,062,173 1 2,881,826 2.638,140 1 Construction work in progress-Electric plant 2,785,977 2,351,089 Nuclear fuel 277,746 216,905 3.063,723 2,567,994 5,945,549 5,206,134 Other Property and investments 69,560 63.614 Current Assets. C:sh 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 Materials and supplies, at average cost-Fuel 87,499 69.047 Other 44,822 45,657 Prepayments 46,990 41,184 455,879 424.046 Deterred Charges.
Deferred Quarto coal and other energy costs (Note 7) 38,542 67,254 Property taxes 57,601 52,575 Un:mortized 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 Capitalization and Liabilities Capitalization (See Consohdated 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 Preferred stock of consolidated subsidiary-Not subject to mandatory redemption 41,905 41,905 Subject to mandatory redemption 56,561 47,471 Long term debt 2,449,502 2,132.137 5,010,832 4,400.463 Longterm Obligations: Construction energy trust (Note 5) 500,000 500.000 Nuclear fuel (Note 5) 290,323 219.364 Capitalleases (Note 3) 31,911 40.479 822,234 759.841 Current datnisties: Currently payable preferred and preference stock, long term debt and long term obligations 79,124 94,532 Note: pa table 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 Deferred Credets: Accumulated deferred incomo taxes 178,440 158.437 Accumulated deferred investment tax credits 145,409 107.3 % Property taxes 57,601 52,5/5 Energy costs recovered in advance 9,094 33.33'i Other 17,571 28.545 408.115
~
380.?a2 Domm4ments, Guarantees and CAit6nsencies (50tes 3 and'7)
$6.690.098 $'Wo.3 /4 tha num.nymo rea. no cenewpt e rwn.i rani.,n.,e n .n e*9,.i s,t or p r,.i nr. .r ,,
72
Ohio Edisen Cor%)ny Consolid ted St:t:m:nts of Capitalization Al December 31 1984 1983 Common Stockholders
- Equity: (in thousands)
Common stock, $9 par value, authorued 155,000.000 shares-122.236.636 and 108.460.054 shares outstaneng. respectrvely (Note 4a) $1,100,130 $ 976.140 Other padin captal 529.596 494,520 Retamed eammgs (Note 4b) 317.631 241.314 Total common stockholders" equity 1,947,357 1,711,974 Optonal Redemption Pnce Numberof SharesOutstandng gegg, 1984 1983 Rer Share (in Thousands) Preferred Stock (Nate 4c): Cumulatrve, $100 par value-Authorued 6,000.000 shares Not Subject to Mandatory Redempton. 390%-724% 973.350 973.350 $103 38-108 00 $102.034 97.335 97.335 7 E%-8 20% 800.000 800.000 $104 68105 35 84.046 80.000 80.000 864%-912% 850.000 850.000 $106 48106 84 90.670 85.000 85.000 Total not subpect to mandatory redermton 2.623.350 2.623.350 $276.750 262.335 262.335 Subject to Mandatory Redermte (Note 4d): 10.48 % -10 76 % 576 810 615.000 $107 8611187 $ 63.338 57,681 61.500 Redemption withm one year (1.641) (1.500) Total subsect to mandatory redemption 56.000 60.000 Cumulatrve. $25 par value- Authorund 8.000.000 shares Not Subiect to Mandatory Redwnpton-
$3 50 Seres 2.000.000 2.000.000 $28 75 $ 57.500 50.000 50.000 Seres A 2.0W000 - $25 00 51.250 51.250 -
4.050 000 2.000 000 $ t 08.750 101.250 50.000 Preference Stock (Note 4ck Cumulative, no par value - Authortted 8.000.000 shares Not Subiect to Mandatory Rodnmptort
$3 92 Series 2.000.000 2 000 000 $3142 $ 62 840 50.000 50.000 Subiect to Mandatory Redemptm (Note 4e):
$95 00-$102 50 Seres 26.100 27.000 St.070 001,078 50 $ 27.099 26.100 27.000
$180 Seres 1.589 096 1.622.546 $15 58 24.750 24.035 24.54i Amiemption withm one year (4.213) 000)
R;tal siblect to marwiatory redempton 1 615 196 1 649'i46 $ 52149 45,922 50 641 Preferred $4eck of Connelldsted Sutndary (Note Ack Cumulative, $100 per vaka- Authorued 9W000 shares Not Subi ect to Mandatory Raiwnption 424%-916% 419 049 419 041 $102 96106 87 $ 41 %4 41.905 41.905 Subsect to Marditory Redntmtion (Note 4d) 8 24 % -15 00 % 570 616 479 708 $103 2S t14 62 $ of 102 57,061 47.971 Rednmotion withm one year (SN)) 600) futal subtect to marw1.atory reiemption 56.561 47411 i targ Terrn Detit (Note afk Ust mortgage tvwvis Ohio E4wm Ccwnpany-915% we*ghted average interest tate, due 1965-1989 160.619 186.4 % 15 51 % weghtml average interest rato, ese 17 0-1994 398.252 211.252 10 01% weghted average riteret rate, rbe 1973-1999 129.345 129 345 8 50*4 weghted average mterest rate, due2000-2004 197.876 197.876 0 09% weightml average interest rate, due 2tXN2009 274.310 214 310 1144% weqhtsg1 average mterest rate die 2010J014 200.000 1% ofx1 1.340.462 1.1% 2 Di FM wayhranu lhwer Ctwnpany - to 81% weighted average intarest ra's. dse IW)-2(X)6 23000 2'a Ono nte tot mentgage tww=h 1.639,462 141s 2 ul Sew:tsted tvAme erw1(4dy.stwme Orvo I dmon Gwmany ~ 913% we@ted ever age interest rate, dus 1$420t4 464.172 282 215 Ahwame hekj ty Duntee (106.138) NrtN 370.034 2M t 2 r) (wmi t ewn F wunre N V -17 :In% wayhtad average mtarost rate die 1#1 t'W1 150.000 tpus)
~
5%rvwylven.4 Itiwar Dwngmarty ~ 9 4k% weighted average interest rate. em twv 2014 $0.311 6 7.r41 Amrmt hekt tv bice ( _13.305) yP2) 47006 e og I dal == urmi rw 4es arws r4*ptewn 595.040 _ 4 apt 9 Unset temi en det tJf (jrm) 14mm Ownguny 11.irW we*fital aver 49e tr terest ra re des I'mi6- 2014 402.(Xt) 402 rs #1 Amrethetdtv been (l14 823) N l Wd SUsman ured rv des rA tyen i 4,wi O wqwny _287;171 'tr v1445 Nat unann ef at daremt rm rie.e4 (18 907) __ ( t t_tg "t7dtEdif[wIthTir r7n yaat _ (53190) Jn 117) Idas kwq term 644 2._449 502 _ 2.11/ 117 85 010 412 44 4:e 4#i1 total Casstassahan fre erzwrpinynq Nt4*s to Ow4uwdent f runral Glatammen are en integret twat of these statameras 23 m
m m ,ecmp ,y - .--------- _ Consolidated Stat m:nta cf R trined Errnings For the Wars Ended December 31 1984 1983 1982 (In thousands) Balance at beginning of period $241,314 $200,439 $171,191 i Net income 339,333 272,400 215,729 l 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 Capital stock expense - 748 704 263,016 231,525 186,481 Balance at end of period (Note 4b) $317,631 $241,314 $200,439 Consolidated 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 - - - - Dividend Reinvestment Plan 4,644,622 41,802 17,647 - - - - Exchange of Common Stock for F6tst Mortgage Bono 4 2,650,600 23,855 9,463 - - - - Conversion of $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 Hedemptions-8.24% Series - - - - - (5,000) (500) 10.48% Senes - - 284 - - (13,130) (1.313) 10.76% Senes - - 435 - - (20,000) (2,000) 11.00% Senes - - 44 - - (4.033) (403) Balance, December 31,1982 90,081,844 864,737 423,195 5,042,399 354.240 2,887,762 155,023 Sale of Common Stock 5,000,000 45,000 33,350 - - - - Dividend Heinvestment Plan 7,138,575 64,247 33,056 - - - - Conversion of $180 Preference Stock 239,635 2,156 1,332 - - (239,635) (3,624) Safe of $3 50 Ser es of Class A Preferred Stock - - 3,t 40 2,000,000 50,000 - - Sale of 115% Preferred Stock - - - - - 150,000 15,000 Preferred Stock Sinking Fund nedemphons-8 24% Senes - - - - - (5,0u0) (500) 10 48% Serles - - 270 - - (24.630) (2,463) 10 to% Senes - - 100 - - (20,000) (2,000) 1100% Senes - - 17 - - (4.243) (424) Balance. December 31,1983 108.460,054 976,140 494.520 7,042,3'n 404,240 2,744,254 161,012 Sale of Common Stock 3.673.400 33,061 13,5rn - - - - Dividend ncmvestment Plan 10.067,071 90,604 23,333 - - - - Employee Stock ownership Plan 2,661 24 12 - - - - Conversoon of $180 Preference Stock 33.450 301 187 - - (31 450) (506) Capital Stock bpanse - - (2,548) - - - - Sale of Series A Class A Preferred Stock - - - 2.0 % 000 St,2'A - - Sale of 13% Prafarred Stock - - - - - 100,000 10.000 Preferred and Preference Stock Sinking Fund Hedamptinns-8 24 % Snnos - - - - - (5,00n) (500) 10 48% finnes - - 252 - - (In 100) (f.819) 10 76% Senns - - 218 - - (20 f.xX)) (2,000) 1100% Larias - - 21 - - (4,09/) (409)
$102 50 Serwas - - - - -
('s O) (9r x)) It.alanc e. Det amter 11,14n4 122 ?w 6M $ f,10n 11n $t?9 8,'wl 0 f n? VN $4% 4'N) 2 ft.2 622 lir,4 Mrn the accerquerymq Nrdae to Cam *rdwbetarl Finetw seiIWafammede see en intepel pnet o r th=9e eta'enente 24
Consolidated Strt:m:nts cf Sourc;s cf Funds f:r Property Additi:ns For the Years Ended December 31 1984 1983 1982 Intemally generated funds- On thousands) Income before extraordinary item $339,333 $272,400 $195,571 Principal noncash items-Depreciation and amortization 142,260 139,978 107,025 Deferred income taxes, nel 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 j Dividends on preferred and preference stock 49,100 45,468 34,488 ' 22g058 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 37'L154 252,800 295,833 Long term obligations 823,5 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) Sab of tax bener its - - 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-C:sh 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 payable 17,069 20,951 (8,942) Accrued taxes 351 1,449 4,041 Accrued interest 15,216 10,155 17,754 Miscellaneous, not 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 $648,633 60,842 55,032 124,292 Nuclear fuel Capitalleases 6,855 25,333 - Nonutility oroperty 830 1,120 1,308
$868,099 $771,131 $774,233 the ccorrmanyng Notes to consoidited hn4ncias siatemente are en integral p ,t of tnese statements 23
Ohm Edison Company l Consolidated St:tements cf Tax:s For the Wars Ended December 31 1904 1983 1982 GeneralTaxos: (In thousands) State gross receipts $ 71,044 $ 65,495 $ 56,808 l Real and personal property 48,717 47,099 45,028 I Social security and unemployment 12,649 10,097 8,990 i Miscellaneous 4,470 4,127 3,743 l Total general taxes $136,800 $126,818 $114,569 Provision for income Tames-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 investment tax credits, net of amortization 38,026 53,670 7,312 Total provision for income taxes $160,225 $147,338 $102.206 Income Statement Classification of Provision for income Tases: 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 Tan Espense: 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 fuei, 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 ReconcNistion of Federallncome Tan Espense at Statutory Rate to Total Provision for income Tases: Book income before provision for income taxes $499,558 $419,738 $317,935 Federalincome 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 depreciat,on 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, not (9,554) 1,178 (60) Total provtston for income taxes $160,225 $147,338 $102,206 The accomparyng Notes 10 consoldated FinancW statements are an integral part of these statements 26
Notes to Consolidated Financici StGtements 1 Summery of Signifloent ^+:L.-., pollcies* Utility Plant and Depreciation-The consolidated 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 Fbwer Company (Penn Fbwer) 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 Fbwer (Companies) The Companies provide for depreciation on a straight-line follow the accounting policies and practices prescnbed 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 Rewnues- 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 servic3 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 dx-month period. Accordingly, the Company defers the the corresponding operating expenses on the Consolidated Ofference 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 Fbwer recovers fuel and energy costs from its retail customers through an annual "levelized" energy cost rate g ag cegma g (ECR). The ECR, which includes adjustment for any over or o n-.ma un, a s--. o =.w ewn. inwn, under collection from customers, is recalculated each year. on e=== Accordingly, Penn Power defers the difforence between C,C,, ,,,,,
- E',j ',C S em lll actual energy costs and the amounts currently recovered n ww et a s44 on i2ura s2 m from its customers. 7",,*w*,'/ ** * : : ,@ *$2 Reference is made to Note 7 with respect to accounting for w l'4"** tm m Sm m the cost of coal received from Ouarto Mining Company m inma. m-aoa ***. mace. io n.. ww e2 (Ouarto). 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. 21 1
- _ _ - _ _ - _ - _ _ _ . _-_ _ _a
Notes to Consolidat:d 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 r;flects 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,M equity costs which are charged to construction. The 1997 2,000,000 Company also charged AFUDC to certain projects which were completed but not yet included in rate base during 1998 12,M,M 1983 and 1984, in accordance with a PUCO order, AFUDC 1999 30,000,000 v ries 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 length 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 lively. 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 service costs on an actuarial basis over approximately 35 I Details of the total provision for income taxes are shown on Wa s b N and 22, a6 pars in M R@ panes the Consolidated Statements of Taxes. The deferred income n su ach A cgason d aandaN taxes result from timing d:fferences in the recognition of plan 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
^** 38' 0 84 " 83 from interest expense rcWed to construction work in progress to income taxes-credit included under other income and Actuanal present value of accun,u ed plan uneus:
deductions on the Consolidated Statements of Income. , $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. sos.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 uneus 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 cumulativo net incomo tax timing differences for benefits reflects pension benefits applicable to eligible which deferred incomo taxes have not been provided were employees based upon present salary levels and past years approximately $700,000,000. of service accumulated through the valuation dato. This is Proceeds from the sales of certain tax benefits in the generally accepted reporting proceduro 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 attributablo to investment tax credits wore 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 servico, funding technique and is consistent with the recommendation of the Companies' actuary. In addition, the actuary recom-monded, 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. in
The Companies provide a minimum amount of noncontrib- Certain leases entered into prior to January 1,1983, which utory lif 2 insurance to retired employees in addition to would be reflected as capital leases on the Consolidated optional contributory insurance features. Health care Balance Sheets, have not yet been capitalized as permitted benefits, which include certain employee deductibles by Statement of Financial Accounting Standards No. 71 c nd co payments, are also available to retired employees, (SFAS Nat 71). If they had been capitalized, total assets l their dependents and, under certain circumstances, to and liabilities would have increased by $37,665,000 and l their survivors. The Companies 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, cll amounts up to the limits are paid by the Companies. 1983 Consolidated Balance Sheet and the Consolidated Expenses 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 j charged to income during the applicable payment periods, into during 1983. l 2 Terminated Construction Projects: The future minimum rental commitments as of December 31, I l 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 claims resulting from termination) unrecovered by the 9 e Company and Penn Fbwer as of December 31,1984, applic-able to these units amounted to approximately $69,560,000 1985 $ 14,104,000 $ 10,421,000 cnd $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 tn increment to the allowed rate of retum in rate cases and Penn Fbwer (and the Company with respect to its FERC juris. 1989 4,983,000 6,671,000 dictional customers)is recovering these costs as an operating Years thereafter 75,730,000 105,680,000 expense allowance. Neither company is earning a return on Total minimum lease the utmortized investment. The remaining periods of re- payments 120,889,000 $147,454,000 covery for the Company and Penn Power are approximately 8 cnd 9 years, respectively. l.ess: Amount representing estimated executory costs 3 leases: (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 offic3 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 oper; ting leases are charged to operating expenses on the payments 97,941,000 Consolidated Statements of Income. Such costs for the three t.ess: Amount representing 56,583 000 years ended December 31,1984, are summarized as 'ollows: Interest 1984 1983 1982 Present value of net minimum lease payments $ 41,358.000 (In thousands) Interest on capitalized leases $13,524 $10,325 $- Amortization of capital leases 15,283 12,808 - All other leases 12,1_20 11,645 _ 20,776 ! Total rental payments $40,927 $34,778, $20,776 n
Not:s ta Con:clid:ted Fin:ncirl St t:m:nts~-(Continued) 4 Capitalization: Statements of Capita 2ation will decline to eventual (?) Common Stock- minimums per share acording to the Charter provisions Through the Dividend Rein.estment and Stock Purchase that establish each serie,s. Plan, holders of common, preferred and preference stock The Convertible Adjustable Series A Preferred Stock is con-c n acquire additional shares of the Co mpany s common vertible into the Company's common stock only during a stock by automatically reinvesting all or a portion of their specified 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 price equal to 100% of th average closing price for the Company s common stock for than 6.15 shares nor less than 2.08 shares of common stock for each share of preferred stock surrendered for c:ch of the five New York Stock Exchange trading days conversion. The Company may, at its option, elect to pur-cnding on the investment d. 1 At December 31,1984, the chase for cash, in lieu of delivery of common stock, any Company had 5,823,487 shares of common stock reserved Convertible Adjustable Series A Preferred Stock surrendered for issuance under this plan,1,326,600 shares reserved for for conversion, subject to certain limitations, issuance under a continuous shelf registration program, 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 Pr:ferred Stock and 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 (b) Retained Earnings- dividends. Penn Power's 8.24% Series and 11% Series each include 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 I cish dividends on the Company's common stock were respectively, every year on December 1, and January 1,
$245,584,000 at December 31,1984. r spectively, at $100 per share plus accrued dividends.
