ML20205Q099
| ML20205Q099 | |
| Person / Time | |
|---|---|
| Site: | Perry  |
| Issue date: | 12/31/1986 |
| From: | Edelman M, Ginn R, Miller R CENTERIOR ENERGY, CLEVELAND ELECTRIC ILLUMINATING CO. |
| To: | NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM) |
| Shared Package | |
| ML20205Q102 | List: |
| References | |
| PY-CEI-NRR-0619, PY-CEI-NRR-619, NUDOCS 8704030443 | |
| Download: ML20205Q099 (49) | |
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7-1986 Ifighlights - 00n April 29, Cleveland Electric and
. Toledo Edison affiliated as subsidiaries
, of a new holding company, Centerior
-1
) Energy Corporation. ! R oInJune,The Public Utilities Commission of Ohio granted Cleveland Electric a rate increase of $37 million. An additional $39.8 million increase is scheduled to gointo effect when Unit 1 of the Perry NuclearIbwer Plant begins pmducing power at 20 percent ofcapacity, o OnJuly 18, Centerior Energy set a Company recotti for electricity usage when customers relied on us for 5.021 megantts. oIn November, the Nuclear
- Regulatory Commission authorized
. full-power operation of Perry Unit 1. -l l . oIn' December, NuclearIbwer our Davis-Besse Station resumed ' operations after an 18-month outage.
During that period, the plant's operations and maintenance pmgrams were greatly improved. o Our construction expenditures peaked at $1.1 billion in 1986. We expect them to be substantially lower over the next several years. Financial Summary
- Percent l 1986 1985* Change-Earnings Per Share of Common Stock $ 3At $ 3.29 (7.6)
Dividends Declared Per Share of Common Stock $' 2.49" $ 2.20- 13.2 Book Value Per Share of Common Stock at Year End S 22.13 $ 21.50 - 2.9 Common Stock Share Owners at Year End 210,293 231,685* " (9.2) Quarterly High and Imr Market Prices of Common Stock Shares Outstanding . Centerior Common Stock in 1986* g3 at Year End(000) 135,197 126,031 .7.3
- Operating Revenues (000) $1,917,730 $1,846,997 3.8 - !
27 OperatingExpenses (000) $1,557,925 $1,447.461 - 7.6 NetIncome (000) $ 391,893 $ 401,387 -(2.4) 26 Return on Average Common Equity 13.7 % 15.7 % (12.7) ' 2ss 25s Kilowatt houtSales 2s ] (Millions of Kilowatt-hours) Residential 6,527 6,309 3.5 2 Commercial 6,239 5,952 4.8 - I Industrial 11,409 11,410 - l 23 Other
. 1,151 1,196 (3.8)-
22s y Total 25,326_ 24,867- 1.8 72% Employees at Year End 9,306' 9,097 - z 2.3 0
- Based on a consolidated restatement of the 1983 dgures of Cleveland Electric and Toledo Edison -
2nd Qtr. 3rd Qtr. 4th Qtr.
- wnteru cernnon Stxk mated traba on 4nlM 19%
." Current indicated annual dividend rate is $2.56 per' common share .,
"The sum of Cleveland Electric and Toledo Edison share owmers !
li U j _
- 7t------- q ti-- -se 9
funds used during construction. We need to improve the quality of our earnings. The rate increases gmnted to us in the past several years have been inadequate to cover our increased costs of doing business. New mte increase applications for both Cleveland Electric and Toledo Edison are on file with The Public Utilities Commission of Ohio. We must convince the commission and the public of the need for reasonable rates and for a long-term perspective on electricity supplies and prices. Inadequate rates today mean unnecessarily high costs for customers in future years. The tmditional reliability of our senice ultimately could be f placed in jeopardy. Our 1986 operating revenues were S1.9 billion, up 3.8 percent over 1985.
'3 The revenue increase reflects a 1.8 percent rise in kilowatt-hour sales and a 3.0
- percent rate increase granted to Cleveland Elect ic in mid-1986.
5 k The increase in kilowatt-hour sales confirms our projections for modest 9 . s but steady growth in Northern Ohio's electricity consumption. This region's balanced economy now includes both senice and manufacturing strengths. Successfulindustries rely on new electro-technologies to improve their com-b
- petitive standing in national and international markets. That factor combined with i
Robert M. Ginn Richard A. Miller substantial growth in the service sector represents greater sales potential for us. Our major construction progam, which began in the early 1970s, assures the electric energy needed to power Northern Ohio's economic growth through-out the balance of the century. As is typical of utilities just completing programs of such long-term significance, our cash flow currently is at a low point. It will improve as construction expenditures decline and as we bring these new ! production facilities into rate base. We also anticipate continuing cost savings from the affiliation. The pages that follow offer a broader picture of the Centerior Energy organization, where we stand today and where we are headed. We face the future with determination. We have met major challenges. Others lie ahead. We are confidera we can deal with them as well. i Sincerely, N Robert M. Ginn Chairman GW Richard A. Miller l President i February 24,1987 3
. 1986 liighlights L ' o On April 29, Cleveland Electric and .
- Toledo Edison affiliated as subsidiaries
; of a new holding company, Centerior
- ' Energy Corporation.
oInJune, The Public Utilities Commissionof 0hiograntedCleveland ' Electric a mte increase of $37 million. An additional S39.8 million increase is
.' scheduled to go into effect when Unit 1 of the Perry Nuclear Power Plant ' -begins producing power at 20 percent
- ofcapacity.
4 o OnJuly 18, Centerior Energy set a Company record for electricity usage when customers relied on us for
'5,021 megawatts.
l cIn November, the Nuclear 3 Regulatory Commission authorized full-power operation of Perry Unit 1. cIn December, our Dasis-Besse
, Nuclear Power Station resumed operations after an 18-morith outage.
During that period, the plant's operations and maintenance programs
; were greatlyimproved.
4 o Our construction expenditures peaked at $1.1 billionin 1986. We expect them to be substantially lower over the next severalyears. Financial Summary Percent 1986 1985* Charq;e i - Earnings Per Share of Common Stock $ 3.04 $ 3.29 (7.6) Dividends Declared Per Share of Common Stock $ 2.49'* $ 2.20 13.2 Book Value Per Share of Common Stock at Year End S 22.13 $ 21.50 2.9 Common Stock Share Owners at Year End 210.293 231,685 " * (9.2) Quart:rly High and Imv Market Prices of Common Stock Shares Outstanding , Cgnterior Common Stock in 1986* s28 at Year End (000) 135,197 126,031 7.3
- Operating Revenues (000) . $1,917,730 $1,M6,997 3.8 27 Operating Expenses (000) $1,557,925 $1,447,961 7.6-Net Income (000) $ 391,893 $ 401,387 (2.4) 26 Return on Average Common Equity 13.7 % 15.7 % (12.7) ~
2ss 2ss Kil watt-hourSales 2s (Millions of Kilowatt-hours) Residential 6,527 6,309 3.5 24 Commerciai 6,239 5,952 4.8 Industrial 11,409- 11,410 - 23 _ Other 1,151 1,196 (3.8) 22v' 22 Total 25,326 24,867 1.8 - 22 % z Employees at Year End 9.306 9,097 2.3 0
% sed on a consolidated restatement of the 1985 figures of Cleveland Electric and Toledo Edison 2nd Qtr. 3rd Qtr 4th Q*n *
- Current u.duled annual dividend rate is $2.56 per common share
*cemenorcommon stat started tratr4 on ApniM 19%
.* *The sum of Cleveland Electric and Toledo Edison share owners 1
To Our Share Owners l
l Nineteen-eighty-six was a momentous year for Ce nterior Energy. We completed the affiliation of Cleveland Electric and Toledo Edison. We began marshalling resources to strengthen service reliability, reduce costs and raise our competitive j standing in the energy market. Our nuclear projects passed crucial bench marks. Further challenges lie ahead. Improving the cash content of our earnings has become a top priority. Ourjob is to provide reliable electric service at the lowest possible cost. We are better positioned to do that as a result of the affiliation. The combined expertise and resources of two electric utilities allow many economic and strategic benefits. Those benefits will work to the mutual advantage of customers, share owners and t5e Northern Ohio communities we se.Te. We structured the Centerior Energy organization to leave the two operating f companies sufficient autonomy to maintain theirIcngstanding relations with cr.stomers and to continue serving the territories they know so well. Each of our operating companies has a rich todition of customer service on which to build. Now they are focusing their skills on meeting new and diverse customer needs. While retaining autonomy where it is most effective, the two operating companies are combining forces with Centerior Energy in areas where joint efforts are most cost-effective and efficient. Already a strong spirit of teamwork is evident at alllevels of the Centerior Energy organization. The progress made at our nuclear plants in 1986 was all the more rewarding for being achieved in a climate of renewed public concern about nuclear energy. That concern was triggered on a nationallevel by the accident at the Chernobyl plant in the Soviet Union. We brought the Davis-Besse Nuclear Power Station back into operation after a lengthy outage. Fedemi regulators have commended our $179 million improvement program to upgrade the safety and operating efficiency of Davis-Besse. In November 1986, we received full-power operating authorization for Unit 1 of the Perry Nuclear Power Plant. The unit generated its first electricity the following month. J Completion of the affiliation and the progress of our nuclear program resolved some of the uncertainties about Centerior Energy's future. Others remain. Our financial results for 1986 were mixed. Our earnings were $392 million, down 2.4 percent from 1985. Earnings per common share dropped to S3.04 from
$3.29 in 1985. The relatively larger percentage decline resulted because of an increase in outstanding common shares.
Moreover, the quality of our earnings continued to decline. Our 1986 earnings consisted entirely of non-cash credits representing the allowance for 2 _ _ _ _ _ _ _ _ _ . _ . . _ _ _ _ _ _ . . _ l
funds used during construction. We need to improve the quality of our earnings. The rate increases gmnted to us in the past several years have been inadequate l to cover our increased costs of doing business. New mte increase applications for both Cleveland Electric and Toledo Edison are on file with The Public Utilities Commission of Ohia We must convince the commission and the public of the need for reasonable rates and for a long-term perspective on electricity supplies and prices. Inadequate rates today mean unnecessarily high costs for customers in future years. The tmditional reliability of our service ultimately could be placed in jeopardy. Our 1986 operating revenues were $1.9 billion, up 3.8 percent over 1985.
's The revenue increase reflects a 1.8 percent rise in kilowatt-hour sales and a 3.0
, percent rate increase granted to Cleveland Electric in mid-1986.
5 k The increase in kilowatt-hour sales confirms our projections for modest 1 s but steady growth in Northern Ohio's electricity consumption. This region's balanced economy now includes both service and manufacturing strengths. Successfulindustries rely on new electro-technologies to improve their com-petitive standing in national and international markets. That factor combined with Robert M. Ginn Richard A. Miller substantial growth in the service sector represents greater sales potential for us. Our major construction program, which began in the early 1970s, assures the electric energy needed to power Northern Ohio's economic growth through-out the balance of the century. As is typical of utilities just completing programs of such long-term significance, our cash flow currently is at a low point. It will improve as construction expenditures decline and as we bring these new production facilities into rate base. We also anticipate continuing cost savings from the af61iation. The pages that follow offer a broader picture of the Centerior Energy organization, where we stand today and where we are headed. We face the future l l with determination. We have met major challenges. Others lie ahead. We are confident we can deal with them as well. Sincerely, MW Robert .\1. Gmn Chairman 4G9@'- Richard A. Miller l President February 24,1987 3
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Our Product Is Service We supply more than a commodity in for excellence in community service. the form of electricity. We provide a The award flags at Cleveland service that enables people tolive Electric's facilities say it all: "We more comfortably and to work more Can/We Care." productively. As part of that service, Toledo Edison employees have a we help customers solve their energy similar tmdition of community service. problems and gain controlover their They were instrumentalin the creation electric bills. The latter is achieved and ongoing success of an annual arts through time-of-day rates, off-peak festival. They have donated thousands pricing, load management rates and of hours in professional skills and winter space-heating mtes. fund-raising efforts for a variety of i We encourage employees to deal civic causes.
-ith customers in a spirit of friendly
> competence. One measure of our Y success is the fact that Cleveland 4 . Electric receives the lowest rate of The Northern Ohio Corridor 4 customer complaints to The Pubhc
' - Utilities Commission of Ohio of any major utility in Ohio. Toledo Edison Electricity is the lifeblood of Northern
, ranks in the middle and is dedicated Ohio's economy. The affiliation of to improving that rating. Cleveland Electric and Toledo Edison In the commercial and industrial means even more diversification in sectors, we help customers increase the industrial sales sector than that e -
the m!ue of their products and services historically enjoyed by the two com-through more efficient use of energy. panies alone. Toledo's glass pmducers a riem lef t: Frank A. Our marketing representatives learn and oil refineries complement Cleve-Kerder, Senior Vme as much as possible about the land's chemicaland machine tool President.MAenng, operations of their customers. They industries. While both utilities have then can recommend modern, efficient , rmportant steel and auto customers,
## the volatility of our overall industrial electrically-powered innovations that Robert J. Faeng.
help customers lower their costs of sales is reduced by the combination. President, Che!ni Economic revitalization is the doing business. Eiettnc amf H. M.n Our long tradition of community thrust of a Toledo area project called Rdth. V:ce Pres dert involvement offers further evidence the Edison Industrial Systems Center. l Mx te:ing. Hedo of our commitment to the area we This is one of the newest activities of l rewn serve. That involvement does not end Ohio's Thomas Edison Progmm, an I with fmancial contributions to charity, exciting partnership of business, but includes the actire, personal academia and government. Seventeen involvement of our people, organizations pledged $2.1 million to Of more than 1.500 companies establish the center. It will spur the considered throughout the U.S., growth of computer-based manufac-Cleveland Electric was one of 100 turingin Northwest Ohio. The resulting honored in 1986 by President Reagan improvements in product quality and productivity will help n gional manufac-turers become mm ompetitive. Cleveland, ton a a focal point of the Thomas Edison Progmm. The Edison Polymer Innovation Center ti
l places Northeast Ohio at the forefront potential am the tourist attmetions along of a mpidly expanding technology. the North Coast. These include the Polymer plastics are replacing metals Ponside Festival 31arketplace in Toledo in many applicationsjust as metals and such culturaldraws as the world-once replaced laminated wood in renowned Cleveland Orchestm and products ranging from vehicles to Playhouse Square complex. Recreation tennis racquets. The Cleveland on lake Erie has emerged in receat Advanced Alanufacturing Progam years as a source of substantial stimulates the development and economic activity for the region. application of new manufacturing Alanufacturing continues to play technologies. The Center for Venture a vital mle in Nonhern Ohio's economy. Development is a funding catalyst in Ourindustrial kilowatt-hour sales helping meet the needs of new high- rebounded well from the depth of the tech enterprises. recession in 1982. That increase Cleveland is also the home of the reflects the expanding production in NASA Lewis Research Center. NASA our area. In the last two years, is developing the power system for industrial sales remained essentially the nation's first permanent, manned level tracking local industrial activity. space station. Cleveland Electric is This continued higher level since 1982 helping to develop a high-tech industrial was made possible by the improved park near NASA to support space- productivity that resulted from the in-related businesses. creased usage of electro-technologies. Both Cleveland and loledo are centers of higher education and medicine. Institutions range from such major private and public universities = The recentry developed as Case Western Reserve University, Portside Festival the University of Toledo and Cleveland Marketpuce on the State University to a number of small deantown Toledo river. l colleges. The Cleveland Chm,e has an ; N "' ' "I "S * ' international reputation as an outstanding medical center. The University llospitals 7-
.K F, than 80 retail shops
.' and boutques.
complex in Cleveland is a world leader in medical research through direet - a A high degree of application. The .\ledical College of -
~ .i specialization and the
=-
Ohio at 'ljoledo. one of the newer medical -F newest advances in j schools m the nation, is completmg a cd medical tech-construction of a $11a million cluster , t 1' of buildings. In addition to offering
%e nelogy at the Cleveland graduate tmining in 16 medical Chric have earned it an specialties, the college has three international reputation 7:.- ~
hospitals on its campus. - f or quakty medcal care. Reflecting further economic - 1
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Responding to Competition Our largest customer is LTV Our nation has the finest electric Steel. Its parent, LTV Corporation, power systemin the wurld. This filed in July 1986 for reorganization in resulted from the franchised monopoly U.S. Bankmptcy Court. LTV is confident of investor-owned utilities. However, it will emerge from Chapter 11 as a changes in the energy industry are stronger, more viable company. We are giving rise to the most intense confident that LTV Steel's modern competition since the 19th Century facilities in Cleveland will remain in beginnings of electric utilities. operation, regardless of the ultimate Other Energy Suppliers resolution of LTV Corpomtion's n'oman_ i2ation. These facilities include a new Abundant supplies and declining prices electrogakanizing system that LTV of natural gas have intensified compe-Steel completed in Cleveland in 1986, tition for customers between natural ElectrogaNanizing produces a highly gas utilities and electric utilities. rust-resistant steel for automobile We are confident that electricity bodies. Pre Finish Aletals installed a will continue its long-term trend of I similar facility in Toledo in 1986. expanding its share of the industrial Additional confidence in our service energy market. Lasers, robotics and area's economy was demonstrated by other electro-technologies are General A!otors, which has invested excellent resources for new product
% nearly a billion dollars in recent years development. Electric are furnaces to modernize its facilities in both will continue to help steel makers
- f. g Northeast and Northwest Ohio.