Penn Power s 15% Series and 11.50% Series each include (c) Pre / erred 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,9 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 ar,d pref- 13.00% Series includes a provision for a mandatory sinking cr;nce stock issued within the past five years is subject to fund to retire a minimum of 5,000 shares on July 1 of each c",rtain 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
(:) Pr:terence Stock Subject to Mandatory Redemption- The weighted average interest rates shown on the Th3 $102.50 Series includes a provision for a mandatory Consolidated Statements of Capitalization relate to long-sinking fund to retire a minimum of 900 shares on July 1 in term debt outstanding at December 31,1984. cch y:ar 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 o mzndatory 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' pollution control notes, the proceeds of which were tnen r:spectively, 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 ~ pollution control facilities. The Companies' obligations Th3 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 Tha $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 letters of credit of $213,885,000. To the extent that shars 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 amoun s d N ieks of M M me issWng banks and is Th3 mortg e and heir supplements, which secure all of o g se me banks fm any &awings th3 Companies' first mortgage bonds, serve as direct first """ mortgage liens on substantially all property and franchises, oth:r than specifically excepted property, owned by the 5 t.ongTerm Obligations: Companies. Ohio Edison Energy Trust (OEET)- OEET, which finances part of the Company's investment Based on the amount of bonds authenticated by the in Beaver Valley Unit 2, has two lines of revolving credit Trust::s 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 latter credit also serves as a standby facility ,n i connection bonds issued under the mortgages amount to $26,767,000. with OEET commercial paper sales; total t,orrowings under Th3 Company expects to deposit funds in 1985 which that credit and commercial paper outstanding may not will be withdrawn upon the surrender for cancellation of exceed $100,000,000 at any time. a lik3 principal amount of bonds, which are specifically auth:nticated 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 Pbwer expects to satisfy OEET borrowings. Under the agreement, the Company its requirements in 1095 by certifying unfunded property presently anticipates payments of $100,000,000 in 1986 cdditions of 166 2/:l% of the required amount. and $80,000,000 in each year 1987 through 1989. As of Decemt:er 31,1984, the Companies' sinking fund requir:ments for certain series of first mortgage bonds cnd m:turing long term debt for the next five years are: 1985 $ 53,190,000 1936 36,131,000 1987 161,137,000 1988 171,746,000 1989 94,695,000 31 _ - - - _ _ _ - _ -. a
N:,tos to C nsolidat:d Financial Statem:nts-(Continued) Th; Company accrues interest applicable to OEET which is The Companies accrue in",erest applicable to the nuclear subsequently capitalized, net of income tax effect, interest fuel 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 lin3. No direct borrowings have been or are expected to be expected to be made against the lines of credit available to i made against 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 $303,000,000 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 paper notes outstanding. The effective average the aggregate amount of outstanding commercial paper.
annualinterest 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 11/2% over the interest rate applicable to certairtdealer placed commercial paper. The ef fective Nuclear Fuel financing-average annualinterest 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 Companies 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 clso participate in arrangements wherein the Central Area applicable to these obligations during the next five years En:rgy Trust (CAET) finances the acquisition of nuclear as follows: material that will ultimately be used to fuel various CAPCO g:nerating 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 operating 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
. M.) @ .-M.W MQ.Zf i %j%#WhM hp./PN4MWW% . G@y%if@
contractual restriction against 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 $57,300,0G0, of 3/8% to a variable rate of 5% of the applicable prime respectively, applicable to Perry Unit 2. Delays in the com-int'r:st rate to assure the availability of $16,000,000 of the pletion of the Unit can be expected to increasa its total lin:s 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 wnenW assign @o Und 2 wome massignd, 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 payable to contractors and other costs of termination could agreement will vary depending upon 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-c;rtain 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 D:cember 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 of f the Constructicn 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 ef fect. 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-f The major portion of the Companies' construction cate that the magnitude of any such write-off could be I 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-of f 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 the completion of Unit 2. would expect to recover its investment in Unit 2 through its Pbssible alternatives being reviewed with respect to Unit 2 rates if the Unit were terminated. This is also true for the j include temporary cessation of work on the Unit and termi. Company with respect to its FERC jurisdictional customers.
l nation of the Unit. Presently, the only significant work being ) performed on Unit 2 is that necessary to enable Unit 1 to ! b3 placed in service. This work is expected to be completed l som: time 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 resuma significant construction, the Companies may not be cbla to include the AFUDC in net income. Instead, a r:s:rve 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
I N:tzs to Cnnsolidat:d Financial Stat m:nts-(Continued) Ouarto Project- recovery of the deferred costs, which amounted to The 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 j 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 Under the terms of the coal supply contract, which expires Quarto project,it prescribed a method for recovery of the December 31,1999, the Companies must reimburse Quarto current cost of Quarto coal and the deferred Quarto coal 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 from 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 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 construction costs are. EnvironmentalMatters-s %% Me M bl Wh @@ h 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 thereaf ter 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-w:s ordered by the PUCO, and Penn Power was ordered by wealth of Pennsylvania and the states of New York and tha PPUC, to defer recovery of the cost of Quarto coalin 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-fu:1 adjustment clauses. The Company has subsequently w nd state. The petition complained of excessive particu-r:ceived PUCO orders which provide an opportunity for late and sulfur dioxide (SO,) 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 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 summarizes certain consolidated operating unabb to predict the outcome of these proceedings. results for the four quarters of 1984 and 1983. As e part of the reauthorization of the Clean Air Act,legisla. Three Months Ended March June september December tion his been introduced in Congress to address the so- (Unaudited) 31.1984 30.1984 30.1984 31.1984 cilled " acid rain" problem. Various bills introduced thus (in thcusands, except per Share amounts) Operating Revenues $420.453 $391.548 $416,794 $408.309 f;r would require reductions in SO, emissions from utility " power plants and other sources located in several states, O[*[es 330.524 309.150 326.981 327.736 including Ohio and Pennsylvania. The Company is unable O eratingincome 89.929 82.398 89.813 80.573 to predict whether the proposed bills will be enacted and, other 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 Other Charges 62.729 64.386 66.820 73.323 in th) SO, emission limits could result in the need for ch;ng:s in coal supply, significant capital investments in Net income $ 83.957 $ 79.344 $ 97.134 $ 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 outstanding 110.539 115.164 117.938 121.044 cumstance that may be physically impossible because of Eamings per share spaca limitations at certain of their plants, the Companies of Common stock S.66 $.59 $.72 $.54 (stimate that the capital costs associated with such instal-11 tion 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 31.1983 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 mina the amount of stack height credit for establishing indj. Other income and Deduct ns 47.530 50.060 54.668 55.291 vidual source emission limitations. In July 1984, the U.S. Supr2me Court denied a utility industry request to review "$",'r$a'rge 59.472 57.578 60.017 60.833 the Court of Appeals
- decision. On November 8,1984, the Net income $ 64.111 5 60.004 $ 72.763 $ 75.522 EPA proposed new stack height regulations to conform Earnings on Common stock $ 54.091 $ 48.708 $ 61.117 5 63.927 with the court's decision. Such changes could result in mora stringent emission limitations for some existing Weighted Average Number
' ha o mon pl:nts and increased capital costs and operating expenses. st w ,, 96.841 100.244 105.312 107.261 Th3 Companies are studying the proposed new regulations Eamings per share cnd 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 outst;nding first mortgage bonds which were subsequently r; tired. 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
Notes to Consolidated Financial Statements-(Continued) 1 10 Supplementary Financial Data-Financial Reporting and financial inforrnation to disclose the estimated ef fects of in-Changing Prices (Unauditedk flation and changes in prices on property, plant and equip-Statement of Financial Accounting Standards Na 33, ment. This data is presented in accordance with SFAS Na 33;
" Financial Reporting and Changing Prices"(SFAS Na 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 incarne from continuing operations $290.694 Inflationary Effects on Common Equity: CapitalInvestments Effects-Increase in specific prices (current cost) of property held during the year (i) 137,599 Change in general price level on property held during the year (382,151) Mjustment to net recoverable cost 219,340 Mditional provision for depreciation (187.300) (212.512) Advantage from the decrease in purchasing power of net monetary liabilities 145,614 Net erosion of common stockholders' equity (66.898) income from continuing operations adjusted for changing prices (ii) $223,796 (i) At December 31,1984, net property, 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 1983 1982 1981 1980 (Dollars in thousands, except per share amounts) Operating Revenues-Historical $1,637,104 $1,515,852 $1,429,626 $1,279,649 $1,080,869 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 prices (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 l Mjusted for changing prices (average 1984 dollars) $1.93 $1.72 $1.41 $ .87 $ (.42) Return from Continuing Operations on Average Common Equity-Historical 15.9 % 14.2 % 12.3 % 13.5 % 9.7% Mjusted for changing prices 12.2 % 10.5 % 83% 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 $1229,044 $1,067,524 Mjusted for changing prices (average 1984 dollars) $1,923,25A $1,754,121 $1,584,184 $1,360,143 $1,278,835 Cash Dividends Declared per Common Share-Historical $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 Mjusted 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 l Tha increase iri specific prices of property held during the To the Stockholders and Board of Directors of Ohio Edison < . y:ar 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 curr ntly 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 engineering indices to calculate the related consolidated statements of income, reta,ined earnings, curr:nt cost of those assets. The indices are applied to capital stock and other paid-in capital, sources of funds for actual dollars sp ent on large construction projects property additions and taxes for each of the three years in according to the year of expenditure. For all other plant facilitits, the cun ent cost is determined based upon the the period ended December 31,19,84. Our examinations were made i,n accordance w,th i 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. m;thods used for computing the historical cost provision for deprec,ation. i No inflation adjustment has been reflected M dismsd me W M he 7 m me molih financial statements, the continued construction of Perry for income taxes,in conform,ty i 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' net monetary include temporary cessation of work and termination of the liabiliti s (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. rnonetary liabilities, which serves as an of fset to the in our opinion, subject to the effect on the consolidated mflationary effects of replacing the Companies property, financial statements of such adjustment,if any, that might plant and equipment. 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 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 af ter 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. Oak QuwG. ARTHUR ANDERSEN & CO. New York, N.Y. February 8,1985 37 a _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ . _ _ _ _ _ _ - _ _ _ - _ - _ _ _ _ _ - - _ _ _ _ _ _ _ _ _ _ - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ - - _ _ - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _ _ _ - _ _ _ - _ _ _ _ _ _ _ _ . _ _ _ _ _ _ - _ _ _
1 Consolidated Fin:ncial St:tistics 1984 1983 1982 1981 1980 1979 1974 General FwiancialInformahon (Dollars in thousands, except per share amounts) l l Total Operating Revenues $1.637,104 $1,515,852 $1,429,626 $1,279,649 $1,080,869 $ 994,585 $ 498,355 Operating income $ 342,713 $ 302,751 $ 269,640 $ 252,381 $ 169,383 $ 163,744 $ 71,095 Earnings on Common Stock $ 290,694 $ 227.843 $ 181,496 $ 163,892 $ 101,403 $ 105,120 $ 51,035 Ratio of Earnings 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 Net Utility Plant at December 31 $5,945,549 $5,206,134 $4,522,733 $3,867,757 $3,435,267 $3,012.197 $1,615,265 Property Additions S 868,099 $ 771,131 $ 774,233 $ 568,044 5 515,020 $ 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 $ 970,110 $ 484,713 Preferred and Preference Stock Not Subject to Mandatory Redemption 455,490 404,240 354,240 304,240 306,905 306,905 213,905 Preferred and Preference Stock Subject to Mandatory Redemption 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 % 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 Sut, lect 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 % Longterm Obligations at December 31 $ 822,234 $ 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 % 8.36 % 6.49 % Cost of Longterm Debt Outstanding d December 31 11.52 % 10.82 % 10.69 % 9.99 % 9.16 % 8.13 % 7.17 % Common Stock Data Eamings per Average Common Share $2.50 $2.22 $2.13 $2.30 $1.52 $1.80 $1.68 i Retum on Average Common Equity 15.9 % 14.2 % 13.5 % 14.6 % 9.7% 11.2 % 11.1 % Dividends Paid Per 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 d December 31 13.6 % 14.7 % 12.6 % 15.1 % 14.8 % 13.2 % 13.9 % Price / Earnings Ratio at December 31 5.4 5.5 6.6 5.1 7.8 7.4 7.1 Shares 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 d December 31 $15.93 $15.78 $15.49 $15.62 $15.58 $16.27 $15.29 Market Price per Common Share d December 31 $13.50 $12.25 $14.00 $11.625 $11.875 $13.375 $11.875 Ratio of Market Price to Book Value per Share at December 31 85 % 78 % 90 % 74 % 76 % 82 % 78 % 38
Consolidat::d Operating Statistics . 1964 1983 1982 1981 1980 1979 1974 Revenue From Electric Sales (thousands): Residential 5 571,878 $ 540,167 $ 497,941 $ 442,267 $ 398,832 $360,273 $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 1,499,202 1,416,458 1,305.629 1,186,021 1,048,757 958,523 483,535 Sales to Utilities 117.385 76,220 101,688 73.966 12,381 10.185 4.288 Total 51,616,587 $1,492,678 $1,407,317 $1.259,987 $1,061,138 $968,708 $487,823 Revenue From Electric 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): Residential 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 Irdustrial 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 20,664 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 24,025 24,662 22,394 22,960 20,682 Customers Served at December 31: Residential 885,376 878,949 873,877 872,303 867,447 861,196 800,612 Commercial 90.810 90,072 89,706 89.231 88,505 87,425 83,111 Industrial 2.757 1,003 1,048 1,068 1,059 1,161 1,109 Other 721 736 724 711 704 693 586 Total 978,664 970,760 965,355 963,313 957,715 950,475 885,418 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 8.02c 7.40c 6.56e 5.86e 5.42c 3.20e Cost of Coat Fbr Million BTU $1.59 $1.62 $1.75 $1.81 $1.50 $1.26 $.90 Gener: ting 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 4,148 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
Stockh:Id::r Information Stockholder Profile ' Dividend Reinvestment Plan Additionalinformation 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 ara 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 million shares of (216)384-5509. investment groups. common stock during the year. Ohio Edison Company common Niarly 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 I:ss. 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. Newspapers 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 cach 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: cstimated 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 pr;ferred 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 end stockholders will be notified Stockholders are invited to at- One Cascade Plaza of cny 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 c-Iculates earnings to determine Akron, Ohio. Those unable to or the portion of dividends treated choosing not to attend can vote as c return of capital. We expect on the items of business by - those changes to virtually elimi- filling out and returning the nat] the possil A!ity 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
' Board of Directors Officers Division Managers Donald C. Blasius ~ . Justin T. Rogers, Jr. Anthony N. Gorant L Chairman of the Board and Chief Executive ' : President Akron Division
' Officer of The Tappan Company. Mansfield, Ohio (appliances and fumishings). Member, Victor A. Owoc Denver G. Blosser o Nominating Committee, Finance Committee. ; Executive Vice Pres i dent Bay Division LWilliam 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. : SeniorVice President Marion Division . Dr. Lucille G. Ford - Robert J. McWhorter N. Rod Monahan Vice President, Dean of Business Senior Vice President Springfield Division Administration and Economics and Director of the Gill Center for Business & Economic = Russell J. SE'trino Robert E. Dawson l Education, Ashland College, Ashland, Ohict . Vice President and General Counsel Stark Division -
2 Chairman, Nominating Committee; Member. David C. Bixler, Jr.- Ronald D. Best ~ Financa Committee. = V ce President - Warren Division
- Robert L Loughhead Frank E. Derry Peter A. Fetterolf Chairman of the Board, President and Chief - V ce President Wungstown Division
- Executive Officer of Weirtor: 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,CompensationCommittee, Audit Vice President 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 syste.ns, purchasing and stores, and Chairman of the Board ano Chief Executive William A. Daniels telecommunications. . Officer of Commerc,al Shearing,Inc., Comptroller Wungstown, Ohio tengineered metal compo. . With Mr. Gill's 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, ur.
Executive Vice President of Ohio Ediaon. Mark T. Clark - Gorant was succeeded by former Alliance Member, Finance Committee. Assistant Treasurer District Manager Denver G. Blosser. Justin T. Rogers, Jr. Warren G. Fouch Also, Charles N. Gla'sgow, former assistant President of Ohio Edison and Chairman of . Assistant Comptroller secretary, retired Novemter 1,1984, after the Board of its subsidiary, Pennsylvania 36 years f service with the Company. Power. Chairman, Finance Committee; HarveY L Wa9ner Member, Nominating Committee. Assistant Comptroller Douglas W. Tschappat Joanne Martin Executive Vice President of Ohio Edison. Assistant Secretary Frank C. Watson President and Director of The Wungstown Welding and Engineering Company, Wungstown, 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. Bruca Mansfield jWalter H. Sammis - Fred H. Zuck E
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4 l I THE LAND OF GOOD LIVING I I A VIBRANT ECONOMY T Northwestern Ohio is one of the most I , 4. ,. J '. . . . .q .- ? _, .. '1 productive agricultural and industrial regions J.l% ,iii sA....f ..