The regionallabor economy is become more productive. changing with the times. A dependable
= This mc imace at supply of electric energy aids this --
i the sted fcey of tmnsiti n. Anec nomy needominated De by manufacturing employment now ~ '% Na nlCr as&c. neludes a large and growing comple- , 'A m T&e n tsce cf ' ment oflegal, financial, accounting the sc:o tub" a and medical services, as well as an f l i ! that to er+m tu increasing number of small businesses. t- 7 ~~ y N ! p c ,a .o e u s. am While manufacturingemployment has declined in Northern Ohio in recent "(# ' g gi years, manufacturing remains an economic mainstay. Automation made
- a
- possible by electric power has increased I G productivity. This has enabled manufacturers to remain viable, resulting in increased electricity usage.
Since 1975, service employment has grown from 760,000 to 890,000 in Northern Ohio. This growth is refit cted in our commercial kilowatt-hour sales, which have increased steadily, even during the recession of the early 1980s. The re-structured economy and such geographical assets as an abundance of water suggest the North Coast will enjoy moderate but steady growth over the next two decades. L
In the commercial sector, we average mtes than other residential recorded a significant increase in customers to reflect the lower cost of electricity's share of heating and air sening high-volume users. Our special conditioning in new office, hotel and marketing programs for residential motel construction. The PUCO's customers include free checkups on restoration of a competitive space- customer heat pumps and rebates to conditioning rate played a key role in replace old heat pumps. the increase. Otherimportant factors AlunicipalSuppliers were enhanced energy efficiency made possible by improved building The Cleveland Electric service area designs and more sophisticated includes two municipal power control systems. systems. There are about a dozen Alore than 7,400 new homes and municipals in Toledo Edison's service 'f multi-family units were built in our area. With one exception, these - service area in 1986. These new municipals generally serve only a 7 dwellings tend to be larger than their small, exclusive area with electricity predecessors and they contain more purchased in the wholesale market. 4
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electric appliances. That boosts our Some comes from tax-subsidized kilowatt-hour sales, sources that, by law, cannot sell to I. us. The municipals gain a further 4 We compete with gas utilities by offering our all-electric customem lower price advantage by not paying any fedeml, state or local taxes. We are involved, however, in one unique form of competition-with Cleveland's .T!unicipal Electric Light Plant. Cleveland is the only major city a Residential construc. in the nation and, to the best of our " I' * '*f' A' ' E ten in nhm OM knowledge, in the world in which two Wright. Vice President-increased sigaficant!y electric systems compete for customen Governmental & Pubhc in 1986 over 1985- on a block-by-block basis. This is Af f airs, Centerior: Victor Here the skeleton of an because elsewhere than Cleveland F. Greenslade General all electnc home is the public recognizes that duplicate Counsel, Centerior; and I takir'g form. electric facilities are wasteful. Paul M Smart Presi-l Aluny Light currently plans an dent, Tc!cdo Edison. expansion. By attempting to duplicate Cleveland Electric's facilities, Aluny Light will use City resources that are badly needed for basic municipal services, such as providing police and fire protection and repairing roads and bridges. To the extent that our tax-paying facilities are replaced, the City, county and schools will lose tax revenues. Aluny Light's expansion plans are based on the premise that Aluny 1 4
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! Light will be able to buy low-cost Competing for Investment Dollars j power indefinitely from other states We compete with other utilities and i and Canada. Federal pmjections and corporations for investment dolla s. I expert opinion clearly demonstrate 'Ib compete successfully, we must that this premise is false. improve our earnings and the quality Co-generation of those earnings. Thatis why we work l hard to reduce costs, increase efficiency For many years, co-genemtion has and obtain needed rate increases. produced electncity m addition to heat j . . M.e pay particular attention to j in mdustrial processes where steani individualinvestors. Cleveland Electric is a reqmrement. launched a highly successful Customer Co-generation enjoyed a surge of 1 Stock Purchase Progam in 1983 ead ! popularity in some regions after another program the following year i , enactment of the Public Utilities en bling people to invest in an IRA .m
- Regulatory Nlicy Act of 1978. Ilowever, 1 Cleveland Electric common stock.
j N f co-generation has had little impact Centerior Energy has continued
- , , thus farin our service area. This is these programs.
; because the petrochemical and paper j i 4y
- industries that require large amounts
! 'f of steam are not located in our area.
In addition, the PUCO did not establish
- The Regulatory Ch. mate g rates for the purchase of co-generated l 1 power that would require our customers I
to subsidize co-generators. We intend Regulatory commissions have an to make our service good enough and obligation to equitably represent the Our prices competitive enough so that interests of consumers, utilities and a f rom icf t: DonaU H. our customers cannot justify co- investors. But today s regulators are Saunders. Wce being urged to meet rising energy generation unless their steam needs President finance & make it economical. We work with costs with unfair measures to keep Admimstration. Tc!edo customers on an individual basis to customer rates artificially low. That Elson; Lyman C. help them evaluate the potentialof can lead, ironically, to higher costs for Paps, Senior Wce co-generation. customers over the long term and to President Adanistrat;on, Ourobjective is to retain and build less reliable service. Inadequate l load. This holds down costs for allof rates weaken a utility's financial position Centencr; Edgar H. our customers. We expect regulators and increase its borrowing costs. Mangns. Senior wce to be fairin setting the price we would Rate suppression proponents are Pres: dent f.mance. be required to pay co-generators for especially active when new nuclear Centencr; and John S their electricity. Our contracts with power plants are considered for rate leucki, Or.e President co-generators must ensure that they inclusion. Nuclear plant costs have [ rinance & Admimsta compensate us for maintaining risen steeply because oflengthy j t ea. Cinebometne. standby generating capacity in case construction times compounded by the co-generator stops producing its increasingly stringent federal require-own electricity. Without fair pricing, ments. In some states, intervenors our customers would be required to have claimed that new nuclear plants subsidize co-generation projects. were not needed and should not be included in rates. In other cases, intervenors have claimed that certain construction expenses were impmdent and should not be allowed in rates. During 1986, the costs of Perry Unit 1 and the effectiveness of Cleveland Electric's construction management were analyzed by con-sultants. The consultants were hired by the PUCO, although their findings are not binding upon the commission. 12
The consultants were generally next few years and take others out of impressed with Cleveland Electric's service forlengthy overhauls. A 1986 management of Perry's construction. report by the North American Electric However, the consultants claimed Reliability Council states that, by the that expenditures of $229 million mid-1990s, the capacity marginin "could have been avoided through our region of the country will approach improved management actions and "the minimum level required to serve i decision-making." This represents projected loads in a reliable manner" less than six percent of the unit's cost. Phase-in plans are one method We do not agree with the con- of putting new plants into rate base. sultants' conclusion. Even though our Such plans limit the size of individual goalis to obtain the best possible rate increases by stretching a utility's - result from every management cost recovery over a longer period of ~ decision, we recognize that absolute time. At Centerior Energy, we believe N perfection is not achievable in a com- reasonable phase-in plans have N . plex world. We believe our customers merit. However, all parties must I-understand that. Any prudency in-
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recognize that the longer the phase-in s 4 vestigation should measure our efforts period, the higher the ultimate costs ' / - with that in mind. We also contend paid by customers. We intend to /! that any consideration of allowed cooperate with the PUCO to moderate ,'
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costs should take into account another the impact of our rate increases Dj , i ,- consulting firm's finding that superior without sacrificing a fair return on our % - ( management sared hundreds of share owners' investment or the millions of dollars during Perry's reliability of our electric service. construction. The electric rates of our operating
%*, "' #b Interrenors also have claimed that subsidiaries have not skyrocketed in
= Above: Cleveland Perry represents " excess capacity." recent years, contrary to popular mis-We vigorously dispute that charge. conceptions. When prices are **" #"#
Perry Unit I represents a much-needed adjusted to take inflation into account, a Nghw!tage circua capacity addition to replace aging the residential rates of Cleveland breaker at the Perry units and meet increased demand. Electric have actually dropped slightly, transrnission substation. On July 18, Centerior Energy set a =lef t: The Ashtabula Company record for electricity usage County ccurt house in when customers relied on us for Jefferson syrnbclizes l 5,021 megawatts. The advanced age of many of our generating units will M'"#Y ** require us to retire some within the '" "' ' ' h" '"' I counties served by Cleveland Electric. , i di j ' ..
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on average, over the past four years. and Cleveland Electric can save the i' The residential rates of'Ibledo equivalent of $90 million a year over Edison have risen only 1.6 percent the next 15 years. The single lamest annually more than the inflation rate savings, equivalent to $53 million a
; over the past four years. year, represents deferred construction i' of additional generating capacity in the early 1990s. After operating under ; the Centerior Enemy umbrella for eight months, we are more cenvinced Getting the Most than ever of the efficiencies that can i out of the Affiliat. son be realized from the affiliation. Further, 4
by sharing experiences and resources, The affiliation of Cleveland Electric we are improving the onerating and , and 'Ibledo Edison involved major maintenance practices of both Cleveland W # organizational decisions. Electric and 'Ibledo Edison.
'Ib maintain historic ties with The poolingofour nuclearexpertise 5
customers and service areas, our two is expected to bring about the best I operating subsidiaries retain consider- possible quality in our nuclear
,[ able autonomy. We consolidated operations. Industry experience
, operating company activities only shows that utilities that operate more l
whem consolidation offers significant than one nuclear plant achieve
- cost savings. Such activities include significantly better availability than j top-level administration, long-mnge utilities that operate just one such i planning and major financing. These i
and other activities now are coonlinated by our headquarters staff which, m n Frorn lef t: fhchard R because of the nature of public utility
; Crouse. Senior Vice regulation, is organized into a separate President Engineering
{ service company. , l 8 operation. Tolet in our structuring decisions, we 4 E6 son; John W Tenker, avoided one of the major pitfalls of 6L .=
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- 9) i Senior Vice President. building a new organization-increasing L' l Engincenng & Operation. t he size of the staff. For each employee l :
} Cleveland Electric; and employed at the senice company, we ;
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i reduced the number of employees at , s, Hara!d L. Wearns. Cleveland Electric or Toledo Edison, f j Executive Vice President. Almost all of the headquarters staff '
) Centenor-came from the operating companies.
This reflects our determination to be a lean organization at alllevels. Economic projections show that, as affiliated companies, Toledo Edison l l l .i j
- . . . . . , y' .
f i I l 14 ,
plant. We will reduce our administrative should result in annual savings of at expense in the nuclear area by least $3 million. coordinating fuel procurement, fuel The pooled purchase of materials management and regulatory activities. and services offers significant potential Joint outage planning will further for savings. We spend nearly $1 billion reduce costs. A multiple-plant a year for materials and services, nuclear program also makes it cost- with a third of that going to buy fuel. effective to hire additionalin-house During 1986, we reduced our coal experts rather than to rely on inventories nearly 10 percent. By 1989, consultants. we expect to be saving at least S20 Another affiliation advantage is million a year from coordinated shared computer capabilities. We will purchasing and the reduction of modify certain information systems developed for the Perry Plant for use inventory levels. Another area of savings is in the >
~
M at Davis-Besse. Similarly, various joint opemtion of our electrical system ,
.4 ,
Davis-Besse systems will be used at on a unified basis. The lowest cost g
'l Perry. This kind of sharing alone pmer sources available to the combined .
system were used at all times for customers of both utilities, saving over $3 million in 1986. Greater savings should be achieved in 1987 with 6 Davis-Besse returned to service and
- Perry Unit 1 on line. By coordinating maintenance schedules for generating units and by having more plants s Top lef t; GIcna available, we will reduce the need for a From lef t
- Joseph E.
Herdmann, an engmeer
" " Y' Murray, Vice President-C,ompleted early m. 19 8/ was the j mg a:de in Cleve!and p lot phase of a company-wide program **"^' "*'
- Electnc's chemical Edison; Richard A.
to reduce costs. This major under-cng:necring serv:ces taking goes beyond those improvements Peterka. Vice President-l l ser. tion, uses an atomic evolving naturally from the affi'iation. Power Production l absorption spectro More than 700 employees at our two Divmon. Cleveland ! phatemeter to prepare Operating companies met in small Electric; William D. I enWronmental samples gmups to bminstorm ideas based on Masters, Vice President-f or analysis. the,r i wurking experience and expertise. System Engineenng & S,ome of their recommendations, a Bottom lef t: The representing nearly $4 million in "' headquarters bus"9 William K. McClung,Vice savings, are being implemented now.
; of Centerior Energy President Distribution The progmm will expand during the
! Corporation is located rest of 1987 until everyone at our & Services Division, I in Independence. Ohio, opemting companies as well as the Cleveland Electric.
- ten maes south of headquarters staff is involved in this
! Cleveland. program. I he objective is to continue i reducing costs while improving the ] quality of service to customers. J I i i l l
! 15 l
l l Our Nuclear Power Program We made a commitment to nuclear agencies have the expertise that power in the 1960s. Despite a resur- comes from overseeing emergency gence of anti-nuclear sentiment in planning at the 100-plus nuclear 1986, we n> main totally dedicated to that plants in the U.S. commitment. We need nuclear plants Perry's seismic design was to help us replace aging generating unexpectedly tested onJanuary 31, capacity, to meet anticipated economic 1986 when Northeast Ohio was shaken
- growth, to protect the environment by an earthquake centered about 10 and to provide a more secure fuel miles from Perry. Extensive investiga-balance. These needs are consistent tions were conducted by us, the NRC
; with America's public interest which and the Advisory Committee on l
= .
requires nuclear power to help achieve Reactor Safeguards, an independent ' l l ,, a higher standard ofliving. The public group of scientists. Each investigation l g issues facing the nuclear power industry concluded that Perry was undamaged j g' , , l include safety regulations, the disposal of radioactive waste and the role of by the earthquake. It is designed and built to withstand a quake many times i the states in regulating nuclear power. more sewre than the one that occurred.
, These issues are political rather than Davis-Besse, which went on line y technological and willbe resolved. in 1977, is owned entirely by us. It i
We own allor part of four nuclear operated below the nuclear industry's i
, power units-the two-unit Perry average availability level during va rious i
/ Plant 35 miles east of downtown periods over the next eight years.