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P T ' q.f - gi .e :';~ ' A CENTER FOR THE ARTS
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? l A COMMUNITY VITALITY I The redevelopment of Toledo's riverfront
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;p The Toledo Ediscn Company is a public utility engaged in ., p _ gh M ifp WJ the generation, transmission, distribution and sale of elec- f .' . *%N, *M tric energy in Toledo and Northwestern Ohio. The Company .7 ;' r - ..
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Toledo Edison describes its 2,500-square mile service area 3 in Northwestern Ohio as the " Land of Good Living." And with - gord reson. A sophisticated industrialinfrastructure, ,
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tion, and abundant supplies of energy and water make the area highly attractive to business. Paddlewheel riverboats o,f' and historic forts blend with the latest in contemporary living , trends to create an appealing ambiance. . The 750,000 people who call Northwestern Ohio home have i4-) ..- c i 7T ,- 4y9 the best of two worlds - the cultural, recreational and .....m .
. . . . 3 ,. n economic benefits of urbanization, but in a neighborly, small town t.tmosphere. Area residents can select the lifestyle Toledo is within 250 miles of 43% of the U.S. primary metal best suited for their individual tastes. The lifestyles may be industry, and within 500 miles of 58% of U.S. fabricated diverse, but the area's labor force is united in dedication to metal production and 53% of U.S. electric and electronic craf tsmanship and pride in achievements. manufacturing.
HCHLIGHTS 1984 1983 Change Eamings Per Common Share . $3.70 $3.50 + 20e Dividends Declared Per Common Share 2.52 2.46 + 6c Retum on Average Common Equity 15.3 % 14.5% Finrncial Results (millions of dollars) Income from operations 71 63 + 13% Allowance for equity funds used during construction 83 65 + 28% Net income 154 128 + 20% Operating Results Sales (millions of kilowatt-hours) Retail customers 7 240 6 811 + 6% Wholesale customers 305 320 - 5% Generating efficiency (BTU per kilowatt hour) System heat rate 10 193 10 337 - 1% Fossil-fueled heat rate 9 855 10 053 - 2% 1 l
TO OUR SHAREOWNERS: l l l 1934 was a good year for The Our creative marketing ap- tomers because its fuel cost per kilo-Toledo Edison Company. proach enabled us to add new cus- watt-hour is about one-fourth the cost New records were set for retail tomers in 1984. To cite only one of coal. The station is now going from a - sales revenues and earn,ags. Our example,weaddeda20-megawattload 12-month refueling cycle to an even total revenues of $551 millien included customer who will install new electro- more productive 18 month refueling electric sales to retail customers of plating technobgy to serve the auto- cycle. $528 million. Our sales to industry also mobile industry. We obtained this new The combined effectiveness of our established a new ma;k of $195 million. business by negotiating a contract with coal and nuclear facilities has helped These gains helped enable us to attain highly competitive energy cost provi- control the prices customers pay for earnings per common share of $3.70,6 sions that made the customer's process electricity. Although ourfueladjustment percent higher inan in 1983. competitive and our profit reasonable. cost factor was higher in 1984 than in ' Substantial gains in kilowatt- Our proximity to Detroit's auto 1983, our fuel charges were lower than hour usaga resulted from the assembly plants is a plus.The major they would have been if we relied only rebounding Northwestern Ohio automobile companies plan a greater on coal. econcmy. Our total kilowatt-hour sales emphasis on the "just-in-time" delivery Construction of two nuclear increased a healthy 6 percent over concept, which means they will be plants is moving ahead as part of our 1983, while our kilowatt-hour sales to utilizing parts suppliers located near power-pooling arrangements with industry rose 10 percent. their Detroit assembly lines. Our serv- other utilities. The major emphasis is Since a mild summer and an ice area will benefit from this trend. being placed upon completing the ' exceptionally warm fall and winter more Assembly and machine plants have Perry No.1 Unit. Located near Cleve-than offset a cooler spring, the been operating at high production land, this unit is 97 percent complete extremns in weather that cause higher levels. These are not just temporary and is expected to go on-line about the than normal usage of electric heaters surges, but are being built into the long- end of 1985. The Beaver Valley No. 2 , range planning of these manufacturers. Unit, near Pittsburgh, is more than 80 I and air conditioners were not in evi. dence in 1984. Thus, our gains in kilo- We continue to enhance our percent complete and is now sched-tatt hour sales stemmed primarily operating efficiencies as part of our uled to go into service about the end of from economic growth. program to ensure an adequate supply 1987. Economic studies show there is a of electricity for our service area. Since Construction of a third unit, the high correlation between a growing it started operating nearly 30 years Perry No. 2 Unit, has been placed in a economy and increased electricity use. ago, our Bay Shore Station has been " minimal expenditure" mode pending Economic growth depends upon the one of the most reliable plants m, the evaluation of future economic growth tvailability of a reliable source of United States. It enabled the Company and electricity needs. The construction energy, and the viability of an electric to be ranked tenth overall, among fos-activity may be reduced to such a level utility depends upon the economy of sil-fueled stations of the 100 largest by about mid-1985 that related allow-the area it serves. Investor owned utilities in the nation, ance for funds used during construc-for 1983 :n system heat-rate efficiency. tion accruals may need to be offset, We are seeking to recognize this interdependence by devoting a portion Our Davis-Besse Nuclear Power and a corresponding reserve estab-of our Annual Report to point out the Station also operated reliably. Prior lished in the financial statements. This Citributes that make Northwestern tu a scheduled maintenance and re- would not affect cash flow, but would Ohio the " Land of Good Living."We are fueling outage during the fourth quar- reduce earnings below what they also doing our share to boost North- ter, the station was available to produce otherwise would be. Allowance for western Ohio as an attractive place for electricity 88 percent of the time during funds used during construction accru-industry through our area development the 1983-84 fuel cycle. Nuclear energy als are expected to average about $2 and marketing activities. continues to be a bargain for our cus- million per month in 1985 for Perry 2. 2
John P. WMamson Wendell A. Johnson Charman and Chief Execuhe Othcar President and Quel Operaeng Offcer B:cause of its large scale, our nent rate increase request. The Com- significantly since 1975, while con-nucle:r construction program creates mission was expected to act on the sumption of other types of energy has financlil difficulties for the Company. agreement in February,1985. dropped. Electricity is in its second Our cish income must be sufficient so Our Board of Directors was century of helping power America's th t va can maintain our credit and strengthened by the addition of Edwin economic engine, and we are taking citract the capital needed to finance D. Dodd, a director, consultant and actions to ensure that Toledo Edison our construction program. An inability chairman emeritus of Owens-lllinois, will continue to generate growth in to r ise capital or a failure to obtain nec- Inc. He brings an impressive level of Ohio. If Gross National Product rises
. essary increases in our customer business statesmenship and civic lead. substantially, some regions may face charges could pose serious problems- ership to our Board. shortages of electricity by the 1990s.
Our concerns in this area are dealt with Northwestern Ohio will not be among A new member of our senior man-in more detail in the Financial Analysis those mgions. agement team is Joseph E. Murray, section beginning on page 6. who was elected Vice President, The following pages provide an in-In cny event, we are confident that Energy Supply, in March. He suc. depth perspective about our past, pres- , our financia1 integrity will be ceeded Lowell E. Roe, who took early ent and future prospects. We are proud m:Intrined. Management is deter- retirement af ter a distinguished 35 of our accomplishments and of our mined to make every effort to resolve year career with the Company. solid reputation for reliability. And we our financial problems in a way that are grateful for the continuing dedica-increased competition is the tion of our talented employees and for bcnefits our shareowners, our cus-way of life in the electric utility the support of our loyal shareowners. tomers cnd the economy we serve. Industry. However, the industry's Thl3 determination is exem. foremost challenge is to obtain ade. There is no doubt that we face plified by a compromise agreement quate prices for its services. A closely major challenges in completing our related problem involves phasing in nuclear construction program, just as into which we entered in early 1985 with rates for newly completed generating there are challenges to the state to the st .f t of The Public Utilities Commis-sion of Ohio. As part of our interim rate units. Gradua!!y including the costs of attract new business and industry to the new unit in a utility's rate base over Ohio. incrriso request proceeding that started Lte ir.1934, the staff agreed to a period of years avoids the " rate However, we are confident that the 4 recommend to the Commissionthatthe shock" that could result if the cost were completion of our nuclear cor.struction Company be allowed to collect $30 mil- added to the rate base in one lump program will strengthen our financial li:n in cdditional annual revenues sum, situation, and that the availability over through collection of a temporary sur- We are convinced that elec. the long-term of a reliable, reasonably charge on customer bi"s. tricity is the energy source of the priced supply of energy will play a vital l f uture. Electricity prices in Toledo were role in the economic growth in the Land During the period this surcharge of Good Living. would be in offect, our accrual of allow. 12 cents per kilowatt-hour at the turn of anca for funds used during construc. the century, a time when 12 cents repre- Cordially, tion would be offset by the net of-tax amount of the interim reibf received. sented an hour of hard work for many people. Despite many years of inflation. (( , Tho terms of the agreement also pro. today's electric prices are slightly more than half of that 1900 price, and the typ- John P. Williamson vide that the Company would report on cinnan and CNet Executive Officer the feasibility of reducing its participa. icalemployee works about 30 seconds tion in the construction program of the to pay for a kilowatt-hour of electricity. Ccntrcl Area Power Coordination That electricity is a bargain is sug- 8 Group. In addition, the Company would gested by the fact that electric energy Wendell A. nson agree to withdraw its pending perma- consumption in the U.S. has increased President ef Operating Officer ( 3 l
TOLEDO: AT THE CROSSROADS OF COMMERCE
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THE HANDS-ON APPROACH TO MANAGEMENT
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FINANCIAL ANALYSIS RESULTS OF OPERATIONS Earnings per common share increased to $3.70 in Company's 1981 earnings had been in doubt as a result of 1984, about 6 percent higher than in 1983. The resulting rulings by The Public Utilities Commission of Ohio and by the annual retum on average shareowners' investment of 15.3 Ohio Supreme Court. The gain involved an exchange of com . percent, although due largely to non-cash credits, was the mon stock for outstanding bonds owned by an investment highest retum achieved in the past 17 years. banking firm. A September Commission ruling allowed the The 1984 economic rebound in Northwestern Ohio gain to be treated as a component of the Company's capital helped spur a healthy 6 percent increase in the Company's structure in determining the rate of return. This decision sup ' kilowatt-hour sales. Paced by sales to the motor vehicle ported the Company's treatment of the 1981 extraordinary and primary metals industries and to petroleum refineries, gain. industrial sales rose 10 percent. Sales to residential and Steam heating services will be discontinued as of commercial customers were also higher. June 1,1985. The system had incurred annual losses in Total revenues increased in 1984 as a result of recent years, greater consumption by retail customers and the full-year Fuel and not purchased power expense increased impact of an August,1983 price increase. Revenues from 16 percent over 1983, reflecting greater reliance on higher wholesale electricity users declined as municipal custom- cost fossil fuel generation in 1984 (see " Summary of Signif-ers continued their 1983 trend of buying part of their elec- icant Accounting Policies" on page 12). tric needs from other suppliers. IWalntenance expenses also rose in 1984, due to the A rate increase authorized by The Public Utilities extensive scheduled refueling and maintenance outage at Commission of Ohio was significantly below the the Davis-Besse Nuclear Power Station during the fourth amount requested by the Company, in September 1984' quarter. Among the improvements made dunng the outage the Commission granted the Company a $17 million increase in annual retail electric rates. This was only 28 wem nudear Nel c%es that wW exhnd the Ume hen refuelings from 12 months to 18 months. This will increase percent of the Company's December,1983 request. In par-the stahs avaHaMty Mutum power generahon. De ticular, the Commission allowed just $7 million of construc-tion work in progress in the rate base out of the Company's DayBesse Stadon mWmed to semce in ea@ 1985. De repair of electric plant and substation equipment at Bruce
$186 million request. Instead of increasing the allowance Mansfield Units 2 and 3 also contributed to higher mainte-for Perry Unit No.1 over the amount allowed for it in the nance expense.
~ Company's prior rate order, the Commission eliminated the Perry Unit No. I construction work in progress allowance Allowance for debt and equity funds used during con-ahogether. As it had concluded earlier in 1984 in another struction increased due to a higher investment in nuclear utility's rate case, the Commission reasoned there would generating units under construction. Allowance for debt be no significant generation from Perry Unit No.1 during and equity funds used during construction is a non-cash the period the rates would be in effect and excluded it from credit to the Results of Operations statement. Through this rate base, allowance, the Company capitalized a substantial amount I The Company flied a request in late 1984 for an of the financing costs associated with its ongoing construc-8 percent permanent rate increase in its cush tion program, including a return on equity funds used. charges. The Company also requested an interim rate The funding of the Company's construction program ' ! increase of $45 million. In early 1985 the Company was accomplished through external financings. These i reached a compromise agreement with the staff of the financings caused increased interest expense and larger Commission in connection with these requests. The terms dividend payments on preferred and common stock, in of the agreement,if approved by the Commission, would addition, the financings resulted in a greater number of , allow the Company to collect $30 million in additional common shares outstanding and diluted earnings per annual revenues through collection of a temporary sur- common share. charge on customer bills- About 79 percent of the Company's common divi-During the period this surcharge would be in effect, the dond paid in 1984 will be regarded as a return of Company's accrual of allowance for funds used during con. capital, and therefore nontaxable as ordinary income for struction would be offset by the net-of-tax amount of the federal income tax purposes in 1984. The Deficit Reduction interim relief received. The agreement also provides that Act of 1984 requires certain changes in the way corpora-the Company would report on the feasibility of reducing its tions calculate eamings and profits in determining the por-participation in the construction program of the Central tion of dividends treated as a return of capital. These Area Power Coordination Group. In addition, the Company changes are expected to eliminate the retum of capital por. would withdraw its pending permanent rate increase tion of dividends paid in 1985, when the Act takes effect, request. Commission action on the agreement was and in subsequent years. expected in February,1985. Note 12 on page 17 explains the effect of inflation on A non-taxable extraordinary gain of $11 million in the the Company's operations. i 6 I
' LIQUIDITY AND CAPITAL RESOURCES with 81 percent for 1983 and 96 percent in 1982. In 1984 the Company used some of its increased working capital in , Capital Commitments addition to all of its remaining cash available from opera-The Company is engaged in a nuclear construction tions for common dividends, leaving minimal internal cash program as part of a power-pooling arrangement with four to fund its construction program. The Company expects other utilities. In the interest of reliable power generation and that almost all of its cash construction expenditures will economy, Toledo Edison joined in 1967 with The Cleveland continue to require external financings through 1986. Exter-Electric illuminating Company, Duquesne Ught Company, , nal financings will continue to increase the Company's Ohio Edison Company and Pennsylvania Power Company to interest and dividend requirements. External sources pro-form the Central Area Power Coordination Group. The com- vided $342 million in 1984. Of this, the Company used panies are building three nucleer generating units: Perry Unit Nos.1 and 2 near Cleveland, and Beaver Valley Unit No. 2 $227 million to fund construction and $25 million for nuclear fuel inventory, about $69 million for short-term north of Pittsburgh. Toledo Edison's share in each of these investments, and the balance to pay off maturing obliga-units b C91 percent (see Note 1 on page 13). During 1984, tions (see Notes 5,8 and 9 on pages 15 through 17). the Company invested $316 mil'icn in these units. Other 1984 investments in plant and equipment, including nuclear fuel, Company earnings for the year ended December 31, totaled $73 million. 1984 would permit the issuance of about $48 million of first mortgage bonds or about $98 million of preferred stock, During the five-year period 1985 89, the Company assuming no additional issues of long-term debt, at expects its construction program to cost about $1 billion, assumed interest and dividend rates of 15 percent. Should This excludes nuclear fuel, but includes $440 million of allowanc] for funds used during construction. However, the the Company be required to write off its investment in Perry levels of direct cash expenditures for the Perry Unit No. 2 Unit No. 2 the Company believes its ability to issue first mortgage bonds would not be af fected. However, such a beyond 1985 are indeterminable, pending completion of the write-off could reduce the amount of preferred stock issu-studies referred to in the following paragraph. Therefore, the construction program does not reflect such amounts for able or prohibit the issuance of proferred stock during the that unit beyond 1985. Construction delays or cost escala, subsequent 12-month period and perhaps longer. The Company would not be restricted in issuing preference tions may cause additional expenditures. Nuclear fuel acquisition and related costs will require about $101 million stock authorized in April,1984 by the common shareow-ners. Issuance of this stock is not subject to earnings during 1985-89, excluding financing costs, coverage restrictions as are first mortgage bonds and pre-in keeping with the Group's ongoing evaluation of elec- ferred stock (see Note 5 on page 15). tric generation needs, Perry Unit No. 2 has been placed in a minimal expenditure mode pending the completion of The Company's continued financial viability Perry Unit No.1 (see Note 2 on page 13). Should Perry depends upon adequate and timely rate increases and Unit No. 2 be mothballed, the Company would have to ready access to capital markets. Rate increases granted by cease the related accrual of allowance for funds used dur- The Public Utilities Commission of Otio during the past ing construction. Such accruals for Perry Unit No. 2 are three years have been significantly lower than amounts expected to average about $2 million per month in 1985. requested by the Company. In particular, the Company's The construction activity may be reduced to such a level by opportunity to generate significant additional cash was about mid-1985 that related allowaree for funds used during adversely impacted by the Commission's September,1984 construction accruals may need to be offset, and a corres, decision that denied any Perry Unit No.1 construction work ponding reserve established in the financial statements. Cre. in progress in the rate base (see 'Results of Operations" on ation of such a reserve would not affect cash flow, but would page 6). As a result, common stock earnings in 1985 are reduce eamings below what they otherwise would be. expected to continue to be composed entirely or almost if the Perry Unit No. 2 is cancelled and the Company entirely of non-cash allowance for debt and equity funds were not provided a way to recover its investment in the used during construction. This allowance was 91,100 and unit, the Company would be required to write off this invest-ment. Preliminary estimates project a write-off of $154 mil- fnd 4 re tivel . lion, net-of-income tax effect, as of December 31,1984. Such c write-off would reduce Earnings Reinvested from The Company's ability to obta%xtemal financing and
$222 million to $68 million. The Company believes its abil. the cost of such funds depend upon financial market condi-tions, the Company's earnings, changes in the Company's ity LJ maintain its current common stock dividend would not be impaired solely because of such a write-off. However, construction program, and its credit ratings, among other factors. In 1984, rating egencies lowered the Company's any reduction in Eamings Reinvested resulting from such a write-off may require modifications to future financing pro. security ratings, making the cost of raising new capital more expensive if sufficient rate relicNs not granted in grams. This could include a greater reliance on sales of future rate orders, it could be extremely difficult for the common stock in order to maintain a more balanced capital structure, Company to maintain interest and dividend coverage ratios necessary to issue first mortgage bonds and preferred Sources of Funds stock. If the Company were unable to obtain sufficient The Company's cash construction outlays in 1984 extemal financing, it would have to consider postpon!ng were provided almost entirely by issues of short and construction expenditures and conserving intemally long-term dabt and equity securities, This compared generated cash by reducing other cash octlays.
7
RESULTS OF OPERATIOND For the years ended December 31, 1984 1983 1982 (millions of dollars) REVENUES AND OTHER INCOME Electricity sales to retail customers. 528 478 453 Electricity sales to wholesale customers . 14 17 21 Gas and steam heating sales 9 9 8 Other income . 8 2 1 559 506 483 EXPENSES Fuel and net purchased power . 146 126 128 Operating and administrative. . 81 78 76 Maintenance of equipment and facilities 38 33 39 Depreciation and amortization 50 51 44 State and local taxes. 46 45 41 Debt interest. 140 III 95 Allowance for debt funds used during construction . (45) (33) (23) 456 411 400 income Sofore Federal income Texes. 103 95 83 Federalincome taxes . 32 32 26 Income From Operations . 71 63 57 Allowance for equity funds used during construction. 83 65 49 Not incoma 154 128 106 Preferred stock dividends accrued . 35 30 27 EARNINGS ON COMMON STOCK . 119 98 79 Average Number of Common Shores Outstanding (millions). 32 28 25 EARNINOS PER COMMON SHARE $3.70 $3.50 $3.18 METURN ON AVERAGE COMMON EOUlTY. 15.3 % 14.5 % 13.3 % The notes on pages 12 through 18 are an meegral part of this statement. 8
EARNINGS REINVESTED For the years ended Decernber 31, 1984 1983 1982 (millions of dollars) Balance, at the beginning of year . 188 161 143 Add - Net income . 154 128 106 Deduct - Preferred stock dividends declared . 37 31 27 Common stock dividends declared . 83 70 61 Esmings Reinvested During the Year . 34 27 18 Balance, at the end of year. 222 188 161 SOURCE OF FUNDS INVESTED IN PLANT AND FACILITIES For the years ended December 31, 1984 1983 1982 (milhons of dollars) Provided From Intemal Sources Net income. 154 128 106 Principal non-cash items: Depreciation and amortization 50 51 44 Deferred federalincome taxes 19 19 13 Investment tax credits -not 9 9 14 Allowance for funds used during construction (debt and equity) - (128) (98) (72) Other - net . 12 2 2 Funds provided from operations . 116 III 107 Dividends (120) (101) (88) Net change in current assets and liabilities and other accounts. 13 26 (10) Allowance for funds used during construction (debt and equity) 128 98 72 Provided from internal sources . 137 134 81 Provided From External Sources Sale of Securities: Common stock 64 71 49 Preferred stock 65 30 20 First mortgage bonds . 107 130 120 Term loans 29 - - Pollution control notes - proceeds at issuance. 45 - -
-deposited in escrow account- (21) - -
Net increase (decrease) in short-term notes payable 28 (43) 21 Net (increase) decrease in temporary cash investments (69) (14) 2 Redemption of long-term debt and preferred stock (21) (8) (41) Net increase in nuclear fuel obligations . 25 49 45 Provided from external sources 252 215 216 Total Sources Of Funde 389 349 297 invested in: Construction Expenditures 356 294 249 increase in Nuclear Fuel Inventory . 33 55 48 Total Invested in Plant and Facilities 389 349 297 The notes on pages 12 through 18 are an integral part of these statements. t
I BALANCE SHEET December 31, i 1984 1983 ! (millions of dollars) ASSETS Propa rty, Plant and Equipment Plant in service 1 391 1 358 Less accumulated provision for depreciation 365 325 1 026 1 033 Construction work in progress. 1480 1 154 Nuchar fuel in service, at amortized cost . 40 23 Current Assets Cash and temporary cash investments . 88 16 Accounts receivable- net . 54 51 Fossil fuel, at average cost . 25 25 Materials and supplies, at average cost. 9 12 Prepaid taxes 18 17 Special deposits and other . 20 15 Other Assets Property taxes -subsequent years . 21 21 Deferred charge - cancelled generating projects 33 38 Construction funds held in escrow and miscellaneous . 51 32 105 91 Total Assets 2 865 2 437 CAPITALIZATION AND LIABILITIES Capitalization Common shareowners' equity 814 716 Cumulative preferred stock . 200 200 Cumulative preferred stock with mandatory redemption provisions 158 94 Cumulative preference stock. - - Long term debt . 1110 985 Nuclear Fuel Obilgations Nuclear fuel trust. , 48 41 Nuclear fuelleases . 63 50 i Current Llahilities Short-term notes payable 28 - ' Long-term obligations due within one year . 72 30 Accounts payable . 50 44 Accrued taxes . 50 49 Accrued interest 30 23 Dividends declared . 32 26 Accrued expenses and other. 7 9 Accumulated Provisions and Other Deferred federalincome taxes related to: Accelerated depreciation and amortization. 89 77 Cancelled generating projects 13 15 Property taxes and other . 33 22 Investment tax credits 49 40 Deferred credits and other. 19 16 203 170 Total Capitalization and Liabilities 2 865 2 437 The notes on pages 12 through is are an integral part of trus statement. O L
CAPITALIZATION I December 31, 1984 1983 (millions of dollars) Common Shereowners' Equity Common stock, $5 par value,40 million shares authorized, 34 and 30 million shares outstanding 171 148 Premium on capital stock. 421 380 Earnings reinvested in the business. 222 188 814 716 Cumulative Preferred Stock Annual Shares Outstanding Current Par Dividend December 31,1984 Redemption Value Rate (millions) Price Not $100 $ 4.25 - $ 4.56 .3 $101 - $105 31 31 Subpct to 7,76 10.00 .6 103- 105 59 59 a atmy 4.28 .8 32 20 20 25
** U" 2.21 1.0 27 25 25 2.37 1.4 29 35 35 3.47 1.2 31 30 30 200 200 Subject to 100 11.00 .1 106 6 6 Mandatory 9.38 .2 107 24 25 Redemption 13.25 .1 110 13 13 Provisions 12.65 .2 113 20 20 14.80 .3 115 30 30 20 3.75 1.2 29 30 -
3.72 1.4 29 35 - 158 94 Cumulettwo Preference Stock, $25 par value. - - Long-Term Debt First Mortgage Bonds, excluding current maturities Maturities Interest Rates 1985 9.35% . - 50 1986 3%% 15 15 1988 4%. 15 15 1990 -1994 11 % 16 % % 373 265 1997 -2000 6% - 10% - 66 66 2002 2006 7% - 9.65% . 112 112 2006 2013 9% - 15% 247 247 Discount in process of amortization (1) (1) 827 769 Other Long Term Debt, excluding current maturities Notes, 8.75%, due 1986 - 1997 . 90 97 Term bank loan, average interest rate 11.53%, due 1987 1989 50 50 Term bank loans, 13.57 14.49%, due 1989 - 1990 29 - Pollution control notes,5.71 7%%, due 1986 2009. 37 37 Pollution control loan agreement,0.93 10%, due 1990 2010 32 32 Pollution control notes,13%%, due 2014 45 - 1110 985 Total Cap 6telisation 2 282 1 995 The notes on pages 12 through 18 are an integral part of tNs statement. 11
SUMMARY
OF Cl2NIFICANT ACCOUNTING POLICIES oeneral The Company's accounting records are maintained in ing units, $33 million, is not included in rate base for rate l accordance with the Uniform System of Accounts as pre- determination purposes. I scribed by the Federal Energy Regulatory Commission and adopted by The Public Utilities Commission of Ohio in Maintenance accordance with the Statement of Financial Accounting Maintenance expense includes repairs of property and Standards No. 71, the Company's 1983 financial state- renewal of minor items. Costs of replacements and those ments were restated to reflect the capitalization of nuclear renewalitems that are units of property are charged to the fuel lease commitments entered into af ter December 31, utility plant accounts. For retired property, the Company 1982. takes its cost plus removal cost, net of salvage, and charges it to the accumulated provision for depreciation. Revenues Taxes Customers are billed on a monthly cycle basis for their The Company provides for deferred federal income electricity consumption, based on rates authorized by the taxes as required on the difforences between straight-line Commission. Larger industrial and wholesale customers depreciation and tax depreciation amounts for pro; erty are billed on a month-end meter reading basis. additions since December 31,1973, as well as the trx effects of certain other timing differences. Remainig tim-Fuel ing differences are considered in rates in the year n dich The Company collects estimated fuel costs over sub- they affect taxes payable. The estimated cumulative effect sequent six-month periods through a fuel recovery rate. On earnings of the flow-through treatment of the timing dif-The rate is based on both actual and projected costs and ferences at December 31,1984 and 1983 is $75 million and generation. The Commission reviews and approves the $76 million, respectively. Based on Commission and Ohio projected rate and histoncal performance. The ditferences Supreme Court decisions, the Company believes such between actual and estimated fuel costs are deferred until taxes can be recovered in future revenues. For federal they are applied to the customer's bill. This allows a better income tax purposes, allinterest costs are deducted as match of fuel expenses with fuel adjusted revenues. At tt ey occur, except for the amounts required to be i December 31,1984, the Company had a deferred fuel capitalized for real property. recovery balance of $7 million. For certain property, the Company receives investment The cost of nuclear fuelis charged to fuel expense tax credits which are accounted for as deferred credits. i based on consumption. In addition, the estimated future These tax credits are reflected as reductions to tax nuclear fuel disposal costs are included in fuel expense. expense over the life of the related property. Investment tax The Company has contracted with the Department of credita generated from 1980 to 1984, amounting to $27 mil-Energy for permanent disposal of spent nuclear fuel. The hon, are available to offset future taxes payable and will be Company is currently collecting the fee from its customers recorded when utilized. and paying the Department of Energy. Property, Plant and Equipment Depreciation and Amortization Property, plant and equipment are stated at original The original cost of properties, except for the Davis. cost. Included in the costs of construction are such items Besse Nuclear Power Station, is depreciated over their as related payroll taxes, pensions, fringe benefits, manage-estimated useful lives on a straight-line basis. Depreciation ment and general overheads, and allowance for debt and expense on the Davis Besse Nuclear Power Station is equity funds used during construction. This allowance based on the unit of production method. This includes a represents the estimated composite debt interest and provision for the Company's share of the total estimated equity costs of capital funds used to finance construction. decommissioning costs of $53 million previously approved These costs are charged to property, plant and equipment. by the Commission. The equivalent straight-line provisions They are concurrently credited to income as allowance for for depreciation overall averaged 3.5 percent in 1984, 3.6 debt and equity funds used during construction on the percent in 1983 and 3.5 percent in 1982. Results of Operations statement. The Company's allow-anc ra ,n nc m tax c , ran# %m m per. Costs associated with the four Central Area Power cent to 10% percent in 1984 and 1983, and 9% percent to Coordination Group nuclear generating units cancelled in 10% percent in 1982. 1980 are being amortized over a 10-year period ending in l 1991 in accordance with the Company's rate orders. Amor. Reclassifications tiration of these costs amounted to $5 million annually from Certain reclassifications have been made in the prior 1982 through 1984. At December 31,1984, the unamortized years' financial statements to make them comparable with balance of the costs associated with the cancelled generat- 1984 classifications. 12
l
- NOTES TO FINANCIAL STATEMENTS December 31,1984 l
l (1) Power Pooling Arrangement fuelinventory. The Company's portion of operating l As noted on page 7, the Company is a member of the expenses associated with these facilities is included in the Central Area Power Coordination Group. The five member corresponding expenses on the Results of Operations utilities own, as tenants in common, various power generat- statement. The amounts reflected on the Balance Sheet
' ing facilities. Toledo Edison is obligated to pay its share of under property, plant and equipment at December 31,1984, each of the units under construction and its related nuclear include the following:
Actual or Scheduled in- Ownership Ownership Plant Accumulated Construction Generating Unit Service Date Share Megawatts Fuel In-Service Depreciation Work in Progress (millions of dollars) Completed Mansfield No. 2 1977 17.30 % 135 Coal 71 14 1 Davis-Besse No.1 1977 48.62 % 428 Nuclear 444 66 18 Mansfield No. 3 1980 19.91 % 159 Coal 129 20 1 Under Construction (see Note 2): Perry No.1 1985 19.91 % 240 Nuclear - - 642* Beaver Valley No. 2 1987 19.91 % 166 Nuclear 17** - 498 Perry No. 2 Uncertain 19.91 % 240 Nuclear - - 22?
- Includes common faciliries for Perry Unit No. I and Perry Unit No. 2
** Common facilities with Deaver Valley Unit No.1 (2) Construction Commitments and Contingencies The estimated cost to complete Perry Unit No. I was Completion of Perry Unit No.1 is expected about year end revised upward in March and September 1984 as a result 1985.
( T rising expenditures for construction labor, suppori staf f and in late January 1985, the Contral Area Power Coordina-equipment. The Company calculates that its total investment tion Group Executivo Committee announced that the Group in Perry Unit No.1 and common facilities, including allow- would concontrate on completing Perry Unit No.1. The ance for debt and equity funds used during construction, will estimated completion dato of Beaver Valley Unit No. 2 has amount to approximately $800 million, a $190 million increaso boon delayed from late 1988 to about year-end 1987 and the over 1983 estimates. Of the totalinvestment, $58 million estimated cost to complete the unit was increased. Based on represents the Company's share of construction expendi- preliminary estimatos, the Company calculates that its total tures reallocated to Perry Unit No. I from Perry Unit No. 2 in invostment in Beavor Valley Unit No. 2 and related common 1964. The reallocation involved costs that woro properly facilities, including allowanco for debt and equity funds used allocable to Perry Unit No.1 and common facilities regard- during construction, will amount to approximately $890 mil-less d the future of Perry Unit No. 2 discussed on page 14. lion, a $237 million increase over 1983 estimates. (conanvar en n.1r m.) 13
l l
~
The Group has also reaffirmed their early 1984 decision investment in that unit through customer rates, and no I to minimize work and cash expenditures on Perry Unit No. 2 other basis for recovery were anticipated, the Company pending completion of the studies concerning the unit's cost would be required to write off this investment against that and in-service date. Accelerated or extended construction year's earnings. At December 31,1984, such a write-off schedules, mothballing (including suspension of allowance would approximate $222 million, or $154 million net-of-fed-for debt and equity funds used during construction accruals) eralincome tax effect. or cancellation are among the altemative courses of action being considered for Perry Unit No. 2. Further delays in completing construction of the three units as well as delays in obtaining required licenses would . Moreover, construction activity may be reduced to such substantially increase their costs and related nuclear fuel 0 level by about mid-1985 that related allowance for funds financing charges. Major changes in safety regulations used during construction accruals may need to be offset, have lengthened considerably nuclear unit construction and a corresponding reserve established in the financial schedules over the past ten years. Such changes, as well statements. Creation of such a reserve would not affect as high inflation and prolonged construction schedules, cash flow, but would reduce earnings below what they have greatly increased nuclear construction costs over the otherwise would be. Allowance for funds used during con
- same period. If high inflation were to resume, major new struction accruals are expected to average about $2 million safety regulations were imposed by the Nuclear Regulatory per month in 1985 for Perry Unit No. 2. Commission, construction schedules were lengthened if construction were terminated on Perry Unit No. 2, further, or additional licensing-related delays were experi-and the Company was not provided a means to recover its enced, nuclear construction costs would rise.