Cleveland; the Davis-Besse Nuclear After an equipment failure in mid- 1985, Power Station 25 miles east of Toledo; we launched a program to improve and Beaver Valley Unit 2 in Western the plant's performance. We recruited f a From lef t: Donald C Pennsyh ania. additional skilled employees and l Shelton. Vice Pres: dant-n n ad manam % sgnt SW mMon to ! l m 1974.The power ascension progmm upgrade the plant's equipment, main-j Nuc! car, Tckdo Ed: son; of Peny Unit 1 began in 1986. We own tenance and opemtions. We transformed Murry R Edelman, 51 percent of the unit. Ohio Edison l a 1977 plant into the state of : I l Vice PresrJent fiockat Company, its subsidiary, Pennsylvania excellence required by more stringent l Cenmioc and Wn Power Company, and Duquesne Light 1986 NRC licensing standards. l Company own the rest. These com- Consultants commissioned by the Kasan. Vice President-i fiuclear Operatons panies also own the same proportions PUCO commended Toledo Edison for [ OMsion. Cleveund f Perry Unit 2, the constmetion of its management of Davis-Besse since j i which has been suspended indefinitely mid-1985, but criticized Edison for i Elec tnc' (see Note 3 in Notes to the Financial alleged imprudence before then. The Statements). cost of buying replacement power i. Perry Unit 1 should achieve full- during the 18-month outage will be an power operation in the third quarter issue in PUCO rate case hearings of 1987. The opemtion of Perry Unit 1 (see Note 4 in Notes to the Financial . was delayed in part by last-minute Statements). We will vigorously i contentions about emergency planning oppose a charge that management ; and seismic design (see Note 3 in imprudence contributed to the mid- ; Notes to the Financial Statements). 1985 equipment failure. , We worked closely with the state We own 44 percent of Beaver l and local counties over the past several Valley Unit 2, which Duquesne Light i years to develop Perry's emergency is building. Construction is proceeding plans. Both the Nuclear Regulatory Commission and the Fedem!Ememency , Afanagement Agency have declared j that these plans are adequate. These l l t l 1 w
-- . - _ - - - ___ . .- = - . _-
on schedule, with completion set for We are committed to maintaining late 1987. They have filed for an the energy security of the Northern operating license with the NRC. Ohio community and its 2.6 million Duquesne Light has successfully residents. We have faith in the diversity operated Unit 1 of the Beaver Valley and potential of the region's economy. Power Station since 1975. Under a The fact that 60,000 Centerior Energy federal government contract, they share owners live in Northern Ohio, also operated the nation's first as do all Centerior Energy employees, commercial nuclear power plant, the gives us even more incentive to work Shippingport Atomic Power Station, for this area's well-being. from 1957 to 1984. That station is now Our chief commitment to our being dismantled. We are confident share owners is to enhance the value that this wealth of experience will of their investment. We work ener- w~ - - -
-gr y prove beneficialin Duquesne Light's getically with regulators to ensure fair '
;. r; operation of Beaver Valley Unit 2. rate treatment. Fair rates benefit We remain strong advocates of customers as wellas share owners. We nuclear power because it is safe, expect our cash flow to improve economical and environmentally significantly as our nuclear units are l sound. Fossil plants have an unavoidable phased into rates and construction impact on the environment despite expenditures decline. These factors governmental pollution-control willimprove the quality of our earnings.
mandates with which we are in full We are committed to ensuring - compliance. So-called renewable the continued reliability of electric energy sources, such as solar power senice for our customers. Our nuclear '~Z .
- and wind power, are not technologically construction program helps us fulfill N 2v _
or economically ready to supply more this commitment. Our nuclear units than a small fraction of the nation's will replace aging generating capacity **D energy needs in this century. Nuclear and pmvide a more secure fuel balance. aamapmes invn power is the only reasonable alternative. As a company tbt recognim that we the cocW tener of ~l must constantly improve our electric Umt I c' the Perry service, we have a numberof programs Nadear Peacr Ptat, to meet our customers' needs. dch a the uscst 31eeting the Challenge
"" D UN construct,an pr@ct orgmization, teamwork remains the ma dch key ingredient of our corporate Centerior Energy is geared to meet strategy. We intend to reap every a tef t ou cais-ecsse i changing needs with enterprising possible benefit from the Cleveland Nuclear Peaer Station j strategies. Electric-Toled i Edison affiliation. is operanng etficiently The shared resources and combined aher an atenme expertise of two well-established Wrmment pmyam.
electric utilities offer many oppor-tunities to increase efficiency, reduce costs and improve customer service. To achieve these results, we actively seek the creative input of our 9,300 employees at every level of the organ-M #, ' ization. They share our determination M to raise our competitive standing in Q t the energy market. Centerior Energy views change as a challenge and challenge as an opportunity. We intend to make the j most of every opportunity for the benefit of our share owners, our l customers and the Northern Ohio community we serve. 17 ] _ l
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, Auditors' Report
~ ARTHUR To the Share Owners and Board of Directors ANDERSEN of Centerior Energy Corporation: &CCD We have examined the consolidated bahnce sheet and consolidated statement of
- j. cumulative preferred and preference stock of Centerior Energy Corporation (an j Ohio corporation) and subsidiaries as of December 31,1986 and 1985, and the l
related consolidated statements of results of operations, retained earnings and ! source of funds invested in plant and facilities for each of the three years in the l- period ended December 31,1986. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary - in the circumstances. We did not examine the consolidated financial statements of l The Cleveland Electric illuminating Company, a company acquired by Centerior in 1986 in a transaction accounted for as a pooling of interests, for the two years ended December 31,1985. Such statements reflect total operating revenues constituting . approximately 70% of Centerior's consolidated operating revenues for each of the two years in the period ended December 31,1985 and approximately 64% of Centerior's consolidated assets as of December 31,19SS. These statements were , examined by other auditors whose report thereon has been furnished to us, and our I opinion expressed herein, insofar as it relates to the amounts included for The Cleveland Electric Illuminating Company for those periods, is based solely upon the report of other auditors. The opinion of the other auditors is qualified with respect
} to the matters discussed in the two succeeding paragraphs insofar as such matters ; apply to The Cleveland Electric Illuminating Company.
As discussed further in Note 3, the future of Perry Unit 2 is undecided. i Construction has been suspended since July 1985. Various alternatives are being considered, including resuming construction, mothballing or cancelling the Unit. Management can give no assurance when,if ever, Perry Unit 2 will go in service or whether its full investment and a return thereon will ultimately be recovered in 3 rates charged to custcmers.
! As discussed further in Note 3, construction of Perry Unit I has been completed ; and Ileaver Valley Unit 2 is nearing completion. Recovery of the investment in j these units will be determined by a rate regulatory agency in future rate proceed-
] ings. As a result of investigations regarding alleged excess cost of these units and I uncertainties associated with other aspects of the nuclear program, management can give no assurance that the full investment in these units and a return thereon will j ultimately be recovered in rates charged to customers. 4 in our opinion, based upon our examinations and the report of other auditors
. referred to above, and subject to the effects on the financial statements of such ! adjustments,if any, as might have been required had the outcome of the uncertainty -
discussed in the second paragraph been known, and subject to the effects on the j 1986 and 1985 financial statements of such adjustments, if any, as might have been
;_ required had the outcome of the uncertainty discussed in the third paragraph been known, the financial statements referred to above present fairly the consolidated financial position of Centerior Energy Corporation and subsidiaries as of December l '
31,1986 and 1985, and the consolidated results of their operations and source of
! funds invested in plant and facilities for each of the three years in the period ended December 31,1986, all in conformity with generally accepted accounting princi-j ples applied on a consistent basis.
I Cleveland, Ohio February 12,1987 1 Arthur Andersen & Co. a i
< 19 -
Summary of Significant Accounting Policies General Centerior Energy was organized in 1985 and acquired The Cleveland Electric Illuminating Company and Subsidiaries (Cleveland Electric) and The Toledo Edison Company (Toledo Edison) on April 29,1986. This business combination was accounted for as a pooling of interests. The historical financial statements of Cleveland Electric and Toledo Edison (Centerior Utilities) have been combined and restated. The consolidated fina'ncial statements also include the accounts of Center-ior Energy's wholly-owned subsidiary, Centerior Service Company (Service Com-pany), which was incorporated in 1986. The Service Company provides, at cost, management, financial, administrative, engineering, legal and other services to Centerior Energy, Cleveland Electric and Toledo Edison. All significant intercom-pany items have been eliminated in consolidation. Centerior Energy and the Centerior Utilities follow the Unifm. System of Accounts prescribed by the Federal Energy Regulatory Commission and adopted by The Public Utilities Commission of Ohio (PUCO). The Service Company follows the Uniform System of Accounts for Mutual Service Companies as prescribed by the Securities and Exchange Commission under the Public Utility lloiding Company Act of 1935. Revenues Customers are billed on a monthly cycle basis for their energy consumption, based on rate schedules authorized by the PUCO. These revenues are recorded in the accounting period during which meters are read. A fuel factor is added to the base Total Operatmg Revenues rates for electric service. This factor is designed to recover fuel costs from
- * ~
g customers. It is changed semiannually after a hearing before the PUCO. m ie r
,, 1m f"1 I:3 4 Fuel g
p h { ppy' gs, l.s The Centerior Utihties defer the differences between actual fuel costs and estimated fuel costs currently being recovered from customers. This matches fuel expenses r t J q with fuel-related revenues. 1 i to gj
]
[
~! [
p]
)y b
[J j The cost of nuclear fuel, including interest, is charged to fuel expense based on consumption. Estimated future nuclear fuel disposal costs are being recovered through the base rates. -{}c-f
,i r
J 3 [ ( ] Depreciation and Amorti:ation ay y e ru a e u The cost of property, plant and equipment, except for the Davis-Besse Nuclear Power Station (Davis-Besse), is depreciated over their estimated useful lives on a straight-line basis. Depreciation expense for Davia-Besse is based on the units-of-production method. This includes a provision for decommissioning costs, currently estimated at $122,000,000 in 1986 dollars. There are no restrictions on the use of the amounts currently being recovered from customers through rates for decommis-sioning. The equivalent straight-line provisions for depreciation, excluding Davis-Besse, overall averaged 3.6% in 1986,3.5% in 1985 and 3.3% in 1984. The Centerior Utilities intend to use the units-of-production depreciation method for their investments in Perry Unit I and Beaver Valley Unit 2. 20
Costs associated with four Central Area Power Coordination Group (CAPCO) nuclear generating units cancelled in 1980 are being amortized and recovered through rates in accordance with PUCO rate orders. The unamortized balance of these costs will be amortized through 1991. No return is allowed an the unamortized balance. In December 1986, the Financial Accounting Standards Board (FASB) issued a new pronouncement, Statement of Financial Accounting Standards 90 (SFAS 90). SFAS 90 sets forth new requirements for accounting for plant abandonments and disallowances. The new standard becomes effective in 1938. We do not believe its application will materially impact our financial statements as it relates to the 1980 CAPCO abandonment loss. Federal Income Taxes Toledo Edison and Cleveland Electric have recorded as deferred federalincome taxes the differences between straight-line depreciation and tax depreciation for property additions since 1973 and 1976, respectively, as well as the tax effects of certain other timing differences. This treatment is consistent with the methods - used for rate-making purposes. The remaining timing differences are not deferred. They are recognized for book purposes, and in rates, in the year they affect taxes payable. At December 31,1986, the cumulative amount of income tax timing ditierences for which deferred income taxes have not been provided amounted to
$461,000,000. Based on PUCO and Ohio Supreme Court decisions, such taxes can be recovered in future revenues.
For certain property, the Centerior Utilities receive investment tax credits which are accounted for as deferred credits. Tax credits utilized are reflected as reductions to tax expense over the life of the related property. See Note 8 for federal income tax details. Debt Interest Interest on long-term debt reported on the statement of Results of Operations does not include interest on nuclear fuel obligations. Interest on nuclear fuel obligations for fuel under construction is capitalized. Property, Plant and Equipment Property, plant and equipment are stated at original cost. Included in the cost of construction are items such as related payroll taxes, pensions, fringe benefits, Construction Work In Progress management and general overheads and an allowance for funds used during con-and Net I:tility Plant In Service struction ( AFUDC). AFUDC represents the estimated composite debt and equity a constru.tien wrk u Prog ns M d ha mM m be mesa M md ema h a@M m a sa n m luiasen u , income, except for AFUDC for Perry Unit 2. Since July 1985, Perry Unit 2 AFUDC 5 has been credited to a deferred income account. See Notes 3 and 7. The AFUDC n rates, net of the income tax effect, averaged 10.6% in 1986 and 1985 and 10.4% in 4 1984. m*' m Maintenance and repairs are charged to expense as incurred. The cost of
*[," O
~
_._" replacing plant and equipment is charged to the utility plant accounts. The cost of I property retired plus removal costs, after deducting any salvage value, is charged 'nb ' m _2 to the accumulated provision for depreciation. Iu (- I [ t e _ g, i-[{k JJ ~ t +['3' < , F -j 0 F2 83 84 85 8+i B PM & Cen a PE' s in2 other 21
Management's Financial Analysis Results of 0perations Operating revenues increased by 3.8% in 1986, following increases of 4.7% in 1985 and 3.0% in 1984. These revenue gains resulted from increases in retail electric rates, which were below the national rate of inflation, and modest growth in kilowatt-hour sales. Sales to commercial customers have increased about 4% per year because of growth in the services sector of the economy. Growth in the residential classification has averaged about 1% per yen with some year-to-year gains and losses because of variations in weather. Sales to industrial customers have an Divi ends h"e$"jj . been virtually level since 1984, tracking with the nation's economic growth. mu e Earnmc Operating expenses increased by 7.6% in 1986,5.0% in 1985 and 3.0% in m 1984. Upward trends in operating expenses occurred in all three years as a result of g f y 3, inflation and basic growth in the business. Operating expenses also increased as a 7y s g - g result of an outage at Davis-Besse which began in June 1985 and ended in N *
- b. 9,g 23 December 1986. This outage also resulted in greater generation at coal-fired plants
"]'" ~,f F G. and increased power purchases from other utilities, resulting in higher costs. Most 2m of these power purchases were made at unit prices lower than the cost of internal g generation.
i J
% Earnings per share were $3.04 in 1986, down 7.6% from $3.29 in 1985 and 10.9% lower than $3.41 in 1984. The principal reasons for the declines in per share
^
m results were (1) higher cost of operations which were not fully recognized in rate [ E
) .
cases, (2) increases in the average number of shares outstanding and (3) an accounting deferral of AFUDC for Perry Unit 2, which began July 1,1985. The
- ~- -
C M M 6 " AFUDC deferral did not affect cash flow during these periods, but it did result in MZYiTETEi"* """"' reductions in earnings per share. Notwithstanding the Perry Unit 2 AFUDC deferral. AFUDC has represented an increasing proportion of earnings per share - 105.3% ic 1986,89.5% in 1985 and 78.8% in 1984. At the same time, cash flows have been impacted by higher cost of service and the cost of additional debt and equity financing for the completion of two nuclear generating units. AFUDC will be discontinued on these facilities as they become operational. Efect ofInflation Inflation continues to affect our business even though the 1986 rate of inflation was less significant than the already moderate rates of the last few years. Over the three-year period 1984-1986, our average electric rates have increased less than the Consumer Price Index. In this period, increases in the cost of labor, materials and services used in operations were moderated by a downward trend in the cost of coal. The effect of inflation on the cost of much of our new facilities has yet to oe recognized in the rate-making process. Generally, we have to raise new capital to meet growth needs at inflated costs of construction and to replace worn-out items at higher replacement costs. If rate adjustments fail to compensate for the cost of new capital, an erosion of return on equity will occur. As a result, there will be a continuing need for rate relief. We continue to seek adequate and timely rate increases for the Centerior Utilities and a regulatory environment which is responsive to the effect of inflation on our investment. d
0'
- Re:ults of Operations Centerior Energy Corporation and Subsidiaries .