(3) Petition on Perry Unit No. 2 Construction in September 1983, the Ohio Office of Consumers' tion on that unit. Finally, the petition asked the Commission Counsel and several other parties filed a petition with The and the Board not to approve the issuance of securities to Public Utilities Commission of Ohio and the Power Siting finance further construction of Perry Unit No. 2. The peti-Board of Ohio asking that the two agencies investigate the tion alleged that completion of Perry Unit No. 2 will result in need for Perry Unit No. 2. The petition also requested the unreasonable excess generating capacity and that the Commission and the Board to order the Ohio Central Area rates charged to customers would therefore be excessive. Power Coordination Group companies to stop construction The matter has not been scheduled for a hearing. If and of Perry Unit No. 2 and prevent them from accruing further when it becomes necessary, the Company will vigorously allowance for debt and equity funds used during construc- oppose any efforts to impede its construction program. (4) Pederal Income Tax Detalle I Supplementary information regarding federal income taxes is set forth in the following tables. For the years ended necember 31 1984 1983 1982 For the years ended December 31, 1984 1983 1982 (millions of donars) (means of dollars) FEDERAL INCOME TAX EXPENSE FEDERAL INCOME TAX EXPENSE WAS COMPUTED AS FOLLOWS: DETAILS ARE AS FOLLOWS: Tax at statutory rates on Currently payable 4 2 2 pre tax income . 85 74 61 investment tax credits: increases (reductions) in taxes due to: 15 1 1
}r Allowance for funds used Prior year adjustment - -
(3) during construction (54) (41) (33) Deferred taxes: Accelerated depreciation Accelerated depreciation (net) 12 11 12 methods and other Cancelled Generating projects (2) (2) - depreciation differences 2 3 - Deferred fuel costs (2) 3 2 Nuclear fuelinterest charges 8 2 - Miscellaneous (1) (4) (2) Other provisions (1) 4 - Total federalincome tax expense 32 32 26 Total federalincome tax expense _ 32 32 26 , 14
(5) Capitalization Shares of these series may be purchased at the sink-ing fund redemption price of $100 per share plus accrued
- s. Capital Stock Transactions and unpaid dividends. Future sinking fund redemption For the years ended requirements are: $2 million in 1985; $4 million in 1986; oecember 31 1984 1983 1982 and $5 million annually in 1987 through 1989.
NUMBER OF SHARES (thousands of shares)
- c. Cumulative Preference Stock SOLD (RETIRED):
The Company is authorized to issue 5 million shares of Common stock Public sales . 3 000 2 500 2 200 $25 par cumulative preference stock under its amended articles of incorporation. The preference stock's dividend Shareowner Dividend Reinvestment and and liquidation rights are junior in priority to the Company's Stock Purchase Plan . 1 589 945 575 cumulative prefeired stock, but senior in priority to the Total common shares 4 589 3 445 2 775 Company's common stock. At December 31,1984 there were no shares of cumulative preference stock
. Cumulative preferred stock outstanding.
Public sales, $25 par
$4.28 series - -
800
$3.47 series . - 1 200 - d. Long-Term Debt Cumulative preferred stock The annual interest requirement on long-term debt with mandatory redemption outstanding at December 31,1984, excluding current Public sales, $25 par maturities, is $130 million, or 11.7 percent. This includes
$3.75 series . 1200 - -
amortization of debt discount and expense, but excludes
- nterest on nuclear fuel obligations.
00 g
$11.00 series . (5) (5) (5)
Sinking fund redemption requirements and scheduled (milhons of donars) maturities for long-term debt, excluding nuclear fuel leases, PREMlUM ON CAPITAL STOCK through 1989 are as follows: Balance, beginning of year . 380 326 291 Premium, net of expense - Sinking Fund Common stock 44 52 34 Redemption Scheduled Preferred stock . (3) 2 1 Year Requirements Matunties (minions of donars) Balance, end of year 421 380 326 1985 4 57 1986 3 22 3
- b. Cumulative Preferred Stock The Company is atahorized to issue 3 million shares of 1989 3 33
$100 par and 8 million shares of $25 par cumulative pre-ferred stock under its amended articles of incorporation. In addition, the first mortgage bond indenture provides The annual dividend requirement on cumulative preferred for a required annual minimum payment (after certain stock outstanding at December 31,1984 is $41 million, or credits, as defined) to the trustees as a maintenance and 11.4 percent. replacement fund. The Company has been satisfying the requirements by pledging property additions that otherwise The Company held as treasury stock 5,335 shares at might have been used as the basis for the issuance of December 31,1984, and 10,335 shares at Decemt'er 31, additional bonds.
1983 of the $11.00 series. The sinking fund requirnments for the various series of cumulative preferred stocl tl rough The first mortgage bond indenture constitutes a direct 1989 are: first mortgage lien on substantially all property and fran-chises owned. This does not include expressly exempted Davidend Minimum EffeJve property, such as cash and securities, accounts receiv. Rate Yearty shares Date able, fuel, supplies and automotive equipment. (in thousands)
$11.00 5 1979 9.38 17 1985 13.25 9 1986 12.65 8 1986 14.80 12 1987 15
(8) Retirement income Plan The Company's retirement income plan is non-contrib- Accumulated pension benefit information as of the , utory and covers all employee groups. The Company funds valuation dates follows: ; each year's cost currently and amortizes unfunded past c.erv- m muary 1 tsoi ice costs over a 30-year period. Pension costs are based on (mimons of doners) ' estimated salary levels and service years of employees at Actuarial present value of accumulated their retirement. Total pension costs were $4 million annually plan benefits: in 1982 through 1984. Experience gains and losses on invest- Vested 46 42 ments are amortized over 15 years. Non-Vested 6 6 The actuarial present value of total vested and nonvested 52 48 plan benefits is based on salary levels and years of employ ~ Market value of net assets available ees' service as of January 1 for each year. The weighted for presenFand future plan benefits 89 75 average assumed annual rate of return used in determining these values was 8 percent for both 1984 and 1983. (7) Quarto Coal Arrangements
- a. Coal Supply Contracts The Central Area Power Coordination Group companies unless such price exceeds a prescribed market price test.
have made long-term arrangements with Quarto Mining The Company's total purchases under these contracts Company to supply coal to the Mansfield units. Each of the amounted to $16 million in 1984, $15 million in 1983 and companies guaranteed its share of Quarto's debt and lease $12 million in 1982. commitments incurred to develop and equip the mines. As of Under these arrangements, the Company expects the December 31,1984, the Company's share of the guarantees minimum yearly payments for fixed charges on debt and was $27 million, or 7.3 percent. The Company's share of com- lease commitments to decline from $6 million in 1985 to $5 mitments incurred af ter December 31,1984 willincrease to 11 million in 1989. percent in 1985 and 12.4 percent in 1986.
- b. Coal Cost Recovery The Company's coal supply contract with Quarto expires in January 1984, The Public Utilities Commission of December 31,1999. The contractual pricing provisions reflect Ohio prescribed a methodology to allow the Company to Quarto's production costs, deferred mine development recover specified Quarto coal costs plus a portion of prior charges and fixed charges on debt and lease commitments, cost deferrals within the six year period ending in 1989. As among other charges. The operation of one Quarto mine was of December 31,1984, $6 million remains on the Com- '
suspended in 1984 and the future operation altematives are pany's Balance Sheet as a miscellaneous other asset being reviewed. The Company's share of the suspended pending recovery in rates. The Company believes such mine's deferred mine development costs of $15 million prior deferred costs will be recoverable within the periods will continue to be recovered in the delivered coal prices specified by the Commission. j W (S) Nuclear Fuel Obligations The Company's leasing and trust arrangements can obligations of $149 million under other nuclear fuel leasing finance up to $298 million of the cost of acquiring nuclear arrangements at December 31,1984. These obligations malenal, processing it into fuel and holding the fuel until it resulted from the financing of nuclear fuel assemblies at vari-C) used up in the reactor. The Company expects these ous stages of completion. Of these obligations, the Company arrangements for financing nuclear fuel to be adequate had capitalized $77 million at December 31,1984. Included through 1986. At December 31,1984, the Company had a in the capitalized balance was $5 million related to interest $48 million obligation to its Central Area Energy Trust on the leases during 1984. The 1984 interest on the leases (nuclear fuel trust) resulting from the acquisition, conver- was calculated at an average interest rate of 11.4%. sion and enrichment of nuclear fuel materials. This included $5 million of interest capitalized during 1984. The The lease payments are made to coincide with the usage 1984 interest was calculated at an average interest rate of nuclear fuelin the reactor. Estimated lease payments, of 11.9%. including interest, are: $20 million in 1985; $31 million in 1986; in addition to the nuclear fuel trust, the Company had $38 million in 1987; $47 million annually in 1988 and 1989. 16
(9) Short-Term Borrowing Arrangements At December 31,1984, the Company had line of credit Banks expect the Company to maintain average deposits arrangements with various banks for $73 million. Of this equal to 5-20 percent of the line of credit, depending on amount, $45 million was unused. The Company pays com- the borrowed amount. The deposits provide operating bal-mitment fees on almost all of those lines. The rest are ances for the Company and are not legally restricted. based on informal compensating balance arrangements. (10) Environmental Matters On November 8,1984, the United States Environmental have upon its operations. However, the final regulations Protection Agency proposed revised regulations governing may require the Company either to install flue gas desul-the use of smokestacks to disperse pollutantsinto the air. furization equipment or to use lower sulfur coal at its Bay The proposal is in response to a 1983 federalcourt deci- Shore Station. The installation of such equipment would sion. The agency intends to issue final regulations during involve substantial capital expenditures and increased April,1985. The Company is currently unable to determine operating costs. The alternate use of lower sulfur coal the impact that the proposed regulations, if adopted, would , would likely result in higher fuel and operating costs. N N (11) Selected Cuar rty Data (Unaudited) . 4 g The following tjuarterly tasults reflect all adjustments (that are of a normat r'c%rring nature) to ensure a tair s'atement of results for such periods: i;i j(> ( (millionc of $$lars) (dollars per common share) .> Income Earrung? , Revenues Before * * { , on i, i , b and Other income I et 1 Common [Wdends Market %e* Quarter ended [\ income Taxes income ._ Stock Earrund y INid " 4t;s Low igg 4 ,% , N March 31 ' 141 31 39 31 1.03 .63 , iS% ^ 16 June 30 133 23 35 26 .87 .63 . ;
~17% 13 %
September 30 144 27 40 31 .92 .63 17% . 13 % December 31 141 22 40 31 .89 .61 18 % 16 %
'\ ; i %33, A Mardh 31 % 1l19 20 29 22 .84 .61 R$/r 20 ,
June'30 '127 19 28 21 .78 .61 , , 22% 20 % September 30 132 35 40 32 1.10
~
.61 h 21 % 19 %
December 31 # 118 21 31 23 .78 .61 21 % 17%
"t he Ocen.%n Stock is hsted on the New York, Midwest and Pacific Stock Exchanges. The hice quotations are from The Wall Street Joumat. There were 86.209 common stock shareholders as of December 31,1984, compi. red to 87,781 in '40.
'<,1,'4 , ,
,1 t (12) Effacts of Changing Prices (Unaudited) surviving plant by the Handy-Whitman Index of Public Utility Constructs Costs.
This sectior$ shows the affects on the Compny of Because its rates are regulated, the Company cannot
. changes in price,;of specific anests, namely property, plant recover through revenues more th&n thc onjebl cost of Ing equipmert!using Current Cost Accounting. lant assets, even though the cost to tedtsce such assets Current costs rW.ect changes in specific prices of plant will substantially e.vceed the original cow. In 't@f *ne j from the date the plat was acquired to the present. The added cost, due to inflation, of replacing the Company's j t urrent cost of plant estirnates the probable cost of replac- plant assets is shown under " Inflation effect during 1984 'ing etcting plant assets it was determined by indexing the on capita' investment." ' tcontmued nest page) 17 8 b _~ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
During a period of inflation, issuers of debt experience inflation effect in 1984 on capital investment (millions of dollars): an economic gain. This is especially important for the increase in specific prices to current costs 149 Company due to the substantial amount of debt issued to Effect of change in general price level (127) finance its construction program. This gain is shown under Reduction to net recoverable cost . ( 89)
" Gain from decline in purchasing power of net amounts Additional provision for depreciation . ( 31) owed." ( 98)
The comparative Current Cost values of allitems on Gain from decline in purchasing power of net the income statement, except depreciation, represent the amounts owed (primarily debt) 66 amounts recorded in the historical cost income statement. Net effect of inflation on common stock equity . ( 32) Income taxes are not adjusted because current tax laws do not allow for the inflationary impact on capital investment. The table below presents selected operating and finan-The Company has calculated depreciation provisions for cial data for the past five years adjusted for inflation as 1984 on the Current Cost amounts of property, plant and measured by the Consumer Price Index for All Urban Con-equipment. The calculation was made by applying the ratio sumers. Earnings on common stock and earnings per of the provision for depreciation over the average property, share are shown as if only the amount reportable as an plant and equipment on the historical cost basis, to the additional provision for depreciation were deducted from indexed plant values. the reported amount of such income. Data from 1983 were The above right table shows the net effect of inflation on revised to reflect actual indices. common stock equity in 1984 from Current Cost Accounting: (rnillions of dollars except per share amounts) 1984 1983 1982 1981 1980 Operating Revenues . . 551 526 519 505 507 Earnings on Common Stock 87 67 49 28 32 Gain from Decline in Purchasing Power of Net Amounts Owed 66 52 45 93 113 Increase in General Price Level Over (Under) increase in Specific Prices (22) (29) (42) 5 84 Net Property, Plant and Equipment 4 380 3 926 3 555 3 177 2 804 Net Assets at Net Recoverable Cost 801 704 610 532 457 Per Common Share Amounts: Eamings . 2.73 2.38 1.96 1.30 1.66 Dividends Declared . 2.52 2.57 2.56 2.63 2.77 Market Price at Year End 18.88 18.77 22.72 18.55 19.44 Consumer Price Index: Annual Average . 311.2 298.4 289.1 272.4 246.8 Year End . 316.4 303.5 292.4 281.5 258.4 AUDITORS' REPORT To The Shareowners and Board of Directors of The Toledo Edison Company We have examined the balance sheets and statements In our opinion, subject to the effects on the 1984 and of capitalization of The Toledo Edison Company (an Ohio 1983 financial statements of such adjustments, if any, as corporation) as of December 31,1984 and 1983, and the might have been required had the outcome of the uncer-related statements of results of operations, earnings rein- tainty discussed in the preceding paragraph been known, vested and source of funds invested in plant and facilities the financial statements referred to above present fairly the for each of the three years in the period ended December financial position of The Toledo Edison Company as of 31,1984. Our examinations were made in accordance with December 31,1984 and 1983, and the results of its opera-generally accepted auditing standards and, accordingly, tions and the source of funds invested in plant and facilities included such tests of the accounting records and such for each of the three years in the period ended December other auditing procedures as we considered necessary in 31,1984, all in conformity with generally accepted account-the circumstances. ing principles applied on a consistent basis. As discussed further in Note 2, the Company has incurred construction costs in a nuclear generating unit, Perry Unit No. 2. The Company cannot now predict when, Arthur Andersen & Co. if ever, Perry Unit No. 2 will go in service or, if cancelled, Toledo, Ohio, that the investment is recoverable from its customers. January 30,1985. 18
FINANCIAL AND STATISTICAL REVIEW Rowenues and Other income (millions of dollars) Total Gas & Fkvenues Total Total Steam Other & Other
. War Fksusertal Commeraal industnal Other Retad Wholesale Electnc Heahng income kx:ome 1984 173 115 195 45 528 14 542 9 8 559 1983 161 105 170 42 478 17 495 9 2 506 1982 154 102 159 38 453 21 474 8 1 483 1981 139 91 151 32 413 22 435 7 9 451 1980 126 81 138 28 373 22 395 7 1 403 1974 47 30 49 6 132 12 144 4 -
148 Expenses (millions of dollars) Fuel & Net Depreoaton Federal Purchased & State & Debt AFUDC - Expenses income income War Power Operaten Mamtenarx.e Amortizaton Local Taxes interest Debt Before FIT Before FIT Taxes 1984 146 81 38 50 46 140 (45) 456 103 32 1983 126 78 33 51 45 111 (33) 411 95 32 1982 128 76 39 44 41 95 (23) 400 83 26 1981 122 64 32 43 37 86 (15) 369 82 31 1980 156 56 29 26 31 71 (15) 354 49 10 1974 61 23 7 13 13 21 ( 5) 133 15 1 Common Stock (dollars per share and %) l Income (millions of dollars) Average Retum income Preferred Earnmgs Shares on From AFUDC- Net Stock on Outstanding Average Omdends Market Pnce Book War Operations Eatxty income Omdends Common (mdiens) Earrungs Equity Declared Hgh low War End_ Wlue 1984 71 83 154 35 119 32 3.70 15.3 2.52 18.88 13.38 18.88 23.76 l 1983 63 65 128 30 98 28 3.50 14.5 2.46 22.50 17.50 18.00 24.12 l 1982 57 49 106 27 79 25 3.18 13.3 2.38 21.13 15.75 21.00 23.53 1981 51 32 83 23 60* 22 2.77* 11.6* 2.30 18.38 15.00 16.50 23.46 1980 39 28 67 18 49 19 2.56 10.5 2.20 20.75 15.00 15.88 23.77 l 1974 14 11 25 5 20 7 2.85 12.5 2.00 28.00 15.25 16.13 21.73
'In 1981, excludes extraordinary gain from exchange of common stock for bonds (af ter giving effect to the extraordinary gain, earnings on common were equal to $70 million; earnings per share to $3.27, and return on average common equity to 13.5 percent).