For the years ended December 31, 1986 '1985 1984
~~(thousands of dollars, except per share amounts)
Operating Revenues . Electric . . . . . . . . . . . . . . . . . ... . . ...... .. ... .......... $1,904,777 $1,828,131 $1,740,409 Steam heating and gas . . . . . . . . . . . . . . . . . .... ... .... .. 12.953 18,866 24,324 1,917,730 1,846,997 1,764,733 Operating Expenses Fuel and purchased power . . . . . . . . . . . . ...... ...c. . .. 522,281 510,844 453,192' Other operation and maintenance . . . . . . . . . . . . . . . . . . . . . . . 550,874 450,376 404,314 Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . .. .. 141,009 141,333 145,245 Taxes, other than federal income taxes. ...... .. . .. . ....... 195,967- 182,046 178,915 l Federal income taxes . .. . .. . . .. . . . 147,794 163,362 ~ 197,766 ! 1,557,925 1.447,961 1,379,432 Operating Income . . ... .... .... . ... . . 359,805 399.036 385,301 Nonoperating income Allowance for equity funds used during construction. . . 298,781 260,632 213,157 Other income and deductions, net .. .. . ... . . . . . (8,108) 5,825 11,556 Federal income taxes - credit . ... .. . ... . 116,422 86,775 69,434 4 407,095 353,232 294,147 Income Before Interest . . . .. . ... . . . 766,900 752,268 679,448 Interest Charges i Long-term debt . . . .. . . .. . . .. ... . . 397,206 360,912 299,764 Short-term debt . . . .. . . .. . .. . 6,812 5,917 10,501 1 Allowance for borrowed funds used during construction . . . . . . (114,038) (98,777) (75,975) 289,980 268,052 234,290 Income After Interest . . .. . . . . . . 476,920 484,216 445,158 Preferred and preference dividend requirements of subsidiaries . 85,027 82.829 78,349 Net income . . . . .. . .. . . .. $ 391,893 $ 401,387 $ 366,83 Average Number of Common Shares Outstanding (thousands) . . . ..... .. 128,927 121.898 107,622 Earnings Per Common Share . . . .. .. ... $ 3.04 $ 3.29 $ 3.41 Dividends Declared Per Common Share . . . . ... $ 2.49 $ 2.20 $ 2.29 The accompanying notes and summary of significant accounting policies are an integral part of this statement. l 4 23
Managernent's Financial Analysis Capital Resources and Liquidity We carry on a continuous program of constructing new facilities to meet anticipated demand for electric service, to replace aging facilities and to comply with pollution control regulations. The capital requirements for this construction program over the three-year period 1984-1986 totaled approximately $3,000,000,000, excluding nuclear fuel. This amount includes AFUDC. The capital required to finance our construction program is obtained from funds generated internally as well as from external sources. About 65% of the construction program capital requirements over Actual Construction Expenditures the 1984-1986 perion was raised through bank borrowings and sales of securities. Inaueng Art:Dc Our 1986 financing activity included the issuance of over 9,000,000 shares of
- 51 " Centerior Energy common stock through a public offering and through share owner a Taal Expen&tures 1.12 o uno and employee stock plans, all of which raised a total of about $208,000,000. Toledo D AFL'DC two Edison sold $100,000,000 of first mortgage bonds, $100,000,000 of unsecured 9w % notes and $30,000,000 of preferred stock. Cleveland Electric obtained
-~ *,-
; $225,000,000 in three sales of first mortgage bonds and $74,000,000 in a preferred stock sale. The net proceeds from the sales of these securities have been used to
- C1 - - - pay portions of short-term debt incurred to finance the construction program, to
" pay the construction program's costs vid for general corporate purposes.
500
] Assuming that the Centerior Utilities receive adequate and timely rate relief, about one-third to one-half of our 1987-1991 construction program is expected to be financed through the issuance of securities, with larger portions in the earlier
" years. In addition to funds required for the construction program, Cleveland W Electric and Toledo Edison will require $428,000,000 and $410,000,000, respec-o tively, for the retirement of debt and preferred stock during the 1987-1991 perioi c to s e m Cleveland Electric also is required to offer to purchase $72,000,000 of preferred and preference stock during the same period. Sae Note 11 for further information Forecast Construction Expenditures concerning the first mo:tgage bonds and the preferred and preference stocks of Tfj ^"" a Cleveland Electric and Toledo Edison. Our available short-term financing is ex-a Total Expen& turn um plained in Note 12.
D AR*DC um Our ability to finance the construction program depends upon the Centerior u Utilities obtaining sufficient and timely rate increases and upon availability of capital.
, Permanent rate increases granted during recent years by the PUCO have been ' y significantly lower than the amounts requested. These rate decisions have limited the amount of funds we generate internally, weakened our financial condition and led to lower security ratings. See Notes 3 and 7 for a discussion concerning the risks associated with the construction of nuclear generating units and the recovery of
_y
- costs through the regulatory process.
m n ' , The availability of capital to meet our external financing needs depends upon _I_I__Iy such factors as financial market conditions, earnings, our ability to pay dividends, the m size of the construction program and credit ratings. In 1985, rating agencies o lowered their ratings on certain securities of the Centerior Utilities. This made their c a 89 90 91 cost of capital more expensive. In April 1986, Standard and Poor's Corporation further lowered its ratings on the first mortgage bonds and preferred stock of Cleveland Electric to BBB- and BB+, respectively. Standard and Poor's Corporation raised Toledo Edison's first mortgage bonds and preferred stock ratings to the same levels. Moody's Investors Service rates Cleveland Electric's bonds and preferred stock Baa2 and Toledo Edison's bonds Baa3 and preferred stock Ba2. Our financing policy is to maintain, as near as practicable, a capitalization structure of 40W42% common equity, a maximum of 48% debt and 10W12% preferred and preference stock. At year-end 1986, the Company's consolidated capitalization consisted of 39% common equity,49% debt and 12% preferred and preference stock. ' For discussion of the cash flow impact of the Tax Reform Act of 1986, see Note 8. i 24
i y ' s 9 'bW , V y Q p (*, TtN I ' '
\' ,
Retained Earnings Cer.t,*rior Energy gon,oratiot and Suasidiaries ( n N ,
',, ,'p (
_ For the years ended December 31,
- 1986;' 1985 1934 y (thousands o(.4%,) ,5 Balance at Beginning of l' ear . . . \ 3 82_h,'156; $ 689,179 \ f 569,C60 ,
Additions ' y Net income , 391,89?g . 401,387 366,809 Deductions ' ' Common stock d.ividendr declared . (319,62.L L 2f 9,804) (247,590) Cost of issuing equity securities . ,
, (10/, j (CD -
Earnings Reinvested During thOear . 72,8'6a 131 577 119,219 Balance at End of l' ear . $ 293,6'6 $ 840,756 $ 689,179 __ q - - n.7 _. _ j s. e} t c Source of Funds Invested in Plant and Facilities l; ., _ For tt.d. ears anded December 31,
'1986 1985._ . 1984 (thousands of d,ftars)
Providedfrom Internal Sources l Net Income $ 391,8t3 .A 401,387 $ 366,809 Principal Non-Cash Items: ' Depreciation and amortization. 7 141,009- 141,333 145,245 Deferred federal income taxes 80,730 69,881 46,745, Investment tax credits, net . '(39,1b)L 18,483 56,093; Allowance for equity funds tu,ed during constructior; . _j 23,78 p (260,632) (213,157) ' i .. Funds Provided from Operstions 281,742 370,452 401,737 Common stock dividends . (M9,023) (269,804) (247,590) Net change in working capital and other accounts. . 98,327 (8,298) (1,051) Allowance for equity funds used duri: g construction. ' 260,632 213,157
,, t98,R1, Funds Provided from Interna! Sources 366,253
-. 5B.M. ,i 352,982 Providedfrom External Sources '
Sale of Securities-Common stock. 2.)8,382 , I/5, 87 218,675 Preferred stock . ., 103,968 I i ' i 79,000 65,000 First mort pge bonds. \ /385,S') 325 007 445,200 Net change ia other debt. N .J.06 114,186 138,iA. Net change in pollution control construction funds 56,4'9 (2,544) (64,01 N Net increase (decrease) in short-term debt. . 16,'80'7 (17,976) 28,000 \ Net (increase) decrease in temporary cash investments . V, 102,917' 12,314 (157,891) Redemption of bonds, preferred and preference stock ' (127,8$) , (121 296) (92,40M Net increase in other noncurrent obligaticas Frimarily nuclear fuel ' ) obligations . 7.6;496 68,332 76,423-Funds Provided from External S>orces . W46,428 701,46" 648,88P Total Sources of Funds $1,2'06,255 $1,0N,449 $1,015,140 [ l tMr Invested in , Construction Expenditures. $1,120,017 $ 983,7p . $ 938,509 Increase in Nuclear Fuel Inventory 86,238 70,699' 76,631 Total Int ested in Plant and Facilities . $1,206,253 $1,054,449 ' $1,015,143 1 (= * ' v: The accompanying notes and sumnury of significant accoui ing policies are an integral part of these statements. i i d q -- a
l B: lance Sheet, Centerior Energy Corporation and Subsidiaries December 31, 1986 1985 Assets (thousands of dollars) Plant and Equipment Property, Utility plant in service .. ... ..... . ... .... . .. . $4,639,542 $4,481,451 Less: accumulated dep:.eciation and amortization
. . .. . 1,367,662 1,264,931 3,271,880 3,216,520 Construction work in progress . . . .. . .... .. 4,510,962 3,675,350 Perry Unit 2 .. .. . . . . .. . . ...... .. . .. 702,579 605,234 C 8,485,421 7,497,104 i .' Nuclear fuel, net of amortization . . . . . . .... . . . 613.351 527.113 Other property, less accumulated depreciation. . . . . . . 39,213 37,163 9IT 985 8,061,380 Pollution Control Construction Funds, unexpended . .. .. .. . 2M39 85,188 Current Assets
\ -Cash and temporary cash investments . . . . . ... . . .. 106,794 203,964 Amounts due from customers and others, net . . .... ... 192,731 182,392 c}
j Materials and supplies, at average cost . . . . .... . . ... . 44,536 42,284 Fossil fuel inventory, at average cost . . . . . .. ... .. 62,422 71,961
., Taxes applicable to succeeding years. . . . . . . ... . . 155,373 146,528 Ot).er . .. .... ... . .. . . . . .. . ... . .. 10,574 19,398 572,430 666,527 Deferred Charges
, Ur.amorthed costs of terminated projects . . .. . 60,109 71,676 t Accumulated deferred federal income taxes . . . .. .. . . .. 29,214 9,466
, ,1 Other .. .. . . . . . .. 139,094 107,882 228,417 189,024 Total Assets .. . . . . .. . . $9,967,571 $9,002.119 Capitaliution and Liabi'2 ties CapitOhation i Common shares, without par value (stated value of $87,892,000);
,\ 180,000,000 authorized: 135,197,000 and 126,031,000 outstand-t ing in 1986 and 1985, respectively . .. .. $2,097,725 $1,889,342 Retained earnings . . . 893,616 820,756 6
Common stock equity. . . . . 2,991,341 2,710,098 Preferred stock With mandatory redemption provisions . . 465,014 434,106 Without mandatory redemption provisions . . . 404,021 374,021 Preference stock, with mandatory redemption provisions .. . 22,800 34,200 Long-term debt . . . . 3,792,402 3,438,928 7,675,578 6,991,353 Other Noncurrent Liabilities, primarily nuclear fuel lease and trust obligations . . . . 609,196 532,773 Current Liabilities Current portion of long-term debt and preferred stock . . 55,359 72,892
. Current portion of lease obligations . . . . 53,470 41,076
' m'otes payable to banks and others. . . .. 45,929 29,122 Atcounts payable . . .. . 180,888 170,049 s /.m* rued taxes . . .. . .. .. . 193,119 192,935 AcTued interest . . . . .. . . . . 92,158 85,183 MYxihn,ls declared . . . .. 15,724 14,810 IAccruei payroll and vacations. .. 31,074
.. . . . 26,801 Stner' .. . ... . . . .. . 27,042 14,440 694,763 647,308 Deferred Ciedits Uromortized investment tax credits. . . . . .. .. . 293,675 332,784 Accumulated deferred federal income taxes . ..... 526,981 420,503 Reserve for Perry Unit 2 allowance for funds used during construction . . . . . . .. .. . 93,947 30,422 Other . . .... . . .. . .. . 73,431 46,976 988.034 830,655 Total Capitalization and Liabilities ... . .. , $9,967,571 $9,002.119 The accompanying notes and summary of significant accounting policies are an integral part of this statement.
26
St:t: ment of Cumulative Preferred and Preference Stock Centerior Energy Corporation and Subsidiaries Sha # Cr December 31, Outstanding Caul h#ntrice -1986 1985 (thousands of dollars) Centerior Energy Without par value, 5,000,000 preferred shares authorized . . . . . . . . . . . . . . . .. - Cleveland Electric Without par value,4,000,000 preferred and 3,000,000 preference shares authonzed Subject to mandatory redemption (less current maturities): Preferred:
$ 7.35 Series C . . . . . . . . . 210,000 103.00 21,000 22,000 I 88.00 Series E . ...... , . 39,000 1,049.74 39,000 42,000 l 75.00 Series F . . . . . . . . . . . . 33,333 1,000.00 33,333 50,000
(. 80.00 Serica G ........... .. 16,000 1,008.89 16,000 24,000 l 145.00 Series H . . . . . . .. .. 23,154 - 23,154 24,936 145.00 Series I ... .. .. 27,562 - 27,562 29,531 113.50 Series J . . . . . . . . . . . 23,200 1,050.44 23.200 29,000 113.50 Series K . . ... . 10,000 - 10,000 10,000 Adjustable Series M ... .. 500,000 108.02 49,000 49,000 9.125 Series N . . .. . 750,000 109.13- 73,968 - 316,217 280,467 Preference: 77.50 Series 1. . .... 22,800 1,006.46 22,800 _ 34,200 Not subject to mandatory redemption: Preferred: i 7.40 Series A . . 500,000 50,000
. 101.00 50,000 7.56 Series B. .. . 450,000 103.78 45,071 45,071 Adjustable Series L . . . 500,000 108.02 48,950 48,950 144,021 144,021 Toledo Edison
$100 par value preferred,3,000,000 shares authorized; $25 par value preferred, 12,000,000 shares authonzed; and $25 par value preference, 5,000,000 shares authorized - none outstanding Subject to mandatory redemption (less current maturities).