19 [ - _ - _ _ _ _ _ _ _ _ _ _
FINANCIAL AND GTATISTICAL REVIEW Electric Sales (millions of kilowatt-hours) Electric Customerts (year end) Residential Usage Annual Annued Pnce Revenus KWH Por Por hcW.ial Per KWH Custorner War Ressdential Commercial bdustnal Wholesale Other Total ResdentW Commercial & Other Total Customer (Cents) (Donars) 1984 1 958 1 398 3 444 305 440 7 545 243 912 23 891 3 920 271 723 8 045 8.81 709 1983 1 915 1 341 3 127 320 428 7 131 242 959 23 694 3 864 270 517 7 900 8.44 665 1982 1 911 1 325 2 873 395 414 6 918 241 492 23 495 3 815 268 802 7 906 8.04 636 1981 1 919 1 294 3 080 449 409 7 151 241 663 23 573 3 844 269 080 7 966 7.23 576 1980 1 971 1 282 3 165 560 410 7 388 240 142 23 532 3 818 267 492 8 232 6.40 527 1974 1 634 1 107 3 062 401 338 6 542 221 846 22 360 3 249 247 455 7 419 2.85 212 i Load (megawatts) Energy (millions of kilowatt-hours) Fuel Net Purchased CapatAty Load Capacdy & Net Fuel Coot Emc6ency at Trne Peak Facer Margn Generated inserchanged Per KWH BTU Per War of Peak Load (%) (%) Fossd Nuclear Total Power Total (Cents) KWH 1984 1 726 1 327 68 23 5 182 2 091 7 273 719 7 992 1.73 10 193 1983 1 777 1 325 66 25 4 683 2 383 7 066 593 7 659 1.67 10 337 1982 1 790 1 355 62 24 5 306 1 569 6 875 510 7 385 1.80 10 221 1981 1 773 1 315 66 26 5 349 2 142 7 491 157 7 648 1.68 10 274 1980 1 760 1 310 68 26 5 529 1 031 6 560 1 352 7 912 1.65 10 245 1974 1 453 1 249 64 14 5259 - 5259 1 737 6 996 .75 10 065 Investment (millions of dollars) Accumuiated Construction Annual Plant in Provisuons For Net Work h Nuclear Fuel Total Constructen Total War Sennce Deprecation Plant Progress in Service Plart Expenditures Assets 1984 1 391 365 1 026 1 480 40 2 546 356 2 865 1983 1 358 325 1 033 1 154 23 2 210 294 2 437 1982 1 307 286 1 021 879 18 1 918 249 2 125 1981 1 261 252 1 009 657 11 1 677 201 1 870 1980 1 208 221 987 519 18 1 524 235 1 702 1974 439 116 323 276 - 599 121 655 1 Capitalization (millions of dollars) cumuiative Preferred Common Cumulative with Long-Shareowners Preferred Mandatory Term War Equity % Stock % Redempton % Debt % Total l l 1984 814 36 200 9 158 7 1 110 48 2 282 i 1983 716 36 200 10 94 5 985 49 1 995 1982 617 35 170 10 95 5 876 50 1 758 1981 550 35 150 10 96 6 762 49 1 558 1980 479 34 150 11 67 5 708 50 1 404 1974 177 32 81 15 - - 299 53 557 20 i - - - - - - - - - - - - - - _ - -
BOARD OF DIRECTORS OFFICERS ' Richard P. Anderson (0) John P.Williamson EXECUTIVE OFFICES Managing Partner Chairman ard Chef Executive Officer 300 Madison Avenue The Andersons (Agnbushess) Wendell A. Johnson Toledo, Ohio 43652 Samuel G. Carson (E)(N*)(S) President and CNet Operating Officer Phone (419) 259-5000 Chairman (Retired) Donald G. Nicholson (af ter 129.85 - 249-5000) The Toledo Trust Company Senor Vice President, Finance (Commercial Banking) 8 "
- Paul M. Smart REGISTRAR, DIVIDEND Richard P. Crouse Senor Vice President, Vico President. Nuclear Corporate cam 4 and General Counsel SB SN AN Chester Devenow (A)(C*)(S) Anthony A. Bosch, Jr. The Toledo Trust Company Chairman and Chief Executive Officer Vice Presdent, Customer Services Toledo, Ohio 43603 Sheller-Giobe Corporation (Automotive) Richard P. Crouse Vice President, Nuclear MORTGAGE TRUSTEE Edwin D. Dodd (C)(O)
Chairman Ementus and Director John R. Dyer The Chase Manhattan Bank, N.A. Owens-Cir:ois. Inc. (Packaging Products) Vice Presdent, PLelic Relatons New York, N.Y.10081 Elwood L Elberson (C) Joseph E. Murray Cha'rman, President and Chief Executive Vee President, Energy Supply AUDITORS Dinner Bell Foods, Inc. (May, Packing) Arthur Andersen & Co. Lyman C. Phillips 300 Madison Avenue Wondell A. Johnson (E) Vice President, Corporate Planning and Administraton Toledo, Ohio 43604 President and Chef Operating Officer 1sabel F. Martin (A) Stratman Cooke Secretary EXCHANGE LISTINGS Former Consultant, Toledo Area United Way Donald H. Saunders Common
" New Wrk Stock Exchange (TED) g ," V Finance Treasurer Wwest Stock Exchange Paul G. Busby Henry A. Page, Jr. (E)(N) wi , Pacific Stock Exchange Directorof Development Unlisted Trading Privileges The Medical College of Ohio at Toledo s Boston Stock Exchange Lyman C. Phillips Cincinnati Stock Exchange Vica President. Corporate Philadelphia, Baltimore and Planrvng and Administration Washington Stock Exchange Paul M. Smart THE ANNUAL MEETING Preferred - $25 par value - 8.84%,
Senor Vu Presdent The Annual Meeting of The Toledo Edison $2.365, $428, $3.47, $3.75 and Corpor: 2 Cn:e i andn General Counsel Company will be held at 10 a.m. (E.D.T.) on $3.72 series Willard L Webb,111 (A*)(E)(S) Apnl 23,1985 in the Company's headquarters. New York Stock Exchange Chairman and Chief Executive Officer Edison Plaza,300 Madison Avenue, Toledo, Ohio Citizens Bank (Commercial Banking) Ohio. Formal notice of the meeting will be sent Preferred - $100 par value - 4%%, to shareowners with the proxy statement. 8.32%,7.76% and 10% series John P. Williamson (E*)(S*) Chairman and Chef Executive Officer ^* "9 The Annual Report, including financial state-Robert 2. Wingerter (N)(O*)(S) ments, is for the general information of the Bonds Chairman, Executive Committee Company's shareowners. It is not intended to 7%% - Due 2002 Libbey-Owens-Ford Company be used in connection with any sale or pur- 8% - Due 2003 (Glass Products) chase of securities. 9% - Due 2000 A copy of Form 10-K as filed with the Securi- . Due ties and Exchange Commission may be obtained by writing: D. G. Nicholson, Senior 9.65% - Due 2006 Vice President, Finance,300 Madison Avenue, 1W. - Due 2009 Toledo, Ohio 43652. New York Stock Exchange O KEY TO DIRECTORS
- COMMITTEES (A) AuditCommittee (C) Compensation Committee NEW DIRECTOR (E) Executive Committee Edwin D. Dodd, Director, Consultant and Chairman (N) Nominating Committee Ementus of Owens-filinois, Inc., was elected in July lo the Toledo Edison Board of Directors. His election filled a vacancy
(;) Oper1tions Committee i left by the May 1984 death of Robert H. Davies, who had (!) Stritegic Planning , served ably on the Board for eight years.
- denohs committee chairman J Mr. Dodd joined the multinational packaging products com-
% pany in 1946 and was named chief executne officer in 1972.
He has played a leadership role in numerous Toledo, Ohio and national civic and business organizations, and has served on DIRECTORS EMERITl several Presidential commissions. He was 1983-84 chairman of the Chamber of Commerce of the United States. Floyd M. Canter Virgil A Gladieux William S. Cartson Marvin S. Kobacker
TOLEDO BULCI RATE h EDISON "" " PAID
$EEs*os Avisus DEN. OHIO OLEDO, OHO 43452 Permit No. 230
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f ks. PENNSYLVANIA POWER COMPANY 1984 ANNUAL REPORT _. )
1 1 I l ! I Financial M -- PENN POWER l l Highlights F a For the Years Ended December 31, 1984 1983 Change
- 3. v a t (In Millions) vv , j , g 4 ".f' '
- f n-' _v
~
Kilowatt-Hour Sales . . . 3.805.6 3.396.5 + 12.0%
+ 11.5%
# g
, Operating Revenues. . $213.2 $191.2 g,, '
Fuel Expense . . . 56.1 47.7 + 17.7% "12 4 fN I
+ 1.2% el _
44.0 l 44.5 Operating income. . .
, Allowance for Funds Used
~
? .
During Construction, Net. 24.4 18.4 + 32.4% Nj ! Int:r:st Expense. . . 39.8 35.1 + 13.5% %, - 45.4 34.3 + 32.2% ~ W. I N:t income (i). . . I Earnings on Common s Stock (i) . ., . 36.4 27.0 + 34 7% , .p 2? - Y '
- l. -lt Dividends on Capital Stock . . $ 29.L $ 26.6 + 12.2%
Capital Expenditures: Construction of Facilities. .. $ 80.9 $ 71.6 Nuclear Fuel. . . 13.4 8.5 Capital Leases . . . . . 1.1 3.2
$ 95.4 $ 83.3 + 14.5%
int:rnally Generated Funds . 31.4 26.7 + 17.6% N:t Financing Activities . . 55.0 57.3 - 4.0% R: turn on Average Common Equity . . . . . . . 16.0 % 13.0 % l
, (i) 1984 includes a noncash depreciation adjustment of $6.7 million which increased net income and earnings on common stock (See Note 2).
I 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 wholly-owned subsidiary of Statements of Capital Stock and Ohio Edison Company 7,' Other Paid-in Capital . .12 Statements of Sources of Funds for
~ ~ ~ ~
(Edison). F \ Property Additions . . 13 3 [ Statements of Taxes . . .14 m,m ,,, ' Notes to Financial Statements .15-23 L
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____,J
) Auditors' Report Directors and Officers.
.inside Back Cover
. . 24 1
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t ; 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 miliion rate increase approved by
- Increased 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 net 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 billion 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 who!esale 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 luding 1982, the recession's downturn year, by 24 percent. We are pleased to report that the Company and the five S7Jes 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-year 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 s
% 37 , j, by the PPUC, for their electric service. The boroughs have agreed not to intervene in the Company's rate cases.
.Mgged. ' Additionally, the Boroughs of Ellwood City and Grove City dropped an antitrust action and other litigation against the Company pending before courts and FERC.
M ' No short-term debt outstanding
, The Company minimized bank borrowing throughout 1984
'g and, like 1983, had no short-term debt outstanding at the end
**i of the year. Along with funds remaining from a December 1983 bond issue and funds generated internally, the 1984 construction program was financed by taking advantage of a '
receptive capital market to issue $20 million in first mortgage bonds, $10 million in preferred stock and $12.7 million in r1 pollution control notes. A sale of $12 million of common stock
, to the parent company, Ohio Edison, was made in December.
4 ' A portion of the proceeds fr.m the 1984 firancings will fund 1985 capital requirements. The remainder of the 1985
% construction funds and maturing obligations will be met with j~ planned issues of additional first mortgage bonds, pollution control notes, and common stock as well as funds generated internally.
Air quality construction program completed 1 in 1984, construction work was completed on the air quality control project for Unit 7 at the W. H. Sammis Plant, partially
. x 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 brirg its coal-fired generation in compliance with air quality regulations. However, special interest groups using circumstantial evidence continue ocw nonuwy prop.rew nucma, ru.e and capianen to pressure Congress for " acid rain" legislation requiring more
" Aumanad costly controls. Before a new round of expensive projects is 2
- . _ _ . - - - _ _ . - - _ . - - _ - _ . . - . . . . _ . ~ - -.
l i O- PENN POWER 1 I required to satisfy " acid rain" lobbies, there should be take advantage of reduced billing demands for electric home reasonable 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. towers, estimated to cost as much as $32 million, to meet We foresee continued sales growth within our service area water quality thermal standards for the New Castle Power for 1985, but at a slower pace compared to other parts of the . Pl:nt. The Pennsylvania Department of Environmental state and nation. Our 1985 goal is to increase new business by Resources accepted a proposal rrade by the Company in May 115 million kilowatt-hours. 1984 that provides an alternate 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 improvements 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.
are budgeted at $69 million this year. The joint development of Then, we enlisted the support of our employees, our power plants and transmission facilities with the Central Area customers and the Salvation Army. Together, we're helping our Power 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. Th3 Company has partial ownership in three CAPCO nuclear 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 1984. 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 mairitenance in October. During successes. He is deeply missed. the planned shutdown, modifications were completed that row permit 15 months of continuous operation between refuelings. Thanks to dedicated employees The unit returned to service in January 1985 and the next The Company's ability to succeed during this period of refueling 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 Nuclear 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 tnit is expected to be completed by late 1985. The construction schedule and budget for Unit 2 is currently under g review. Deferred cool 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 /] the Bruce Mansfield Plant. As it stands, the order could result A d in unrecovered costs, detailed in Note 8. The Company has President appelled the decision to Pennsylvania's Commonwealth Court. New Castle, Pennsylvania March 12,1985 The combination of hot weather and increased industrial activity resulted in a new peak demand of 597 megawatts on Jun) 13, 1984. The previous peak demand was 577 megawatts recorded in 1981. Aggroselve and innovative sales efforts Penn Power's aggressive marketing efforts produced more than 360 million kilowatt-hours of new business in 1984. The Company added an economic development rider to its industrial rates in 1984 as an incentive for manufacturers to cxpand or locate within Penn Power territory. The rider extends over five years and offers reduced charges for any new or additional demand. Also, residential customers can 3
Operating Statistics i l l i 1984 1983 1982 1981 1900 Revenue from Electric Sales (Thousands): Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 69.133 $ 63,994 $ 61,628 $ 52,649 $ 50,251 Con mercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.542 36,841 36.068 30,225 28.374 Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77.210 61.959 61,611 64.787 58,623 Othar ... .... .. .. .... ... .. . ....... 6,963 6,909 7,082 5,347 5.472 Subtotal . . . . . . . . . . . . . . . . ... . . ...... 188,848 169,783 166,389 153.008 142,720 Sales to Utilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,305 4,277 20 24 73 Total.................. . .... ...... $198,153 $174,060 $166,409 $153,032 $142,793 Revenue from Electric Sales-%: Resider tial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.9 % 36.7 % 37.0 % 34.4 % 35.2 % Commc chl . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.9 21.2 21.7 19 8 19.9 Industml . ..... ......................... 39.0 35.6 37.0 42.3 41.0 Other . . ........... ....... ............. 3.5 4.0 4.3 3.5 3.8 Sublotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 (Millions): 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 Utilities . . . . . . . . . . . . . . . . . . . . ..... 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113,368 112,768 111,931 111,121 110,012 Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.601 13,474 12.994 12,902 12.839 Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285 104 106 109 107 Other.................................... 128 129 122 118 117 Total................................ 127,382 126,475 125,153 124,250 123,075 Residential Customer Averages: Average Kwh 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) (256.4) 296.5 Peak Load (Megawatts) . . . . . . . . . . . . . .. ... 597 567 562 577 548 Cost of Coal per Million BTU.'. . . . . . . .... $ 1.50 $ 1.57 $ 1.66 $ i .cm
- i *1 Generation Capability:
Coal . . . . . . . . . . . . . . . . . . . . . . . . . .. .. . 77.7 % 77.7 % 77.7 % 77.7 % 77.5 % Oil..................... .... ..... .. . 6.1 6.1 6.1 6.1 6.3 Nuclear. . . . . . . . . ... .... . .. .. . ... 16.2 16.2 16.2 16.2 16.2 Total.......... .... . ......... ... 100.0 % 100.0 % 100.0,o 100.0 % 100.0 % Sources of Electric Generation: Coal.................................. . 79.3 % 77.1 % 86.7 % 78.3 % 97.7 % 061.................................. ..... - - 0.1 0.2 0.7 ' N uclear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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
+
4
Selected g ,,, gowry Financial Data 1984 1983 1982 1981 1980 (Dollars in Thousands) Operating Revenues . . . . . . . . . . . . . . . . . . . . . . . . . $213,150 $191,172 $185,883 $174,488 $157,208 Operating income . . . . . . . . . . . . . . . . . . . . . . . . $ 44,519 $ 43,977 $ 40,590 $ 37,412 $ 32,427
$ 45,404 $ 34,343 $ 29,392 $ 24,936 $ 20,822 Net income (i). . . . . . . . . . . . . . . . . . . . .....