$100 par $11.00 . . 54,990 106.00 5,499 5,740 9.375 . 200,050 105.93 20,005 21,670
; 13.25 112,680 108.57 11,268 12,134 1
12.65 . 182,250 108.50 18,225- 19,095 14.80 288,000' 110.00 28,800 30,000 25 par 3.75 1,200,000 28.75 30,000 30,000 3.72 1,400,000 28.72 35,000 35,000 148,797 153,639 Not subject to mandatory redemption: 100 par 4.25 160,000 194.625 16,000 16,000 4.56 . . . 50,000 Y1.00 5,000 5,000 4.25 . 100,000 02.00 10,000 10,000 8.32 100,000 )3.54 10,000 10,000 7.76 . . 150,0 0 J3.377 15,000 15,000 7.80 . 150,0V; ,02.60 15,000 15,000 10.00 190,000 101.00 19,000 19,000 25 par 2.21 .. . 1,000,000 25.90 25,000 25,000 2.365 . . . 1,400,000 29.15 35,000 35,000 4.28 .. 800,000 31.78 20,000 20,000 3.47 . . . . . . ... 1,200,000 30.97 30,000 30,030 Series A idjustable . 1,200,000 - 30.000 30,000 Series B Adjustable 1,200,000 - 30,000 - . 260,000 230,000 Total Preferred Stock with Slandatory Redemption Provisions. . . . . $465,014 $434,106 Total Preferred Stock without Afandatory Redemption Provisions . . ... . $404,021 $374,021 Total Preference Stock with Afandatory Redemption Provisions . . . .. . . $ 22,800 $ 34,200 The accompanying notes and summary of significanta' ccounting policies are an integral part of this statement. 27
Notes to the Fin 2nci:1 Statements
. (1) Afiliason The affiliation between Cleveland Electric and Toledo Edison -January-became effective on April 29,1986. Holders of Cleveland March 1986 1985 1984 Electric common stock received 1.11 shares of Centerior . (thousands of dollars)
Operating Revenues Energy coramon stock m. exchange for each share of Cleve- Cleveland Electric $331,980 $1,253,990 $1,215,353 land Electric common stock. Toledo Edison share owners Toledo Edisen $152,730 $ 594,935 $ 551,306. received one share of Centerior Energy common stock in Net Income exchange for each share of Toledo Edison common stock. No Cleveland Electric - $ 76,239 $ 310,703 $ 291,632 other securities or financial obligations of Cleveland Electric Toledo Edison $ 45,066 $ 173,513 $ 153,526 or Toledo Edison were affected. Earnings Available for Common Stock The separate operating results for Cleveland Electric Cleveland Electric $ 65,580 $ 269,236 $ 248,279 Toledo Edison $ 33,973 $ 132,151 $ 118,530 and Toledo Edison for the periods prior to the affiliation were: i (2) Property Owned with Other Utilities The Centerior Utilities own, as tenants in common with other utilities, certain generating units as listed below. Each owner owns an undivided share in the entire unit. Each owner has the right to a percentage of the generating capability of each unit equal to its ownership share and is obligated to pay for its respective share of the construction and operating costs. No owner is responsible for any other owner's share. Property, plant and equipment at December 31,1986 includes the following facilities owned by the Centerior Utilities as tenants in common with other utilities: Actual or Scheduled Plant Construction in-Service Ownership Ownership In Work Generating Unit Date Share Megawatts Fuel Service in Progress (thousands of dollars) In Service:
. - Hydro-Seneca Pumped Storage . .. 1970 80.00% 305 Electric $ 58,131 $ 318 Eastlake Unit 5 . . . . . . . . 1972 68.80 446 Coal 116,360 14,099 Bruce Mansfield Unit 1. . 1976 6.50 51 Coal 26,294 174 Bruce Mansfield Unit 2. 1977 45.90 358 Coal 189,970 1,605 Bruce Mansfield Unit 3. . 1980 44.38 355 Coal 286,862 -932 Under Construction (Note 3):
Perry Unit 1 & Common Facilities . . . . . . . . . . 1987 51.02 615 Nuclear - 2,477,426 Beaver Valley Unit 2 & Common Facilities . . 1987 44.38 370 Nuclear - 1,822,352 Construction Suspended (Note 3):
' Perry Unit 2. . . Uncertain 51.02 615 Nuclear -
702,579
$677,617 $5,019,485 The accumulated depreciation for Seneca at December 31,1986 was $15,000,000. Depreciation on all other plant in-service owned with other utilities has been accumulated on an account basis with all other depreciable property rather than by specific units of depreciable property. The Centerior Utilities' share of the operating expense of properties owned with others is included in the Results of Operations.
Under an agreement between Ohio Edison Company (Ohio Edison), Pennsylvania Power Company (Pennsylvania Power) and Cleveland Electric, Ohio Edison and Pennsylvania Power will make firm power purchases of 80 megawatts of Cleveland , Electric's 375-megawatt ownership interest in Perry Unit 1 over an 18-month period, commencing with initial commercial , operation of the Unit. 28
I l
-(3) Construction and Contingencies hi July 1986,' an organization filed a petition in the United States Court of Appeals in the District of Columbia Construction Program seeking review of the refusal by the NRC staff to act (a) to
~
suspend construction and operation of Perry Unit I because .
- The estimated cost of our construction program for the 1987- the seismic design of the Plant is inadequate, (b) to estab-l 1991 period is $2,100,000,000, including AFUDC and ex- lish an independent design and construction verification pro-1cluding nuclear fuel. Should more. stringent environmental gram and (c) to review the effect the affiliation will have on regulations be adopted, particularly in the area of acid rain the Centerior Utilities' ability to meet the liability insurance -
pollution control, construction program costs for this period and indemnity requirements for the Perry Plant. No ruling are not expected to increase substantially. However, such has been issued on this petition. costs could increase substantially thereafter. The construction program includes the completion of our share of two nuclear generating unit projects, Perry Unit 1 Beaver Valley Unit 2 currently is about 98% complete and is t and Beaver Valley Unit 2. No amount for new construction scheduled for completion around the end of 1987. The is included for a third project, Perry Unit 2, because con- estimated final cost of the Centerior Utilities' 370-megawatt ' struction of this Unit has been suspended. These generating share of the Unit is about $1,924,000,000, including units are owned by the five utilities in the Central Area AFUDC. An application for an operating license for the Unit Power Coordination Group (CAPCO), namely, the Centerior is pending before the NRC.
- Utilities, Duquesne Light Company (Duquesne), Ohio Edison and Pennsylvania Power. Cleveland Electric is respon- Perry Unit 2 t sible for constructing Perry Units 1 and 2 and Duquesne is 4
responsible for constructing Beaver Valley Unit 2. Perry Unit 2, exclusive of the common facilities,is about 44% j complete. Including its share of the common facilities, the - Unit is about 58% complete. Construction of Perry Unit 2 Perry Unit 1 was suspended in 1985 by the CAPCO companies pending Perry Unit I and the facilities to be used in common with future consideration of several alternatives. The alternatives Perry Unit 2 have been completed. The cost, including include resumption of full construction with a ' revised esti-AFUDC, of the Centerior Utilities
- share of Perry Unit I and mated cost and completion date, mothballing or cancellation.
the common facilities was $2,477,000,000 at December 31, None of these alternatives may be implemented without the 1986. We estimate that our share of the cost willincrease approval of each of the CAPCO companies. Many factors will about $35,000,000 per month until the Unit achieves com- be taken into account in making the decision, including cost, -
! mercial operation. safety, environmental issues and recovery of investment.
Other factors are the potential need for additional capacity In November 1986, the Nuclear Regulatory Commission nationwide, particularly in our region, the probable high cost i (NRC) issued a full power license for Perry Unit 1. The of retrofitting fossil fuel units to satisfy possible acid rain Unit's power ascension and final testing program is progress- pollution control regulations and the incremental cost of ing. Net positive generation of 20% could be achieved completing Perry Unit 2. The timing of a decision on Perry during the first quarter of 1987 and full commercial operation Unit 2 will depend on developments relating to the above within another five months. However, experience indicates factors and possibly others. that significant delays in the testing program can occur. _ l ' We are continuing to capitalize AFUDC for Perry Unit 2,
! The United States Court of Appeals for the Sixth Circuit but since July 1,1985, we have been crediting such AFUDC is currently considering a request by an organization that the to a balance sheet deferred credit reserve instead of credit-Court order the NRC to re-examine the seismic design of ing it to income. This deferral does not affect our cash flow, Perry Unit 1 because of the earthquake which occurred near but it reduces our reported net income by about $5,500,000 the Plant in January 1986 and that the Court revoke the : per month from what it otherwise would be.
4 operating license for Perry Unit 1. If Perry Unit 2 is cancelled, the Centerior Utilities will The NRC currently has pending before it a request by an seek authorization from the PUC0 to recover their invest-organifation for review of certain a:,pects of the Perry Plant ment in the Unit in rates. We tave no assurance that offsite emergency plan and to modify or terminate the Perry recovery would be allowed. In the event of such a cancella-Unit 1 operating license and a request by two other organiza- tion, if it appears probable that recovery would not be tions for revocation of the Perry Unit 1 operating license allowed, then our investment in Perry Unit 2 (including claiming that certain pipe hangers are defective. AFUDC), plus any cancellation costs, less any equipment 29
usable elsewhere and less any resulting tax benefit, would able to pay for their shares of each project. To do so, each have to be written off. We estimate that, based on our CAPCO company must obtain adequate and timely rate investment in this Unit at December 31,1986 and assuming a increases. There can be no assurance that such rate in-federalincome tax rate of 34%, such a write-off would have creases always will be forthcoming or that some other event been about $428,000,000. Based on our current financial will not adversely affect financial markets or nuclear projects position and level of annual income, such a write-off would generally, or a CAPCO company or nuclear project in have a material adverse effect on our results of operations particular, so as to impair the ability of a CAPCO company to and retained earnings in the period in which it were to occur. pay for its share. If any CAPCO company stops paying for its Our ability to continue paying dividends would not be im- share, any or all of the other CAPCO companies could be paired solely because of such a write-oft forced to accept a solution involving substantial losses or additional financial burdens. In April 1986, Duquesne announced that it.no longer needs the capacity of Perry Unit 2. In June 1986, Duquesne In 1985, the PUCO ordered an investigation to deter-l asked the Pennsylvania Public Utility Commission (PaPUC) mine whether any Perry Unit I costs are excessive due to to permit recovery of its investment in Perry Unit 2 as imprudent management by Cleveland Electric. In August though it had abandoned the Unit, even though the CAPCO 1986, the PUCO published the summary report of the consul-companies have not decided to cancel the Unit. Duquesne tants it hired to investigate the cost of Perry Unit 1. The has also advised the PaPUC that it will not agree to resump-consultants concluded that Cleveland Electric performed ef-tion of construction of Perry Unit 2. Duquesne is continuing fectively in managing the planning, design, licensing and to pay its share of maintammg Perry Unit 2. We do not plan construction of the Unit, except for about $229,000,000 (as currently to treat our mvestment m Perry Unit 2 as aban-revised) of costs through 1985, including AFUDC through doned for any purpose. We do not know what arrangements
, 1986, which the consultants believe could have been avoided might be made with Duquesne if all the other CAPCO through improved management and decision-making. The companies want to complete Perry Unit 2 and Duquesne does consultants also concluded that delays caused by General not change its position.
Electric Company in connection with the design and construc-tion of the nuclear steam supply system resulted in about Nuclear Plant Offsite Emergency Plans $673,000,000, including AFUDC through 1985, of additional I In August 1986, the Governor of Oh.io mformed the NRC costs over which Cleveland Electric had no control. The report of the consultants is not binding on the PUCO or the that, because of the accident at a nuclear plant in Chernobyl, USSR, m, April 1986 and the earthquake near the Perry owners of Perry Unit 1. The PUCO will consider the report, together with the input of its staff and other studies, to Plant in January 1986, he was withdrawing his support for determine whether any Perry Unit I costs are excessive due the offsite emergency plans for the Perry and Davis-Besse to imprudent management and to determine whether any of Plants. These plans had been prepared with the participation such costs should be disallowed in rates. Hearings before and cooperatmn of the State of Oluo and local government officials. The State of Ohio has requested the United States the PUCO are scheduled to begin in May 1987. The PUCO also could consider the prudency of costs incurred after Court of Appeals for the Sixth Circuit to prohibit operation of Perry Unit 1 and Davis-Besse and to order the NRC to re- 1985. We believe that all of Cleveland Electric's actions in connection with Perry Unit I have been prudent. examine the offsite emergency plans for both plants. The Court has not yet ruled on these requests. In February 1987, in a Duquesne rate case, the PaPUC indicated that it would adopt in its final decision in that case Other Nuclear Risks the conclusion of its administrative law judge (ALJ) that Experience indicates that completion of nuclear generating Perry Unit I was prudently planned, managed and con-projects usually involves the risks of significant cost in- structed. The ALJ recommended that no reduction in the creases, construction delays and licensing difficulties. Also, all wable costs of Perry Unit I should be made for im-operating nuclear generating units have experienced unplan, prudency. Any PaPUC decision will not apply to the Centerior ned outages or extensions of scheduled outages because of Utilities. equipment problems or new regulatory requirements. A major accident at a nuclear facility anywhere in the world A consultant is investigating for the PaPUC whether any could cause the NRC to limit or prohibit the operation, costs of Beaver Valley Unit 2 are excessive. Any PaPUC construction or licensing of a nuclear unit. decision will not apply to the Centerior Utilities. However, it is probable that the PUCO also will investigate the costs of The successful completion of our nuclear construction Beaver Valley Unit 2 (and Perry Unit 2,if completed) program requires that the CAPCO companies continue to be incurred by the Centerior Utilities. 30
Beginning in 1988, we will be required to adopt the The Centerior Utilities replaced the power they nor-FASB's recently issued SFAS 90. This standard will impose mally would have received fnm Davis-Besse during the stricter standards to be met to avoid the write-off of capital- outage with more costly gexration from their own non-ized costs involved in abandonments of partially completed nuclear generating units and with wholesale power purchases. generating plants. It will require the immediate write-off of The Ohio Office on Consumers' Counsel (OCC) has re-disallowances in rates of the costs of newly completed gener- quested the PUC0 to disallow recovery of such replacement ating plants. Also, it will require that the accrual of AFUDC power costs claiming that the June 9 event was the result of during the construction period be discontinued unless the imprudent management by Toledo Edison. A consultant has facts and circumstances indicate that subsequent recovery of been engaged by the PUCO to determine whether the June 9 such amounts is probable, event and the ensuing outage were caused by imprudent management and to determine the cost of replacement power The book accounting for the three nuclear units dis- incurred because of the outage and the extent to which such cussed above could be affected by the implementation of costs have been recovered from customers. SFAS 90. An abandonment, where recovery is not probable, The consultant's report concluded that imprudence on or a disallowance will have to be immediately recognized as a the part of Toledo Edison contributed to the June 9 event and loss to the extent that the rate recovery process does not the subsequent outage. The consultant determined that the provide for recovery of such costs and a return on the Centerior Utilities' total cost of fuel and purchased power investment. Discontinuation of AFUDC would have to be associated with the outage from June 9,1985 to March 31, determmed based on the facts and circumstances that exist. A 1986 amounted to $62,000,000, Substantially all of these potential write-off of Perry Unit 2 has been discussed above. costs have been recovered from the Centerior Utilities' Perry Unit 2 AFUDC is already being deferred and not customers. The Centerior Utilities intend to oppose the recognized in our results of operations. We cannot predict consultant's conclusions on imprudence and the amount of what actions the PUC0 will take on any of these issues. fuel and purchased power costs attributable to the outage. However, an adverse regulatory action could result in a
, llearings before the PUC0 are scheduled to begin in March wnte-off, which could have a material adverse effect on our 1987. The consultant's report is not binding on the PUCO.
financial position and results of operations. The consultant also concluded that the necessity to Because of the pending investigations and the other inspect and replace shaft assemblies on four reactor coolant
! uncertainties described in this Note, there can be no assur- pumps during the outage (but for reasons unrelated to the ance as to the extent to which the PUCO will allow full June 9 event) was beyond Toledo Edison's control. The recovery in rates of, and an adequate return on, our invest- consultant stated that without the pump shaft problem, the ment in Perry Units 1 and 2 and Beaver Valley Umt 2. The outage would have had a duration of about one year.
likelihood of any of the described uncertainties resulting in an adverse outcome varies. It should be recognized, how-hM !& N h w Wed to have a material adverse effect on future results of ever, that one or more of such adverse events could occur. peradons. Individually, or collectively, such events could have a mate- . rial adverse impact on our financial condition, results of A petition is pending before the NRC requestmg suspen-operations or our ability to pay dividends. See Note 7. sion of the operating license of Davis-Besse because of alleged design flaws affecting safety as indicated by the perating history of Davis-Besse and similar nuclear generat-(4) Davis-Besse Nudrar Power Station ing plants designed by the same manufacturer. On June 9,1985, Davis-Besse was shut down because of the failure of its main and auxiliary feedwater supply. NRC (5) Nudrar Fuel l reports on the incident stated that there were deficiencies in The Centerior Utilities have lease and trust arrangements to i the effectiveness of management of Davis-Besse operations finance nuclear material and fuel. This nuclear fuel inventory , and plant maintenance before the incident. Toledo Edison, should provide an adequate supply lasting into the mid-l' operator of the Plant, has substantially completed its correc- 1990s. Substantial additional nuclear material must be ob-tive action. On November 21,1986, the NRC authorized its tained in the future to supply 0;el for the remaining useful staff to permit Davis-Besse to restart. The Plant has been lives of Perry Unit 1, Beaver My Unit 2 and Davis-Besse. j restarted. It currently is operating at around half of capacity More nuclear material and fuel would be required if Perry
; while one of the main feedwater pumps is repaired. Unit 2 is completed.
4 4 31
The maximum amount that the Centerior Utilities can costs) in the amount of $1,160,000,000 for each plant, finance under one set of nuclear fuelleasing arrangements is Damage to our property could exceed the insurance cover-
$495,000,000. It consists of two long-term leases that allow age by a substantial amount and thereby have a material the lenders to cancel their financing commitments after adverse effect on our financial condition and results of opera-three years notice. The Centerior Utilities' share of the tions in the period of the loss. If the property damage maximum amount available under another arrangement, insurer's reserves are inadequate to cover claims arising out which includes leases and a trust combined, is $173,000,000. of an accident at any nuclear site in the United States, we This arrangement is subject to cancellation by the lender are -obligated to pay retrospective premiums up to after one year notice, $14,722,000 for this policy year. We intend to obtain similar insurance for our other nuclear units at the time of fuelload.
The lease and borrowing rates are based on bank pn.me and commercial paper rates. The amounts capitalized in- Insurance coverage is also held for the cost of any cluded interest charges incurred by the lessors amounting replacement power purchased after the occurrence of certain
- to $39,000,000 in 1986, $38,000,000 in 1985 and types of accidents at Davis-Besse. The event at Davis-Besse
$42,000,000 in 1984. Under the leases, rental payments are described in Note 4 is not a covered event. The amount of made as the fuelis burned in a reactor. The estimated future the coverage is $1,724,000 per week during the 52-week lease amortization payments based on projected burn are period starting 26 weeks after an accident and $862,000 per
$51,000,000 in 1987, $79,000,000 in 1988, $75,000,000 in week for the next 52 weeks. The cost and duration of 1989, $103,000,000 in 1990 and $99,000,000 in 1991. As replacement power could substantially exceed the insurance these payments are made, the amount of credit available to coverage. Also, if the insurer's reserves are inadequate to j the lessors is renewed and becomes available to finance cover claims arising out of accidents at any nuclear units in additional nuclear fuel. the United States covered by such insurance, we are obli-i At December 31,1986, a total of $613,000,000 is E".ted to pay retrospective premiums up to $2,906,000 for
* #Y I"*#' * "" * * " * * " " ' ' ' ""#""
committed under the leases and the trust for nuclear material ur ther nuclear units when they begin commercial and costs of processing it into fuel for the Centerior Utilities, perauon. This includes nuclear fuel in the Davis-Besse and Perry Unit I reactors with remaining costs of $74,000,000 and
$92,000,000, respectively, as of December 31,1986. W Rau .Vaum Recent Rate Increases (6) Nudcar Insurance During the three years ended December 31,1986, the PUC0 We and the other CAPCO companies maintain a nuclear granted increases in electric rates to Cleveland Electric and insurance program for each nuclear plant to the maximum Toledo Edison as follows:
extent available. This includes $695,000,000 of nuclear liabil-Annualized ity coverage, as of December 31,1986, for injury to persons Date Company Amount and their property arising cut of a nuclear meident at each (thousands site. The coverage consists of $160,000,000 of insurance and of dollars)
$535,000,000 of indemnity by the federal government under September 1984 Toledo Edison $ 17,000 the Price-Anderson amendments to the Atomic Energy Act. February 1985 Toledo Edison 22,700 The Act limits the owners' nuclear liability to the amount of March 1985 Cleveland Electric 19,500 the coverage. The current Price-Anderson legislation ex- June 1986 Cleveland Electric 37,000 pires in August 1987. Bills to amend it by increasing substan-tially the amount of indemnity have been introduced in Perry Unit I construction work in progress (CWIP)
. Congress. Under the federal indemnity coverage, we are m unts were not included in the rate base for any of the currently obligated to pay retrospective premiums up to increases. Ilowever, Cleveland Electric's June 1986 order
$15,102,000 for this policy year to cover any nuclear liability pr vided for a delayed increase, amounting to $39,800,000 claims arising out of an incident at any nuclear plant in the nnu lly, based on inclusion of $193,000,000 of Perry Unit 1 United States. CWIP m rate base. This delayed increase will become effective when Perry Unit 1 produces at least 20% net We have insurance coverage for damage to our property positive generation. This could occur during the first quarter at Davis-Besse and Perry (including leased fuel and clean-up of 1987. See Note 3, Perry Unit 1.
i l 32
The February 1985 Toledo Edison rate order was a granting interim emergency rate relief in the amount of temporary emergency rate increase. It was granted subject to $50,000,000, refund if and to the extent a smaller rate increase were to be Any delay in the operation of Perry Unit 1, which granted m a rate case filed in June 1985. Toledo Edison was prevents the Centerior Utilities from starting to recover in ordered to record a portion of its AFUDC accruals to a rates Perry Unit 1 CWIP and operating costs in the last half - reserve account (rather than to income) in an amount of 1987, could make it necessary to consider cash conserva-sufficient to offset the after-tax earnings increase which the tion measures. This includes reductions in expenditures, temporary rates would cause. At December 31,1986, this additional requests for emergency rate relief and reexamina-AFUDC deferral amounted to $24,000,000. It is expected
, tion of our common stock di'idend policy.
that when Perry Unit 1 is mcluded in Toledo Edison's rate base, the PUC0 will either reduce rate base by the amount Perry Unit 1 Rate Treatment of the reserve or include such amount in rate base. If the latter option were chosen, future revenues would be reduced The Centerior Utilities have asked the PUC0 to permit them by the interim revenues collected, including carrying to defer the ongoing financing costs of Perry Unit I until charges, over a period equal to that of the surcharge. subsequent recovery in rates is authorized. This deferral would be calculated on a basis similar to AFUDC and would Pending Applications begin at the time the Unit is placed in service. It would c ntinue until the Unit's costs are included in rate base. The Toledo Edison filed an application in June 1985 requesting an as a wed su6 Menals m sundar cases for der increase in electric rates of $103,000,000 annually (includ-Ohio utilities. Also, the Centerior Utilities have requested ing the $22,700,000 temporary emergency rates described authority to defer Perry Unit 1 operating costs unti1 those above). Inclusion of Perry Unit 1 CWIP in rate base was , , c sts are included m rates if the PUC0 denies their mclusion requested at the maximum allowable level. Annualized Perry in the November 1986 rate applications. Deferral of financ-Unit 1 operating expenses were also requested. The PUC0 ing and operating costs prevents a reduction in reported has deferred for an unspecified time any action on this earnings from what they otherwise would be, but does not application. The temporary emergency rate increase produce cash flow until subsequent periods when such costs granted in February 1985 continues in effect. are recovered in rates. In November 1986, Cleveland Electric and Toled The FASB continues to consider amendments to ac-Edison applied to the PUC0 for rate increases based on a test counting standards applicable to rate increase phase-in plans. year ending July 31,1987. Any rate increases resulting from A formal proposal which would have allowed deferral of the new requests are not expected to become etTective until costs, including an equity return, if recoverable over not late m the summer of 1987 at the earliest. The new applica-niore than 10 years, has been withdrawn. A new proposal is tions include allowances for recovery of Perry Unit 1 operat-expected to be issued in 1987, ing costs. Cleveland Electric is seeking a $217,000,000 increase, after adjustment for the $39,800,000 delayed in- Any PUCO denial of the Centerior Utilities
- requests to crease authorized in June 1986. Toledo Edison is asking for defer financing and operating costs or adoption of a recovery an increase of $109,000,000 above its current rates, which method that does not meet the criteria of the final FASB l
include the $22,700,000 a year temporary emergency rate standard could have a material adverse impact on future increase. In February 1987, To'.edo Edison requested the results of operations. We cannot predict the outcome of the PUC0 to accelerate relief in its pending rate cases by FASB's review or future actions of the PUCO. l 33
.(8) 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 the books as follows: For the years ended December 31, 1986 1985 1984 (thousands of dollars) j . Booa income Before Federal Income Tax . . .. .. . $508,292 $560,803 $573,490 Tax on Book Income at Statutory Rate . . . .. $233,814 $257,969 $263,805 Decrease in Tax Due to: Allowance for Funds Used During Construction . . 189,896 165,328 133,000 Other items . .. .. . ....... ... 12,546 16.054 2,473 202,442 181,382 135,473 Total FederalIncome Tax Expense. . .. . . .. $ 31,372 . $ 76,587 $128,332 Federal income tax expense is recorded in the Results of Operations as follows: For the years ended December 31, 1986 1985 1984 (thousands of dollars) Operating Expenses Current Tax Provision . . . . . . . . . . . . . . . . . . . $ 87,802 $ 85,309 $ 94,121 Changes in Accumulated Deferred Federal Income Tax: Accelerated Depreciation and Amortization. . 82,130 30,207 35,650 Nuclear Fuel Interest Charges . 17,742 17,172 8,007 Other items . . . . . . . ..... . . .. . (717) 3,885 (493) Investment Tax Credits - Net . .. (39,163) 26,789 60,481 Total Charged to Operating Expenses . . 147,794 163,362 197,766 Nonoperating income Current Tax Provision . . .. (101,102) (84,016) (67,541)' Deferred Tax Provision . . . (15,320) (2,759) (1,893) Total Federal income Tax Expense. . . . .. $ 31,372 $ 76,587 $128,332 For 1986, both Centerior Utilities incurred losses for federal income tax purposes. These losses resulted largely from the - nontaxability of AFUDC and the tax depreciation treatment of investments in Perry Unit 1. For federalincome tax purposes, such loss is carried back to offset taxes paid in prior years. The resulting tax refunds will be small as the taxes paid in prior years were offset by investment tax credits to the extent allowable. The investment tax credits previously utilized in those years are now available to be carried forward to offset future taxes payable. Approximately $154,000.000 of unused investment tax credits are available and may be used to reduce future tax obligations. The unused credits expire in varying amounts from 1996 to 2001. Utilization of these unused credits is limited by provisions of the Tax Reform Act of 1986 and the level of future taxable income to which such credits may be applied. l The Tax Reform Act of 1986 provides for a 40% average income tax rate in 1987 and a 34% income tax rate in 1988 and l thereafter, the repeal of the investment tax credit, scheduled reductions in investment tax credit carryforwards, less favorable i depreciation rates, a new alternative minimum tax and other items. These changes are expected to increase our tax payments and reduce cash flow from what it otherwise would be starting in 1987. Most of the increase in tax payments is expected to result from the new alternative minimum tax. Tax payments required as a result of the alternative minimum tax may be utilized as a tax credit to offset future tax payments. Current income tax expenses will be based on the lower statutory rates and the effects of the alternative minimum tax will be deferred for accounting purposes. 34
(9) Retirement Income Plans and Other Post-Retirement payable under plans intended to continue indefinitely. Deter-Ibnifits mining the plan liability using our long-term funding assump-ti ns indicates that on January 1,1986 the funds' liability Non-contributory pension plans are maintained which cover was s EW mom man de fuMs assets. all employee groups. The amount of retirement benefits generally depends upon the length of employee service and During 1985, the FASB issued new standards for pen-earnings. Under certain circumstances, benefits can begin sion accounting. We will be required to adopt those standards as early as age 55. The plans also provide certain death and in 1987. We expect that adoption of the new standards will disability benefits, as well as certain medical benefits- not have a material effect on our financial position or results Pension costs for 1986 were $23,500,000 and included Of Operations.
$5,400,000 for post-retirement medical benefits and premi-l ums. Pension costs for.1985 and 1984 were $21,400,000 (10) Guarantees and $19,000,000, respectively. The practice of the Centerior
. Utilities has been to fund pension costs accrued. Under two long-term coal purchase arrangements, Cleveland Electric has guaranteed the loan and lease obligations of two Funding of post-retirement medical benefits and premi- mining companies. Toledo Edison is also a party to one of -
ums was added to the Cleveland Electric plan in 1985 and these guarantee arrangements. This arrangement also re-the Toledo Edison plan in 1986. The Centerior Utilities had quires payments to the mining company for any actual out-of-been paying these amounts directly when due. pocket idle mine expenses (as advance payments for coal) Adoption of a new actuarial method increased pension when the mines are idle for reasons beyond the control of the i I costs by $3,700,000 in 1986. A change in the basis for mining company. At December 31,1986, the principal determining the pension contribution policy and changes in amount of the mining companies' loan and lease obligations l
- actuarial assumptions in 1986 reduced pension costs by guaranteed by the Centerior Utilities was $112,000,000.
i $3,100,000 in 1986. l The comparison of the actuarial value of the liability for IIIl C"N" "" accumulated plan benefits with net assets available for bene- (a) Capital Stock Transactions fits which follows is required under generally accepted accounting principles. Shares sold and retired during the three years ended Decem-ber 31,1986 are listed below. All common stock activity for
*"""#Y '
1984,1985 and 1986, prior to the affiliation, has been I
} adjusted to reflect Cleveland Electric's 1.11 exchange ratio
, of ,
f r new Centerior Energy shares. Actuarial present value of accumu. lated plan benefits *: 1986 1985 1984 l Vested . . . . $267 $225 (thousands of shares) Nonvested . . 26 23 Common Stock:
$293 $248 3,000 8,550
) Public Sales Dividend Reinvestment
. . . 4,000 !
j J' Market value of net assets available for benefits . . . .. $550 $444 and Stock Purchase l Plan .... ......... 4,597 5,967 5,284 Vi gs i"' 484 oBased on an annual discount rate of 7% for both Centerior ll S.^hri g tpn .
; Utilities m 1986 and discount rates of 6.5% and 8% for Key Employee incentive 5
Cleveland Electric and Toledo Edison, respectively, in Stock Plan . . . . .... 22 35 - 1985. 1978 Key Employee Stock Option Plan ... 114 43 1 The above comparison determines the accumulated pen- Total Common
, sion plan liability as though the plans were terminated at the Stock Sales ... 9,217 9,589 14,404
- dates shown. It is calculated without consideration of future Fractional Shares and l increases in employees' earnings. We and our pension Other Adjustments on Exchange of Shares . . (34) - -
! consultants believe that the required disclosures are mislead-i ing because they understate the funds' assets needed at
* **Y "5 ******
Net Change .... 9,166 9,589 14,404
, those dates to provide pension benefits as they become 1 ,' 35 -
1986 1985 1984 common stock under the Key Employee Incentive Stock Plan Ohmsmis of des) and the 1978 Key Employee Stock Option Plan were granted Cu u tive Pr "d to k o,a d at an exercise price of 100% of the fair market value at the sidiaries Subject to -. date of the grant. The exercise prices of option shares Mandatory Redemption: purchased during the three years ended December 31,1986 Sales ranged from $14.09 to $20.21 per share, after adjustment Cleveland Electric for the exchange ratio d:scussed in Note 1. Shares under Preferred: outstanding options held by employees were as follows: Adjustable Series M . . . - 500 -
$9.125 Series N . .. . 750 - -
Key Employee Toledo Edison _ Incentive Stock Plan Preferred: 1986 1985 1984
$25 par $3.75 . ..