Earnings 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 Total 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 . . . . . . . . . . . . . . . . . . . . . . . . . . _ $ 95.383 $ 83,337 $ 86,889 $ 52,858 $ 57,204 Long-Term Obligations . . . . . . . . . . . . . . . . . . . . . . . $ 52,179 $ 41,351 $ 22,847 - - CAPITALIZATION: Common Stockholder's Equity . . . . . . . . . . . . . . . . . $247,096 $219,474 $199,680 $194,666 $170,755 Preferred 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 ' 317,764 323,363 295,405 262,011 242,194 Long-Term Debt . . . . . . . . . . . . . .. .. .......
$663,327 $632.213 $570,385 $524,880 $482,054 Total Capitalization . . . . . . . . . . . ... ... .
CAPITALIZATION RATIOS: Common Stockholder's Equity . . . . . . .... .. 37.3 % 34.7 % 35.0 % 37.1 % 35.4 % Preferred Stock-
. Not Subject to Mandatory Redemption . . . . . . 6.3 6.6 7.3 8.0 8.7 Subject to Mandatory Redemption. . . . . . . . . . . . 8.5 7.5 5.9 5.0 5.6 47.9 51.2 51.8 49.9 50.3 Long-Term Debt . . . . . . . . . . . ... .. ..... . .
100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Total Capitalization . . . . . . . . . . . . . . . . .. (i) 1984 includes a noncash depreciation adjustment of $6,751,000 which increased net income and earnings on common stock (See Note 2). l l 5
t ' Management's Discussion and Analysis i of Results of Operations j and Financial Condition l I > l Results of Operations ! 4 Results of operations for 1984 reflect the improved i economy in the Company's service area. Increased total I 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 ! adjustment to income in 1984 as discussed below) recorded , ) over 1983 levels. ( ! Increased operating revenues of 11.5% in 1984 compared ; J '_ to 1983 resulted primarily from a $15.4 million rate increase ! j that became effective in April of 1984 which accounted for ; 4 approximately one half of the totalincrease. Also contributing , to this increase was a 13.7% increase in kilowatt-hour sales to i the Company's industrial customers and increased bulk power I sales to non-associated utilities resulting from two long term ; contracts entered into in mid-1983. The 1983 operating l
- revenue increase of 2.8% was primarily due to a $10.8 million ;
i rate increase that became effective in September of 1982. l l Industrial kilowatt-hour sales increased in 1983 following a t
; substantial decrease in 1982. In addition, increased bulk l power sales to non-associated utihties in mid-1983 contributed to this increase. Partially offsetting this 1983 revenue increase i
! was a reduction to the fevelized energy cost rate. Fuel costs increased in 1984 compared to 1983 resulting , principally from greater quantities of fuel consumed due to ! Improved availabikty of the Company's generating units and increased generation required to supply the demand for 2 increased sales within the system and to non associated utilities for bulk power sales. The reduction in fuel costs in < 1983 from 1982 was primarily attributable to reduced 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 i net purchased and interchanged power expenses in 1983 over i 1982 was principally due to reduced deliveries of power to i Ohio Edison in 1983 and increased purchases of low-cost l l power resulting principally from the Company's contractual '
- obligations with Ohio Valley Electric Corporation.
j Other operation expenses increased in 1984 over 1983 due i primarily to increased employee benefits, injuries and j damages, legal costs associated with the recently settled j antitrust case, and expenses relating to rate cases. i The pro 'ision 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 i 1
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 l reflects previously recorded depreciation not recovered in 1
l
! 6
- PENN Powgp retail rates but which will be recovered in future rates.
Increases 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. Information with respect to the estimated effects of inflation l l l upon the Company is given in Note 10 of Notes to Financial l l l l Statements. l l l l C pital Flesources and Liquidity The 1985-1989 construction budget is currently estimated - 1 to be $214,000,000; the issuance of additional common stock l l and other securities will be necessary to fund a portion of this l new cor stru%on. During the same five-year period, maturities l l l 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 Compeny expects to invest approximately ! $40,000,000 for nuclear fuel during the 1985-1989 period. l The Company's current budget forecast reflects expendituros 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 funos held in escrow from l l l previous pollution control financings. The Company also has i 1 .. l $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 finance the majority of its 1985 capital requirements through the issuance of additional first mortgage bonds, common stock and pollution control notes. The Company also expects to invest l approximately $8,000,000 for additional nuclear fuel in 1985 through the incurrence of additional long-term obligations. 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 l dividend rate of 13.5%, of to issue some lesser combination of both first mortgage bonds and preferred stock.
The Company has a rate case pending with the PPUC which, if granted 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. i l 1 I I 7
L Balance
- Sheets I
l Assets At December 31, 1984 19s3 (in Thousands) Utility Plent: In service, at original cost . . . . ............................................... $611.615 $576,258 Less. Accumulated provision for depreciation. . . . . . . . . . . . , . . . . . . . . . . . . . . . . . . . . . . . 171,483 157.329 440,132 418,929 Construction work in progress-Electric pla n t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265,139 220.420 N uclear f uel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,666 33,237 311,805 253,657 751,937 672,586 Other Property and investmente . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 Paren t com pa ny. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 P r e pa ym e n t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 817 426 86,462 83,418 Deferred Chargee:
Deferred Quarto coal and energy costs (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.902 4,879 Unamortized costs of terminal:H construction projects (Note 3). . . . . . . . . . . . . . . . . . . . . . 14,818 16,000 Other........................................................... ..... 8,779 12,609 34,499 38,488
$875,604 $797,180 eD Q
m.
PENN POWER Capitalization and Liabilities ! l O December 31, 1984 1983 (in Thousands) O_,^ G=,(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-t e rm d e b t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317,764 323,363 663.327 632,213 Long. Term Obligations: Nuclear f uel (Noto 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47.129 32,614 Capital leases (Noto 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,050 8,737 52,179 41,351 Current Llobilities: Currently payable preferred stock,long-term debt ind long-term obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,014 5,241 Notes payable to banks (Note 7). . . . . . . ................... ................... - - Accounts payable-Pa rent com pa ny. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,879 2,069 Other ....................... ......... ....... ......................... 40,002 41.610 Acc ru ed t a x e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,603 4.562 Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.068 6.978 Other.................... ... ............................................ 8,164 4,987 98,730 65,447 Deferred 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 51,169 Commitments, Guarantees and Contingencies (Notes 4 and 8) . . . . . . . . . . . . . . . . . . . .
$875,604 $797,180 c___
The accompanying Notes to Financial Statements are an integral part of these balance sheets. i 9
Statements - of Income For the Years Ended December 31, 1984 1983 1982 (in Thousands) O pe rating R eve nu e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _ $213_,150 $191.172 $185.883 Operating Expenses and Taxes: 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 amortization . .. .. . . 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 145x 293 O pe ratin g incom e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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) . ..... ... . 8.167 892 763 income taxes-credit ..,, . ......... .. . .. 8,150 8,149 3,87_1_ Total other income and deductions . . . . . 32.314 19,260 15,098 To tal incor'1e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76.833 63.237 55,688 Net interest: Interest on long-term debt ... .. . . . . , . 33,640 30.300 27,019 Interest on nut.loar fuel obligations . . . . . .. . . 5,030 2.931 1.068 Allowance for borrowed funds used during construction, net of deferred income taxes. . . . .. . (8,357) (6.173) (4.040) Ot h e r . . . . . . . . . . . . . . . . . . . . . .... .. . . . . . 1,116 1,836 2,249 Net interest . . . . .. . ... . . . 31,429 28,894 26,296 N e t i n c om e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45.404 34,343 29.392 Preferred Stock Dividend Requirements . . . . . . . . . . . . . . . . . . . . . . . . . 8365 7,296 6 098 Earnings on Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36.439 $ 27,047 $ 23,294=--
=m :=
The accompanying Notes to Financial Statements are an integral part of these statements. 10
Statements of Capitalization g-Om C Decemoor 31, 1984 1963 (in Thousande) common steekholder's espity: Common stock. $30 per value. 6,500,000 shares authorlied 5.800.000 and 5.400.000 shares outstanding, respectively. . . . . . . . . . . , , . ...... ,,. .. $176.700 $164,700 Other paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200 177 Retained eernin0e (Note 5a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... ....., .. ... 70,196 54.597 Total common stockholder's equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247,096 219,474 Optional Redemption Price Number of Shares Aggregate Outstanding (in 1984 1983 Per Share Thousands) Proterred eleck (Note 5b): Cumulative. $100 par value ALAhortred-1.200.0M shares Not Subject to Mandatory Redempton: 4.24% . 4.64% . . . . . . . . 141,049 141.049 $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 1 f.800 8.48% . 9.16% . . . . . . . . _160.000 160.000 105 20 106.87 _16,966 16,000 16,000 Total not sub tect to mandatory redemption . . . . . . . 4.~19,049 ,4.19_,04,9 - 54 _$43,9u, 41,905 41,905 Subtect to Mandatory Redemption (Note Sc): 8.24 % . . . . . . . . . . . . . 85.000 90.000 $108.24 S 9.200 8.500 9.000
- 10. 50% . . . . . . . . . . . . . 100.000 100.000 109 04 10.904 10.000 10.000 1 1.00% . . . . . . . . . . . . . . 55.616 59.708 112.11 6.235 5.562 5.971 1 1.50% . . . . . . . . . . . . . . . 150.000 150.000 103.29 15.494 15.000 15.000 13.00% . . . . . . . . . . . . . t 00.000 - 113 00 11.300 10.000 -
15 00% . . . . . . . . . . . . . , 80,000 _ 80.000 114.62 _ 9,169 8.090 8.000 Redemption within one year . . . . . . . , . . . . . . . . .. ....... .. ... ........ .......... (500) (500) Total subject to mandatory mdemption . . . . . . . . 570,616 4,79,7,0,8 $62t- 302 56.562 47.471 m.a. r Long-term debt (Note 5d): First mortgage bonds-13 32% weighted everage interest rate, due 1985 through 1989. . . . . . . . . ..... ........ 97.890 37.512 9 54% weighted average interest rate, due 1990 through 1994. . .... .. .... .. .... 81.890 99.890 9 33% weighted average interest rate, due 1995 through 1999. . . . . . . . . .... .. .. 23.940 11.890 8 52% weighted average intereet rste, due 2000 through 2004. . . . . . . . . . ........ .... . . 54.240 67.620 9 26% weighted average interest rate, due 2005 through 2006. . . . . . . . .. ... . .. ... 41,040 42.088 Total first mortgage bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... ... . .... . 279.000 259.000 Secured notes and obligaton-5 88% weighted everage interest rate due 1985 through 1989. . . . . . . . . . . . . . . . . . . . . . . . . 320 263 8 45% weighted average interest fste, due 1990 through 1994 . . . . . . . .... ........... . 9,204 8.t04 7.72% we+ghted average interest rate, due 1995 through 1999 . . . . . . . . . . . . . . . . . . . . . . . . . 9.26 t 8.086 10 09% weighted average interest rate. due 2000 through 2004. . . . . . . .. . . ... .......... 30.098 28.839 7.34% weighted everage interest rate, due 2005 through 2009 . . ...... ... .. . ...... I2.720 22,369 12.00% we+ghted average interest rate, due 2010 through 2014. . . . ........ .. ..... .. 12,700 - 80.311 67.661 Amount held by Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... .. . .... . ... .. .. (13.305) (2.572) Totat secured notes and obilgation. . . . . . . . . . . . . . . ...... . ... . . . . . 67.0 _06 65,089 i Net unsmortlied discount on debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... (814) (676) Long-term debi due within one year . . . . . . . . . . . . . . . .. ..... ........................ (27.428) (50) Total long term debt . . . . . . . . . . . . . . ............ .. ....... ..... ... .... .. _ 317,764 323.363 Total capitalisat ion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
,- .6.03. 327
$632.213 .
The accompanying Notes to Financial Statements are an integral part of these statements. t1
Statements of Retained Earnings l For the Years Ended December 31, 1984 1943 1942 (in Thousande) Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 54.597 $ 46.820 $ 41,850 N et incom e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,404 34,343 29,392 100,001 81,163 71,242 Deduct: Cash dividends on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,862 19,203 18.324 Cash dividends on preferred stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,943 7.363 6,098 29,805 26,566 24,422 Balanco at end of period (Note 5a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 70,196 _ $ 54,597 $ 46,820 Statements of Capital 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 Pat Number Par of Shares Value , Capital, of Shares _ _Value _ of Shares . Value __ (Dollars in Thousande) 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 8,000 Preferred Stock Sinking Fund Redemptions-8.24% Series . . . . . . . . . . . . - - - - - (5,000) (500) 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) 5,490,000 104,700 177 419.049 41.905 479,708 47.971 Balance. December 31.1983. . . . Sale of Common Stock . . . . . . . 400,000 12.000 - - - - - Safe 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)
$200 4191049 570,616 $57,062 Balance. December 31.1984.... 52 8_90J00 $3700 $419_05 2
The accompanying Notes to Financial Statements are an integral part of these statements. 12
i Statements of Sources $ nmowra of Funds for 1 Property Additions 1 For the Years Enosd December 31, 1984 1983 1982 (in Thousande) Intemally generated funds-Net i ncome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,404 $ 34,343 $ 29,392 Principal noncash items-Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.112 21.325 16,128 Deferred income taxes, not . . . . . . . . . . . . . . . . . . . . . . . . . . . , , . . . . . . 15.052 13.585 6.653 Investment tax credits, not . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.264 3.182 7,847 Allowance for equity funds used during construction . . . . . . . . . . . . . . . (15.997) (12,219) (10,464) Deferred fuel and energy costs, not . . . . . . . . . . . . . . . . . . . . . . . . . . . . (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 Financing activities-Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.000 12.000 - Preferr ed stoc k . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.000 15.000 8,000 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,776 27.955 39.173 Long-term obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,043 13,156 22,847 Repayment 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 Net enange in current assets and current 1; abilities 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) Accou nts paya ble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202 1,896 (7.545) Accrued tax es . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 (2.350) 2.877 Accrued in te re st . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.090 217 3,096 M iscellaneou s, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,786 1,037 1.038 1,466 (7.421) 1.009 Other, net-Allowance for equity funds used during construction . . . . . . . . . . . . . . . . 15,997 12.219 10,464 Deferred income taxes on allowance for borrowed funds used during construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8.872) (6.559) (4,291) M iscellaneous, not . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3t4 1.037 763 7,439 6,697 6,936 Total Sources of Funds for Property Additions. . . . . . . . . . . . . . . . . . . . . . . $ 91383 $ 83,337 _ $ 86,889 Property Additions-Electr6c plant . . . . . . . . . . . . . . . . . ............. ......... .. ... $ 80.862 $ 71,592 $ 68,533 N uclea r f u el . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , 13,429 8.526 18,146 C a pit al lease s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,023 3,207 - Nonutility property . . . . . . . . . . . . . . . . . . . . . . . ... ......... ... 69 12 210 J 9,5 1383 _ $ 83,337 _ $ 86,889 The accompanying Notes to Financial Statements are an integral part of these statements. 13
l l StAtttnthts = PENN Powen of Taxes For the Ilsere Ended Decenter 31, 1984 1983 1942 (In Thousande) General hues: Stato grose receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8.503 $ 7,7 $ 7.473 Roel and personal property . . . . . . . . . . . . . . . . , . . . . . . . . . . . . . . . . . . . . , , , . . , 3.669 2.212 2.172 State capital stock . . . , . . . . . . . . . . , . . , , , . , . . . . . . . . , , . . . . . . . . , , , . . . , , , , , 1.788 1,902 1,675 Social securtty and unemployment . . . . . . . . . . ................ ... , , .. 1,713 1,587 1,207 . Mecellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 47 63 lbtel general tam es . . . . . . . . . . . , , , . . . , , . , , . . , , , , , , . . . . . , . . . , . S .15,733 =_$ 13,475 8 12,590
- w Prowleien for ineame base:
Currently payetde-Federal........................................................... S 614 8 647 8 1,644 State.............. ......... ............... ... . , . . ,, . 1,426 1,217 2.256 2.040 1,864 3,900 Deferred, not (see below)- Federal.....................................................,,,,, 12.079 10,708 5,253 8 tate............................................................ PM3 2.877 1.400 i 15,052 13,585 6,651 invoetment tan credits. net of amort 1:stion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , 4 264 3,182 7,847 Total provision for income tenes. . . . . . . . . . . . . . . . . . . . . . . . . . . , . . . . mSm,35621 8, _18 h 631 ---8 18,400 - Inseme Statement Classofteetten of Prowleien for ineeme Does: Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,634 8 18,221 8 17,980 Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8.150) (6,149) (3.871) Allowance for borrowed funds used during constructen . . . . . . . . , , . . , , . . . . . . . . . , , , . . . . . . . . . . . . , , , . .., 8,872 8.559 4.29 t_ Total provision for income lanes. , , . . . . . . . . . . , , , . . . . . . . . . ,,,
.,,S _21.356 m
-3 18.631 ., 8._18.,4.00 Bevrees of Deferred inseme base:
Allowance for borrowed funds used during construction, which is credited to plant , , . . . . , , , , . , , , , . . . . . . . , . . . . . . . , $ 8,872 $ 6.559 $ 4,291 Emcees of tas over book depreciation, not . , , . . . . . . . , , . , , , . . . . . . . . . . . . . . 4.096 4,t 45 3,375 Cost of terminated construction projects, not , , , , . . . . . . . , , , .. ,,..,,... (609) (43) 460 Deferred fuel and energy costs, not , , , . . . . . . , , , , . . . . . . . . . . . . . . , , , , , , , . 2.365 3,567 (977) Deferred interest on leased nuclear fuel, not . . . . , , , , , , , , . . . . , , , , , , , , , . . . (2.089) (808) (13) Nucieer fuel disposal costs . . . . . . . . . . . . . . . . . . , , , , . . . . . . . . . , , , , . . . . . . 1.786 (575) (497) Other,not......................................................... 63 t. 540 14 Not deferred income taxes. . . . . . . , , , . . , , . . . . . . . . , , . . , , , , , . . . S 15.052 8 13.585 . 8 6,653 cmu a nnm .- Rosenstliotten of Federalincome ha Empenee at Statutory Rete to listel Previelen for inoeme base: Book income before provision for income taxes. . , ,..... ..... ... ...... S 66.760 $ 52,974 8
== s==www sum.47 -4.3 792 Federalincome las espense at etstutory rate . ,, ,.. . ,,, ,...., , 8 30.710 $ 24.368 $ 21,964 increases (reductions) in taxes resulting from:
Allowance for equity funds used during constructen, wh6ch does not constitute taxable income. . . . . . . . . . . . . . . . ........ ....... .... . (7,359) (5,621) (4,813) Escess of tas over book depreciation, net. .,... ....... . .,. ...... (223) (839) (t.307) State income taxes, not of Federal income las benefit . . . . . . ........,,, ... .., ,...... .. .. .. 2,375 2.211 1,974 Depreciation reserve adjustment (Note 2) . . . , , , . . . .. . ..... ... (3,106) - - Other, net... ,,,,...... ..., ... . . ... , , ... . . . . . .. 112 1.) (1,488) 562 Total provision for income taxes. . . . . . . ,, ... .. .. .. S 21, mm,356 8 18.631, 8 _18,400 m .. The accompanying Notes to Financial Statements are an integral part of these statements. 14
Notes to the g ecuugoma t FinancialStatements l (1) Scari of ?'Ji=it Accounting Policies: The Company, a whollyowned cubsidiary of Ohio Edison cea .a c e Company (Edison), follows the accounting policies and y,,,,,,,,,,,, ",',M,,,,,, practices prescribed by the Pennsylvania Public Utility o.a.m.,euan. in s.,w. o.,,== re.y.= _ _ en Commission (PPUC) and the Federal Energy Regulatory Commission (FERC). W H samm o No ?. . . 8 44.073 8 8340 8 164 80 e0*e nov.nues-The Company's residential and commercial customers are e r a,l m s... va, No i ~ 4, ietsee
,uo se so4 sun ir so%
"' "* ' '"d N* # - - -
metered on a cycle basis. Revenue is recognized for electric *'"' ' *
- service based on meters read through the end of the month. 19 "5 f 'l 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 respectively. These amounts represented 11.2%,12.0% and not segregated among them.
10.4%, respectively, of the Company's total operating revenues. 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 provlsion 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 Dur6ng Construction (AFUDC)- ECR, thich 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. AccorCngly, 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 the c:st 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 through 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% ouring 1983 and 1982. The Company provides for depreciation on a straight line basis d various rates over the estimated lives of property income Taxee-included in plant in service. The annual composite rate for Details of the total provision for income taxes are shown on electric 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 decommissioning 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 rat) order. Amounts collected from customers for results from interest expense related to construction work in decommissioning are accumulated in an escrovt account. progress, to income taxes. credit included under other income and deductions 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 Croup (CAPCO) companies own, as tenants in common, provides deferred income taxes. The Company expects that various 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 The Company's portion of operating expenses associated with the FERC, As of December 31,1984, the cumulative nel these jointly owned facilities is included in the corresponding income tax timing differences for which deferred income taxes oper; ting 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: amortizos these credits to income over the estimated life of the t5
Notes mommh related property. At December 31, 1984, approximately The Company provides a minimum amount of
$10.000.000 of unused investment tax credite were available noncontributcry life insurance to retired employees in addrtion CJ offset future Federal income taxes payable. These credits to optional contributory insurance features. Health care expire 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 encess of set timits; all amounts up 1999................................ __ 2,000,000 to the limits are paid by the Company Expenses associated St0u000 000 with health care and life insurance benefits for retirees
' amounted to $456.000 in 1964 and are charged to income during the applicable payment periods.
The Company's trusteed, noncontributory pension plan signifloant Parent Company Waneactions-covers moet 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 1964.1963 and 1962 were attributable to transactions with Edison. Such revenues
$4,303,000, $3,397.000 and $2.987.000. respectively Of those resulted primarily from Edison's purchase of capacity from the amounts. $1,827.000. $1,309.000 and $666.000, respectively. Company's ownership interest in Beaver Valley Unit No.1.
were char 9ed to operating expenses; the balances were Purchased and interchanged power. net, reflects credits of primarily b6tled 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 not delivery of interchanged power to Edison past service costs on an actuarlat basis over approximately 35 during 1964,1983 and 1982. respectively in addit 6on, other years in 1984 and 1982, and 40 years in 1963. The Company operation expenses for 1984,1983 and 1982 include runds pension costs accrued. A comparison of accumufated $3,535.000. $2.794.000 and $2.251.000, respectively, l plan benefits and plan not assets from the two latest actuarial primanly attributable to data processing services rendered by reports is as follows: Edison to the Company June 30. (2) C:ir. Hoeorve Adjustment: 1984 1983 in the third quarter of 1964, 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 3,500A00 depreciation and reflects previously recorded depreciation not
,$29,4851 000 ,$_25,968800 recovered in retail rates, but which will be recovered in future Not assets available for benefits ................ ,$4,6,951000 $45,233 000
,, g .
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 accumulated plan benefits . 8%
~ ~
8% generating units. Costs (including settlement of all asserted claims resulting from termination) unrecovered by the Company as of December 31,1964, applicable to these units The above total actuarial present value of accumulated amounted to approximately $14.818.000. The Company is p6an benef6ts reflects pension benefits applicable to eligible recovering these costs from customers but is not earning a employees based upon present salary levels and past years of retum on the unsmortized investment. The remaining period serv 6ce accumulated through the valuation date. This is the of recovery is approximately nine years, generally accepted reporting procedure currently set forth by the Financial Accounting Standards Board. The Cornpany's (4) Leasee: annual contributl0n to the plan, however, ennsiders estimated The Company leases a portion of its nuclear fuel ultimate salary increases due to inflation and other factors and requirements, certaln transmission facilities, computer the estimated total service expected to be accumulated by equipment, office space and other property and equipment employees. This is a widely recognized funding technique and under cancelable and noncancelable leases. Consistent with O consistent with the recommendation nf the Company's the regulatory treatment, rental payments for capital and actuary. In addition. the actuary recommended, and the operating leases are charged to operating expenses on the Company utilized, a discount rate of 7% for fundmg purposes. Statements of income. Such costs for the three years ended Differences between funding bases and reporting December 31,1984 are summarized as follows: requirements can have a signif cant effect on the comparisons above to
' m-PMN POWER iese less !*se_ operations. The optional redemption prices shown on the Statements of Cap 6talization will decline to eventual minimums M" per share accord 6ng to the Charter provisions that establish ine .aca.aa,.ei e s.ooo 8- each serles.
e.,a,. w en. we 4, , . n . -.
. . iw we w ,,. , ,, .. ...,, ,. ..... (c) Preserved steek subject le tiendetery Redempden-
*- '= - The Company's 6.24% 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 have not yet been capitalized as permitted by Statement of 11.50% Series each include provlelons for a mandatory Financial Accounting Standards No. 71 (SFAS No. 71). If they sinking fund to retire a minimum of 3.200 shares and 15,000 had been capitalized, total assets and habikties would have shares, respectively, on July 15 et each year beginning in 1986 increased by $5.515,000 and 85.703,000 at December 31 and 1949. respectively, at $100 per share plus accrued 1964 and 1963. respectively Also, in accordance with SFAS dividends. The Company's 13.00% Series includes a provision No. 71. the December 31,1963 Balance Sheet and Statement for a mandatory sinking fund to retire a minimum of 5.000 d Sources of Funds for Property Additions for 1963 have been shares on July 1 of each year beginning in 1990, at $100 per i restated to include capital leases entered into during 1983, share plus accrued dividends. The Company's 10.50% Series The future minimum rental commitments as of includes a provle6on for mandatory redemption of the entire December 31,1964, for leases reported as capital loases and series on April 1,2040, at 4100 per share plus accrued noncancelable operating leases are: dividends. The Company's sinking fund requirements for the next five Capnel Opereung years are: Lessee 1.eeese iss6....................... T3.Ii97000 It$is5000 1965................................ 8 500.000 tess....................... 2.9s7.000 1.13s 000 1986................................ 900,000 tes7....................... 1.022.000 t,124.000 1987................................ 900,000 tees....................... 726.000 1.113.000 1968................................ 1.220,000 fees....................... 600.000 1.0ss.000 1989................................ 2,720.000 Ypers theroefter . . . . . . . . . . . . . . 9,7se,000 t 3,757,000 lbtel mWmum lease paymente. . Is.343.000 _tt9,41_4 0001 1.see: Amount repeeeenting The mortgage and its supplements, which secure all of the
'"""*'*dC"Y Company's first mortgage bonds, serve as direct first I '""
r1rtgage liens on substantially all property and franchises,
, c, End insurancel inclu*d in other than specifically excepted property, owned by the tosol minimum lesee Company payments . . . . . . . . . . . . . , 3.044,000 Based on the amount of bonds authenticated by the Trustee Not mWmum losee payments. . t 8.299.000 through December 31.1964, the Company's annual sinking t.ooe: Amount representmg and improvement fund requirements for all bonds issued interest................ 7.627,000 under the mortgage amounts to $2.764,000. The Company Present vesue of not espects to sat 6sfy these requirements in 1985 by certifying mWmum teeee paymente. . . . . g 7 & 000 unfunded property additions of 166 2/3% of the required amount.
As of December 31, 1964 the Company's sinking fund C,; '%r8*=88===ait requirements for certain series of first mortgage bonds and
- (a) Retained Earninge- maturing long term debt for the next five years are
i Under the Company's Charter, the Company's retained earnings unrestricted for payment of cash dividends on the 1965................................ 827,426,000 Company's Common Stock were 446,336,000 at 1966................................ 2.426.000 December 31,1964, 1967................................ 2,426,000 1968................................ 5.441.000 (b) Preserved Stock. 1969................................ 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 not more than 60 days notice, unless otherwise noted. Statements of Capitalization relate to long term dabt Redemption of all preferred stock issued within the past five outstanding at December 31,1964. years is subject to certain restrictions regarding refunding Total secured notes outstanding at December 31,1964 and 11
Notes wima 1983, esclude 413,305,000 and $2,572,000, respectively. of (7) Notes Poyable to Senha and Lines of Credit: certain pollution control notes, the proceeds of which were The Company has lines of credit with banks that provide for then in secrow pendmg their d6ebursement for construction of borrowings of up to $30,000,000 at the prevailing prime or pollution control fac61stsee. The Company's obligations to repay similar Interest rate. Short term borrowings may be made certain pollut6on control notes are secured by series of first under those lines of credet on the Company's unsecured notes. mortgage bonds All of the current 16nes empire December 31,1965; however, all unused lines may be canceled by the banks. (1Long Ilsnn Obilgallene: The Company maintains cash balances on deposit with Penneytvania Power Fuel Corporation (a corporation in banks to provide operating funds and to assure availability of which the Company has no ownership interest) providos tunds $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, not of " float". The Company also partic6pelos in arrangements wherein the are expected to be maintained at an average of approximately Central Area Energy Dust (CAET) finances the acquisition of 4700,000 and are not subloct to any contractual restriction nuclear material that w611 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 $18,000,000 of the lines of credit.
$40,000,000 le currently available through the Pennsylvania Power Fuel Corporation, either through revolving credit (8) Commitments, Quarantees and Contingencies arrangements or the leeuence of commercial paper, which is Construction Program-supported by a bank letter of credet, 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 d the Company, subject to certain 16metations, 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, fuel oldigations (for fuel which is not included in utility plant in the Company espects to invest approximately $40,000,000 for serv'ce) which le subsequently capitalized, not of income tan nuclear fuel during the 1985 1989 period, of which effect. No detect borrowings have been or are expected to be approximately $6.000,000 is apphcable 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 penod relates to the CAPCO companies' program for outstanding commercial paper supported by the line of credit. the joint development of power Generation and transmission D the entent that borrowings are less than the 448,000,000 facilities, availatdo under this credet line, the fuel corporation must pay a The CAPCO companies are continuing to review the status commitment fee of 1/0% to 1/2% on the available portion of of Perry Unit 2. Until this review has been completed, there will the line of credet, it also pays a fee of 5/8% to 7/9% for the be no defined schedule for the completion of Unit 2. Possit le letter of credit on the aggregate amount of outstanding alternatives being reviewed with respect to Unit 2 include commercial paper. Interoet on CAET purchase commitments is temporary cessat6on of work on the Unit and termination of the C rates which very from 11/8% to 11/2% over the interest Unit. Presently, the only si0nificant work being performed on rates appl 6 cable to certain dealer placed commercial paper. Unit 2 is that necessary to enable Unit 1 to be placed in The effective average annual interest rates applicable to service. This work is espected to be completed sometime in nuclear fuel obligat6cos were 11.9%,10.6% and 12.0% during 1985. Whether under those circumstances it would still be 1984.1983 and 1982. respectively appropdate to continue capitalizing AFUDC (as described in The Company presently expects to make payments Note 1) to Unit 2 is uncertain at this time. Accordmgly, if the applicable to these obligations during the nent five years as CAPCO companies do not decide to resume si0nificant follows: construction, the Company mdy not be able to include the AFUDC in not income. Instead, a reserve may be provided for 1906................................ $ 3,364,000 AFUDC capitalized to Unit 2 prospectively Currently, the 1908................................ 7,844,000 Company's AFUDC for Unit 2 is being included in not income 1987................................ 8,315,000 at a rate of approximately $600,000 por month.
1988................................ 9,271,000 1999................................ 6,968,000 to
l
-- - --.-_=--..:-====-a-- . . . - . - . = - - - - - - - = = = =
A
- PENN POWER
-=
_ = . = = = = = = = = = = = = = = . :.===.=============== l As of Docomber 31, 1984, the Company had invested Although the PPUC issued an ordor which found that the appronsmately $57,300.000 apphcable to Perry Unit 2. Delays Company was not imprudent in initiating and continuing the in the completion of the Unit can be expected to increase its Quarto project, it proscribed a method for recovery of the total cost by amounts which are not presently determinable if current cost of Quarto coal and the deferred Ouarto coat costs a decision woro made to terminato Unit 2, certain costs wh t h (amount,ng to $9.916.000 at December 31,1984) which could are cunently assigned to Unit 2 would be roassigned, wherra result in a substantial underrocovery of Quarto coal costs. The appropriato, to Unit 1. However, cancellation chargos payable Company has appealed the order to the Commonwealth Court
; 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 forminated construction projects from equivalent to the amount not recoverable would be incurred, its customers Dased on this past experienco, the Company Alth"8bgh unable to predict the f nal resolution of this matter, would cspect to recover its investment in Unit 2 through its management believos that its ult! mate oisposition will not have ratos if the Unit were terrmnated. a material adverso offect upon the Company's results of oporations.
Quarto Project-The Company, together with the other CAPCO companies. Environmental Matters-has ontored into a long term coal supply contract with Quarto. Vanous fodotal, stato and local authorities regulate the The CAPCO companies have also agrood to guaranteo Company with regard to air and water quality and other severally, and not jnintly, their proportionato shares of Quarto's environmental matfors. The Company estimatos that debt and lease obligations incurred whito developing and , compliance requires additional capital expenditures of eq..ipping the mines. As of December 31, 1904, the approximately $4.000,000, wh:ch is included in the Company's share of the guarantoo was $29,507,000. construction estimato given above under " Construction Under the forms of the coal supply contract, which espires Procram" for 1985 through 1989. December 31,1999, the Company must reimburse Ouarto for On December 5,1984, the rodotal Environmental its share of the costs of operating the Quarto minos, including Protection Agency (EPA) denied a potillon from the those costs associated with mino construction, whether or not Commonwealth of Pennsylvania and the states of Now York il recolves coal from Quarto. These payments will permit and Maine, which sought to force the EPA to make findings Quarto, over the hfo of the contract, to moot the debt and lease under Section 120 of the Clean Air Act Section 120 providos a obligations it incurred whilo developing and equipping the remedy for a downw6nd state that can show adverso impact mines, The Company's total paymonts under this contract, because air pollution regulations in an upwind stato causes including amounts related to mino construction costs, nonattainment of air quality standards in the downwind state, amounted to $0.995,000, $t0,700.000 and $9.300.000 during The petition complained of excessivo particulato and sulfur 1984,1903 and 1982, respectively Under the coal supply dioodo (SO j) emissions from a number of sources in Ohio and contract, the Company's futuro minimum payments related other sta:es, including Sammis Unit No. 7. Seven northeastern sofoly C J mino construction}}