1,200 Options Outstanding at 3.72 .. ... . - - 1,400 December 31, Retirements Shares .. . . . 30.636 58,517 97,286 l Cleveland Electric Option Price . . $20.21 $16.75 to $16.75 to l
$20.21 $20.21 '
Preferred:
$ 7.35 Series C . . . . (10) (10) (10) 1978 Key Employee 88.00 Series E. ... (3) (3) (3) Stock Option Plan 75.00 Series F . (17) - -
80.00 Series G. , . . . 1986 1985 1984 (8) (8) (8) 145.00 Series 11. .. (2) (2) - Options Outstanding at 145.00 Series I . (2) - - December 31, i Preference. Shares ..... .. . 481,790 601,256 576,897 77.50 Nries 1. . (11) (11) (11) Option Price .. $14.09 to $14.09 to $14.09 to Toledo Edison $20.73 $20.73 $18.25 Preferred: No additional options may be granted under either plan.
$100 par $11.00 . . . . (5) (5) (5)
(I ) 1 .[ (c) Equity Distribution Restrictions 12.65 . . (10) - - At December 31,1986, consolidated retained earnings were i Net Change 656 444 2,563 comprised almost entirely of the undistributed retained earn-Cumulative Preferred Stock ings of the Centerior Utilities and substantially all of their of Subsidiaries Not Sub- retained earnings were available for the declaration of divi-ject to, Mandatory Re- dends on their respective preferred and preference shares demption: and on their common shares. All of their common shares are Sales held by Centerior Energy. Toledo Edison Preferred. ' A Ian r advance by a Centerior Utility to Centerior Energy requires PUCO authorization unless it is made in the i djustable Series A . - 1,200 - rdinary course of business operations in which the Center-Adjustable Series B . . 1,200 - - ior Utility acts for Centerior Energy. Net Change .. 1.200 1,200 - J (d) Cumulative Preferred and Preference Stock (b) Common Shares Reserved for issue Amounts to be paid for preferred stock which must be Common shares reserved for issue under the Employee r eem ng e ned e years am ,000,000 in 87, $B,000,000 in M88, $M,000,000 in M89, i Savings Plan and Purchase Plan were 4,000,000 and 200,000
$22,000,000 in 1990 and $42,000,000 in 1991. In addition, i shares, respectively.
Cleveland Electric must offer to purchase preferred and Stock options are held by Cleveland Electric employees preference stock having a total redemption price up to and Service Company employees who were transferred from $36,000,000 in both 1987 and 1988 and none in 1989 Cleveland Electric. Options to purchase unissued shares of through 1991. i l l i 9'
The annual mandatory redemption provisions are as quent 12-month period. The issuance of additional preferred follows: stock at any given time in the future will depend on net Annual Mandatory earnings for any 12 consecutive months of the 15 months Redemption Provisions preceding the date of issuance, the interest requirements of Shares Shares at Begin. any additional debt issued and the dividend requirements of
. to be lloiders' ning any new preferred issues.
Redeemed Option In Price There are no restrictions on Cleveland Electric's ability Cleveland Electric to issue preferred or preference stock or Toledo Edison's Preferred: ability to issue preference stock.
$ 7.35 Series C . . . 10,000 -
1984 $ 100 88.00 Series E . . 3,000 - 1981 1,000 Cleveland Electric's preferred stock is prior to its prefer-75.00 Series F . . . - 16,667 1985 1,000 ence stock, and its preferred and preference stock are prior 1 . eries i l l" 1,782 1 tg its common stock with respect to dividend and liquidation l 145.00 Series 1. . 1,969 - 1986 1,000 rights. Toledo Edison's preferred, preference and common 113.50 Series J. . . 5,800 - 1987 1,000 stock have similar priorities with respect to dividend and 113.50 Series K . . . 10,000 - 1991 1,000 liquidation rights. Centerior Energy's preferred stock is Adjustable Series M . 100,000 - 1991 100 prior to its common stock with respect to dividend and 9.125 Series N . . 150,000 - 1993 100 liquidation rights.
- Preference
- ;
! 77.5'J Series 1. . - 11,400 1984 1,000 (e) Long-Term Debt and Other Borrowing Arrangements ! Toledo Edison i Preferred: Long-term debt, less current maturities, is as follows: i $100 par $11.00. . . 5,000 - 1979 100 First Mortgage Bonds: Interest December 31, l 9.375 . 17,000 - 1985 100 j 13.25. . 9,000 - 1986 100 Year of Maturity Rate 1986 1985 j 12.65. . 8,000 - 1986 100 (thousank of dollars) i 14.80. 12,000 - 1987 100 1988. ...... 4.00 % $ 15,000 $ 15,000 i 25 par 3.75. . 60,000 - 1990 25 1989........ 3.00 20,000 20,000
! 3.72. . 70,000 -
1990 25 1989. .. . . 15.25 40,000 40,000 1 1989.. ... .. 14.375 50,000 50,000 The annualized cumulative preferred and preference 1990. .. 7,125 60,000 60,000 dividend requirement as of December 31,1986 is 1990... .. . . 14.00 65,000 65,000 1 $90,000,000. 1991.. .. . 8.375 35,000 35,000 1 1991.... .. . 14.00 25,000 25,000 l The dividend rates on Cleveland Electric's Series L and 1991. . . .. 15.625 35,000 35,000
; M Preferred Stock and Toledo Edison's Adjustable Series A 1991... . .. 16.25 - 35,000 j and B Preferred Stock fluctuate based on prevailing interest gg6' . [ 3.875-16 125 5 8 4 , 8 , rates. The dividend rates for these issuances averaged 1997-2001 .... 6.125-15.75 121,398 91,398 -
I 8.77%, 7.94%,8.97% and 8.96%, respectively, in 1986. 2002-2006 . . 6.20 -15.75 314,745 294,745 -l 2007-2011 .. 6.20 -15.75 546,155 546,155 i Under its articles of incorporation, Toledo Edison cannot 2012-2020 ..... 6.00 16.625 1,072,097 947,097 i issue preferred stock unless certain earnings coverage re-l' 3,068,073 2,778,073 qmrements are met.11ased on earnings for the 12 months Term bank loans, 6.425-14.49%,
; ended December 31,1986, Toledo Edison could issue up t due 1987-1993 . ... ..... . 214,833 244,500 ; approximately $80,000,000 of additional preferred stock at Notes,8.75-15.00%, due 1987-an assumed annual dividend rate of 11%, assuming no 1997.. 277,000 183,600 l .. .. . .. . . .
1 additionallong term debt above that outstanding at Decem- Pollution control nctes,5.10-I ber 31,1986. Should Toledo Edison be required to write off 13.25%, due 1987-2015 . 223,800 224,310 l its investment in Perry Unit 2, it believes such a write-off Other - net . . . ....... ....... 8,696 8,445 would reduce the amount of preferred stock issuable or Total Long-Term Debt . $3,792,402 $3,438,928 prohibit the issuance of preferred stock during the subse-
}
i l ) l 1 l i i 37 l
_ . _ _. _ _ _ _ _ __ __ - . . . - _. . ~ _ - _ _ _ _ .-- __
, Long-term debt matures during the next five years as defined) the total of its funded debt and short-term debt in i
follows: $37,000.000 in 1987, $53.000,000 in 1988, excess of $150,000,000, limiting secured financing other j $159,000,000 in 1989, $226,000,000 in 1990 and than through first mortgage bonds and certain other transac-j $243,000,000 in 1991.- tions and requiring Toledo Edison to maintain earnings (as ! The mortgages of Cleveland Electric and Toledo Edison neO f at least L5 Unws Merest onys Srst mortgage bonds. The earnings coverage ratio apph,es to I. constitute a direct first mortgage lien on substantially all
. $229,500,000 of unsecured loans and was 1.85 at December j their respective property and franchises owned. Excluded 31,1986. Substantial operating cost increases, if not ade-from the lien are cash, securities, accounts receivable, fuel, quately recognized in rates or permitted to be deferred with supplies and, m the case of Toledo Edison, automotive
{ a promise of future recovery, would cause continued deteri-e9mpnwnt. l oration of this coverage ratio in 1987. See Note 7.
! The issuance of additional non-refunding first mortgage l bonds by Cleveland Electric is limited by two provisions of (12) Short Term Borrmeing Arrangements j its mortgage, one relating to bondable property coverage of Our bank credit arrangements at December 31,1986 are as 1 the bonds and the other to earnings coverage of interest on the bonds. The amount of additional non-refunding bonds l
issuable at any given time will depend upon unbonded bond. Cleveland Toledo Service able property at the time, earnings at the time and interest Electric - Edison Company Total on the bonds then outstanding and to be issued. The Bank Lines of j mortgage also permits the issuance of refunding bonds in an Credit . $156,300 $71,900 $18,000 $246,200 amount equal to retired bonds which have not served as the Ibrrowings
; basis for the issue of other bonds. Under these limits. Under Bank
, Cleveland Electric would have been permitted to issue ap- Lines of
; proximately $1,025,000,000 of additional non-refunding Credit . . . . .
bonds and $19,000,000 of refunding bonds at December 31, Revolving Un- ! 1986. derwriting Facility . - $25,000 - $25,000 In November 1985, Cleveland Electric arranged a bank Ibrrowings revolving credit agreement providing for borrowings of up to Under Under-
$150,000,000. This agreement serves as a backup source writing Facil-of funds for Cleveland Electric's construction program. Inter- ity. -
$15,000 - $15,000 est rates on borrowings under the agreement will vary Short-term borrowing capacity authorized by the PUCO 4
depending upon the amount of the total borrowings then is $300,000,000 for Cleveland Electric and $150,000,000 l outstanding and, at Cleveland Electric's option, may be based for Toledo Edison. 3 upon the prevailing prime rate or certain other interest i measurements. Cleveland Electric must pay annual commit- Cleveland Electric ment fees of approximately 0.3% on the average daily unused portion of the credit agreement. At Cleveland Electric's Most borrowings under Cleveland Electric's short-term bank , option, all obligations outstanding at March 31,1988 may be lines of credit do not require compensating balances but do converted into an amortizable three-year loan. At December require a fee of approximately 0.3% per year to be paid on ' 31,1986, there were no borrowings under this agreement. any unused portion of the lines of credit. For those banks , without fee requirements, the average daily cash balance in t The issuance of additiona. runding and non-refunding the bank accounts satisfied informal compensating balance first mortgage bonds by Toledo Edison also is limited by arrangements. provisions in its mortgage similar to those in Cleveland Electric's mortgage. Under these provisions at December 31, At December 31, 1986, Cleveland Electric had 1986, Toledo Edison would not have been permitted to issue $31,000,000 of commercial paper outstanding. Commercial any non-refunding bonds. Ilowever, Toledo Edison would paper outstanding is backed by at least an equal amount of have been able to issue $65,000.000 of refunding bonds. unused bank lines of credit. ! Certain unsecured loan agreements of Toledo Edison l contain covenants limiting to 65% of total capitalization (as 3M
- - - - , . ~ - - -- , _ - _ _ _ ~ . _ . _ _ ,_._ . _. _ _ _ --,. --. - . - - - -
.. . _ .. _ . _ . ~ . . ._ - .. ~ . _ _ . . . ._
Toledo Edison Centerior Service Company'- Toledo Edison's annual commitment fees range from 0.375% Fees for the Service Company's lines of credit range from 0% to 0.5% on most of its lines of credit. The rest of the lines of to 0.375%. There are no informal compensating balance credit have informal compensating balance arrangements, arrangements for the banks which do not require a fee. Banks expect Toledo Edison to maintain average deposits equal to 5% to 20% of the line of credit, depending upon the Centerior Energy Corporation amounts borrowed. The deposits provide operating balances No formal short-term borrowing arrangements were estab-for Toledo Edison and are not restricted legally. lished for Centerior Energy in 1986. (13) Quarterly Results of Operations (Unaudited) The following is a tabulation of the unaudited quarterly results of operations for the two years ended December 31,1986. Quarters ended March 31 June 30 Sept. 30 Dec.31 : (thousands of dollars, except per Share amounts) l \ 1986 i l Operating Revenues . ..... . . .......... .. $484,229 $442,502 $520,752 $470,247 I Operating Income . . . ...... . .. ........ $100,326 $ 80,568 $113,133 $ 65,778 i Net income . . . . . . . . . . . . . . . . . . . . . . . .. .. .. $ 99,549 $ 81,787 $118,125 $ 92,432 2 Average Common Shares (thousands) ....., ... 126,732 128,052 129,197 131.519 I Earnings per Common Share .. .... .... ...... $ .79 $ .64 $ .91 $ .70 Dividends Paid per Common Share ..... .. . .. $ .60 $ .61 $ .64 $ .64 1985 Operating Revenues . . .. . ..... . . ... $467,484 $437,878 $496,340 $445,295 j Operating income . . .. .. .. .. . .. ... $103,671 $ 88,609 $120,099 $ 86,657
; Net Income . . . . . . . . . . . . . . . . . . . . . .... ... $105,612 $ 96,430 $115,966 $ 83,379 j Average Common Shares (thousands) ... ..... 117,324 121,256 123,640 125,258 j Earnings per Common Share ....... . ...... . $ .90 $ .80 $ .94 $ .67
- Dividends Paid per Common Share . . . ... ..... $ .59 $ .59 $ .59 $ .64 i
l ) 1 I i ! i 1 1 l 1 : I l
\ l ! l i I ! l b
i 39
_. ~ - _ _ . .. Financial and Statistical Review Centerior Energy Corporation and Subsidiaries i 0;wratmg IMenues Ohoueds of d.ilars! Steam Total Total Total IIcating Operating Year Residential Commercial Industrial Other Retad Wholesale Electric & Gas Revenues
, 1986. $599 445 $516 614 $675 682 $101655 $1893 396 $11381 $1908 777 $12 953 $1917 730 1985. 566 666 485 269 667 450 92 710 1 812 095 16 036 1 828 131 18 866 1 846 997 1984.. 548 136 454 092 636 036 87 279 1 725 543 14 866 1 740 409 24 324 1 764 733 1983, 546 351 440 142 599 881 83 047 1 669 421 18 421 1 687 842 25 399 1 713 241 1982. 502 419 406 591 552 723 73 839 1 535 572 27 647 1 563 219 26 047 1 $89 266 1976. 231 577 174 670 274 187 60 103 740 537 to 463 751 000 15 535 766 535 1
OymmgFyme % mP .f .M 'rO honne Olmesmh of dol ars) Federal Fuel & Operation Depreciation Taxes Federal Income Other Income Purchased & & Other Than income Operating AFUDC- Tax- Income- liefore 4 Year Power Maintenance Amortization FIT Taxes Income Eamty Credits Net interest 1986. $322 281 $350 874 $141009 $193 967 $147 798 $359 805 $298 781 $116 422 $(8108) $766 900 1985. 510 844 450 376 141 333 182 046 163 362 399 036 260 632 86 775 5 825 752 268 ] 1984- 453 192 404 314 145 245 178 915 197 766 385 301 213 157 69 434 11 556 679 448 j 1983. 454 018 384 077 145 334 172 093 184 157 373 562 152 637 47 402 5 422 579 023 ? 1982. 453 985 367 186 130 426 148 064 151 $96 338 009 125 602 41 191 (1 464) 503 338 1976. 342 284 138 205 51 838 67 881 29 147 137 180 49 163 6 087 3 586 196 016 im e a ut ar4 of ith Lmena % k Malars n r 'hme & N Average Return Preferred & Common on ! Income P.eference Shares Average 1 Interest AFUDC- After Stock Net Outstandmg* Egmty Dividends ikk l Year Charges Debt Interest Dnidends Income (thousande Earnings * (%) Dedared* Value* 1 1986. $808 018 $(114 038) $476 920 $85027 $391893 128 927 $3.04 13.7 % $2.49 $22.13 1985. 366 829 (98 777) 484 216 82 829 401 387 121 898 3.29 15.7 2.20 21.50 1984. (75 975) 445 158 310 265 78 389 366 809 107 622 3 41 16.4 2.29 20.64 l 1983. 258 419 (53 796) 374 370 68 555 305 815 98 240 3.11 15.7 2.19 20.24 1982. 238 785 (49 945) 314 498 64 516 249 982 87 777 2.84 14.8 2 09 19,39 1976. 85 210 (10 337) 121 143 25 688 95 455 40 789 2.34 13.6 2.27 17.89 l j < ,n . >;a , Preferred
, Preferred Preference Stu k Stock Common without with 1.ong-Stock Mandatory Mandatory Term Year Equ ty % Redemption % Redemption % Debt % Total i
l 1986. $2 9913 81 39% $408 021 5% $487 814 7% $3 792 402 49% $7 675 578 1985. 2 710 098 39 374 021 5 468 306 7 3 438 925t 49 6 991 353 1984. 2 403 234 39 384 021 6 450 646 7 2 993 770 48 6 191 671
, 1983. 2 065 340 39 314 021 6 412 002 8 2 503 859 47 5 325 222 1982. I 838 237 38 264 571 a 417 527 9 2 317 681 48 4 838 016
} 1976. 771 335 34 210 071 9 145 000 7 1 135 662 50 2 262 068 i l oAfter multiplying Cleveland Electric's shares by 1.11. i i ? I r 40
Onta Nk. has m viRWIU Eicorre Customers tyear en40 Residentia! 14 age Average Average KWil Price Revenue Per Industrial Per Per KWil Customer Year Residential Commercial Industrial Wholesale Other Total Residential Commercial & Other Total Customer (cents) (dollars) 1986 6 527 6 239 II409 282 909 25 326 898 583 87 947 12 012 998 542 7 108 9.18e $654.99 1985. 6 309 5 952 11 410 331 865 24 867 892 727 87 442 12 023 992 192 6 900 8.98 622.08 1984. 6 404 5 794 11 441 307 871 24 817 888 816 85 825 11 850 986 491 7 035 8.56 603.92 1983. 6 327 5606 10 641- 340 854 23 768 886 024 85 769 11 557 983 350 6 967 8.64 603.22 1982. 6 247 5 520 9 955 538 827 23 083 883 197 85 356 11 471 980 024 6 884 8.04 555.37 1976. 5827 5 012 11 870 1813 770 25 292 857 748 78 090 11 091 946 932 6 818 3.97 264.51 lui ( megaw attu linergy (nalhon+ of KWil) Fuel Operable Fuel Cost Capacity Net C,ompany Generated Per Emciency-At Time Peak load Capacity Year Of Peak" Purchased KWil 11TU Per Load Factor (%) Margm (%1 Fowil Nutlear Total Power Total (cents) KWil 1986 5 199 5 021 63.0*. 3.4% 22 691 28 22 718 4 552 27 270 1.79f 10 292 1985. 4 539 4 512 69.1 5.9 21 610 1 964 23 574 3 283 26 857 1.85 10 313 1984. 5338 4 659 66.1 12.7 19 930 4 303 24 233 2 350 26 583 1.71 10 349 1983. 6 218 4 717 63.1 24.1 19 487 4 895 24 382 1287 25 669 1.72 to 419 1982. 6 546 4 296 66.5 31.4 20 882 3 219 24 101 728 28 829 1.80 10 404 1976. 5 273 4 438 67.1 15.8 22 413 0 22 413 4 842 27 255 1.04 10 222 inwonrnt (thousurk of dobrd Total l'tihty Auumulated Comt ruc tion Nuclear Prolwrty, Utdity Plant In Deprerution & Net Work In Fueland Plant and Year Scruce Amort.rarion 11 ant Total Plant Progress Ot her "
- Equipment Additions Aswts 19M6 . $l 639 542 $1367 662 $3 271880 $5 213 541 $652 568 49 137 985 $1 120 017 $9 967 571 1985. 4 481 451 1 264 931 3 216 520 4 280 584 564 276 8 061 380 983 750 9 002 119 1984. 4 281 856 1 163 994 3 117 862 3 526 978 485 207 7 130 047 938 509 8 049 712 1983. 4 180 192 1 047 318 3 132 874 2 710 352 392 268 6 235 494 781 715 6 921 890 1982. 4 018 637 965 313 3 053 298 2 141 859 276 795 5 471 948 670 685 6 152 442 1976. ! 896 479 533 878 1 362 601 1 014 986 20 312 2 397 WM 420 238 2 747 491 oo Capacity was reduced because of extended generating unit outages for renovation and improvements in 1984 (720 mw),
1985 (1,490 mw) and 1986 (856 mw). l
"* 198 4 and prior restated for efTects of capitalization of nuclear fuellease and financing arrangements pursuant to Statement of Financial Accounting Standards 71. l l
[ 41
l 130ard of Directors 4
- Richard P. Andcrwn, Managing Partner The Andersons, a
! grain and farm supply business firm. e , j leigh Carter, President and Chief Operating Officer of The yc
- IlFGoodrich Company, a producer of rubber, tires, chemicals .
y gg - @* y$ 9 and plastics. Also Chairman of Tremco, incorporated, s 7,' .Q l manufacturer of specialty chemical products, a wholly-owned M ' subsidiary of The 13FGoodrich Company. W - Chester Dercnocc, Chairman, Chief Executive Officer and Presi- ,, dent of Sheller Globe Corporation, a manufacturer of J RicAard P. Anderson leich carter cA<sur tvirnore i automotive parts and assemblies, electrical equipment, office { products and radiation and emironmental monitoring equipment. Edicin D. Dodd, Director, Consultant and Chairman Emeritus - of Owens-lllinois, Inc., a manufacturer of glass, plasti c, paper
.p
! and glass-ceramic products. y . Robert 31. Ginn, Chairman and Chief Executive Officer of the , Y g Company, Centerior Service Company, The Cleveland Electne Illuminating Company and The Toledo Edison Company. Roy ll. IIoldt, Retired Chairman of White Consolidated Industries, s ] , i inc., manufacturer of pmducts for the home, principally major I appliances, and machinery and equipment for industry. Ed'""l' IMI #"6"'AI 6'"" #"F II' II"'d' l i Richard A. 3 filler, President and Chief Operating Officer of the i Company and Centerior Service Company. , Frank E. Sfosicr, President and Chief Operating Officer of The i Standard Od Company, a producer and refiner of petroleum 4 i j pn:xlucts. l l Sister Afary Starthe Reinhard, SND, President of Notre Dame
~
College of Ohio in Cleveland. l Ilm/ AI. Sinart, Executive Vice President of the Company and ) l President and Chief Operating Officer of Toledo Edison. Ruchard A. Mdler Finnk E. Stosier SisterMary Startho
/ferbert E. Strattbridge, Director and retired Chairman of R,i,,4a,a The liigbee Company, a department store in northern Ohio.
AllanJ. Tomlinson,fr., Former Chairman, President and Chief g I
- Executive Officer of SDS liiotech Corporation, a developer of - ~i l new technologies and products in the field of biotechnology, f Ililliain /. Ililliams, Chairman and Chief Executive Officer of %, !
! !!untington Nationalllank. j i j Rober1 C. Ilingerter, Retired Chairman of the 1.ibbey-Owens- 1 1 Fon! Company, manufacturer of glass pmducts. ' [
> t
. luulSt. Smart flerbert E. Strau br4r Ananf &mlunson,Jr.
Committees of the lloard l
^
Audit Finance Nominating =, Wdliams, Chmn. .\hiler, Chmn. Mosier, Chmn. kh Dodd Reinhant Anderson Ginn Anderson Carter 1j 1i I Emlinson lloidt Devenow . e r ' Wingerter Dodd b Compensation Ginn i
""" "'"'""'""" " " ^ ' " '" "#""'
n Et"" fir! R i' f 3nl Ginn, Chmn. Strawbridge il.>ldt Mosier Ton hnson i Anderson Strawbridge E""S , Wingerter U
\
- Executives of the Company and
, . Principal Subsidiaries - Operating Companies Centerior Energv Corporation The Cintland Electricilluminating Company Chairman and Chief Executive Officer . . . Robert 3/. Ginn Chairman and Chief Executive Officer . . . Robert 31. Ginn President and Chief Operating Officer . . . Richard A. 3/ iller President and Chief Operating Officer . . . Robertf. Earling Executive Vice President . . . . . . . . . . . . Robcif J. Farling Senior Vice President-Nuclear. . . . . . . Afurray R. Edelman i Executive Vice President . . . . . . . .. . . . Aml3f. Smart Senior Vice President-Engineering & l Vice President-Finance Operation . . . . . . . . . . . . . . . . . . . . . . John 11: Fenker and Chief Financial Officer. . . . . . . . . . . Edgar H. Staugans Senior Vice President-Starketing. . . . . Frank A. lender Treasumr . . . . . . . . . . . . . . . . . . . . . Gary 31. Harchinson Senior Vice President-Public Affairs Secretary . . . . . . . . .. .. ...... . . E. Isle Apin & legal . . . . . . . . . . . . . . . . . . . . . . . Alan D. Il'right Vice President-Finance & Administration . . . . . . . . . . . . . . . . . . John S. Irrichi ! Vice President-Nuclear Operations Division . . . . . . . . . . . . . . . . . . . . Alvin Eaplan Vice President-Distribution & Services Division . . . .. . . . . . . . . . Ililliam K. 3/cClung Vice President-Ibwer Production l)ivision . . . . . . . . . . . . . . . . i . . . Richanl A. Pcterka Secretary and General Counsel . . . . . . Carl E. Chancellor Controller . . . . . . . . . . . . . . . . . . . . . Raymondf. fimusch Treasurer. . . . . . . . . . . . . . . . . . . . . . . Tcrrence R. 3/oran CenteriorService Company - The 'Ibledo Edison Company Chainnan and Chief Executive Officer . , . Robert 3I. Ginn Chairman and Chief Executive Officer . . . . Robert 31. Ginn President and Chief Operating Officer . . . Richard A. 3/ iller President and Chief Operating Officer . . . Amt 31. Smar1 Executive Vice President . . . . . .... . Ilaroldl.. !!Tlliams Senior Vice President-Engineering & Senior Vice President-Finance Operation . . . . . . . . . . . . . . . . . . . . Richard P. Crouse - ' and Chief FinancialOfficer ........ . EdgarII. 3/augans Vice President-Fossil Facilities . . . . . . . . Joseph E 3/urmy Senior Vice President-Administration . .10 man C. Phillips Vice President-Starketing . . . . . . . . . . . II. Alan Rudolph Vice President-Nuclear . . . ... . . 3/urray R. Eddman Vice President-Finance & j Vice President-System Engineering & Administration . . . . . . . . . . . . . . . . . . . Donaldll. Saunders 1 Operation . . ... .. . ... Ililliam D. 3/ asters Vice Pmsident-Nuclear . . . . . . . . . . . . . . . Donald C. ShcIlon : Vice President-Governmental & Assistant Vice President-Nuclear . . . . . David D. Amerine Public Affairs . . ... ... . Alan D. It'right Assistant Vice President- Administration. . Jimes II: Emnberg General Counsel . . .. , lictor F. Grcenstade Assistant Vice President-Personnel . . . . . Terry D. 3/urray Controller . . . . . . .. . . And G. Ilusby Controller . . . . . . . . . . . . . . . . . . . . . . . Ralph D.104backi Treasurer .... . . .. . . . Gary 3f. //arckinson Secretary and General Counsel . . . . . . Fredf. lenge,fr. Secretary . . . . . . . . ... .E.101rApin Treasurer . . . . . . . . . . . . . . . . . . . . . fimes P. 3/arfin i i
\\i vrgret to tvfwrt the deaths dunng 1986of ttto minable membm ofour rnanagement trant, Charles C. Chopp and flilliam N. Ilingham.
3Ir. Chatp, Centerior's Cantroller, joined Cimland Etatn'c in 192 Str. Elingham, a nationally rewgnued claine rates exprrt and a retcran 01:16yan u uth Clmland Electnc. uns Anistant ta the l'rrsident. ifl' trillgreally unin their munsd andfriendship.
' 4.1 m
Share Owner Information ' l I Dividend Reinrestment and Stock Purchase Plan ' Sharr DienerInquin'es _ The Company has a Dividend Reinvestment and Stock Purchase - Communications regarding stock transfer requirements, lost ' Plan which provides share owners of record and other investors certificates, dividends and changes of address should be i ' a convenient means of purchasing shares of Company common directed to Share Owner Services at the Company. To reach stock by investing a part or all of their quarterly dividends and Share Owner Services by phone, call the following numbers: cash rayments without paying any fees. In addition, individuals localcallsin may establish an Individual Rethement Account (IRA) which Cleveland area 642-6900 invests in Company common stock through the Plan. Information Outside Cleveland area 1-800-133-75 4 and a prospectus relating to the Plan and the IRA may be obtained from Share Owner Services at the Company. Please have your account number ready when calling. Form 10-K Executive Offices The Company will furnish to share owners, without charge, a 6200 Oak Tree Boulevard copy ofits most recent annual report to the Securities and Independence, Ohio Exchange Commission (Form 10-K) and, upon payment of a Telephone Number (216) 417-3100 reasonable fee, a copy of each exhibit to Form 10-K. Requests Afail/uldress should be directed to the Secretary of the Company. P. O. Ilox 91661, Cleveland, Ohio 44101-4661 Independent Accountants Annual 3futing Arthur Andersen & Co.,1717 East Ninth Street Cleveland, Ohio 44114 The annual meeting of the share owners of the Company will be held Apr 128,1987. Owners of common stock as of February 27, Common Stock 1987, tiv reconi date for the meeting, will be eligible to vote on 1.isted on the New York, .\lidwest and Pacific Stock Exchanges. matters brought up for share owners' consideration. New York Stock Exchange symbol-CX. Notice: The annual report and the financial statements herein are for the generalinformation of the share owners of the Company and are not intended to be used in connection with AmeriTrust Company National Association any sale or purchase of securities. 900 Euclid Avenue, Cleveland, Ohio 44114 The Company is an equal opportunity empimrr. Centerior Energy Corporation Share Owner Services P.O. Ilox 94661, Cleveland, Ohio 44101-4661 Stock transfers may be presented at Wells Fargo Securities Clearance Corporation. 45 tiroad Street, New York, N.Y. 10004. I
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6 L 3 f THE CLEVELAND ELECTR P.O. BOX 5000 - CLEVELAND. OHIO 44101 - TELEPHONE (216) 622-9800 + ILLUMINATING BLDG. - 55 PUBLICSQUARE Serving The Best Location in the Nation MURRAY R. EDELMAN sR VICE PRESCENT NUCLEAR March 30, 1987 PY-CEI/NRR-0619 L Document Control Desk U.S. Nuclear Regulatory Commission Washington, D.C. 20555 Perry Nuclear Power Plant Docket No. 50-440 Annual Financial Report-1986
Dear Sir:
Attached is the 1986 Financial Report submitted by Centerior Energy Corporation. This report satisfies the conditions as specified under 10CFR50.71(b) and 10CFR140.15(b)(1) . Picase feel free to contact me should you have any further questions. Very truly yours, 0 Murray R. Edelman Senior Vice President Nuclear Group MRE:njc Attachment cc Paul Leech USNRC Director of Nuclear Reactor Regulation k
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